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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 20192022
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-9109
RAYMOND JAMES FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
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Florida | | 59-1517485 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
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Florida | | 59-1517485 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
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880 Carillon Parkway | St. Petersburg | Florida | 33716 |
(Address of principal executive offices) | | | (Zip Code) |
(727) (727) 567-1000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value | RJF | New York Stock Exchange |
Depositary Shares, Each Representing a 1/40th Interest in a Share of 6.75% Fixed-to-Floating Rate Series A Non-Cumulative Perpetual Preferred Stock | RJF PrA | New York Stock Exchange |
Depositary Shares, Each Representing a 1/40th Interest in a Share of 6.375% Fixed-to-Floating Rate Series B Non-Cumulative Perpetual Preferred Stock | RJF PrB | New York Stock Exchange |
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Securities registered pursuant to Section 12(g) of the Exchange Act: | None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of March 29, 2019,31, 2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant computed by reference to the price at which the common stock was last sold was $10,125,195,760.$20,595,928,727.
The number of shares outstanding of the registrant’s common stock as of November 25, 201917, 2022 was 138,723,230.215,063,590.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held February 20, 202023, 2023 are incorporated by reference into Part III.
RAYMOND JAMES FINANCIAL, INC.
TABLE OF CONTENTS
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PART I. | | | |
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Item 1. | | Business | |
Item 1A. | | Risk factors | |
Item 1B. | | Unresolved staff comments | |
Item 2. | | Properties | |
Item 3. | | Legal proceedings | |
Item 4. | | Mine safety disclosures | |
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PART II. | | | PAGE |
PART I. | | | |
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Item 1. | | Business | |
Item 1A. | | Risk factors | |
Item 1B. | | Unresolved staff comments | |
Item 2. | | Properties | |
Item 3. | | Legal proceedings | |
Item 4. | | Mine safety disclosures | |
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PART II. | | | |
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Item 5. | | Market for registrant’s common equity, related shareholder matters and issuer purchases of equity securities | |
Item 6. | | Selected financial dataReserved | |
Item 7. | | Management’s discussion and analysis of financial condition and results of operations | |
Item 7A. | | Quantitative and qualitative disclosures about market risk | |
Item 8. | | Financial statements and supplementary data | |
Item 9. | | Changes in and disagreements with accountants on accounting and financial disclosure | |
Item 9A. | | Controls and procedures | |
Item 9B. | | Other information | |
Item 9C. | | Disclosure regarding foreign jurisdictions that prevent inspections | |
PART III. | | | |
PART III. | | | |
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Item 10. | | Directors, executive officers and corporate governance | |
Item 11. | | Executive compensation | |
Item 12. | | Security ownership of certain beneficial owners and management and related shareholder matters | |
Item 13. | | Certain relationships and related transactions, and director independence | |
Item 14. | | Principal accountant fees and services | |
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PART IV. | | | |
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Item 15. | | Exhibits and financial statement schedules | |
Item 16. | | Form 10-K summary | |
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| | Signatures | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS
Raymond James Financial, Inc. (“RJF,”RJF” or the “firm” or the “Company”) is a leading diversified financial services company providing private client group, capital markets, asset management, banking and other services to individuals, corporations and municipalities. The firm, together with its subsidiaries, is engaged in various financial services activities, including providing investment management services forto 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. The firm also provides corporate and retail banking services, and trust services. We operate predominatelyThe 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.
REPORTABLE SEGMENTS
We currently operate through the following five segments. Our business segments aresegments: Private Client Group (“PCG”),; Capital Markets,Markets; Asset ManagementManagement; Bank; and Raymond James Bank (“RJ Bank”). Our Other segment includes our private equity investments, interest income on certain corporate cash balances and certain corporate overhead costs of RJF that are not allocated to our business segments, including the interest costs on our public debt.Other.
The following graph depicts the relative net revenue contribution of each of our business segments for the fiscal year ended September 30, 2019.2022.
* The preceding chart does not include intersegment eliminations or the Other segment.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
PRIVATE CLIENT GROUP
Private Client Group
We provide financial planning, investment advisory and securities transaction services to clients through a branch office network. Financial advisors have multiple affiliation options, which we refer to as AdvisorChoice. Our two primary affiliation options for financial advisors are the employee option and the independent contractor option.
We recruit experienced financial advisors from a wide variety of competitors. As a part of their agreement to join us, we may make loans to financial advisors and to certain other key revenue producers primarily for recruiting, transitional cost assistance, and retention purposes.
advisors. Total client assets under administration (“AUA”) in our PCG segment as of September 30, 20192022 were $798.4 billion,$1.04 trillion, of which $409.1$586.0 billion related to fee-based accounts (“fee-based AUA”). We had 8,0118,681 employee and independent contractor financial advisors affiliated with us as of September 30, 2019.2022.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
We offer multiple affiliation options, which we refer to as AdvisorChoice. Financial advisors primarily affiliate with us directly as either employees or independent contractors, or as employees of the third-party Registered Investment Advisors (“RIAs”) and broker-dealers to which we provide services through our RIA and Custody Services (“RCS”) division.
Employee financial advisors
Employee financial advisors work in a traditional branch setting supported by local management and administrative staff. They provide services predominatelypredominantly to retail clients. Compensation for these financial advisors primarily includes commission paymentsa payout on revenues they generate and participationsuch advisors also participate in the firm’s employee benefit plans.
Independent contractor financial advisors
Our financial advisors who are independent contractors are responsible for all of their direct costs and, accordingly, receive a higher payout percentage on 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 certain other approved business activities, such as offering insurance products, independent registered investment advisory services, and accounting and tax services.
RIA and Custody Services
Through our domestic RCS division, we offer third-party RIAs and broker-dealers a range of products and services including custodial services, trade execution, research and other support and services (including access to clients’ account information and the services of the Asset Management segment) for which we receive fees, which may be either transactional or based on AUA.Firms affiliated with us through RCS retain the fees they charge to their clients and are responsible for all of their direct costs.Financial advisors associated with firms in RCS are not included in our financial advisor counts, although their client assets are included in our AUA. AUA associated with firms in our RCS division totaled $108.5 billion as of September 30, 2022.
Products and services
Irrespective of the affiliation choice, our financial advisorsWe offer a broad range of third-party and proprietary investment products and services including both third-partyto meet our clients’ various investment and proprietary products, and a variety of financial planning services.needs. Revenues from this segment are typically driven by AUA and are generally either asset-based or transactional in nature. The proportion of our brokerage revenues originating from the employee versus the independent contractor affiliation models is relatively balanced.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
PCG segment net revenues for the fiscal year ended September 30, 20192022 are presented in the following graph.
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:
•Investment services for which we charge sales commissions or asset-based fees based on established schedules.
•Portfolio management services for which we charge either a fee computed as a percentage of the assets in the client’s account or a flat periodic fee.
•Insurance and annuity products.
Professionally managed mutual•Mutual funds.
•Support to third-party product partners,mutual fund and annuity companies, including sales and marketing support, product availability and distribution, and accounting and administrative services.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
•Administrative services to banks to which we sweep a portion of our clients’ cash deposits as part of the Raymond James Bank Deposit Program (“RJBDP”), our multi-bank sweep program. Fees received from third-party banks for these services are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates relative to interest paid to clients by the third-party banks on balances in the RJBDP. PCG also earns servicing fees from RJour Bank segment, which are based on the numbergreater of accountsa base servicing fee or net yield equivalent to the average yield that are swept to RJ Bank.the firm would otherwise receive from third-party banks in the RJBDP. These fees are eliminated in consolidation.
•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.
Custodial, trading, research and other support and services (including access to clients’ account information and the services of the Asset Management segment) to the independent registered investment advisors who are affiliated with us.
•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.
•Diversification strategies and alternative investment products to qualified clients of our affiliated financial advisors.
•Custodial services, trade execution, research and other support and services to third-party RIAs and broker-dealers.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Capital Markets
Our Capital 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.
Capital Markets segment net revenues for the fiscal year ended September 30, 20192022 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.
Equity productsInvestment banking
•Merger & acquisition and services
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 Capital Markets group’s ability to identify attractive investment opportunities for our institutional clients. Revenues on equity transactions are generally based on trade size and the amount of business conducted annually with each institution.
advisory - We provide various investment banking servicesa 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 forservices, including the underwriting and placement of common and preferred stock and other equity securities, to corporate clients throughout the U.S., Canada, and merger & acquisitionEurope across a number of industries.
•Debt underwriting - Our services include public finance and advisory services. Our investment bankingdebt underwriting activities includewhere we serve as a comprehensive range of strategicplacement agent or underwriter to various issuers, including private and financial advisory services tailored to our clients’ business life cyclespublic corporate entities, state and backed by our strategic industry focus.local government agencies (and their political subdivisions), and non-profit entities including healthcare and higher education institutions.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Brokerage
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. and Canadian companies in specific industries, including consumer, energy, financial services, healthcare, industrial, real estate, technology and communications, and transportation. Research reports are made available to both institutional and retail clients.
•Fixed income products and services
- We earn revenues 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.loans, as well as from our market-making activities in fixed income debt securities. We carry inventories of taxable and tax-exemptdebt securities to facilitate clientsuch 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 healthcare 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.
We also enter into interest rate derivatives 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-party financial institution.
Tax credit funds•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 ability to identify attractive investment opportunities for our institutional clients. Revenues on equity transactions are generally based on trade size and the amount of business conducted annually with each institution.
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. and Canadian companies across a multitude of industries. Research reports are made available to both institutional and retail clients.
Affordable housing investments business
We 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 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 earns asset management and related administrative fees for providing asset management, portfolio management and related administrative services forto retail and institutional clients. This segment oversees a portion of our 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 and affiliates (collectively, “Carillon Tower Advisers”)Advisers), for certain retail accounts managed on behalf of third-party institutions, institutional accounts, and proprietary mutual funds that we manage.manage, generally using active portfolio management strategies.
Management 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, (includingwhich includes the portion of fee-based AUA in PCG that is overseen by AMS)AMS, and Carillon Tower Advisers,Raymond James Investment Management, where investment decisions are made by in-house or third-party portfolio managers or investment committees. The fee rates applied are dependent upon various factors, including the distinctivedistinct services provided and the level of assets within each client relationship. The fee rates applied in Carillon Tower AdvisersRaymond 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 traditional transaction-based accounts within our PCG segment. Fees are generally collected quarterly and are based on balances as of the beginning of the quarter (particularly in AMS) or the end of the quarter, or based on average daily balances.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 (e.g., record-keeping).
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Our AUM and our Carillon Tower AdvisersRaymond James Investment Management AUM by objective as of September 30, 20192022 are presented in the following graphs.
RJ BANK
RJBank
Our Bank issegment reflects the results of our banking operations, including the results of Raymond James Bank, a nationalFlorida-chartered state bank that providesand 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), residential mortgage loans, and tax-exempt loans, residential loans, securities-based loans (“SBL”) and other 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 deposit accounts, including to clients of our broker-dealer subsidiaries. RJsubsidiaries, and other 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.
As of September 30, 2019,2022, corporate and tax-exempt loans represented approximately 62%37% of RJ Bank’s loan portfolio,the Bank segment’s total assets, and 73% of which 88%such 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 of agency mortgage-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.
RJclients through the RJBDP, as well as those at TriState Capital Bank, had total assets of $25.52 billion at September 30, 2019, which are detailed inprimarily money market and interest-bearing checking accounts. The Bank segment’s liabilities also include borrowings from the following graph.Federal Home Loan Bank (“FHLB”).
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
The following graph details the composition of our Bank segment’s total assets as of September 30, 2022.
OTHER
Bank Segment Total Assets — $56.74 billion
Other
Our Other segment includes our private equity 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, including the interest costs on our public debt and any losses on extinguishment of such debt.
HUMAN CAPITAL
Our private equity portfolio includes various direct and third-party private equity investments and various legacy private equity funds which we sponsor.
EMPLOYEES AND INDEPENDENT CONTRACTORS
Our employees, including“associates” (which include our employee financial advisors and all of our other employees) and our independent contractors (collectively “associates”contractor financial advisors (which we call our “independent advisors”) are vital to our success in the financial services industry. As a human capital-intensive business, our ability to attract, develop, and retain exceptional and diverse associates and independent advisors is critical, not only in the current competitive labor market, but also to our long-term success. It is important to us to maintain a strong commitment to diversity and inclusion. To compete effectively, we must offer attractive compensation and health and wellness programs 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, 2019,2022, we had approximately 14,200 employees17,000 associates (including 3,638 employee financial advisors) and 4,710 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 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 securities brokerage operations.
The information technology department develops and supports the integrated solutions that provide a customized platform for our businesses. These include a platform for financial advisors designed to allow them to spend more time with their clients and enhance and grow their businesses; systems that support institutional and retail sales and trading activity throughfrom 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 and that of our clients. We apply numerous safeguards to maintain the confidentiality, integrity and availability of both client and firm 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.facilities or other business disruptions. We have developed operational plans for such disruptions, and we have a full time staff devoted significant resources to maintaining those plans. Our business continuity plan continues to be enhanced and tested to allow for continuous operations in the event of weather-related or other interruptions at our corporate headquarters in Florida, one of our operations processing or data center sites (located in Florida, Colorado, Tennessee or 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 offered more workplace flexibility to our associates as we continue to evaluate our long-term workplace strategy.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
COMPETITION
The financial services industry is intensely 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, and, more recently, financial technology companies (“fintech”fintechs”) firms.. 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 is substantially dependent on our continuing ability to develop or attract, retain and motivate qualified financial advisors, investment bankers, trading professionals, portfolio managers and other revenue-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
The following discussion summarizes the principal elements of the regulatory and supervisory framework applicable to RJFus as a participant in the financial services industry and, in particular, the banking and securities sectors.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 RJF does business, andwe 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 fund 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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.
We continue to experience a period of notable changechanges 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- Risk Factors” withinof this reportForm 10-K for further discussion of the potential future impact on our operations).
Banking supervision and regulation
RJF is a bank holding company (“BHC”)BHC under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), that has made an election to be a financial holding company (“FHC”)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 ourTriState Capital Bank (collectively, “our bank subsidiaries”). Raymond James Bank is an FDIC-insured depository institution and a Florida-chartered state member bank of the Fed 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 charteredsubsidiaries: RJ Trust, which is regulated, supervised, and regulatedexamined by the Office of the Comptroller of the Currency (“OCC”).
RJ Bank, and Raymond James Trust Company of New Hampshire (“RJTCNH”) which is a national bank and insured depository institution regulated, supervised, and examined by the OCCNew Hampshire Banking Department (“NHBD”). RJTCNH provides Individual Retirement Account custodial services and the Consumer Financial Protection Bureau (“CFPB”). Our trust company non-depository subsidiary, RJ Trust, is also regulated, supervised and examined by the OCC. The Fed and the FDIC also regulate and may examine RJ Bank and, with respect to the Fed, RJ Trust.services for our PCG clients.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Collectively, the rules and regulations of the Fed, the OCC,FDIC, the FDICOFR, the PDBS, the CFPB, the OCC and the CFPB coverNHBD result in extensive regulation and supervision covering all aspects of theour banking business,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 that can affect the operating costs and permissible businesses of RJF RJ Bank, RJ Trust and all of our other subsidiaries. As a part of their supervisory functions, the Fed, the OCC,FDIC, the FDIC,OFR, the PDBS, the CFPB, the OCC and the CFPBNHBD 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 FDIC,NHBD for unsafe or unsound practices.
Basel III and U.S. capital rules
Both RJF and RJRaymond James Bank are subject to minimumthe Fed’s capital requirementsrules and overallTriState Capital Bank is subject to the FDIC’s capital adequacy standards. The OCC,rules. These rules establish an integrated regulatory capital framework and implement, in the Fed and the FDIC published final U.S. rules implementing, 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, updatedfor insured depository institutions, set the prompt corrective action framework discussed below to reflect the new regulatory capital minimumsrequirements (the “U.S. Basel III Rules”). The U.S. Basel III Rules: (i) increasedestablish minimum requirements for both the quantity and quality of regulatory capital; (ii) establishedset forth a capital conservation buffer; and (iii) made changes todefine the calculation of risk-weighted assets. The U.S. Basel III Rules became effective for RJF on January 1, 2015, subject to applicable phase-in periods. The rules governing the capital conservation buffer became effective for both RJF and RJ Bank on January 1, 2016. TheThese 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“Item 1A “Risk- Risk Factors” withinof this reportForm 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 RJTriState 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 guidelines,rules, RJF, Raymond James Bank, and RJTriState Capital Bank must meet specific capital guidelinesratio requirements that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.the rules. The capital amounts and classification for RJF, Raymond James Bank, and RJTriState 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. Quantitative measures established by federal banking regulations to ensure capital adequacy require that RJF and RJ Bank maintain minimum amounts and ratios of: (i) Common Equity Tier 1 (or “CET1”), Tier 1 and Total capital to risk-weighted assets; (ii) Tier 1 capital to average total consolidated assets; and (iii) capital conservation buffers.
In July 2019, the Fed issued a final rule to simplify and clarify a number of existing regulatoryUnder applicable capital rules, for certain banking organizations. Specifically, the rule simplifies the capital treatment for mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interest. This rule would also allow BHCs like RJF to repurchase common stock without prior approval from the Fed to the extent that the BHC is not subject to a separate legal or regulatory requirement to obtain prior approval. RJF would continue to need to obtain prior approval from the Fed if itits 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 “well-capitalized”
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
or “well-managed” or if it were subject to any unresolved supervisory issues.available. Guidance from the Fed also indicatesprovides that RJF would need to inform the Fed in advance of repurchasing common stock in certain prescribed situations, such as if it waswere experiencing, or at risk of experiencing, financial weaknesses or considering expansion, either through acquisitions or other new activities. The rule becomes effective on April 1, 2020, foractivities, or if the amendments to simplify capital rules, and was effective on October 1, 2019, for revisionsrepurchase would result in a net reduction in common equity over a quarter. Further, Fed guidance indicates that, pursuant to the pre-approval requirements forFed’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 repurchase of common stock. We are evaluating the impact of the rule on our regulatoryBHC’s prospective capital requirements.needs and safe and sound operation.
See Note 22 of the Notes to the Consolidated Financial Statements of this Form 10-K for further information.
Stress testing
On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was signed into law, making certain limited amendments to the Dodd-Frank Act, as well as certain targeted modifications to other post-financial crisis regulations. Among other things, the law raises the asset thresholds for Dodd-Frank Act company-run stress testing and liquidity coverage requirements for BHCs to $250 billion, subject to the ability of the Fed to apply such requirements to institutions with assets of $100 billion or more to address financial stability risks or safety and soundness concerns. The Fed, the OCC and the FDIC have since issued related guidance and regulations. As a result of these changes, and given our current asset size, RJF and RJ Bank are currently no longer subject to Dodd-Frank Act company-run stress testing requirements.
Source of strength
The Fed requires that BHCs, such as RJF, serve as a source 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 RJRaymond James Bank and TriState Capital Bank in the future should iteither bank experience financial distress.
Transactions between affiliates
Transactions between (i) RJRaymond 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. These laws and regulationsFed, which generally limit the types and amounts of such transactions (including credit extensions from (i) RJ Bank, RJ Trust or their subsidiaries to (ii) RJF or its other subsidiaries or affiliates) that may take place and generally require those transactions to be on market terms. These laws and regulations generally do not apply to transactions between RJRaymond James Bank, orTriState Capital Bank, RJ Trust, and their subsidiaries.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 imposes a market terms requirement on certain other transactions between (i) RJF or its other subsidiaries or affiliates on the one hand and (ii) covered funds for which RJF or its subsidiaries or affiliates serve as the investment manager, investment advisor, commodity trading advisor or sponsor, or other covered funds organized and offered by RJF or its other subsidiaries or affiliates on the other hand. See “The Volcker Rule” in the following section.
Deposit 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.type. For banks with greater than $10 billion in assets, which includes RJRaymond James Bank and TriState Capital Bank, the FDIC’s current assessment rate calculation 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.
Prompt corrective action
The U.S. Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires the U.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 RJRaymond 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 isthe category indicated by its capital ratios if itthe 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 capital distributions, as the capital category
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
of an institution declines. Failure to meet the capital requirements could also require a depository institution to raise capital. Ultimately, critically undercapitalized institutions are subject to the appointment of a receiver or conservator.
TheAlthough the prompt corrective action regulations do not apply to BHCs, such as RJF. However,RJF, the Fed is authorized to take appropriate action at the BHC level, based upon the undercapitalized status of the BHC’s depository institution subsidiaries. In certain instances related to an undercapitalized depository institution subsidiary, the BHC would be required to guarantee the performance of the undercapitalized subsidiary’s capital restoration plan and might be 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 TriState Capital Bank were well-capitalized.
The Volcker Rule
RJF is subject to the Volcker Rule, which generally prohibits BHCs and their subsidiaries and affiliates from engaging in proprietary trading, orbut permits underwriting, market making, and risk-mitigating hedging activities. The Volcker Rule also prohibits BHCs and their subsidiaries and affiliates from acquiring or retaining an ownership interest,interests in, sponsoring, or having certain relationships with “covered funds” (as defined in the rule), including hedge funds and private equity funds, subject to certain exceptions.
We have 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 attempt to realize the value of these investments in due course and to execute appropriate strategies to comply with the Volcker Rule at such time. However, our current focus is on the divestiture of our existing portfolio.
The Fed, OCC, FDIC, SEC, and Commodity Futures Trading Commission (“CFTC”) finalized amendments to the Volcker Rule in 2019, which relate primarily to the Volcker Rule’s proprietary trading and compliance program requirements. The amendments do not change the Volcker Rule’s general prohibitions, but they offer certain clarifications and a simplified approach to compliance. While the agencies adopted certain limited changes to the Volcker Rule’s covered fund-related provisions, the agencies noted that they continue to consider other aspects of the covered fund provisions, and intend to issue a separate proposed rulemaking that specifically addresses those areas.
Compensation practices
Our compensation practices are subject to oversight by the Fed. Compensation regulation in the financial industry continues to develop,evolve, and we expect these regulations to change over a number of years. 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 shareholders the relationship of our compensation policies and practices to risk management initiatives, to the extent 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 requires companies to disclose the relationships among named executive officer compensation “actually paid,” total shareholder return and certain financial performance measures that the company uses to link compensation to company performance for its five most recent fiscal years. The Dodd-Frankrule will first apply to disclosures in our proxy statement for the 2024 annual shareholders meeting.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Community Reinvestment Act requiresregulations
Raymond James Bank and TriState Capital Bank are subject to the U.S. financialCRA, which is intended to encourage banks to help meet the credit needs of their communities, including low and moderate income neighborhoods, consistent with safe and sound bank operations. Under the CRA, federal banking regulators are required to adopt rulesperiodically examine and assign to each bank a public CRA rating. If any insured depository institution subsidiary of a FHC fails to maintain at least a “satisfactory” rating under the CRA, the FHC would be subject to restrictions on incentive-based payment arrangements. The U.S. financialcertain new activities and acquisitions.
On May 5, 2022, federal banking regulators requested comment on a joint notice of proposed revised rulesrulemaking on the CRA. Until the proposed rulemaking is final and effective, Raymond James Bank and TriState Capital Bank will continue to operate under the CRA regulations currently in 2016, whicheffect. At this time, it is uncertain what effect the impending CRA regulations will have not yet been finalized.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. TheAmong 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 permissible, and will likely do so if the FHC does not satisfactorily meet certain requirements of the Fed. For example, if an FHC or any of its U.S. depository institution subsidiaries ceases to maintain its status as “well-capitalized” or “well-managed,” the Fed may impose corrective capital and/or managerial requirements, as well as additional limitations or conditions. If the deficiencies persist, the FHC may be required to divest its U.S. depository institution subsidiaries or to cease engaging in activities other than the business of banking and certain closely related activities.
RJ Bank is subject to the CRA, which is intended to encourage banks to help meet the credit needs of their communities, including low and moderate income neighborhoods, consistent with safe and sound bank operations. Under the CRA, the Fed, the FDIC and the OCC are required to periodically examine and assign to each bank a public CRA rating. If any insured depository institution subsidiary of a FHC fails to maintain at least a “satisfactory” rating under the CRA, the FHC would be subject to restrictions on certain new activities and acquisitions.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
In addition, we are required to obtain prior Fed approval before engaging in certain banking and other financial activities both within and outside the U.S.
Broker-dealer and securities regulation
The SEC is the federal agency charged with administration of the federal securities laws in the 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 EuropeGermany 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”) (e.g., such as the Financial Industry Regulatory Authority (“FINRA”) in the U.S., the Investment Industry Regulatory Organization of Canada (“IIROC”), and securities exchanges).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.
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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 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.
Fiduciary dutyStandard of care
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.RIAs. In June 2019, the SEC adopted a package of rulemakingsrule-makings and interpretations related to the provision of advice by 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 customerclient when making a recommendation to that customerclient of any securities transaction or investment strategy involving securities. Form CRS requires that broker-dealers and investment advisers provide retail investors with a brief summary document containing simple, easy-to-understand information about the nature of the relationship between the parties. Regulation Best Interest and Form CRS have a compliance date of June 30, 2020, and we anticipate thatOur implementation of thethese regulations will require us toresulted in the review and modifymodification of certain of our policies and procedures as well as theand associated supervisory and compliance controls, as well as the implementation of additional client disclosures, which may leadincluded us providing related education and training to additional costs.financial advisors.
In addition to the SEC, variousVarious states have also proposed, or are considering adoptingadopted, laws and regulations seeking to impose new standards of conduct on broker-dealers that as written,may differ from the SEC’s new regulations, andwhich may lead to additional implementation costs. The Department of Labor (“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. 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 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 result in incremental costs if adopted.for our business and we are evaluating 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 subject to regulation by IIROC, 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 has been granted the powers to prescribe their own rules of conduct and financial requirements of members, including RJ Ltd. IIROC also requires that RJ Ltd. be a member of the Canadian Investors Protection Fund, whose primary role is investor protection. This fund provides protection for securities and cash held in client accounts up to 1 million Canadian dollars (“CAD”) per client, with additional coverage of CAD 1 million for certain types of accounts.
Certain of our subsidiaries are registered in, and operate from, the U.K. which has a highly developed and comprehensive regulatory regime. These subsidiaries are authorized and regulated by the FCA and have limited permissions to carry 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 Ombudsman 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 customers of authorized financial services firms.
In Germany, our subsidiary Raymond James Corporate Finance GmbH is licensed by the German 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
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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 overseeing the activities of this subsidiary.
Investment management regulation
Our investment advisory operations, including the mutual funds that we sponsor, are also subject to extensive regulation in the U.S. The majority of our asset managers are registered as investment advisers with the SEC under the Investment Advisers Act of 1940 as amended, (the “Investment Advisers Act”), and are also required to make notice filings in certain states. Virtually all aspects of our
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asset management business are subject to various federal and state laws and regulations. These laws and regulations are primarily intended tofor the benefit the asset managementof our clients.
Anti-money laundering, economic sanctions, and anti-bribery and corruption regulation
The U.S. Bank Secrecy Act (“BSA”), as amended by the USA PATRIOT Act of 2001 (“PATRIOT Act”), the Customer Due Diligence Rule, and the Anti-Money Laundering Act of 2020 (“AMLA”), contains anti-money laundering and financial transparency laws and mandates the implementation of various regulations applicable to all financial institutions, including standards for verifying client identification at account opening, and obligations to monitor client transactions and report suspicious activities. Through these and other provisions, the BSA, and the PATRIOT Act, and AMLA seek to promote the 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 European Union (“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 benefits covered by these laws is very broad as well asand 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 been required to implementimplemented and continuously maintain internal policies, procedures, and controls to meet the compliance obligations imposed by such U.S. and non-U.S. laws and regulations concerning anti-money laundering, economic sanctions, and anti-bribery and corruption. Failure to continue to meet the requirements of these regulations cancould result in supervisory action, including fines.
Privacy and data protection
U.S. federal law establishes minimum federal standards for financial privacy by, among other provisions, requiring financial institutions to adopt and disclose privacy policies with respect to consumer information and setting forth certain limitations on disclosure to third parties of consumer information. U.S. state lawlaws 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 additional requirements for companies that collect or store personal data of European Union residents. GDPR expands the scopeE.U. residents, as well as residents of the E.U. data protection lawU.K. GDPR’s legal requirements extend to all foreign companies processingthat solicit and process personal data of E.U. and U.K. residents, imposesimposing 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 new rightsstaggered implementation dates (running from September 2022
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
through September 2024) for E.U. residents. Similarly, the California Consumer Privacy Act, which was enacted in June 2018various provisions. The firm intends to implement Bill C-64 through its privacy program framework. We have implemented policies, processes, and is scheduled to take effect on January 1, 2020, will impose privacy compliance obligationstraining with regard to the personal information of California residentscommunicating to our clients and require companies to provide new disclosures to California consumers and provide for a number of new rights for California residents. We have adopted and disseminated privacy policies, and communicatedbusiness partners required information relating to financial privacy and data security, in accordance with applicable law.security. We continue to monitor regulations related to data privacy and protectionregulatory developments on both a domestic and international level to assess requirements and potential impacts on our global business operations, which could increase operational costsoperations.
The multitude of data privacy laws and regulations adds complexity and cost to managing compliance and data management capabilities and can result in significant financial penalties for failurepotential litigation, regulatory fines and reputational harm. Data privacy requirements compel companies to comply.
Other non-U.S. regulation
Raymond James Ltd. (“RJ Ltd.”) is currently registered in all provincestrack personal information use and territories in Canada. The financial services industry in Canada is subjectprovide greater transparency on data practices 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, including the Montreal Exchange and IIROC, which are responsible for the enforcement of, and conformity with, securities legislation for their members and have been granted the powers to prescribe their own rules of conduct and financial requirements of members. RJ Ltd. is regulated by each of the securities commissionsconsumers. In addition, technology advances in the jurisdictionsareas of registration,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 SROs including IIROC. IIROC requiresFed.
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 RJ Ltd. be a memberlegacy instruments contain appropriate fallback language, modifying instruments that require amendments, engaging with financial advisors and clients on the impact of the Canadian Investors Protection Fund, whose primary role is investor protection. This fund provides protection for securitiestransition, and cash held in client accounts upworking through infrastructure enhancements (e.g., systems and models) to 1 million Canadian dollars (“CAD”) per client, with separate coverage of CAD 1 million for certain types of accounts. See Note 22ensure operational readiness. We continue to evaluate the anticipated effect of the Notes to Consolidated Financial Statements ofalternative reference rate transition and, at this Form 10-K for further information on SEC, FINRA and IIROC regulations pertaining to broker-dealer regulatory minimum net capital requirements.time, we expect minimal financial impact.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Certain of our subsidiaries are registered in, and operate from, the U.K. which has a highly developed and comprehensive regulatory regime. 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. These subsidiaries are authorized and regulated by the U.K. conduct regulator, the Financial Conduct Authority (“FCA”), and have permission to carry out business in other E.U. countries as part of treaty arrangements.
Certain of our other subsidiaries are incorporated and operate in France, providing investment and asset management services to high-net-worth individuals and brokerage services to institutional clients. These subsidiaries are both authorized and regulated by the French Regulatory Authority the L’Autorité de contrôle prudentiel et de resolution and Autorité des Marchés Financiers and have permission to carry out business in other E.U. countries as part of treaty arrangements.
In Europe, the Markets in Financial Instruments Regulation and a revision of the Markets in Financial Instruments Directive (together, “MiFID II”), generally took effect on January 3, 2018, and introduced comprehensive, new trading and market infrastructure reforms in the E.U., including new trading venues, enhancements to pre- and post-trading transparency, and additional investor protection requirements, among others. We have made changes to our European operations, including systems and controls, in order to be in compliance with MiFID II.
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 | 5553 | Chief Human Resources Officer since October 2019; Senior Vice President, since August 2009, Controller since February 1995Organization and Chief Accounting Officer since March 2019; Chief Financial OfficerTalent Development - Raymond James & Associates, Inc. since March, January 2019 |
Bella Loykhter Allaire | 66 | Executive - October 2019; Vice President, - TechnologyOrganization and OperationsTalent Development - Raymond James & Associates, Inc. since June 2011, November 2014 - December 2018 |
Paul D. Allison | 63 | Chairman, President and CEO - Raymond James Ltd. since January 2009 |
James E. Bunn | 4649 | President - Global Equities and Investment Banking - Raymond James & Associates, Inc. since December 2018 and Head 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 |
John C. Carson, Jr.Horace L. Carter | 6351 | President since April 2012; President - Morgan KeeganFixed Income - Raymond James & Company,Associates, Inc. since January 2022; President - SumRidge Partners, LLC formerly known as Morgan Keegan & Company, Inc., since July 20132022; 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 | 6063 | Chief Risk Officer since February 2006 |
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 | 5760 | President - Private Client Group since June 2018; President - Raymond James Financial Services, Inc. since January 2012 |
Jeffrey A. Dowdle | 5558 | Chief Operating Officer since October 2019 and Head ofPresident - Asset Management Group since October 2019;May 2016; Chief Administrative Officer, August 2018 - October 2019; President - Asset Management Group, May 2016 - October 2019; Executive Vice President - Asset Management Group, February 2014 - May 20162019 |
Tashtego S. Elwyn | 4851 | 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 | 7780 | ChairmanChair Emeritus since February 2017; Executive Chairman, May 2010 - February 2017 |
Jeffrey P. JulienBella Loykhter Allaire | 6369 | Executive Vice President - FinanceTechnology and Operations - Raymond James & Associates, Inc. since August 2009 and Chief Financial Officer since April 1987; Treasurer, FebruaryJune 2011 - February 2018 |
Jodi L. Perry | 4851 | President - Independent Contractor Division - Raymond James Financial Services, Inc. since June 2018; Senior Vice President, National Director - ICD - Raymond James Financial Services, Inc., May 2018 - June 2018; Senior Vice President, ICD Regional Director - Raymond James Financial Services, Inc., June 2012 - May 2018 |
Steven M. Raney | 5457 | Chair - Raymond James Bank, since November 2020; President and CEO - Raymond James Bank N.A. since January 2006 |
Paul C. Reilly | 6568 | ChairmanChair since February 2017 and Chief Executive Officer since May 2010; Director since January 2006 |
Jonathan N. Santelli | 4851 | 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 Counsel - First Republic Bank, October 2013 to April 2016 |
Jeffrey E. Trocin | 60 | Vice Chairman since December 2018; Co-President - Global Equities and Investment Banking - Raymond James & Associates, Inc., OctoberInvestor Relations, January 2017 - December 2018;2019; Senior Vice President - Global Equities and Investment BankingTreasury, January 2017 - Raymond James & Associates, Inc., July 2013 - October 2017February 2018 |
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
ADDITIONAL 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, our effective tax rate, regulatory developments, effects of accounting pronouncements, and general economic conditions. In addition, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “forecasts,” and future or conditional verbs such
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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- Risk Factors” inof 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 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 in the following sections is not exhaustive; there may be other factors not discussed in the following sections or of 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, financial advisors and other 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.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, credit, liquidity and market risks inherent in ourthe 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 reputation.
We are affected by domestic and international macroeconomic conditions that impact the global 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, consumer confidence levels, 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 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.
While we have experienced an operating environment that has been favorable for many of our businesses in recent years, if we were to experience a period of sustained downturn 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, an increase in mortgage and other loan delinquencies, and other negative market factors, our revenues could be significantly impaired. Periods of reduced revenue and other lossesactivities, could lead to reduced profitability because certaina general loss of our expenses,customer confidence in financial institutions that could negatively affect us, 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 E.U., including the U.K.’s notice to the European Council of its decision to exit the E.U. (“Brexit”) and the stability of the E.U.’s sovereign debt, have caused uncertainty and disruption for financial markets globally. Continued uncertainties loom over the future of the U.K.’s relationship with the E.U., including timing of withdrawal, the nature of any transition, implementation or successor arrangements, and future trading arrangements between the U.K. and the E.U. In order to prepare for Brexit, we are taking steps to make certain changes to our European operations in an effort to ensure that we can continue to provide cross-border services in E.U. member states without the need for separate regulatory authorizations in each member state. There is also continued uncertainty regarding the outcome of the E.U.’s financial support programs. It is possible that other E.U. member states may experience financial troubles in the future, or may
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
choose to follow the U.K.’s lead and leave the E.U. Any negative impact on economic conditions and global markets from these developments could adversely affect our business, financial condition and liquidity.
We may be impacted by budget pressures affecting U.S. state and local governments, as well as negative trends in the housing and labor markets. Investor concerns regarding these trends could potentially reduce the number and size of transactions in which we participate and, in turn, reduce our fixed income investment banking revenues. In addition, such factors could potentially have an adverse effect on 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 U.S. 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.
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 additional 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 in the form of dividends from earnings; 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. 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.
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.
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. 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 inharming 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 issuers and counterparties to certain derivative contracts 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 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 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 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 C&I loans, commercial and residential mortgage loans, tax-exempt loans, home equity lines of credit, and other loans generally 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, including interest rate risk.
We are, directly and indirectly, affected by changes in market conditions. Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. For example, interest rate changes could 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 and an increase in fees received on our multi-bank deposit sweep program. 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 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, if these companies go public and the size of our position relative to the public float, and whether we are subject to any resale restrictions.
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.
A significant decline in our domestic client cash balances could negatively impact our net revenues and/or our ability to fund RJ Bank’s growth.
We rely heavily on bank deposits to fund RJ Bank’s asset growth. The majority of RJ Bank’s deposits are primarily driven by the RJBDP, a multi-bank sweep program in which PCG clients’ cash deposits in their accounts are swept into FDIC-insurance interest-bearing accounts at RJ Bank and various third-party banks. The RJBDP is a source of relatively low-cost, stable deposits. A significant
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
reduction in our domestic clients’ cash balances, a change in the allocation of that cash between RJ Bank and third-party banks, or a transfer of cash away from the firm, could significantly impact the Bank’s ability to continue growing earnings assets and/or require the Bank to use higher-cost deposit sources to grow earnings assets.
Our business depends on fees generated from the distribution of financial products, fees earned from the management of client accounts, and 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. 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 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 a result of a shift by our PCG clients to fee-based accounts from traditional transaction-based accounts, a larger portion of our client assets are more directly impacted by market movements. Therefore, in periods of declining market values, the values of fee-based accounts and AUM may resultantly decline, which would negatively impact our revenues. In addition, below-market investment performance by our funds, portfolio managers or financial advisors could result in reputational damage that might cause outflows or make it more difficult to attract new investors into our asset management products and thus further impact our business and financial condition.
Our asset management fees may also decline over time due to factors such as increased competition and the renegotiation of contracts. In addition, the market environment in recent years has resulted in a shift to passive investment products, which generate lower fees than actively managed products. A continued trend toward passive investments or changes in market values or in the fee structure of asset management accounts would 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 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. From time to time as part of our underwriting processes, we may carry significant positions in securities of a single issuer or issuers engaged in a specific industry. Sudden changes in the value of these positions, despite any risk mitigation policies, could impact our financial results.
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. Despite risk mitigation policies, we may incur losses as a result of positions we hold in connection with our market-making activities.
We have made and, to the limited extent permitted by applicable regulations, may continue to make principal investments in private equity funds and other illiquid investments; however, our current focus is on the divestiture of our existing portfolio. 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. In addition, 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.
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 experience malicious cyber activity directed at our computer systems, software, networks and its users on a daily basis. This malicious activity
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includes attempts at unauthorized access, implantation of computer viruses or malware, and denial-of-service attacks. We also experience large volumes of phishing and other forms of social engineering attempted for the purpose of perpetrating fraud against the firm, our associates, our advisors 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 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 cloud 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 cybersecurity incidents among financial services firms are on the rise, we have
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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-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-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. Additionally, the SEC issued guidance in February 2018 stating that, as a public company, we are expected to have controls and procedures that relate to cybersecurity disclosure, and are required to disclose information relating to certain cyber-attacks or other information security breaches in disclosures required to be made under the federal securities laws. 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 approaches for managing operational risks.other 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 our business. Introduction of 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.
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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. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management” of this report for additional information regarding our exposure to and approaches for managing operational risks.
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. 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 routinely examined by U.S. federal and state regulators and SROs, such as 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
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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, partially due to the industry trend toward the separate payment for research and execution services. Our trading margins have been further 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 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.
Recently, certain competitors have reduced or eliminated commissions for self-directed trading, and we expect that others may follow suit. This trend will impact certain transaction-related fees we charge in PCG, but at this time we do not expect the impact to be material.
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 titled “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. For example, recently several commercial firms and other non-traditional competitors have applied for banking licenses or have entered into partnerships with banks to provide banking services. We also compete indirectly for investment assets with insurance companies, real estate firms and hedge funds, among others. This competition could cause our business to suffer.
To remain competitive, 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, 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 attract and retain 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
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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. Certain of our competitors have withdrawn from the Protocol for Broker Recruiting (“Protocol”), a voluntary agreement among over 1,800 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 continue to experience 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 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 the firm incurring a higher facility fee on its $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 of this Form 10-K for information on the Credit Facility).
Business growth, including through acquisitions, could increase costs and regulatory and integration risks.
We continue to grow, including through 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 investments, or making investments in our control functions such as compliance and supervision.
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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.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that 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 condition.
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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 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 employeesassociates interact with clients, customers and counterparties on an ongoing basis. All employeesassociates 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. It is not possible to deter or prevent every instance of associate misconduct and the precautions we take to prevent and detect this activity will likely not be effective in all cases. If our associates 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 our assets 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 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 risk of liability. We have been named as a defendant or co-defendant in lawsuits and arbitrations primarily involving claims for damages. The risks associated with potential litigation often may be difficult to assess or quantify and the
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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. In addition, our business activities 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, and may in the future be, named as defendants in litigation 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. Litigation 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 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“Item 3 “Legal- Legal Proceedings” and Note 19 of the Notes to Consolidated Financial Statements of this reportForm 10-K for a discussionfurther information about legal matters.
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 matters.requirement to do so), our reputation, business, financial condition, and/or results of operations, as well as the price of our common and preferred 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 regulators in ESG factors, and increased demand for, and scrutiny of, ESG-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 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 litigation or regulatory enforcement actions, and adversely affect our 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.
Our financial instruments, including certain trading assets and liabilities, derivatives, available-for-sale securities, certain loans and 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 directly observable inputs, making their valuation particularly subjective and, consequently, based on 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.
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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.
The FASB has issued several new accounting standards in recent years, including on the topics of credit losses and leases, and the federal banking regulators have released implementation guidance and proposed implementation rules for some of these new standards. In particular, 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 and the proposed regulatory implementation rules will have on our financial position, results of operations as well as our regulatory capital.
For further discussion of some of our significant accounting estimates, policies and standards, see Item“Item 7 “Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical accounting estimates” of this reportForm 10-K and Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K.
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 previously discussed,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 adversely 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” of this Form 10-K forhave a discussion of our operational risk management.
We are exposed to risks from international markets.
We do business in other parts of the world and as a result, are exposed to risks, including market, litigation and regulatory compliance 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 in the credit ratings of sovereign countries, expropriation, nationalization, confiscation of assets and unfavorable legislative, economic and political developments. Action or inaction in any of these operations, including failure to follow proper practices with respect to regulatory compliance and/or corporate governance, could harm our operations and our reputation. We also invest or trade in the securities of corporations located in non-U.S. jurisdictions. Revenues from trading non-U.S. securities also may be subject to negative fluctuations as a result of the previously mentioned factors.
The expected phase-out of LIBOR could negatively impact our net interest income and require significant operational work.
The FCA, which regulates the London Interbank Offered Rate (“LIBOR”), has announced that it will not compel panel banks to contribute to LIBOR after 2021. It is likely that banks will not continue to provide submissions for the calculation of LIBOR after 2021 and possibly prior to then. It is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the course of the next few years. Although the full impact of transition remains unclear, this change may have an adverse impact on the valuefinancial condition of return onour clients, which may decrease revenues from those clients and trading markets for a broad array of financial products, including any LIBOR-based securities,increase the credit risk associated with loans and derivatives that are included in our financial assets and liabilities. If LIBOR is discontinued after 2021 as expected, there will be uncertainty or differences in the calculation of the applicable interest rate or payment amount depending on the terms of the governing instruments. There will be significant work requiredother credit exposures to transition to using the new benchmark rates and implement necessary changes to our systems, processes and modelsthose clients.
. This may impact our existing transactiondata, products, systems, operations, and valuation processes. The calculation of interest rates under the replacement benchmarks could also impactour net interest income and account and service fees. In addition, LIBOR may perform differently during the phase-out period than in the past which could result in lowerinterest payments and a reduction in the value of certain assets. We are assessing the impact of the transition; however, we cannot reasonably estimate the impact of the transition at this time.
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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.
RISKS RELATED TO OUR REGULATORY ENVIRONMENT
Financial services firms are highly regulated and the increased regulatory scrutiny over the last several yearsare currently subject to a number of new and proposed regulations, all of which may increase theour risk of financial liability and reputational harm resulting from adverse regulatory actions.
Over the last several years, financialFinancial services firms, have been operatingsuch as us, operate in an evolving regulatory environment.environment and are subject to extensive supervision and regulation. The laws and regulations governing financial services firms are intended primarily for the protection of our depositors, our customers, the financial system, and the FDIC insurance fund, not our shareholders or creditors. The financial services industry has experienced an extended period of significant change in laws and regulations, governing the financial services industry, as well as increaseda 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. For example,Currently, the Dodd-Frank Act resulted inSEC 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 to the regulatory regime, including athat could require significant increaseshifts in the supervisionindustry operations and regulation of the financial services industry.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.
Existing and new laws and regulations 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.
There is also increased regulatory scrutiny (and related compliance costs) asAdditionally, our international business operations are subject to laws, regulations, and standards in the countries in which we operate. In many cases, our activities have been and may 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 surpass certain consolidated asset thresholds established under the Dodd-Frank Act,regulations 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. Any action taken by the CFPB could result in requirementsrequire us to alter or cease offering affected products and services, make such products and services less attractive, impose additional compliance measures, our business practices and/or result in fines, penaltiesadditional compliance costs. Any violations of these laws, regulations or required remediation.standards could subject us to a range of potential regulatory events or outcomes that could have a material adverse effect on our business, financial condition and prospects including potential adverse impacts on continued operations in the relevant international jurisdiction.
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 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
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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 repurchases. See Item 1 “Regulation” of 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” of this report regarding our approaches to managing compliance risk.
Changes in requirements relating to the standard of conduct for broker-dealers applicable under federal and state law may adversely affect our businesses.
In June 2019, the SEC adopted a package of rulemakings and interpretations related to the provision of advice by broker-dealers and investment advisers, including Regulation Best Interest. Among other things, Regulation Best Interest requires a broker-dealer to act in the best interest of a retail customer when making a recommendation to that customer of any securities transaction or investment strategy involving securities. The regulation will impose heightened standards on broker-dealers and we anticipate incurring additional costs in order to review and modify our policies and procedures, as well as associated supervisory and compliance controls.
In addition to the SEC, various states have proposed, 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 if adopted.
Implementation of the new SEC regulations, as well as any new state rules that are adopted addressing similar matters, may negatively impact our results including the impact of increased costs related to compliance, legal, operations and information technology.
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.
Investment management businesses have been affected by a number of highly publicized regulatory matters, which have resulted in increased scrutiny within the industry and new rules and regulations for mutual funds, investment advisors and broker-dealers. For example, the SEC initiated enforcement actions against a number of broker-dealers, including Raymond James related to mutual fund share classes offered to their clientsBank and fees paid for the distribution of mutual fund shares. As broker-dealers review and potentially make changes to the availability of mutual funds and mutual fund share classes available on their distribution platforms, such changes could affect our profitability.
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. It is not possible to determine the extent of the impact of any new laws, regulations or initiatives that have been or 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, including our product and service offerings.
In addition, U.S. and foreign governments have taken regulatory actions impacting the investment management industry, and may continue to do so 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 U.S. 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.
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. The research relied on in our investment management activities in the investment decision-making process is typically generated internally by our investment analysts or external research, including external research paid for with soft dollars. This external research is generally 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.
New regulations regarding the management of hedge funds and the use of certain investment products, including additional recordkeeping and disclosure requirements, may impact our asset management business and result in increased costs.
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 U.S. 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 guidelines. 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.
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 of its obligations.
See Note 22 of the Notes to Consolidated Financial Statements of 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.
The Fed, the OCC and the FDIC have 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 brokerage 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” of this report for additional information on liquidity and how we manage our liquidity risk.
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. An unfavorable CRA rating or a successful challenge to an institution’s performance under the fair lending laws and regulations could result in a wide variety of sanctions, including the required
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 regulations are currently being evaluated by regulators.activities. Any revisions to the CRA regulations that implement the CRA may negatively impact our business, including through increased costs related to compliance.
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ITEM 1B. | UNRESOLVED STAFF COMMENTS |
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.
Not applicable.
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
None.
ITEM 2. PROPERTIES
We operate our business from our principal location in St. Petersburg, Florida in 1.25 million square feet of office space that we own in the Carillon Office Park, a 1.25 million square foot office park that we own. Additionally, we own approximately 65 acres of land located in Pasco County, Florida for future development and occupancy as needed.Park. We conduct certain operations from our owned facility in Southfield, Michigan, comprising approximately 90,000 square feet, and operate a 40,000 square foot information technology data center on land we own in the Denver, Colorado area. Generally, ourOur owned locations and principal leases, identified below, support allmore 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 2031.2036. Our principal leases are in the following locations:
•We occupy leased space of approximately 190,000250,000 square feet in Memphis, Tennessee, along with approximately 150,000185,000 square feet in New York andCity, 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 both Vancouver and Toronto, respectively, along with other office and branch locations throughout Canada;
•We occupy leased space of approximately 30,00075,000 square feet in London, along with other office locations in Germany and France.Germany.
Additionally, we own approximately 65 acres of land located in Pasco County, Florida for potential development, as needed. We regularly monitor the facilities ownedwe own or occupied by our companyoccupy to ensure that they suit our needs.needs, particularly as we introduce more flexibility in work location for our associates. To the extent that they do not meet our needs, we will expand, contract or relocate, as necessary.
See Note 172 and Note 14 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding our lease obligations.
ITEM 3. LEGAL PROCEEDINGS
In addition to any matters that may be specifically described in the following sections, 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.
RJF and certain of its subsidiaries are 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 organizationsSROs institute investigations from time to time, among other things, into industry practices, which can also result in the imposition of such sanctions.
We may contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, theThe level of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased significantly in the financial services industry.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 are not yet determined to be material.
For 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;
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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). Subject to the foregoing, after consultation with counsel, 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.
We may from time to time include in any descriptions of individual matters herein 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.
See Note 1719 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding legal and regulatory matter contingencies, and refer to Item“Item 7 “Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical accounting estimates” in the section “Loss provisions for legal and regulatory matters” of this report and Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K for information on our criteria for establishing accruals.
Legal matters
ITEM 4. MINE SAFETY DISCLOSURES
Brink Complaint and Wistar Complaint
On February 17, 2015, Jyll Brink (“Brink”) filed a putative class action complaint in the U.S. District Court for the Southern District of Florida (the “District Court”) under the caption Jyll Brink v. Raymond James & Associates, Inc. (the “Brink Complaint”). The Brink Complaint alleges that Brink, a former customer of RJ&A, was charged a fee in her Passport Investment Account, and that the fee included an unauthorized and undisclosed profit to RJ&A in violation of its customer agreement and applicable industry standards. The Passport Investment Account is a fee-based account in which clients pay asset-based advisory fees and certain processing fees for ongoing investment advice and monitoring of securities holdings. The Brink Complaint seeks, among other relief, damages in the amount of the difference between the actual cost of processing a trade, as alleged by Brink, and the fee charged by RJ&A. On October 19, 2018, the District Court certified a class of former and current customers of RJ&A who executed a Passport Agreement and were charged processing fees during the period between February 17, 2010 and February 17, 2015.
On February 11, 2016, Caleb Wistar (“Wistar”) and Ernest Mayeaux (“Mayeaux”) filed a putative class action complaint in the District Court under the caption Caleb Wistar and Ernest Mayeaux v. Raymond James Financial Services, Inc. and Raymond James Financial Services Advisors, Inc. (as subsequently amended, the “Wistar Complaint”). Similar to the Brink Complaint, the Wistar Complaint alleges that Wistar and Mayeaux, former customers of Raymond James Financial Services, Inc. (“RJFS”) and Raymond James Financial Services Advisors, Inc. (“RJFSA”), were charged a fee in RJFS and RJFSA’s Passport Investment Account and that the fee included an unauthorized and undisclosed profit to RJFS and RJFSA in violation of its customer agreement and applicable industry standards. The Wistar Complaint seeks, among other relief, damages in the amount of the difference between the actual cost of processing a trade, as alleged by Wistar and Mayeaux, and the fee charge by RJFS and RJFSA.
On April 5, 2019, the parties to the Brink Complaint and the Wistar Complaint agreed in principle to an aggregate settlement of $15 million. On October 25, 2019, the District Court entered an order granting final approval of the settlement.
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ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
PART II
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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 25, 2019,17, 2022, we had 335346 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
See Note 2220 of the Notes to Consolidated Financial Statements of 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 2123 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, 2019, 20182022, 2021 or 2017.2020.
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 in the following paragraphs. The following table presents information on our purchases of our own stock, on a monthly basis, for the twelve months ended September 30, 2019.2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | | |
|
| | | | | | | | | | | |
| 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, 2018 – October 31, 2018 | 469,566 |
| | $ | 74.88 |
| | 423,903 |
| | $182 |
November 1, 2018 – November 30, 2018 | 2,420,562 |
| | $ | 77.66 |
| | 2,341,466 |
| | $500 |
December 1, 2018 – December 31, 2018 | 3,449,198 |
| | $ | 74.55 |
| | 3,287,237 |
| | $255 |
First quarter | 6,339,326 |
| | $ | 75.76 |
| | 6,052,606 |
| | |
| | | | | | | |
January 1, 2019 – January 31, 2019 | 13,408 |
| | $ | 75.16 |
| | — |
| | $255 |
February 1, 2019 – February 28, 2019 | 4,050 |
| | $ | 82.54 |
| | — |
| | $255 |
March 1, 2019 – March 31, 2019 | 603,529 |
| | $ | 78.23 |
| | 602,938 |
| | $458 |
Second quarter | 620,987 |
| | $ | 78.19 |
| | 602,938 |
| | |
| | | | | | | |
April 1, 2019 – April 30, 2019 | 22,241 |
| | $ | 81.07 |
| | — |
| | $458 |
May 1, 2019 – May 31, 2019 | 302,699 |
| | $ | 83.53 |
| | 301,756 |
| | $433 |
June 1, 2019 – June 30, 2019 | 744,251 |
| | $ | 80.95 |
| | 742,076 |
| | $373 |
Third quarter | 1,069,191 |
| | $ | 81.68 |
| | 1,043,832 |
| | |
| | | | | | | |
July 1, 2019 – July 31, 2019 | 267 |
| | $ | 83.02 |
| | — |
| | $373 |
August 1, 2019 – August 31, 2019 | 2,129,923 |
| | $ | 75.75 |
| | 2,127,461 |
| | $750 |
September 1, 2019 – September 30, 2019 | — |
| | $ | — |
| | — |
| | $750 |
Fourth quarter | 2,130,190 |
| | $ | 75.75 |
| | 2,127,461 |
| | |
Fiscal year total | 10,159,694 |
| | $ | 76.53 |
| | 9,826,837 |
| | |
DuringIn December 2021, the year ended September 30, 2019, we utilized the remainder of the previous Board of Directors’ (“Board”) authorization for repurchases of our common stock and outstanding senior notes. Accordingly, the Board approved two increases to the authorization totaling $750 million, including $500 million in November 2018 and $250 million in March 2019. In August 2019, the BoardDirectors authorized the repurchase of our common stock in an aggregate amount of up to $750 million, replacing$1 billion, which replaced the previous authorization. As of November 25, 2019, we had $750 million remaining under this 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-owned Canadian subsidiaries. For more information on this trust fund, see Note 2 and Note 910 of the Notes to Consolidated Financial Statements of this Form 10-K. These activities do not utilize the previously described repurchase authorization.authorization presented in the preceding table.
The total number of shares purchased also includes shares repurchased as a result of employees surrendering shares as payment for option exercises or withholding taxes. These activities do not utilize the previously described repurchase authorization.authorization presented in the 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 millions, except per share amounts | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Operating results: | | | | | | | | | | |
Net revenues | | $ | 7,740 |
| | $ | 7,274 |
| | $ | 6,371 |
| | $ | 5,405 |
| | $ | 5,204 |
|
Net income | | $ | 1,034 |
| | $ | 857 |
| | $ | 636 |
| | $ | 529 |
| | $ | 502 |
|
Earnings per common share - basic | | $ | 7.32 |
| | $ | 5.89 |
| | $ | 4.43 |
| | $ | 3.72 |
| | $ | 3.51 |
|
Earnings per common share - diluted | | $ | 7.17 |
| | $ | 5.75 |
| | $ | 4.33 |
| | $ | 3.65 |
| | $ | 3.43 |
|
Weighted-average common shares outstanding - basic | | 141.0 |
| | 145.3 |
| | 143.3 |
| | 141.8 |
| | 142.5 |
|
Weighted-average common and common equivalent shares outstanding - diluted | | 144.0 |
| | 148.8 |
| | 146.6 |
| | 144.5 |
| | 145.9 |
|
Dividends per common share - declared | | $ | 1.36 |
| | $ | 1.10 |
| | $ | 0.88 |
| | $ | 0.80 |
| | $ | 0.72 |
|
| | | | | | | | | | |
Financial condition: | | | | | | | | | | |
Total assets | | $ | 38,830 |
| | $ | 37,413 |
| | $ | 34,883 |
| | $ | 31,487 |
| | $ | 26,326 |
|
Senior notes payable maturing within twelve months | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 250 |
|
Long-term obligations: | | | | | | | | | | |
Non-current portion of other borrowings | | $ | 889 |
| | $ | 894 |
| | $ | 899 |
| | $ | 604 |
| | $ | 584 |
|
Non-current portion of senior notes payable | | $ | 1,550 |
| | $ | 1,550 |
| | $ | 1,550 |
| | $ | 1,700 |
| | $ | 900 |
|
Total long-term debt | | $ | 2,439 |
| | $ | 2,444 |
| | $ | 2,449 |
|
| $ | 2,304 |
| | $ | 1,484 |
|
Total equity attributable to Raymond James Financial, Inc. | | $ | 6,581 |
| | $ | 6,368 |
| | $ | 5,582 |
| | $ | 4,917 |
| | $ | 4,524 |
|
Shares outstanding | | 137.8 |
| | 145.6 |
| | 144.1 |
| | 141.5 |
| | 142.8 |
|
Book value per share | | $ | 47.76 |
| | $ | 43.73 |
| | $ | 38.74 |
| | $ | 34.73 |
| | $ | 31.69 |
|
Senior notes maturing within twelve months and the non-current portion of senior notes payable exclude 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 financial measures | |
Net interest analysis | |
Results of Operations | |
Private Client Group | |
Capital Markets | |
Asset Management | |
RJ 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’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 to be not meaningful.
We operate as a financial holding company and bank holding company. Results in the businesses in which we operate are highly correlated to general economic conditions and, more specifically, to the direction of the U.S. equity and fixed income markets, changes in interest rates, market volatility, corporate and mortgage lending markets and commercial and residential credit trends. Overall market conditions, 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, including investors, borrowers, and competitors, impacting their level of participation in the financial markets. These factors also impact the level of investment banking activity and asset valuations, which ultimately affect our business results.
Executive overviewEXECUTIVE OVERVIEW
Year ended September 30, 20192022 compared with the year ended September 30, 20182021
NetFor the year ended September 30, 2022, we generated net revenues of $7.74$11.00 billion increased $466 million, or 6%. Pre-taxand pre-tax income of $1.38$2.02 billion, increased $64 million, or 5%. Our net income of $1.03 billion increased $177 million, or 21%,both 13% higher compared with the prior year, which included a lossyear. Our net income available to common shareholders of $105 million related to$1.51 billion was 7% higher than the Tax Cuts and Jobs Act (“Tax Act”),prior year and our earnings per diluted share were $7.17, reflectingof $6.98 reflected a 25%5% increase. We achieved aOur return on common equity of 16.2% for fiscal 2019,(“ROCE”) was 17.0%, compared with 14.4%18.4% for the prior year.
Excluding a $15 million loss onIn fiscal 2022, we completed the saleacquisitions of our operationsCharles Stanley Group PLC (“Charles Stanley”), TriState Capital, and SumRidge Partners, which resulted in incremental revenues and expenses during the year. During the year we also incurred acquisition-related expenses, such as compensation largely related to research, salesretention awards, initial provisions for credit losses on acquired loans and tradingunfunded lending commitments, amortization of European equitiesidentifiable intangible assets, and a $19other costs incurred to effect our acquisitions, such as legal expenses and other professional fees. These expenses totaled $147 million goodwill impairment associated withthis fiscal year, an increase of $65 million over the prior year. Excluding these acquisition-related expenses, our Canadian Capital Markets business, adjusted net income available to common shareholders was $1.07$1.62 billion(1), anincrease of 11%5% compared with adjusted net income of $965 million(1) for the prior year. Adjustedyear, and our adjusted earnings per diluted share were $7.40$7.49(1), a 14%an increase of 3%. Adjusted ROCE for the year was 18.2%(1), compared with adjusted earnings per diluted share of $6.4720.0%(1) forin the prior year. Ouryear, and adjusted return on tangible common equity (“ROTCE”) was 16.7%21.1%(1)for fiscal 2019,, compared with adjusted return on equity of 16.0%22.2%(1) forin the prior year.
The $466 million increase in net revenues compared with the prior year reflectedwas 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. Partially offsetting these increases, brokerage revenues each declined compared with a strong prior year, primarily as a result of market uncertainty during the priorcurrent year.
Compensation, commissions and benefits expense increased $292 million, or 6%11%, dueprimarily attributable to the increasegrowth in compensable net revenues and pre-tax income compared with the prior year, as well as increased staffing levels required to support our continued growth and regulatory compliance requirements. Non-compensation expenses increased $110 million, or 9%. The increase in non-compensation expenses consisted of: the aforementioned $19 million goodwill impairment charge associatedacquisitions. Our compensation ratio was 66.6%, compared with 67.5% for the prior year. Excluding acquisition-related compensation expenses, our Canadian Capital Markets business and $15 million loss onadjusted compensation ratio was 66.1%(1), compared with 67.0%(1) for the sale ofprior year. The decline in the compensation ratio primarily resulted from changes in our operations related to research, sales and trading of European equities; a gross-up of $31 millionrevenue mix due to new accounting guidance that we adopted in fiscal 2019higher net interest income and RJBDP fees from third-party banks, which changed the presentation of certain costs (primarily relatedhave little associated direct compensation.
(1) Adjusted net income available to investment banking transactions) from a net presentation to a gross presentation; and a $45 million increase in other non-compensation expenses, which included increases in communications and information processing, occupancy and equipment, and business development expenses due to continued investments to support our growth.
Our effective income tax rate was 24.8% for fiscal 2019, reflecting a federal corporate statutory tax rate of 21.0% as a result of the Tax Act enacted in December 2017. Our future effective income tax rate may be impacted positively or negatively by non-taxable items (such as the gains or losses earned on our company-owned life insurance and tax-exempt interest), non-deductible expenses (such as meals and entertainment and certain executive compensation), as well as vesting and exercises of equity compensation.
During fiscal 2019, we repurchased 9.83 million shares of common stock under our Board repurchase authorization for $752 million, an average price of approximately $76.50 per share. In total, we repurchased approximately 6.5% of shares outstanding at the beginning of the fiscal year and returned total capital of approximately $945 million to shareholders, through the combination of dividends and share repurchases. As of September 30, 2019, we had $750 million of availability under the Board’s share repurchase authorization announced in August 2019.
1) “Adjusted net income,” “adjustedadjusted earnings per diluted share,” adjusted ROCE, adjusted ROTCE, and “adjusted return on equity”adjusted compensation ratio are each non-GAAP financial measures. In fiscal 2022, certain 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, such as those related to amortization of identifiable intangible assets arising from acquisitions and acquisition-related retention. Prior periods have been conformed to the current presentation. Please see the “Reconciliation of GAAPnon-GAAP financial measures to non-GAAPGAAP financial measures” in this MD&A for a reconciliation of ourthese non-GAAP financial measures to the most directly comparable GAAP measures, and for other important disclosures.
Management’s Discussion and Analysis
A summaryNon-compensation expenses increased 19%, due to incremental expenses from the aforementioned acquisitions, as well as increases in the bank loan provision for credit losses, business development expenses and communications and information processing expenses. The bank loan provision for credit losses increased $132 million to a provision of $100 million in the current year, compared with a benefit of $32 million for the prior year; however, $26 million of this increase related solely to the initial provision recorded 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 the early-redemption of certain of our financial results by segment compared tosenior notes during the prior year, is as follows:which did not recur in the current year.
PCG segment net revenues of $5.36 billion increased 5% and pre-taxOur effective income increased 1% to $579 million.tax rate was 25.4% for fiscal 2022, an increase from 21.7% for the prior year. The increase in net revenuesthe effective tax rate from the prior year was primarily attributabledue to the negative impact of nondeductible valuation losses associated with our company-owned life insurance portfolio 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 includes parent cash loaned to RJ&A. We believe our funding and capital position provide us the opportunity to continue to grow our balance sheet prudently and we expect 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 subsequent to that date repurchased an additional 354 thousand shares, for a cumulative repurchase through November 17, 2022 of approximately 2.1 million shares of our common stock for $200 million or approximately $96 per share. After the effect of those repurchases, $800 million remained under our Board of Directors’ share repurchase authorization. We currently expect to continue to repurchase our common stock in fiscal 2023 to offset the impact of 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 2023. We expect fiscal 2023 results to be further positively impacted by a 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 primarily duewill 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 higher assetssee solid retention of existing advisors. Net loan growth should result in fee-based accounts compared withadditional 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 prior year. The segment also benefited from anmanagement of expenses, we expect that expenses will continue to increase in accountpart as a result of inflationary pressures on our costs, as business and service fees relatedevent-related travel occur throughout the entire fiscal year 2023, and as we continue to the RJBDP, the majority of which related to an increasemake investments in the per-account servicing fee from RJ Bank. These increases were partially offset by a decline in brokerage revenues. Non-interest expenses increased $263 million, or 6%, primarily resulting from a $237 million increase in compensation-related expenses due to higher compensable net revenuesour people and increased staffing levelstechnology to support our continued growth and regulatory compliance requirements. Non-compensation expenses increased $26 million, or 4%, over the prior year.growth.
Capital Markets net revenues of $1.08 billion increased 12% and pre-tax income increased 21% to $110 million. The increase in net revenues was primarily attributable to an increase in investment banking revenues, largely due to merger & acquisition activity. Brokerage revenues also increased, due to an increase in fixed income brokerage revenues, partially offset by a decline in equity brokerage revenues. Non-interest expenses increased $100 million, or 11%, including the aforementioned $19 million goodwill impairment associated with our Canadian Capital Markets business, $15 million loss on the sale of our operations related to research, sales and trading of European equities, $23 million gross-up of certain investment banking transaction-related expenses which were previously netted against revenues, as well as a $30 million increase in compensation expense primarily resulting from the increase in compensable net revenues.
Asset Management segment net revenues of $691 million increased 6% and pre-tax income increased 8% to $253 million. The increase in net revenues was driven by growth in fee-based accounts for PCG clients compared with the prior year. Assets in fee-based accounts increased both in programs managed by the Asset Management segment and in other asset-based programs for which the segment provides administrative support. Non-interest expenses increased $19 million, or 5%, primarily resulting from increased expenses to support the growth of the business and a full year of the Scout Group, which was acquired in November 2017.
RJ Bank net revenues of $846 million increased 16% and pre-tax income increased 5% to $515 million. The increase in net revenues primarily resulted from an increase in net interest income due to growth in average interest-earning assets and an increase in net interest margin, lifted by higher short-term interest rates for most of the year. Non-interest expenses increased $96 million, or 41%, primarily reflecting an increase in RJBDP servicing fees paid to PCG, largely due to an increase in the per-account fee effective October 1, 2018.
Our Other segment reflected a pre-tax loss that was flat compared to the prior year, as higher interest income was offset by an increase in non-interest expenses for the segment.
Year ended September 30, 20182021 compared with the year ended September 30, 20172020
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20182021 Form 10-K for a discussion of our fiscal 20182021 results compared to fiscal 2017.2020.
(1) For additional information, please see the “Liquidity and capital resources - Sources of liquidity” section in this MD&A.
Management’s Discussion and Analysis
Segments
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES
The following table presents our consolidated and segment net revenues and pre-tax income/(loss) for the years indicated.
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| | Year ended September 30, | | % change |
$ in millions | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
Total company | | | | | | | | | | |
Net revenues | | $ | 7,740 |
| | $ | 7,274 |
| | $ | 6,371 |
| | 6 | % | | 14 | % |
Pre-tax income | | $ | 1,375 |
| | $ | 1,311 |
| | $ | 925 |
| | 5 | % | | 42 | % |
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Private Client Group | | |
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Net revenues | | $ | 5,359 |
| | $ | 5,093 |
| | $ | 4,422 |
| | 5 | % | | 15 | % |
Pre-tax income | | $ | 579 |
| | $ | 576 |
| | $ | 373 |
| | 1 | % | | 54 | % |
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Capital Markets | | |
| | |
| | |
| |
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| |
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Net revenues | | $ | 1,083 |
| | $ | 964 |
| | $ | 1,014 |
| | 12 | % | | (5 | )% |
Pre-tax income | | $ | 110 |
| | $ | 91 |
| | $ | 141 |
| | 21 | % | | (35 | )% |
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Asset Management | | |
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Net revenues | | $ | 691 |
| | $ | 654 |
| | $ | 488 |
| | 6 | % | | 34 | % |
Pre-tax income | | $ | 253 |
| | $ | 235 |
| | $ | 172 |
| | 8 | % | | 37 | % |
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RJ Bank | | |
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Net revenues | | $ | 846 |
| | $ | 727 |
| | $ | 593 |
| | 16 | % | | 23 | % |
Pre-tax income | | $ | 515 |
| | $ | 492 |
| | $ | 409 |
| | 5 | % | | 20 | % |
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Other | | |
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Net revenues | | $ | 5 |
| | $ | (15 | ) | | $ | (30 | ) | | NM |
| | 50 | % |
Pre-tax loss | | $ | (82 | ) | | $ | (83 | ) | | $ | (170 | ) | | 1 | % | | 51 | % |
| | | | | | | | | | |
Intersegment eliminations | | |
| | |
| | |
| | | | |
Net revenues | | $ | (244 | ) | | $ | (149 | ) | | $ | (116 | ) | | | | |
Management’s Discussion and Analysis
Reconciliation of GAAP measures to non-GAAP financial measures
We utilize certain non-GAAP financial measures as additional measures to aid in, and enhance, the understanding of our financial results and related measures. These non-GAAP financial measures include adjusted net income, adjusted earnings per diluted share, and adjusted return on equity. We believe eachcertain of these non-GAAP financial measures providesprovide useful information to management and investors by excluding certain material items that may not be indicative of our core operating results. We utilize these non-GAAP financial measures in assessing the financial performance of the business, as they facilitate a 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 to the results of other companies. In the following table,tables, the tax effect of non-GAAP adjustments reflects the statutory rate associated with each non-GAAP item. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures of other companies. The following table providestables provide a reconciliation of GAAP measures to non-GAAP financial measures to the most directly comparable GAAP financial measures for thosethe periods which include non-GAAP adjustments.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 | |
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| | | | |
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 | |
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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 | % |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions, except per share amounts | | 2019 | | 2018 | | 2017 |
Net income | | $ | 1,034 |
| | $ | 857 |
| | $ | 636 |
|
Non-GAAP adjustments: | | | | | | |
Acquisition and disposition-related expenses | | 15 |
| | 4 |
| | 18 |
|
Goodwill impairment | | 19 |
| | — |
| | — |
|
Losses on extinguishment of debt | | — |
| | — |
| | 46 |
|
Jay Peak matter | | — |
| | — |
| | 130 |
|
Tax effect of non-GAAP adjustments | | — |
| | (1 | ) | | (62 | ) |
Impact of the Tax Act | | — |
| | 105 |
| | — |
|
Total non-GAAP adjustments, net of tax | | 34 |
| | 108 |
| | 132 |
|
Adjusted net income | | $ | 1,068 |
| | $ | 965 |
|
| $ | 768 |
|
| | | | | | |
Earnings per diluted share | | $ | 7.17 |
| | $ | 5.75 |
| | $ | 4.33 |
|
Non-GAAP adjustments: | | | | | | |
Acquisition and disposition-related expenses | | 0.10 |
| | 0.03 |
| | 0.12 |
|
Goodwill impairment | | 0.13 |
| | — |
| | — |
|
Losses on extinguishment of debt | | — |
| | — |
| | 0.31 |
|
Jay Peak matter | | — |
| | — |
| | 0.89 |
|
Tax effect of non-GAAP adjustments | | — |
| | (0.01 | ) | | (0.42 | ) |
Impact of the Tax Act | | — |
| | 0.70 |
| | — |
|
Total non-GAAP adjustments, net of tax | | 0.23 |
| | 0.72 |
| | 0.90 |
|
Adjusted earnings per diluted share | | $ | 7.40 |
| | $ | 6.47 |
| | $ | 5.23 |
|
| | | | | | |
Return on equity | | | | | | |
Average equity | | $ | 6,392 |
| | $ | 5,949 |
| | $ | 5,235 |
|
Non-GAAP adjustments: | | | | | | |
Acquisition and disposition-related expenses | | 12 |
| | 3 |
| | 12 |
|
Goodwill impairment | | 4 |
| | — |
| | — |
|
Losses on extinguishment of debt | | — |
| | — |
| | 12 |
|
Jay Peak matter | | — |
| | — |
| | 84 |
|
Tax effect of non-GAAP adjustments | | — |
| | (1 | ) | | (33 | ) |
Impact of the Tax Act | | — |
| | 92 |
| | — |
|
Total non-GAAP adjustments, net of tax | | 16 |
| | 91 |
| | 75 |
|
Adjusted average equity | | $ | 6,408 |
| | $ | 6,043 |
| | $ | 5,310 |
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| | | | | | |
Return on equity | | 16.2 | % | | 14.4 | % | | 12.2 | % |
Adjusted return on equity | | 16.7 | % | | 16.0 | % | | 14.5 | % |
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| | 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 | |
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| | 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 | |
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| | 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 | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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| | 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 | |
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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.
Return on equityROCE 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 return on equity,ROTCE, computed by dividing adjusted net income available to common shareholders by adjusted average tangible common equity for each respective period.
Management’s Discussion and Analysis
Further information about these non-GAAP adjustment can be found
NET INTEREST ANALYSIS
Largely in response to inflationary pressures, the following Notes to Consolidated Financial Statements of this Form 10-K: Notes 3 and 24 for acquisition and disposition-related expenses; Note 11 for the goodwill impairment; Note 16 for more information related to the impact of the Tax Act; and Note 15 for more information related to the losses on extinguishment of debt. For more information regarding the Jay Peak matter, see our 2018 Form 10-K.
Net interest analysis
Short-term interest rates for the majority of fiscal 2019 were higher than in fiscal 2018, as the Federal Reserve raisedFed 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 by 25 basis points in December 2018, in addition to 25 basis point increases in each quarter ofactivity since fiscal 2018. These increases2020.
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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 along with similar increasespositively 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 part of the RJBDP (included in fiscal 2017, have had a significant impact on our overall financial performance, as we have certain assetsaccount and liabilities, primarily held in our PCG and RJ Bank segments,service fees), which are also sensitive to changes in interest rates. However, during our fourth fiscal quarter of 2019, the Federal Reserve announced two decreases in its benchmark short-term interest rate of 25 basis points each, which had a negative impact on our financial performance toward the end of fiscal 2019, and a third decrease of 25 basis points in October 2019. These three rate cuts are expected to have a negative impact on our fiscal 2020 results.
Given the relationship ofbetween our interest-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, including deposit rates paid to clients on their cash balances. Conversely, any decreasesChanges to the regulatory landscape governing the fees the firm earns on client assets, including cash sweep balances, could negatively impact our earnings. In addition, our pace of loan growth may fluctuate over time in response to changes in interest rates. As a result of our diverse funding sources, strong loan growth and high concentration of floating-rate assets, we benefited from the increases in short-term interest rates and/orin fiscal 2022 and believe we are well-positioned for our net interest earnings and RJBDP fees to continue to be favorably impacted by the fiscal year 2022, as well as any fiscal 2023, increases in short-term rates. However, we also expect the deposit rates paidbenefit to clients generally haveour RJBDP fees to be partially offset by a negative impact on our earnings. Effective May 6, 2019, we modified our methodology for crediting interest ondecline in domestic client sweep balances as a portion of this cash balances, changing the basis from total relationship assets at the firm to total relationship cash balances at the firm. Accordingly, although the crediting schedule was revised upward on that date, we experienced a decreasegets invested in the average cost to the firm.higher-yielding investments.
Refer to the discussion of the specific components of our net interest income within the “Management’s Discussion and Analysis of Financial Condition - Results of Operations” forof our PCG, RJ Bank, and Other segments.segments, where applicable. Also refer to “Management’s Discussion and Analysis - Results of Operations - Private Client Group - Clients’ domestic cash sweep balances” for further information on the RJBDP.
Management’s Discussion and Analysis
The following table presents our consolidated average balance,interest-earning asset and interest-bearing liability balances, interest income and expense 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 | % |
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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 | % |
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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 balances are calculated on a daily basis, with the exception of Loans to financial advisors, netdeferred loan fees and Corporate cash and all other, which are calculated based on the average of the end-of-month balances for each month within the period.costs.
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| | Year ended September 30, |
| | 2019 | | 2018 | | 2017 |
$ in millions | | 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 | | $ | 2,399 |
| | $ | 59 |
| | 2.47 | % | | $ | 3,011 |
| | $ | 53 |
| | 1.76 | % | | $ | 3,822 |
| | $ | 38 |
| | 0.99 | % |
Trading instruments | | 733 |
| | 26 |
| | 3.56 | % | | 693 |
| | 23 |
| | 3.32 | % | | 655 |
| | 21 |
| | 3.22 | % |
Available-for-sale securities | | 2,872 |
| | 69 |
| | 2.39 | % | | 2,531 |
| | 52 |
| | 2.07 | % | | 1,588 |
| | 28 |
| | 1.76 | % |
Margin loans | | 2,584 |
| | 122 |
| | 4.73 | % | | 2,590 |
| | 107 |
| | 4.14 | % | | 2,403 |
| | 86 |
| | 3.57 | % |
Bank loans, net: | | | | | |
|
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Loans held for investment: | | | | | | | | | | | | | | | | | | |
C&I loans | | 8,070 |
| | 378 |
| | 4.62 | % | | 7,619 |
| | 326 |
| | 4.22 | % | | 7,340 |
| | 281 |
| | 3.78 | % |
CRE construction loans | | 221 |
| | 12 |
| | 5.51 | % | | 166 |
| | 8 |
| | 5.08 | % | | 129 |
| | 6 |
| | 4.73 | % |
CRE loans | | 3,451 |
| | 159 |
| | 4.53 | % | | 3,231 |
| | 133 |
| | 4.06 | % | | 2,832 |
| | 101 |
| | 3.50 | % |
Tax-exempt loans | | 1,284 |
| | 35 |
| | 3.36 | % | | 1,146 |
| | 30 |
| | 3.42 | % | | 892 |
| | 23 |
| | 3.98 | % |
Residential mortgage loans | | 4,091 |
| | 135 |
| | 3.30 | % | | 3,448 |
| | 109 |
| | 3.16 | % | | 2,803 |
| | 84 |
| | 2.94 | % |
SBL and other | | 3,139 |
| | 145 |
| | 4.57 | % | | 2,690 |
| | 111 |
| | 4.09 | % | | 2,124 |
| | 72 |
| | 3.36 | % |
Loans held for sale | | 151 |
| | 7 |
| | 4.73 | % | | 126 |
| | 5 |
| | 4.01 | % | | 159 |
| | 5 |
| | 3.34 | % |
Total bank loans, net | | 20,407 |
| | 871 |
| | 4.26 | % | | 18,426 |
| | 722 |
| | 3.93 | % | | 16,279 |
| | 572 |
| | 3.55 | % |
Loans to financial advisors, net | | 916 |
| | 18 |
| | 2.01 | % | | 882 |
| | 15 |
| | 1.71 | % | | 836 |
| | 13 |
| | 1.60 | % |
Corporate cash and all other | | 4,658 |
| | 116 |
| | 2.48 | % | | 4,007 |
| | 72 |
| | 1.79 | % | | 3,327 |
| | 44 |
| | 1.32 | % |
Total interest-earning assets | | $ | 34,569 |
| | $ | 1,281 |
| | 3.71 | % | | $ | 32,140 |
| | $ | 1,044 |
| | 3.25 | % | | $ | 28,910 |
|
| $ | 802 |
| | 2.77 | % |
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Interest-bearing liabilities: | | | | |
| | |
| | |
| | |
| | |
| | | | | | |
Bank deposits: | | | | | |
| | | | | |
| | | | | | |
Certificates of deposit | | $ | 536 |
| | $ | 12 |
| | 2.24 | % | | $ | 372 |
| | $ | 6 |
| | 1.67 | % | | 294 |
| | 4 |
| | 1.47 | % |
Savings, money market and Negotiable Order of Withdrawal (“NOW”) accounts | | 20,889 |
| | 120 |
| | 0.58 | % | | 18,473 |
| | 60 |
| | 0.32 | % | | 15,567 |
| | 13 |
| | 0.08 | % |
Trading instruments sold but not yet purchased | | 292 |
| | 7 |
| | 2.50 | % | | 278 |
| | 7 |
| | 2.64 | % | | 289 |
| | 6 |
| | 2.12 | % |
Brokerage client payables | | 3,326 |
| | 21 |
| | 0.62 | % | | 4,147 |
| | 15 |
| | 0.37 | % | | 4,645 |
| | 5 |
| | 0.11 | % |
Other borrowings | | 926 |
| | 21 |
| | 2.30 | % | | 914 |
| | 22 |
| | 2.41 | % | | 856 |
| | 17 |
| | 1.94 | % |
Senior notes payable | | 1,550 |
| | 73 |
| | 4.70 | % | | 1,549 |
| | 73 |
| | 4.69 | % | | 1,689 |
| | 95 |
| | 5.60 | % |
Other | | 738 |
| | 29 |
| | 3.91 | % | | 599 |
| | 19 |
| | 3.10 | % | | 739 |
| | 14 |
| | 1.94 | % |
Total interest-bearing liabilities | | $ | 28,257 |
| | $ | 283 |
| | 1.00 | % | | $ | 26,332 |
| | $ | 202 |
| | 0.77 | % | | $ | 24,079 |
| | $ | 154 |
| | 0.64 | % |
Net interest income | |
|
| | $ | 998 |
| | | |
|
| | $ | 842 |
| | | | | | $ | 648 |
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(2) Nonaccrual loans are included in the average loan balances in the preceding table. Payment or incomebalances. Any payments received onfor corporate nonaccrual loans are applied entirely to principal. IncomeInterest income on residential mortgage nonaccrual loans is recognized on a cash basis.
Fee income on all loans included in interest income for the years ended September 30, 2019, 2018 and 2017 was $18 million, $24 million and $38 million, respectively.
(3) The yield on tax-exempt loans in the preceding table is presented on a tax-equivalenttaxable-equivalent basis utilizing the applicable federal statutory rates for each of the years presented.
(4) The average balance, interest expense, and average rate for “Total bank deposits” included amounts associated with affiliate deposits. Such amounts are eliminated in consolidation and are offset in “All other interest-bearing liabilities” under “All other segments”.
Management’s Discussion and Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. Changes attributable to both volume and rate have been allocated proportionately.
Results of Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 Analysis
RESULTS OF OPERATIONS – Private Client GroupPRIVATE CLIENT GROUP
Through our PCG segment, we provide financial planning, investment advisory and securities transaction services for which we generally charge either asset-based fees (presented in “Asset management and related administrative fees”) or sales commissions (presented in “Brokerage revenues”). We also earn revenues for distribution and related support services performed primarily related primarily to mutual funds, fixed and variable annuities and insurance products. Revenues ofAsset management and related administrative fees and brokerage revenues in 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.
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. Servicing fees earned from mutual fund and annuity companies are generally based on the level of assets, a flat fee or number of positions in such programs. WeOur PCG segment also earnearns fees from banks to which we sweep clientclients’ cash in the RJBDP, including both third-party banks and RJ Bank.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 assets segregated pursuant to regulations, less interest paid on client cash balances in the Client Interest Program (“CIP”).CIP. Amounts are impacted by client cash balances in the CIP and short-term interest rates. Higher client cash balances generally lead to increased net interest income, depending on interest rate spreads realized in the CIP.CIP (i.e., between interest received on assets segregated for regulatory purposes and interest paid on CIP balances). For more information on client cash balances, see “Clients’ domestic cash sweep balances” in the “Selected key metrics” section.
For an overview of our PCG segment operations, refer to the information presented in Item“Item 1 “Business”- Business” of this Form 10-K.
47
Management’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 | % |
|
| | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | % change |
$ in millions | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
Revenues: | | | | | | | | | | |
Asset management and related administrative fees | | $ | 2,820 |
| | $ | 2,517 |
| | $ | 2,022 |
| | 12 | % | | 24 | % |
Brokerage revenues: | | | | | | | |
|
| |
|
|
Mutual and other fund products | | 599 |
| | 703 |
| | 698 |
| | (15 | )% | | 1 | % |
Insurance and annuity products | | 412 |
| | 414 |
| | 385 |
| | — |
| | 8 | % |
Equities, ETFs and fixed income products | | 378 |
| | 432 |
| | 424 |
| | (13 | )% | | 2 | % |
Total brokerage revenues | | 1,389 |
|
| 1,549 |
|
| 1,507 |
| | (10 | )% | | 3 | % |
Account and service fees: | | | | | | | |
|
| |
|
|
Mutual fund and annuity service fees | | 334 |
| | 332 |
| | 291 |
| | 1 | % | | 14 | % |
RJBDP fees: | | | | | | | |
|
| |
|
|
Third-party banks | | 280 |
| | 262 |
| | 202 |
| | 7 | % | | 30 | % |
RJ Bank | | 173 |
| | 92 |
| | 68 |
| | 88 | % | | 35 | % |
Client account and other fees | | 122 |
| | 111 |
| | 116 |
| | 10 | % | | (4 | )% |
Total account and service fees | | 909 |
|
| 797 |
|
| 677 |
| | 14 | % | | 18 | % |
Investment banking | | 32 |
| | 35 |
| | 62 |
| | (9 | )% | | (44 | )% |
Interest income | | 225 |
| | 193 |
| | 153 |
| | 17 | % | | 26 | % |
All other | | 26 |
| | 30 |
| | 17 |
| | (13 | )% | | 76 | % |
Total revenues | | 5,401 |
|
| 5,121 |
|
| 4,438 |
| | 5 | % | | 15 | % |
Interest expense | | (42 | ) | | (28 | ) | | (16 | ) | | 50 | % | | 75 | % |
Net revenues | | 5,359 |
| | 5,093 |
| | 4,422 |
| | 5 | % | | 15 | % |
Non-interest expenses: | | |
| | |
| | |
| |
|
| |
|
|
Financial advisor compensation and benefit costs | | 3,190 |
| | 3,051 |
| | 2,653 |
| | 5 | % | | 15 | % |
Administrative compensation and benefit costs | | 933 |
| | 835 |
| | 713 |
| | 12 | % | | 17 | % |
Total compensation, commissions and benefits | | 4,123 |
| | 3,886 |
| | 3,366 |
| | 6 | % | | 15 | % |
Non-compensation expenses: | | | | | | | |
|
| |
|
|
Communications and information processing | | 235 |
| | 220 |
| | 180 |
| | 7 | % | | 22 | % |
Occupancy and equipment costs | | 168 |
| | 154 |
| | 146 |
| | 9 | % | | 5 | % |
Business development | | 124 |
| | 115 |
| | 98 |
| | 8 | % | | 17 | % |
Professional fees | | 33 |
| | 46 |
| | 30 |
| | (28 | )% | | 53 | % |
Jay Peak matter | | — |
| | — |
| | 130 |
| | — |
| | (100 | )% |
All other | | 97 |
| | 96 |
| | 99 |
| | 1 | % | | (3 | )% |
Total non-compensation expenses | | 657 |
| | 631 |
| | 683 |
| | 4 | % | | (8 | )% |
Total non-interest expenses | | 4,780 |
| | 4,517 |
| | 4,049 |
| | 6 | % | | 12 | % |
Pre-tax income | | $ | 579 |
| | $ | 576 |
| | $ | 373 |
| | 1 | % | | 54 | % |
Pre-tax margin on net revenues | | 10.8 | % |
| 11.3 | % |
| 8.4 | % | | | | |
Selected key metrics
PCG client asset balances:
|
| | | | | | | | | | | | |
| | As of September 30, |
$ in billions | | 2019 | | 2018 | | 2017 |
AUA | | $ | 798.4 |
| | $ | 755.7 |
| | $ | 659.5 |
|
Assets in fee-based accounts (1) | | $ | 409.1 |
| | $ | 366.3 |
| | $ | 294.5 |
|
Percent of AUA in fee-based accounts | | 51.2 | % |
| 48.5 | % |
| 44.7 | % |
48
| |
(1) | A portion of our “Assets in fee-based accounts” is invested in “managed programs” overseen by our Asset Management segment, specifically AMS. These assets are included in our Financial assets under management as disclosed in the “Selected key metrics” section of our “Management’s Discussion and Analysis - Results of Operations - Asset Management.” |
Management’s Discussion and Analysis
Selected key metrics
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 management as disclosed in the “Selected key metrics” section of our “Management’s Discussion and 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 AUA due to many clients’ preference for fee-based alternatives versus transaction-based accounts and, as a result, a significant portion of our PCG revenues is more directly impacted by market movements.
Fee-based accounts within our PCG segment are comprised of a wide array of products and programs that we offer our clients. The majority of assets in fee-based accounts within our PCG segment are invested in programs for which our financial advisors provide investment advisory services, either on a discretionary or non-discretionary basis. Administrative services for such accounts (e.g., record-keeping) are generally performed by our Asset Management segment and, as a result, a portion of the related revenuesrevenue is shared with the Asset Management segment.
We also offer our clients fee-based accounts that are invested in “managed programs” overseen by AMS, which is part of our Asset Management segment. Fee-billable assets invested in managed programs are included in both “Assets in fee-based accounts” in the preceding table and “Financial assets under management” in the Asset Management segment. Revenues related to managed programs are shared by our PCG and Asset Management segments. The Asset Management segment receives a higher portion of the revenues related to accounts invested in managed programs, as compared to the portion received for non-managed programs, as it is performing portfolio management services in addition to administrative services.
The vast majority of the revenues we earn from fee-based accounts areis recorded in “Asset management and related administrative fees” on our Consolidated Statements of Income and Comprehensive Income. Fees received from such accounts are based on the value of client assets in fee-based accounts and vary based on the specific account types in which the client participatesinvests and the level of assets in the client relationship. As fees for substantially allthe 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 impactedaffected by changes in asset values, but rather the impacts are seen in the following quarter.
PCG assets under administration increased compared with the prior year due to the net addition of financial advisors and equity market appreciation. In addition, PCG assets Assets in fee-based accounts continued to increasein this segment decreased 3% as a percentage of overall September 30, 2022 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 under administration due to clients’ preference forassociated with firms affiliated with us through our RCS division of $108.5 billion as of September 30, 2022, $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 alternatives versus traditional transaction-based accounts. As a resultassets. Based on the nature of the shiftservices provided to fee-based accounts, a larger portion of our PCGsuch firms, revenues related to these assets are more directly impacted by market movements.included in “Account and services fees.”
Financial advisors: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
|
| | | | | | | | | |
| | September 30, |
| | 2019 | | 2018 | | 2017 |
Employees | | 3,301 |
| | 3,167 |
| | 3,041 |
|
Independent contractors | | 4,710 |
|
| 4,646 |
| | 4,305 |
|
Total advisors | | 8,011 |
| | 7,813 |
| | 7,346 |
|
The number of financial advisors as of September 30, 2022 increased primarilycompared to the prior year due to continuedstrong 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 and high levelspipeline remains robust across our affiliation options; however, the timing of retention.financial advisors joining the firm may be impacted by market uncertainty.
Clients’ domestic cash sweep balances: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 | |
|
| | | | | | | | | | | | |
| | As of |
$ in millions | | September 30, 2019 | | September 30, 2018 | | September 30, 2017 |
RJBDP | | | | | | |
RJ Bank | | $ | 21,649 |
| | $ | 19,446 |
| | $ | 17,387 |
|
Third-party banks | | 14,043 |
| | 15,564 |
| | 20,704 |
|
Subtotal RJBDP | | 35,692 |
| | 35,010 |
| | 38,091 |
|
Money market funds | | — |
| | 3,240 |
| | 1,818 |
|
CIP | | 2,022 |
| | 2,807 |
| | 3,101 |
|
Total clients’ domestic cash sweep balances | | $ | 37,714 |
| | $ | 41,057 |
| | $ | 43,010 |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | 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 included in the RJBDP, a multi-bank sweep program in which clients’ cash deposits in their accounts are swept into interest-bearing deposit accounts at RJeither Raymond James Bank andor TriState Capital Bank, which are included in our Bank segment, or various third-party banks. We earnOur PCG segment earns servicing fees for the administrative services we provide related to our clients’ deposits that are swept to such banks as part of the RJBDP. The amounts from third-party banksThese servicing fees are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates relative toand the interest paid to clients on balances in the RJBDP. TheUnder our current intersegment policies, the PCG segment also earnsreceives 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 RJthe Bank which are basedsegment, as well as the servicing costs incurred on the number of accounts that are swept to RJ Bank. The fees from RJdeposits in the Bank segment, are eliminated in consolidation. On October 1, 2018, the per-account servicing fee from RJ Bank was increased to reflectcomputation of our consolidated results.
The “Average yield on RJBDP - third-party banks” in the current cost of administration.
While the level of short-term interest rates has generally risen in recent years due to several rate increasespreceding table is computed by the Federal Reserve, market deposit rates paid on client cash balances did not increase to as great a degree, resulting in an increase in RJBDP fees earned
Management’s Discussion and Analysis
from third-party banks. However, the rate decreases announced by the Fed during the fourth quarter of fiscal 2019 caused a decline in ourdividing 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. We 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 the year. Any additional decreases in short-term interest rates, suchfiscal 2022, as well as the one announced by the Federal Reserverate increase in October 2019, increases in deposit rates paidNovember 2022, with our average yield on RJBDP - third-party banks expected to clients, and/or a significant decline inapproximate 2.5% for our clients’fiscal first quarter of 2023.
Although client cash balances would likely haveremained elevated for the majority of fiscal 2022, cash balances declined at the end of the year, resulting in only a negative impact on our earnings. The impact on our earnings1% increase as of any future fluctuations in short-term interest rates will be largely dependent upon the change in the deposit rate paid on clientSeptember 30, 2022 compared with September 30, 2021. We expect this recent trend to continue into fiscal 2023, as clients continue to move cash balances. Further,from lower-yielding bank deposits to higher-yielding investment products. PCG segment results arecan be impacted not only by changes in the level of client cash balances, but also by the allocation of client cash balances inbetween RJBDP and our CIP, as the RJBDP between RJ Bank and third-party banks. PCG generally earns a higher ratesegment may earn different amounts from each of these client cash destinations, depending on cash held at third-party banks.multiple factors.
Money market funds were discontinued as a sweep option in June 2019. Balances in those funds were converted to the RJBDP or reinvested by the client.
Year ended September 30, 20192022 compared with the year ended September 30, 20182021
Net revenues of $5.36$7.71 billion increased $266 million, or 5%, compared with the prior year while17% and pre-tax income of $579 million$1.03 billion increased $3 million, or 1%38%.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Asset management and related administrative fees increased $303$654 million, or 12%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, reflecting successful financial advisor recruitingprior-year quarterly billing periods and, retention, the continued shift to fee-based accountsa lesser extent, incremental revenues arising from traditional transaction-based accounts, and equity market appreciation.our acquisition of Charles Stanley.
Brokerage revenues declined $160decreased $30 million, or 10%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 a decline in mutual fund trails, which were impacted by a conversion of client assets into mutual fund share classes which pay lower rates and the continued shift to fee-based accounts.Charles Stanley.
Total accountAccount and service fees increased $112$383 million, or 14%46%, primarily due to an increase in RJBDP fees from both third-party banks and our 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 also increased, resulting from incremental revenues from our acquisitions of NWPS Holdings Inc. at the end of our fiscal first quarter of 2021 and Charles Stanley in our fiscal second quarter of 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 higher average CIP balances during the current year. Although client cash balances remained elevated for the majority of fiscal 2022, 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 RJBDP fees from RJ Bank due to an increase in the per-account servicingasset management fee and, to a lesser extent, an increase in the number of accounts. RJBDP fees from third-party banks also increased, driven by higher short-term interest rates for most of fiscal 2019.
Net interest income increased $18 million, or 11%, driven by an increase in interest income from client margin loans due to higher average short-term interest rates. Offsetting the increase in interest income, interest expense also increased due to the impact of higher average interest rates paid on client cash balances in the CIP, partially offset by lower client cash balances.
Compensation-related expenses increased $237 million, or 6%, due to higher compensable net revenues, as well as increased staffing levelsincremental expenses resulting from our acquisition of Charles Stanley and an increase in compensation costs to support our continued growth and regulatory compliance requirements.growth.
Non-compensation expenses increased $26$142 million, or 4%22%, primarily due todriven by incremental expenses resulting from our acquisition of Charles Stanley, increases in travel and event-related expenses compared with the low levels incurred in the prior year, higher communications and information processing expense as a resultexpenses primarily due to ongoing enhancements of our continued investment in technology infrastructure to support our growth,platforms, and higher occupancy and equipment and business development expenses, which were driven by branch expansion in our employee affiliation option as well as financial advisor growth. These increases were offset by a decrease in professional fees, primarily as a result of decreased consulting expenses.increasing real estate rent costs.
Year ended September 30, 20182021 compared with the year ended September 30, 20172020
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20182021 Form 10-K for a discussion of our fiscal 20182021 results compared to fiscal 2017.2020.
Results of OperationsRESULTS OF OPERATIONS – Capital MarketsCAPITAL MARKETS
Our Capital Markets segment conducts fixed income and equityinvestment banking, institutional sales, andsecurities trading, activities, 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 provide 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 transaction and the number and sizes of the transactions with which we are involved.
We earn brokerage revenues for the sale of both equity and fixed income products 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 for clients. In certain cases, we transact on a principal basis, which involves the purchase of securities from, and the sale of securities to, our clients as well as other dealers who may be purchasing or selling securities for their own account or acting on behalf of their clients. Profits and losses related to this activity are primarily derived from the spreads between bid and ask prices, as well as market trends for the individual securities during the period we hold them. To facilitate such transactions, we carry inventories of financial instruments. In our fixed income businesses, we also enter into interest rate swaps and futures contracts to facilitate client transactions or to actively manage risk exposures.
Management’s Discussion and Analysis
We provide various investment banking services, including public and private equity and debt financing activities, public financing 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“Item 1 “Business”- Business” of this Form 10-K.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | | % change |
$ in millions | | 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, | | % change |
$ in millions | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
Revenues: | | | | | | | | | | |
Brokerage revenues: | | | | | | | | | | |
Equity | | $ | 131 |
| | $ | 156 |
| | $ | 173 |
| | (16 | )% | | (10 | )% |
Fixed income | | 283 |
| | 245 |
| | 311 |
| | 16 | % | | (21 | )% |
Total brokerage revenues | | 414 |
| | 401 |
| | 484 |
| | 3 | % | | (17 | )% |
Investment banking: | | | | | | | |
|
| |
|
|
Equity underwriting | | 100 |
| | 93 |
| | 117 |
| | 8 | % | | (21 | )% |
Merger & acquisition and advisory | | 369 |
| | 297 |
| | 228 |
| | 24 | % | | 30 | % |
Fixed income investment banking | | 95 |
| | 76 |
| | 84 |
| | 25 | % | | (10 | )% |
Total investment banking | | 564 |
|
| 466 |
|
| 429 |
| | 21 | % | | 9 | % |
Interest income | | 38 |
| | 32 |
| | 27 |
| | 19 | % | | 19 | % |
Tax credit fund revenues | | 86 |
| | 79 |
| | 79 |
| | 9 | % | | — |
|
All other | | 15 |
| | 14 |
| | 16 |
| | 7 | % | | (13 | )% |
Total revenues | | 1,117 |
| | 992 |
| | 1,035 |
| | 13 | % | | (4 | )% |
Interest expense | | (34 | ) | | (28 | ) | | (21 | ) | | 21 | % | | 33 | % |
Net revenues | | 1,083 |
| | 964 |
| | 1,014 |
| | 12 | % | | (5 | )% |
Non-interest expenses: | | |
| | |
| | |
| |
|
| |
|
|
Compensation, commissions and benefits | | 665 |
| | 635 |
| | 646 |
| | 5 | % | | (2 | )% |
Non-compensation expenses: | | | | | | | |
|
| |
|
|
Communications and information processing | | 75 |
| | 73 |
| | 70 |
| | 3 | % | | 4 | % |
Occupancy and equipment costs | | 35 |
| | 34 |
| | 34 |
| | 3 | % | | — |
|
Business development | | 48 |
| | 45 |
| | 38 |
| | 7 | % | | 18 | % |
Professional fees | | 45 |
| | 14 |
| | 14 |
| | 221 | % | | — |
|
Acquisition and disposition-related expenses | | 15 |
| | — |
| | — |
| | NM |
| | — |
|
Goodwill impairment | | 19 |
| | — |
| | — |
| | NM |
| | — |
|
All other | | 71 |
| | 72 |
| | 71 |
| | (1 | )% | | 1 | % |
Total non-compensation expenses | | 308 |
| | 238 |
| | 227 |
| | 29 | % | | 5 | % |
Total non-interest expenses | | 973 |
| | 873 |
| | 873 |
| | 11 | % | | — |
|
Pre-tax income | | $ | 110 |
| | $ | 91 |
| | $ | 141 |
| | 21 | % | | (35 | )% |
Pre-tax margin on net revenues | | 10.2 | % | | 9.4 | % | | 13.9 | % | | | | |
Year ended September 30, 20192022 compared with the year ended September 30, 20182021
Net revenues of $1.08$1.81 billion increased $119 million, or 12%,decreased 4% and pre-tax income of $110$415 million increased $19 million, or 21%decreased 22%.
Total brokerageInvestment banking revenues increased $13decreased $34 million, or 3%, with an increasedue to a significant decline in both equity and debt underwriting activity, resulting from the impact of market uncertainty during the current year. Merger & acquisition and advisory revenues increased, reflecting high levels of client activity, as well as a full year of revenues related to our fiscal 2021 acquisitions of 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.
Brokerage revenues decreased $70 million, or 11%, due to a significant decrease in fixed income brokerage revenues, morewhich remained solid but were lower than offsetting a decline in equity brokerage revenues. The increase in fixed income brokerage revenues was primarily due to an increase in client activity during the currentprior year as a result of increaseda challenging and uncertain interest rate volatility and client reinvestment. Equityenvironment 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 challengednegatively impacted by the industry trend toward the separate payment for researchmarket uncertainty and execution services and the shifta decline in cash balances at our depository institution clients during fiscal 2023; however, we expect some amount of offsetting benefit to our results from high- to low-touch execution services.a full year of revenues from SumRidge Partners.
Investment bankingAffordable housing investment business revenues increased $98$22 million, or 21%, led by increased merger & acquisition and advisoryprimarily reflecting continued strong business activity and, to a lesser extent, an increase in fixed income investment banking net revenues.levels as well as gains on the sales of certain properties during the current year.
Compensation-related expenses increased $30$10 million, or 5%1%, due to higher share-based compensation amortization and salaries, primarily attributabledue to the increase inour acquisition of SumRidge Partners and a full year of our prior year acquisitions of Financo and Cebile, inflationary and market compensation pressures, and to support our growth, partially offset by a decrease resulting from lower compensable net revenues.
52
Management’s Discussion and Analysis
Non-compensation expenses increased $70$31 million, or 29%10%, primarily due to increased travel and event-related expenses, as the current year was negatively impacted by a $15 million loss associated with the sale of our operations related to research, sales and trading of European equities and a $19 million goodwill impairmentwell as an increase in expenses associated with our Canadian Capital Markets business. In addition, professional fees increased $31 million, largelyacquisition of SumRidge Partners and to support our growth, partially offset by lower investment banking deal expenses due to new accounting guidance that we adopted effective October 1, 2018, which changedlower underwriting revenues compared with the presentation of certain costs related to investment banking transactions from a net presentation to a gross presentation.prior year.
Year ended September 30, 20182021 compared with the year ended September 30, 20172020
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20182021 Form 10-K for a discussion of our fiscal 20182021 results compared to fiscal 2017.2020.
Results of OperationsRESULTS OF OPERATIONS – Asset ManagementASSET MANAGEMENT
Our Asset Management segment earns asset management and related administrative fees for providing asset management, portfolio management and related administrative services forto retail and institutional clients. This segment oversees the portion of our fee-based AUA invested in “managed programs” for our PCG clients through AMS and through RJ Trust. This segment also provides asset management services through Carillon Tower AdvisersRaymond James Investment Management for certain retail accounts managed on behalf of third-party institutions, institutional accounts, orand proprietary mutual funds that we manage.manage, generally utilizing active portfolio management strategies. Asset management fees are based on fee-billable AUM,assets under management, which isare impacted by market fluctuations and net inflows or outflows of assets. Rising equity markets have historically had a positive impact on revenues as existing accounts increase in value. 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 net inflows or outflows of assets.
For an overview of our Asset Management segment operations, refer to the information presented in Item“Item 1 “Business”- 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, | | % change |
$ in millions | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
Revenues: | | | | | | | | | | |
Asset management and related administrative fees: | | | | | | | | | | |
Managed programs | | $ | 467 |
| | $ | 454 |
| | $ | 326 |
| | 3 | % | | 39 | % |
Administration and other | | 178 |
| | 156 |
| | 127 |
| | 14 | % | | 23 | % |
Total asset management and related administrative fees | | 645 |
| | 610 |
| | 453 |
| | 6 | % | | 35 | % |
Account and service fees | | 31 |
| | 28 |
| | 20 |
| | 11 | % | | 40 | % |
All other | | 15 |
| | 16 |
| | 15 |
| | (6 | )% | | 7 | % |
Net revenues | | 691 |
| | 654 |
| | 488 |
| | 6 | % | | 34 | % |
Non-interest expenses: | | |
| | |
| | |
| |
|
| |
|
|
Compensation, commissions and benefits | | 179 |
| | 170 |
| | 123 |
| | 5 | % | | 38 | % |
Non-compensation expenses: | | | | | | | |
|
| |
|
|
Communications and information processing | | 44 |
| | 38 |
| | 30 |
| | 16 | % | | 27 | % |
Investment sub-advisory fees | | 93 |
| | 90 |
| | 75 |
| | 3 | % | | 20 | % |
All other | | 122 |
| | 121 |
| | 88 |
| | 1 | % | | 38 | % |
Total non-compensation expenses | | 259 |
| | 249 |
| | 193 |
| | 4 | % | | 29 | % |
Total non-interest expenses | | 438 |
| | 419 |
| | 316 |
| | 5 | % | | 33 | % |
Pre-tax income | | $ | 253 |
| | $ | 235 |
| | $ | 172 |
| | 8 | % | | 37 | % |
Pre-tax margin on net revenues | | 36.6 | % | | 35.9 | % | | 35.2 | % | |
|
| |
|
|
Management’s Discussion and Analysis
Selected key metrics
Managed programs
Management fees recorded in our Asset Management segment are generally calculated as a percentage of the value of our fee-billable AUM. These AUM include the portion of fee-based AUA in our PCG segment that areis invested in programs overseen by our Asset Management segment (included in the AMS“AMS” line of the following table), as well as retail accounts managed on behalf of third-party institutions, institutional accounts orand proprietary mutual funds that we manage (included(collectively included in the “Carillon Tower Advisers”“Raymond James Investment Management” line of the following table).
Revenues related to fee-based AUA in our PCG segment are shared by the PCG and Asset Management segments, the amount of which depends on whether or not clients are invested in assets that are in managed programs overseen by our Asset Management segment and the administrative services provided (see our “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for more information). Our financial assets under managementAUM in AMS are impacted by market fluctuations and net inflows or outflows of assets, including transfers between fee-based accounts and traditional transaction-based accounts within our PCG segment.
Revenues earned by Carillon Tower AdvisersRaymond James Investment Management for retail accounts managed on behalf of third-party institutions, institutional accounts orand our proprietary mutual funds are recorded entirely in the Asset Management segment. Our financial assets under managementAUM in Carillon Tower AdvisersRaymond James Investment Management are impacted by market and investment performance and net inflows or outflows of assets.assets, including the impact of acquisitions.
Fees for our managed programs are generally collected quarterly andquarterly. Approximately 65% of these fees are based on balances as of the beginning of the quarter or(primarily in AMS), approximately 15% are based on balances as of the end of the quarter, orand approximately 20% are based on average daily balances.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 | | 2019 | | 2018 | | 2017 |
AMS (1) | | $ | 91,802 |
| | $ | 83,289 |
| | $ | 69,962 |
|
Carillon Tower Advisers | | 58,521 |
| | 63,330 |
| | 31,831 |
|
Subtotal financial assets under management | | 150,323 |
| | 146,619 |
| | 101,793 |
|
Less: Assets managed for affiliated entities | | (7,221 | ) | | (5,702 | ) | | (5,397 | ) |
Total financial assets under management | | $ | 143,102 |
| | $ | 140,917 |
| | $ | 96,396 |
|
(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) | Represents the portion of our PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and Analysis - Results of Operations - Private Client Group”) that is invested in managed programs overseen by the Asset Management segment. |
Activity (including activity in assets managed for affiliated entities):
| | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, | |
$ in billions | | 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 | | 2019 | | 2018 | | 2017 |
Financial assets under management at beginning of year | | $ | 146,619 |
| | $ | 101,793 |
| | $ | 81,729 |
|
Carillon Tower Advisers: | | | | | | |
Scout Group acquisition | | — |
| | 27,087 |
| | — |
|
Other - net inflows/(outflows) | | (5,784 | ) | | (63 | ) | | 246 |
|
AMS - net inflows | | 5,962 |
| | 9,279 |
| | 9,666 |
|
Net market appreciation in asset values | | 3,526 |
| | 8,523 |
| | 10,152 |
|
Financial assets under management at end of year | | $ | 150,323 |
| | $ | 146,619 |
| | $ | 101,793 |
|
(1)Represents June 1, 2022 assets under management of Chartwell Investment Partners, a registered investment advisor acquired as part of the TriState Capital acquisition. See Note 3 of the Notes to Consolidated Financial Statements of this Form 10-K for further information about this acquisition.
AMS division of RJ&A
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.
Management’s Discussion and Analysis
Raymond James Investment Management
Carillon Tower Advisers
Assets managed by Carillon Tower AdvisersRaymond James Investment Management include assets managed by its subsidiaries and affiliates:our subsidiaries: Eagle Asset Management, Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management, Cougar Global Investments, and the Scout Group.Chartwell Investment Partners (“Chartwell”), which was acquired on June 1, 2022 in connection with our acquisition of TriState Capital. The following table presents Carillon Tower Advisers’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 for the most recent fiscal year period.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 | % |
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| | | | | | |
$ in millions | | September 30, 2019 | | Average fee rate |
Equity | | $ | 28,923 |
| | 0.51% |
Fixed income | | 24,776 |
| | 0.18% |
Balanced | | 4,822 |
| | 0.37% |
Total financial assets under management | | $ | 58,521 |
| | 0.36% |
Non-discretionary asset-based programs
AssetsThe 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) totaled $229.7 billion, $200.1 billion,. 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 $157.0 billion asAnalysis - Results of September 30, 2019, 2018 and 2017, respectively. Operations - Private Client Group”).
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| | Year ended September 30, |
$ in billions | | 2022 | | 2021 | | 2020 |
Total assets | | $ | 329.2 | | | $ | 365.3 | | | $ | 280.6 | |
The increasedecrease in assets overcompared to the prior year was primarilylargely due to clients moving to fee-based accounts from traditional transaction-based accounts, successful financial advisor recruiting anda decline in market appreciation.values during the year. Administrative fees associated with these programs are predominantly calculated based on balances at the beginning of the quarter.each quarterly billing period.
RJ Trust
AssetsThe following table includes assets held in asset-based programs in RJ Trust (including those managed for affiliated entities) totaled $6.6 billion, $6.1 billion, and $5.5 billion as of September 30, 2019, 2018 and 2017, respectively..
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| | Year ended September 30, |
$ in billions | | 2022 | | 2021 | | 2020 |
Total assets | | $ | 7.3 | | | $ | 8.1 | | | $ | 7.1 | |
Year ended September 30, 20192022 compared with the year ended September 30, 20182021
Net revenues of $691$914 million increased $37 million, or 6%,5% and pre-tax income of $253$386 million decreased 1%.
Asset management and related administrative fees increased $18$45 million, or 8%.
Total5%, 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 fee revenuesfees are billed based on balances as of the beginning of the quarter.
Compensation expenses increased $35$12 million, or 6%7%, driven by growth in fee-based accounts for PCG clients compared with the prior year. Assets in fee-based accounts increased both in managed programs overseen by the Asset Management segment and in non-discretionary asset-based programs for which the segment provides administrative support.
Compensation and benefits expense increased $9 million, or 5%, primarily due to an increase in personnelsalaries due to labor market pressures and to support theour growth, of the business and, to a lesser extent, a full year ofas well as incremental compensation expenses related to the Scout Group, which was acquired in November 2017.
Chartwell. Non-compensation expenses increased $10$38 million, or 4%13%, primarilylargely due to an increasehigher investment sub-advisory fees, resulting from higher assets under management in communications and information processingsub-advised programs for most of the current fiscal year, as well as incremental expenses as we invest in technologydue to support our growth.the acquisition of Chartwell.
Year ended September 30, 20182021 compared to the year ended September 30, 20172020
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20182021 Form 10-K for a discussion of our fiscal 20182021 results compared to fiscal 2017.2020.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
RESULTS OF OPERATIONS – RJBANK
The Bank
RJ Bank segment provides various types of loans, including SBL, corporate loans, residential mortgage loans, and tax-exempt loans, residential loans, SBL and other loans. RJOur Bank segment is active in corporate loan syndications and participations and lending directly to clients. We also providesprovide FDIC-insured deposit accounts, including to clients of our broker-dealer subsidiaries. RJsubsidiaries, as well as other deposit and liquidity management products and services. Our 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. 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 interest-bearing liabilities. For more information on average interest-earning asset and interest-bearing liability balances and the related interest income and expense, see the following discussion in this MD&A.
For an overview of our RJ Bank segment operations, refer to the information presented in Item“Item 1 “Business”- 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.
Management’s Discussion and Analysis
Operating results
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| | 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 | % |
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| | Year ended September 30, | | % change |
$ in millions | | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
Revenues: | | | | | | | | | | |
Interest income | | $ | 975 |
| | $ | 793 |
| | $ | 610 |
| | 23 | % | | 30 | % |
Interest expense | | (155 | ) | | (89 | ) | | (35 | ) | | 74 | % | | 154 | % |
Net interest income | | 820 |
| | 704 |
| | 575 |
| | 16 | % | | 22 | % |
All other | | 26 |
| | 23 |
| | 18 |
| | 13 | % | | 28 | % |
Net revenues | | 846 |
| | 727 |
| | 593 |
| | 16 | % | | 23 | % |
Non-interest expenses: | | |
| | |
| | |
| |
|
| |
|
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Compensation and benefits | | 49 |
| | 41 |
| | 34 |
| | 20 | % | | 21 | % |
Non-compensation expenses: | | | | | | | | | | |
Loan loss provision | | 22 |
| | 20 |
| | 13 |
| | 10 | % | | 54 | % |
RJBDP fees to PCG | | 173 |
| | 92 |
| | 68 |
| | 88 | % | | 35 | % |
All other | | 87 |
| | 82 |
| | 69 |
| | 6 | % | | 19 | % |
Total non-compensation expenses | | 282 |
| | 194 |
| | 150 |
| | 45 | % | | 29 | % |
Total non-interest expenses | | 331 |
| | 235 |
| | 184 |
| | 41 | % | | 28 | % |
Pre-tax income | | $ | 515 |
| | $ | 492 |
| | $ | 409 |
| | 5 | % | | 20 | % |
Pre-tax margin on net revenues | | 60.9 | % | | 67.7 | % | | 69.0 | % | | | | |
Year ended September 30, 20192022 compared with the year ended September 30, 20182021
Net revenues of $846 million$1.08 billion increased $119 million, or 16%,61% and pre-tax income of $515$382 million increased $23 million, or 5%4%.
Net interest income increased $116$411 million, or 16%64%, due to a $2.74 billionthe increase in short-term interest rates, higher average interest-earning assets, as well as incremental net interest income from the acquisition of TriState Capital Bank on June 1, 2022. The increase in average interest-earning banking assets was primarily driven by significant growth in SBL and residential mortgage loans, as well as higher average corporate loans and available-for-sale securities. The Bank segment net interest margin increased to 2.39% from 1.95% 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 initial 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 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 the impact of loan growth. We expect to continue to grow our bank loan portfolio. Net loan growth should result in additional 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 TriState Capital Bank.
Non-compensation expenses, excluding the bank 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 acquisition compared with a benefit for the prior year. RJBDP fees to PCG increased $174 million, or 95%, due to an increase in short-term interest rates as well as an increase in net interest margin. The increaseclient cash swept to Raymond James Bank as part of the RJBDP. As described in average interest-earning banking assets was driven by growth“Management’s Discussion and Analysis - Results of Operations - Private Client Group”, our Bank segment pays servicing fees to our PCG segment for the administrative services provided related to our clients’ deposits that are swept to our Bank segment as part of the RJBDP. These servicing fees are variable in average loansnature and fluctuate based on client cash balances in the program, as well as the level of $1.98 billion and a $442 million increase in our average available-for-sale securities portfolio. The net interest margin increased to 3.32% from 3.22% due to an increase in asset yields, reflecting higher short-term interest rates for much ofand the year, partially offset by an increase in total cost of funds. The increase in total cost of funds resulted from higher deposit costs due to higher interest rates. Corresponding to the increase in average interest-earning banking assets, average interest-bearing banking liabilities increased $2.52 billion.
The loan loss provision of $22 million was $2 million higher than the prior year and was largely attributable to provisions related to certain credits downgraded during the current year, partially offset by lower reserve rates on pass-rated loans.
Compensation and benefits expense increased $8 million, or 20%, due to increased staffing levels to support our continued growth.
Non-compensation expenses (excluding the provision for loan losses) increased $86 million, or 49%, including an $81 million, or 88%, increase in RJBDP fees paid to PCG, primarily driven by an increaseclients on balances in the per-account servicing fee effective October 1, 2018 in addition to an increaseRJBDP. As the yield from third-party banks in the numberprogram continues to rise, the RJBDP servicing costs paid by our Bank segment to our PCG segment will also increase to reflect the market rate. These fees to PCG are eliminated in the computation of accounts.our consolidated results.
Year ended September 30, 20182021 compared to the year ended September 30, 20172020
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20182021 Form 10-K for a discussion of our fiscal 20182021 results compared to fiscal 2017.2020.
Management’s Discussion and Analysis
The following table presents average balances, interest income and expense, the related yields and rates, and interest spreads and margins for RJ Bank.
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| | Year ended September 30, |
| | 2019 | | 2018 | | 2017 |
$ in millions | | 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: | | | | | | | | | | | | | | | | | | |
Cash | | $ | 1,239 |
| | $ | 28 |
| | 2.29 | % | | $ | 957 |
| | $ | 15 |
| | 1.57 | % | | $ | 859 |
| | $ | 8 |
| | 0.90 | % |
Available-for-sale securities | | 2,872 |
| | 69 |
| | 2.39 | % | | 2,430 |
| | 50 |
| | 2.04 | % | | 1,463 |
| | 26 |
| | 1.78 | % |
Bank loans, net of unearned income: | | | | | | | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | | | | | | | |
C&I loans | | 8,070 |
| | 378 |
| | 4.62 | % | | 7,619 |
| | 326 |
| | 4.22 | % | | 7,340 |
| | 281 |
| | 3.78 | % |
CRE construction loans | | 221 |
| | 12 |
| | 5.51 | % | | 166 |
| | 8 |
| | 5.08 | % | | 129 |
| | 6 |
| | 4.73 | % |
CRE loans | | 3,451 |
| | 159 |
| | 4.53 | % | | 3,231 |
| | 133 |
| | 4.06 | % | | 2,832 |
| | 101 |
| | 3.50 | % |
Tax-exempt loans | | 1,284 |
| | 35 |
| | 3.36 | % | | 1,146 |
| | 30 |
| | 3.42 | % | | 892 |
| | 23 |
| | 3.98 | % |
Residential mortgage loans | | 4,091 |
| | 135 |
| | 3.30 | % | | 3,448 |
| | 109 |
| | 3.16 | % | | 2,803 |
| | 84 |
| | 2.94 | % |
SBL and other | | 3,139 |
| | 145 |
| | 4.57 | % | | 2,690 |
| | 111 |
| | 4.09 | % | | 2,124 |
| | 72 |
| | 3.36 | % |
Loans held for sale | | 151 |
| | 7 |
| | 4.73 | % | | 126 |
| | 5 |
| | 4.01 | % | | 159 |
| | 5 |
| | 3.34 | % |
Total loans, net | | 20,407 |
| | 871 |
| | 4.26 | % | | 18,426 |
| | 722 |
| | 3.93 | % | | 16,279 |
| | 572 |
| | 3.55 | % |
FHLB stock, Federal Reserve Bank (“FRB”) stock and other | | 172 |
| | 7 |
| | 4.01 | % | | 138 |
| | 6 |
| | 4.33 | % | | 157 |
| | 4 |
| | 2.63 | % |
Total interest-earning banking assets | | 24,690 |
| | $ | 975 |
| | 3.95 | % | | 21,951 |
| | $ | 793 |
| | 3.62 | % | | 18,758 |
| | $ | 610 |
| | 3.28 | % |
Non-interest-earning banking assets: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Unrealized loss on available-for-sale securities | | (22 | ) | | |
| | |
| | (44 | ) | | |
| | |
| | (7 | ) | | |
| | |
|
Allowance for loan losses | | (214 | ) | | |
| | |
| | (193 | ) | | | | | | (194 | ) | | | | |
Other assets | | 394 |
| | |
| | |
| | 379 |
| | |
| | |
| | 375 |
| | |
| | |
|
Total non-interest-earning banking assets | | 158 |
| | |
| | |
| | 142 |
| | |
| | |
| | 174 |
| | |
| | |
|
Total banking assets | | $ | 24,848 |
| | |
| | |
| | $ | 22,093 |
| | |
| | |
| | $ | 18,932 |
| | |
| | |
|
Interest-bearing banking liabilities: | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Bank deposits: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Certificates of deposit | | $ | 536 |
| | $ | 12 |
| | 2.24 | % | | $ | 372 |
| | $ | 6 |
| | 1.67 | % | | $ | 294 |
| | $ | 4 |
| | 1.47 | % |
Savings, money market and NOW accounts | | 21,058 |
| | 124 |
| | 0.59 | % | | 18,694 |
| | 63 |
| | 0.34 | % | | 15,975 |
| | 16 |
| | 0.10 | % |
FHLB advances and other | | 911 |
| | 19 |
| | 2.08 | % | | 917 |
| | 20 |
| | 2.13 | % | | 741 |
| | 15 |
| | 1.95 | % |
Total interest-bearing banking liabilities | | 22,505 |
| | $ | 155 |
| | 0.69 | % | | 19,983 |
| | $ | 89 |
| | 0.44 | % | | 17,010 |
| | $ | 35 |
| | 0.20 | % |
Non-interest-bearing banking liabilities | | 200 |
| | |
| | |
| | 195 |
| | |
| | |
| | 172 |
| | |
| | |
|
Total banking liabilities | | 22,705 |
| | |
| | |
| | 20,178 |
| | |
| | |
| | 17,182 |
| | |
| | |
|
Total banking shareholder’s equity | | 2,143 |
| | |
| | |
| | 1,915 |
| | |
| | |
| | 1,750 |
| | |
| | |
|
Total banking liabilities and shareholders’ equity | | $ | 24,848 |
| | |
| | |
| | $ | 22,093 |
| | |
| | |
| | $ | 18,932 |
| | |
| | |
|
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income | | $ | 2,185 |
| | $ | 820 |
| | | | $ | 1,968 |
| | $ | 704 |
| | | | $ | 1,748 |
| | $ | 575 |
| | |
Bank net interest: | | |
| | |
| | | | |
| | |
| | | | |
| | |
| | |
Spread | | |
| | |
| | 3.26 | % | | |
| | |
| | 3.18 | % | | |
| | |
| | 3.08 | % |
Margin (net yield on interest-earning banking assets) | | |
| | |
| | 3.32 | % | | |
| | |
| | 3.22 | % | | |
| | |
| | 3.10 | % |
Ratio of interest-earning banking assets to interest-bearing banking liabilities | | |
| | |
| | 109.71 | % | | |
| | |
| | 109.85 | % | | |
| | |
| | 110.28 | % |
Nonaccrual loans are included in the average loan balances in the preceding table. Payment or income received on corporate nonaccrual loans are applied to principal. Income on residential mortgage nonaccrual loans is recognized on a cash basis.
Fee income on bank loans included in interest income for the years ended September 30, 2019, 2018 and 2017 was $18 million, $24 million, and $38 million, respectively.
The yield on tax-exempt loans in the preceding table is presented on a tax-equivalent basis utilizing the applicable federal statutory rates for each of the years presented.
Management’s Discussion and Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous year’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 attributable to both volume and rate have been allocated proportionately.
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| | Year ended September 30, |
| | 2019 compared to 2018 | | 2018 compared to 2017 |
| | Increase/(decrease) due to | | Increase/(decrease) due to |
$ in millions | | Volume | | Rate | | Total | | Volume | | Rate | | Total |
Interest income: | | | | | | | | | | | | |
Interest-earning banking assets: | | | | | | | | | | | | |
Cash | | $ | 4 |
| | $ | 9 |
| | $ | 13 |
| | $ | 1 |
| | $ | 6 |
| | $ | 7 |
|
Available-for-sale securities | | 9 |
| | 10 |
| | 19 |
| | 17 |
| | 7 |
| | 24 |
|
Bank loans, net of unearned income: | | | | | |
| | | | | | |
Loans held for investment: | | | | | |
| | | | | | |
C&I loans | | 19 |
| | 33 |
| | 52 |
| | 11 |
| | 34 |
| | 45 |
|
CRE construction loans | | 3 |
| | 1 |
| | 4 |
| | 2 |
| | — |
| | 2 |
|
CRE loans | | 9 |
| | 17 |
| | 26 |
| | 14 |
| | 18 |
| | 32 |
|
Tax-exempt loans | | 4 |
| | 1 |
| | 5 |
| | 7 |
| | — |
| | 7 |
|
Residential mortgage loans | | 20 |
| | 6 |
| | 26 |
| | 19 |
| | 6 |
| | 25 |
|
SBL and other | | 19 |
| | 15 |
| | 34 |
| | 19 |
| | 20 |
| | 39 |
|
Loans held for sale | | 1 |
| | 1 |
| | 2 |
| | (1 | ) | | 1 |
| | — |
|
Total bank loans, net | | 75 |
| | 74 |
| | 149 |
| | 71 |
| | 79 |
| | 150 |
|
FHLB stock, FRB stock and other | | 2 |
| | (1 | ) | | 1 |
| | (1 | ) | | 3 |
| | 2 |
|
Total interest-earning banking assets | | $ | 90 |
| | $ | 92 |
| | $ | 182 |
| | $ | 88 |
| | $ | 95 |
| | $ | 183 |
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Interest expense: | | |
| | |
| | |
| | |
| | |
| | |
|
Interest-bearing banking liabilities: | | |
| | |
| | |
| | |
| | |
| | |
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Bank deposits: | | | | | | | | | | | | |
Certificates of deposit | | $ | 3 |
| | $ | 3 |
| | $ | 6 |
| | $ | 1 |
| | $ | 1 |
| | $ | 2 |
|
Savings, money market and NOW accounts | | 8 |
| | 53 |
| | 61 |
| | 3 |
| | 44 |
| | 47 |
|
FHLB advances and other | | — |
| | (1 | ) | | (1 | ) | | 4 |
| | 1 |
| | 5 |
|
Total interest-bearing banking liabilities | | 11 |
| | 55 |
| | 66 |
| | 8 |
| | 46 |
| | 54 |
|
Change in net interest income | | $ | 79 |
| | $ | 37 |
| | $ | 116 |
| | $ | 80 |
| | $ | 49 |
| | $ | 129 |
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Management’s Discussion and Analysis
Results of Operations – Other
This segment includes our private equity 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 costs 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“Item 1 “Business”- Business” of this Form 10-K.
Operating results
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| Year ended September 30, | | % change |
$ in millions | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
Revenues: | | | | | | | | | |
Interest income | $ | 63 |
| | $ | 42 |
| | $ | 25 |
| | 50 | % | | 68 | % |
Gains on private equity investments | 14 |
| | 9 |
| | 31 |
| | 56 | % | | (71 | )% |
All other | 3 |
| | 9 |
| | 9 |
| | (67 | )% | | — |
|
Total revenues | 80 |
| | 60 |
| | 65 |
| | 33 | % | | (8 | )% |
Interest expense | (75 | ) | | (75 | ) | | (95 | ) | | — |
| | 21 | % |
Net revenues | 5 |
| | (15 | ) | | (30 | ) | | NM |
| | 50 | % |
Non-interest expenses: | | | | | | |
|
| |
|
|
Compensation and all other | 87 |
| | 64 |
| | 76 |
| | 36 | % | | (16 | )% |
Acquisition-related expenses | — |
| | 4 |
| | 18 |
| | (100 | )% | | (78 | )% |
Losses on extinguishment of debt | — |
| | — |
| | 46 |
| | — |
| | (100 | )% |
Total non-interest expenses | 87 |
| | 68 |
| | 140 |
| | 28 | % | | (51 | )% |
Pre-tax loss | $ | (82 | ) | | $ | (83 | ) | | $ | (170 | ) | | 1 | % | | 51 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2019 compared to the year ended September 30, 2018
The pre-tax loss of $82 million was flat compared to the loss generated in the prior year.
Net revenues increased $20 million, primarily due to an increase in interest income as a result of higher average interest rates earned on higher corporate cash balances and, to a lesser extent, an increase in gains on private equity investments.
Non-interest expenses increased $19 million, or 28%, including higher compensation-related expenses and a change in the impact of noncontrolling interests compared to the prior year.
Year ended September 30, 20182022 compared to the year ended September 30, 20172021
The pre-tax loss of $191 million was $55 million lower than the loss in the prior year.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’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, 2021 compared to the year ended September 30, 2020
Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20182021 Form 10-K for a discussion of our fiscal 20182021 results compared to fiscal 2017.2020.
Certain statistical disclosures by bank holding companies
We are required to provide certain statistical disclosures as a bank holding company under the SEC’s Industry Guide 3. The following table provides certain of those disclosures.
|
| | | | | | |
| | Year ended September 30, |
| | 2019 | | 2018 | | 2017 |
Return on assets | | 2.7% | | 2.4% | | 1.9% |
Return on equity | | 16.2% | | 14.4% | | 12.2% |
Average equity to average assets | | 16.7% | | 16.5% | | 15.9% |
Dividend payout ratio | | 19.0% | | 19.1% | | 20.3% |
ReturnSTATEMENT OF FINANCIAL CONDITION ANALYSIS
The assets on our Consolidated Statements of Financial Condition consisted primarily of cash and cash equivalents, assets is computed by dividing net incomesegregated for regulatory purposes and restricted cash (primarily segregated for the year indicated by averagebenefit of clients), receivables including bank loans, financial instruments held either for trading purposes or as investments, goodwill and identifiable intangible assets, for each respective fiscal year. Averageand other assets. A significant portion of our assets is computed by addingwere liquid in nature, providing us with flexibility in financing our business.
Total assets of $80.95 billion as of September 30, 2022 were $19.06 billion, or 31%, greater than our total assets as of each quarter-end dateSeptember 30, 2021. Our acquisition of TriState Capital during the indicated 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 goodwill and identifiable intangible assets, net. Bank loans, net also increased due to $6.12 billion in loan growth unrelated to the beginningacquisition of TriState Capital, consisting of increases in corporate, residential, and securities-based loans. The acquisition of Charles Stanley during fiscal year 2022 contributed, as of September 30, 2022, $2.14 billion in assets segregated for regulatory 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 year totaldecline in fair value of our available-for-sale securities portfolio primarily due to market conditions. Offsetting these increases were decreases in assets segregated for regulatory purposes and dividing by five.
Management’s Discussionrestricted cash, primarily due to a shift in client cash balances from our CIP, which is held at RJ&A and Analysis
Return on equity is computed by dividing net income forimpacts our segregated assets, to our Bank segment through the year indicated by average equity for each respective fiscal year. Average equity is computed by adding the total equity attributableRJBDP. Cash and cash equivalents decreased $1.02 billion primarily due to RJF asacquisition, dividend, and share repurchase activities. See Note 3 of each quarter-end date during the indicated fiscal year to the beginning of the year total and dividing by five.
Average equity to average assets is computed by dividing average equity by average assets as calculated in accordance with the previous explanations.
Dividend payout ratio is computed by dividing dividends declared per common share during the fiscal year by earnings per diluted common share.
Refer to the “Results of Operations - RJ Bank” and “Risk management - Credit risk” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations and to the Notes to Consolidated Financial Statements of this Form 10-K for additional information on our acquisitions.
As of September 30, 2022, our total liabilities of $71.52 billion were $17.93 billion, or 33%, greater than our total liabilities as of September 30, 2021. The increase in total liabilities was primarily due to an increase in bank deposits of $18.86 billion, which includes $13.17 billion as a result of our acquisition of TriState Capital, as well as an increase in bank deposits unrelated to the other required disclosures.acquisition 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 Analysis
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital resources
Liquidity isare 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.
Senior management establishes our liquidity and We seek to manage capital management framework. This 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 capitallevels 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, liquidity and capital structure, and maintains our relationships with various lenders. The objective of this framework is to support the successful execution of our business strategiesstrategy, provide financial strength to our subsidiaries, and maintain sustained access to the capital markets, while ensuring ongoingat the same time meeting our regulatory capital requirements and sufficient liquidity.conservative internal management targets.
Liquidity isand capital resources are provided primarily through our business operations and financing activities. Financing activities could include bank borrowings, repurchase agreement transactionscollateralized financing arrangements or additional capital raising activities under our “universal” shelf registration statement.
Cash and cash equivalents increased $457 million during the year to $3.96 billion at September 30, 2019 primarily due to $1.37 billion of cash provided by financing activities, which was primarily driven by an increase in bank deposits, partially offset by our open-market share repurchases and dividends on our common stock. Additionally, a reduction in the amount of cash required to be segregated pursuant to regulations and our operating activities provided $1.00 billion of cash during the current year. Investing activities used $1.90 billion, primarily due to an increase in bank loans and the growth of our available-for-sale securities portfolio during the current year.
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.activity in the short-term. We also believe that we will be able to continue to meet our long-term cash requirements due to our strong financial position and ability to access capital from financial markets.
Liquidity and capital management
Senior management establishes our liquidity and capital management frameworks. Our liquidity and capital management frameworks are overseen by the RJF Asset and Liability Committee, a senior management committee that develops and executes strategies and policies to manage our liquidity risk and interest rate risk, as well as provides oversight over the firm’s investments. The liquidity management framework includes senior management’s review of short- and long-term cash flow forecasts, review of capital expenditures, monitoring of the availability of alternative sources of financing, and daily monitoring of liquidity in our significant subsidiaries. Our decisions on the allocation of resources to our business units consider, among other factors, projected profitability, cash flow, risk, and future liquidity needs. Our treasury department assists in evaluating, monitoring and controlling the impact that our business activities have on our financial condition and liquidity, and also maintains our relationships with various lenders. The objective of our liquidity management framework is to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity.
Our capital planning and capital risk management processes are governed by the Capital Planning Committee (“CPC”), a senior management committee that provides oversight on our capital planning and ensures that our strategic planning and risk management processes are integrated into the capital planning process. The CPC meets at least quarterly to review key metrics related to the firm’s capital, such as debt structure and capital ratios; to analyze potential and emerging risks to capital; to oversee our annual firmwide capital stress test; and to propose capital actions to the Board of Directors, such as declaring dividends, repurchasing securities, and raising capital. To ensure that we have sufficient capital to absorb unanticipated losses, the firm adheres to capital risk appetite statements and tolerances set in excess of regulatory minimums, which are established by the CPC and approved by the Board of Directors. We conduct enterprise-wide capital stress testing to ensure that we maintain adequate capital to adhere to our established tolerances under multiple scenarios, including a stressed scenario.
Capital structure
Common equity (i.e., common stock, additional paid-in capital, and retained earnings) is the primary component of our capital structure. Common equity allows for the absorption of losses on an ongoing basis and for the conservation of resources during stress periods, as it provides 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 holding company, we are required to maintain minimum leverage ratios (defined as tier 1 capital divided by adjusted average assets), as well as minimum ratios of tier 1 capital, 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 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 flows
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, 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 TriState Capital prior to the acquisition) during the year ended September 30, 2022. Offsetting these cash outflows were the impacts of an increase in 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Sources of liquidity
Approximately $1.35$1.91 billion of our total September 30, 20192022 cash and cash equivalents included cash on handheld at RJF, the parent as well as parentcompany, which included cash loaned to RJ&A. The following table presents our holdingsThese amounts include the impact of cash and cash equivalents.
|
| | | | |
$ in millions | | September 30, 2019 |
RJF | | $ | 540 |
|
RJ&A | | 1,430 |
|
RJ Bank | | 1,113 |
|
RJ Ltd. | | 457 |
|
RJFS | | 134 |
|
Carillon Tower Advisers | | 103 |
|
Other subsidiaries | | 180 |
|
Total cash and cash equivalents | | $ | 3,957 |
|
significant dividends from RJ&A during the year ended September 30, 2022, as well as dividends from other RJF maintained depository accounts at RJ Bank with a balance of $163 million assubsidiaries. As of September 30, 2019. The portion of this total that was available on demand without restrictions, which amounted to $107 million as of September 30, 2019, is reflected in the RJF total (and is excluded from the RJ Bank cash balance in the preceding table).
Management’s Discussion and Analysis
2022, RJF had loaned $827 million$1.30 billion to RJ&A as of September 30, 2019 (such amount is included in the RJ&A cash balance in the precedingfollowing 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, we have various other potential sources of cash available to the parent company from subsidiaries, as described in the following section.
Liquidity available from subsidiaries
Liquidity is principally available to RJF the parent company, from RJ&A and RJRaymond James Bank.
Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities and Exchange Act of 1934. As a member firm of FINRA, RJ&A is subject to FINRA’s capital requirements, which are substantially the same as Rule 15c3-1. Rule 15c3-1 provides for an “alternative net capital requirement,” which RJ&A has elected. Regulations require that minimum net capital, as defined, be equal to the greater of $1.5 million or 2% of aggregate debit items arising from client transactions.balances. In addition, covenants in RJ&A’s committed financing facilities require its net capital to be a minimum of 10% of aggregate debit items. At September 30, 2019,2022, RJ&A significantly exceeded the minimum regulatory requirements, the covenants in its financing arrangements pertaining to net capital, as well as its internally-targeted net capital tolerances.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.
requirements which may result in RJ&A as a nonbank custodian of Individual Retirement Accounts (“IRAs”), must also satisfy certain Internal Revenue Service (“IRS”) regulations in order to accept new IRA and plan accounts and retain (and not be required to relinquish) the accounts for whichlimiting dividends it services as nonbank custodian. To maintain adequate net worth under these regulations, RJ&A may have to limit dividendswould otherwise remit to RJF. We evaluate regulatory requirements, loan covenants and certain internal tolerances when determining the amount of liquidity available to RJF from RJ&A.
RJRaymond James Bank may pay dividends to RJF 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, 2019, RJ Bank had $337 million ofDividends may be limited to the extent that capital in excess of the amount it would need at that dateis needed to maintain its targeted regulatory capital ratios, 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 those previously described and, in certain instances, may be subject to regulatory requirements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Borrowings and financing arrangements
Committed financing arrangements
Our ability to borrow is dependent upon compliance with the conditions in our various loan agreements and, in the case of secured borrowings, collateral eligibility requirements. Our committed financing arrangements 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 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.
Management’s Discussion and Analysis
The following table presents our most significant committed financing arrangements with third-party lenders, which we generally utilize to finance a portion of our fixed income trading instruments held by RJ&A, and the outstanding balances related thereto.
| | | | September 30, 2019 | | | September 30, 2022 |
$ in millions | | RJ&A | | RJF | | Total | | Total number of arrangements | $ in millions | | RJ&A | | | RJF | | | Total | | Total number of arrangements |
Financing arrangement: | | | | | | | | | Financing arrangement: | | | | | | | | | | |
Committed secured | | $ | 200 |
| | $ | — |
| | $ | 200 |
| | 2 |
| Committed secured | | $ | 100 | | | | $ | — | | | | $ | 100 | | | 1 | |
Committed unsecured (1) | | 200 |
| | 300 |
| | 500 |
| | 1 |
| |
Committed unsecured | | Committed unsecured | | 200 | | | | 300 | | | | 500 | | | 1 | |
Total committed financing arrangements | | $ | 400 |
| | $ | 300 |
| | $ | 700 |
| | 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 | | $ | — | | | | $ | — | | | | $ | — | | |
| |
(1) | The Credit Facility provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF. For additional details on our committed unsecured financing arrangement, see our discussion of the Credit Facility in Note 14 of the Notes to Consolidated Financial Statements of this Form 10-K. |
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-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, 2019,2022, we had outstanding borrowings under onefour uncommitted secured borrowing arrangements with lenders out of a total of 1112 uncommitted financing arrangements (six(eight uncommitted secured and fivefour uncommitted unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities.
The following table presents our borrowings on uncommitted financing arrangements, all of which were in the form of repurchase agreements in RJ&A.&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
|
| | | | |
$ in millions | | September 30, 2019 |
Outstanding borrowing amount: | | |
Uncommitted secured | | $ | 150 |
|
Uncommitted unsecured | | — |
|
Total outstanding borrowing amount | | $ | 150 |
|
The average daily balance outstanding during the five most recent quarters, the maximum month-end balance outstanding during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements are detailed in the following table. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Repurchase transactions | | Reverse repurchase transactions |
For the quarter ended: ($ in millions) | | Average daily balance outstanding | | Maximum month-end balance outstanding during the quarter | | End of period balance outstanding | | Average daily balance outstanding | | Maximum month-end balance outstanding during the quarter | | End of period balance outstanding |
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, 2019,2022, 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 were secured by a blanket lien on RJ Bank’s residential mortgage loan portfolio (seeincreases in interest rates associated with the majority of these advances. See Note 1416 of the Notes to Consolidated Financial Statements of 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 $2.41$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, 2019 and, with2022, the pledge of additional eligible 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 FRB’s discount-windowFederal Reserve’s discount window program; however, we do not view borrowings from the FRBFederal 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 FRB,Federal Reserve, and is secured by certain pledged C&I loans.
As part of the acquisition of TriState Capital, we assumed, as of the closing date, TriState Capital’s subordinated notes due 2030, with an aggregate principal amount of $98 million. 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 be 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 borrow securities from one broker-dealer and then lend them to another. Where permitted, we have also loaned, to broker-dealers and other financial institutions, securities owned by clients or the firm. We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balancesbalance of $172 million as of September 30, 2022 related to the securities loaned included in “Securities loaned”“Collateralized financings” on our Consolidated Statements of Financial Condition of this Form 10-K, in the amount of $323 million as of September 30, 2019.10-K. See NoteNotes 2 and Note 7 of the Notes to Consolidated Financial Statements of this Form 10-K for more information on our securities borrowed and securities loaned.
From time to time we purchase securities under agreements to resell (“reverse repurchase agreements”) and sell securities under agreements to repurchase (“repurchase agreements”). We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balances of the repurchase agreements included in “Securities sold under agreements to repurchase”financings.
Management’s Discussion and Analysis
on our Consolidated Statements of Financial Condition of this Form 10-K, in the amount $150 million as of September 30, 2019. These balances are reflected in the preceding table of uncommitted financing arrangements. Such financings are generally collateralized by non-customer, RJ&A-owned securities or by securities that we have received as collateral under reverse repurchase agreements.
The average daily balance outstanding during the five most recent quarters, the maximum month-end balance outstanding during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements is detailed in the following table.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Repurchase transactions | | Reverse repurchase transactions |
For the quarter ended: ($ 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, 2019 | | $ | 170 |
| | $ | 158 |
| | $ | 150 |
| | $ | 334 |
| | $ | 343 |
| | $ | 343 |
|
June 30, 2019 | | $ | 211 |
| | $ | 212 |
| | $ | 165 |
| | $ | 442 |
| | $ | 479 |
| | $ | 411 |
|
March 31, 2019 | | $ | 172 |
| | $ | 210 |
| | $ | 210 |
| | $ | 358 |
| | $ | 447 |
| | $ | 447 |
|
December 31, 2018 | | $ | 171 |
| | $ | 189 |
| | $ | 156 |
| | $ | 413 |
| | $ | 479 |
| | $ | 399 |
|
September 30, 2018 | | $ | 117 |
| | $ | 186 |
| | $ | 186 |
| | $ | 355 |
| | $ | 376 |
| | $ | 373 |
|
At September 30, 2019, in addition to the financing arrangements previously described, we had $19 million outstanding on a mortgage loan for our St. Petersburg, Florida home-office complex that is included in “Other borrowings” on our Consolidated Statements of Financial Condition of this Form 10-K.
At September 30, 2019,2022, we had aggregate outstanding 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, was 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 fiscal 2023,
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
with the Notes to Consolidated Financial Statements of this Form 10-K for additional information.remainder extending through 2051.
Credit ratings
Our issuer, and senior long-term debt, and preferred stock credit ratings as of the most current report are detailed in the following table.
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| | | | | | | | | | | | | | | | | | | |
Rating Agency | | Credit Rating | | Outlook |
Rating Agency | | Fitch Ratings, Inc. | | Moody’s | | Standard & Poor’s Ratings Services | | BBB+ | | Stable |
Moody’s Investors ServicesIssuer and senior long term debt | | Baa1A- | | 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, capital structure, 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 of this Form 10-K for additional information).positions. A credit downgrade could damage our reputation and result in certain counterparties limiting their business with us, result in negative comments by analysts, potentially negatively impact investorinvestors’ and/or clients’ perception of us, and cause a decline in our stock price. None of our borrowing arrangements contains a condition or event of default related to our credit ratings. However, a credit downgrade would result in the firm incurring a higher facility fee on the $500 million Credit Facility, in addition to triggering a higher interest rate applicable to any borrowings outstanding on that line as of and subsequent to such downgrade. Conversely, an improvement in RJF’s current credit rating could have a favorable impact on the facility fee, as well as the interest rate applicable to any borrowings on such line.
Other sources and uses of liquidity
We have company-owned life insurance policies which are utilized to fund certain non-qualified deferred compensation plans and other employee benefit plans. Certain of our non-qualified deferred compensation plans and other employee benefit plans are employee-directed while others are company-directed. CertainOf 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 had a cash surrender value of
Management’s Discussion and Analysis
$566 $733 million as of September 30, 2019,2022, comprised of $336$467 million related to employee-directed plans and $230$266 million related to company-directed plans, and we were able to borrow up to 90%, or $509$660 million, of the September 30, 20192022 total without restriction. To effect any such borrowing, the underlying investments would be converted to money market investments, therefore requiring us to take market risk related to the employee-directed plans. There were no borrowings outstanding against any of these policies as of September 30, 2019.2022.
On May 18, 2018,12, 2021, we filed a “universal” shelf registration statement with the SEC pursuant to which we can issue debt, equity and other capital instruments if and when necessary or perceived by us to be opportune. Subject to certain conditions, this registration statement will be effective through May 18, 2021.12, 2024.
See the ContractualAs part of our ongoing operations, we also enter into contractual arrangements that may require future cash payments, including certificates of deposit, lease obligations section of this MD&A for information regarding our contractual obligations.
Statement of financial condition analysis
The assets on our consolidated statements of financial condition consisted 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, and other assets. A significant portion of our assets were liquid in nature, providing us with flexibility in financing our business.
Total assets of $38.83 billioncontractual arrangements, such as of September 30, 2019 were $1.42 billion, or 4%, greater than our total assets as of September 30, 2018. The increase in assets was primarily due to a $1.37 billion increase in net bank loansfor software and a $397 million increase in our available-for-sale securities portfolio, in line with our growth plan for such assets. Offsetting these increases, brokerage client receivables decreased $672 million.
As of September 30, 2019, our total liabilities of $32.19 billion were $1.23 billion, or 4%, greater than our total liabilities as of September 30, 2018. The increase in total liabilities included a $2.34 billion increase in bank deposits, primarily due to higher RJBDP balances held at RJ Bank. Offsetting this increase was a decrease in brokerage client payables of $1.26 billion, primarily due to a decline in client cash held in our CIP as of September 30, 2019.
Contractual obligations
The following table sets forth our contractual obligations and payments due thereunder by fiscal year.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year ended September 30, |
$ in millions | | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter |
Long-term debt obligations: | | | | | | | | | | | | | | |
Senior notes payable - principal | | $ | 1,550 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 250 |
| | $ | 1,300 |
|
Long-term portion of other borrowings | | 889 |
| | — |
| | 881 |
| | 6 |
| | 2 |
| | — |
| | — |
|
Total long-term debt obligations | | 2,439 |
| | — |
| | 881 |
| | 6 |
| | 2 |
| | 250 |
| | 1,300 |
|
Contractual interest payments | | 1,286 |
| | 87 |
| | 73 |
| | 73 |
| | 73 |
| | 72 |
| | 908 |
|
Operating lease obligations | | 519 |
| | 103 |
| | 95 |
| | 79 |
| | 66 |
| | 49 |
| | 127 |
|
Purchase obligations | | 349 |
| | 153 |
| | 70 |
| | 49 |
| | 31 |
| | 24 |
| | 22 |
|
Other long-term liabilities: | | | | | | | | | | | | | | |
Certificates of deposit (including interest) | | 639 |
| | 215 |
| | 77 |
| | 140 |
| | 117 |
| | 90 |
| | — |
|
Other | | 5 |
| | 2 |
| | 2 |
| | 1 |
| | — |
| | — |
| | — |
|
Total other long-term liabilities | | 644 |
| | 217 |
| | 79 |
| | 141 |
| | 117 |
| | 90 |
| | — |
|
Total contractual obligations | | $ | 5,237 |
| | $ | 560 |
| | $ | 1,198 |
| | $ | 348 |
| | $ | 289 |
| | $ | 485 |
| | $ | 2,357 |
|
Contractual interest payments represent estimated future interest payments related to our senior notes, mortgage note payable, FHLB advances, and unsecured borrowings with original maturities greater than one year based on applicable interest rates at September 30, 2019. Estimated future interest payments for FHLB advances include the effect of the related interest rate hedges, which swap variable interest rate payments to fixed interest payments.various services. See Notes 14 and 15 of the Notes to the Consolidated Financial Statements of this Form 10-K for information regarding our other borrowingslease obligations and senior notes payable.
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
Management’s Discussion and Analysis
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.
deposit, respectively. We have entered into investment commitments, lending commitments and other commitments to extend credit for which we are unable to reasonably predict the timing of future payments. See Note 1719 of the Notes to Consolidated Financial Statements of 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 we operate and the impact on our operations of certain rules and regulations in Item“Item 1 “Business- Business - Regulation” of this Form 10-K.
RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As of September 30, 2019,2022, 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” as of September 30, 2019.2022. 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 current capital position of RJF and its regulated subsidiaries, we do not anticipate these capital requirements will have a negative impact on our future business activities.
See Note 2224 of the Notes to Consolidated Financial Statements of this Form 10-K for further information on regulatory 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 of this Form 10-K.
Due to their nature, estimates involve judgment based upon available information. Actual results or amounts could differ from estimates and the difference could have a material impact on the consolidated financial statements. Therefore, understanding these critical accounting estimates is important in understanding our reported results of operations and financial position. We believe that of our accounting estimates and assumptions, those described in the following sections involve a high degree of judgment and complexity.
Valuation of financial instruments
The use of fair value to measure financial instruments, with related gains or losses recognized on our Consolidated Statements of Income and Comprehensive Income, is fundamental to our financial statements and our risk management processes. “Financial instruments owned” and “Financial instruments sold but not yet purchased” are reflected on the Consolidated Statements of Financial Condition at fair value. Unrealized gains and losses related to these financial instruments are reflected in our net income or our other comprehensive income/(loss) (“OCI”), depending on the underlying purpose of the instrument.
We measure the fair value of our financial instruments in accordance with GAAP, which defines fair value, establishes a framework that we use to measure fair value, and provides for certain disclosures 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.
In determining the fair value of our financial instruments, we use various valuation approaches, including market and/or income approaches. Our fair value measurements reflect assumptions that we believe market participants would use in pricing the asset or liability at the measurement date. A hierarchy for inputs is used in measuring fair value that maximizes the use of observable prices and inputs and minimizes the use of unobservable prices and inputs by requiring that the relevant observable inputs be used when available. The hierarchy is broken down into three levels: Level 1 represents quoted prices in active markets for identical instruments; Level 2 represents valuations based on inputs other than quoted prices in active markets, but for which all significant inputs are observable; and Level 3 consists of valuation techniques that incorporate significant unobservable inputs and, therefore, requires the greatest use of judgment. The availability of observable inputs can vary from instrument to instrument and, in certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair
Management’s Discussion and Analysis
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.
The fair values for certain of our financial instruments are derived using pricing models and other valuation techniques that involve 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 less frequently traded. As a result, the valuation of certain financial instruments included management judgment in determining the relevance and reliability of market information available. These instruments are classified in Level 3 of the fair value hierarchy.
See Notes 2 and 4 of the Notes to Consolidated Financial Statements of 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 for legal and regulatory matters
The recorded amount of liabilities related to legal and regulatory matters is subject to significant management judgment. For a description of the significant estimates and judgments associated with establishing such accruals, see the “Contingent liabilities” section of Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K. In addition, refer to Note 1719 of the Notes to the Consolidated Financial Statements of this Form 10-K for information regarding legal and regulatory matter contingencies as of September 30, 2019.2022.
Loan loss provisions arising from operations of RJ BankAllowance for credit losses
We provideevaluate certain of our financial assets, including bank loans, to estimate 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 in RJ Bank’s loan portfolio. Refer to Note 2risk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of our financial assets, the Notes to Consolidated Financial Statements of this Form 10-Krelated credit risk characteristics, and the overall 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 of this Form 10-K for quantitative information regarding the allowance balance as of September 30, 2019.
At September 30, 2019, the amortized cost of all RJ Bank loans was $21.11 billion and the allowance for loan losses was $218 million, which was 1.04% of the held for investment loan portfolio.
Our process of evaluating probable loancredit losses includes a complex analysis of several quantitative and qualitative factors requiring significant management judgment. As a result,judgment due to matters that are inherently uncertain. This uncertainty can produce volatility in our allowance for credit losses. In addition, the allowance for loancredit losses could be insufficient to cover actual losses. In such an event, any losses in excess of our allowance would result in a decrease in our net income, as well as a decrease in the level of regulatory capital.
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. Recent accounting developments
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
For information regardingManagement’s Discussion and Analysis
To demonstrate the sensitivity of credit loss estimates on our recent accounting developments, seebank 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 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.
See Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K.
Off-balance sheet arrangements
For10-K for information regarding our off-balance sheet arrangements, see Notes 2allowance 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 17liabilities 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 3 of the Notes to Consolidated Financial Statements of 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 inflation
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 information processing, and occupancy costs, which may not be readily recoverable through charges for services we provide to our clients. In addition,financing receivables (ASU 2022-02), amending guidance related to the extent inflation results in rising interest ratesmeasurement 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 has adverse effects uponrestructurings 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 securities markets, it may adversely affectadoption of this new guidance to have a material impact on our financial position and results of operations.
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 principal risks related to our business activities are market, credit, liquidity, operational, model, and compliance.
Governance
Our Board of Directors, including its Audit and Risk Committee, oversees the firm’s management and mitigation of risk, settingreinforcing a culture that encourages ethical conduct and risk management throughout the firm. Senior management communicates and reinforces this culture through three lines of risk management and a number of senior-level management committees. Our first line of risk management, which includes all of our businesses, owns its risks and is responsible for helping to identify, escalate,identifying, mitigating, and mitigateescalating risks arising from its day-to-day activities. The second line of risk management, - which includes the Compliance Legal, and Risk Management, departments - supports and provides guidance, advice, and oversight toadvises our client-facing businesses and other first-line risk management functions in identifying, assessing, and mitigating risk. The second line of risk management also tests and monitors the effectiveness of controls, as deemed necessary, and escalates risks when appropriate to senior management and reports on these risks.the Board of Directors. The third line of risk management, Internal Audit, independently reviews activities conducted by the previous lines of risk management to assess their management and mitigation of risk, providing additional assurance to the Board of Directors and senior management, with a view toward enhancing our oversight, management, and mitigation of risk. Our legal department provides legal advice and guidance to each of these three lines of risk management.
Market risk
Market risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory, derivatives, and investment positions. We have exposure to market risk primarily through our broker-dealer trading operations and to a lesser extent, through our banking operations. OurThrough our broker-dealer subsidiaries primarily RJ&A, act as market makers inwe trade debt obligations and equity and debt securities 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 agency MBS and CMOs within RJ Bank’sour available-for-sale securities portfolio, and from time-to-time may hold SBA loan securitizations not yet transferred.
Our primary market risks relate to interest rates, equity prices, and foreign exchange rates. Interest rate risk results from changes in levels of interest rates, the volatility of interest rates, mortgage prepayment speeds and credit spreads. Equity risk results from changes in prices of equity securities. Foreign exchange risk results from changes in spot prices, forward prices and volatility of foreign exchange rates. See Notes 2, 4, 5 and 6 of the Notes to Consolidated Financial Statements of this Form 10-K for fair value and other information regarding our trading inventories, available-for-sale securities, and derivative instruments.
Changes in value of our trading inventory may result from fluctuations in interest rates, credit spreads, equity prices, macroeconomic factors, asset liquidity and dynamic relationships among these factors. We manage our trading inventory by product type and have established trading desks with responsibility for particular product types. Our primary method of controlling risk in our trading inventory is through the establishment and monitoring of risk-based limits and limits on the dollar amount of securities positions held overnight in inventory. A hierarchy of limits exists at multiple levels including firm, division, trading desk (e.g., for OTC equities, corporate bonds, municipal bonds), product sub-type (e.g., below-investment-grade positions) and 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. For our derivatives positions, which are composed primarily of interest rate swaps but include futures contracts and forward foreign exchange contracts, we monitor daily exposure against established limits with respect to a number of factors, including interest rates, foreign exchange spot and forward rates, spread, ratio, basis and volatility risk, both for the total portfolio and by maturity period.
In the normal course of business, weregularly enter into underwriting commitments. RJ&Acommitments and, RJ Ltd., as a lead or co-lead manager or syndicate member in underwritings,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 dealtransaction size, or through the syndication process.
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, investor expectations or risk appetites, liquidity, as well as dynamic relationships among these factors. We actively manage the interest rate risk arising from our fixed income trading securitiesinventory through the use of hedging strategies that involveutilizing U.S. Treasury securities,Treasuries, futures contracts, liquid spread products and derivatives.
Our primary method for controlling risks within trading inventories is through the use of dollar-based and exposure-based limits. A hierarchy of limits exists at multiple levels, including firm, business unit, desk (e.g., for equities, corporate bonds, municipal bonds), product sub-type (e.g., below-investment-grade positions) and, at times, at the individual position. For derivative positions, which are primarily comprised of interest rate swaps, we have established limits based on a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis, and volatility risk. Trading positions and derivatives are monitored against these limits through daily reports that are distributed to senior management.During volatile markets, we may temporarily reduce limits and/or choose to pare our trading inventories to reduce risk.
We monitor the Value-at-Risk (“VaR”) for all of our trading portfolios on a daily basis. VaR is an appropriate statistical techniquebasis 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 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 derivatives.extended periods of one-directional markets potentially distort risks within the portfolio. In addition, should markets become more volatile, actual trading losses may exceed VaR results presented on a single day and might accumulate over a longer time horizon. As a result, management complements VaR with sensitivity analysis and stress testing and employs additional controls such as a daily review of trading results, review of aged inventory, independent review of pricing, monitoring of concentrations and review of issuer ratings.
To calculate VaR, we use models which incorporate historical simulation. This approach assumes that historical changes in market conditions, such as in interest rates and equity prices, are representative of future changes. Simulation is based on daily market data for the previous twelve months. VaR is reported at a 99% confidence level for a one-day time horizon. Assuming that future market conditions change as they have in the past twelve months, we would expect to incur losses greater than those predicted by our one-day VaR estimates about once every 100 trading days, or about three times per year on average. For regulatory capital calculation purposes, we also report VaR and Stressed VaR numbers for a ten-day time horizon. The VaR model is independently reviewed by our Model Risk Management function. See 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 year ended September 30, 2019,2022, 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, period-end 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, 2019 | | Period end VaR | | | | For the year ended September 30, |
$ in millions | | High | | Low | | September 30, 2019 | | September 30, 2018 | | $ in millions | | 2019 | | 2018 |
Daily VaR | | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | Daily average VaR | | $ | 1 |
| | $ | 1 |
|
The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations. While management believes that these 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 underat https://www.raymondjames.com/investor-relations/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.
Banking operations
RJOur Bank segment maintains an earninginterest-earning asset portfolio that is comprised of cash, SBL, C&I loans, tax-exempt loans, commercial and residential real estate loans, SBLREIT loans, and othertax-exempt loans, as well as agency MBS and CMOs (heldsecurities held in the available-for-sale securities portfolio), SBA loan securitizations and a trading portfolio of corporate loans.portfolio. These earninginterest-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. 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.
Management’s Discussion and Analysis
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. We utilize a hedging strategy using interest rate swaps in our banking operations as a result of our asset and liability management process. For further information regarding this hedging strategy, see Notes 2 and 16 of the Notes to Consolidated Financial Statements of this Form 10-K.
RJ Bank uses simulation models and estimation techniques to assess the sensitivity of net interest income to movements in interest rates. 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 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 | | $1,618 | | (14)% |
We utilize a hedging strategy using
(1) Our 0-basis point scenario was based on interest rate swapsrates as a result of RJ Bank’s assetSeptember 30, 2022 and liability management process previously described. For further information regarding this hedging strategy, see Notes 2 and 6did not include the impact of the Notes to Consolidated Financial Statements of this Form 10-K.Fed’s November 2022 increase in short-term interest rates.
The following table is an analysis of RJ Bank’s estimated net interest income over a 12-month period based on instantaneous shifts in interest rates (expressed in basis points) using RJ Bank’s own asset/liability model.
|
| | | | |
Instantaneous changes in rate | | Net interest income ($ in millions) | | Projected change in net interest income |
+200 | | $903 | | 1.69% |
+100 | | $916 | | 3.15% |
0 | | $888 | | — |
-100 | | $745 | | (16.10)% |
Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net interest analysis” of this Form 10-K for a discussion of the impact changes in short-term interest rates could have on the consolidated firm’s operations.
The following table shows the contractual maturities of RJ Bank’sour bank loan portfolio at September 30, 2019,2022, including contractual principal repayments. Maturities are generally determined based upon contractual terms; however, rollovers or extensions that are included for the purposes of measuring the allowance for credit losses are reflected in maturities in the following table. This table does not include any estimates of prepayments, which could shorten the average loan lives and cause the actual timing of the loan repayments to differ significantly from those shown in the table. Loan amounts in the table 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 millions | | One year or less | | > One year – five years | | > 5 years | | Total |
Loans held for investment: | | |
| | |
| | |
| | |
|
C&I loans | | $ | 139 |
| | $ | 4,222 |
| | $ | 3,737 |
| | $ | 8,098 |
|
CRE construction loans | | 53 |
| | 132 |
| | — |
| | 185 |
|
CRE loans | | 369 |
| | 2,722 |
| | 561 |
| | 3,652 |
|
Tax-exempt loans | | — |
| | 44 |
| | 1,197 |
| | 1,241 |
|
Residential mortgage loans | | — |
| | 5 |
| | 4,449 |
| | 4,454 |
|
SBL and other | | 3,305 |
| | 44 |
| | — |
| | 3,349 |
|
Total loans held for investment | | 3,866 |
| | 7,169 |
| | 9,944 |
| | 20,979 |
|
Loans held for sale | | — |
| | 14 |
| | 118 |
| | 132 |
|
Total loans | | $ | 3,866 |
|
| $ | 7,183 |
|
| $ | 10,062 |
|
| $ | 21,111 |
|
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, 2019. Loan amounts in the table 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 millions | | Fixed | | Adjustable | | Total |
Loans held for investment: | | |
| | |
| | |
|
C&I loans | | $ | 104 |
| | $ | 7,855 |
| | $ | 7,959 |
|
CRE construction loans | | — |
| | 132 |
| | 132 |
|
CRE loans | | 107 |
| | 3,176 |
| | 3,283 |
|
Tax-exempt loans | | 1,241 |
| | — |
| | 1,241 |
|
Residential mortgage loans | | 235 |
| | 4,219 |
| | 4,454 |
|
SBL and other | | 2 |
| | 42 |
| | 44 |
|
Total loans held for investment | | 1,689 |
| | 15,424 |
| | 17,113 |
|
Loans held for sale | | 5 |
| | 127 |
| | 132 |
|
Total loans | | $ | 1,694 |
| | $ | 15,551 |
| | $ | 17,245 |
|
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 risk - Risk monitoring process” section of this Form 10-K for additional information regarding RJ Bank’sour interest-only residential mortgage loan portfolio.
In our RJ Bank available-for-sale securities portfolio, we hold primarily fixed-rate agencyagency-backed MBS and agency-backed CMOs which wereare carried at fair value on our Consolidated Statements of Financial Condition, at September 30, 2019, with changes in the fair value of the portfolio recorded through OCI on our Consolidated Statements of Income and Comprehensive Income. At September 30, 2019,2022, our RJ Bank available-for-sale securities portfolio had a fair value of $3.09$9.89 billion with a weighted-average yield of 2.40% and average expected1.84%. The effective duration of three 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 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information.information on our available-for-sale securities portfolio.
Equity price risk
We are exposed to equity price risk as a result of our capital markets activities. Our broker-dealer activities are 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 revenues to compensate for the risk associated with carryingamounts are not as significant as our fixed income trading inventory. We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions throughout each day and establishing position limits. Equity securities held in our trading inventory are generally included in VaR.
In addition, we have a private equity portfolio, included in “Other investments” on our Consolidated Statements of Financial Condition, which is primarily comprised of investments 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, a portion of our bank loan portfolio includes loans which are denominated in Canadian dollars, totaling $1.10$1.51 billion and $1.05$1.29 billion at September 30, 20192022 and 2018, respectively.2021, respectively, when converted to the U.S. dollar. A portionmajority of such loans are held by RJ Bank’sin a Canadian subsidiary of Raymond James Bank, which is discussed in the following sections.
Investments in foreign subsidiaries
RJRaymond James Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate its foreign exchange risk, RJRaymond James Bank utilizes short-term, forward foreign exchange contracts. These derivatives 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 of this Form 10-K for further information regarding these derivatives.
WeAt September 30, 2022, we had foreign exchange risk in our investment in RJ Ltd. of CAD 358381 million atand in our investment in Charles Stanley of £272 million, which were not hedged. All of our other investments in subsidiaries located in Europe are not hedged and we do not believe we had material foreign exchange risk either individually, or in the aggregate, pertaining to these subsidiaries as of September 30, 2019, which was not hedged.2022. Foreign exchange gains/losses related to this investmentour foreign investments are primarily reflected in OCI on our Consolidated Statements of Income and Comprehensive Income. See Note 1820 of the Notes to Consolidated Financial Statements of this Form 10-K for further information regarding our components of OCI.
We also have foreign exchange risk associated with our investments in subsidiaries located in Europe. These investments are not hedged and we do not believe we have material foreign exchange risk either individually, or in the aggregate, pertaining to these subsidiaries.
Management’s Discussion and Analysis
Transactions and resulting balances denominated in a currency other than the U.S. dollar
We are subject to foreign exchange risk due to our holdings of cash and certain other assets and liabilities resulting from transactions denominated in a currency other than the U.S. dollar. Any currency-related gains/losses arising from these foreign currency denominated balances are reflected in “Other” revenues in our 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 in our Consolidated Statements of Income and Comprehensive Income. See Note 6 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding our 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 retail 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 dueSee Notes 2 and 9 of the Notes to Consolidated Financial Statements of this Form 10-K for further information about our strong advisor retention 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 borrowing and lendingfinancial advisors.
Banking 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 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.
RJOur Bank segment has a substantial loan portfolio. A significant downturn in the overall economy, deterioration in real estate values or a significant issue within any sector or sectors where RJ Bank has a concentration could result in large provisions for loan losses and/or charge-offs.
RJ Bank’sOur strategy for credit risk management related to bank loans includes well-defined credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all corporate, tax-exempt, residential, SBL and other 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
Management’s Discussion and Analysis
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 of 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.
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 previously described. 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 loans to subprime borrowers. 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.
SBL and other: Loans in this segment are collateralized generally by the borrower’s marketable securities at advance rates consistent with industry standards. These loans are monitored daily for adherence to LTV guidelines and when a loan exceeds the required LTV, a collateral call is issued. Past due loans are minimal as any past due amounts result in a notice to the client for payment or the potential sale of the collateral which will bring the loan to a current status.
In evaluating credit risk, RJ Bank considers trends in loan performance, the level of allowance coverage relative to similar banking institutions, industry or customer concentrations, the loan portfolio composition and macroeconomic factors. These factors have a potentially negative impact on loan performance and net charge-offs. However, during fiscal year 2019, corporate borrowers have continued to access the markets for new equity and debt.
Several factors were taken into consideration in evaluating the allowance for loan losses at September 30, 2019, including the risk profile 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 of 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 year ended September 30, 2019.
Management’s Discussion and Analysis
The following table presents RJ Bank’s changes in the allowance for loan losses.
|
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Allowance for loan losses beginning of year | | $ | 203 |
| | $ | 190 |
| | $ | 197 |
| | $ | 172 |
| | $ | 148 |
|
Provision for loan losses | | 22 |
| | 20 |
| | 13 |
| | 28 |
| | 24 |
|
Charge-offs: | | |
| | |
| | |
| | |
| | |
|
C&I loans | | (2 | ) | | (10 | ) | | (26 | ) | | (3 | ) | | (1 | ) |
CRE loans | | (5 | ) | | — |
| | — |
| | — |
| | — |
|
Residential mortgage loans | | (1 | ) | | — |
| | (1 | ) | | (1 | ) | | (2 | ) |
Total charge-offs | | (8 | ) | | (10 | ) | | (27 | ) | | (4 | ) | | (3 | ) |
Recoveries: | | |
| | |
| | |
| | | | |
CRE loans | | — |
| | — |
| | 5 |
| | — |
| | 4 |
|
Residential mortgage loans | | 2 |
| | 2 |
| | 1 |
| | 1 |
| | 1 |
|
Total recoveries | | 2 |
| | 2 |
| | 6 |
| | 1 |
| | 5 |
|
Net (charge-offs)/recoveries | | (6 | ) | | (8 | ) | | (21 | ) | | (3 | ) | | 2 |
|
Foreign exchange translation adjustment | | (1 | ) | | 1 |
| | 1 |
| | — |
| | (2 | ) |
Allowance for loan losses end of year | | $ | 218 |
| | $ | 203 |
| | $ | 190 |
| | $ | 197 |
| | $ | 172 |
|
Allowance for loan losses to total bank loans outstanding | | 1.04 | % | | 1.04 | % | | 1.11 | % | | 1.30 | % | | 1.32 | % |
See explanation of the loan loss provision in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - RJ Bank” of this Form 10-K.
The level of charge-off activity is a factor that is considered in evaluating the potential for severity of future credit losses. The following tables presenttable 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.
| | | | Year ended September 30, | | | Year ended September 30, |
| | 2019 | | 2018 | | 2017 | | | 2022 | | 2021 | | 2020 |
$ in millions | | 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 | $ in millions | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans |
| C&I loans | | $ | (2 | ) | | 0.02 | % | | $ | (10 | ) | | 0.13 | % | | $ | (26 | ) | | 0.35 | % | C&I loans | | $ | (28) | | | 0.29 | % | | $ | (4) | | | 0.05 | % | | $ | (96) | | | 1.22 | % |
CRE loans | | (5 | ) | | 0.14 | % | | — |
| | — |
| | 5 |
| | 0.18 | % | CRE loans | | 1 | | | 0.02 | % | | (10) | | | 0.37 | % | | (2) | | | 0.08 | % |
REIT loans | | REIT loans | | — | | | — | % | | — | | | — | % | | (2) | | | 0.15 | % |
Residential mortgage loans | | 1 |
| | 0.02 | % | | 2 |
| | 0.06 | % | | — |
| | — |
| Residential mortgage loans | | 1 | | | 0.02 | % | | 1 | | | 0.02 | % | | 2 | | | 0.04 | % |
Total | | $ | (6 | ) | | 0.04 | % | | $ | (8 | ) | | 0.04 | % | | $ | (21 | ) | | 0.13 | % | |
| Total loans held for sale and investment | | Total loans held for sale and investment | | $ | (26) | | | 0.08 | % | | $ | (13) | | | 0.06 | % | | $ | (98) | | | 0.45 | % |
|
| | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2016 | | 2015 |
$ in millions | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans |
C&I loans | | $ | (3 | ) | | 0.04 | % | | $ | (1 | ) | | 0.01 | % |
CRE loans | | — |
| | — |
| | 4 |
| | 0.22 | % |
Residential mortgage loans | | — |
| | — |
| | (1 | ) | | 0.02 | % |
Total | | $ | (3 | ) | | 0.02 | % | | $ | 2 |
| | 0.02 | % |
(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.
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 following tables presenttable presents the balance of nonperforming loans, balancenonperforming assets, and total allowance for loan losses balance for the periods presented.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, 2022 and September 30, 2021 included $63 million and $61 million of loans, respectively, which were current pursuant to their contractual terms.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2019 | | 2018 | | 2017 |
$ in millions | | Nonperforming loan balance | | Allowance for loan losses balance | | Nonperforming loan balance | | Allowance for loan losses balance | | Nonperforming loan balance | | Allowance for loan losses balance |
Loans held for investment: | | |
| | |
| | |
| | |
| | | | |
C&I loans | | $ | 19 |
| | $ | 139 |
| | $ | 2 |
| | $ | 123 |
| | $ | 5 |
| | $ | 120 |
|
CRE construction loans | | — |
| | 3 |
| | — |
| | 3 |
| | — |
| | 1 |
|
CRE loans | | 8 |
| | 46 |
| | — |
| | 47 |
| | — |
| | 42 |
|
Tax-exempt loans | | — |
| | 9 |
| | — |
| | 9 |
| | — |
| | 6 |
|
Residential mortgage loans | | 16 |
| | 16 |
| | 23 |
| | 17 |
| | 34 |
| | 17 |
|
SBL and other | | — |
| | 5 |
| | — |
| | 4 |
| | — |
| | 4 |
|
Total | | $ | 43 |
| | $ | 218 |
| | $ | 25 |
| | $ | 203 |
| | $ | 39 |
| | $ | 190 |
|
Total nonperforming loans as a % of RJ Bank total loans | | 0.21 | % | | | | 0.12 | % | | | | 0.23 | % | | |
|
| | | | | | | | | | | | | | | | |
| | September 30, |
| | 2016 | | 2015 |
$ in millions | | Nonperforming loan balance | | Allowance for loan losses balance | | Nonperforming loan balance | | Allowance for loan losses balance |
Loans held for investment: | | |
| | |
| | |
| | |
|
C&I loans | | $ | 35 |
| | $ | 138 |
| | $ | — |
| | $ | 118 |
|
CRE construction loans | | — |
| | 1 |
| | — |
| | 3 |
|
CRE loans | | 4 |
| | 36 |
| | 5 |
| | 30 |
|
Tax-exempt loans | | — |
| | 4 |
| | — |
| | 6 |
|
Residential mortgage loans | | 42 |
| | 13 |
| | 48 |
| | 12 |
|
SBL and other | | — |
| | 5 |
| | — |
| | 3 |
|
Total | | $ | 81 |
| | $ | 197 |
| | $ | 53 |
| | $ | 172 |
|
Total nonperforming loans as a % of RJ Bank total loans | | 0.53 | % | | | | 0.40 | % | | |
Included in nonperforming residential mortgage loans were $9 million in loans for which $5 million in charge-offs were previously recorded, resulting in less exposure within the remaining balance. See Note 8 in the Notes to the Consolidated Financial Statements of this Form 10-K for loan categories as a percentage of total loans receivable.
The nonperforming loan balances in the preceding table exclude $12 million, $12 million, $14 million, $14excluded $7 million and $15$8 million as of September 30, 2019, 2018, 2017, 2016,2022 and 2015,2021, respectively, of residential troubled debt restructurings (“TDRs”) which were returned to accrual status in accordance with our policy. Total nonperforming assets, including other real estate acquired in the settlement of residential mortgages, amounted to $46 million, $28 million, $44 million, $86 million and $57 million as of September 30, 2019, 2018, 2017, 2016, and 2015, respectively. Total
Although our nonperforming assets as a percentage of RJour Bank totalsegment’s assets was 0.18%, 0.12%, 0.21%, 0.50% and 0.39%remained low as of September 30, 2019, 2018, 2017, 2016,2022, 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 2015 respectively.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 in the following sections.
Residential mortgage and SBL and otherresidential 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, 2019,2022, approximately 70% 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 (78%(approximately 75% for their primary residences and 18%20% for second home residences). Approximately 30%35% of the first lien residential mortgage loans were adjustable rate mortgage ARM
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 and then become fully amortizing, subject to annual and lifetime interest rate caps. A significant portion of our originated
Management’s Discussion and Analysis
15 or 30-year fixed-rate residential mortgage loans are sold in the secondary market. RJ Bank’s
Our SBL and other portfolio is primarily comprised primarily of loans fully collateralized by client’s marketable securities and represented 16%35% of RJ Bank’sour total loan portfolioloans held for sale and investment as of September 30, 2019.2022. The underwriting policy for the SBL and other 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 and 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.
Residential mortgage and SBL and otherresidential mortgage loan portfolios
TheSubstantially all collateral securing RJ Bank’sour SBL and other portfolio is monitored on a recurring basis, with marketable collateral monitored on a daily basis. Collateral adjustments, as triggered by our monitoring procedures, are made by the borrower as necessary to ensure RJ Bank’sour loans are adequately secured, resulting in minimizing itsour credit risk. Collateral calls have been minimal relative to our SBL and other portfolio with no losses incurred to date.
We track and review many factors to monitor credit risk in RJ Bank’sour residential mortgage loan portfolio. The factors include, but are not limited to: loan performance trends, loan product parameters and qualification requirements, borrower credit scores, level of
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
documentation, loan purpose, geographic concentrations, average loan size, risk rating, and LTV ratios. These measures, while considered and reviewedSee Note 8 in establishing the allowanceNotes to Consolidated Financial Statements of this Form 10-K for loan losses, have not resulted in any material adjustments to RJ Bank’s historical loss rates.additional information.
Management’s Discussion and Analysis
The following table presents a summary of delinquent residential mortgage loans, the vast majority of which are first mortgage loans, which are comprised of loans which are two or more payments past due as well as loans in the process of foreclosure.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of delinquent residential mortgage loans | | Delinquent residential mortgage loans as a percentage of outstanding residential mortgage loan balances |
$ in millions | | 30-89 days | | 90 days or more | | Total | | 30-89 days | | 90 days or more | | Total |
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 millions | | 30-89 days | | 90 days or more | | Total | | 30-89 days | | 90 days or more | | Total |
September 30, 2019 | | 2 |
| | 10 |
| | 12 |
| | 0.04 | % | | 0.22 | % | | 0.26 | % |
September 30, 2018 | | 2 |
| | 13 |
| | 15 |
| | 0.06 | % | | 0.33 | % | | 0.39 | % |
Our September 30, 20192022 percentage continues to comparecompares favorably to the national average for over 30 day delinquencies of 2.77%2.09%, as most recently reported by the Fed.
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 quarterly to discuss the status, collection strategy and charge-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% |
|
| | | | |
| | September 30, 2019 |
| | Loans outstanding as a % of RJ Bank total residential mortgage loans | | Loans outstanding as a % of RJ Bank total loans |
CA | | 25.4% | | 5.4% |
FL | | 16.8% | | 3.6% |
TX | | 8.0% | | 1.7% |
NY | | 7.6% | | 1.6% |
CO | | 3.7% | | 0.8% |
The occurrence of a natural disaster or severe weather event in any of these states, for example wildfires in California and hurricanes in Florida, could result in additional credit loss provisions and/or charge-offs on our loans in such states and therefore negatively impact our net income and regulatory capital in any given period.
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, 20192022 and 2018,2021, these loans totaled $1.29$2.55 billion and $992 million,$1.97 billion, respectively, or approximately 30%35% and 25%37% of the residential mortgage portfolio, respectively. The weighted averageweighted-average number of years before the remainder of the loans, which were still in their interest-only period at September 30, 2019,2022, begins amortizing is 6.16.6 years.
A component of credit risk management for the residential portfolio is the LTV ratio and borrower credit score at origination or purchase. The most recent weighted-average LTV ratios and FICO scores at origination of RJ Bank’s residential first mortgage loan portfolio were 64% and 761, respectively.
Corporate and tax-exempt loans
Credit risk in RJ Bank’sour corporate and tax-exempt loan portfolios is 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 of this Form 10-K specifically the “Bank loans, net” section, for additional information on RJ Bank’sour allowance for loan losscredit losses policies.
Management’s Discussion and Analysis
Credit risk is managed by diversifying the corporate bank loan portfolio. RJ Bank’sOur corporate bank loan portfolio does not contain a significant concentration in any single industry. The following table details the industry concentrations (top five categories) of RJ Bank’sour corporate bank loans.
| | | | | | | | | | | | | | |
| | September 30, 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% |
|
| | | | |
| | September 30, 2019 |
| | Loans outstanding as a % of RJ Bank total corporate loans | | Loans outstanding as a % of RJ Bank total loans |
Office real estate | | 7.8% | | 4.3% |
Business systems and services | | 7.8% | | 4.3% |
Automotive/transportation | | 5.8% | | 3.2% |
Hospitality | | 5.7% | | 3.2% |
Consumer products and services | | 4.7% | | 2.6% |
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 a result of the COVID-19 pandemic.
Liquidity risk
See the section “Management’s“Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and capital resources” of this Form 10-K for information regarding our liquidity and how we manage liquidity risk.
Operational risk
Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes including cybersecurity incidents. See Itemincidents (see “Item 1A “Risk- Risk Factors” of this Form 10-K for a discussion of certain cybersecurity 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.risks). 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 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 comprised of members of senior 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“Item 1A “Risk- Risk Factors” of this 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, cyberattackscyber-attacks and other information security breaches, and other events that could have an impact on the security and stability of our operations. 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 risk
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 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 material models used across the firm, and on-goingongoing monitoring. Results of validations and issues identified are reported to the Enterprise Risk Management Committee and the Audit and Risk Committee of the Board of
Management’s Discussion and Analysis
Directors. MRMModel Risk Management assumes responsibility for the independent and effective challenge of model completeness, integrity and design based on intended use.
Compliance risk
Compliance risk is the risk of legal or regulatory sanctions, financial loss, or reputational damage that the firm may suffer from a failure to comply with applicable laws, external standards, or internal requirements.
We have established a framework to oversee, manage, and mitigate 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 all three lines of risk 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 - part of the second line of risk management - plays a key leadership role in the oversight, management, and mitigation of compliance risk throughout Raymond James.the firm. It does this by conducting an annual compliance risk assessment, carrying out compliance monitoring and testing activities, implementing compliance policies, training associates on compliance-related topics, and reporting compliance risk-related issues and metrics to the Board of Directors and senior management, among other activities.
We continue to devote resources to expand and support the firm’s compliance risk management framework, including the enhancement of processes and controls to help the firm meet its obligations to oversee, manage, and mitigate compliance risk. We also continue to invest in technology to improve our associates’ ability to monitor and detect compliance risk.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |
ITEM 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” 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
Table of Contents
| | | | | |
| |
| PAGE |
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 assets and derivative liabilities | |
Note 7 - Collateralized agreements and financings | |
Note 8 - Bank loans, net | |
Note 9 - Loans to financial advisors, net | |
Note 10 - Variable interest entities | |
Note 10 - Property and equipment | |
Note 11 - 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 2022 - Interest income and interest expense | |
Note 2123 - Share-based and other compensation | |
Note 2224 - Regulatory capital requirements | |
Note 2325 - Earnings per share | |
Note 2426 - Segment information | |
Note 2527 - Condensed financial information (parent company only) | |
| |
Supplementary data | |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
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) as of September 30, 20192022 and 2018,2021, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-yearthree‑year period ended September 30, 2019,2022, 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, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the years in the three-yearthree‑year period ended September 30, 2019,2022, 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, 2019,2022, based on criteria established inInternal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated November 26, 201922, 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 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, 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 regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MatterMatters
The critical audit mattermatters communicated below is a matterare matters arising from the current period audit of the consolidated financial statements that waswere communicated or required to be communicated to the audit committee and that: (1) relatesrelate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.judgments. The communication of a critical audit mattermatters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattermatters below, providing a separate opinionopinions on the critical audit mattermatters or on the accounts or disclosures to which it relates.they relate.
Assessment of the allowance for loancredit losses related to both the commercial and industrial (C&I), real estate investment trust (REIT) and the commercial real estate (CRE) loan portfoliosportfolio segments that are collectively evaluated for impairment
As discussed in NotesNote 2 and Note 8 to the consolidated financial statements, the Company’s allowance for loancredit losses related toon loans collectively evaluated for impairment (ALL) was based on quantitative historical loss rates adjusted by an estimate of the loss emergence period. The Company also adjusted the quantitative historical loss rates by considering qualitative factors that cause the estimated losses to differ from quantitatively calculated amounts. The Company recorded a total allowance for loan losses of $218$396 million as of September 30, 2019. Of2022, a portion of which related to the Raymond James Bank allowance for credit losses (ACL) on C&I, REIT and 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 amount,affect the ALLcollectability 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 loans was $133 million or 61%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 total allowance,assets. The estimated PDs and LGDs are applied to estimated exposure at default considering the ALLcontractual loan term adjusted for CRE loans was $49 million or 22% ofexpected prepayments to estimate expected losses. Adjustments are made to the total allowance.collective ACL to reflect certain qualitative factors that are not incorporated into the quantitative models and related estimate.
We identified the assessment of the ALLSeptember 30, 2022 collective ACL on Raymond James Bank loans related to the C&I, REIT and CRE loan portfoliosportfolio segments as a critical audit matter because it required a significantmatter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment and specialized industry knowledge and experience. There was subjectivityinvolved in performing procedures over key factors and assumptions used by the Company, including selection of proxy data usedassessment due to develop loss rates andsignificant measurement uncertainty. Specifically, the assessment encompassed the evaluation of loss emergence periods. There were also subjective judgmentsthe September 30, 2022 collective ACL methodology, including the methods and specialized knowledge neededmodels used to assess loan characteristics, such as loanestimate 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 reversion periods, and third-party historical information. The assessment also included the evaluation of the qualitative 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 development and applicationsufficiency of the ALL methodology and the use of qualitative factors.audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter includedmatter. We evaluated the following. Wedesign and tested the operating effectiveness of certain internal controls over the Company’s ALL process, including controls related to the (1) development and approvalCompany’s measurement of the ALLSeptember 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 (2)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 PD and calculationLGD models
•development of keythe 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, 2022 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 as well as qualitativethat the Company used, and considered the relevance and reliability of such data, factors, and (3) analysis of the ALL results, trends, and ratios. We evaluated the relevance of the historical proxy data used to develop loss rates by comparing the Company’s C&I loan portfolio characteristics to the proxy data characteristics. In addition, we tested the CRE loss estimates by comparing them to loss data from independently determined industry peer groups. We evaluated the loss emergence period by testing the loss triggering and confirmation dates for a selection of loans. We assessed how the underlying assumptions used by the Company incorporated accurate metrics and other information and were applied in accordance with the qualitative framework.assumptions. In addition, we involved credit risk professionals with specialized industryskills and knowledge, and experience, who assisted in testing the Company’s process, including:in:
•evaluating the Company’s ALLcollective ACL methodology to determine if it is sufficiently structured, transparent, and repeatable to produce an estimate that is compliantfor compliance with U.S. generally accepted accounting 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 such as loanor risk ratings and
by evaluating the conceptual soundnessfinancial performance of the borrower, sources of repayment, and any relevant guarantees or underlying collateral and
•evaluating the methodology used to develop the qualitative frameworkfactors 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 assessed the sufficiency of the audit evidence obtained related to determine if itthe September 30, 2022 collective ACL estimate on Bank loans related to the C&I, REIT and CRE portfolio segments by evaluating the:
•cumulative results of the audit 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 relevant incremental risks not capturedevaluation 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 controls related to the Company’s fair value measurements of the customer relationship intangible asset, bank loans, and core deposit intangible asset including controls over 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 quantitative estimate.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 26, 2019
22, 2022
| | | | | | | | | | | | | | |
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 | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION |
| | | | | | | | |
| | September 30, |
$ in millions, except per share amounts | | 2019 | | 2018 |
Assets: | | | | |
Cash and cash equivalents | | $ | 3,957 |
| | $ | 3,500 |
|
Cash segregated pursuant to regulations | | 2,014 |
| | 2,441 |
|
Securities purchased under agreements to resell | | 343 |
| | 373 |
|
Securities borrowed | | 248 |
| | 255 |
|
Financial instruments, at fair value: | | |
| | |
|
Trading instruments ($535 and $465 pledged as collateral) | | 708 |
| | 702 |
|
Available-for-sale securities ($24 and $20 pledged as collateral) | | 3,093 |
| | 2,696 |
|
Derivative assets | | 338 |
| | 180 |
|
Other investments ($32 and $25 pledged as collateral) | | 365 |
| | 349 |
|
Brokerage client receivables, net | | 2,671 |
| | 3,343 |
|
Receivables from brokers, dealers and clearing organizations | | 281 |
| | 257 |
|
Other receivables | | 549 |
| | 592 |
|
Bank loans, net | | 20,891 |
| | 19,518 |
|
Loans to financial advisors, net | | 983 |
| | 925 |
|
Property and equipment, net | | 527 |
| | 486 |
|
Deferred income taxes, net | | 231 |
| | 203 |
|
Goodwill and identifiable intangible assets, net | | 611 |
| | 639 |
|
Other assets | | 1,020 |
| | 954 |
|
Total assets | | $ | 38,830 |
| | $ | 37,413 |
|
| | | | |
Liabilities and shareholders’ equity: | | |
| | |
|
Bank deposits | | $ | 22,281 |
| | $ | 19,942 |
|
Securities sold under agreements to repurchase | | 150 |
| | 186 |
|
Securities loaned | | 323 |
| | 423 |
|
Financial instruments sold but not yet purchased, at fair value: | | | | |
Trading instruments | | 296 |
| | 235 |
|
Derivative liabilities | | 313 |
| | 247 |
|
Brokerage client payables | | 4,361 |
| | 5,625 |
|
Payables to brokers, dealers and clearing organizations | | 229 |
| | 206 |
|
Accrued compensation, commissions and benefits | | 1,272 |
| | 1,189 |
|
Other payables | | 518 |
| | 459 |
|
Other borrowings | | 894 |
| | 899 |
|
Senior notes payable | | 1,550 |
| | 1,550 |
|
Total liabilities | | 32,187 |
| | 30,961 |
|
Commitments and contingencies (see Note 17) | |
|
| |
|
|
Shareholders’ equity | | |
| | |
|
Preferred stock; $.10 par value; 10,000,000 shares authorized; -0- shares issued and outstanding | | — |
| | — |
|
Common stock; $.01 par value; 350,000,000 shares authorized; 158,435,030 and 156,363,615 shares issued as of September 30, 2019 and 2018, respectively, and 137,841,952 and 145,642,437 shares outstanding as of September 30, 2019 and 2018, respectively | | 2 |
| | 2 |
|
Additional paid-in capital | | 1,938 |
| | 1,808 |
|
Retained earnings | | 5,874 |
| | 5,032 |
|
Treasury stock, at cost; 20,593,078 and 10,693,026 common shares as of September 30, 2019 and 2018, respectively | | (1,210 | ) | | (447 | ) |
Accumulated other comprehensive loss | | (23 | ) | | (27 | ) |
Total equity attributable to Raymond James Financial, Inc. | | 6,581 |
| | 6,368 |
|
Noncontrolling interests | | 62 |
| | 84 |
|
Total shareholders’ equity | | 6,643 |
| | 6,452 |
|
Total liabilities and shareholders’ equity | | $ | 38,830 |
| | $ | 37,413 |
|
See accompanying Notes to Consolidated Financial Statements.
7483
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 millions, except per share amounts | | 2019 | | 2018 | | 2017 |
Revenues: | | | | | | |
Asset management and related administrative fees | | $ | 3,451 |
| | $ | 3,119 |
| | $ | 2,471 |
|
Brokerage revenues: | | | | | | |
Securities commissions | | 1,450 |
| | 1,626 |
| | 1,578 |
|
Principal transactions | | 357 |
| | 329 |
| | 418 |
|
Total brokerage revenues | | 1,807 |
| | 1,955 |
| | 1,996 |
|
Account and service fees | | 738 |
| | 713 |
| | 612 |
|
Investment banking | | 596 |
| | 501 |
| | 491 |
|
Interest income | | 1,281 |
| | 1,044 |
| | 802 |
|
Other | | 150 |
| | 144 |
| | 153 |
|
Total revenues | | 8,023 |
| | 7,476 |
| | 6,525 |
|
Interest expense | | (283 | ) | | (202 | ) | | (154 | ) |
Net revenues | | 7,740 |
| | 7,274 |
| | 6,371 |
|
Non-interest expenses: | | |
| | |
| | |
|
Compensation, commissions and benefits | | 5,087 |
| | 4,795 |
| | 4,228 |
|
Non-compensation expenses: | | | | | | |
Communications and information processing | | 373 |
| | 352 |
| | 297 |
|
Occupancy and equipment costs | | 218 |
| | 202 |
| | 191 |
|
Business development | | 194 |
| | 181 |
| | 155 |
|
Investment sub-advisory fees | | 94 |
| | 92 |
| | 79 |
|
Professional fees | | 85 |
| | 74 |
| | 55 |
|
Bank loan loss provision | | 22 |
| | 20 |
| | 13 |
|
Acquisition and disposition-related expenses | | 15 |
| | 4 |
| | 18 |
|
Losses on extinguishment of debt | | — |
| | — |
| | 46 |
|
Other | | 277 |
| | 243 |
| | 364 |
|
Total non-compensation expenses | | 1,278 |
| | 1,168 |
| | 1,218 |
|
Total non-interest expenses | | 6,365 |
| | 5,963 |
| | 5,446 |
|
Pre-tax income | | 1,375 |
| | 1,311 |
| | 925 |
|
Provision for income taxes | | 341 |
| | 454 |
| | 289 |
|
Net income | | $ | 1,034 |
| | $ | 857 |
| | $ | 636 |
|
| | | | | | |
Earnings per common share – basic | | $ | 7.32 |
| | $ | 5.89 |
| | $ | 4.43 |
|
Earnings per common share – diluted | | $ | 7.17 |
| | $ | 5.75 |
| | $ | 4.33 |
|
Weighted-average common shares outstanding – basic | | 141.0 |
| | 145.3 |
| | 143.3 |
|
Weighted-average common and common equivalent shares outstanding – diluted | | 144.0 |
| | 148.8 |
| | 146.6 |
|
| | | | | | |
Net income | | $ | 1,034 |
| | $ | 857 |
| | $ | 636 |
|
Other comprehensive income/(loss), net of tax: | | |
| | |
| | |
|
Available-for-sale securities | | 71 |
| | (42 | ) | | 2 |
|
Currency translations, net of the impact of net investment hedges | | (2 | ) | | (3 | ) | | 16 |
|
Cash flow hedges | | (61 | ) | | 33 |
| | 23 |
|
Total other comprehensive income/(loss), net of tax | | $ | 8 |
| | $ | (12 | ) | | $ | 41 |
|
Total comprehensive income | | $ | 1,042 |
| | $ | 845 |
| | $ | 677 |
|
See accompanying Notes to Consolidated Financial Statements.
7584
| | | | | | | | | | | | | | | | | | | | |
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 millions, except per share amounts | | 2019 | | 2018 | | 2017 |
Common stock, par value $.01 per share: | | | | | | |
Balance beginning of year | | $ | 2 |
| | $ | 2 |
| | $ | 2 |
|
Share issuances | | — |
| | — |
| | — |
|
Balance end of year | | 2 |
| | 2 |
| | 2 |
|
| | | | | | |
Additional paid-in capital: | | |
| | |
| | |
Balance beginning of year | | 1,808 |
| | 1,645 |
| | 1,499 |
|
Employee stock purchases | | 34 |
| | 31 |
| | 26 |
|
Exercise of stock options and vesting of restricted stock units, net of forfeitures | | 21 |
| | 32 |
| | 28 |
|
Restricted stock, stock option and restricted stock unit expense | | 107 |
| | 98 |
| | 91 |
|
Acquisition of noncontrolling interest and other | | (32 | ) |
| 2 |
|
| 1 |
|
Balance end of year | | 1,938 |
| | 1,808 |
| | 1,645 |
|
| | | | | | |
Retained earnings: | | |
| | |
| | |
Balance beginning of year | | 5,032 |
| | 4,340 |
| | 3,835 |
|
Net income attributable to Raymond James Financial, Inc. | | 1,034 |
| | 857 |
| | 636 |
|
Cash dividends declared (see Note 23) | | (196 | ) | | (164 | ) | | (131 | ) |
Other | | 4 |
| | (1 | ) | | — |
|
Balance end of year | | 5,874 |
| | 5,032 |
| | 4,340 |
|
| | | | | | |
Treasury stock: | | |
| | |
| | |
Balance beginning of year | | (447 | ) | | (390 | ) | | (363 | ) |
Purchases/surrenders | | (759 | ) | | (45 | ) | | (9 | ) |
Exercise of stock options and vesting of restricted stock units, net of forfeitures | | (4 | ) | | (12 | ) | | (18 | ) |
Balance end of year | | (1,210 | ) | | (447 | ) | | (390 | ) |
| | | | | | |
Accumulated other comprehensive loss: | | |
| | |
| | |
Balance beginning of year | | (27 | ) | | (15 | ) | | (56 | ) |
Other comprehensive income/(loss), net of tax | | 8 |
| | (12 | ) | | 41 |
|
Other | | (4 | ) | | — |
| | — |
|
Balance end of year | | (23 | ) | | (27 | ) | | (15 | ) |
Total equity attributable to Raymond James Financial, Inc. | | $ | 6,581 |
| | $ | 6,368 |
| | $ | 5,582 |
|
| | | | | | |
Noncontrolling interests: | | |
| | |
| | |
Balance beginning of year | | $ | 84 |
| | $ | 112 |
| | $ | 146 |
|
Net income/(loss) attributable to noncontrolling interests | | (14 | ) | | (6 | ) | | 3 |
|
Capital contributions | | 2 |
| | — |
| | 10 |
|
Distributions and other | | (10 | ) | | (22 | ) | | (47 | ) |
Balance end of year | | 62 |
| | 84 |
| | 112 |
|
Total shareholders’ equity | | $ | 6,643 |
| | $ | 6,452 |
| | $ | 5,694 |
|
See accompanying Notes to Consolidated Financial Statements.
7685
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) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2019 | | 2018 | | 2017 |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 1,034 |
| | $ | 857 |
| | $ | 636 |
|
Adjustments to reconcile net income to net cash provided by/(used in) operating activities: | | |
| | |
| | |
|
Depreciation and amortization | | 112 |
| | 99 |
| | 84 |
|
Deferred income taxes | | (23 | ) | | 117 |
| | (12 | ) |
Premium and discount amortization on available-for-sale securities and (gain)/loss on other investments | | 14 |
| | 21 |
| | (28 | ) |
Provisions for loan losses, legal and regulatory proceedings and bad debts | | 59 |
| | 55 |
| | 36 |
|
Share-based compensation expense | | 112 |
| | 99 |
| | 109 |
|
Unrealized gain on company-owned life insurance policies, net of expenses | | (10 | ) | | (32 | ) | | (43 | ) |
Losses on extinguishment of debt | | — |
| | — |
| | 46 |
|
Goodwill impairment | | 19 |
| | — |
| | — |
|
Other | | 51 |
| | 17 |
| | 35 |
|
Net change in: | | |
| | |
| | |
|
Securities sold under agreements to repurchase, net of securities purchased under agreements to resell | | (8 | ) | | (5 | ) | | 97 |
|
Securities loaned, net of securities borrowed | | (93 | ) | | (78 | ) | | (262 | ) |
Loans provided to financial advisors, net of repayments | | (79 | ) | | (87 | ) | | (51 | ) |
Brokerage client receivables and other accounts receivable, net | | 696 |
| | (518 | ) | | (54 | ) |
Trading instruments, net | | 41 |
| | (143 | ) | | 57 |
|
Derivative instruments, net | | (144 | ) | | 73 |
| | 58 |
|
Other assets | | (85 | ) | | 27 |
| | 97 |
|
Brokerage client payables and other accounts payable | | (1,231 | ) | | 346 |
| | (1,133 | ) |
Accrued compensation, commissions and benefits | | 80 |
| | 132 |
| | 160 |
|
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale | | 32 |
| | (96 | ) | | 189 |
|
Jay Peak matter payments | | — |
| | — |
| | (146 | ) |
Net cash provided by/(used in) operating activities | | 577 |
| | 884 |
| | (125 | ) |
| | | | | | |
Cash flows from investing activities: | | |
| | |
| | |
|
Additions to property and equipment | | (138 | ) | | (134 | ) | | (190 | ) |
Increase in bank loans, net | | (1,605 | ) | | (2,818 | ) | | (2,254 | ) |
Proceeds from sales of loans held for investment | | 235 |
| | 193 |
| | 333 |
|
Purchases of available-for-sale securities | | (1,027 | ) | | (1,124 | ) | | (1,733 | ) |
Available-for-sale securities maturations, repayments and redemptions | | 644 |
| | 495 |
| | 299 |
|
Proceeds from sales of available-for-sale securities | | — |
| | 45 |
| | 94 |
|
Business acquisitions, net of cash acquired | | (5 | ) | | (159 | ) | | — |
|
Other investing activities, net | | (1 | ) | | 26 |
| | 75 |
|
Net cash used in investing activities | | (1,897 | ) | | (3,476 | ) | | (3,376 | ) |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
See accompanying Notes to Consolidated Financial Statements.
7786
| | | | | | | | | | | | | | | | | | | | |
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) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Other financing, net | | (7) | | | (9) | | | (1) | |
Net cash provided by financing activities | | 5,879 | | | 5,232 | | | 4,574 | |
| | | | | | |
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 | |
| | | | | | |
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 | |
| | | | | | |
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 | | | $ | — | | | $ | — | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued from previous page) |
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2019 | | 2018 | | 2017 |
Cash flows from financing activities: | | | | | | |
Proceeds from borrowings on the RJF Credit Facility | | 300 |
| | 300 |
| | — |
|
Repayment of borrowings on the RJF Credit Facility | | (300 | ) | | (300 | ) | | — |
|
Proceeds from/(repayments of) short-term borrowings, net | | — |
| | (610 | ) | | 610 |
|
Proceeds from Federal Home Loan Bank advances | | 850 |
| | 850 |
| | 950 |
|
Repayments of Federal Home Loan Bank advances and other borrowed funds | | (855 | ) | | (855 | ) | | (655 | ) |
Proceeds from senior note issuances, net of debt issuance costs paid | | — |
| | — |
| | 508 |
|
Extinguishment of senior notes payable | | — |
| | — |
| | (650 | ) |
Premium paid on extinguishment of senior notes payable | | — |
| | — |
| | (37 | ) |
Acquisition-related contingent consideration (paid)/received, net | | — |
| | (7 | ) | | 3 |
|
Exercise of stock options and employee stock purchases | | 65 |
| | 63 |
| | 57 |
|
Increase in bank deposits | | 2,339 |
| | 2,210 |
| | 3,470 |
|
Purchases of treasury stock | | (778 | ) | | (62 | ) | | (34 | ) |
Dividends on common stock | | (191 | ) | | (151 | ) | | (127 | ) |
Acquisitions of and distributions to noncontrolling interests, net | | (57 | ) | | (18 | ) | | (30 | ) |
Net cash provided by financing activities | | 1,373 |
| | 1,420 |
| | 4,065 |
|
| | | | | | |
Currency adjustment: | | | | | | |
Effect of exchange rate changes on cash | | (23 | ) | | (33 | ) | | 47 |
|
Net increase/(decrease) in cash, cash equivalents, and cash segregated pursuant to regulations | | 30 |
| | (1,205 | ) | | 611 |
|
Cash, cash equivalents, and cash segregated pursuant to regulations at beginning of year | | 5,941 |
| | 7,146 |
| | 6,535 |
|
Cash, cash equivalents, and cash segregated pursuant to regulations at end of year | | $ | 5,971 |
| | $ | 5,941 |
| | $ | 7,146 |
|
| | | | | | |
Cash and cash equivalents | | $ | 3,957 |
| | $ | 3,500 |
| | $ | 3,670 |
|
Cash segregated pursuant to regulations | | 2,014 |
| | 2,441 |
| | 3,476 |
|
Total cash, cash equivalents, and cash segregated pursuant to regulations at end of year | | $ | 5,971 |
| | $ | 5,941 |
| | $ | 7,146 |
|
| | | | | | |
Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | | $ | 283 |
| | $ | 201 |
| | $ | 156 |
|
Cash paid for income taxes, net | | $ | 390 |
| | $ | 231 |
| | $ | 349 |
|
See accompanying Notes to Consolidated Financial Statements.
7887
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20192022
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Organization
Raymond James Financial, Inc. (“RJF,”RJF” or the “firm” or the “Company”) is a financial holding company which, together with its subsidiaries, is engaged in various financial services activities, including providing investment management services forto 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. The firm also provides corporate and retailconsumer banking services, and trust services. For further information about our business segments, see Note 2426 of this Form 10-K. As used herein, the terms “our,” “we,” or “us” refer to RJF and/or one or more of its subsidiaries.
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 910 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 (“U.S.”) generally accepted accounting principles (“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.
Reclassifications
Effective withWe 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 firm’s first fiscal quarter ended December 31, 2018, we have reclassified certain revenues amongrespective income statement line items and renamed certain line items. These reclassifications do not affectthat align with the Company’s reported total revenues or the total revenues in any of our segments for anynature of the previously reported periods.expenses, including reclassifications to “Compensation, commissions, and benefits,” “Professional fees,” or “Other” expenses, as appropriate. Prior period resultsyears have been conformed to the current presentation.
In addition to the reclassifications discussed in the preceding paragraph,above, certain other prior period amounts have been reclassified to conform to the current year’speriod’s presentation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recognition of non-interest revenues
On October 1, 2018, we adopted new accounting guidance for revenueRevenue from contracts with customers. Under the new guidance, revenuecustomers is recognized when promised goods or services are delivered to our customers in an amount we expect to receive in exchange for those goods or services (i.e., the transaction price). Contracts with customers can include multiple services, which are accounted for as separate “performance obligations” if they are determined to be distinct. Our performance obligations to our customers are generally satisfied when we transfer the promised good or 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 good or service. Revenue from our performance obligations satisfied over time areis recognized in a manner that depicts our performance in transferring control of the good or service, which is generally measured based on time elapsed, as our customers simultaneously receive and consume the benefit of our services as they are provided.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Payment for the majority of our services is considered to be variable consideration, as the amount of revenuesrevenue we expect to receive is subject to factors outside of our control, including market conditions. Variable consideration is only included in
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
revenue when amounts are not subject to significant reversal, which is generally when uncertainty around the amount of revenue to be received is resolved. We record deferred revenue from contracts with customers when payment is received prior to the performance of our obligation to the customer.
We involve third parties in providing services to the customer for somecertain of our contracts with customers. Under the new guidance, weWe are generally deemed to control the promised services before they are transferred to the customer. Accordingly, beginning with adoption of the new guidance, 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 forto retail and institutional clients. Such fees are generally calculated as a percentage of the value of client assets in fee-based accounts under administration in our Private Client Group (“PCG”) segment or on the net asset value of institutional accounts, retail accounts we manage on behalf of third-party institutions or proprietary mutual funds that we manageassets 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 being provided. Asset management revenues earned by Raymond James Investment Management for retail accounts managed on behalf of third-party institutions, institutional accounts orand 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 (or, in the case of insurance and annuity products, when the policy is accepted by the carrier).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, exchange-traded funds (“ETFs”)ETFs and fixed income products
We earn commissions for executing and clearing transactions for customers, primarily in listed and OTCover-the-counter equity securities, including ETFs,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 transaction revenuestransactions
Principal transactions include revenues from customers’clients’ purchases and sales of financial instruments, including fixed income and equity securities and derivatives, in which we transact on a principal basis. To facilitate such transactions,We make markets in certain fixed income securities and we carry inventories of financial instruments.instruments to facilitate such transactions. The gains and losses on such inventories, both realized and unrealized, are reported as principal transactions revenues.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Account and service fees
Mutual fund and annuity service fees
We earn servicing fees for providing sales and marketing support to product partnersthird-party financial entities and for supporting the availability and distribution of their products on our platforms. We also earn servicing fees from such partners for accounting and administrative services.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, or, in certain cases, are a fixed annual fee, and are recognized over time as the services are performed.
Raymond James Bank Deposit Program (“RJBDP”) fees
We earn servicing fees from various banks for administrative services we provide related to our clients’ deposits that are swept to such banks as part of the RJBDP,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 relative toand 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 RJour Bank segment, which are based onis calculated as the numbergreater of accountsa base servicing fee or a net yield equivalent to the average yield that are swept to RJ Bank.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 revenues
We earn revenue from investment banking transactions, including public and private equity and debt financing, merger & acquisition advisory services, 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 contingency related to the amount to be paid.received. Fees from merger & acquisition and advisory assignments are generally recognized at the time the services related to the transaction are completed under the terms of the engagement. Fees for merger & acquisition and advisory services are typically received upfront, as non-refundable retainer fees, and/or as a success fee upon completion of a transaction.transaction as a success fee. Expenses related to investment banking transactions are generally deferred until the related revenue is recognized or the assignment is otherwise concluded. Beginning October 1, 2018, suchSuch expenses have beenare included in “Professional fees” on our Consolidated Statements of Income and Comprehensive Income.
See Note 19 in the accompanying Notes to the Consolidated Financial Statements for additional information on our revenue streams.
Cash and cash equivalents
Our cash equivalents include money market funds or highly liquid investments with original maturities of 3 months or less as of our date of purchase, other than those usedheld for trading purposes.
CashAssets segregated pursuant to regulationsfor regulatory purposes and restricted cash
In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Raymond James & Associates, Inc. (“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. TheSuch amounts are included in Cash“Assets segregated pursuant to regulationsfor regulatory purposes and restricted cash” on our Consolidated Statements of Financial Condition represented the amounts of cash actually on deposit in our segregated reserve accounts for regulatory purposes as of each respective period-end.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 holdholds client Registered Retirement Savings Plan funds in trust. Raymond James Bank, N.A. (“RJ Bank”) maintains cash in an interest-bearing pass-through account at the Federal Reserve Bank (“FRB”)trust 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
Collateralized agreements and 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 under reverse repurchase agreements, weWe receive collateral with a fair value that is typically equal to or in excess of the principal amount loaned under such agreements.reverse repurchase agreements to mitigate credit exposure. To ensure that the market value of the underlying collateral remains sufficient, collateral values are evaluated on a recurringdaily basis, and collateral is obtained from or returned to the counterparty when contractually required. In addition, underUnder 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 cash 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 cash in an amount in excess of the market value of securities loaned. We evaluate the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as necessary. 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 collateralized agreements and financings.
Financial instruments, financial instruments sold but not yet purchased,instrument 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.
Level 1 - Financial instruments included in Level 1 are highly liquid instruments valued using unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - 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).
Level 3 - 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 judgment or estimation. These instruments are generally valued using discounted cash flow techniques or market multiples, or investment-specific events.multiples.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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.
Valuation techniques and inputs
The fair values for certain of our financial instruments are derived using pricing models and other valuation techniques that involve 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 less 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 trading volume and other market statistics.volume. We have determined the market for certain other types of financial instruments including private equity investments and auction-rate securities (“ARS”), to be uncertain or inactive as of both September 30, 20192022 and 2018.2021. As a result, the valuation of these financial instruments included management judgment in determining the relevance and reliability of market information available.
The level within the fair value hierarchy, specific valuation techniques, and other significant accounting policies pertaining to financial instruments presentedat fair value on our Consolidated Statements of Financial Condition are described as follows:follows.
Trading instrumentsassets and trading instruments sold but not yet purchasedliabilities
Trading instrumentsassets and trading instruments sold but not yet purchasedliabilities are comprised primarily of the financial instruments held by our broker-dealer subsidiaries and include debt securities, equity securities, brokered certificates of deposit, and other securities. These instrumentsfinancial 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
When available, we use quoted prices in active markets to determine the fair value of our trading instruments.assets and trading liabilities. Such instruments are classified within Level 1 of the fair value hierarchy.
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 third-party pricing services to corroborate our estimates 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.methods. Securities valued using these techniques are classified within Level 2 of the fair value hierarchy.
WeWithin each broker-dealer subsidiary, we offset our long and short positions for identical securities recorded at fair value as part of our trading instrumentsassets (long positions) and trading instruments sold but not yet purchasedliabilities (short positions).
Available-for-sale securities
Available-for-sale securities are generally classified at the date of purchase andpurchase. They are comprised primarily of agency mortgage-backed securities (“MBS”) and, agency collateralized mortgage obligations (“CMOs”) held, and other securities which are guaranteed by RJ Bank. the U.S. government or its agencies. Available-for-sale securities held at RJ Bank are used primarily 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Interest on available-for-sale securities is recognized in interest income on an accrual basis.basis, with the related 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. 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 do not consider our agency available-for-sale securities to be other-than-temporarily-impaired due to the guarantee of the full payment of principal and interest by the U.S. government and the fact that we have the ability and intent to hold these securities.
The fair value of our available-for-sale securities is determined by obtaining third-party pricing service bid quotations from 2 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, which 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.
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” on 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 enforceable master netting agreement and, therefore, the fair value of those derivative contractsderivatives are netted by counterparty and 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 and 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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”initial margin is included as a component of “Other investments” orand “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.
Fixed income business operationsInterest rate derivatives
We enter into interest rate derivatives 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. In 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 orand unrealized gains or losses including interest, on our fixed incomesuch derivatives are recorded in “Principal transactions” on our Consolidated Statements of Income and Comprehensive Income. The fair valuevalues of these interest rate derivatives isare 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 derivatives 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 in which we enter into interest rate derivatives with clients. For every matched book derivative we enter into with a client, we also enter 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 matched book derivatives is administered directly between the client and the third-party financial institution. Due to this pass-through transaction structure, we have completely mitigated the market and credit risk on these matched book derivatives. As a result, matched book derivatives for which the fair value is in an asset position have an equal and offsetting 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. Since any changes in fair value are completely offset by a change in fair value of the offsetting derivative, there is no net impact on our Consolidated Statements of Income and Comprehensive Income from changes in the fair value of these derivatives. We recognize revenue on these matched book derivatives on the transaction date, computed as the present value of the expected cash flows we expect to receive from the third-party financial institution over the life of the derivative. The difference between the present value of these cash flows at
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 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 its Canadian subsidiary, as well as its 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 RJ Bank’s 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 losses on the undesignated derivative instruments are recorded in earnings 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 hypothetical 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 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. RJ Bank enters into floating-rate advances from the Federal Home Loan Bank (“FHLB”) to, in part, fund these assetslending and investing activities in our Bank segment and then entersenter into interest
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
rate contracts 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 RJ Bank’sa 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 gain or loss on RJ Bank’sour Bank segment’s cash flow hedge interest rate derivativeshedges 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 the hedged borrowings. Hedge effectiveness is assessed at inception and at each reporting period utilizing regression analysis. As the key terms of the hedging instrument and hedged transaction match at inception, management expects the hedges to be effective while they are outstanding. The fair value of these interest rate swaps is determined by obtaining valuations from a third-party pricing service. 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 third-party model. Cash flows from hedging activities are included in the same category as the items 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.
Derivative arisingForeign-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 its risk resulting from our acquisitiontransactions denominated in currencies other than the U.S. dollar. The majority of Alex. Brown
Asthese 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 losses on undesignated derivative instruments are recorded in “Other” revenues on our fiscal 2016 acquisitionConsolidated Statements of Alex. Brown, we assumed certain Deutsche Bank restricted stock unit (“DBRSU”) awards, which will ultimatelyIncome 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 hypothetical derivatives method. As the terms of the hedging instrument and hypothetical derivative generally match at inception, the hedge is expected to be settledhighly 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 Deutsche Bank AG (“DB”) common shares, provided certain performance metricsthe third-party valuation model by preparing an independent calculation using a secondary valuation model. These forward foreign exchange contracts are achieved. The DBRSU obligation results in a derivative,classified within Level 2 of 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 New York Stock Exchange.hierarchy.
Other investments
Other investments consist primarily of private equity investments, marketable securities we hold that are associated with certain of our deferred compensation plans, ARS, term deposits with Canadian financial institutions, and securities pledged as collateral with clearing organizations.
Private equity investments
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 the fair value hierarchy.
Private equity investments consist primarily of direct investments and investments in third-party private equity funds and various legacy private equity funds which we sponsor. funds. The private equity funds in which we invest are primarily closed-end funds in which our investments are generally not eligible for redemption. We 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 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.
Fractional shares
We utilize NAV
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 carryingfractional shares on a principal basis. We include these fractional shares in “Other assets” in our Consolidated Statements of Financial Condition and record an associated liability to the client in “Other payables” as we must fulfill our clients’ future fractional share redemptions. We account for the fractional share assets and the liability to the client at fair value. The fair values of these investments is appropriate. The carrying values of these investmentsthe fractional share assets and liabilities are adjusteddetermined based on financial performance, investment-specific events, financingquoted prices in active markets and sales transactions with third parties and/or discounted cash flow models incorporating changes in market outlook. Investments valued using these valuation techniques are classified within Level 3 of the fair value hierarchy. The valuation of such investments requires judgment due to the absence of quoted market prices, inherent lack of liquidity and long-term nature of these assets. As a result, these values cannot be determined with precision and the calculated fair value estimates may not be realizable in a current sale or immediate settlement of the instrument.
Auction rate securities
We hold ARS which are long-term variable rate securities tied to short-term interest rates. Due to failures in the “Dutch auction” process originally used to transact in these securities, 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 valuation techniques use unobservable inputs and accordingly are classified within Level 31 of the fair value hierarchy.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other
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, which is typically five years from the date of the deferral. A liability associated with these deferrals is reflected as a component of “Accrued compensation, commissions and benefits” on our Consolidated Statements of Financial Condition. We use quoted prices in active markets to determine the fair value of these investments. Such instruments are classified within Level 1 of the fair value hierarchy.
Canadian financial institution term deposits are recorded at cost which approximates fair value. These investments are classified within Level 1 of the fair value hierarchy.
Brokerage client receivables, net
Brokerage client receivables include receivables from the clients of our broker-dealer subsidiaries and asset management subsidiaries. The receivables from broker-dealer clients are principally for amounts due on cash and margin transactions andtransactions. Such receivables are generally collateralized by securities owned by the clients. The receivables from asset management clients are primarily for accrued asset management fees. Brokerage client receivables are reported at their outstanding principal balance, adjusted fornet of any allowance for doubtful accounts. An allowance is established when collectability is not reasonably assured. Whencredit losses. See the receivable from“Allowance for credit losses” section below for a brokerage client is considered to be impaired, the amountdiscussion 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 on 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” at their outstanding principal balance on our Consolidated Statements of Financial Condition, net of any allowance for doubtful accounts. Ourcredit 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 was insignificant at both September 30, 2019credit losses on such receivables is not significant. Any allowance for credit losses for other receivables is estimated using assumptions based on historical experience, current facts and 2018.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 any 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.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 and securities-based loans (“SBL”). Theacquired in the TriState Capital acquisition which were recorded at acquisition-date fair value (see Note 3 for additional information), 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 6six loan portfolio 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 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, other.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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We purchase thethe guaranteed portions of SBA loans and account forfor 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 sell 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 uponprice, third-party price quotes. The fair value of all other SBA loansquotes, or are determined using a third-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 “Principal transactions” on our Consolidated Statements of Income and Comprehensive Income.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, which 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.
Corporate loans, which include C&I, CRE CRE construction, and 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 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 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 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” on 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 and Note 1719 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 other real estate owned (“OREO”).owned. Nonperforming loans include those loans which have been placed on nonaccrual status and anycertain accruing loans which are 90 days or more past due and in the process of collection. Loans which have been restructured in a manner that grantgrants a concession that would not normally be granted to a borrower experiencing financial difficulties we would not otherwise consider are deemed to be a troubled debt restructuringrestructurings (“TDR”TDRs”). Loans structured as TDRs which are currently 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
interest income and accretion of the net deferred loan origination fees cease.ceases. Interest is recognized using the cash method for SBL and other andsubstantially 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 our Consolidated Statements of Financial Condition. These nonrecurring fair value measurements are classified within Level 2 of the fair value hierarchy.
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 in the following section 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 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; and
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 2 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. These 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 and other.
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. The 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 and other classes are assigned loan grades equivalent to the loan classifications utilized by bank regulators, dependent on their respective likelihood of loss. For all loan classes except for CRE loans, we assign each loan grade an allowance percentage based on the estimated incurred loss associated with that grade. The allowance for loan losses for all non-impaired loans within those loan classes is then calculated based on the allowance percentage assigned to the respective loan’s class and grade factoring in the respective loss emergence period. For the CRE loan class, the allowance for loan losses is calculated based on the allowance percentage assigned to each loan. The allowance for loan losses for all impaired loans and those nonaccrual residential first 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 loan grades and allowance percentages to 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 2 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 2 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 a 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.
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. As a result, the allowance is determined judgmentally by management, primarily utilizing peer benchmarking data and qualitative factors.
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, loan-to-value (“LTV”) ratios, as well as the factors previously noted that are utilized for corporate loans.
We reserve for losses inherent in our 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 funding expectations. All classes of impaired loans which have unfunded lending commitments are analyzed in conjunction with the impaired allowance 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 meet regularly to review criticized loans
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
( (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. and Canada. The SNCs are U.S. loan syndications totaling over $100 million that are shared between 3three or more regulated institutions. The agent bank’s regulator reviews a portion of SNC loans on a semi-annual basis and 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, potentially impacting our allowance for loancredit losses and 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 FedBoard 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 the Bank’sour respective banks’ regulatory examinations.
EverySubstantially all residential mortgage loanloans over 60 days past due isare reviewed to determine loan status, collection strategy and charge-off recommendations. 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. We believe BPOs are more reliable than an automated valuation tool or the use of tax assessed values. A full appraisal is obtained post-foreclosure and further charge-offs are recorded against the owned asset if an appraisal has a lower valuation than the original BPO, however, we do not reverse previously charged-off amounts if the new appraisal is higher. If a loan remains in pre-foreclosure status for more than nine months, an updated valuation is obtained to determine if further charge-offs are 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 nineten year period, with interest recognized as 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. 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 $20 million at September 30, 2019interest 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 2018, 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 $9 millioncredit losses for the difference between the amortized cost and $8 million at September 30, 2019the amount we estimate will ultimately be collected. Additional charge-offs are taken if there is an adverse change in the expected cash flows.
Allowance for credit losses
We evaluate our held for investment bank loans, unfunded lending commitments, loans to financial advisors and 2018, respectively.
Property and equipment, net
Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Property and equipment primarily consists of software, buildings and leasehold improvements, and furniture. Software includes both purchased software and internally developed software including development in progress. Buildings primarily consists of owned facilities and leasehold improvements. Furniture primarily consists of communications and technology hardware and furniture and fixtures. Depreciation ofcertain other financial assets (other than land) is primarily calculated using the straight-line methodto estimate an allowance for credit losses (“ACL”) over the estimated useful livesremaining life of the financial instrument. The remaining life of our financial assets outlinedis 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 following table.subsidiary which holds the asset, the type of financial asset and the risk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of the portfolio, the related credit risk characteristics, and the overall economic and environmental conditions affecting the financial assets. 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 estimating an allowance for credit losses. We reasonably expect that borrowers (or counterparties, as applicable) will replenish the collateral as required. As a result, we estimate zero credit losses to the extent that the fair value equals or exceeds the related carrying value of the financial asset. When the fair value of the collateral 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 considered in estimating the allowance for credit losses on the unsecured portion of the financial asset.
|
| | |
Asset type | | Estimated useful life |
Buildings, building & land improvements and building components | | 10 to 31 years |
Furniture, fixtures and equipment | | 3 to 5 years |
Software | | 2 to 10 years |
Leasehold improvements | | Lesser of useful life or lease term |
DepreciationCredit losses are charged-off against the allowance when we believe the uncollectibility of the financial asset is confirmed. Subsequent recoveries, if any, are credited to the allowance once received. A credit loss expense, associated with property, equipment and leasehold improvementsor benefit, is recorded in earnings in an amount necessary to adjust the allowance for credit losses to our estimate as of the end of each reporting period. Our provision or benefit for credit losses for outstanding bank loans is included in “Occupancy and equipment costs”“Bank loan provision/(benefit) for credit losses” on our Consolidated Statements of Income and Comprehensive Income. Amortization expense associated with computer softwareIncome and our provision or benefit for credit losses for all other financing receivables, including loans to financial advisors, and unfunded lending commitments, is included in “Other” expense.
Loans
We generally estimate the allowance for credit losses on our loan portfolios using credit risk models which incorporate relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable economic forecasts. After testing the reasonableness of a variety of economic forecast scenarios, each model is run using a single forecast scenario selected for such model. Our forecasts incorporate assumptions related to macroeconomic indicators including, but not limited to, U.S. gross domestic product (“GDP”), equity market indices, unemployment rates, and commercial real estate and residential home price indices. At the conclusion of our reasonable and supportable forecast period, which currently ranges from two to four 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 C&I, REIT and tax-exempt loans. For CRE and residential mortgage loans, we incorporate a reasonable and supportable forecast of various macroeconomic variables over the remaining life of the assets. The development of the forecast used for CRE and
RAYMOND JAMES FINANCIAL, INC. 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.
The allowance for credit losses on loans is includedgenerally evaluated and measured 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 “Communicationsestimating 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 processing” expenseon collectively evaluated corporate loans (C&I, CRE and REIT loans) and residential mortgage loans.
The qualitative portion of our allowance for credit losses includes certain factors that are not incorporated into the quantitative estimate and would generally require adjustments to the allowance for credit losses. These qualitative factors are intended to address developing trends related to each portfolio segment and would generally include, but are not limited to: changes in lending policies and procedures, including changes in underwriting standards and collection; our loan review process; volume and severity of delinquent loans; changes in the seasoning of the loan portfolio and the nature, volume and terms of loans; loan diversification and credit 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 quantitative 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 default (“PD”), which is then multiplied by the loss given default (“LGD”) and the estimated exposure at default (“EAD”) at the loan-level for every period remaining in the loan’s expected life, including the maturity period. Historical information, combined with macroeconomic variables, are used in estimating the PD, LGD and EAD. Our credit risk models consider several factors when estimating the expected credit losses which may include, but are not limited to, financial performance and position, estimated prepayments, geographic location, industry or sector type, debt 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.
TriState 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 Consolidated Statementsindividually-evaluated loans to financial advisors, we generally take into account the affiliation status of Incomethe 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 Comprehensive Income.other factors affecting the borrower’s ability to repay the debt.
Additions, improvementsAvailable-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 expendituresits 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 extendis comprised of U.S. government and government agency-backed securities and the useful liferelated accrued interest receivable for which payments of an assetboth principal and interest are capitalized. Costsguaranteed, and for significant internally developed software projects are capitalized whenwhich we have not historically experienced any credit losses. In addition, we have the costs relateability and intent to development or modification of internal-use software that results in additional functionality. Costshold these securities and unrealized losses related to preliminary projectthese 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 post-project activitiesforecasted 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 expensedrecorded as incurred. Expendituresprovisions for repairs and maintenancecredit losses. Losses are charged against the allowance when we believe the security is uncollectible or we intend to operations insell the period incurred. Gains and losses on disposals of property and equipment are reflectedsecurity. At September 30, 2022, based on our Consolidated Statementsassessment of Income and Comprehensive Income inthose securities not guaranteed by the period realized.U.S government or its agencies, we recognized an insignificant allowance for credit losses.
IntangibleIdentifiable 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 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 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 under GAAP.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 more oftenbetween 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 performelect 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. Indefinite-lifeIndefinite-lived intangible assets such as goodwill are not amortized, but rather evaluated for impairment at least annually, or between annual impairment evaluation dates whenever events or circumstances indicate potential impairment exists. Impairment exists when the carrying value of a reporting unit, which is generally at the level of or one level below our business segments, exceeds its respective fair value.
In the course of our evaluation of thea potential impairment ofto goodwill, we may elect either a qualitative or a quantitative assessment. Our qualitative assessment considers macro-economic and other industry-specific factors,assessments consider macroeconomic indicators, such as trends in short-termequity and long-termfixed income markets, GDP, labor markets, interest rates, as well as company-specific factors,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 as market capitalization, trends in revenue-generating activities, and merger or acquisition activity.changes, may trigger the need for impairment testing at a point other than our annual assessment date. We assess these, and other, qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If 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 elect not to perform a qualitative assessment, or we elect to perform a qualitative assessment but are unable to qualitatively conclude that no impairment has occurred, then we perform a quantitative evaluation.
In ourthe event of a quantitative assessment, we estimate the fair value of the reporting unit with which the goodwill is associated 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 carrying value of a reporting unit 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. See Note 11 for additional information regarding the outcome of our goodwill impairment 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, FRBFederal Reserve Bank (“FRB”) stock, and investments in real estate assets partnerships held by consolidated VIEs.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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 2123 for information on the non-qualified deferred compensation plans). TheThese life insurance policies are carriedrecorded at cash surrender value as determined by the insurer.
In accordance with certain membership requirements, we carry investments in stockOwnership of the FHLB and FRB stock is a requirement for all banks seeking membership into and access to the FRB.services provided by these banking systems. These investments are carried at cost, are restricted, lack a market, and can only be sold to the issuer or another member institution at their respective par values. Annually, or more frequently if events or circumstances indicate necessary, we evaluate our holdings for potential impairment through a review of the capital adequacy, liquidity position and overall financial condition of the FHLB and FRB to determine the ultimate recoverability of the par value of the respective stock. Any cash dividends received from these investments are recognized as “Interest income” on our Consolidated Statements of Income and Comprehensive Income.cost.
Raymond James Affordable Housing Investments, Inc. (“RJAHI”) (formerly Raymond James Tax Credit Funds, Inc. (“RJTCF”), a wholly ownedwholly-owned subsidiary of RJF, or one of its affiliates, isacts 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.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.“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 each accounting period and the liability balance is adjusted as deemed appropriate by management. Any change in the liability amount is recorded inthrough “Other” expense on our consolidated financial statementsConsolidated Statements of Income and is recognized in net incomeComprehensive Income in that period. The actual costs of resolving legal matters or regulatory proceedings may be substantially higher or lower than the recorded liability amounts for such matters. We expense our costOur costs of defense related to such matters are expensed in the period they are incurred. Such defense costs are primarily related to external legal fees which are included within “Professional fees” on our Consolidated Statements of Income and Comprehensive Income. See Note 1719 for additional information.
Share-based compensation
We account for share-based awards through the measurement and recognition of compensation expense for allcost related to share-based payment awards made to employees, directors, and independent contractors based on the estimated fair values.values of the awards on the date of grant. The compensation cost of our share-based awards, net of estimated forfeitures, is recognizedamortized over the requisite service period of the awardsawards. Share-based compensation amortization is included in “Compensation, commissions and is calculated as the market valuebenefits” expense on our Consolidated Statements of the awards on the date of the grant.Income and Comprehensive Income. See Note 2123 for additional information on our 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 investmentsdiscussion within the financial instruments, financial instruments sold but not yet purchased, at fair value section of this note for further discussion of these assets. For the Voluntary Deferred Compensation Plan (the “VDCP”(“VDCP”), Long TermLong-Term Incentive Plan (“LTIP”), and 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. See Note 12 for information regarding the carrying value of such policies. Compensation expense is recognized for all awards made under such plans with future service requirements over the requisite service period using the straight-line method. Changes in the value of the company-owned life insurance policies, and other investments, as well as the expenses associated with the related deferred compensation plans, are recorded in “Compensation, commissions and benefits” expense on our Consolidated Statements of Income and Comprehensive Income. See Note 2123 for additional information.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Leases
We lease office space and equipment under operating leases. We recognize rent expense related to these operating leases on a straight-line basis over the lease term. The lease term commences on the earlier of the date when we become legally obligated for the rent payments or the date on which we take possession of the property. For tenant improvement allowances and rent holidays, we record a deferred rent liability in “Other payables” on our Consolidated Statements of Financial Condition and amortize the deferred rent over the lease term as a reduction to rent expense on our 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 on our Consolidated Statements of Income and Comprehensive Income at the time such abandonment is known and any loss is estimable.
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 in 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 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 our 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 represents 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.funds or 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 obligation 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
participation rights as a simple majority of the limited partners cannot initiate an action to kick-out the general partner without cause and the limited partners with equity at-risk lack substantive participating rights.
In our analysis of the criteria to determine whether we are the primary beneficiary of the Private Equity Interests VIEs, we analyze the power and benefits criteria. In a number of these entities, we are a passive limited partner investor, and thus, we do not have the power to make decisions that most significantly affect the economic performance of such VIEs. Accordingly, in such circumstances we have determined we are not the primary beneficiary and therefore we do not consolidate the VIE. However, in certain of these entities, we have concluded that we are the primary beneficiary as we meet the power and benefits criteria. In such instances, we consolidate the Private Equity Interests VIE.
Restricted Stock Trust Fund
We utilize a trust in connection with certain of our RSU 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 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.
LIHTC funds
RJTCFRJAHI is the managing member or general partner in a number of LIHTC funds having 1one or more investor members or limited partners. These LIHTC 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 purchase and develop, or hold, low-income housing properties qualifying for tax 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.
RJTCFRJAHI sponsors 2two general types of tax credit funds that generally do not meetdesigned to deliver tax benefits to the investors. Generally, neither type meets the VIE consolidation criteria. TheThese types of funds include single investor funds and multi-investor funds. RJTCFRJAHI 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, and receives a share of any residuals arising from sale of project partnerships upon the termination of the fund.
In single investor funds RJTCFthat deliver tax benefits, RJAHI has concluded that the 1one 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 1one 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 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, in nearly all cases, these funds are not consolidated.
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 form. In single investor form, the limited partner has significant participating rights over the activities that most significantly impact the economics of the fund, and therefore RJAHI is not the primary beneficiary of such funds and such funds are not consolidated. In multi-investor 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
RJRaymond 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 consolidate are investor members in certain LIHTC project partnerships. Since unrelated third parties are
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
the funds’ project partnership investments are included in “Other assets” on our Consolidated Statements of Financial Condition.
Recent Any losses on such equity method investments are included in “Other” expenses on our Consolidated Statements of Income and Comprehensive Income. See “Income taxes” section of this Note 2 for a discussion of our accounting developments
Accounting guidance recently adopted
for the tax benefits related to such investments.
Goodwill -
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 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 January 2017,our analysis of the Financial Accounting Standards Board (“FASB”) issued amended guidancecriteria to simplifydetermine whether we were the subsequent measurementprimary beneficiary of goodwill, eliminating “Step 2”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 consolidated these entities. In our remaining Private Equity Interests, 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.
Restricted Stock Trust Fund
We utilize a trust in connection with certain of our RSU 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 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.
Acquisitions
Our financial statements include the operations of acquired businesses starting from the goodwill impairment test (ASU 2017-04). Under this amended guidance, an entity should perform its annual, or interim, goodwill impairment test by comparingcompletion of the acquisition. Acquisitions are generally recorded as business combinations, whereby the assets acquired and liabilities assumed are recorded on the date of acquisition at their respective estimated fair values, including any identifiable intangible assets. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Significant judgment is required in estimating the fair value of a reporting unit with its carrying amountcertain acquired assets and subsequently recognize an impairment charge for the amountliabilities. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocatedmanagement, but are inherently uncertain as they pertain to that reporting unit. We early-adopted this guidance on January 1, 2019, our goodwill impairment test date. We applied the amended guidance to the August 2019 impairment assessmentforward-looking views of our Canadian Capital Markets business.
Revenue recognition - In May 2014,businesses, client behavior, and market conditions. We consider the FASB issued new guidance relatedincome, market and cost approaches and place reliance on the approach or approaches deemed most appropriate to 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. We adopted this guidance as of October 1, 2018, under a modified retrospective approach for all open contracts as of the date of initial adoption. As such, there was no impact on our prior period results.
The primary impact of this guidance was the change in the presentation of certain costs from a net presentation within revenues to a gross presentation, particularly costs related to merger & acquisitions advisory and underwriting transactions and certain administrative costs related to the RJBDP. As a result of this change, “Investment banking” and “Professional fees” were each $23 million higher for the year ended September 30, 2019, and “Account and service fees” and “Other” expense were each $8 million higher for the year ended September 30, 2019. These presentation changes had no impact on our pre-tax or net earnings. There were no material changes in timing of revenues recognized associated with the adoption. As a result, adoption of this guidance had no material impact on our net results of operations or financial position. See Note 19 for further information.
Financial instruments - In January 2016, the FASB issued new guidance related to the accounting for financial instruments (ASU 2016-01). Among its provisions, this new guidance generally requires equity investments to be measured at fair value with changes in fair value recognized in net income, subject to certain exceptions, and amends certain disclosure requirements associated withestimate the fair value of financial instruments. We adopted this guidance as of October 1, 2018, under a modified retrospective approach. As a result, on a prospective basis beginning as of the date of adoption, we record changesintangible assets. Significant estimates and assumptions inherent in the fair valuevaluations reflect a consideration of our investments in equity securities that were previously classified as available-for-sale in net income. Previously, such unrealized gains/(losses) were reflected in OCI. The impactother marketplace participants and include the amount and timing of adopting the new guidance resulted in a reclassification from AOCI to retained earnings of an accumulated gain of approximately $4 million at October 1, 2018. See Note 5 for further information.
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 provides guidance on disclosure and classification of certain items within the statements of cash flows. We adopted this guidance on October 1, 2018, under a retrospective approach. The adoption did not have a material impact on our consolidated statements offuture cash flows (including expected growth rates and did not have an impact on our financial position or results of operations.
Statement of Cash Flows (restricted cash) - In November 2016,profitability) and the FASB issued new guidance related to the classification and presentation of changes in restricted cash on the statement of cash flows (ASU 2016-18). The guidance requires an entity to include restricted cash and cash equivalents in its total of cash and cash equivalents on its statement of cash flows and to present a reconciliation of the beginning-of-period and end-of-period total of such amounts on the statement of cash flows. We adopted this guidance on October 1, 2018, under a retrospective approach. As a result of adoption, we recorded a decrease of $1.02 billion and $1.43 billion in net cash provided by operating activities for the years ended September 30, 2018 and 2017, respectively, related to reclassifying changes in cash segregated pursuant to regulations from operating activitiesdiscount rate applied to the cash and cash equivalents balance on the Consolidated Statements of Cash Flows. The total of cash segregated pursuant to regulations and cash and cash equivalents is included in a separate table on the Consolidated Statements of Cash Flows. The adoption did not have an impact on our financial position or results of operations.flows.
Determining the useful life of an intangible asset also requires judgment. With the exception of certain customer relationships, the majority of our acquired intangible assets (e.g., customer relationships, trade names and non-compete agreements) are expected to have determinable useful lives. We estimate the useful lives of these intangible assets based on a number of factors including competitive environment, market share, trademark, brand history, underlying demand, and operating plans. Finite-lived intangible assets are amortized over their estimated useful life. Refer to Note 3 and our goodwill and intangible assets policies above for additional information.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 3 – ACQUISITIONS
Definition
TriState Capital
On June 1, 2022, we completed our acquisition of all the outstanding shares of TriState Capital, including its wholly-owned subsidiaries, TriState Capital Bank and Chartwell Investment Partners, LLC (“Chartwell”), in a cash 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 and as an independently-chartered bank. TriState Capital Bank and Chartwell have been integrated into our Bank and Asset Management segments, respectively, and their results of operations have been included in our results prospectively from the closing date of June 1, 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 20 for further 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 terms 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 - In January 2017, the FASB issued amended guidance relatedday prior 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. We adopted this guidance on October 1, 2018, on a prospective basis. The impactclosing of the adoption of this amended guidance is dependent upon acquisition and disposal activities subsequent to the date of adoption.acquisition. The adoption did not have any impact on our financial position or results of operations.
Share-based payment awards (modifications) - 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. We adopted the guidance on October 1, 2018, on a prospective basis. We generally do not modify our share-based payments awards. The adoption did not have an impact on our financial position or results of operations.
Share-based payment awards (nonemployee) - In June 2018, the FASB issued amended guidance that aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions (ASU 2018-07). The amended guidance states an entity should measure the fair value of the award by estimatingRSAs 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 equity instruments to be issued and, for equity-classified awards, the fair value should be measuredNote on the grant date. The amended guidance also clarifies that nonemployee awards that containacquisition date was determined using a performance condition are to be measureddiscounted cash flow analysis based on the outcome that is probable and that entities may elect, on an award-by-award basis, to useincremental borrowing rates for similar types of instruments at the expected term or contractual term to measure the award. We early-adopted this standard on October 1, 2018, using a modified retrospective approach. The adoption did not have a significant impact on our financial position or results of operations.acquisition date.
Accounting guidance not yet adopted as of September 30, 2019
Lease accounting - In February 2016, the FASB issued new guidance related to the accounting for leases (ASU 2016-02). The new guidance and subsequent amendments requires the recognition of assets and liabilities on the balance sheet related to the rights and obligations created by lease agreements with terms greater than twelve months, regardless of whether they are classified as finance or operating leases. Consistent with the previous 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. We adopted this guidance on October 1, 2019 using the alternative modified retrospective approach for leases effective as of the adoption date. The impact of adopting this guidance as of October 1, 2019 was a gross-up of our consolidated assets and liabilities of approximately $375 million and $400 million, respectively, primarily due to the recognition of right-of-use assets (“ROU assets”) and lease liabilities related to operating leases. The difference between the ROU asset and the lease liability is primarily due to lease incentives. The adoption had no effect on our results of operations or cash flows.
107
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, and subsequent updates, broadens the information that an entity must consider in developing its estimated credit losses expected to occur over the remaining life of 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. This new guidance is first effective for our fiscal year beginning on October 1, 2020 and will be adopted under a modified retrospective approach. Although permitted, we do not plan to early adopt. Our cross-functional team has continued our implementation efforts, including data collection and processing, model development and validation, and establishment of the governance and control processes. 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.
Callable debt securities - In March 2017, the FASB issued new 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. We adopted the guidance October 1, 2019 using a modified retrospective approach. The adoption did not have a significant impact on our financial position and results of operations.
Internal use software (cloud computing) - In August 2018, the FASB issued guidance on the accounting for implementation costs incurred by customers in cloud computing arrangements (ASU 2018-15). This guidance requires implementation costs incurred by
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
customers in cloud computing arrangements to be deferred over the non-cancellable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. This amended guidance is first effective for our fiscal year beginning on October 1, 2020 with early adoption permitted. The guidance may be adopted either using the prospective or retrospective approach. We are currently evaluating the impact of this new guidance on our financial position and results of operations.
Derivatives and hedging (interest rate) - In October 2018, the FASB issued guidance amending Derivatives and Hedging (Topic 815) to add the overnight index swap (“OIS”) rate based on the Secured Overnight Financing Rate (“SOFR”) to the list of U.S. benchmark interest rates that are eligible during the early stages of the market transition from LIBOR to SOFR (ASU 2018-16). The amendments to this guidance will provide adequate lead time for entities to prepare for changes to interest rate hedging strategies. We adopted the guidance October 1, 2019 and will apply the guidance prospectively for qualifying new or re-designated hedging relationships. The adoption did not have a significant impact on our financial position and results of operations.
Consolidation (decision making fees) - In October 2018, the FASB issued guidance on how all entities evaluate decision-making fees under the variable interest entity guidance (ASU 2018-17). Under the new guidance, to determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis, rather than in their entirety. This guidance is first effective for our fiscal year beginning on October 1, 2020. 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.
NOTE 3 – ACQUISITIONS
Acquisitions completed during fiscal year 2019
Effective April 2019, we increased our ownership of ClariVest Asset Management LLC (“ClariVest”) from 45% to 100% making ClariVest a wholly-owned subsidiary of Eagle Asset Management. ClariVest has been included in our consolidated financial statements since our initial investment of the 45% interest as we concluded we were required to consolidate as defined by the accounting guidance. The increase in ownership was accounted for as a shareholders’ equity transaction.
In April 2019, we completed our acquisition of Silver Lane Advisors LLC (“Silver Lane”), a boutique investment bank focused on merger & acquisition advisory. Silver Lane is included in our Capital Markets segment. 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 under the acquisition method of accounting withwas 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 Silver Lane recordedthe assets acquired and liabilities assumed, and resulting goodwill as of the June 1, 2022 acquisition date at their respective fair values in our consolidated financial statements. For purposesdate.
| | | | | | | | |
| | 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 certain acquisition-related financial reporting requirements, the Silver Lane acquisition was not considered$189 million) and $30 per TriState Capital Series C Convertible Preferred Stock outstanding (for a material acquisition. Silver Lane’s resultstotal of operations have been included in our results prospectively from April 1, 2019.
Acquisitions completed in prior fiscal years
In November 2017, we completed our acquisition of 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”)$154 million), as well as Scout Distributors.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 addition of Scout, an equity asset manager, and Reams, an institutional-focused fixed income specialist, broadened the investment solutions availablegoodwill associated with this acquisition, which has been allocated to our clientsBank segment and has been integrated intoprimarily represents synergies from combining TriState Capital with our Asset Management segment. For purposes of certain acquisition-related financial reporting requirements, the Scout Group acquisition wasexisting businesses, is not considered a material acquisition. The Scout Group’s results of operations have been included in our results prospectively from November 17, 2017.deductible for tax purposes.
The acquisition and integration costs associated with certain acquisitions are included in “Acquisition and disposition-related expenses” on ourOur Consolidated Statements of Income and Comprehensive Income. Such costs include, among other items, legalIncome included net revenues and regulatory costs, acquisition-related incentive costspre-tax income attributable to TriState Capital of $141 million and severance costs.$38 million, respectively, for the 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
All other acquisitions
On January 21, 2022, we completed our acquisition of U.K.-based Charles Stanley Group PLC (“Charles Stanley”) using cash on hand as of the acquisition date. 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 PCG 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 the closing date of January 21, 2022.
On July 1, 2022, we completed our acquisition of SumRidge Partners, LLC (“SumRidge Partners”) using cash on hand as of the acquisition date. 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 existing fixed income operations. SumRidge Partners has been integrated into our Capital Markets segment and its results of operations have been included in our results prospectively from the closing date of July 1, 2022.
We 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 assets acquired and liabilities assumed associated with the Charles 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 tax purposes.
(3) The goodwill associated with the SumRidge Partners acquisition, which has been allocated to our Capital Markets segment, primarily represents synergies from combining SumRidge Partners with our existing businesses and is 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 year ended September 30, 2022.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Determination of fair value
The following is a description of the methods used to determine the fair values of significant assets and liabilities 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 same 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, 2022, 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 non-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 PCD 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 the TriState Capital acquisition with an 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 difference between the unpaid principal balance and purchase price of PCD loans at acquisition.
| | | | | | | | |
$ 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 | |
RAYMOND JAMES FINANCIAL, INC. 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.value. For further information about such instruments and our significant accounting policies related to fair value see Note 2. The following tables present assets and liabilities measured at fair value on a recurring basis. Netting adjustments represent the impact of counterparty and collateral netting on our derivative balances included on 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 millions | | Level 1 | | Level 2 | | Level 3 | | Netting adjustments | | Balance as of September 30, 2019 |
Assets at fair value on a recurring basis: | | | | | | | | | | |
Trading instruments | | | | | | | | | | |
Municipal and provincial obligations | | $ | — |
| | $ | 267 |
| | $ | — |
| | $ | — |
| | $ | 267 |
|
Corporate obligations | | 8 |
| | 95 |
| | — |
| | — |
| | 103 |
|
Government and agency obligations | | 12 |
| | 67 |
| | — |
| | — |
| | 79 |
|
Agency MBS and CMOs | | — |
| | 147 |
| | — |
| | — |
| | 147 |
|
Non-agency CMOs and asset-backed securities (“ABS”) | | — |
| | 51 |
| | — |
| | — |
| | 51 |
|
Total debt securities | | 20 |
| | 627 |
| | — |
| | — |
| | 647 |
|
Equity securities | | 12 |
| | 1 |
| | — |
| | — |
| | 13 |
|
Brokered certificates of deposit | | — |
| | 45 |
| | — |
| | — |
| | 45 |
|
Other | | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
Total trading instruments | | 32 |
| | 673 |
| | 3 |
| | — |
| | 708 |
|
Available-for-sale securities | | | | | | | | | | |
Agency MBS and CMOs | | — |
| | 3,083 |
| | — |
| | — |
| | 3,083 |
|
Other securities | | 10 |
| | — |
| | — |
| | — |
| | 10 |
|
Total available-for-sale securities | | 10 |
|
| 3,083 |
|
| — |
|
| — |
|
| 3,093 |
|
Derivative assets | | | | | | | | | | |
Interest rate - matched book | | — |
| | 280 |
| | — |
| | — |
| | 280 |
|
Interest rate - other | | 3 |
| | 182 |
| | — |
| | (127 | ) | | 58 |
|
Total derivative assets | | 3 |
| | 462 |
| | — |
| | (127 | ) | | 338 |
|
Other investments - private equity - not measured at NAV | | — |
| | — |
| | 63 |
| | — |
| | 63 |
|
All other investments | | 194 |
| | 1 |
| | 24 |
| | — |
| | 219 |
|
Subtotal | | 239 |
|
| 4,219 |
|
| 90 |
|
| (127 | ) | | 4,421 |
|
Other investments - private equity - measured at NAV | | | | | | | | | | 83 |
|
Total assets at fair value on a recurring basis | | $ | 239 |
|
| $ | 4,219 |
|
| $ | 90 |
|
| $ | (127 | ) |
| $ | 4,504 |
|
| | | | | | | | | | |
Liabilities at fair value on a recurring basis: | | | | | | | | | | |
Trading instruments sold but not yet purchased | | | | | | | | | | |
Corporate obligations | | $ | 2 |
| | $ | 20 |
| | $ | — |
| | $ | — |
| | $ | 22 |
|
Government and agency obligations | | 269 |
| | — |
| | — |
| | — |
| | 269 |
|
Total debt securities | | 271 |
|
| 20 |
|
| — |
|
| — |
|
| 291 |
|
Equity securities | | 4 |
| | — |
| | — |
| | — |
| | 4 |
|
Other | | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Total trading instruments sold but not yet purchased | | 275 |
|
| 20 |
|
| 1 |
|
| — |
|
| 296 |
|
Derivative liabilities | | | | | | | | | | |
Interest rate - matched book | | — |
| | 280 |
| | — |
| | — |
| | 280 |
|
Interest rate - other | | 4 |
| | 142 |
| | — |
| | (121 | ) | | 25 |
|
Foreign exchange | | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
Equity (DBRSU obligation) | | — |
| | 6 |
| | — |
| | — |
| | 6 |
|
Total derivative liabilities | | 4 |
|
| 430 |
|
| — |
|
| (121 | ) |
| 313 |
|
Total liabilities at fair value on a recurring basis | | $ | 279 |
|
| $ | 450 |
|
| $ | 1 |
|
| $ | (121 | ) |
| $ | 609 |
|
113
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | |
$ in millions | | Level 1 | | Level 2 | | Level 3 | | Netting adjustments | | Balance as of September 30, 2018 |
Assets at fair value on a recurring basis: | | | | | | | | | | |
Trading instruments | | | | | | | | | | |
Municipal and provincial obligations | | $ | 1 |
|
| $ | 247 |
| | $ | — |
| | $ | — |
| | $ | 248 |
|
Corporate obligations | | 10 |
|
| 100 |
| | — |
| | — |
| | 110 |
|
Government and agency obligations | | 19 |
|
| 72 |
| | — |
| | — |
| | 91 |
|
Agency MBS and CMOs | | 3 |
| | 124 |
| | — |
|
| — |
| | 127 |
|
Non-agency CMOs and ABS | | — |
| | 69 |
| | — |
|
| — |
| | 69 |
|
Total debt securities | | 33 |
| | 612 |
| | — |
| | — |
| | 645 |
|
Equity securities | | 15 |
| | — |
| | — |
|
| — |
| | 15 |
|
Brokered certificates of deposit | | — |
| | 39 |
| | — |
| | — |
| | 39 |
|
Other | | — |
| | 2 |
| | 1 |
| | — |
| | 3 |
|
Total trading instruments | | 48 |
| | 653 |
| | 1 |
| | — |
| | 702 |
|
Available-for-sale securities | | |
| | |
| | |
| | |
| | |
|
Agency MBS and CMOs | | — |
| | 2,628 |
| | — |
| | — |
| | 2,628 |
|
Other securities | | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
ARS preferred | | — |
| | — |
| | 67 |
| | — |
| | 67 |
|
Total available-for-sale securities | | 1 |
| | 2,628 |
| | 67 |
| | — |
| | 2,696 |
|
Derivative assets | | | | | | | | | | |
Interest rate - matched book | | — |
| | 160 |
| | — |
| | — |
| | 160 |
|
Interest rate - other | | — |
| | 74 |
| | — |
| | (55 | ) | | 19 |
|
Foreign exchange | | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Total derivative assets | | — |
| | 235 |
| | — |
| | (55 | ) | | 180 |
|
Other investments - private equity - not measured at NAV | | — |
| | — |
| | 56 |
| | — |
| | 56 |
|
All other investments | | 201 |
| | 1 |
| | — |
| | — |
| | 202 |
|
Subtotal | | 250 |
| | 3,517 |
| | 124 |
| | (55 | ) | | 3,836 |
|
Other investments - private equity - measured at NAV | | | | | | | | | | 91 |
|
Total assets at fair value on a recurring basis | | $ | 250 |
|
| $ | 3,517 |
|
| $ | 124 |
|
| $ | (55 | ) |
| $ | 3,927 |
|
| | | | | | | | | | |
Liabilities at fair value on a recurring basis: | | |
| | |
| | |
| | |
| | |
|
Trading instruments sold but not yet purchased | | |
| | |
| | |
| | |
| | |
|
Municipal and provincial obligations | | $ | — |
| | $ | 1 |
| | $ | — |
|
| $ | — |
| | $ | 1 |
|
Corporate obligations | | 2 |
| | 25 |
| | — |
|
| — |
| | 27 |
|
Government and agency obligations | | 194 |
| | — |
| | — |
|
| — |
| | 194 |
|
Non-agency CMOs and ABS | | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Total debt securities | | 196 |
| | 27 |
| | — |
|
| — |
| | 223 |
|
Equity securities | | 5 |
| | — |
| | — |
|
| — |
| | 5 |
|
Other | | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Total trading instruments sold but not yet purchased | | 201 |
| | 27 |
| | 7 |
|
| — |
| | 235 |
|
Derivative liabilities | | | | | | | | | | |
Interest rate - matched book | | — |
| | 160 |
| | — |
| | — |
| | 160 |
|
Interest rate - other | | — |
| | 114 |
| | — |
| | (47 | ) | | 67 |
|
Foreign exchange | | — |
| | 4 |
| | — |
| | — |
| | 4 |
|
Equity (DBRSU obligation) | | — |
| | 16 |
| | — |
| | — |
| | 16 |
|
Total derivative liabilities | | — |
| | 294 |
| | — |
| | (47 | ) | | 247 |
|
Total liabilities at fair value on a recurring basis | | $ | 201 |
|
| $ | 321 |
|
| $ | 7 |
|
| $ | (47 | ) |
| $ | 482 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Level 3 recurring fair value measurements
The following tables present 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 may include changes in fair value that were attributable to both observable and unobservable inputs. In the following tables, gains/(losses) on trading and derivative instruments are reported in “Principal“Principal transactions” and gains/(losses) on other investments are reported in “Other”“Other” revenues and gains/(losses) on available-for-sale securities are reported in either “Other” revenues (when included in earnings) or “Other comprehensive income” on our Consolidated Statements of Income and Comprehensive 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, 2019 Level 3 instruments at fair value |
| | Financial assets | | Financial liabilities |
| | Trading instruments | | Other investments | | Trading instruments |
$ in millions | | Other | | Private equity investments | | All other (1) | | Other |
Fair value beginning of year | | $ | 1 |
| | $ | 56 |
| | $ | 67 |
| | $ | (7 | ) |
Total gains/(losses) included in earnings | | (3 | ) | | 4 |
| | (3 | ) | | 2 |
|
Purchases and contributions | | 109 |
| | 3 |
| | — |
| | 19 |
|
Sales | | (104 | ) | | — |
| | (40 | ) | | (15 | ) |
Transfers: | | |
| | |
| | |
| | |
Into Level 3 | | — |
| | — |
| | — |
| | — |
|
Out of Level 3 | | — |
| | — |
| | — |
| | — |
|
Fair value end of year | | $ | 3 |
| | $ | 63 |
| | $ | 24 |
| | $ | (1 | ) |
Unrealized gains/(losses) for the year included in earnings for instruments held at the end of the year | | $ | — |
| | $ | 4 |
| | $ | (1 | ) | | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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) | |
| |
(1) | Beginning of period balance includes $67 million of preferred ARS, which were reclassified from available-for-sale securities in connection with the adoption of ASU 2016-01. See Note 2 for additional information. |
|
| | | | | | | | | | | | | | | | |
Year ended September 30, 2018 Level 3 instruments at fair value |
| | Financial assets | | Financial liabilities |
| | Trading instruments | | Available-for-sale securities | | Other investments | | Trading instruments |
$ in millions | | Other | | ARS - preferred | | Private equity investments | | Other |
Fair value beginning of year | | $ | 6 |
| | $ | 106 |
| | $ | 89 |
| | $ | — |
|
Total gains/(losses) for the year: | | |
| | | | |
| | |
Included in earnings | | (3 | ) | | 5 |
| | (5 | ) | | (2 | ) |
Included in OCI | | — |
| | 1 |
| | — |
| | — |
|
Purchases and contributions | | 82 |
| | — |
| | — |
| | 2 |
|
Sales | | (84 | ) | | (45 | ) | | (28 | ) | | (7 | ) |
Transfers: | | | | | | | | |
Into Level 3 | | — |
| | — |
| | — |
| | — |
|
Out of Level 3 | | — |
| | — |
| | — |
| | — |
|
Fair value end of year | | $ | 1 |
| | $ | 67 |
| | $ | 56 |
| | $ | (7 | ) |
Unrealized gains/(losses) for the year included in earnings for instruments held at the end of the year | | $ | — |
| | $ | — |
| | $ | (16 | ) | | $ | (2 | ) |
Unrealized gains/(losses) for the year included in OCI for instruments held at the end of the year | | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | — |
|
As of September 30, 2019, 12%2022, 14% of our assets and 2% of our liabilities were measured at fair value on a recurring basis. In comparison, as of September 30, 2018 10%2021, 19% of our assets and 2%1% of our liabilities were 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, 2019 and September 30, 2018 represented 2% and 3%, respectively.basis.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Quantitative information about level 3 fair value measurements
The following tables present 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. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument.
|
| | | | | | | | | | | |
Level 3 financial instrument $ in millions | | Fair value at September 30, 2019 | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
Recurring measurements | | | | | | | | |
Other investments - ARS preferred | | $ | 24 |
| | Discounted cash flow | | Average discount rate | | 5.18% - 6.18% (5.68%) |
|
| | |
| | | | Average interest rates applicable to future interest income on the securities (1) | | 2.01% - 2.01% (2.01%) |
|
| | |
| | | | Prepayment year (2) | | 2019 - 2022 (2022) |
|
Other investments - private equity investments (not measured at NAV) | | $ | 50 |
| | Income approach - discounted cash flow | | Discount rate | | 25 | % |
| | | | | | Terminal earnings before interest, tax, depreciation and amortization (“EBITDA”) multiple | | 12.5x |
|
| | | | | | Terminal year | | 2021 - 2042 (2022) |
|
| | $ | 13 |
| | Transaction price or other investment-specific events (3) | | Not meaningful (3) | | Not meaningful (3) |
|
|
| | | | | | | | | | | |
Level 3 financial instrument $ in millions | | Fair value at September 30, 2018 | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
Recurring measurements | | | | | | | | |
ARS preferred | | $ | 67 |
| | Discounted cash flow | | Average discount rate | | 6.50% - 7.85% (7.13%) |
|
| | |
| | | | Average interest rates applicable to future interest income on the securities (1) | | 4.13% - 5.51% (4.47%) |
|
| | |
| | | | Prepayment year (2) | | 2018 - 2021 (2021) |
|
Other investments - private equity investments (not measured at NAV) | | $ | 43 |
| | Income approach - discounted cash flow | | Discount rate | | 25 | % |
| | | | | | Terminal EBITDA multiple | | 10.0x |
|
| | | | | | Terminal year | | 2022 - 2042 (2023) |
|
| | $ | 13 |
| | Transaction price or other investment-specific events (3) | | Not meaningful (3) | | Not meaningful (3) |
|
| |
(1) | 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 investments are valued initially at transaction price and updated as other investment-specific events take place which indicate that a change in the carrying values of these investments is appropriate. Other investment-specific events include such events as our periodic review, significant transactions occur, new developments become known, or we receive information from a fund manager which allows us to update our proportionate share of net assets. |
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 in the following sections.
Other investments - ARS preferred
The future interest rate and prepayment assumptions impacting the valuation of the auction rate securities are directly related. As short-term interest rates rise, the penalty interest rates, which are embedded in most of these securities in the event auctions fail to set the security’s interest rate, also increase. As penalty interest rates rise, we estimate that issuers of the securities will have the economic incentive to refinance (and thus prepay) the securities. As such, increases in the interest rate, which would generally result in an earlier prepayment assumption, would have increased the fair value of the securities. Increases in the discount rate would have resulted in a lower fair value of the securities.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Private equity investments
The significant unobservable inputs used in the fair value measurement of private equity investments generally relate to the financial performance of the investment entity and the market’s required return on investments from entities in industries in which we hold investments. Increases in the discount rate and/or a later terminal year would have resulted in a lower fair value measurement. Increases in the terminal EBITDA multiple would have resulted in a higher fair value measurement.
Investments in private equity measured at net asset value per share
As more fully described in Note 2, 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, 20192022 primarily included various direct investments, as well as investments in third-party privatefunds, including growth equity, funds and various legacy 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our investment isinvestments are monetized by distributions received through the liquidation of the underlying assets of those funds,fund investments, the timing of which is uncertain.
The following table 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 | | | |
|
| | | | | | | | |
$ in millions | | Recorded value | | Unfunded commitment |
September 30, 2019 | | | | |
Private equity investments measured at NAV | | $ | 83 |
| | $ | 15 |
|
Private equity investments not measured at NAV | | 63 |
| | |
Total private equity investments | | $ | 146 |
| | |
| | | | |
September 30, 2018 | | | | |
Private equity investments measured at NAV | | $ | 91 |
| | $ | 18 |
|
Private equity investments not measured at NAV | | 56 |
| | |
Total private equity investments | | $ | 147 |
| | |
(1) Of the total private equity investments at September 30, 2021, the portionsportion we owned were $99was $120 million, and $103 million as of September 30, 2019 and 2018, respectively. The portions ofwhile the private equity investmentsportion that we did not own were $47was $49 million and $44 million as of September 30, 2019 and 2018, respectively, and werewas included as a component of noncontrolling interests on our Consolidated Statements of Financial Condition.
ManyAs a financial holding company, we are subject to holding period limitations for our merchant banking activities. As a result of thesesuch holding limitations, we exited or restructured certain of our private equity investments during 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, 2021 and a decline in noncontrolling interests on our Consolidated Statements of Financial 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 as defined by the Volcker Rule enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank(“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 until July 2022. However,As a result, we have exited or restructured our current focus is the divestiture of this portfolio.covered fund investments to conform to such regulatory deadlines.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Financial instruments measured at fair value on a nonrecurring basis
The following table presents assets measured at fair value on 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 a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair valuesvalue of the related financial instrument.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ 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 less selling costs for the collateral-dependent loans and discounted cash flows for loans that are not collateral-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.
|
| | | | | | | | | | | | | | | | | | |
$ in millions | | Level 2 | | Level 3 | | Total fair value | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
September 30, 2019 | | | | | | | | | | | | |
Bank loans, net: | | | | | | | | | | | | |
Impaired loans: residential | | $ | 7 |
| | $ | 14 |
| | $ | 21 |
| | Discounted cash flow | | Prepayment rate | | 7 yrs. - 12 yrs. (10.4 yrs.) |
Impaired loans: corporate | | $ | — |
| | $ | 21 |
| | $ | 21 |
| | Collateral or discounted cash flow (1) | | Not meaningful (1) | | Not meaningful (1) |
Loan held for sale | | $ | 66 |
| | $ | — |
| | $ | 66 |
| | N/A | | N/A | | N/A |
Other assets: other real estate owned | | $ | 1 |
| | $ | — |
| | $ | 1 |
| | N/A | | N/A | | N/A |
| | | | | | | | | | | | |
September 30, 2018 | | | | | | | | | | | | |
Bank loans, net: | | | | | | | | | | | | |
Impaired loans: residential | | $ | 10 |
| | $ | 17 |
| | $ | 27 |
| | Discounted cash flow | | Prepayment rate | | 7 yrs. - 12 yrs. (10.5 yrs.) |
Impaired loans: corporate | | $ | — |
| | $ | 1 |
| | $ | 1 |
| | Collateral or discounted cash flow (1) | | Not meaningful (1) | | Not meaningful (1) |
Loan held for sale | | $ | 41 |
| | $ | — |
| | $ | 41 |
| | N/A | | N/A | | N/A |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| |
(1) | The valuation techniques used for the corporate loans are based on collateral value less selling costs for the collateral dependent loans and discounted cash flows for impaired loans that are not collateral dependent. |
Financial instruments that are not recorded at fair value on the Consolidated Statements of Financial Condition
Many, but not all, of the financial instruments we hold were recorded at fair value on the Consolidated Statements of Financial Condition.
The following table presents the estimated fair value and fair value hierarchy of financial assets and liabilities that are not recorded at fair value in accordance with GAAP on the Consolidated Statements of Financial Condition at September 30, 2019 or 2018.2022 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 | |
Effective October 1, 2018, we adopted new accounting guidance (ASU 2016-01), which requires the fair value of financial instruments not carried at fair value on our statement of financial condition to be estimated utilizing an exit price and eliminates certain disclosure requirements related to these instruments, including exempting certain financial instruments from disclosure (e.g., demand deposits). Prior periods have not been updated to reflect this new accounting guidance.
|
| | | | | | | | | | | | | | | | | | | | |
$ in millions | | Level 1 | | Level 2 | | Level 3 | | Total estimated fair value | | Carrying amount |
September 30, 2019 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Bank loans, net | | $ | — |
| | $ | 75 |
| | $ | 20,710 |
| | $ | 20,785 |
| | $ | 20,783 |
|
Financial liabilities: | | | | | | | | |
| | |
Bank deposits - certificates of deposit | | $ | — |
| | $ | — |
| | $ | 617 |
| | $ | 617 |
| | $ | 605 |
|
Senior notes payable | | $ | — |
| | $ | 1,760 |
| | $ | — |
| | $ | 1,760 |
| | $ | 1,550 |
|
| | | | | | | | | | |
September 30, 2018 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Bank loans, net | | $ | — |
| | $ | 124 |
| | $ | 19,116 |
| | $ | 19,240 |
| | $ | 19,449 |
|
Financial liabilities: | | | | | | | | |
| | |
Bank deposits | | $ | — |
| | $ | 19,496 |
| | $ | 439 |
| | $ | 19,935 |
| | $ | 19,942 |
|
Senior notes payable | | $ | — |
| | $ | 1,558 |
| | $ | — |
| | $ | 1,558 |
| | $ | 1,550 |
|
Short-term financial instruments: The carrying value of short-term financial instruments, includingsuch as cash and cash equivalents, including amounts segregated for regulatory purposes and restricted cash, segregated pursuant to federal regulations, repurchaseand the majority of collateralized agreements and reverse repurchase agreementscollateralized financings, are recorded at amounts that
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 restricted cash, segregated pursuant to federal regulations are classified as Level 1. Repurchase1 and collateralized agreements and reverse repurchase agreementsfinancings 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, tax-exemptREIT loans, and SBL and othertax-exempt loans intended to be held until maturity or payoff, andpayoff. These financial instruments are primarily recorded at amounts that result from the application of the methodologies for loans held for investment summarized in Note 2. Certain 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, 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 followingpreceding table.
Upon adoption of ASU 2016-01 in fiscal 2019,The 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, which includes our estimate of future credit losses expected to be incurred. The majority of 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. Loans to financial advisors, net are recorded at amounts that approximate fair value and are classified as Level 2 under the fair value hierarchy. Refer to Note 2 for information regarding loans to financial advisors, net.
Securities borrowed and securities loaned: Securities borrowed and securities loaned are recorded at amounts which approximate fair value and are primarily classified as Level 2 under the fair value hierarchy.
Bank deposits: The carrying amounts of variable-rate money market and savings accounts approximate their fair values as these are short-term in nature. Due to their short-term nature, 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 is primarily comprised of RJ Bank’sinclude 5.75% fixed-to-floating subordinated notes due 2030 and our Bank segment’s borrowings from the FHLB. Substantially allThe fair value of suchthe subordinated notes is estimated by discounting scheduled cash flows through the estimated maturity using market rates for borrowings of similar maturities and is classified as Level 2 under the fair value hierarchy. FHLB advances reflect terms that approximate current market rates for similar loans and therefore, their carrying value approximates fair value. Under the fair value hierarchy, our other borrowingsOur 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 debt securities in the market. Our senior notes payable are classified as Level 2 under the fair value hierarchy.
NOTE 5 – AVAILABLE-FOR-SALE SECURITIES
Available-for-saleWe own available-for-sale securities are primarily comprised of agency MBSat Raymond James Bank and CMOs owned by RJTriState Capital Bank. SeeRefer to Note 2 for a discussion of our accounting policies applicable to our available-for-sale securities.
The following table details the amortized costs and fair values of our 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 accounting policies, including the fair value determination process. Asas of October 1, 2018, we adopted new accounting guidance related to the classificationSeptember 30, 2022 and measurementSeptember 30, 2021, respectively, which was included in “Other receivables, net” on our Consolidated Statements of financial instruments (ASU 2016-01), which requires changes inFinancial Condition.
See Note 4 for additional information regarding the fair value of equity securities to be recorded in net income. See Note 2 for further information. As a result, on a prospective basis beginning October 1, 2018, unrealized gains/(losses) on our equity securities previously classified and accounted for as available-for-sale are recorded in net income instead of OCI. Accordingly, as of the date of adoption we reclassified approximately $68 millionsecurities.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of equity securities, substantially all of which consisted of preferred ARS, from “Available-for-sale securities” to “Other investments” on our Consolidated Statements of Financial Condition.
The following table details the amortized cost and fair values of our available-for-sale securities.
|
| | | | | | | | | | | | | | | | |
$ in millions | | Cost basis | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
September 30, 2019 | | | | | | | | |
Agency residential MBS | | $ | 1,555 |
| | $ | 20 |
| | $ | (1 | ) | | $ | 1,574 |
|
Agency commercial MBS | | 305 |
| | 5 |
| | — |
| | 310 |
|
Agency CMOs | | 1,195 |
| | 7 |
| | (3 | ) | | 1,199 |
|
Other securities | | 10 |
| | — |
| | — |
| | 10 |
|
Total available-for-sale securities | | $ | 3,065 |
| | $ | 32 |
| | $ | (4 | ) | | $ | 3,093 |
|
| | | | | | | | |
September 30, 2018 | | |
| | |
| | |
| | |
|
Agency residential MBS | | $ | 1,616 |
| | $ | — |
| | $ | (40 | ) | | $ | 1,576 |
|
Agency commercial MBS | | 47 |
| | — |
| | — |
| | 47 |
|
Agency CMOs | | 1,035 |
| | — |
| | (30 | ) | | 1,005 |
|
Other securities | | 2 |
| | — |
| | (1 | ) | | 1 |
|
Total RJ Bank available-for-sale securities | | 2,700 |
| | — |
| | (71 | ) | | 2,629 |
|
ARS preferred | | 61 |
| | 6 |
| | — |
| | 67 |
|
Total available-for-sale securities | | $ | 2,761 |
| | $ | 6 |
| | $ | (71 | ) | | $ | 2,696 |
|
See Note 4 for additional information regarding the fair value of available-for-sale securities.
The following table details the contractual maturities, amortized cost,costs, carrying values and current yields for our available-for-sale securities. Weighted-average yields are calculated on a taxable-equivalent basis based on estimated annual income divided by the average amortized cost of these securities. Since our MBS and CMO available-for-sale securities are backed by mortgages, actual maturities willmay differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. As a result, as of September 30, 2022, the weighted-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 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2019 |
$ 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 | | $ | — |
| | $ | 26 |
| | $ | 820 |
| | $ | 709 |
| | $ | 1,555 |
|
Carrying value | | $ | — |
| | $ | 25 |
| | $ | 830 |
| | $ | 719 |
| | $ | 1,574 |
|
Agency commercial MBS | | | | | | | | | |
|
|
Amortized cost | | $ | 5 |
| | $ | 208 |
| | $ | 58 |
| | $ | 34 |
| | $ | 305 |
|
Carrying value | | $ | 5 |
| | $ | 211 |
| | $ | 59 |
| | $ | 35 |
| | $ | 310 |
|
Agency CMOs | | | | | | | | | |
|
|
Amortized cost | | $ | — |
| | $ | — |
| | $ | 87 |
| | $ | 1,108 |
| | $ | 1,195 |
|
Carrying value | | $ | — |
| | $ | — |
| | $ | 87 |
| | $ | 1,112 |
| | $ | 1,199 |
|
Other securities | | | | | | | | | | |
Amortized cost | | $ | — |
| | $ | 2 |
| | $ | 8 |
| | $ | — |
| | $ | 10 |
|
Carrying value | | $ | — |
| | $ | 2 |
| | $ | 8 |
| | $ | — |
| | $ | 10 |
|
Total available-for-sale securities | | | | | | | | | |
|
|
Amortized cost | | $ | 5 |
| | $ | 236 |
| | $ | 973 |
| | $ | 1,851 |
| | $ | 3,065 |
|
Carrying value | | $ | 5 |
| | $ | 238 |
| | $ | 984 |
| | $ | 1,866 |
| | $ | 3,093 |
|
Weighted-average yield | | 1.81 | % | | 2.29 | % | | 2.38 | % | | 2.43 | % | | 2.40 | % |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table details the gross unrealized losses and fair valuevalues 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2019 | | | | | | | | | | | | |
Agency residential MBS | | $ | 166 |
| | $ | — |
| | $ | 114 |
| | $ | (1 | ) | | $ | 280 |
| | $ | (1 | ) |
Agency commercial MBS | | — |
| | — |
| | 44 |
| | — |
| | 44 |
| | — |
|
Agency CMOs | | 145 |
| | (1 | ) | | 351 |
| | (2 | ) | | 496 |
| | (3 | ) |
Other securities | | 2 |
| | — |
| | — |
| | — |
| | 2 |
| | — |
|
Total | | $ | 313 |
|
| $ | (1 | ) |
| $ | 509 |
|
| $ | (3 | ) |
| $ | 822 |
|
| $ | (4 | ) |
September 30, 2018 | | | | | | | | | | | | |
Agency residential MBS | | $ | 747 |
| | $ | (15 | ) | | $ | 753 |
| | $ | (25 | ) | | $ | 1,500 |
| | $ | (40 | ) |
Agency commercial MBS | | 40 |
| | — |
| | 6 |
| | — |
| | 46 |
| | — |
|
Agency CMOs | | 316 |
| | (5 | ) | | 666 |
| | (25 | ) | | 982 |
| | (30 | ) |
Other securities | | — |
| | — |
| | 1 |
| | (1 | ) | | 1 |
| | (1 | ) |
Total | | $ | 1,103 |
|
| $ | (20 | ) |
| $ | 1,426 |
|
| $ | (51 | ) |
| $ | 2,529 |
|
| $ | (71 | ) |
U.S. government agencies guarantee the contractual cash flows of the agency MBS and CMOs. At September 30, 2019,2022, of the 109 agency MBS and CMOs1,071 available-for-sale securities in an unrealized loss position, 36734 were in a continuous unrealized loss position for less than 12 months and 73337 securities were in a continuous unrealized loss position for greater than 12 months or more. months.
At September 30, 2019,2022, debt securities we held in excess of ten percent of our equity included those issued by the Federal National Home Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) which had anwith amortized costcosts of $1.93$5.42 billion and $869$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 $1.95 billion and $877 million, respectively.
For bothavailable-for-sale securities for the years ended September 30, 20192022, 2021, and 2018, there were no sales of agency MBS or CMO available-for-sale securities. During the year ended September 30, 2017, there were $66 million in proceeds,2020, respectively, resulting in an insignificant gain, from the sale of agency MBS and agency and non-agency CMOs available-for-sale securities. The gain that resulted from the sale was included in “Other” revenues on our Consolidated Statements of Income and Comprehensive Income.gains.
Sales or redemptions of preferred ARS for the year ended September 30, 2018 resulted in aggregate proceeds of $45 million and a gain of $5 million, which was included in “Other” revenues on our Consolidated Statements of Income and Comprehensive Income. During the year ended September 30, 2017, sales or redemptions of preferred ARS resulted in proceeds of $30 million and an insignificant gain.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6 – 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” on our Consolidated Statements of Financial Condition. Cash flows related to our derivatives are included within operating activities on the Consolidated Statements of Cash Flows. The significant accounting policies governing our derivatives, including our methodologies for determining fair value, are described in Note 2.
Derivative balances included on our financial statements
The following table presents the gross fair valuevalues and notional amountamounts of derivatives by product type, the amounts of counterparty and cash collateral netting on our Consolidated Statements of Financial Condition, as well as collateral posted and received under 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, 2019 | | September 30, 2018 |
$ in millions | | Derivative assets | | Derivative liabilities | | Notional amount | | Derivative assets | | Derivative liabilities | | Notional amount |
Derivatives not designated as hedging instruments | | | | | | | | | | | | |
Interest rate - matched book | | $ | 280 |
| | $ | 280 |
| | $ | 2,296 |
| | $ | 160 |
| | $ | 160 |
| | $ | 2,416 |
|
Interest rate - other (1) | | 184 |
| | 146 |
| | 10,690 |
| | 74 |
| | 113 |
| | 9,398 |
|
Foreign exchange | | — |
| | 1 |
| | 573 |
| | 1 |
| | 1 |
| | 549 |
|
Equity (DBRSU obligation) | | — |
| | 6 |
| | 6 |
| | — |
| | 16 |
| | 16 |
|
Subtotal | | 464 |
| | 433 |
| | 13,565 |
| | 235 |
| | 290 |
| | 12,379 |
|
Derivatives designated as hedging instruments | | | | | | | | | | | | |
Interest rate | | 1 |
| | — |
| | 850 |
| | — |
| | 1 |
| | 850 |
|
Foreign exchange | | — |
| | 1 |
| | 856 |
| | — |
| | 3 |
| | 892 |
|
Subtotal | | 1 |
| | 1 |
| | 1,706 |
| | — |
| | 4 |
| | 1,742 |
|
Total gross fair value/notional amount | | 465 |
| | 434 |
| | $ | 15,271 |
| | 235 |
| | 294 |
| | $ | 14,121 |
|
Offset on the Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Counterparty netting | | (24 | ) | | (24 | ) | | | | (26 | ) | | (26 | ) | | |
Cash collateral netting | | (103 | ) | | (97 | ) | | | | (29 | ) | | (21 | ) | | |
Total amounts offset | | (127 | ) | | (121 | ) | |
| | (55 | ) | | (47 | ) | |
|
Net amounts presented on the Consolidated Statements of Financial Condition | | 338 |
| | 313 |
| | | | 180 |
| | 247 |
| | |
Gross amounts not offset on the Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Financial instruments (2) | | (297 | ) | | (280 | ) | | | | (162 | ) | | (160 | ) | | |
Total | | $ | 41 |
| | $ | 33 |
| |
| | $ | 18 |
| | $ | 87 |
| |
|
(1) Relates to interest rate derivatives entered into as part of our fixed income business operations, including TBA security contracts that are accounted for as derivatives, as well as our banking operations, including those of TriState Capital Bank which was acquired on 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 agreement with the third-party intermediary includes terms that are similar to a master netting agreement. As a result, we present the matched book amounts net in the preceding table.
| |
(1) | Substantially all relates to interest rate derivatives entered into as part of our fixed income business operations, including to be announced (“TBA”) security contracts that are accounted for as derivatives. |
| |
(2) | Although the matched book derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the agreement with the third-party intermediary includes 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 details the gains/(losses) included in AOCI, net of income taxes, on derivatives designated as hedging instruments. These gains/(losses) included any amounts reclassified from AOCI to net income during the year. See Note 1820 for additional 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 millions | | 2019 | | 2018 | | 2017 |
Interest rate (cash flow hedges) | | $ | (61 | ) | | $ | 33 |
| | $ | 23 |
|
Foreign exchange (net investment hedges) | | 22 |
| | 28 |
| | (26 | ) |
Total gains/(losses) in AOCI, net of taxes | | $ | (39 | ) | | $ | 61 |
| | $ | (3 | ) |
There were 0no components of derivative gains or losses excluded from the assessment of hedge effectiveness for anyeach of the years ended September 30, 2019, 20182022, 2021 or 2017.2020. We expect to reclassify an insignificant amount$25 million of 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 8five 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. These amounts do not include any offsetting gains/(losses) on the related 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) | |
| | | | | | | | |
|
| | | | | | | | | | | | | | |
| | | | Year ended September 30, |
$ in millions | | Location of gain/(loss) included on the Consolidated Statements of Income and Comprehensive Income | | 2019 | | 2018 | | 2017 |
Interest rate | | Principal transactions/other revenues | | $ | 7 |
| | $ | 6 |
| | $ | 8 |
|
Foreign exchange | | Other revenues | | $ | 25 |
| | $ | 18 |
| | $ | (20 | ) |
Equity (DBRSU obligation) | | Compensation, commissions and benefits expense | | $ | 5 |
| | $ | 8 |
| | $ | (6 | ) |
Equity (DBRSU obligation) | | Acquisition and disposition-related expenses | | $ | — |
| | $ | — |
| | $ | (2 | ) |
Risks associated with our derivatives and related risk mitigation
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 derivatives 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.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, which were insignificant as of both September 30, 20192022 and 2018.2021. We are not exposed to market risk on these derivatives due to the pass-through transaction structure previously described in Note 2.
Interest rate and foreign exchange risk
We are exposed to interest rate risk related to certain of our interest rate derivatives. We are also exposed to foreign exchange risk related to our forward foreign exchange derivatives. On a daily basis, we monitor our risk exposure on our derivatives 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, both for the total portfolio and by maturity period.
Derivatives with credit-risk-related contingent features
Certain of our derivative contracts contain provisions that require our debt to maintain an investment-grade rating from 1one 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 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 were in a liability position was $8 million as of September 30, 2022 and was insignificant as of both September 30, 2019 and 2018.2021.
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 millions | | Reverse repurchase agreements | | Securities borrowed | | Repurchase agreements | | Securities loaned |
September 30, 2019 | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 343 |
| | $ | 248 |
| | $ | 150 |
| | $ | 323 |
|
Gross amounts offset on the Consolidated Statements of Financial Condition | | — |
| | — |
| | — |
| | — |
|
Net amounts presented on the Consolidated Statements of Financial Condition | | 343 |
| | 248 |
| | 150 |
| | 323 |
|
Gross amounts not offset on the Consolidated Statements of Financial Condition | | (343 | ) | | (243 | ) | | (150 | ) | | (311 | ) |
Net amount | | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 12 |
|
September 30, 2018 | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 373 |
| | $ | 255 |
| | $ | 186 |
| | $ | 423 |
|
Gross amounts offset on the Consolidated Statements of Financial Condition | | — |
| | — |
| | — |
| | — |
|
Net amounts presented on the Consolidated Statements of Financial Condition | | 373 |
| | 255 |
| | 186 |
| | 423 |
|
Gross amounts not offset on the Consolidated Statements of Financial Condition | | (373 | ) | | (248 | ) | | (186 | ) | | (408 | ) |
Net amount | | $ | — |
| | $ | 7 |
| | $ | — |
| | $ | 15 |
|
The total amount of collateral received under reverse repurchase agreements and the total amount of collateral posted under repurchase agreements exceeds the carrying value of these agreements on our Consolidated Statements of Financial Condition.
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 remaining contractual maturity of repurchase agreements and securities lending transactions accounted for as 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, securities borrowed,borrowing agreements, derivative transactions, 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 to satisfy our collateral requirements under our repurchase agreements, securities lending agreements or other secured borrowings, to satisfy deposit requirements with clearing organizations, or to otherwise meet either our or our clients’ settlement requirements.
The following table presents financial instruments at fair value that we received as collateral, were 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 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 millions | | 2019 | | 2018 |
Collateral we received that was available to be delivered or repledged | | $ | 2,931 |
| | $ | 3,165 |
|
Collateral that we delivered or repledged | | $ | 897 |
| | $ | 1,389 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Encumbered assets
We pledge certain of our financial instrumentsassets to collateralize either repurchase agreements or other secured borrowings, maintain lines of credit, or to satisfy our collateral or settlement requirements with counterparties or clearing organizations who may or may not have the right to deliver or repledge such instruments. The following table presents information about the fair value of our assets that have been pledged for one of the purposes 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 millions | | 2019 | | 2018 |
Had the right to deliver or repledge | | $ | 591 |
| | $ | 510 |
|
Did not have the right to deliver or repledge | | $ | 65 |
| | $ | 65 |
|
Bank loans, net pledged at FHLB and the FRB | | $ | 4,653 |
| | $ | 4,075 |
|
Repurchase agreements, repurchase-to-maturity transactions and securities loaned 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 millions | | Overnight and continuous | | Up to 30 days | | 30-90 days | | Greater than 90 days | | Total |
September 30, 2019 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 70 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 70 |
|
Agency MBS and CMOs | | 80 |
| | — |
| | — |
| | — |
| | 80 |
|
Total repurchase agreements | | 150 |
| | — |
| | — |
| | — |
| | 150 |
|
Securities loaned: | | | | | | | | | | |
Equity securities | | 323 |
| | — |
| | — |
| | — |
| | 323 |
|
Total | | $ | 473 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 473 |
|
| | | | | | | | | | |
September 30, 2018 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 102 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 102 |
|
Agency MBS and CMOs | | 84 |
| | — |
| | — |
| | — |
| | 84 |
|
Total repurchase agreements | | 186 |
| | — |
| | — |
| | — |
| | 186 |
|
Securities loaned: | | | | | | | | | | |
Equity securities | | 423 |
| | — |
| | — |
| | — |
| | 423 |
|
Total | | $ | 609 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 609 |
|
As of both September 30, 2019 and 2018, we did not have any “repurchase-to-maturity” agreements, which are repurchase agreements where a security is transferred under an agreement124
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to repurchase and the maturity date of the repurchase agreement matches the maturity date of the underlying security.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, commercial and residential real estate loans, SBLREIT loans, and othertax-exempt loans. These receivables are collateralized by first and, 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, REIT, residential mortgage, and tax-exempt. See Note 2 for a discussion of accounting policies related to bank loansloans.
Loan balances in the following tables are presented at amortized cost (outstanding principal balance net of unamortized purchase discounts or premiums, unearned income, and allowances for losses.
We segregate our loan portfolio into 6 loan portfolio segments: C&I, CRE, CRE construction, tax-exempt, residential mortgagedeferred origination fees and SBL and other. These portfolio segments also serve as the portfolio loan classes for purposes of credit analysis,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 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 table presents the balances for held 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 deferred loan fees and costs. The net unamortized discount primarily arose from the acquisition date fair value purchased discount on bank loans acquired in the TriState 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 loan fees and costs.
At September 30, 2022, we had pledged $6.58 billion of residential mortgage loans which are further disaggregatedand $1.43 billion of CRE loans with the FHLB as security for both the repayment of certain 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 Notes 7 and 16 for more information regarding borrowings from the FHLB and bank loans pledged with the FHLB and FRB.
Held for sale loans
Exclusive of the loans acquired on June 1, 2022 in our acquisition of TriState Capital Bank, we originated or purchased $3.38 billion, $2.15 billion, and $1.79 billion of loans held for sale during the years ended September 30, 2022, 2021 and 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 residential first mortgagepools. Proceeds from the sales of all other loans held for sale and residential home equity classes.not securitized amounted to $1.29 billion, $973 million, and $776 million for the years ended September 30, 2022, 2021 and 2020, respectively. Net gains resulting from such sales were insignificant for each of the years ended September 30, 2022, 2021, and 2020.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following tables present the balances for both the held for sale and held for investment loan portfolios, as well as the associated percentage of each portfolio segment in RJ Bank’s total loan portfolio. “Loans held for sale, net” and “Total loans held for investment, net” in the following tables are presented net of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs.
|
| | | | | | | | | | | | | | | | | | | | | |
| | September 30, |
| | 2019 | | 2018 | | 2017 |
$ in millions | | Balance | | % | | Balance | | % | | Balance | | % |
Loans held for investment: | | |
| | |
| | |
| | |
| | |
| | |
|
C&I loans | | $ | 8,098 |
| | 38 | % | | $ | 7,786 |
| | 40 | % | | $ | 7,386 |
| | 43 | % |
CRE construction loans | | 185 |
| | 1 | % | | 151 |
| | 1 | % | | 113 |
| | 1 | % |
CRE loans | | 3,652 |
| | 17 | % | | 3,624 |
| | 18 | % | | 3,106 |
| | 18 | % |
Tax-exempt loans | | 1,241 |
| | 6 | % | | 1,227 |
| | 6 | % | | 1,018 |
| | 6 | % |
Residential mortgage loans | | 4,454 |
| | 21 | % | | 3,757 |
| | 19 | % | | 3,149 |
| | 18 | % |
SBL and other | | 3,349 |
| | 16 | % | | 3,033 |
| | 15 | % | | 2,386 |
| | 14 | % |
Total loans held for investment | | 20,979 |
| |
|
| | 19,578 |
| |
|
| | 17,158 |
| |
|
|
Net unearned income and deferred expenses | | (12 | ) | |
|
| | (21 | ) | |
|
| | (31 | ) | |
|
|
Total loans held for investment, net | | 20,967 |
| |
|
| | 19,557 |
| |
|
| | 17,127 |
| |
|
|
Loans held for sale, net | | 142 |
| | 1 | % | | 164 |
| | 1 | % | | 70 |
| | — |
|
Total loans held for sale and investment | | 21,109 |
| | 100 | % | | 19,721 |
| | 100 | % | | 17,197 |
| | 100 | % |
Allowance for loan losses | | (218 | ) | | |
| | (203 | ) | | |
| | (190 | ) | | |
Bank loans, net | | $ | 20,891 |
| | |
| | $ | 19,518 |
| | |
| | $ | 17,007 |
| | |
|
| | | | | | | | | | | | | | |
| | September 30, |
| | 2016 | | 2015 |
$ in millions | | Balance | | % | | Balance | | % |
Loans held for investment: | | | | |
| | |
| | |
|
C&I loans | | $ | 7,470 |
| | 48 | % | | $ | 6,928 |
| | 52 | % |
CRE construction loans | | 123 |
| | 1 | % | | 162 |
| | 1 | % |
CRE loans | | 2,554 |
| | 17 | % | | 2,054 |
| | 16 | % |
Tax-exempt loans | | 741 |
| | 5 | % | | 485 |
| | 4 | % |
Residential mortgage loans | | 2,442 |
| | 16 | % | | 1,963 |
| | 15 | % |
SBL and other | | 1,905 |
| | 12 | % | | 1,481 |
| | 11 | % |
Total loans held for investment | | 15,235 |
| | |
| | 13,073 |
| | |
|
Net unearned income and deferred expenses | | (41 | ) | | |
| | (32 | ) | | |
|
Total loans held for investment, net | | 15,194 |
| | |
| | 13,041 |
| | |
|
Loans held for sale, net | | 214 |
| | 1 | % | | 119 |
| | 1 | % |
Total loans held for sale and investment | | 15,408 |
| | 100 | % | | 13,160 |
| | 100 | % |
Allowance for loan losses | | (197 | ) | | |
| | (172 | ) | | |
|
Bank loans, net | | $ | 15,211 |
| | |
| | $ | 12,988 |
| | |
|
At September 30, 2019, the FHLB had a blanket lien on RJ Bank’s residential mortgage loan portfolio as security for the repayment of certain borrowings. See Note 14 for more information regarding borrowings from the FHLB.
Loans held for sale
RJ Bank originated or purchased $2.33 billion, $1.69 billion and $1.67 billion of loans held for sale during the years ended September 30, 2019, 2018 and 2017, respectively. Proceeds from the sale of these held for sale loans amounted to $800 million, $606 million and $439 million for the years ended September 30, 2019, 2018 and 2017, respectively. Net gains resulting from such sales were insignificant in each of the years ended September 30, 2019, 2018 and 2017.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Purchases and sales of loans held for investment
The following table presents purchases and sales of any loans held for investment by portfolio 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 millions | | C&I loans | | CRE loans | | Residential mortgage loans | | Total |
Year ended September 30, 2019 | | | | | | | | |
Purchases | | $ | 1,046 |
| | $ | 42 |
| | $ | 400 |
|
| $ | 1,488 |
|
Sales | | $ | 126 |
| | $ | — |
| | $ | — |
| | $ | 126 |
|
Year ended September 30, 2018 | | | | | | |
Purchases | | $ | 467 |
| | $ | 145 |
| | $ | 303 |
| | $ | 915 |
|
Sales | | $ | 213 |
| | $ | — |
| | $ | — |
| | $ | 213 |
|
Year ended September 30, 2017 | | | | | | |
Purchases | | $ | 537 |
| | $ | 64 |
| | $ | 264 |
| | $ | 865 |
|
Sales | | $ | 341 |
| | $ | — |
| | $ | — |
| | $ | 341 |
|
Sales in the preceding table 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. As more fully described in Note 2, corporate loan sales generally occur as part of our credit management activities.
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. Amounts in the table exclude any net unearned income and deferred expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ 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 millions | | 30-89 days and accruing | | 90 days or more and accruing | | Total past due and accruing | | Nonaccrual | | Current and accruing | | Total loans held for investment |
September 30, 2019 | | | | | | | | | | | | |
C&I loans | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 19 |
| | $ | 8,079 |
| | $ | 8,098 |
|
CRE construction loans | | — |
| | — |
| | — |
| | — |
| | 185 |
| | 185 |
|
CRE loans | | — |
| | — |
| | — |
| | 8 |
| | 3,644 |
| | 3,652 |
|
Tax-exempt loans | | — |
| | — |
| | — |
| | — |
| | 1,241 |
| | 1,241 |
|
Residential mortgage loans: | | |
| | |
| |
|
| | | | |
| |
|
|
First mortgage loans | | 2 |
| |
|
| | 2 |
| | 16 |
| | 4,409 |
| | 4,427 |
|
Home equity loans/lines | | — |
| | — |
| | — |
| | — |
| | 27 |
| | 27 |
|
SBL and other | | — |
| | — |
| | — |
| | — |
| | 3,349 |
| | 3,349 |
|
Total loans held for investment | | $ | 2 |
| | $ | — |
| | $ | 2 |
| | $ | 43 |
| | $ | 20,934 |
| | $ | 20,979 |
|
| | | | | | | | | | | | |
September 30, 2018 | | | | | | | | | | | | |
C&I loans | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2 |
| | $ | 7,784 |
| | $ | 7,786 |
|
CRE construction loans | | — |
| | — |
| | — |
| | — |
| | 151 |
| | 151 |
|
CRE loans | | — |
| | — |
| | — |
| | — |
| | 3,624 |
| | 3,624 |
|
Tax-exempt loans | | — |
| | — |
| | — |
| | — |
| | 1,227 |
| | 1,227 |
|
Residential mortgage loans: | | | | | | | | | | | | |
First mortgage loans | | 1 |
| | — |
| | 1 |
| | 23 |
| | 3,707 |
| | 3,731 |
|
Home equity loans/lines | | — |
| | — |
| | — |
| | — |
| | 26 |
| | 26 |
|
SBL and other | | — |
| | — |
| | — |
| | — |
| | 3,033 |
| | 3,033 |
|
Total loans held for investment | | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 25 |
| | $ | 19,552 |
| | $ | 19,578 |
|
The preceding table includes $32$63 million and $11$61 million at September 30, 20192022 and 2018,2021, 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.
Other real estate owned, included in “Other assets” on our Consolidated Statements of Financial Condition, was $3 millioninsignificant at both September 30, 20192022 and 2018.2021.
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, 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 $7$5 million and $12$4 million at September 30, 20192022 and 2018,2021, 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, |
| | 2019 | | 2018 |
$ in millions | | 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: | | | | | | | | | | | | |
C&I loans | | $ | 19 |
| | $ | 20 |
| | $ | 6 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Residential - first mortgage loans | | 11 |
| | 13 |
| | 1 |
| | 15 |
| | 20 |
| | 2 |
|
Total | | 30 |
| | 33 |
| | 7 |
| | 15 |
| | 20 |
| | 2 |
|
Impaired loans without allowance for loan losses: | | | | |
| | |
| | |
| | |
| | |
|
C&I loans | | — |
| | — |
| | — |
| | 2 |
| | 2 |
| | — |
|
CRE loans | | 8 |
| | 13 |
| | — |
| | — |
| | — |
| | — |
|
Residential - first mortgage loans | | 11 |
| | 17 |
| | — |
| | 13 |
| | 20 |
| | — |
|
Total | | 19 |
| | 30 |
| | — |
| | 15 |
| | 22 |
| | — |
|
Total impaired loans | | $ | 49 |
| | $ | 63 |
| | $ | 7 |
| | $ | 30 |
| | $ | 42 |
| | $ | 2 |
|
Impaired loan balances with allowances for loan losses have had reserves established based upon management’s analysis. There is no allowance required when the discounted cash flow, collateral value or market value of a loan equals or exceeds the carrying value. These are generally loans in process of foreclosure that have already been adjusted to fair value.
The preceding table includes TDRs of $19 million, $8 million and $18 million related to C&I, CRE and residential first mortgage loans, respectively, at September 30, 2019 and $21 million of residential first mortgage TDRs at September 30, 2018.
The average balances of total impaired loans were as follows.
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2019 | | 2018 | | 2017 |
Average impaired loan balance: | | | | | | |
C&I loans | | $ | 19 |
| | $ | 4 |
| | $ | 17 |
|
CRE loans | | 5 |
| | — |
| | 1 |
|
Residential - first mortgage loans | | 25 |
| | 33 |
| | 44 |
|
Total | | $ | 49 |
| | $ | 37 |
| | $ | 62 |
|
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.
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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 following table presents the credit quality of RJ Bank’stables present our held for investment bank loan portfolio.portfolio 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 |
|
| | | | | | | | | | | | | | | | | | | | |
$ in millions | | Pass | | Special mention | | Substandard | | Doubtful | | Total |
September 30, 2019 | | | | | | | | | | |
C&I loans | | $ | 7,870 |
| | $ | 152 |
| | $ | 76 |
| | $ | — |
| | $ | 8,098 |
|
CRE construction loans | | 185 |
| | — |
| | — |
| | — |
| | 185 |
|
CRE loans | | 3,630 |
| | — |
| | 22 |
| | — |
| | 3,652 |
|
Tax-exempt loans | | 1,241 |
| | — |
| | — |
| | — |
| | 1,241 |
|
Residential mortgage loans: | | | | | | | | | |
|
First mortgage loans | | 4,392 |
| | 10 |
| | 25 |
| | — |
| | 4,427 |
|
Home equity loans/lines | | 27 |
| | — |
| | — |
| | — |
| | 27 |
|
SBL and other | | 3,349 |
| | — |
| | — |
| | — |
| | 3,349 |
|
Total | | $ | 20,694 |
| | $ | 162 |
| | $ | 123 |
| | $ | — |
| | $ | 20,979 |
|
| | | | | | | | | | |
September 30, 2018 | | | | | | | | | |
C&I loans | | $ | 7,679 |
| | $ | 48 |
| | $ | 59 |
| | $ | — |
| | $ | 7,786 |
|
CRE construction loans | | 140 |
| | 11 |
| | — |
| | — |
| | 151 |
|
CRE loans | | 3,547 |
| | 44 |
| | 33 |
| | — |
| | 3,624 |
|
Tax-exempt loans | | 1,227 |
| | — |
| | — |
| | — |
| | 1,227 |
|
Residential mortgage loans: | | | | | | | | | |
|
First mortgage loans | | 3,693 |
| | 8 |
| | 30 |
| | — |
| | 3,731 |
|
Home equity loans/lines | | 26 |
| | — |
| | — |
| | — |
| | 26 |
|
SBL and other | | 3,033 |
| | — |
| | — |
| | — |
| | 3,033 |
|
Total | | $ | 19,345 |
| | $ | 111 |
| | $ | 122 |
| | $ | — |
| | $ | 19,578 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Allowance forWe also monitor the credit quality of the residential mortgage loan lossesportfolio utilizing FICO scores and reserve for unfunded lending commitments
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 changes in the allowanceheld for investment residential mortgage loan losses of RJ Bankportfolio by portfolio segment.FICO score and by LTV ratio at origination.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Loans held for investment |
$ in millions | | C&I loans | | CRE construction loans | | CRE loans | | Tax-exempt loans | | Residential mortgage loans | | SBL and other | | Total |
Year ended September 30, 2019 | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance at beginning of year | | $ | 123 |
| | $ | 3 |
| | $ | 47 |
| | $ | 9 |
| | $ | 17 |
| | $ | 4 |
| | $ | 203 |
|
Provision/(benefit) for loan losses | | 19 |
| | — |
| | 4 |
| | — |
| | (2 | ) | | 1 |
| | 22 |
|
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | |
| | |
| | |
|
Charge-offs | | (2 | ) | | — |
| | (5 | ) | | — |
| | (1 | ) | | — |
| | (8 | ) |
Recoveries | | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net (charge-offs)/recoveries | | (2 | ) | | — |
| | (5 | ) | | — |
| | 1 |
| | — |
| | (6 | ) |
Foreign exchange translation adjustment | | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Balance at end of year | | $ | 139 |
| | $ | 3 |
| | $ | 46 |
| | $ | 9 |
| | $ | 16 |
| | $ | 5 |
| | $ | 218 |
|
| | | | | | | | | | | | | | |
Year ended September 30, 2018 | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance at beginning of year | | $ | 120 |
| | $ | 1 |
| | $ | 42 |
| | $ | 6 |
| | $ | 17 |
| | $ | 4 |
| | $ | 190 |
|
Provision/(benefit) for loan losses | | 12 |
| | 2 |
| | 5 |
| | 3 |
| | (2 | ) | | — |
| | 20 |
|
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | |
| | |
| | |
Charge-offs | | (10 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (10 | ) |
Recoveries | | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net (charge-offs)/recoveries | | (10 | ) | | — |
| | — |
| | — |
| | 2 |
| | — |
| | (8 | ) |
Foreign exchange translation adjustment | | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Balance at end of year | | $ | 123 |
| | $ | 3 |
| | $ | 47 |
| | $ | 9 |
| | $ | 17 |
| | $ | 4 |
| | $ | 203 |
|
| | | | | | | | | | | | | | |
Year ended September 30, 2017 | | |
| | |
| | |
| | | | |
| | |
| | |
|
Balance at beginning of year | | $ | 138 |
| | $ | 1 |
| | $ | 37 |
| | $ | 4 |
| | $ | 13 |
| | $ | 4 |
| | $ | 197 |
|
Provision for loan losses | | 7 |
| | — |
| | — |
| | 2 |
| | 4 |
| | — |
| | 13 |
|
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | |
| | |
| | |
Charge-offs | | (26 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (27 | ) |
Recoveries | | — |
| | — |
| | 5 |
| | — |
| | 1 |
| | — |
| | 6 |
|
Net (charge-offs)/recoveries | | (26 | ) | | — |
| | 5 |
| | — |
| | — |
| | — |
| | (21 | ) |
Foreign exchange translation adjustment | | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Balance at end of year | | $ | 120 |
| | $ | 1 |
| | $ | 42 |
| | $ | 6 |
| | $ | 17 |
| | $ | 4 |
| | $ | 190 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
RAYMOND JAMES FINANCIAL, INC. 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 millions | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total |
September 30, 2019 | | | | | | | | | | | | |
C&I loans | | $ | 6 |
| | $ | 133 |
| | $ | 139 |
| | $ | 19 |
| | $ | 8,079 |
| | $ | 8,098 |
|
CRE construction loans | | — |
| | 3 |
| | 3 |
| | — |
| | 185 |
| | 185 |
|
CRE loans | | — |
| | 46 |
| | 46 |
| | 8 |
| | 3,644 |
| | 3,652 |
|
Tax-exempt loans | | — |
| | 9 |
| | 9 |
| | — |
| | 1,241 |
| | 1,241 |
|
Residential mortgage loans | | 1 |
| | 15 |
| | 16 |
| | 28 |
| | 4,426 |
| | 4,454 |
|
SBL and other | | — |
| | 5 |
| | 5 |
| | — |
| | 3,349 |
| | 3,349 |
|
Total | | $ | 7 |
| | $ | 211 |
| | $ | 218 |
| | $ | 55 |
| | $ | 20,924 |
| | $ | 20,979 |
|
| | | | | | | | | | | | |
September 30, 2018 | | | | | | | | | | | | |
C&I loans | | $ | — |
| | $ | 123 |
| | $ | 123 |
| | $ | 2 |
| | $ | 7,784 |
| | $ | 7,786 |
|
CRE construction loans | | — |
| | 3 |
| | 3 |
| | — |
| | 151 |
| | 151 |
|
CRE loans | | — |
| | 47 |
| | 47 |
| �� | — |
| | 3,624 |
| | 3,624 |
|
Tax-exempt loans | | — |
| | 9 |
| | 9 |
| | — |
| | 1,227 |
| | 1,227 |
|
Residential mortgage loans | | 2 |
| | 15 |
| | 17 |
| | 35 |
| | 3,722 |
| | 3,757 |
|
SBL and other | | — |
| | 4 |
| | 4 |
| | — |
| | 3,033 |
| | 3,033 |
|
Total | | $ | 2 |
| | $ | 201 |
| | $ | 203 |
| | $ | 37 |
| | $ | 19,541 |
| | $ | 19,578 |
|
The allowance 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 reserveallowance for credit losses on unfunded lending commitments, which is included in “Other payables” on our Consolidated Statements of Financial Condition, was $9$19 million, $13 million, and $10$12 million at September 30, 20192022, 2021, and 2018,2020, respectively. The increase in the allowance for credit losses on unfunded lending commitments for the year ended September 30, 2022 included $5 million related to the initial provision for credit losses on lending commitments assumed as a result of the
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements acquisition of TriState Capital which was included in “Other” expenses on our Consolidated Statements of Income and Comprehensive Income.
NOTE 9 – LOANS TO FINANCIAL ADVISORS, NET
Loans to financial advisors are primarily comprised of loans originated as a part of our recruiting activities. See Note 2 for a discussion of 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. SeeRefer to 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, certain 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 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 millions | | Aggregate assets | | Aggregate liabilities |
September 30, 2019 | | | | |
Private Equity Interests | | $ | 65 |
| | $ | 4 |
|
LIHTC funds | | 80 |
| | 5 |
|
Restricted Stock Trust Fund | | 14 |
| | 14 |
|
Total | | $ | 159 |
| | $ | 23 |
|
| | | | |
September 30, 2018 | | |
| | |
|
Private Equity Interests | | $ | 67 |
| | $ | 5 |
|
LIHTC funds | | 111 |
| | 21 |
|
Restricted Stock Trust Fund | | 14 |
| | 14 |
|
Total | | $ | 192 |
| | $ | 40 |
|
132
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents information about the carrying value of the assets and liabilities of the VIEs which we consolidate and which are included on our Consolidated Statements of Financial Condition. Intercompany balances are eliminated in consolidation and are not reflected in the 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 | |
|
| | | | | | | | |
| | September 30, |
$ in millions | | 2019 | | 2018 |
Assets: | | | | |
Cash, cash equivalents and cash segregated pursuant to regulations | | $ | 7 |
| | $ | 7 |
|
Other receivables | | — |
| | 1 |
|
Other investments | | 63 |
| | 63 |
|
Other assets | | 75 |
| | 107 |
|
Total assets | | $ | 145 |
| | $ | 178 |
|
| | | | |
Liabilities: | | |
| | |
|
Other payables | | $ | 4 |
| | $ | 26 |
|
Total liabilities | | $ | 4 |
| | $ | 26 |
|
Noncontrolling interests | | $ | 60 |
| | $ | 78 |
|
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, 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 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, |
| | 2019 | | 2018 |
$ in millions | | Aggregate assets | | Aggregate liabilities | | Our risk of loss | | Aggregate assets | | Aggregate liabilities | | Our risk of loss |
Private Equity Interests | | $ | 6,317 |
| | $ | 117 |
| | $ | 63 |
| | $ | 6,908 |
| | $ | 154 |
| | $ | 68 |
|
LIHTC funds | | 6,001 |
| | 2,221 |
| | 64 |
| | 5,692 |
| | 1,912 |
| | 93 |
|
Other | | 205 |
| | 115 |
| | 4 |
| | 211 |
| | 114 |
| | 4 |
|
Total | | $ | 12,523 |
|
| $ | 2,453 |
|
| $ | 131 |
|
| $ | 12,811 |
|
| $ | 2,180 |
|
| $ | 165 |
|
NOTE 10 - PROPERTY AND EQUIPMENT
The following table presents our property and equipment, net balances as of the dates presented.
|
| | | | | | | | |
| | September 30, |
$ in millions | | 2019 | | 2018 |
Land | | $ | 29 |
| | $ | 29 |
|
Software, including development in progress | | 486 |
| | 417 |
|
Buildings, leasehold and land improvements | | 385 |
| | 350 |
|
Furniture, fixtures and equipment | | 278 |
| | 248 |
|
Construction in process | | 10 |
| | 16 |
|
Total property and equipment | | 1,188 |
| | 1,060 |
|
Less: Accumulated depreciation and amortization | | (661 | ) | | (574 | ) |
Total property and equipment, net | | $ | 527 |
| | $ | 486 |
|
Depreciation expense and software amortization was $97 million, $85 million, and $71 million for the fiscal years ended September 30, 2019, 2018, and 2017, respectively.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 11 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET
Our 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.
| | | | | | | | | | | | | | |
| | 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 millions | | 2019 | | 2018 |
Goodwill | | $ | 464 |
| | $ | 478 |
|
Identifiable intangible assets, net | | 147 |
| | 161 |
|
Total goodwill and identifiable intangible assets, net | | $ | 611 |
| | $ | 639 |
|
Goodwill
The following table summarizes our goodwill by segment and the balances and activity for the years 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 | |
|
| | | | | | | | | | | | | | | | |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Total |
Year ended September 30, 2019 | | | | | | | | |
Goodwill as of beginning of year | | $ | 276 |
| | $ | 133 |
| | $ | 69 |
| | $ | 478 |
|
Additions | | — |
| | 7 |
| | — |
| | 7 |
|
Foreign currency translations | | (1 | ) | | (1 | ) | | — |
| | (2 | ) |
Impairment | | — |
| | (19 | ) | | — |
| | (19 | ) |
Goodwill as of end of year | | $ | 275 |
| | $ | 120 |
| | $ | 69 |
| | $ | 464 |
|
| | | | | | | | |
Year ended September 30, 2018 | | | | | | | | |
Goodwill as of beginning of year | | $ | 277 |
| | $ | 134 |
| | $ | — |
| | $ | 411 |
|
Additions | | — |
| | — |
| | 69 |
| | 69 |
|
Foreign currency translations | | (1 | ) | | (1 | ) | | — |
| | (2 | ) |
Goodwill as of end of year | | $ | 276 |
| | $ | 133 |
|
| $ | 69 |
| | $ | 478 |
|
The additions to goodwill during the yearsyear ended September 30, 2019 and 20182022 arose from our acquisitions of Silver LaneCharles Stanley in the Private Client Group, TriState Capital in our Bank segment, and the Scout Group, respectively. The goodwill from these acquisitions primarily represents synergies from combining these entities withSumRidge Partners in our existing businesses. All of the goodwill associated with both Silver Lane and the Scout Group is deductible for tax purposes over 15 years.Capital Markets 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. We performed our latest annual goodwill impairment testing as of our January 1, 20192022 evaluation date, evaluating balances as of December 31, 2018.2021. In that testing, we performed a qualitative impairment assessment for each of our reporting units that had goodwill. For each reporting unit on which we performed a qualitative assessment, we determined whether it was more likely than not that the fair value of the reporting unit was in excess of the carrying value of the reporting unit, including the recorded goodwill. Based upon the outcome of our qualitative assessments, as ofno impairment was identified. No events have occurred since our annual evaluationassessment date we concluded that none of the goodwill allocated to any of our reporting units was impaired. Subsequent to our annual goodwill impairment testing, events associated with the RJ Ltd. Capital Markets reporting unit occurred that causedwould cause us to update this impairment testing. See quantitative assessment discussion below.
Quantitative assessments
During the quarter ended September 30, 2019, as a result of recent transactions and events in the Canadian capital markets in which we participate, we determined the goodwill associated with our RJ Ltd. Capital Markets reporting unit could be potentially impaired and therefore performed an event-driven impairment assessment. In completing this assessment, we performed a quantitative analysis of such reporting unit.
Our quantitative assessment of the equity value of the RJ Ltd. Capital Markets reporting unit used an income approach utilizing a discounted cash flow model. The estimated fair value of the equity of the reporting unit resulting from this approach was dependent upon estimates of future business unit revenues and costs. Such estimates were subject to critical assumptions regarding the nature
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
and health of financial markets in future years, projected future cash flows for the business (taking into account recent market events impacting the business), as well as the discount rate to apply to the projected future cash flows. In estimating future cash flows, a balance sheet as of August 31, 2019 and a statement of operations for the prior twelve months of activity 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 of approximately 13%, which was derived through application of the capital asset pricing model.
As a result of this quantitative assessment, we recorded an impairment charge of $19 million, which was the entire value of the goodwill assigned to the RJ Ltd. Capital Markets reporting unit.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ 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 | |
|
| | | | | | | | | | | | | | | | |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Total |
Year ended September 30, 2019 | | | | | | | | |
Net identifiable intangible assets as of beginning of year | | $ | 41 |
| | $ | 20 |
| | $ | 100 |
| | $ | 161 |
|
Additions | | — |
| | 1 |
| | — |
| | 1 |
|
Amortization expense | | (6 | ) | | (4 | ) | | (5 | ) | | (15 | ) |
Net identifiable intangible assets as of end of year | | $ | 35 |
| | $ | 17 |
| | $ | 95 |
| | $ | 147 |
|
| | | | | | | | |
Year ended September 30, 2018 | | | | | | | | |
Net identifiable intangible assets as of beginning of year | | $ | 47 |
| | $ | 23 |
| | $ | 13 |
| | $ | 83 |
|
Additions | | — |
| | — |
| | 92 |
|
| 92 |
|
Amortization expense | | (6 | ) | | (3 | ) | | (5 | ) | | (14 | ) |
Net identifiable intangible assets as of end of year | | $ | 41 |
| | $ | 20 |
| | $ | 100 |
| | $ | 161 |
|
The additions of identifiable intangible assets during the yearsyear ended September 30, 20192022 arose from our acquisitions of Charles Stanley in the Private Client Group segment, TriState Capital in our Bank and 2018 were attributable toAsset Management segments, and SumRidge Partners in our Capital Markets segment. See Note 3 for additional discussion of these acquisitions.
The following table summarizes our identifiable intangible assets by 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) | |
The following table sets forth the Silver Lane acquisition and the Scout Group acquisition, respectively.projected amortization expense by fiscal year associated with our identifiable intangible 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 indefinite-livednon-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 testtesting as of our January 1, 20192022 evaluation date, evaluating balancesthe balance as of December 31, 2018.2021. In that testing, we performed a qualitative assessment for our indefinite-livednon-amortizing customer relationships intangible asset. Based upon the outcome of our qualitative assessment, no impairment was identified. No events have occurred since oursuch assessment that would cause us to update this impairment testing.
The following summarizes our identifiable intangible assets by type.
|
| | | | | | | | | | | | | | | | |
| | September 30, |
| | 2019 | | 2018 |
$ in millions | | Gross carrying value | | Accumulated amortization | | Gross carrying value | | Accumulated amortization |
Customer relationships | | $ | 134 |
| | $ | (50 | ) | | $ | 133 |
| | $ | (40 | ) |
Non-amortizing customer relationships | | 52 |
| | — |
| | 52 |
| | — |
|
Trade name | | 12 |
| | (5 | ) | | 12 |
| | (4 | ) |
Developed technology | | 3 |
| | (2 | ) | | 3 |
| | (1 | ) |
Intellectual property | | 1 |
| | — |
| | 1 |
| | — |
|
Non-compete agreements | | 2 |
| | (2 | ) | | 3 |
| | (2 | ) |
Seller relationship agreements | | 5 |
| | (3 | ) | | 5 |
| | (1 | ) |
Total | | $ | 209 |
| | $ | (62 | ) | | $ | 209 |
| | $ | (48 | ) |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table sets forth the projected amortization expense by fiscal year associated with our identifiable intangible assets with finite lives.
|
| | | | |
Fiscal year ended September 30, | | $ in millions |
2020 | | $ | 13 |
|
2021 | | 12 |
|
2022 | | 11 |
|
2023 | | 10 |
|
2024 | | 10 |
|
Thereafter | | 39 |
|
Total | | $ | 95 |
|
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 | |
|
| | | | | | | | |
| | September 30, |
$ in millions | | 2019 | | 2018 |
Investments in company-owned life insurance policies | | $ | 675 |
| | $ | 605 |
|
Prepaid expenses | | 123 |
| | 99 |
|
Investments in real estate partnerships held by consolidated variable interest entities | | 75 |
| | 107 |
|
Investment in FHLB stock | | 52 |
| | 52 |
|
Investment in FRB stock | | 25 |
| | 25 |
|
All other | | 70 |
| | 66 |
|
Total other assets | | $ | 1,020 |
| | $ | 954 |
|
See Note 13 for further information regarding our property and equipment and Note 14 for further information regarding our leases.
As of September 30, 2019, the cumulative face value of our company-owned life insurance policies was $1.89 billion.
NOTE 13 – BANK DEPOSITS- PROPERTY AND EQUIPMENT, NET
Bank deposits include savings and money market accounts, certificates of deposit with RJ Bank, Negotiable Order of Withdrawal (“NOW”) accounts and demand deposits. The following table presents a summarythe components of bank deposits includingour property and equipment, net as of the weighted-average rate, the calculation of which was based on the actual deposit balances at each respective period.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 | |
|
| | | | | | | | | | | | | | |
| | September 30, |
| | 2019 | | 2018 |
$ in millions | | Balance | | Weighted-average rate | | Balance | | Weighted-average rate |
Savings and money market accounts | | $ | 21,654 |
| | 0.25 | % | | $ | 19,475 |
| | 0.54 | % |
Certificates of deposit | | 605 |
| | 2.33 | % | | 445 |
| | 2.03 | % |
NOW accounts | | 6 |
| | 0.01 | % | | 6 |
| | 0.01 | % |
Demand deposits (non-interest-bearing) | | 16 |
| | — |
| | 16 |
| | — |
|
Total bank deposits | | $ | 22,281 |
| | 0.31 | % | | $ | 19,942 |
| | 0.57 | % |
Total bank deposits in the preceding table exclude affiliate deposits of $163Depreciation expense associated with property and equipment was $50 million, $51 million, and $279$52 million atfor the years ended September 30, 20192022, 2021, and 2018, respectively. These affiliate deposits2020, respectively, and is included $163in “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 $277$54 million atfor the years ended September 30, 20192022, 2021, and 2018,2020, respectively, heldand is included in a deposit account at RJ Bank“Communications and information processing” expense on behalfour Consolidated Statements of RJF (see Note 25 for additional information).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.
Savings and money market accounts in the preceding table consist primarily of deposits that are cash balances swept from the client investment accounts maintained at RJ&A to RJ Bank. These balances are held in Federal Deposit Insurance Corporation (“FDIC”) insured bank accounts through the RJBDP. The aggregate amount of individual time deposit account balances that exceeded the FDIC insurance limit at September 30, 2019 was $44 million.
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 accounts, and non-interest-bearing checking accounts. The following table presents a summary of bank deposits, as well as the weighted-average interest rates on such deposits. The calculation of the 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, 2022 and 2021, money market and savings accounts in the preceding table included $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”), which are held in FDIC-insured bank accounts through the RJBDP. As of September 30, 2022, money market and savings accounts also included direct accounts held by TriState Capital Bank on behalf of third-party clients.
As of September 30, 2022 and September 30, 2021, the estimated amount of total bank deposits that exceeded the FDIC insurance limit was $7.84 billion and $3.08 billion, respectively. The following table sets forth the scheduled maturitiesamount of estimated certificates of deposit.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 | |
|
| | | | | | | | | | | | | | | | |
| | September 30, |
| | 2019 | | 2018 |
$ in millions | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 |
Three months or less | | $ | 24 |
| | $ | 19 |
| | $ | 30 |
| | $ | 17 |
|
Over three through six months | | 26 |
| | 21 |
| | 20 |
| | 13 |
|
Over six through twelve months | | 75 |
| | 37 |
| | 38 |
| | 26 |
|
Over one through two years | | 32 |
| | 36 |
| | 65 |
| | 40 |
|
Over two through three years | | 40 |
| | 93 |
| | 21 |
| | 14 |
|
Over three through four years | | 66 |
| | 47 |
| | 44 |
| | 26 |
|
Over four through five years | | 38 |
| | 51 |
| | 63 |
| | 28 |
|
Total | | $ | 301 |
| | $ | 304 |
| | $ | 281 |
| | $ | 164 |
|
The maturities by fiscal year of our certificates of deposit as of September 30, 2022 are 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 | |
Interest expense on deposits, excluding interest expense related to affiliateaffiliated deposits, is summarized 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 millions | | 2019 | | 2018 | | 2017 |
Savings, money market, and NOW accounts | | $ | 120 |
| | $ | 60 |
| | $ | 13 |
|
Certificates of deposit | | 12 |
| | 6 |
| | 4 |
|
Total interest expense on deposits | | $ | 132 |
|
| $ | 66 |
|
| $ | 17 |
|
RAYMOND JAMES FINANCIAL, INC. 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 millions | | 2019 | | 2018 |
FHLB advances | | $ | 875 |
| | $ | 875 |
|
Mortgage notes payable and other | | 19 |
| | 24 |
|
Total other borrowings | | $ | 894 |
| | $ | 899 |
|
FHLB advances
BorrowingsWe 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, 20192022 and 2018 were comprised of both floating and fixed-rate advances. As of September 30, 20192021 was 3.29% and 2018, the floating-rate advances, which have interest rates that reset quarterly, totaled $850 million. The floating-rate advances mature in December 2020.0.26%, 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 2 for information regarding these interest rate swaps, which are accounted for as hedging instruments.
Subordinated notes
As part of both September 30, 2019the assets acquired and 2018,liabilities assumed in the fixed-rate advance totaled $25 million and bearsTriState Capital acquisition, 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 3.4%. This advance matures5.75% 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 October 2020. AllAugust 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 FHLB advances as of September 30, 2019 and 2018 was 2.17% and 2.41%, respectively.redemption date.
Secured and unsecured financing arrangementsOther
On February 19, 2019, RJF and RJ&A entered intoare parties to an unsecured revolving credit facility agreement (the “Credit Facility”) which replaced the previous unsecured revolving credit facility agreement (the “RJF Credit Facility”) entered into by RJF. The Credit Facility haswith a maturity datesyndicate of February 2024 and the lenders include 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,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 0no borrowings outstanding on the Credit Facility as of September 30, 2019.2022 or September 30, 2021. There is a facility fee associated with the Credit Facility, which also varies depending uponwith RJF’s credit rating. Based upon RJF’s credit rating as of September 30, 2019,2022, the variable rate facility fee, which is applied to the committed amount, was 0.175%0.150% per annum.
In addition to the Credit Facility, we maintain various secured and unsecured lines of credit, which are generally utilized to finance certain fixed income securities 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, 2019.2022 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
and are based on the Fed Funds rate, London Inter-bank Offered Rate (“LIBOR”), a lenders prime rate, or the Canadian prime rate, as applicable.
We also have other collateralized financings included in “Securities sold under agreements to repurchase” and “Securities loaned”“Collateralized financings” on our Consolidated Statements of Financial Condition. See Note 7 for information regarding our other collateralized financing arrangements.
Mortgage notes payable and other
Mortgage notes payable pertain to mortgage loans on certain of our corporate headquarters offices located in St. Petersburg, Florida. These mortgage loans are secured by land, buildings, and improvements. These mortgage loans bear a fixed interest rate of 5.7% with repayment terms of monthly interest and principal debt service and have a January 2023 maturity.
Our other borrowings as of September 30, 2019, mature as follows based on their contractual terms.
|
| | | | |
Fiscal year ended September 30, | | $ in millions |
2020 | | $ | 5 |
|
2021 | | 881 |
|
2022 | | 6 |
|
2023 | | 2 |
|
2024 | | — |
|
Thereafter | | — |
|
Total | | $ | 894 |
|
NOTE 1517 – SENIOR NOTES PAYABLE
The following table summarizes our senior notes 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 millions | | 2019 | | 2018 |
5.625% senior notes, due 2024 | | $ | 250 |
| | $ | 250 |
|
3.625% senior notes, due 2026 | | 500 |
| | 500 |
|
4.95% senior notes, due 2046 | | 800 |
| | 800 |
|
Total principal amount | | 1,550 |
| | 1,550 |
|
Unaccreted premium/(discount) | | 11 |
| | 12 |
|
Unamortized debt issuance costs | | (11 | ) | | (12 | ) |
Total senior notes payable | | $ | 1,550 |
| | $ | 1,550 |
|
In March 2012,2020, we sold $500 million in aggregate principal amount of 4.65% senior notes due April 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 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; 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 $300 million in aggregate principal amount of 4.95% senior notes due July 2046 in a registered underwritten public offering. In May 2017, we reopened the offering and sold, in a registered underwritten public offering, $250an additional $500 million in aggregate principal amount of 5.625%4.95% senior notes due April 2024.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 5045 basis points, plus accrued and unpaid interest thereon to the redemption date.
In July 2016,April 2021, we sold in a registered underwritten public offering $500$750 million in aggregate principal amount of 3.625%3.75% senior notes due September 2026.April 2051 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,October 1, 2050, 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 3520 basis points,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 redemption date.
In July 2016, we sold in a registered underwritten public We utilized the proceeds from this offering $300and cash on hand to early-redeem our $250 million in aggregate principal amount of 4.95%5.625% senior notes due July 2046. In May 2017, we reopened the offering2024 and sold, in a registered underwritten public offering, an additionalour $500 million in aggregate principal amount of 4.95%3.625% senior notes due July 2046. These additional senior2026. We recognized losses on the extinguishment of such notes were consolidated, formed into a single series,of $98 million which was presented in “Losses on extinguishment of debt” in our Consolidated Statements of Income and are fully fungible withComprehensive Income for the $300 million in aggregate principal amount 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
year ended September 30, 2021.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 par of certain senior notes
During the year ended September 30, 2017, we redeemed all of our outstanding 6.90% senior notes due March 2042 and 8.60% senior notes due August 2019. This redemption resulted in a $46 million loss on extinguishment of debt on our Consolidated Statements of Income and Comprehensive Income for the year ended September 30, 2017, comprised of a make-whole premium and unamortized debt issuance costs.
NOTE 1618 – INCOME TAXES
For a discussion of our income tax accounting policies and other income tax-related information see Note 2.
The Tax Act
On December 22, 2017, the Tax Act was enacted, which significantly revised the U.S. corporate income tax system by, among other things, lowering federal corporate income tax rates from 35% to 21%. For the fiscal year ended September 30, 2019, our U.S. federal statutory tax rate was 21.0%. For the fiscal year ended September 30, 2018, our U.S. federal statutory tax rate was 24.5%, which reflects a blended federal statutory rate of 35.0% for our first fiscal quarter and 21.0% for the remaining three fiscal quarters.
Our provision for taxes for the year ended September 30, 2018 included $105 million related to the enactment of the Tax Act, which included: (1) $93 million due to the remeasurement of U.S. deferred tax assets at the lower enacted corporate tax rate; (2) the transition tax on deemed repatriated earnings of foreign subsidiaries of $10 million, including the associated state tax liability; and (3) $2 million due to the evaluation of deferred tax assets related to executive compensation.
Income taxes
The following table details the total income tax provision/(benefit) allocation for each 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 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2019 | | 2018 | | 2017 |
Recorded in: | | | | | | |
Net income | | $ | 341 |
| | $ | 454 |
| | $ | 289 |
|
Equity, arising from available-for-sale securities recorded through OCI | | 27 |
| | (19 | ) | | 1 |
|
Equity, arising from currency translations, net of the impact of net investment hedges recorded through OCI | | 7 |
| | 10 |
| | (7 | ) |
Equity, arising from cash flow hedges recorded through OCI | | (23 | ) | | 15 |
| | 14 |
|
Total provision for income taxes | | $ | 352 |
| | $ | 460 |
| | $ | 297 |
|
The following table details our provision/(benefit) for income taxes included in net income for each respective period.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2022 | | 2021 | | 2020 |
Current: | | | | | | |
Federal | | $ | 406 | | | $ | 321 | | | $ | 215 | |
State and local | | 91 | | | 79 | | | 49 | |
Foreign | | 32 | | | 25 | | | 9 | |
Total current | | $ | 529 | | | $ | 425 | | | $ | 273 | |
Deferred: | | | | | | |
Federal | | (10) | | | (28) | | | (36) | |
State and local | | (3) | | | (6) | | | (3) | |
Foreign | | (3) | | | (3) | | | — | |
Total deferred | | $ | (16) | | | $ | (37) | | | $ | (39) | |
Total provision for income taxes | | $ | 513 | | | $ | 388 | | | $ | 234 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2019 | | 2018 | | 2017 |
Current: | | | | | | |
Federal | | $ | 286 |
| | $ | 258 |
| | $ | 256 |
|
State and local | | 63 |
| | 65 |
| | 38 |
|
Foreign | | 15 |
| | 14 |
| | 7 |
|
Total current | | 364 |
| | 337 |
| | 301 |
|
Deferred: | | | | | | |
Federal | | (22 | ) | | 121 |
| | (11 | ) |
State and local | | (1 | ) | | (4 | ) | | (1 | ) |
Total deferred | | (23 | ) | | 117 |
| | (12 | ) |
Total provision for income taxes | | $ | 341 |
| | $ | 454 |
| | $ | 289 |
|
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 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, |
| | 2019 | | 2018 | | 2017 |
Provision calculated at statutory rate | | 21.0 | % | | 24.5 | % | | 35.0 | % |
Impact of Tax Act | | 0.1 | % | | 8.1 | % | | — |
|
State income tax, net of federal benefit | | 3.6 | % | | 3.9 | % | | 2.7 | % |
Excess tax benefits related to share-based compensation | | (0.4 | )% | | (0.9 | )% | | (2.5 | )% |
Gains on company-owned life insurance policies which are not subject to tax | | (0.1 | )% | | (0.7 | )% | | (1.7 | )% |
Federal tax credits | | (0.9 | )% | | (0.7 | )% | | (1.6 | )% |
Other, net | | 1.5 | % | | 0.6 | % | | (0.7 | )% |
Total provision for income tax | | 24.8 | % | | 34.8 | % |
| 31.2 | % |
The following table presents our U.S. and foreign components of pre-tax income for 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 millions | | 2019 | | 2018 | | 2017 |
U.S. | | $ | 1,340 |
| | $ | 1,268 |
| | $ | 915 |
|
Foreign | | 35 |
| | 43 |
| | 10 |
|
Pre-tax income | | $ | 1,375 |
| | $ | 1,311 |
| | $ | 925 |
|
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 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 millions | | 2019 | | 2018 |
Deferred tax assets: | | | | |
Deferred compensation | | $ | 192 |
| | $ | 180 |
|
Allowances for loan losses and reserves for unfunded commitments | | 56 |
| | 53 |
|
Unrealized loss associated with foreign currency translations | | 10 |
| | 6 |
|
Unrealized loss associated with available-for-sale securities | | — |
| | 20 |
|
Accrued expenses | | 35 |
| | 36 |
|
Partnership investments | | 12 |
| | 6 |
|
Other | | 18 |
| | 11 |
|
Total deferred tax assets | | 323 |
| | 312 |
|
Deferred tax liabilities: | | | | |
Goodwill and identifiable intangible assets | | (28 | ) | | (32 | ) |
Property and equipment | | (57 | ) | | (60 | ) |
Unrealized gain associated with available-for-sale securities | | (7 | ) | | — |
|
Other | | — |
| | (17 | ) |
Total deferred tax liabilities | | (92 | ) | | (109 | ) |
Net deferred tax assets | | $ | 231 |
| | $ | 203 |
|
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 netvaluation allowance if, in management’s opinion, it is more likely than not that these benefits will not be realized. As of September 30, 2022, total deferred tax asset at both September 30, 2019 and 2018.assets, net of an insignificant valuation allowance, aggregated to $990 million. We continue to believe that the realization of the netour deferred tax asset of $231 millionassets is more likely than not based on 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, 2019,2022, we considered substantially all undistributed earnings of non-U.S. subsidiaries to be permanently reinvested. Therefore,The Tax Cut and 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, 2019,2022, we had approximately $291$431 million of cumulative undistributed earnings attributable to foreign subsidiaries, most of which were subject to U.S. tax under the transition tax on foreign earnings due under the Tax Act.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, 2019,2022, the current tax receivable, which iswas included in “Other receivables”receivables, net” on our Consolidated Statements of Financial Condition, was $22$7 million,, and the current tax payable, which iswas included in “Other payables,” was $49 million.$28 million. As of September 30, 2018,2021, the current tax receivable was $6$12 million and the current tax payable was $7 million.
$50 million.
142
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Uncertain tax positions
We recognize the accrual of interest and penalties related to income tax matters in interest expense and other expense, respectively. As of September 30, 20192022 and 2018,2021, accrued interest and penalties were approximately $6$9 million and $5$7 million, respectively.
The following table presents the aggregate changes in the balances for uncertain tax 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 millions | | 2019 | | 2018 | | 2017 |
Uncertain tax positions beginning of year | | $ | 31 |
| | $ | 20 |
| | $ | 22 |
|
Increases for tax positions related to the current year | | 11 |
| | 5 |
| | 3 |
|
Increases for tax positions related to prior years | | 7 |
| | 10 |
| | — |
|
Decreases for tax positions related to prior years | | — |
| | (1 | ) | | (1 | ) |
Decreases due to lapsed statute of limitations | | (2 | ) | | (3 | ) | | (2 | ) |
Decreases related to settlements | | (5 | ) | | — |
| | (2 | ) |
Uncertain tax positions end of year | | $ | 42 |
| | $ | 31 |
| | $ | 20 |
|
Tax positions related to prior years in the preceding table included positions taken in previously filed tax returns with the Internal Revenue Service and certain states, including an analysis of the impact from the 2018 Supreme Court decision in South Dakota v. Wayfair which impacted our state nexus positions in certain states for certain entities. 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 after considering the federal tax benefit associated with any state tax provisions) was $38$38 million,, $27 $31 million,, and $15$40 million at September 30, 2019, 20182022, 2021 and 2017,2020, respectively. We anticipate that the uncertain tax position liability balance will not change significantlydecrease by approximately $11 million over the next 12 months due to expiration of statutes of limitations of federal and state tax returns.
12 months.
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 2019, with the fiscal year 2016 for federal tax returns, fiscal year 2015 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 2015 for foreignlimitation period to assess the net transition tax returns. Various foreign and state audits in process are expected to be completed in liability reported by the firm.
fiscal year 2020.
NOTE 1719 – COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments and contingencies
Loan and underwritingUnderwriting commitments
In the normal course of business, we enter into commitments for fixed incomedebt and equity underwritings. As of September 30, 2019,2022, we had 3two such open underwriting commitments, which were subsequently settled in open market transactions and none of which resulteddid not result in a significant loss.losses.
As part of our recruiting efforts, we offer loans to prospective financial advisors and certain key revenue producers primarily for recruiting, transitional cost assistance, and retention purposes (see Note 2 for a discussion of our accounting policies governing these transactions). TheseLending commitments are contingent upon certain events occurring, including, but not limited to, the individual joining us. As of September 30, 2019, we had made commitments through the extension of formal offers totaling $165 million; 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, 2019, $118 million of the total amount extended consisted of unfunded commitments to prospective financial advisors who had accepted our offers, or recently hired producers.
Commitments to extend credit and other credit-related financial instruments
RJ Bank hasWe 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 standby letters of credit and loan purchases, which then extend over varying periods of time. These arrangements are subject to strict underwriting assessments and each customer’s credit worthiness is evaluated on a case-by-case basis. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and our exposure is limited to the replacement value of those commitments.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents RJ Bank’sour commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding.outstanding 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 | |
|
| | | | | | | | |
$ in millions | | September 30, 2019 | | September 30, 2018 |
Open-end consumer lines of credit (primarily SBL) | | $ | 9,328 |
| | $ | 7,332 |
|
Commercial lines of credit | | $ | 1,527 |
| | $ | 1,643 |
|
Unfunded loan commitments | | $ | 599 |
| | $ | 541 |
|
Standby letters of credit | | $ | 40 |
| | $ | 41 |
|
Open-endSBL and other consumer lines of credit primarily represent the unfunded amounts of RJ Bankbank loans to customersconsumers 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. We maintain a reserve to provideThe allowance for credit losses calculated under CECL provides for potential losses related to the unfunded lending commitments. See NoteNotes 2 and 8 for further discussion of this reserveallowance for credit losses related to unfunded lending commitments. Credit risk representsSee Note 3 for a discussion of the accounting loss that would be recognized atinitial provision for credit losses on loans and lending commitments acquired as part of 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.TriState Capital acquisition.
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. 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 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.
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 commitments
We had unfunded commitments to various investments, including private equity investmentsprimarily held by Raymond James Bank and certain RJTriState Capital Bank, investments, of $30$51 million as of September 30, 2019.
Lease commitments
2022.
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 in the following table.
|
| | | | |
Fiscal year ended September 30, | | $ in millions |
2020 | | $ | 103 |
|
2021 | | 95 |
|
2022 | | 79 |
|
2023 | | 66 |
|
2024 | | 49 |
|
Thereafter | | 127 |
|
Total | | $ | 519 |
|
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 $129 million, $121 million and $115 million for fiscal years 2019, 2018 and 2017, respectively.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other commitments
RJF has committed an amount of up to $225 million, subject to certain limitations, to either lend to, or guarantee obligations of RJTCF in connection with RJTCF’s low-income housing development/rehabilitation and syndication activities. At September 30, 2019, RJTCF had $52 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, or to fund its other activities. Investments in project partnerships are sold to various LIHTC funds, which have third-party investors, and for which RJTCFRJAHI serves as the managing member or general partner. RJTCFRJAHI typically sells investments in project partnerships to LIHTC funds 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.
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 agency MBS. At September 30, 2019, we had $290 million principal amount of outstanding forward MBS purchase commitments, which were expected to be purchased within 90 days following commitment. In order to hedge the market interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into TBA security contracts with investors for generic MBS at specific rates and prices to be delivered on settlement dates in the future. We may be subject to loss if the timing of, or the actual amount of, the MBS differs significantly from the term and notional amount of the TBA security contract to which we entered. These TBA securities and related purchase commitments are accounted for at fair value. As of September 30, 2019, the fair value of the TBA securities and the estimated fair value of the purchase commitments were insignificant.lease liabilities, see Note 14.
Guarantees
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 up to $500 thousand per client for 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.
We guarantee the debt of one of our private equity investments. The amount of such debt, including the undrawn portion of a revolving credit facility, was $13 million as of September 30, 2019. The debt, which matures in 2021, is secured by substantially all of the assets of the borrower.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Legal and regulatory matter contingencies
In addition to any matters that may be specifically described in the following sections, 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.
RJF and certain of its subsidiaries are 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 financial institutions.
We may contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, theThe level of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased significantly in the financial services industry.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 are not yet determined to be material.
For 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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). Subject to the foregoing, after consultation with counsel, 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 as of September 30, 2019,2022, we estimated the upper end of the range of reasonably possible aggregate loss to be approximately $35$90 million in excess of the aggregate accruals for such matters. Refer to Note 2 for a discussion of our criteria for recognizing liabilities for contingencies.
We may from timeSubsequent to timeour fiscal year ended September 30, 2022, we entered into an agreement with certain third-party insurance carriers to settle claims triggered by a previously settled litigation matter. Our fiscal first quarter of 2023 results will include in any descriptionsthis $32 million insurance settlement, which we considered a gain contingency as of individual matters herein 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.September 30, 2022.
Legal matters
Brink Complaint and Wistar Complaint
On February 17, 2015, Jyll Brink (“Brink”) filed a putative class action complaint in the U.S. District Court for the Southern District of Florida (the “District Court”) under the caption Jyll Brink v. Raymond James & Associates, Inc. (the “Brink Complaint”). The Brink Complaint alleges that Brink, a former customer of RJ&A, was charged a fee in her Passport Investment Account, and that the fee included an unauthorized and undisclosed profit to RJ&A in violation of its customer agreement and applicable industry standards. The Passport Investment Account is a fee-based account in which clients pay asset-based advisory fees and certain processing fees for ongoing investment advice and monitoring of securities holdings. The Brink Complaint seeks, among other relief, damages in the amount of the difference between the actual cost of processing a trade, as alleged by Brink, and the fee charged by RJ&A. On October 19, 2018, the District Court certified a class of former and current customers of RJ&A who executed a Passport Agreement and were charged processing fees during the period between February 17, 2010 and February 17, 2015.
On February 11, 2016, Caleb Wistar (“Wistar”) and Ernest Mayeaux (“Mayeaux”) filed a putative class action complaint in the District Court under the caption Caleb Wistar and Ernest Mayeaux v. Raymond James Financial Services, Inc. and Raymond James Financial Services Advisors, Inc. (as subsequently amended, the “Wistar Complaint”). Similar to the Brink Complaint, the Wistar Complaint alleges that Wistar and Mayeaux, former customers of Raymond James Financial Services, Inc. (“RJFS”) and Raymond James Financial Services Advisors, Inc. (“RJFSA”), were charged a fee in RJFS and RJFSA’s Passport Investment Account and that the fee included an unauthorized and undisclosed profit to RJFS and RJFSA in violation of its customer agreement and applicable industry standards. The Wistar Complaint seeks, among other relief, damages in the amount of the difference between the actual cost of processing a trade, as alleged by Wistar and Mayeaux, and the fee charge by RJFS and RJFSA.
On April 5, 2019, the parties to the Brink Complaint and the Wistar Complaint agreed in principle to an aggregate settlement of $15 million. On October 25, 2019, the District Court entered an order granting final approval of the settlement.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1820 – ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)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 replace previously issued and, as of the acquisition date, outstanding preferred stock of TriState Capital. See Note 3 for further information about the acquisition.
On June 1, 2022, we issued 1.61 million depositary shares, each representing a 1/40th interest in a share 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, if 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 settlement of TriState Capital common stock, and 551 thousand RSAs, in conjunction with our acquisition of TriState Capital. See Note 3 for further information on the TriState Capital acquisition and Note 23 for further information on the RSAs and common stock issuances made under our share-based compensation programs.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Share repurchases
We repurchase shares of our common stock from 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 price and trading 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 for $162 million at an average price of $94 per share. As of September 30, 2022, $838 million remained available under the Board of Directors’ share repurchase authorization.
Common stock dividends
Dividends per common share declared and paid are detailed in the following table for 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 following table for each respective period and is 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 | % |
RJF expects to continue paying cash dividends. However, the payment and rate of dividends on our common stock are 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 Raymond James Bank and TriState Capital. See Note 24 for additional information on our regulatory capital requirements.
Other
In fiscal 2021, our Board of Directors approved a three-for-two stock split, effected in the form of a 50% stock dividend, paid on September 21, 2021. All share and per share information was retroactively adjusted in fiscal 2021 to reflect this stock split.
During fiscal 2022, we amended our Restated Articles of Incorporation, as filed with the Secretary of State of Florida on November 25, 2008, to increase the number of authorized shares of capital stock from 360 million shares to 660 million shares, consisting of 650 million shares of common stock, par value of $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 Secretary of State of Florida on February 28, 2022, were approved by our Board of Directors and our shareholders on December 1, 2021 and February 24, 2022, respectively.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Accumulated other comprehensive income/(loss)
All of the components of OCI, net of tax, were attributable to RJF. The following table presents the net change in AOCI as well as the changes, and the related tax effects, of each component of 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 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | 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, 2019 | | | | | | | | | | | | |
AOCI as of beginning of year | | $ | 88 |
| | $ | (111 | ) | | $ | (23 | ) | | $ | (46 | ) | | $ | 42 |
| | $ | (27 | ) |
Cumulative effect of adoption of ASU 2016-01 | | — |
| | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | 29 |
| | (24 | ) | | 5 |
| | 98 |
| | (79 | ) | | 24 |
|
Amounts reclassified from AOCI, before tax | | — |
| | — |
| | — |
| | — |
| | (5 | ) | | (5 | ) |
Pre-tax net OCI | | 29 |
| | (24 | ) | | 5 |
| | 98 |
| | (84 | ) | | 19 |
|
Income tax effect | | (7 | ) | | — |
| | (7 | ) | | (27 | ) | | 23 |
| | (11 | ) |
OCI for the year, net of tax | | 22 |
| | (24 | ) | | (2 | ) | | 71 |
| | (61 | ) | | 8 |
|
AOCI as of end of year | | $ | 110 |
| | $ | (135 | ) | | $ | (25 | ) | | $ | 21 |
| | $ | (19 | ) | | $ | (23 | ) |
| | | | | | | | | | | | |
Year ended September 30, 2018 | | | | | | | | | | | | |
AOCI as of beginning of year | | $ | 60 |
| | $ | (80 | ) | | $ | (20 | ) | | $ | (2 | ) | | $ | 7 |
| | $ | (15 | ) |
Cumulative effect of adoption of ASU 2018-02 | | — |
| | — |
| | — |
| | (2 | ) | | 2 |
| | — |
|
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | 38 |
| | (31 | ) | | 7 |
| | (56 | ) | | 47 |
| | (2 | ) |
Amounts reclassified from AOCI, before tax | | — |
| | — |
| | — |
| | (5 | ) | | 1 |
| | (4 | ) |
Pre-tax net OCI | | 38 |
| | (31 | ) | | 7 |
| | (61 | ) | | 48 |
| | (6 | ) |
Income tax effect | | (10 | ) | | — |
| | (10 | ) | | 19 |
| | (15 | ) | | (6 | ) |
OCI for the year, net of tax | | 28 |
| | (31 | ) | | (3 | ) | | (42 | ) | | 33 |
| | (12 | ) |
AOCI as of end of year | | $ | 88 |
| | $ | (111 | ) | | $ | (23 | ) | | $ | (46 | ) | | $ | 42 |
| | $ | (27 | ) |
As of October 1, 2018, we adopted new accounting guidance related to the classification and measurement of financial instruments (ASU 2016-01), which generally requires changes in the fair value of equity securities to be recorded in net income. As a result, on a prospective basis beginning October 1, 2018, unrealized gains/(losses) on our equity securities previously classified and accounted for as available-for-sale are recorded in net income instead of OCI. Accordingly, we reclassified a cumulative unrealized gain on such securities, net of tax, from AOCI to retained earnings. See Notes 2 and 5 for additional information.
During the year ended September 30, 2018, we adopted accounting guidance (ASU 2018-02) that allows for a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act.
Reclassifications from AOCI to net income, excluding taxes, for the year ended September 30, 20192022 were recorded in “Interest expense” on the Consolidated Statements of Income and Comprehensive Income. Reclassifications from AOCI to net income, excluding taxes, for the yearyears ended September 30, 20182021 and 2020 were primarily recorded in “Other” revenue and “Interest expense” on the Consolidated Statements of Income and Comprehensive Income.
Our net investment hedges and cash flow hedges relate to our derivatives associated with RJ Bank’s business operations (seeour Bank segment. See Notes 2 and 6 for additional information on these derivatives).
derivatives.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 19 - REVENUES
On October 1, 2018, we adopted new accounting guidance for revenue from contracts with customers. See Note 2 for further information about this guidance and for a discussion of our accounting policies related to revenue recognition.
The following tables present our sources of revenues by segment. See Note 24 for additional information on our segment results.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, 2019 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | RJ Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 2,820 |
| | $ | 6 |
| | $ | 645 |
| | $ | — |
| | $ | (20 | ) | | $ | 3,451 |
|
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 599 |
| | 6 |
| | 10 |
| | — |
| | (4 | ) | | 611 |
|
Insurance and annuity products | | 412 |
| | — |
| | — |
| | — |
| | — |
| | 412 |
|
Equities, ETFs and fixed income products | | 304 |
| | 123 |
| | — |
| | — |
| | — |
| | 427 |
|
Subtotal securities commissions | | 1,315 |
| | 129 |
| | 10 |
| | — |
| | (4 | ) | | 1,450 |
|
Principal transactions (1) | | 74 |
| | 285 |
| | — |
| | — |
| | (2 | ) | | 357 |
|
Total brokerage revenues | | 1,389 |
| | 414 |
| | 10 |
| | — |
| | (6 | ) | | 1,807 |
|
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 334 |
| | — |
| | 2 |
| | — |
| | (10 | ) | | 326 |
|
RJBDP fees | | 453 |
| | — |
| | 3 |
| | — |
| | (176 | ) | | 280 |
|
Client account and other fees | | 122 |
| | 5 |
| | 26 |
| | — |
| | (21 | ) | | 132 |
|
Total account and service fees | | 909 |
| | 5 |
| | 31 |
| | — |
| | (207 | ) | | 738 |
|
Investment banking: | | | | | | | | | | | | |
Equity underwriting | | 32 |
| | 100 |
| | — |
| | — |
| | — |
| | 132 |
|
Merger & acquisition and advisory | | — |
| | 369 |
| | — |
| | — |
| | — |
| | 369 |
|
Fixed income investment banking | | — |
| | 95 |
| | — |
| | — |
| | — |
| | 95 |
|
Total investment banking | | 32 |
| | 564 |
| | — |
| | — |
| | — |
| | 596 |
|
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | — |
| | 86 |
| | — |
| | — |
| | — |
| | 86 |
|
All other (1) | | 26 |
| | 4 |
| | 2 |
| | 26 |
| | 6 |
| | 64 |
|
Total other | | 26 |
| | 90 |
| | 2 |
| | 26 |
| | 6 |
| | 150 |
|
Total non-interest revenues | | 5,176 |
| | 1,079 |
| | 688 |
| | 26 |
| | (227 | ) | | 6,742 |
|
Interest income (1) | | 225 |
| | 38 |
| | 3 |
| | 975 |
| | 40 |
| | 1,281 |
|
Total revenues | | 5,401 |
| | 1,117 |
| | 691 |
| | 1,001 |
| | (187 | ) | | 8,023 |
|
Interest expense | | (42 | ) | | (34 | ) | | — |
| | (155 | ) | | (52 | ) | | (283 | ) |
Net revenues | | $ | 5,359 |
| | $ | 1,083 |
| | $ | 691 |
| | $ | 846 |
| | $ | (239 | ) | | $ | 7,740 |
|
(1) These revenues are generally not in scope of the new accounting guidance for revenue from contracts with customers.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, 2018 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | RJ Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 2,517 |
| | $ | 8 |
| | $ | 610 |
| | $ | — |
| | $ | (16 | ) | | $ | 3,119 |
|
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 703 |
| | 7 |
| | 12 |
| | — |
| | (5 | ) | | 717 |
|
Insurance and annuity products | | 414 |
| | — |
| | — |
| | — |
| | — |
| | 414 |
|
Equities, ETFs and fixed income products | | 352 |
| | 145 |
| | — |
| | — |
| | (2 | ) | | 495 |
|
Subtotal securities commissions | | 1,469 |
| | 152 |
| | 12 |
| | — |
| | (7 | ) | | 1,626 |
|
Principal transactions (1) | | 80 |
| | 249 |
| | — |
| | 1 |
| | (1 | ) | | 329 |
|
Total brokerage revenues | | 1,549 |
| | 401 |
| | 12 |
| | 1 |
| | (8 | ) | | 1,955 |
|
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 332 |
| | — |
| | 2 |
| | — |
| | (9 | ) | | 325 |
|
RJBDP fees | | 354 |
| | — |
| | 3 |
| | — |
| | (92 | ) | | 265 |
|
Client account and other fees | | 111 |
| | 5 |
| | 23 |
| | — |
| | (16 | ) | | 123 |
|
Total account and service fees | | 797 |
| | 5 |
| | 28 |
| | — |
| | (117 | ) | | 713 |
|
Investment banking: | | | | | | | | | | | | |
Equity underwriting | | 35 |
| | 93 |
| | — |
| | — |
| | — |
| | 128 |
|
Merger & acquisition and advisory | | — |
| | 297 |
| | — |
| | — |
| | — |
| | 297 |
|
Fixed income investment banking | | — |
| | 76 |
| | — |
| | — |
| | — |
| | 76 |
|
Total investment banking | | 35 |
| | 466 |
| | — |
| | — |
| | — |
| | 501 |
|
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | — |
| | 79 |
| | — |
| | — |
| | — |
| | 79 |
|
All other (1) | | 30 |
| | 1 |
| | 2 |
| | 22 |
| | 10 |
| | 65 |
|
Total other | | 30 |
| | 80 |
| | 2 |
| | 22 |
| | 10 |
| | 144 |
|
Total non-interest revenues | | 4,928 |
| | 960 |
| | 652 |
| | 23 |
| | (131 | ) | | 6,432 |
|
Interest income (1) | | 193 |
| | 32 |
| | 2 |
| | 793 |
| | 24 |
| | 1,044 |
|
Total revenues | | 5,121 |
| | 992 |
| | 654 |
| | 816 |
| | (107 | ) | | 7,476 |
|
Interest expense | | (28 | ) | | (28 | ) | | — |
| | (89 | ) | | (57 | ) | | (202 | ) |
Net revenues | | $ | 5,093 |
| | $ | 964 |
| | $ | 654 |
| | $ | 727 |
| | $ | (164 | ) | | $ | 7,274 |
|
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 new accounting guidance for revenue from contracts with customers.
149
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 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, 2017 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | RJ Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 2,022 |
| | $ | 9 |
| | $ | 453 |
| | $ | — |
| | $ | (13 | ) | | $ | 2,471 |
|
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 698 |
| | 9 |
| | 12 |
| | — |
| | (5 | ) | | 714 |
|
Insurance and annuity products | | 385 |
| | — |
| | — |
| | — |
| | — |
| | 385 |
|
Equities, ETFs and fixed income products | | 331 |
| | 152 |
| | — |
| | — |
| | (4 | ) | | 479 |
|
Subtotal securities commissions | | 1,414 |
| | 161 |
| | 12 |
| | — |
| | (9 | ) | | 1,578 |
|
Principal transactions (1) | | 93 |
| | 323 |
| | — |
| | 2 |
| | — |
| | 418 |
|
Total brokerage revenues | | 1,507 |
| | 484 |
| | 12 |
| | 2 |
| | (9 | ) | | 1,996 |
|
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 291 |
| | — |
| | 2 |
| | — |
| | (8 | ) | | 285 |
|
RJBDP fees | | 270 |
| | — |
| | 2 |
| | — |
| | (68 | ) | | 204 |
|
Client account and other fees | | 116 |
| | 5 |
| | 16 |
| | — |
| | (14 | ) | | 123 |
|
Total account and service fees | | 677 |
| | 5 |
| | 20 |
| | — |
| | (90 | ) | | 612 |
|
Investment banking: | | | | | | | | | | | | |
Equity underwriting | | 62 |
| | 117 |
| | — |
| | — |
| | — |
| | 179 |
|
Merger & acquisition and advisory | | — |
| | 228 |
| | — |
| | — |
| | — |
| | 228 |
|
Fixed income investment banking | | — |
| | 84 |
| | — |
| | — |
| | — |
| | 84 |
|
Total investment banking | | 62 |
| | 429 |
| | — |
| | — |
| | — |
| | 491 |
|
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | — |
| | 79 |
| | — |
| | — |
| | — |
| | 79 |
|
All other (1) | | 17 |
| | 2 |
| | 2 |
| | 16 |
| | 37 |
| | 74 |
|
Total other | | 17 |
| | 81 |
| | 2 |
| | 16 |
| | 37 |
| | 153 |
|
Total non-interest revenues | | 4,285 |
| | 1,008 |
| | 487 |
| | 18 |
| | (75 | ) | | 5,723 |
|
Interest income (1) | | 153 |
| | 27 |
| | 1 |
| | 610 |
| | 11 |
| | 802 |
|
Total revenues | | 4,438 |
| | 1,035 |
| | 488 |
| | 628 |
| | (64 | ) | | 6,525 |
|
Interest expense | | (16 | ) | | (21 | ) | | — |
| | (35 | ) | | (82 | ) | | (154 | ) |
Net revenues | | $ | 4,422 |
| | $ | 1,014 |
| | $ | 488 |
| | $ | 593 |
| | $ | (146 | ) | | $ | 6,371 |
|
(1) These revenues are generally not in scope of the new accounting guidance for revenue from contracts with customers.
At September 30, 2019 and September 30, 2018, net receivables related to contracts with customers were $347 million and $384 million, respectively.150
We record deferred revenue from contracts with customers when payment is received prior to the performance of our obligation to the customer. Deferred revenue balances were not material as of September 30, 2019 and September 30, 2018.
We have elected the practical expedient allowable by the guidance to not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less.
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 $416 million, respectively.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 2022 – 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 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2019 | | 2018 | | 2017 |
Interest income: | | | | | | |
Cash segregated pursuant to regulations | | $ | 59 |
| | $ | 53 |
| | $ | 38 |
|
Trading instruments | | 26 |
| | 23 |
| | 21 |
|
Available-for-sale securities | | 69 |
| | 52 |
| | 28 |
|
Margin loans | | 122 |
| | 107 |
| | 86 |
|
Bank loans, net of unearned income | | 871 |
| | 722 |
| | 572 |
|
Loans to financial advisors | | 18 |
| | 15 |
| | 13 |
|
Corporate cash and all other | | 116 |
| | 72 |
| | 44 |
|
Total interest income | | 1,281 |
| | 1,044 |
| | 802 |
|
Interest expense: | | |
| | |
| | |
|
Bank deposits | | 132 |
| | 66 |
| | 17 |
|
Trading instruments sold but not yet purchased | | 7 |
| | 7 |
| | 6 |
|
Brokerage client payables | | 21 |
| | 15 |
| | 5 |
|
Other borrowings | | 21 |
| | 22 |
| | 17 |
|
Senior notes payable | | 73 |
| | 73 |
| | 95 |
|
Other | | 29 |
| | 19 |
| | 14 |
|
Total interest expense | | 283 |
| | 202 |
| | 154 |
|
Net interest income | | 998 |
| | 842 |
| | 648 |
|
Bank loan loss provision | | (22 | ) | | (20 | ) | | (13 | ) |
Net interest income after bank loan loss provision | | $ | 976 |
| | $ | 822 |
| | $ | 635 |
|
Interest expense related to bank deposits in the preceding table excludes interest expense associated with affiliate deposits, which has been eliminated in consolidation.
NOTE 2123 - SHARE-BASED AND OTHER COMPENSATION
Our profit sharingShare-based compensation 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 expense throughout the year. Benefits become fully vested after five years of qualified service, at 65, or if a participant separates from service due to death or disability.
All shares owned by the ESOP are included in earnings per share calculations. Cash dividends paid to the ESOP are reflected as a reduction of retained earnings. The number of shares of our common stock held by the ESOP at
September 30, 2019 and 2018 was 4.56 million and 4.61 million, respectively. The market value of our common stock held by the ESOP at September 30, 2019 was $376 million, of which $3 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 (see Note 12 for information regarding the carrying value of these company-owned life 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.
We have 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. Company-owned life insurance is the primary source of funding for this plan.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 deferredone share-based compensation plan, the Raymond James Financial, Inc., Amended and are included in “Other investments” on our Consolidated Statements of Financial Condition. See Note 4 for Restated 2012 Stock Incentive Plan (“the fair value of these investments as of September 30, 2019Plan”), and 2018.
Compensation expense associated with all of the qualified and non-qualified plans previously described totaled $162 million, $154 million and $131 million for the fiscal years ended September 30, 2019, 2018 and 2017, respectively.
Share-based compensation plans
We have 1 share-based compensation plan for our employees, Board of Directors, and non-employees (independentindependent contractor financial advisors).advisors. The Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”) authorizes us to grant 40.2478.4 million new shares, including the shares available for grant under 6six predecessor plans. As of September 30, 2019, 8.162022, 8.7 million shares were available under the 2012 Plan. Effective during the three months ended June 30, 2019,Generally, we generally reissue our treasury shares under the 2012 Plan; however, we are also permitted to issue our new shares. Our share-based compensation accounting policies are described in Note 2.
Stock options granted and outstanding to our employees and independent contractors as of September 30, 2019 and the related expense for years ended September 30, 2019, 2018 and 2017 were insignificant. Cash received from stock option exercises during the year ended September 30, 2019 was $32 million.
Restricted stock and RSU awardsunits
We may grant RSU awards under the 2012 Plan in connection with initial employment or under various retention programs for individuals who are responsible for a contributioncontributing to our management, growth, and/or profitability. Through our Canadian subsidiary, we establishedutilize 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.$250,000. Under the plan, the awards are generally restricted for a three- to five yearfive-year period, during which time the awards are generally forfeitable in the event of termination other than for death, disability, or qualifying retirement.
We grant RSUs annually to non-employee members of our Board of Directors. The RSUs granted to these Directors vest over a one year1-year period from their grant date or upon retirement from our Board.
The following table presents the restricted equity award activity which includes restricted stock and RSUs for grants to employees and members of our Board of Directors for the year ended September 30, 2019.
|
| | | | | | | |
| | Shares/Units (in millions) | | Weighted- average grant date fair value (per share) |
Non-vested as of beginning of year | | 4.8 |
| | $ | 68.39 |
|
Granted | | 1.6 |
| | $ | 76.72 |
|
Vested | | (1.2 | ) | | $ | 55.15 |
|
Forfeited | | (0.2 | ) | | $ | 71.58 |
|
Non-vested as of end of year | | 5.0 |
| | $ | 74.08 |
|
The following table presents expense and income tax benefits related to our restricted equity awards granted to our employees and members of our Board of Directors for the periods indicated.
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2019 | | 2018 | | 2017 |
Total share-based expense | | $ | 101 |
| | $ | 89 |
| | $ | 79 |
|
Income tax benefits related to share-based expense | | $ | 23 |
| | $ | 23 |
| | $ | 28 |
|
152
Total share-based expense for the year ended September 30, 2017 included $5 million, which was included as a component of “Acquisition and disposition-related expenses” on our Consolidated Statements of Income and Comprehensive Income.
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, 2019,2022, we realized $26$101 million of excess tax benefits related to our restricted equity awardsRSUs, 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, 2019,2022, there was $150$319 million of total pre-tax compensation costs not yet recognized net(net of estimated forfeitures,forfeitures) related to restricted equity awardsRSUs 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 3 years.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 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions, except per unit award amounts | | 2019 | | 2018 | | 2017 |
Weighted-average grant date fair value per unit award | | $ | 76.72 |
| | $ | 87.33 |
| | $ | 72.39 |
|
Total fair value of shares and unit awards vested | | $ | 63 |
| | $ | 51 |
| | $ | 59 |
|
Restricted stock awards
ThereAs 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 0issued at terms that mirrored RSAs of TriState Capital which were outstanding RSUsas 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 our independent contractor financial advisors asthese awards. As of September 30, 2019.2022, 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 7.3813.1 million shares of common stock to our full-time employees, nearly all of whom are eligible to participate.employees. Under the terms of the plan, share purchases in any calendar year are limited to the lesser of 1,000 shares or shares with a fair value of $25,000. The purchase price of the stock is 85% of the average high and low market price on the day prior to the purchase date. Under the plan, we sold approximately 424416 thousand, 336393 thousand and 343699 thousand shares to employees during the years ended September 30, 2019, 20182022, 2021 and 2017,2020, respectively. The related compensation costexpense is calculated as the value of the 15% discount from market value and was $5$6 million, $5 million, and $4$5 million for the years ended September 30, 2019, 20182022, 2021 and 2017,2020, 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 compensationpayment 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 this plan.these plans. The contributions are made in amounts approved annually by management.
Certain independent contractor financial advisors are also eligible to participate in our VDCP. Eligible participants may elect to defer a percentage or specific dollar amount of their compensationcommissions 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 2224 – REGULATORY CAPITAL REQUIREMENTS
RJF, as a bank holding company and financial holding company, RJas well as Raymond James Bank, TriState Capital Bank, our broker-dealer subsidiaries, and our broker-dealertrust subsidiaries are subject to capital requirements by various regulatory authorities. Capital levels of each entity are monitored to ensure compliance with our various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on our financial results.
As a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), that has made an election to be a financial holding company, RJF is subject to supervision, examination and regulation by the risk-basedFed. We are subject to the Fed’s capital requirementsrules which establish an integrated regulatory capital framework and implement, in the U.S., the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. 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 the market risk provisions of the Fed. These risk-basedFed’s capital rules (“market risk rule”).
Under these rules, minimum requirements are expressedestablished for both the quantity and quality of capital held by banking organizations. RJF, Raymond James Bank, and TriState Capital Bank are required to maintain minimum leverage ratios (defined as tier 1 capital divided by adjusted average assets), as well as minimum ratios that compare measures of regulatorytier 1 capital, common equity tier 1 (“CET1”), and total capital to risk-weighted assets, which involveassets. These capital ratios incorporate quantitative measures of our assets, liabilities, and certain off-balance-sheetoff-balance sheet items as calculated under the regulatory guidelines. RJF’scapital rules and RJ Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.
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 under the Basel III capital framework, Common equity Tier 1 capital (“CET1”) to risk-weighted assets. RJF and RJ Bank each We calculate these ratios under the Basel III standardized approach in order to assess compliance with both regulatory requirements and their internal capital policies. In order to maintain our ability to take certain capital actions, including dividends and common equity repurchases, and to make bonus payments, we must hold a capital conservation buffer above our minimum risk-based capital requirements. As of September 30, 2019, both RJF’s2022, capital levels at RJF, Raymond James Bank, and RJ Bank’s capital levelsTriState Capital Bank exceeded the capital conservation buffer requirement and were 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
To meet requirements for capital adequacy purposes or to be categorized as “well-capitalized,” RJF must maintain minimum CET1, Tier 1 capital, Total capital andRJF’s Tier 1 leverage 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, 2019: | | | | | | | | | | | | |
CET1 | | $ | 5,971 |
| | 24.8 | % | | $ | 1,085 |
| | 4.5 | % | | $ | 1,567 |
| | 6.5 | % |
Tier 1 capital | | $ | 5,971 |
| | 24.8 | % | | $ | 1,446 |
| | 6.0 | % | | $ | 1,928 |
| | 8.0 | % |
Total capital | | $ | 6,207 |
| | 25.8 | % | | $ | 1,928 |
| | 8.0 | % | | $ | 2,410 |
| | 10.0 | % |
Tier 1 leverage | | $ | 5,971 |
| | 15.7 | % | | $ | 1,525 |
| | 4.0 | % | | $ | 1,906 |
| | 5.0 | % |
| | | | | | | | | | | | |
RJF as of September 30, 2018: | | | | | | | | | | | | |
CET1 | | $ | 5,718 |
| | 24.3 | % | | $ | 1,057 |
| | 4.5 | % | | $ | 1,527 |
| | 6.5 | % |
Tier 1 capital | | $ | 5,718 |
| | 24.3 | % | | $ | 1,410 |
| | 6.0 | % | | $ | 1,880 |
| | 8.0 | % |
Total capital | | $ | 5,941 |
| | 25.3 | % | | $ | 1,880 |
| | 8.0 | % | | $ | 2,350 |
| | 10.0 | % |
Tier 1 leverage | | $ | 5,718 |
| | 15.8 | % | | $ | 1,451 |
| | 4.0 | % | | $ | 1,814 |
| | 5.0 | % |
RJF’s Tier 1 capital and Total capital ratiosratio at September 30, 2019 increased2022 decreased compared to September 30, 20182021, due to positive earnings during the current fiscal year,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 impacts of share repurchases and growth of the bank loan portfolio.increase in regulatory capital.
To meet the requirements for capital adequacy or to be categorized as “well-capitalized,” RJRaymond James Bank and TriState Capital Bank must maintain CET1,Tier 1 leverage, Tier 1 capital, CET1, and Total capital and Tier 1 leverage 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 |
RJ Bank as of September 30, 2019: | | | | | | | | | | | | |
CET1 | | $ | 2,246 |
| | 13.2 | % | | $ | 764 |
| | 4.5 | % | | $ | 1,103 |
| | 6.5 | % |
Tier 1 capital | | $ | 2,246 |
| | 13.2 | % | | $ | 1,018 |
| | 6.0 | % | | $ | 1,358 |
| | 8.0 | % |
Total capital | | $ | 2,458 |
| | 14.5 | % | | $ | 1,358 |
| | 8.0 | % | | $ | 1,697 |
| | 10.0 | % |
Tier 1 leverage | | $ | 2,246 |
| | 8.8 | % | | $ | 1,021 |
| | 4.0 | % | | $ | 1,276 |
| | 5.0 | % |
| | | | | | | | | | | | |
RJ Bank as of September 30, 2018: | | |
| | |
| | |
| | |
| | |
| | |
|
CET1 | | $ | 2,029 |
| | 12.7 | % | | $ | 721 |
| | 4.5 | % | | $ | 1,042 |
| | 6.5 | % |
Tier 1 capital | | $ | 2,029 |
| | 12.7 | % | | $ | 961 |
| | 6.0 | % | | $ | 1,282 |
| | 8.0 | % |
Total capital | | $ | 2,229 |
| | 13.9 | % | | $ | 1,282 |
| | 8.0 | % | | $ | 1,602 |
| | 10.0 | % |
Tier 1 leverage | | $ | 2,029 |
| | 8.8 | % | | $ | 926 |
| | 4.0 | % | | $ | 1,158 |
| | 5.0 | % |
RJ Bank’s Tier 1 and Total capital ratios at September 30, 2019 increased compared to September 30, 2018 due to the impact of positive earnings during the current fiscal year, partially offset by growth of the bank loan portfolio.
tables. Our intention is to maintain RJRaymond James Bank’s and TriState Capital Bank’s “well-capitalized” status. In the unlikely event that RJRaymond James Bank or TriState Capital Bank failed to maintain itstheir “well-capitalized” status, the consequences could include a requirement to obtain a waiver from the FDIC prior to acceptance, renewal, or rollover of brokered deposits and result in higher FDIC premiums, but would not have a significantsignificantly impact on our operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | % |
RJ Bank
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 3 for additional information on 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 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’their respective regulators subject to certain restrictions including retained net income and RJ Bank maintains its targeted regulatory capital ratios.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes Dividends paid to Consolidated Financial Statements
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&A is subject to FINRA’s capital requirements, which are substantially the same as Rule 15c3-1. Rule 15c3-1 provides for an “alternative net capital requirement,” which RJ&A has elected. Regulations require that minimum net capital, as defined, be equal to the greater of $1.5$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 | |
|
| | | | | | | | |
| | September 30, |
$ in millions | | 2019 | | 2018 |
Raymond James & Associates, Inc.: | | | | |
(Alternative Method elected) | | | | |
Net capital as a percent of aggregate debit items | | 39.7 | % | | 28.2 | % |
Net capital | | $ | 1,056 |
| | $ | 934 |
|
Less: required net capital | | (53 | ) | | (66 | ) |
Excess net capital | | $ | 1,003 |
| | $ | 868 |
|
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 dividends from RJ&A to RJF during the year ended September 30, 2022.
As of September 30, 2019, RJFS, RJ Ltd., Raymond James Trust, N.A. (“RJ Trust”) and2022, all of our other active regulated domestic and international subsidiaries were in compliance with and exceeded all applicable capital requirements.
RJF expects to continue paying cash dividends. However, the payment and rate of dividends on our common stock is 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.
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 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 millions, except per share amounts | | 2019 | | 2018 | | 2017 |
Income for basic earnings per common share: | | | | | | |
Net income | | $ | 1,034 |
| | $ | 857 |
| | $ | 636 |
|
Less allocation of earnings and dividends to participating securities | | (2 | ) | | (1 | ) | | (1 | ) |
Net income attributable to RJF common shareholders | | $ | 1,032 |
| | $ | 856 |
| | $ | 635 |
|
Income for diluted earnings per common share: | | |
| | |
| | |
|
Net income | | $ | 1,034 |
| | $ | 857 |
| | $ | 636 |
|
Less allocation of earnings and dividends to participating securities | | (2 | ) | | (1 | ) | | (1 | ) |
Net income attributable to RJF common shareholders | | $ | 1,032 |
| | $ | 856 |
| | $ | 635 |
|
Common shares: | | |
| | |
| | |
|
Average common shares in basic computation | | 141.0 |
| | 145.3 |
| | 143.3 |
|
Dilutive effect of outstanding stock options and certain RSUs | | 3.0 |
| | 3.5 |
| | 3.3 |
|
Average common shares used in diluted computation | | 144.0 |
| | 148.8 |
| | 146.6 |
|
Earnings per common share: | | |
| | |
| | |
|
Basic | | $ | 7.32 |
| | $ | 5.89 |
| | $ | 4.43 |
|
Diluted | | $ | 7.17 |
| | $ | 5.75 |
| | $ | 4.33 |
|
Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive | | 0.4 |
| | 0.5 |
| | 1.7 |
|
The allocation of earnings and dividends to participating securities in the preceding 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 RSUs. Participating securities and related dividends paid on these participating securities were insignificant for the years ended September 30, 2019, 20182022, 2021 and 2017.2020. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Dividends per common share declared and paid are detailed in the following table for each respective period.
|
| | | | | | | | | | | | |
| | Year ended September 30, |
| | 2019 | | 2018 | | 2017 |
Dividends per common share - declared | | $ | 1.36 |
| | $ | 1.10 |
| | $ | 0.88 |
|
Dividends per common share - paid | | $ | 1.32 |
| | $ | 1.02 |
| | $ | 0.86 |
|
NOTE 2426 – SEGMENT INFORMATION
We currently operate through the following 5five segments: PCG; Capital Markets; Asset Management; RJ Bank; and Other.
The 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. Segment results include allocations of most corporate overhead and benefits expenses to each segment. Refer to the following discussion of the Other segment for a description of the corporate expenses that are not allocated to segments. Intersegment revenues, expenses, receivables and payables are eliminated upon consolidation.
The PCG segment provides financial planning, investment advisory and securities transaction services through our branch office network throughoutin the U.S., Canada, and the United Kingdom.U.K. for which we generally charge either asset-based fees or sales commissions. The PCG segment includesalso earns revenues from securities transactionfor distribution and related support services including the sale of equities,performed related to mutual funds, fixed income products,and variable annuities and insurance products and annuity products to retail clients. In addition, this segment includes revenues from investment advisory services, for which we charge either a fee computed as a percentage of assets in a client’s account or a flat period fee.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 clienta portion of our clients’ cash indeposits as part of the RJBDP, our multi-bank sweep program. The segment also includes net interest earnings primarily on client margin loans, cash balances, and assets segregated for regulatory purposes, net of interest paid to clients on cash balances.balances in the CIP.
Our Capital Markets segment conducts investment banking, institutional sales, securities trading, equity research, investment banking and the syndication and related management of investments that qualify for tax credits.in low-income housing funds and funds of a similar nature. We primarily conduct these activities in the U.S., Canada, and Europe.
Our Asset Management segment earns asset management and related administrative fees for providing asset management, portfolio management and related administrative services forto retail and institutional clients. This segment oversees a portion of our fee-based assets under administration for our PCG clients through our asset management servicesAsset Management Services division and through RJ Trust.Raymond James Trust, N.A. This segment also provides asset management services through Carillon Tower Advisers and affiliates (collectively, “Carillon Tower Advisers”)Raymond James Investment Management for certain retail accounts managed on behalf of third-party institutions, institutional accounts and proprietary mutual funds that we manage.
RJOur Bank segment provides various types of loans, including SBL, corporate loans, residential mortgage loans, and tax-exempt loans, residential loans, SBL and other loans. RJ BankThis segment is active in corporate loan syndications and participations and lending directly to clients. This segment also provides FDIC-insured deposit accounts, including to clients of our broker-dealer subsidiaries. RJ Banksubsidiaries, as well as other deposit and liquidity management products and services. This 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.
The Other segment includes the results of our private equity investments, 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 such 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 11 for additional 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 millions | | 2019 | | 2018 | | 2017 |
Net revenues: | | | | | | |
Private Client Group | | $ | 5,359 |
| | $ | 5,093 |
| | $ | 4,422 |
|
Capital Markets | | 1,083 |
| | 964 |
| | 1,014 |
|
Asset Management | | 691 |
| | 654 |
| | 488 |
|
RJ Bank | | 846 |
| | 727 |
| | 593 |
|
Other | | 5 |
| | (15 | ) | | (30 | ) |
Intersegment eliminations | | (244 | ) | | (149 | ) | | (116 | ) |
Total net revenues | | $ | 7,740 |
| | $ | 7,274 |
| | $ | 6,371 |
|
Pre-tax income/(loss): | | | | | | |
Private Client Group | | $ | 579 |
| | $ | 576 |
| | $ | 373 |
|
Capital Markets | | 110 |
| | 91 |
| | 141 |
|
Asset Management | | 253 |
| | 235 |
| | 172 |
|
RJ Bank | | 515 |
| | 492 |
| | 409 |
|
Other | | (82 | ) | | (83 | ) | | (170 | ) |
Total pre-tax income | | $ | 1,375 |
| | $ | 1,311 |
| | $ | 925 |
|
No individual client accounted for more than ten percent of revenues in any of the years presented.
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2019 | | 2018 | | 2017 |
Net interest income/(expense): | | | | | | |
Private Client Group | | $ | 183 |
| | $ | 165 |
| | $ | 137 |
|
Capital Markets | | 4 |
| | 4 |
| | 6 |
|
Asset Management | | 3 |
| | 2 |
| | 1 |
|
RJ Bank | | 820 |
| | 704 |
| | 575 |
|
Other and intersegment eliminations | | (12 | ) | | (33 | ) | | (71 | ) |
Net interest income | | $ | 998 |
| | $ | 842 |
| | $ | 648 |
|
The following table presents our net interest income on a segment basis.
| | | | | | | | | | | | | | | | | | | | |
| | 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 | |
The following table presents our total assets on a segment 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 | |
|
| | | | | | | | |
| | September 30, |
$ in millions | | 2019 | | 2018 |
Total assets: | | | | |
Private Client Group | | $ | 9,042 |
| | $ | 10,173 |
|
Capital Markets | | 2,287 |
| | 2,279 |
|
Asset Management | | 401 |
| | 387 |
|
RJ Bank | | 25,516 |
| | 22,922 |
|
Other | | 1,584 |
| | 1,652 |
|
Total | | $ | 38,830 |
| | $ | 37,413 |
|
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 millions | | 2019 | | 2018 |
Goodwill: | | | | |
Private Client Group | | $ | 275 |
| | $ | 276 |
|
Capital Markets | | 120 |
| | 133 |
|
Asset Management | | 69 |
| | 69 |
|
Total | | $ | 464 |
| | $ | 478 |
|
159
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We have operations in the U.S., Canada, and Europe. Substantially all long-lived assets are located in the U.S. The following table presents our net revenues and pre-tax income classified by major geographic area in which they 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 millions | | 2019 | | 2018 | | 2017 |
Net revenues: | | | | | | |
U.S. | | $ | 7,211 |
| | $ | 6,754 |
| | $ | 5,931 |
|
Canada | | 391 |
| | 381 |
| | 328 |
|
Europe | | 138 |
| | 139 |
| | 108 |
|
Other | | — |
| | — |
| | 4 |
|
Total | | $ | 7,740 |
| | $ | 7,274 |
| | $ | 6,371 |
|
| | | | | | |
Pre-tax income/(loss): | | |
| | |
| | |
U.S. | | $ | 1,356 |
| | $ | 1,269 |
| | $ | 919 |
|
Canada | | 29 |
| | 47 |
| | 14 |
|
Europe (1) | | (10 | ) | | (5 | ) | | (4 | ) |
Other | | — |
| | — |
| | (4 | ) |
Total | | $ | 1,375 |
| | $ | 1,311 |
| | $ | 925 |
|
| |
(1) | The pre-tax loss in Europe for the year ended September 30, 2019 reflects a $15 million loss on the sale of our operations related to research, sales and trading of European equities incurred during the first fiscal quarter of 2019. |
The following table presents our total assets by major geographic area in which they were held.
| | | | | | | | | | | | | | |
| | 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 | |
|
| | | | | | | | |
| | September 30, |
$ in millions | | 2019 | | 2018 |
Total assets: | | | | |
U.S. | | $ | 35,978 |
| | $ | 34,651 |
|
Canada | | 2,754 |
| | 2,673 |
|
Europe | | 98 |
| | 89 |
|
Total | | $ | 38,830 |
| | $ | 37,413 |
|
The following table presents goodwill, which was included in our total assets, classified by major geographic area in which 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 millions | | 2019 | | 2018 |
Goodwill: | | | | |
U.S. | | $ | 433 |
| | $ | 426 |
|
Canada | | 23 |
| | 43 |
|
Europe | | 8 |
| | 9 |
|
Total | | $ | 464 |
| | $ | 478 |
|
During the year ended September 30, 2019, we recognized an impairment charge of $19 million related
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to our Canadian Capital Markets. See Note 11 for a discussion of our goodwill impairment testing.Consolidated Financial Statements
NOTE 2527 – 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 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.
The broker-dealer subsidiaries of the Parent, including RJ&A our principal domestic broker-dealer, subsidiary of the Parent, isand certain other subsidiaries are required by regulations to maintain a minimum amount of net capital. Other broker-dealer, non-bank subsidiaries of the Parent are also required by regulations to maintain a minimum amount of net capital but the net capital requirements of those other subsidiaries are much less significant.due to 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, 2019,2022, each of these broker-dealer subsidiaries exceeded their minimum net capital requirements (see Note 2224 for further information).
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NetOf the Parent’s net assets of approximately $3.10 billion as of September 30, 20192022, 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 previously described. 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 $1.35$1.91 billion and $1.40$1.16 billion as of September 30, 20192022 and 2018,2021, respectively, were held directly by RJF in depository accounts at third-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 $163$260 million as of September 30, 2019,2022, of which $107$230 million was available on demand and without restriction. As of September 30, 2018, $2772021, $229 million was held in depository accounts at RJRaymond James Bank, of which $254$152 million was available on demand and without restriction.
See Notes 14, 15,16, 17, 19 and 2224 for more information regarding borrowings, commitments, contingencies and guarantees, and regulatory capital 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 | |
|
| | | | | | | | |
| | September 30, |
$ in millions | | 2019 | | 2018 |
Assets: | | | | |
Cash and cash equivalents | | $ | 540 |
| | $ | 695 |
|
Assets segregated pursuant to regulations | | 57 |
| | 23 |
|
Intercompany receivables from subsidiaries (primarily non-bank subsidiaries) | | 1,143 |
| | 1,156 |
|
Investments in consolidated subsidiaries: | | | | |
Bank subsidiary | | 2,248 |
| | 2,021 |
|
Non-bank subsidiaries | | 4,093 |
| | 4,031 |
|
Property and equipment, net | | 14 |
| | 14 |
|
Goodwill and identifiable intangible assets, net | | 32 |
| | 32 |
|
Other assets | | 728 |
| | 661 |
|
Total assets | | $ | 8,855 |
| | $ | 8,633 |
|
Liabilities and equity: | | | | |
Accrued compensation and benefits | | $ | 514 |
| | $ | 480 |
|
Intercompany payables to subsidiaries (primarily non-bank subsidiaries) | | 119 |
| | 141 |
|
Other payables | | 91 |
| | 94 |
|
Senior notes payable | | 1,550 |
| | 1,550 |
|
Total liabilities | | 2,274 |
| | 2,265 |
|
Equity | | 6,581 |
| | 6,368 |
|
Total liabilities and equity | | $ | 8,855 |
| | $ | 8,633 |
|
Of the total intercompany receivable from non-bank subsidiaries, $827 million and $735 million at September 30, 2019 and 2018, respectively, was invested in cash and cash equivalents by the subsidiary on behalf of the Parent.161
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the Parent’s statements of 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 | |
|
| | | | | | | | | | | | |
| | Year ended September 30, |
$ in millions | | 2019 | | 2018 | | 2017 |
Revenues: | | | | | | |
Dividends from non-bank subsidiaries | | $ | 632 |
| | $ | 225 |
| | $ | 183 |
|
Dividends from bank subsidiary | | 190 |
| | 130 |
| | 125 |
|
Interest from subsidiaries | | 31 |
| | 25 |
| | 16 |
|
Interest income | | 7 |
| | 4 |
| | 2 |
|
Other | | 20 |
| | 20 |
| | 26 |
|
Total revenues | | 880 |
| | 404 |
| | 352 |
|
Interest expense | | (75 | ) | | (74 | ) | | (95 | ) |
Net revenues | | 805 |
| | 330 |
| | 257 |
|
Non-interest expenses: | | | | | | |
Compensation and benefits | | 73 |
| | 68 |
| | 62 |
|
Non-compensations expenses: | | | | | | |
Communications and information processing | | 8 |
| | 9 |
| | 9 |
|
Occupancy and equipment costs | | 1 |
| | 1 |
| | 1 |
|
Business development | | 20 |
| | 20 |
| | 19 |
|
Losses on extinguishment of debt | | — |
| | — |
|
| 46 |
|
Other | | 16 |
| | 17 |
| | 14 |
|
Intercompany allocations and charges | | (24 | ) | | (32 | ) | | (31 | ) |
Total non-compensation expenses | | 21 |
| | 15 |
| | 58 |
|
Total non-interest expenses | | 94 |
| | 83 |
| | 120 |
|
Pre-tax income before equity in undistributed net income of subsidiaries | | 711 |
| | 247 |
| | 137 |
|
Income tax benefit | | (31 | ) | | (12 | ) | | (86 | ) |
Income before equity in undistributed net income of subsidiaries | | 742 |
| | 259 |
| | 223 |
|
Equity in undistributed net income of subsidiaries | | 292 |
| | 598 |
| | 413 |
|
Net income | | $ | 1,034 |
| | $ | 857 |
| | $ | 636 |
|
(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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the Parent’s 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: | | | | | | |
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 millions | | 2019 | | 2018 | | 2017 |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 1,034 |
| | $ | 857 |
| | $ | 636 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Loss/(gain) on investments | | 4 |
| | 1 |
| | (15 | ) |
Gain on company-owned life insurance policies, net of expenses | | (5 | ) | | (37 | ) | | (48 | ) |
Equity in undistributed net income of subsidiaries | | (292 | ) | | (598 | ) | | (413 | ) |
Losses on extinguishment of debt | | — |
| | — |
| | 46 |
|
Other | | 100 |
| | 114 |
| | 98 |
|
Net change in: | | | | | | |
Assets segregated pursuant to regulations | | — |
| | (1 | ) | | — |
|
Intercompany receivables | | (51 | ) | | 6 |
| | 179 |
|
Other assets | | (16 | ) | | 49 |
| | 80 |
|
Intercompany payables | | (22 | ) | | 88 |
| | 39 |
|
Other payables | | (1 | ) | | 13 |
| | (1 | ) |
Accrued compensation and benefits | | 34 |
| | 66 |
| | 68 |
|
Net cash provided by operating activities | | 785 |
| | 558 |
| | 669 |
|
| | | | | | |
Cash flows from investing activities: | | | | | | |
Investments in subsidiaries | | (24 | ) | | (205 | ) | | (36 | ) |
Advances to/(repayments from) subsidiaries, net | | 63 |
| | 4 |
| | (118 | ) |
Proceeds from sales of investments | | 3 |
| | 12 |
| | 5 |
|
Purchase of investments in company-owned life insurance policies, net | | (44 | ) | | (70 | ) | | (41 | ) |
Net cash used in investing activities | | (2 | ) | | (259 | ) | | (190 | ) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Proceeds from borrowing on the RJF Credit Facility | | 300 |
| | 300 |
| | — |
|
Repayment of borrowings on the RJF Credit Facility | | (300 | ) | | (300 | ) | | — |
|
Proceeds from senior note issuances, net of debt issuance costs paid | | — |
| | — |
| | 508 |
|
Extinguishment of senior notes payable | | — |
| | — |
| | (650 | ) |
Premium paid on extinguishment of senior notes payable | | — |
| | — |
| | (37 | ) |
Exercise of stock options and employee stock purchases | | 65 |
| | 63 |
| | 57 |
|
Purchase of treasury stock | | (778 | ) | | (62 | ) | | (34 | ) |
Dividends on common stock | | (191 | ) | | (151 | ) | | (127 | ) |
Net cash used in financing activities | | (904 | ) | | (150 | ) | | (283 | ) |
Net increase/(decrease) in cash and cash equivalents | | (121 | ) | | 149 |
| | 196 |
|
Cash, cash equivalents, and cash segregated pursuant to regulations at beginning of year | | 717 |
| | 568 |
| | 372 |
|
Cash, cash equivalents, and cash segregated pursuant to regulations at end of year | | $ | 596 |
| | $ | 717 |
| | $ | 568 |
|
| | | | | | |
Cash and cash equivalents | | $ | 540 |
| | $ | 695 |
| | $ | 528 |
|
Cash segregated pursuant to regulations | | 56 |
| | 22 |
| | 40 |
|
Total cash, cash equivalents, and cash segregated pursuant to regulations at end of year | | $ | 596 |
| | $ | 717 |
| | $ | 568 |
|
| | | | | | |
Supplemental disclosures of cash flow information: | | | | | | |
Cash paid for interest | | $ | 78 |
| | $ | 78 |
| | $ | 99 |
|
Cash paid for income taxes, net | | $ | 42 |
| | $ | 163 |
| | $ | 93 |
|
| | | | | | |
Supplemental disclosures of noncash activity: | | | | | | |
Investments in subsidiaries, net | | $ | (43 | ) | | $ | — |
| | $ | 24 |
|
Losses on extinguishment of debt | | $ | — |
| | $ | — |
| | $ | 9 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
SUPPLEMENTARY DATA:
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
|
| | | | | | | | | | | | | | | | |
| | Fiscal Year 2019 |
in millions, except per share amounts | | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter |
Net revenues | | $ | 1,931 |
| | $ | 1,859 |
| | $ | 1,927 |
| | $ | 2,023 |
|
Non-interest expenses | | $ | 1,599 |
| | $ | 1,512 |
| | $ | 1,585 |
| | $ | 1,669 |
|
Pre-tax income | | $ | 332 |
| | $ | 347 |
| | $ | 342 |
| | $ | 354 |
|
Net income | | $ | 249 |
| | $ | 261 |
| | $ | 259 |
| | $ | 265 |
|
Earnings per common share - basic | | $ | 1.73 |
| | $ | 1.85 |
| | $ | 1.84 |
| | $ | 1.90 |
|
Earnings per common share - diluted | | $ | 1.69 |
| | $ | 1.81 |
| | $ | 1.80 |
| | $ | 1.86 |
|
Dividends per common share - declared | | $ | 0.34 |
| | $ | 0.34 |
| | $ | 0.34 |
| | $ | 0.34 |
|
|
| | | | | | | | | | | | | | | | |
| | Fiscal Year 2018 |
in millions, except per share amounts | | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter |
Net revenues | | $ | 1,726 |
| | $ | 1,812 |
| | $ | 1,837 |
| | $ | 1,899 |
|
Non-interest expenses | | $ | 1,415 |
| | $ | 1,480 |
| | $ | 1,519 |
| | $ | 1,549 |
|
Pre-tax income | | $ | 311 |
| | $ | 332 |
| | $ | 318 |
| | $ | 350 |
|
Net income | | $ | 119 |
| | $ | 243 |
| | $ | 232 |
| | $ | 263 |
|
Earnings per common share - basic | | $ | 0.82 |
| | $ | 1.67 |
| | $ | 1.59 |
| | $ | 1.80 |
|
Earnings per common share - diluted | | $ | 0.80 |
| | $ | 1.63 |
| | $ | 1.55 |
| | $ | 1.76 |
|
Dividends per common share - declared | | $ | 0.25 |
| | $ | 0.25 |
| | $ | 0.30 |
| | $ | 0.30 |
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
| |
ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 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, 20192022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGReport of Management on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes maintaining records that, in reasonable detail, accurately and fairly reflect our transactions; providing reasonable assurance
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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, 2019.2022. 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, 20192022 (included as follows).
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Raymond James Financial, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Raymond James Financial, Inc. andsubsidiaries’ (the Company) internal control over financial reporting as of September 30, 2019,2022, based on criteria established in Internal 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, 2019,2022, 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, 20192022 and 2018,2021, 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, 2019,2022, and the related notes (collectively, the consolidated financial statements), and our report dated November 26, 201922, 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 Report of Management on 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 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.
/s/ KPMG LLP
Tampa, Florida
November 26, 201922, 2022
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ITEM 9B. OTHER INFORMATION
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ITEM 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 20202023 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, 2019.2022.
ITEMS 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 20202023 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, 2019.2022.
PART IV
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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10.1Exhibit Number | * | Description |
4.2.4 | | Seventh Supplemental Indenture, dated as of March 31, 2020, for the 4.650% Senior Notes due 2030, between Raymond James Financial, Inc. 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 | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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| | |
Exhibit Number | | Description |
10.3 | * | |
10.410.2 | | |
10.5.110.3.1 | * | |
10.5.210.3.2 | * | |
10.5.3 | * | |
10.5.410.3.3 | * | |
10.5.5 | * | |
10.5.610.3.4 | * | |
10.5.710.3.5 | * | |
10.5.8 | * | |
10.5.9 | * | |
10.5.10 | * | |
10.5.11 | * | |
10.5.12 | * | |
10.5.1310.3.6 | * | |
10.5.1410.3.7 | | |
10.5.1510.3.8 | * | |
10.5.16 | * | |
10.5.17 | * | |
10.5.18 | * | |
10.5.19 | * | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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| | |
Exhibit Number | | Description |
10.5.20 | * | |
10.5.21 | * | |
10.5.22 | * | |
10.5.2310.3.9 | * | |
10.5.2410.3.10 | * | |
10.5.2510.3.11 | * | |
10.5.26 | * | |
10.5.2710.3.12 | * | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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10.5.28Exhibit Number | * | |
10.5.2910.3.13 | * | |
10.5.3010.3.14 | * | |
10.610.3.15 | * | |
10.4 | * | |
10.710.5 | * | |
10.810.6 | * | |
10.9.110.7.1 | | Credit Agreement, dated as of February 19, 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 Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 22, 2019. |
10.9.210.7.2 | | 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. |
10.1010.7.3 | * | 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 | * | |
2110.9 | | 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 October 26, 2021. |
10.10 | | Support Agreement, dated October 20, 2021, by and among T-VIII PubOpps LP, Raymond James Financial, Inc., Macaroon One LLC and, solely for purposes of the last sentence of Section 9 and Section 10(c) thereof, TriState Capital Holdings, Inc., incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 26, 2021. |
21 | | |
23 | | |
31.1 | | |
31.2 | | |
32 | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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101.INS | | |
Exhibit Number | | Description |
101.INS | | XBRL Instance Document (The- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.) |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
(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 2622thnd day of November, 2019.2022.
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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 |
/s/ PAUL C. REILLY | ChairmanChair and Chief Executive Officer (Principal Executive Officer) and Director | November 26, 201922, 2022 |
Paul C. Reilly | | |
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/s/ JEFFREY P. JULIENPAUL M. SHOUKRY | Executive Vice President - Finance and Chief Financial Officer and Treasurer (Principal Financial Officer) | November 26, 201922, 2022 |
Jeffrey P. JulienPaul M. Shoukry | | |
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/s/ JENNIFER C. ACKARTJONATHAN W. OORLOG, JR. | Senior Vice President Controller and Chief Accounting OfficerController (Principal Accounting Officer) | November 26, 201922, 2022 |
Jennifer C. AckartJonathan W. Oorlog, Jr. | | |
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/s/ THOMAS A. JAMES | ChairmanChair Emeritus and Director | November 26, 201922, 2022 |
Thomas A. James | | |
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/s/ CHARLES G. VON ARENTSCHILDTMARLENE DEBEL | Director | November 26, 201922, 2022 |
Charles G. von ArentschildtMarlene Debel | | |
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/s/ SHELLEY G. BROADER | Director | November 26, 2019 |
Shelley G. Broader | | |
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/s/ ROBERT M. DUTKOWSKY | Director | November 26, 201922, 2022 |
Robert M. Dutkowsky | | |
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/s/ JEFFREY N. EDWARDS | Director | November 26, 201922, 2022 |
Jeffrey N. Edwards | | |
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/s/ BENJAMIN C. ESTY | Director | November 26, 201922, 2022 |
Benjamin C. Esty | | |
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/s/ ANNE GATES | Director | November 26, 201922, 2022 |
Anne Gates | | |
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/s/ FRANCIS S. GODBOLD | Vice Chairman and Director | November 26, 2019 |
Francis S. Godbold | | |
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/s/ GORDON L. JOHNSON | Director | November 26, 201922, 2022 |
Gordon L. Johnson | | |
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/s/ RODERICK C. MCGEARY | Director | November 26, 201922, 2022 |
Roderick C. McGeary | | |
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/s/ RAJ SESHADRI | Director | November 26, 201922, 2022 |
Raj Seshadri | | |
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/s/ SUSAN N. STORY | Director | November 26, 201922, 2022 |
Susan N. Story | | |