0000720005 us-gaap:AccumulatedTranslationAdjustmentMember 2020-03-31




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark one)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DecemberMarch 31, 20172020
or
¨☐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)
Florida No. 59-1517485
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
880 Carillon Parkway, St. Petersburg, Florida33716
(Address of principal executive offices)    (Zip Code)
(727) (727) 567-1000
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valueRJFNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405(§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes x No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerx
x
Accelerated filero
☐
Non-accelerated filer☐Smaller reporting company☐
  
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth companyo
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨☐                              No x
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

145,614,962137,030,516 shares of common stock as of February 7, 2018May 5, 2020


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES


INDEX
   PAGE
PART I 
FINANCIAL INFORMATION
 
Item 1. 
Financial Statements (Unaudited)
3
  Condensed Consolidated Statements of Financial Condition as of DecemberMarch 31, 20172020 and September 30, 20172019 (Unaudited)
3
  Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended DecemberMarch 31, 20172020 and DecemberMarch 31, 20162019 (Unaudited)
4
  Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended DecemberMarch 31, 20172020 and DecemberMarch 31, 20162019 (Unaudited)
5
  Condensed Consolidated Statements of Cash Flows for the threesix months ended DecemberMarch 31, 20172020 and December 30, 2016March 31, 2019 (Unaudited)
6
  
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
  Note 1 - Organization and basis of presentation
8
  Note 2 - Update of significant accounting policies
8
  Note 3 - AcquisitionsFair value
1110
  Note 4 - Fair valueAvailable-for-sale securities
1316
  Note 5 - Available-for-sale securitiesDerivative assets and derivative liabilities
2218
  Note 6 - Derivative financial instrumentsCollateralized agreements and financings
2420
  Note 7 - Collateralized agreements and financingsBank loans, net
2721
  Note 8 - Bank loans,Variable interest entities
28
Note 9 - Goodwill and identifiable intangible assets, net
29
  Note 910 - Variable interest entitiesLeases
35
Note 10 - Goodwill and identifiable intangible assets, net
3729
  Note 11 - Bank deposits
3931
  Note 12 - Other borrowings
4032
  Note 13 - Income taxesSenior notes payable
4033
  Note 14 - Income taxes
33
Note 15 - Commitments, contingencies and guarantees
34
Note 16 - Accumulated other comprehensive income/(loss)
37
Note 17 - Revenues
38
Note 18 - Interest income and interest expense
42
  Note 1519 - Accumulated other comprehensive income/(loss)Share-based compensation
42
Note 20 - Regulatory capital requirements
43
Note 21 - Earnings per share
45
  Note 16 - Interest income and interest expense
48
Note 17 - Share-based and other compensation
48
Note 18 - Regulatory capital requirements
50
Note 19 - Earnings per share
53
Note 2022 - Segment information
5345
Item 2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
5648
Item 3. 
Quantitative and Qualitative Disclosures about Market Risk
84
Item 4.
Controls and Procedures
84
PART II
OTHER INFORMATION
Item 1.
Legal Proceedings
85
Item 1A.
Risk Factors
85
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
88
Item 3.
Defaults Upon Senior Securities
88
Item 4. 
Controls and Procedures
Mine Safety Disclosures
89
PART II
OTHER INFORMATION
Item 1.
Legal Proceedings
89
Item 1A.
Risk Factors
89
Item 2.Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
90
Item 3.
Defaults Upon Senior Securities
90
Item 4.Mine Safety Disclosure
9088
Item 5. 
Other Information
9088
Item 6. 
Exhibits
9189
  
Signatures
9189




PART I. FINANCIAL INFORMATION
ItemITEM 1. FINANCIAL STATEMENTS

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
$ in thousands, except per share amounts December 31, 2017 September 30, 2017
$ in millions, except per share amounts March 31, 2020 September 30, 2019
Assets: 
 
 
 
Cash and cash equivalents $3,897,529
 $3,669,672
 $10,648
 $3,957
Assets segregated pursuant to regulations and other segregated assets 3,569,414
 3,476,085
Cash and cash equivalents segregated pursuant to regulations 4,045
 2,014
Securities purchased under agreements to resell 307,742
 404,462
 130
 343
Securities borrowed 184,971
 138,319
 250
 248
Financial instruments, at fair value:        
Trading instruments (includes $302,713 and $357,099 pledged as collateral)
 597,579
 564,263
Available-for-sale securities 2,393,321
 2,188,282
Trading instruments ($236 and $535 pledged as collateral)
 445
 708
Available-for-sale securities ($28 and $24 pledged as collateral)
 4,265
 3,093
Derivative assets 292,140
 318,775
 447
 338
Private equity investments 189,033
 198,779
Other investments (includes $38,591 and $6,640 pledged as collateral)
 265,170
 220,980
Other investments ($40 and $32 pledged as collateral)
 316
 365
Brokerage client receivables, net 2,666,268
 2,766,771
 2,491
 2,671
Receivables from brokers, dealers and clearing organizations 219,036
 268,021
 445
 281
Other receivables 642,542
 652,769
 846
 549
Bank loans, net 17,697,298
 17,006,795
 21,788
 20,891
Loans to financial advisors, net 890,072
 873,272
 982
 983
Investments in real estate partnerships held by consolidated variable interest entities 110,662
 111,743
Property and equipment, net 454,115
 437,374
 543
 527
Deferred income taxes, net 199,507
 313,486
 224
 231
Goodwill and identifiable intangible assets, net 651,339
 493,183
 603
 611
Other assets 857,161
 780,425
 1,341
 1,020
Total assets $36,084,899
 $34,883,456
 $49,809
 $38,830
        
Liabilities and equity:    
Liabilities and shareholders’ equity:    
Bank deposits $18,725,545
 $17,732,362
 $30,023
 $22,281
Securities sold under agreements to repurchase 229,036
 220,942
 215
 150
Securities loaned 290,307
 383,953
 28
 323
Financial instruments sold but not yet purchased, at fair value:        
Trading instruments 213,024
 221,449
 24
 296
Derivative liabilities 356,505
 356,964
 427
 313
Brokerage client payables 5,820,347
 5,411,829
 7,076
 4,361
Payables to brokers, dealers and clearing organizations 189,144
 172,714
 284
 229
Accrued compensation, commissions and benefits 793,687
 1,059,996
 929
 1,272
Other payables 582,548
 567,045
 1,034
 518
Other borrowings 1,532,826
 1,514,012
 891
 894
Senior notes payable 1,548,975
 1,548,839
 2,044
 1,550
Total liabilities 30,281,944

29,190,105
 42,975

32,187
Commitments and contingencies (see Note 14) 

 

Equity    
Commitments and contingencies (see Note 15) 


 


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; 155,497,352 and 154,228,235 shares issued as of December 31, 2017 and September 30,2017, respectively, and 145,153,686 and 144,096,521 shares outstanding as of December 31, 2017 and September 30, 2017, respectively
 1,555
 1,542
Common stock; $.01 par value; 350,000,000 shares authorized; 158,731,812 and 158,435,030 shares issued as of March 31, 2020 and September 30, 2019, respectively, and 136,787,387 and 137,841,952 shares outstanding as of March 31, 2020 and September 30, 2019, respectively
 2
 2
Additional paid-in capital 1,705,308
 1,645,397
 1,953
 1,938
Retained earnings 4,420,368
 4,340,054
 6,205
 5,874
Treasury stock, at cost; 10,311,191 and 10,084,038 common shares as of December 31, 2017 and September 30, 2017, respectively
 (410,029) (390,081)
Treasury stock, at cost; 21,944,425 and 20,593,078 common shares as of March 31, 2020 and September 30, 2019, respectively
 (1,351) (1,210)
Accumulated other comprehensive loss (20,454) (15,199) (11) (23)
Total equity attributable to Raymond James Financial, Inc. 5,696,748
 5,581,713
 6,798
 6,581
Noncontrolling interests 106,207
 111,638
 36
 62
Total equity 5,802,955
 5,693,351
Total liabilities and equity $36,084,899
 $34,883,456
Total shareholders’ equity 6,834
 6,643
Total liabilities and shareholders’ equity $49,809
 $38,830
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
  Three months ended December 31,
$ in thousands, except per share amounts 2017 2016
Revenues:    
Securities commissions and fees $1,103,566
 $984,385
Investment banking 64,902
 61,425
Investment advisory and related administrative fees 142,023
 108,243
Interest 231,729
 182,782
Account and service fees 184,301
 148,791
Net trading profit 19,870
 20,555
Other 19,201
 22,587
Total revenues 1,765,592
 1,528,768
Interest expense (39,431) (35,966)
Net revenues 1,726,161
 1,492,802
Non-interest expenses:  
  
Compensation, commissions and benefits 1,152,767
 1,006,467
Communications and information processing 83,731
 72,161
Occupancy and equipment costs 49,814
 46,052
Business development 33,793
 35,362
Investment sub-advisory fees 22,321
 19,295
Bank loan loss provision/(benefit) 1,016
 (1,040)
Acquisition-related expenses 3,927
 12,666
Other 67,108
 94,324
Total non-interest expenses 1,414,477
 1,285,287
Income including noncontrolling interests and before provision for income taxes 311,684
 207,515
Provision for income taxes 192,401
 59,812
Net income including noncontrolling interests 119,283
 147,703
Net income attributable to noncontrolling interests 441
 1,136
Net income attributable to Raymond James Financial, Inc. $118,842
 $146,567
     
Earnings per common share – basic $0.82
 $1.03
Earnings per common share – diluted $0.80
 $1.00
Weighted-average common shares outstanding – basic 144,469
 142,110
Weighted-average common and common equivalent shares outstanding – diluted 148,261
 145,675
     
Net income attributable to Raymond James Financial, Inc. $118,842
 $146,567
Other comprehensive income/(loss), net of tax: (1)
  
  
Unrealized loss on available-for-sale securities and non-credit portion of other-than-temporary impairment losses (11,953) (4,146)
Unrealized gain/(loss) on currency translations, net of the impact of net investment hedges (187) 1,001
Unrealized gain on cash flow hedges 6,885
 25,738
Total comprehensive income $113,587
 $169,160

  Three months ended March 31, Six months ended March 31,
in millions, except per share amounts 2020 2019 2020 2019
Revenues:        
Asset management and related administrative fees $1,006
 $783
 $1,961
 $1,648
Brokerage revenues:        
Securities commissions 410
 349
 773
 737
Principal transactions 105
 93
 202
 169
Total brokerage revenues 515
 442
 975
 906
Account and service fees 172
 191
 350
 376
Investment banking 148
 163
 289
 300
Interest income 285
 324
 582
 640
Other (15) 31
 14
 68
Total revenues 2,111
 1,934

4,171

3,938
Interest expense (43) (75) (94) (148)
Net revenues 2,068
 1,859

4,077

3,790
Non-interest expenses:  
  
    
Compensation, commissions and benefits 1,422
 1,225
 2,773
 2,490
Non-compensation expenses:        
Communications and information processing 99
 94
 193
 186
Occupancy and equipment 56
 53
 113
 104
Business development 41
 41
 85
 84
Investment sub-advisory fees 26
 22
 52
 46
Professional fees 23
 17
 44
 39
Bank loan loss provision 109
 5
 107
 21
Acquisition and disposition-related expenses —
 —
 —
 15
Other 53
 55
 112
 126
Total non-compensation expenses 407
 287
 706
 621
Total non-interest expenses 1,829
 1,512

3,479

3,111
Pre-tax income 239
 347

598

679
Provision for income taxes 70
 86
 161
 169
Net income $169
 $261

437

510
         
Earnings per common share – basic $1.22
 $1.85
 $3.15
 $3.58
Earnings per common share – diluted $1.20
 $1.81
 $3.09
 $3.51
Weighted-average common shares outstanding – basic 138.4
 140.8
 138.4
 142.5
Weighted-average common and common equivalent shares outstanding – diluted 141.1
 143.9
 141.3
 145.4
         
Net income $169

$261

$437

$510
Other comprehensive income/(loss), net of tax:  
  
    
Available-for-sale securities 63
 19
 62
 41
Currency translations, net of the impact of net investment hedges (26) 8
 (17) (5)
Cash flow hedges (43) (13) (33) (30)
Total other comprehensive income/(loss), net of tax (6)
14

12

6
Total comprehensive income $163
 $275

$449

$516
(1)All components of other comprehensive income/(loss), net of tax, are attributable to Raymond James Financial, Inc. 























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


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)

  Three months ended March 31, Six months ended March 31,
$ in millions, except per share amounts 2020 2019 2020 2019
Common stock, par value $.01 per share:        
Balance beginning of period $2
 $2
 $2
 $2
Share issuances —
  
—
 —
 —
Balance end of period 2
 2

2

2
         
Additional paid-in capital:  
  
    
Balance beginning of period 1,922
  
1,871
 1,938
 1,808
Employee stock purchases 11
  
12
 17
 20
Exercise of stock options and vesting of restricted stock units, net of forfeitures (8)
  
9
 (71) 25
Restricted stock, stock option and restricted stock unit expense 28
  
25
 69
 64
Balance end of period 1,953
 1,917

1,953

1,917
         
Retained earnings:  
  
    
Balance beginning of period 6,086
  
5,236
 5,874
 5,032
Net income attributable to Raymond James Financial, Inc. 169
  
261
 437
 510
Cash dividends declared (see Note 21) (50) (49) (106) (99)
Other —
 —
 —
 5
Balance end of period 6,205
 5,448
 6,205
 5,448
         
Treasury stock:  
  
    
Balance beginning of period (1,163) (927) (1,210) (447)
Purchases/surrenders (203) (48) (222) (512)
Exercise of stock options and vesting of restricted stock units, net of forfeitures 15
 (1) 81
 (17)
Balance end of period (1,351) (976) (1,351) (976)
         
Accumulated other comprehensive loss:  
  
    
Balance beginning of period (5) (39) (23) (27)
Other comprehensive income/(loss), net of tax (6) 14
 12
 6
Other —
 —
 —
 (4)
Balance end of period (11) (25) (11) (25)
Total equity attributable to Raymond James Financial, Inc. $6,798

$6,366
 $6,798
 $6,366
         
Noncontrolling interests:  
  
    
Balance beginning of period $61
 $82
 $62
 $84
Net loss attributable to noncontrolling interests (23) (12) (24) (14)
Capital contributions —
 —
 —
 2
Distributions and other (2) (1) (2) (3)
Balance end of period 36
 69
 36
 69
Total shareholders’ equity $6,834
 $6,435
 $6,834
 $6,435



  Three months ended December 31,
$ in thousands, except per share amounts 2017 2016
Common stock, par value $.01 per share:    
Balance, beginning of year $1,542
 $1,513
Share issuances 13
  
17
Balance, end of period 1,555
 1,530
     
Additional paid-in capital:  
  
Balance, beginning of year 1,645,397
  
1,498,921
Employee stock purchases 5,522
  
4,743
Exercise of stock options and vesting of restricted stock units, net of forfeitures 20,953
  
18,969
Restricted stock, stock option and restricted stock unit expense 33,373
  
30,971
Other 63
  
(322)
Balance, end of period 1,705,308
 1,553,282
     
Retained earnings:  
  
Balance, beginning of year 4,340,054
  
3,834,781
Net income attributable to Raymond James Financial, Inc. 118,842
  
146,567
Cash dividends declared (38,417) (34,274)
Other (111) —
Balance, end of period 4,420,368
 3,947,074
     
Treasury stock:  
  
Balance, beginning of year (390,081) (362,937)
Purchases/surrenders (7,183) (8,474)
Exercise of stock options and vesting of restricted stock units, net of forfeitures (12,765) (16,458)
Balance, end of period (410,029) (387,869)
     
Accumulated other comprehensive loss: (1)
  
  
Balance, beginning of year (15,199) (55,733)
Net change in unrealized loss on available-for-sale securities and non-credit portion of other-than-temporary impairment losses, net of tax (11,953) (4,146)
Net change in currency translations and net investment hedges, net of tax (187) 1,001
Net change in cash flow hedges, net of tax 6,885
 25,738
Balance, end of period (20,454) (33,140)
Total equity attributable to Raymond James Financial, Inc. $5,696,748

$5,080,877
     
Noncontrolling interests:  
  
Balance, beginning of year $111,638
 $146,431
Net income attributable to noncontrolling interests 441
 1,136
Capital contributions —
 4,998
Distributions (5,977) (26,557)
Other 105
 (2,284)
Balance, end of period 106,207
 123,724
Total equity $5,802,955
 $5,204,601

(1) All components of other comprehensive loss, net of tax, are attributable to Raymond James Financial, Inc. 








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

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three months ended December 31, Six months ended March 31,
$ in thousands 2017 2016
$ in millions 2020 2019
Cash flows from operating activities:        
Net income attributable to Raymond James Financial, Inc. $118,842
 $146,567
Net income attributable to noncontrolling interests 441
 1,136
Net income including noncontrolling interests 119,283
 147,703
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:  
  
Net income $437
 $510
Adjustments to reconcile net income to net cash provided by operating activities:  
  
Depreciation and amortization 23,289
 19,941
 58
 53
Deferred income taxes 121,273
 10,928
 (14) (1)
Premium and discount amortization on available-for-sale securities and unrealized gain on other investments (496) (10,185)
Premium and discount amortization on available-for-sale securities and loss on other investments 43
 7
Provisions for loan losses, legal and regulatory proceedings and bad debts 9,265
 33,017
 124
 38
Share-based compensation expense 34,417
 32,572
 74
 65
Compensation expense payable in common stock of an acquiree 3,925
 7,973
Unrealized gain on company owned life insurance, net of expenses (16,859) (5,088)
Unrealized (gain)/loss on company-owned life insurance policies, net of expenses 76
 8
Other 5,693
 (5,724) (4) 27
Net change in:  
  
  
  
Assets segregated pursuant to regulations and other segregated assets (96,759) 1,006,933
Securities purchased under agreements to resell, net of securities sold under agreements to repurchase 104,290
 120,393
 273
 (53)
Securities loaned, net of securities borrowed (140,229) (232,438) (297) 319
Loans provided to financial advisors, net of repayments (21,928) (14,554) (11) 1
Brokerage client receivables and other accounts receivable, net 123,512
 83,887
 (203) 587
Trading instruments, net (46,547) 152,474
 —
 (36)
Derivative instruments, net 30,449
 38,447
 (25) (93)
Other assets (18,799) 84,289
 (176) (118)
Brokerage client payables and other accounts payable 466,763
 (481,542) 2,937
 (1,088)
Accrued compensation, commissions and benefits (266,453) (216,889) (340) (229)
Proceeds from sales of securitizations and loans held for sale, net of purchases and originations of loans held for sale (108,470) 35,162
 (9) 23
Net cash provided by operating activities 325,619
 807,299
 2,943
 20
        
Cash flows from investing activities:  
  
  
  
Additions to property, buildings and equipment, including software (35,949) (78,371)
Additions to property and equipment (71) (59)
Increase in bank loans, net (645,197) (774,376) (1,066) (779)
Proceeds from sales of loans held for investment 21,580
 54,163
 25
 184
Purchases of available-for-sale securities (339,580) (377,235) (1,403) (509)
Available-for-sale securities maturations, repayments and redemptions 114,139
 56,647
 435
 295
Proceeds from sales of available-for-sale securities —
 7,308
Business acquisition, net of cash acquired (159,200) —
Other investing activities, net (29,669) 17,124
 (10) (42)
Net cash used in investing activities (1,073,876) (1,094,740) (2,090) (910)
    
    
(continued on next page)
        
        
        
        
        
        
        
        
        
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
    
    
    
    
    
    
    
    
    
    

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued from previous page)
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three months ended December 31, Six months ended March 31,
$ in thousands 2017 2016
$ in millions 2020 2019
Cash flows from financing activities:        
Proceeds from borrowings on the RJF Credit Facility 300,000
 —
 —
 300
Proceeds from/(repayments of) short-term borrowings, net (280,000) 208,400
Repayments of borrowings on the RJF Credit Facility —
 (300)
Proceeds from Federal Home Loan Bank advances —
 100,000
 850
 —
Repayments of Federal Home Loan Bank advances and other borrowed funds (1,186) (1,138) (853) (3)
Proceeds from senior notes issuances, net of debt issuance costs paid 495
 —
Exercise of stock options and employee stock purchases 25,954
 24,143
 43
 43
Increase in bank deposits 993,183
 927,243
 7,742
 1,676
Purchases of treasury stock (20,243) (26,058) (222) (521)
Dividends on common stock (32,499) (31,255) (103) (95)
Distributions to noncontrolling interests, net (5,977) (26,557) (1) (1)
Net cash provided by financing activities 979,232
 1,174,778
 7,951
 1,099
        
Currency adjustment:  
  
  
  
Effect of exchange rate changes on cash (3,118) (9,514) (82) (31)
Net increase in cash and cash equivalents 227,857
 877,823
Cash and cash equivalents at beginning of year 3,669,672
 1,650,452
Cash and cash equivalents at end of period $3,897,529
 $2,528,275
Net increase in cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations 8,722
 178
Cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations at beginning of year 5,971
 5,941
Cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations at end of period $14,693
 $6,119
        
Cash and cash equivalents $10,648
 $3,831
Cash and cash equivalents segregated pursuant to regulations 4,045
 2,288
Total cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations at end of period $14,693
 $6,119
        
Supplemental disclosures of cash flow information:  
  
  
  
Cash paid for interest $28,026
 $32,442
 $92
 $147
Cash paid for income taxes $8,515
 $13,710
Cash paid for income taxes, net $176
 $188




















































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


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DecemberMarch 31, 20172020


NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION


Organization


Raymond James Financial, Inc. (“RJF,” the “firm” or the “Company”) is a financial holding company whose broker-dealerwhich, together with its subsidiaries, areis engaged in various financial services businesses,activities, including providing investment management services for retail and institutional clients, the underwriting, distribution, trading and brokerage of equity and debt securities, and the sale of mutual funds and other investment products.  In addition, other subsidiaries of RJF provide investment management services for retail and institutional clients,The firm also provides corporate and retail banking services, and trust services.  For further information about our business segments, see Note 20.22 of this Form 10-Q. As used herein, the terms “our,” “we,” “our” or “us” refer to RJF and/or one or more of its subsidiaries.


Basis of presentation


The accompanying unaudited condensed 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 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 Note 10 of our Annual Report on Form 10-K (the “2017(“2019 Form 10-K”) for the year ended September 30, 2017,2019, as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) and in Note 9 herein.8 of this Form 10-Q. 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


Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) but is not required for interim reporting purposes has been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of theour consolidated financial position and results of operations for the periods presented.


The nature of our business is such that the results of any interim period are not necessarily indicative of results for a full year. These unaudited condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statementsConsolidated Financial Statements and notesNotes thereto included in our 20172019 Form 10-K. To prepare condensed consolidated financial statements in conformityaccordance with GAAP, we must make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed 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 condensed consolidated financial statements.


Reclassifications


Certain prior period amounts have been reclassified to conform to the current period’s presentation.




NOTE 2 – UPDATE OF SIGNIFICANT ACCOUNTING POLICIES


A summary of our significant accounting policies is included in Note 2 of our 20172019 Form 10-K. There have beenDuring the six months ended March 31, 2020, there were no significant changes into our significant accounting policies since September 30, 2017.

Loans to financial advisors, net

As more fully described in Note 2other than the accounting policies adopted or modified as part of our 2017 Form 10-K, we offer loans to financial advisors and certain other key revenue producers, primarily for recruiting, transitional cost assistance, and retention purposes. We presentimplementation of new or amended accounting guidance, as noted in the outstanding balance of “Loans to financial advisors, net” on our Condensed Consolidated Statements of Financial Condition, net of the allowance for doubtful accounts. Of the gross balance outstanding, the portion associated with financial advisors who are no longer affiliated with us was approximately $26 million and $22 million at December 31, 2017 and September 30, 2017, respectively. Our allowance for doubtful accounts was approximately $9 million and $8 million at December 31, 2017 and September 30, 2017, respectively.following sections.


8
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





Recent accounting developments


Accounting guidance not yetrecently adopted


Revenue recognition - In May 2014, the FASB issued new guidance regarding revenue recognition (ASU 2014-09). The new guidance is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. It also provides guidance on accounting for certain contract costs and requires additional disclosures. This new revenue recognition guidance, including subsequent amendments, is first effective for our fiscal year beginning on October 1, 2018 and allows for full retrospective adoption or modified retrospective adoption. Although, early adoption is permitted for fiscal years beginning after December 15, 2016, we do not plan to early adopt. Upon adoption, we plan to use a modified retrospective approach, with a cumulative effect adjustment to opening retained earnings. Our implementation efforts include identifying revenues and costs within the scope of the standard, analyzing contracts and reviewing potential changes to our existing revenue recognition accounting policies. Based on our implementation efforts to date, we expect that we will be required to change our current presentation of certain costs from a net presentation within revenues to a gross presentation, particularly with respect to merger & acquisitions advisory transactions and underwriting transactions. We are still evaluating the impact the adoption of this new guidance will have on our financial position and results of operations. We are also still evaluating the impact to our disclosures as a result of adopting this new guidance.

Financial instruments - In January 2016, the FASB issued new guidance related to the accounting for financial instruments (ASU 2016-01). Among its provisions, this new guidance:

Requires equity investments (other than those accounted for under the equity method or those that result from the consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any.
Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment.
Eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.
Requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option.
Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.
Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

This new guidance is effective for our fiscal year beginning on October 1, 2018, generally under a modified retrospective approach, with the exception of the amendments related to equity investments without a readily determinable fair value and the use of an exit price notion to measure financial instruments for disclosure purposes, which will be applied prospectively as of the date of adoption. Early adoption is generally not permitted. We are evaluating the impact, if any, the adoption of this new guidance will have on our financial position and results of operations.

Lease accounting - In February 2016, the FASBFinancial Accounting Standards Board (“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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





of whether they are classified as finance or operating leases. Consistent with currentWe adopted this guidance the recognition, measurement and presentationas 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. This new guidance, including subsequent amendments, is first effective for our fiscal year beginning on October 1, 2019. Although early adoption is permitted, we do not plan to early adopt. Upon adoption, we will use a2019 using the alternative modified retrospective approach, with a cumulativeno adjustments to prior periods presented. In addition, we elected the practical expedients permitted under the transition guidance which, among other things, allowed us to carry forward historical lease classification determinations. On the adoption date, we recognized right-of-use assets (“ROU assets”) and lease liabilities of $333 million and $357 million, respectively, in “Other assets” and “Other payables” on our Condensed Consolidated Statements of Financial Condition. The ROU assets and lease liabilities were primarily related to operating leases. The adoption had no effect adjustmenton our results of operations or cash flows. The impact of the adoption on our regulatory capital measures was insignificant. See Note 10 for further information.

Derivatives and hedging (interest rate) - In October 2018, the FASB issued guidance amending Derivatives and Hedging (Topic 815) to opening retained earnings. Our implementation efforts include reviewing existing leasesadd the overnight index swap 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 the London Interbank Offered Rate (“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 service contracts, which may include embedded leases. Thiswill apply the guidance prospectively for qualifying new guidance willor re-designated hedging relationships. The adoption did not impact our financial position andor results of operations.

Reference rate reform - In March 2020, the FASB issued guidance to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR (ASU 2020-04). The guidance simplifies the accounting for modifying contracts (including those in hedging relationships) that refer to LIBOR and other interbank offered rates. In addition, the guidance allows for changes to the critical terms of a hedging relationship affected by reference rate reform without having to dedesignate the relationship. The guidance was effective upon issuance and generally can be applied through December 31, 2022. We are evaluatinghave elected certain expedients for cash flow hedges to assert that the magnitudehedged forecasted transaction remains probable, regardless of such impact.any expected modification in terms related to reference rate reform. The expedient elected did not impact our financial position or results of operations.


Accounting guidance not yet adopted as of March 31, 2020

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

9
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





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. EarlyAlthough permitted, we do not plan to early adopt. Our cross-functional team has continued our implementation efforts. We are in the process of validating our credit loss models, as well as establishing formal policies and procedures, including control documentation related to this new guidance. In addition we are developing the new disclosures required by this new guidance. We continue to evaluate the impact the adoption of this new guidance will have on our financial position and results of operations. The impact will ultimately depend on, among other things, changes to our methodologies, management judgments, current and expected macroeconomic conditions, and the nature and characteristics of financial assets held by us on the date of adoption.

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 customers in cloud computing arrangements to be deferred over the non-cancelable 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 permitted although not prior tocontrolled by the cloud service provider. This amended guidance is first effective for our fiscal year beginning on October 1, 2019.2020 with early adoption permitted, although we do not plan to early adopt. The guidance may be adopted either using the prospective or retrospective approach. We have begunare currently evaluating the impact of this new guidance on our implementationfinancial position and evaluation efforts by establishing a cross-functional team to assessresults of operations.

Consolidation (decision making fees) - In October 2018, the required changes to our credit loss estimation methodologies and systems, as well as determine additional data and resources required to comply withFASB issued guidance on how all entities evaluate decision-making fees under the VIE guidance (ASU 2018-17). Under the new guidance.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. Although permitted, we do not plan to early adopt. 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.operations.


Statement of Cash Flows (classification of certain cash receipts and cash payments) - In August 2016, the FASB issued amended guidance related to the Statement of Cash Flows (ASU 2016-15). The amended guidance involves several aspects of the classification of certain cash receipts and cash payments including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. This amended guidance is first effective for our fiscal year beginning October1, 2018 and will be adopted under a retrospective approach. Early adoption is permitted. The adoption of this new guidance will impact our Statement of Cash Flows and will not have an impact on our financial position and results of operations.

Income tax impact of intra-entity transfers of assets - In October 2016, the FASB issued new guidance related to the accounting for income tax consequences of intra-entity transfers of assets (ASU 2016-16). Current GAAP prohibits the recognition of current and deferred income taxes for intra-entity asset transfers until the asset has been sold to an outside party. Under this new guidance, an entity should recognize the income tax consequences of an inter-entity transfer of an asset when the transfer occurs. This guidance is first effective for our fiscal year beginning October 1, 2018 and will be adopted under a retrospective approach. Early adoption is permitted. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.

Statement of Cash Flows (restricted cash) - In November 2016, the FASB issued new guidance related to the classification and presentation of changes in restricted cash on the Statement of Cash Flows (ASU 2016-18). Current GAAP does not provide guidance to address how to classify and present changes in restricted cash or restricted cash equivalents that occur when there are transfers between cash, cash equivalents and restricted cash or restricted cash equivalents and when there are direct cash receipts into restricted cash or restricted cash equivalents or direct cash payments made from restricted cash or restricted cash equivalents. Under the new guidance, an entity should present in their Statement of Cash Flows the changes during the period in the total of cash and cash equivalents and amounts described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and ending-of-period total amounts shown on the statement of cash flows. This guidance is first effective for our fiscal year beginning October 1, 2018 and will be adopted under a retrospective approach. Early adoption is permitted. We are evaluating the impact the adoption of this new guidance will have on our Consolidated Statements of Cash Flows.

Definition of a business - In January 2017, the FASB issued amended guidance related to the definition of a business (ASU 2017-01). This amended guidance clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is first effective for our fiscal year beginning October 1, 2018 and will be adopted on a prospective basis. Early adoption is permitted. Given the adoption of this amended guidance is dependent upon the nature of future events and circumstances, we are unable to estimate the impact, if any, the adoption of this new guidance will have on our financial position and results of operations.

Goodwill - In January 2017, the FASB issued amended guidance to simplify the subsequent measurement of goodwill, eliminating “Step 2” from the goodwill impairment test (ASU 2017-04). In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under this amended guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and subsequently recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance is first effective for our fiscal year beginning October 1, 2019 and will be adopted on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We will adopt this simplification guidance in the earliest period it applies to our facts and circumstances.

10
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)









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. This guidance is first effective for our fiscal year beginning on October 1, 2019 and will be adopted using a modified retrospective approach. Early adoption is permitted. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.

Share-based payment awards - In May 2017, the FASB issued amended guidance that clarifies when changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting (ASU 2017-09). The amended guidance states an entity should account for the effects of a modification unless certain criteria are met which include that the modified award has the same fair value, vesting conditions and classification as the original award. This amended guidance is first effective for our fiscal year beginning October 1, 2018 and will be adopted on a prospective basis. Early adoption is permitted. Given that this guidance applies to specific transactions and would only become relevant in certain circumstances, we are unable to estimate the impact, if any, this amended guidance may have on our financial position and results of operations.

Derivatives and hedging (accounting for hedging activities) - In August 2017, the FASB issued new guidance amending its hedge accounting model (ASU 2017-12). Among other things, the new guidance:

Expands the ability to hedge nonfinancial and financial risk components.
Reduces complexity in fair value hedges of interest rate risk.
Eliminates the requirement to separately measure and report hedge ineffectiveness.
Generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item.
Modifies accounting for components excluded from the assessment of hedge effectiveness.
Eases certain documentation and hedge effectiveness assessment requirements.

The new guidance is first effective for our fiscal year beginning October 1, 2019 and the amendments are required to be applied to cash flow and net investment hedges that exist on the date of adoption on a modified retrospective basis. Changes to presentation and disclosure requirements are only required on a prospective basis. Early adoption is permitted. We are considering whether we will early adopt this new guidance and the timing thereof, as well as the impact it will have on our financial position and results of operations.



NOTE 3 – ACQUISITIONS

Acquisitions completed during fiscal year 2018

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”), as well as Scout Distributors. The addition of Scout, an equity asset manager, and Reams, an institutional-focused fixed income specialist, broadened the investment solutions available to our clients and has been integrated into our Asset Management segment. For purposes of certain acquisition-related financial reporting requirements, the Scout Group acquisition was not considered a material acquisition. We accounted for this acquisition under the acquisition method of accounting with the assets and liabilities of the Scout Group recorded as of the acquisition date at their respective fair values in our condensed consolidated financial statements. The Scout Group’s results of operations have been included in our results prospectively from November 17, 2017.

Acquisition-related expenses

The “Acquisition-related expenses” presented in our Condensed Consolidated Statements of Income and Comprehensive Income for
the three months ended December 31, 2017 pertain to certain incremental expenses incurred in connection with the Scout Group acquisition. Acquisition-related expenses for the three months ended December 31, 2016 primarily related to our fiscal year 2016 acquisitions of the U.S. Private Client Services unit of Deutsche Bank Wealth Management (“Alex. Brown”) and MacDougall, MacDougall & MacTier Inc. (“3Macs”), which are described further in Note 3 of our 2017 Form 10-K.







11
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





The table below presents a summary of acquisition-related expenses incurred in each respective period.
  Three months ended December 31,
$ in thousands 2017 2016
Legal and regulatory $2,281
 $553
Severance 990
 4,803
Information systems integration costs 162
 1,205
Acquisition and integration-related incentive compensation costs —
 5,474
Early termination costs of assumed contracts —
 1,324
Post-closing purchase price contingency —
 (2,251)
All other 494
 1,558
Total acquisition-related expenses $3,927
 $12,666


12
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





NOTE 4 – FAIR VALUE


Our “Financial instruments owned” and “Financial instruments sold but not yet purchased” on our Condensed Consolidated Statements of Financial Condition are recorded at fair value under GAAP. For further information about such instruments and our significant accounting policies related to fair value, see Note 2 and Note 4 of our 20172019 Form 10-K. There have been no material changes to our valuation methodologies or our fair value accounting policies since our year ended September 30, 2017.

The following tables below presentspresent assets and liabilities measured at fair value on a recurring and nonrecurring basis. Netting adjustments represent the impact of counterparty and collateral netting on our derivative balances included inon our Condensed Consolidated Statements of Financial Condition. See Note 65 for additional information.
$ in millions Level 1 Level 2 Level 3 
Netting
adjustments
 Balance as of
March 31,
2020
Assets at fair value on a recurring basis:          
Trading instruments          
Municipal and provincial obligations $—
 $14
 $—
 $—
 $14
Corporate obligations 12
 9
 —
 —
 21
Government and agency obligations 30
 28
 —
 —
 58
Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) —
 281
 —
 —
 281
Non-agency CMOs and asset-backed securities (“ABS”) —
 17
 —
 —
 17
Total debt securities 42

349
 —
 —
 391
Equity securities 9
 —
 —
 —
 9
Brokered certificates of deposit —
 24
 —
 —
 24
Other —
 —
 21
 —
 21
Total trading instruments 51
 373
 21
 —
 445
Available-for-sale securities (1)
 16
 4,249
 —
 —
 4,265
Derivative assets          
Interest rate - matched book —
 351
 —
 —
 351
Interest rate - other 93
 266
 —
 (263) 96
Total derivative assets 93
 617
 —
 (263) 447
Other investments - private equity - not measured at net asset value (“NAV”) —
 —
 30
 —
 30
All other investments 192
 1
 22
 —
 215
Subtotal 352
 5,240
 73
 (263) 5,402
Other investments - private equity - measured at NAV         71
Total assets at fair value on a recurring basis $352

$5,240

$73

$(263)
$5,473
           
Liabilities at fair value on a recurring basis:          
Trading instruments sold but not yet purchased          
Municipal and provincial obligations $1
 $—
 $—
 $—
 $1
Corporate obligations 1
 7
 —
 —
 8
Government and agency obligations 6
 —
 —
 —
 6
Non-agency CMOs and ABS —
 6
 —
 —
 6
Total debt securities 8
 13
 —
 —
 21
Equity securities 3
 —
 —
 —
 3
Other —
 —
 —
 —
 —
Total trading instruments sold but not yet purchased 11
 13
 —
 —
 24
Derivative liabilities          
Interest rate - matched book —
 351
 —
 —
 351
Interest rate - other 102
 185
 —
 (218) 69
Foreign exchange —
 6
 —
 —
 6
Equity —
 1
 —
 —
 1
Total derivative liabilities 102
 543
 —
 (218) 427
Total liabilities at fair value on a recurring basis $113
 $556
 $—
 $(218) $451

$ in thousands Quoted prices
in active
markets for
identical
instruments
(Level 1)		 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments
 Balance as of
December 31,
2017
Assets at fair value on a recurring basis          
Trading instruments          
Municipal and provincial obligations $122
 $197,580
 $—
 $—
 $197,702
Corporate obligations 11,069
 33,723
 —
 —
 44,792
Government and agency obligations 6,376
 17,929
 —
 —
 24,305
Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) 2,128
 214,680
 —
 —
 216,808
Non-agency CMOs and asset-backed securities (“ABS”) —
 52,244
 5
 —
 52,249
Total debt securities 19,695

516,156
 5
 —
 535,856
Equity securities 18,497
 803
 —
 —
 19,300
Brokered certificates of deposit —
 32,173
 —
 —
 32,173
Other 27
 7,511
 2,712
 —
 10,250
Total trading instruments 38,219
 556,643
 2,717
 —
 597,579
Available-for-sale securities  
  
  
  
  
Agency MBS and CMOs —
 2,285,051
 —
 —
 2,285,051
Other securities 787
 —
 —
 —
 787
Auction rate securities (“ARS”) preferred securities —
 —
 107,483
 —
 107,483
Total available-for-sale securities 787
 2,285,051
 107,483
 —
 2,393,321
Derivative assets          
Interest rate contracts          
Matched book —
 263,851
 —
 —
 263,851
Other —
 58,660
 —
 (30,375) 28,285
Foreign exchange contracts —
 4
 —
 —
 4
Total derivative assets —
 322,515
 —
 (30,375) 292,140
Private equity investments (1)
         

Not measured at NAV —
 —
 88,810
 —
 88,810
Measured at NAV         100,223
Total private equity investments —
 —
 88,810
 —
 189,033
Other investments (2)
 263,978
 859
 333
 —
 265,170
Total assets at fair value on a recurring basis $302,984

$3,165,068

$199,343

$(30,375)
$3,737,243
           
Assets at fair value on a nonrecurring basis    
  
  
  
Bank loans, net  
  
  
  
  
Impaired loans $—
 $16,347
 $23,418
 $—
 $39,765
Loans held for sale (3)
 —
 69,057
 —
 —
 69,057
Total assets at fair value on a nonrecurring basis $—
 $85,404
 $23,418
 $—
 $108,822
 
(continued on next page)






13
(1)Substantially all of our available-for-sale securities consist of agency MBS and CMOs. See Note 4 for further information.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










$ 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 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 (1)
 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 —
 6
 —
 —
 6
Total derivative liabilities 4
 430
 —
 (121) 313
Total liabilities at fair value on a recurring basis $279
 $450
 $1
 $(121) $609

(continued from previous page)
           
$ in thousands 
Quoted prices
in active
markets for
identical
instruments
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments
 Balance as of
December 31,
2017
Liabilities at fair value on a recurring basis          
Trading instruments sold but not yet purchased          
Municipal and provincial obligations $742
 $3,082
 $—
 $—
 $3,824
Corporate obligations 608
 7,394
 —
 —
 8,002
Government obligations 183,510
 —
 —
 —
 183,510
Agency MBS and CMOs 328
 —
 —
 —
 328
Non-agency MBS and CMOs —
 —
 —
 —
 —
Total debt securities 185,188
 10,476
 —
 —
 195,664
Equity securities 16,294
 4
 —
 —
 16,298
Other 4
 —
 1,058
 —
 1,062
Total trading instruments sold but not yet purchased 201,486
 10,480
 1,058
 —
 213,024
Derivative liabilities          
Interest rate contracts          
Matched book —
 263,851
 —
 —
 263,851
Other —
 86,815
 —
 (42,284) 44,531
Foreign exchange contracts —
 19,710
 —
 —
 19,710
Deutsche Bank restricted stock unit (“DBRSU”) obligation (equity) —
 28,413
 —
 —
 28,413
Total derivative liabilities —
 398,789
 —
 (42,284) 356,505
Total liabilities at fair value on a recurring basis $201,486

$409,269

$1,058

$(42,284)
$569,529


(1)Of the total private equity investments, the portion we owned was $138 million asSubstantially all of December 31, 2017. The portionour available-for-sale securities consist of the private equity investments we did not own was $51 million as of December 31, 2017agency MBS and was included as a component of noncontrolling interests in our Condensed Consolidated Statements of Financial Condition.

(2)Includes $45 million of financial instruments that are related to obligations to perform under certain deferred compensation plans and Deutsche Bank AG (“DB”) shares with a fair value of $21 million as of December 31, 2017 which we hold as an economic hedge against the DBRSU obligation.CMOs. See Notes 2 and 20 in our 2017 Form 10-KNote 4 for additionalfurther information.

(3)Loans classified as held for sale recorded at a fair value lower than cost.


14
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)











$ in thousands Quoted prices
in active
markets for
identical
instruments
(Level 1)		 Significant
other
observable
inputs
(Level 2)		 Significant
unobservable
inputs
(Level 3)		 Netting
adjustments		 Balance as of
September 30,
2017
Assets at fair value on a recurring basis          
Trading instruments          
Municipal and provincial obligations $83
 $221,884
 $—
 $—
 $221,967
Corporate obligations 9,361
 81,577
 —
 —
 90,938
Government and agency obligations 6,354
 28,977
 —
 —
 35,331
Agency MBS and CMOs 913
 133,070
 —
 —
 133,983
Non-agency CMOs and ABS —
 28,442
 5
 —
 28,447
Total debt securities 16,711
 493,950
 5
 —
 510,666
Equity securities 16,090
 389
 —
 —
 16,479
Brokered certificates of deposit —
 31,492
 —
 —
 31,492
Other 32
 —
 5,594
 —
 5,626
Total trading instruments 32,833
 525,831
 5,599
 —
 564,263
Available-for-sale securities  
  
  
  
  
Agency MBS and CMOs —
 2,081,079
 —
 —
 2,081,079
Other securities 1,032
 —
 —
 —
 1,032
ARS preferred securities —
 —
 106,171
 —
 106,171
Total available-for-sale securities 1,032
 2,081,079
 106,171
 —
 2,188,282
Derivative assets          
Interest rate contracts          
Matched book —
 288,035
 —
  
—
 288,035
Other —
 86,436
 —
 (55,728) 30,708
Foreign exchange contracts —
 32
 —
 —
 32
Total derivative assets —

374,503

—

(55,728)
318,775
Private equity investments (1)
         

Not measured at NAV —
 —
 88,885
 —
 88,885
Measured at NAV         109,894
Total private equity investments —
 —
 88,885
 —
 198,779
Other investments (2)
 220,312
 332
 336
 —
 220,980
Total assets at fair value on a recurring basis $254,177
 $2,981,745
 $200,991
 $(55,728) $3,491,079
           
Assets at fair value on a nonrecurring basis    
  
  
  
Bank loans, net          
Impaired loans $—
 $17,474
 $23,994
 $—
 $41,468
Loans held for sale (3)
 —
 11,285
 —
 —
 11,285
Total bank loans, net —
 28,759
 23,994
 —
 52,753
Other assets: other real estate owned —
 880
 —
 —
 880
Total assets at fair value on a nonrecurring basis $—
 $29,639
 $23,994
 $—
 $53,633
           
(continued on next page)

15
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





(continued from previous page)
           
$ in thousands 
Quoted prices
in active
markets for
identical
instruments
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments
 Balance as of
September 30,
2017
Liabilities at fair value on a recurring basis    
  
  
  
Trading instruments sold but not yet purchased    
  
  
  
Municipal and provincial obligations $304
 $—
 $—
 $—
 $304
Corporate obligations 1,286
 35,272
 —
 —
 36,558
Government obligations 167,622
 —
 —
 —
 167,622
Agency MBS and CMOs 2,477
 —
 —
 —
 2,477
Non-agency MBS and CMOs —
 5,028
 —
 —
 5,028
Total debt securities 171,689
 40,300
 —
 —
 211,989
Equity securities 8,118
 1,342
 —
 —
 9,460
Total trading instruments sold but not yet purchased 179,807
 41,642
 —
 —
 221,449
Derivative liabilities          
Interest rate contracts         

Matched book —
 288,035
 —
 —
 288,035
Other —
 101,893
 —
 (59,410) 42,483
Foreign exchange contracts —
 646
 —
 —
 646
DBRSU obligation (equity) —
 25,800
 —
 —
 25,800
Total derivative liabilities —
 416,374
 —
 (59,410) 356,964
Total liabilities at fair value on a recurring basis $179,807
 $458,016
 $—
 $(59,410) $578,413

(1)Of the total private equity investments, the portion we owned was $145 million as of September 30, 2017. The portion of the private equity investments we did not own was $54 million as of September 30, 2017, and was included as a component of noncontrolling interests in our Condensed Consolidated Statements of Financial Condition.

(2)Includes $44 million of financial instruments that are related to obligations to perform under certain deferred compensation plans and DB shares with a fair value of $19 million as of September 30, 2017, which we hold as an economic hedge against the DBRSU obligation. See Notes 2 and 20 in our 2017 Form 10-K for additional information.

(3)Loans classified as held for sale recorded at a fair value lower than cost.

Transfers between levels

We had $1 million in transfers of financial instruments from Level 1 to Level 2 during both the three months ended December 31, 2017 and 2016. These transfers were a result of decreased market activity in these instruments. There were no transfers from Level 2 to Level 1 during the three months ended December 31, 2017 and $1 million in transfers of financial instruments from Level 2 to Level 1 during the three months ended December 31, 2016. These transfers were a result of increased market activity in these instruments. Our policy is to treat transfers between levels of the fair value hierarchy as having occurred at the end of the reporting period.


16
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





Changes in Level 3 recurring fair value measurements


The following tables below 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 below may include changes in fair value that were attributable to both observable and unobservable inputs. Our policy isIn the following tables, gains/(losses) on trading instruments are reported in “Principal transactions” and gains/(losses) on other investments are reported in “Other” revenues.
Three months ended March 31, 2020
Level 3 instruments at fair value
  Financial assets Financial liabilities
  Trading instruments Other investments Trading instruments
$ in millions Other Private equity investments All other Other
Fair value beginning of period $19
 $62
 $24
 $(1)
Total gains/(losses) included in earnings 3
 (32) (2) —
Purchases and contributions 22
 —
 —
 1
Sales and distributions (23) —
 —
 —
Transfers:  
  
  
  
Into Level 3 —
 —
 —
 —
Out of Level 3 —
 —
 —
 —
Fair value end of period $21
 $30
 $22
 $—
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period $5
 $(32) $(2) $—

Six months ended March 31, 2020
Level 3 instruments at fair value
  Financial assets Financial liabilities
  Trading instruments Other investments Trading instruments
$ in millions Other Private equity investments All other Other
Fair value beginning of period $3
 $63
 $24
 $(1)
Total gains/(losses) included in earnings 3
 (32) (2) —
Purchases and contributions 53
 —
 —
 2
Sales and distributions (38) (1) —
 (1)
Transfers:  
  
  
  
Into Level 3 —
 —
 —
 —
Out of Level 3 —
 —
 —
 —
Fair value end of period $21
 $30
 $22
 $—
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period $5
 $(32) $(2) $—
Three months ended March 31, 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 Other
Fair value beginning of period $3
 $59
 $67
 $(4)
Total gains/(losses) included in earnings (1) —
 —
 —
Purchases and contributions 22
 —
 —
 4
Sales and distributions (22) —
 —
 (7)
Transfers:        
Into Level 3 —
 —
 —
 —
Out of Level 3 —
 —
 —
 —
Fair value end of period $2
 $59
 $67
 $(7)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period $1
 $—
 $—
 $—

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to treat transfers between levelsCondensed Consolidated Financial Statements (Unaudited)





Six months ended March 31, 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 Other
Fair value beginning of period $1
 $56
 $67
 $(7)
Total gains/(losses) included in earnings —
 —
 —
 2
Purchases and contributions 60
 3
 —
 9
Sales and distributions (59) —
 —
 (11)
Transfers:        
Into Level 3 —
 —
 —
 —
Out of Level 3 —
 —
 —
 —
Fair value end of period $2
 $59
 $67
 $(7)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period $—
 $—
 $—
 $—


The net unrealized losses on our Level 3 private equity investments for the three and six months ended March 31, 2020 were primarily driven by the negative impact of the coronavirus (“COVID-19”) pandemic on certain of our investments.

As of March 31, 2020, 11% of our assets and 1% of our liabilities were measured at fair value hierarchyon a recurring basis.  In comparison, as having occurred at the end of the reporting period.
Three months ended December 31, 2017
Level 3 instruments at fair value
  Financial assets 
Financial
liabilities
  Trading instruments Available-for-sale securities Private equity and other investments Trading instruments
$ in thousands 
Non-agency
CMOs & ABS
 Other 
ARS - preferred
securities
 
Private
equity
investments
 
Other
investments
 Other
Fair value beginning of period $5
 $5,594
 $106,171
 $88,885
 $336
 $—
Total gains/(losses) for the period    
  
  
  
  
Included in earnings —
 (1,207) —
 2
 (3) (1,058)
Included in other comprehensive income —
 —
 1,312
 —
 —
 —
Purchases and contributions —
 20,279
 —
 —
 —
 —
Sales —
 (21,954) —
 (77) —
 —
Distributions —
 —
 —
 —
 —
 —
Transfers  
  
  
  
  
  
Into Level 3 —
 —
 —
 —
 —
 —
Out of Level 3 —
 —
 —
 —
 —
 —
Fair value end of period $5
 $2,712
 $107,483
 $88,810
 $333
 $(1,058)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period $—
 $(243) $1,312
 $—
 $(3) $(1,058)
Three months ended December 31, 2016 Level 3 instruments at fair value
  Financial assets 
Financial
liabilities
  Trading instruments Available-for-sale securities Private equity and other investments Trading instruments
$ in thousands 
Non-agency
CMOs &
ABS
 Other 
ARS –
municipals obligations
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 Other
Fair value beginning of period $7
 $6,020
 $25,147
 $100,018
 $83,165
 $441
 $—
Total gains/(losses) for the period          
  
  
Included in earnings —
 (2,589) —
 1
 301
 (8) (1,792)
Included in other comprehensive income —
 —
 217
 3,857
 —
 —
 —
Purchases and contributions —
 18,683
 —
 —
 —
 —
 —
Sales —
 (11,062) —
 (23) —
 (15) —
Distributions —
 —
 —
 —
 —
 —
 —
Transfers              
Into Level 3 —
 —
 —
 —
 —
 —
 —
Out of Level 3 —
 —
 —
 —
 —
 (195) —
Fair value end of period $7
 $11,052
 $25,364
 $103,853
 $83,466
 $223
 $(1,792)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period $—
 $(124) $217
 $3,856
 $301
 $—
 $(1,792)

As of both December 31, 2017 and September 30, 2017, 10%2019, 12% of our assets and 2% of our liabilities were instruments measured at fair value on a recurring basis. InstrumentsAs of March 31, 2020 and September 30, 2019, instruments measured at fair value on a recurring basis categorized as Level 3 as of December 31, 2017represented 1% and September 30, 2017 represented 5% and 6%2%, respectively, of our assets measured at fair value. Level 3 instruments as a percentage of total financial instruments decreased as compared to September 30, 2017, primarily as a result of the increase in total assets measured at fair value since September 30, 2017.


17
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





The following table presents the gains/(losses) related to Level 3 recurring fair value measurements included in our Condensed Consolidated Statements of Income and Comprehensive Income.
$ in thousands Net trading profit Other revenues Other comprehensive income
For the three months ended December 31, 2017      
Total gains/(losses) included in earnings $(2,265) $(1) $1,312
Unrealized gains/(losses) for assets held at the end of the reporting period $(1,301) $(3) $1,312
       
For the three months ended December 31, 2016      
Total gains/(losses) included in earnings $(4,381) $294
 $4,074
Unrealized gains/(losses) for assets held at the end of the reporting period $(1,916) $301
 $4,073


Quantitative information about level 3 fair value measurements


The following tables below present the valuation techniques and significant unobservable inputs used in the valuation of a significant majoritycertain of our financial instrumentsprivate equity investments classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument. Certain investments are valued initially at transaction price and updated as other investment-specific events take place which indicate that a change in the carrying values of these investments is appropriate. Other investment-specific events include such events as our periodic review, significant transactions occur or new developments become known.

Level 3 financial instrument
$ in thousands
 Fair value at December 31, 2017 Valuation technique(s) Unobservable input 
Range
(weighted-average)
Recurring measurements        
ARS preferred securities $107,483
 Discounted cash flow Average discount rate 5.76% - 7.03% (6.32%)
   
   
Average interest rates applicable to future interest income on the securities (1)
 2.97% - 3.96% (3.12%)
   
   
Prepayment year (2)
 2018 - 2021 (2021)
Private equity investments (not measured at NAV) $68,454
 Income or market approach    
    Scenario 1 - income approach - discounted cash flow Discount rate 13% - 25% (22.4%)
      Terminal growth rate of cash flows 3% - 3% (3%)
      Terminal year 2020 - 2042 (2021)
    Scenario 2 - market approach - market multiple method EBITDA Multiple 5.25 - 7.0 (5.8)
       Weighting assigned to outcome of scenario 1/scenario 2 87%/13%
  $20,356
 
Transaction price or other investment-specific events (3)
 
Not meaningful (3)
 
Not meaningful (3)
Nonrecurring measurements      
Bank loans: impaired loans - residential $20,421
 Discounted cash flow Prepayment rate 7 yrs - 12 yrs (10.3 yrs)
Bank loans: impaired loans - corporate $2,997
 
Appraisal or discounted cash flow value (4)
 
Not meaningful (4)
 
Not meaningful (4)
Recurring measurements Fair value at March 31, 2020 Valuation technique(s) Unobservable input 
Range
(weighted-average)
$ in millions        
Other investments - private equity investments (not measured at NAV) $30
 Discounted cash flow, transaction price or other investment-specific events Discount rate 25%
      Terminal earnings before interest, tax, depreciation and amortization (“EBITDA”) multiple 9.0x
      Terminal year 2021 - 2042 (2024)
  Fair value at September 30, 2019      
Other investments - private equity investments (not measured at NAV) $63
 Discounted cash flow, transaction price or other investment-specific events Discount rate 25%
      Terminal EBITDA multiple 12.5x
      Terminal year 2021 - 2042 (2022)



(continued on next page)



















18
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)









(continued from previous page)
Level 3 financial instrument
$ in thousands
 
Fair value at
September 30,
2017
 Valuation technique(s) Unobservable input Range (weighted-average)
Recurring measurements      
ARS preferred securities $106,171
 Discounted cash flow Average discount rate 5.46% - 6.81% (6.03%)
   
   
Average interest rates applicable to future interest income on the securities (1)
 2.58% - 3.44% (2.72%)
   
   
Prepayment year (2)
 2017 - 2021 (2021)
Private equity investments (not measured at NAV) $68,454
 Income or market approach:    
    Scenario 1 - income approach - discounted cash flow Discount rate 13% - 25% (22.4%)
      Terminal growth rate of cash flows 3% - 3% (3%)
      Terminal year 2020 - 2042 (2021)
    Scenario 2 - market approach - market multiple method EBITDA Multiple 5.25 - 7.0 (5.8)
       Weighting assigned to outcome of scenario 1/scenario 2 87%/13%
  $20,431
 
Transaction price or other investment-specific events (3)
 
Not meaningful (3)
 
Not meaningful (3)
Nonrecurring measurements  
      
Bank loans: impaired loans - residential $20,736
 Discounted cash flow Prepayment rate 7 yrs. - 12 yrs. (10.4 yrs.)
Bank loans: impaired loans - corporate $3,258
 
Appraisal or discounted cash flow value (4)
 
Not meaningful (4)
 
Not meaningful (4)


(1)Future interest rates are projected based upon a forward interest rate path, plus a spread over such projected base rate that is applicable to each future period for each security within this portfolio segment.  The interest rates presented represent the average interest rate over all projected periods for securities within the portfolio segment.

(2)Assumed calendar year of at least a partial redemption of the outstanding security by the issuer.

(3)Certain private equity investments are valued initially at the transaction price until either our periodic review, significant transactions occur, new developments become known, or we receive information from the fund manager that allows us to update our proportionate share of net assets, when any of which indicate that a change in the carrying values of these investments is appropriate.

(4)The valuation techniques used for the impaired corporate loan portfolio are appraisals less selling costs for the collateral dependent loans and discounted cash flows for impaired loans that are not collateral dependent.



Qualitative disclosureinformation about unobservable inputs


For our recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs are described below:

Auction rate securities:

One of the significant unobservable inputs used in the fair value measurement of auction rate securities presented within our available-for-sale securities portfolio relates to judgments regarding whether the level of observable trading activity is sufficient to conclude markets are active.  Where insufficient levels of trading activity are determined to exist as of the reporting date, then management’s assessment of how much weight, if any, to apply to trading prices in inactive markets versus management’s own valuation models could significantly impact the valuation conclusion.  The valuation of the securities impacted by changes in management’s assessment of market activity levels could be either higher or lower, depending upon the relationship of the inactive trading prices compared to the outcome of management’s internal valuation models.following section.

The future interest rate and maturity assumptions impacting the valuation of the auction rate securities are directly related. These securities generally have embedded penalty interest rate provisions in the event auctions fail to set the security’s interest rate. These penalty rates are based upon a stated interest rate spread over what is typically a short-term base interest rate index.  As short-term

19
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





interest rates rise, the penalty rate that is specified in the security increases.  Changes in interest rates impact the fair value of our ARS portfolio, as we estimate that at some level of increase in short-term interest rates, issuers of the securities will have the economic incentive to refinance (and thus prepay) the securities.  The faster and steeper short-term interest rates rise, the earlier prepayments will likely occur and the higher the fair value of the security. Therefore, the short-term interest rate assumption directly impacts the input related to the timing of any projected prepayment. 


Private equity investments:investments


The significant unobservable inputs used in the fair value measurement of private equity investments generally relate to the financial performance of the investment entity and the market’s required return on investments from entities in industries in which we hold investments. Significant increases/(decreases)Increases in our investment entities’ future economic performance willthe discount rate would have resulted in a corresponding increase/(decrease) onlower fair value measurement. Increases in the valuation results.  Theterminal EBITDA multiple would have resulted in a higher fair value of our investment moves inversely withmeasurement. Increases in the market’s expectation of returns from such investments.  Should the market require higher returns from industriesterminal year are dependent upon each investment’s strategy, but generally result in which we are invested, all other factors held constant, our investments will decrease in value.  Should the market accepta lower returns from industries in which we are invested, all other factors held constant, our investments will increase in value.fair value measurement.


Investments in private equity measured at net asset value per share


As more fully described in Note 2 of our 20172019 Form 10-K, as a practical expedient, we utilize net asset value (“NAV”)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 December 31, 2017 includedincludes various direct and third partyinvestments, as well as investments in third-party private equity investmentsfunds and various legacy private equity funds which we sponsor. The portfolio is primarily invested in a broad range of industries including leveraged buyouts, growth capital, distressed capital, venture capital and mezzanine capital.
Due to the closed-end nature of certain of our fund investments, such investments cannot be redeemed directly with the funds. Our investment is monetized throughby distributions received through the liquidation of the underlying assets of those funds. We anticipate 90%funds, the timing of these underlying assets will be liquidated over a period of five years or less, with the remaining 10% to be liquidated over a period of nine years.which is uncertain.


The following table below presents the recorded value and unfunded commitments related to our private equity investments portfolio.
$ in millions Recorded value Unfunded commitment
March 31, 2020    
Private equity investments measured at NAV $71
 $12
Private equity investments not measured at NAV 30
  
Total private equity investments 
 $101
  
     
September 30, 2019    
Private equity investments measured at NAV $83
 $15
Private equity investments not measured at NAV 63
  
Total private equity investments $146
  

    Unfunded commitment
$ in thousands Recorded value RJF Noncontrolling interests Total
December 31, 2017        
Private equity investments measured at NAV $100,223
 $20,739
 $2,256
 $22,995
Private equity investments not measured at NAV 88,810
      
Total private equity investments 
 $189,033
      
         
September 30, 2017        
Private equity investments measured at NAV $109,894
 $20,973
 $2,273
 $23,246
Private equity investments not measured at NAV 88,885
      
Total private equity investments $198,779
      


Of the total private equity investments, the portions we owned were $138$79 million and $145$99 million as of DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively.The portions of the private equity investments we did not own were $51$22 million and $54$47 million as of DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively, and were included as a component of noncontrolling interests inon our Condensed Consolidated Statements of Financial Condition.


Many of these fund investments meet the definition of prohibited “covered funds”covered funds as defined by the Volcker Rule ofenacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”).2010. We have received approval from the Board of Governors of the Federal Reserve System (the “Fed”) to continue to hold the majority of our “covered fund”covered fund investments for up to an additional five-year conformance period, thereby extending our applicable holding period until July 2022 for such investments.2022. However, our current focus is on the divestiture of this portfolio.


20
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










Fair value option

TheFinancial instruments measured at fair value option is an accounting election that allows the reporting entity to applyon a nonrecurring basis

The following table presents assets measured at fair value accounting for certain financialon a nonrecurring basis along with the valuation techniques and significant unobservable inputs used in the valuation of the assets and liabilities on an instrumentclassified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by instrument basis.  As of December 31, 2017,weighting each input by the amount of financial instruments for which we had elected therelative fair value option wasof the related financial instrument.
$ in millions Level 2 Level 3 Total fair value Valuation technique(s) Unobservable input 
Range
(weighted-average)
March 31, 2020            
Bank loans, net:            
Impaired loans: residential $4
 $14
 $18
 Discounted cash flow Prepayment rate 7 yrs. - 12 yrs. (10.4 yrs.)
Impaired loans: corporate $—
 $10
 $10
 
Collateral or discounted cash flow (1)
 
Not meaningful (1)
 
Not meaningful (1)
Loan held for sale $67
 $—
 $67
 N/A N/A N/A
Other assets: other real estate owned $2
 $—
 $2
 N/A N/A N/A
      
      
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

(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 not material.

Otherrecorded at fair value disclosures


Many, but not all, of the financial instruments we hold arewere recorded at fair value inon the Condensed 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 Condensed Consolidated Statements of Financial Condition at March 31, 2020 and September 30, 2019. This table excludes financial instruments that are carried at amounts which approximate fair value. Refer to Note 4 of our 20172019 Form 10-K for a discussion of the methods and assumptions we apply to the determination of fair value hierarchy classification of our financial instruments that are not recorded at fair value.

$ in millions Level 2 Level 3 Total estimated fair value Carrying amount
March 31, 2020        
Financial assets:        
Bank loans, net $56
 $21,823
 $21,879
 $21,693
Financial liabilities:      
  
Bank deposits - certificates of deposit $—
 $1,191
 $1,191
 $1,150
Senior notes payable $2,208
 $—
 $2,208
 $2,044
         
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

The table below presents the estimated fair values by level within the fair value hierarchy and the carrying amounts of certain of our financial instruments not carried at fair value. The carrying amounts below exclude financial instruments which have been recorded at fair value and those recorded at amounts which approximate fair value in the Condensed Consolidated Statements of Financial Condition.

$ in thousands 
Quoted prices
in active
markets for
identical
instruments
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 Total estimated fair value Carrying amount
December 31, 2017          
Financial assets:          
Bank loans, net $—
 $104,044
 $17,353,626
 $17,457,670
 $17,588,476
Loans to financial advisors, net $—
 $—
 $704,853
 $704,853
 $879,929
Financial liabilities:        
  
Bank deposits $—
 $18,392,535
 $329,977
 $18,722,512
 $18,725,545
Other borrowings $—
 $28,030
 $—
 $28,030
 $27,627
Senior notes payable $—
 $1,693,153
 $—
 $1,693,153
 $1,548,975
           
September 30, 2017          
Financial assets:          
Bank loans, net $—
 $23,001
 $16,836,745
 $16,859,746
 $16,954,042
Loans to financial advisors, net $—
 $—
 $698,862
 $698,862
 $863,647
Financial liabilities:        
  
Bank deposits $—
 $17,417,678
 $313,359
 $17,731,037
 $17,732,362
Other borrowings $—
 $29,278
 $—
 $29,278
 $28,813
Senior notes payable $—
 $1,647,696
 $—
 $1,647,696
 $1,548,839


21
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










NOTE 54 – AVAILABLE-FOR-SALE SECURITIES


Available-for-sale securities are primarily comprised of agency MBS and CMOs owned by Raymond James Bank N.A. (“RJ Bank”) and ARS owned by one of our non-broker-dealer subsidiaries.. Refer to the discussion of our available-for-sale securities accounting policies, including the fair value determination process, in Note 2 of our 20172019 Form 10-K.


The following table details the amortized cost and fair values of our available-for-sale securities were as follows:securities.
$ in millions Cost basis 
Gross
unrealized gains
 
Gross
unrealized losses
 Fair value
March 31, 2020        
Agency residential MBS $1,929
 $56
 $—
 $1,985
Agency commercial MBS 533
 16
 —
 549
Agency CMOs 1,677
 39
 (1) 1,715
Other securities 15
 1
 —
 16
Total available-for-sale securities $4,154
 $112
 $(1) $4,265
         
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

$ in thousands Cost basis 
Gross
unrealized gains
 
Gross
unrealized losses
 Fair value
December 31, 2017        
Agency MBS and CMOs $2,309,741
 $180
 $(24,870) $2,285,051
Other securities 1,575
 —
 (788) 787
Total RJ Bank available-for-sale securities 2,311,316
 180
 (25,658) 2,285,838
ARS preferred securities 101,674
 5,809
 —
 107,483
Total available-for-sale securities $2,412,990

$5,989

$(25,658)
$2,393,321
September 30, 2017  
  
  
  
Agency MBS and CMOs $2,089,153
 $1,925
 $(9,999) $2,081,079
Other securities 1,575
 —
 (543) 1,032
Total RJ Bank available-for-sale securities 2,090,728
 1,925
 (10,542) 2,082,111
ARS preferred securities 101,674
 4,497
 —
 106,171
Total available-for-sale securities $2,192,402

$6,422

$(10,542)
$2,188,282


See Note 43 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 are as presented below.securities.  Since RJ Bank’sour MBS and CMO available-for-sale securities (MBS and CMOs) are backed by mortgages, actual maturities willmay differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. Expected maturitiesAs of ARS may differ significantly from contractual maturities, as issuers may haveMarch 31, 2020, the right to call or prepay obligations with or without call or prepayment penalties.duration of our available-for-sale securities portfolio was approximately three years.
  March 31, 2020
$ 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 $—
 $32
 $791
 $1,106
 $1,929
Carrying value $—
 $33
 $818
 $1,134
 $1,985
Agency commercial MBS          
Amortized cost $—
 $189
 $265
 $79
 $533
Carrying value $—
 $193
 $276
 $80
 $549
Agency CMOs          
Amortized cost $—
 $2
 $79
 $1,596
 $1,677
Carrying value $—
 $2
 $81
 $1,632
 $1,715
Other securities          
Amortized cost $—
 $3
 $12
 $—
 $15
Carrying value $—
 $4
 $12
 $—
 $16
Total available-for-sale securities          
Amortized cost $—
 $226
 $1,147
 $2,781
 $4,154
Carrying value $—
 $232
 $1,187
 $2,846
 $4,265
Weighted-average yield —% 2.28% 2.34% 2.25% 2.27%

  December 31, 2017
$ in thousands Within one year 
After one but
within five years
 
After five but
within ten years
 After ten years Total
Agency MBS and CMOs:          
Amortized cost $—
 $143,299
 $745,234
 $1,421,208
 $2,309,741
Carrying value —
 142,159
 737,410
 1,405,482
 2,285,051
Weighted-average yield —
 2.09% 1.94% 2.01% 1.99%
Other securities:          
Amortized cost $—
 $—
 $—
 $1,575
 $1,575
Carrying value —
 —
 —
 787
 787
Weighted-average yield —
 —
 —
 —
 —
Sub-total agency MBS and CMOs and other securities:  
  
Amortized cost $—
 $143,299
 $745,234
 $1,422,783
 $2,311,316
Carrying value —
 142,159
 737,410
 1,406,269
 2,285,838
Weighted-average yield —
 2.09% 1.94% 2.01% 1.99%
ARS Preferred securities:  
  
  
  
  
Amortized cost $—
 $—
 $—
 $101,674
 $101,674
Carrying value —
 —
 —
 107,483
 107,483
Weighted-average yield —
 —
 —
 2.52% 2.52%
Total available-for-sale securities:  
  
  
  
  
Amortized cost $—
 $143,299
 $745,234
 $1,524,457
 $2,412,990
Carrying value —
 142,159
 737,410
 1,513,752
 2,393,321
Weighted-average yield —
 2.09% 1.94% 2.05% 2.01%



22
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










The following table details the gross unrealized losses and fair value,values of securities that were in a loss position at the reporting period end, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, are as follows:position.
  Less than 12 months 12 months or more Total
$ in millions Estimated
fair value		 Unrealized
losses		 Estimated
fair value		 Unrealized
losses		 Estimated
fair value		 Unrealized
losses
March 31, 2020            
Agency residential MBS $7
 $—
 $—
 $—
 $7
 $—
Agency commercial MBS 14
 —
 22
 —
 36
 —
Agency CMOs 63
 (1) 18
 —
 81
 (1)
         Total $84
 $(1) $40
 $—
 $124
 $(1)
             
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)

  Less than 12 months 12 months or more Total
$ in thousands 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
December 31, 2017            
Agency MBS and CMOs $1,691,798
 $(14,157) $535,183
 $(10,713) $2,226,981
 $(24,870)
Other securities —
 —
 787
 (788) 787
 (788)
Total $1,691,798
 $(14,157) $535,970
 $(11,501) $2,227,768
 $(25,658)
  Less than 12 months 12 months or more Total
$ in thousands 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
 
Estimated
fair value
 
Unrealized
losses
September 30, 2017            
Agency MBS and CMOs $1,119,715
 $(5,621) $295,528
 $(4,378) $1,415,243
 $(9,999)
Other securities —
 —
 1,032
 (543) 1,032
 (543)
Total $1,119,715
 $(5,621) $296,560
 $(4,921) $1,416,275
 $(10,542)


The reference point for determining when securities are in a loss position is the reporting period end. As such, it is possible that a security had a fair value that exceeded its amortized cost on other days during the period.

Agency MBS and CMOs and Non-agency CMOs

The Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Government National Mortgage Associations (“GNMA”) guarantee the contractual cash flows of our available-for-sale securities are guaranteed by the agency MBS and CMOs.U.S. government or its agencies. At DecemberMarch 31, 2017,2020, of the 195 U.S. government-sponsored enterprise MBS and CMOs20 available-for-sale securities in an unrealized loss position, 13314 were in a continuous unrealized loss position for less than 12 months and 626 were for 12 months or more. We do not consider these securities to be other-than-temporarily impaired due to the guarantee provided by FNMA, FHLMC, and GNMA of the full payment of principal and interest, and the fact that we have the ability and intent to hold these securities. At DecemberMarch 31, 2017,2020, debt securities we held from FNMAin excess of ten percent of our equity included Federal National Home Mortgage Association (“FNMA”) and FHLMCFederal Home Loan Mortgage Corporation (“FHLMC”) which had an amortized cost of $1.56$2.67 billion and $626 million,$1.22 billion, respectively, and a fair value of $1.54$2.74 billion and $617 million,$1.25 billion, respectively.


During the three and six months ended DecemberMarch 31, 2017,2020 and 2019, there were no sales of agency MBS and CMO available-for-sale securities. During the three months ended December 31, 2016, there were $7 million in proceeds from the sale of non-agency CMO available-for-sale securities. These sales resulted in an insignificant loss, which was included in “Other revenues” on our Condensed Consolidated Statements of Income and Comprehensive Income.


ARS

Our cost basis in the ARS we hold is the fair value of the securities in the period in which we acquired them. The par value of the ARS we held as of December 31, 2017 was $120 million. Only those ARS whose amortized cost basis we do not expect to recover in full are considered to be other-than-temporarily impaired, as we have the ability and intent to hold these securities. All of our ARS securities are evaluated for OTTI on a quarterly basis. As of December 31, 2017, there were no ARS preferred securities with a fair value less than cost basis.

During the three months ended December 31, 2017, there were no sales of ARS. During the three months ended December 31, 2016, sales of ARS were insignificant.

Other-than-temporarily impaired securities

There is no intent to sell our ARS and it was not more likely than not that we would be required to sell these securities as of December 31, 2017.







23
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)









Changes in the amount of OTTI related to credit losses recognized in “Other revenues” on available-for-sale securities were as follows:
  Three months ended December 31,
$ in thousands 2017 2016
Amount related to credit losses on securities we held at the beginning of the period $—
 $8,107
Decreases to the amount related to credit losses for securities sold during the period —
 (2,353)
Amount related to credit losses on securities we held at the end of the period $—
 $5,754



NOTE 65 – DERIVATIVE FINANCIAL INSTRUMENTSASSETS AND DERIVATIVE LIABILITIES


Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative liabilities” inon our Condensed Consolidated Statements of Financial Condition. Cash flows related to our derivative contractsderivatives are included within operating activities inon the Condensed Consolidated Statements of Cash Flows. The significant accounting policies governing our derivative financial instruments,derivatives, including our methodologies for determining fair value, are described in Note 2 of our 20172019 Form 10-K.

Derivatives arising from our fixed income business operations

We enter into interest rate contracts as part of our fixed income business to facilitate client transactions or to actively manage risk exposures that arise from our client activity, including a portion of our trading inventory. The majority of these derivatives are traded in the over-the-counter market and are executed directly with another counterparty or are cleared and settled through a clearing organization.

We also facilitate matched book derivative transactions in which Raymond James Financial Products, Inc. (“RJFP”), a wholly owned subsidiary, enters into interest rate derivative transactions with clients. For every derivative transaction RJFP enters into with a client, it also enters into an offsetting derivative on terms that mirror the client transaction with a credit support provider, which is a third-party financial institution. Any collateral required to be exchanged under these derivative contracts is administered directly between the client and the third-party financial institution. Due to this pass-through transaction structure, RJFP has completely mitigated the market and credit risk on these derivative contracts. As a result, derivatives for which the fair value is in an asset position have an equal and offsetting derivative liability. RJFP only has credit risk on its uncollected derivative transaction fee revenues. The receivable for uncollected derivative transaction fee revenues of RJFP was $5 million at both December 31, 2017 and September 30, 2017, and is included in “Other receivables” on our Condensed Consolidated Statements of Financial Condition.

Derivatives arising from RJ Bank’s business operations
We enter into forward foreign exchange contracts and interest rate swaps to hedge certain exposures arising out of RJ Bank’s business operations (see Note 2 of the 2017 Form 10-K for the accounting policies associated with these transactions). Each of these activities is described further below.

We enter into three-month forward foreign exchange contracts primarily to hedge the risks related to RJ Bank’s investment in their Canadian subsidiary as well as their risk resulting from transactions denominated in currencies other than the U.S. dollar. The majority of these derivatives are designated as net investment hedges.

The cash flows associated with certain assets held by RJ Bank provide interest income at fixed interest rates. Therefore, the value of these assets, absent any risk mitigation, is subject to fluctuation based upon changes in market rates of interest over time. RJ Bank enters into floating-rate advances from the Federal Home Loan Bank of Atlanta (“FHLB”) to, in part, fund these assets and then enters into interest rate swaps which swap variable interest payments on this debt for fixed interest payments. These interest rate swaps are designated as cash flow hedges and effectively fix RJ Bank’s cost of funds associated with these assets to mitigate a portion of the market risk.

Derivative arising from our acquisition of Alex. Brown

As part of our acquisition of Alex. Brown (see Note 3 of the 2017 Form 10-K for additional information regarding the acquisition), we assumed certain DBRSU awards, including the associated plan terms and conditions. The DBRSU awards contain performance conditions based on Deutsche Bank and subsidiaries attaining certain financial results and will ultimately be settled in DB common shares, provided the performance metrics are achieved. The DBRSU obligation results in a derivative, the fair value and notional of

24
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





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.

Counterparty netting and collateral related to derivative contracts

To reduce credit exposure on certain of our derivative transactions, we may enter into a master netting arrangement that allows for net settlement of all derivative transactions with each counterparty.  In addition, the credit support annex allows parties to the master netting agreement to mitigate their credit risk by requiring the party which is out of the money to post collateral.  We accept collateral in the form of cash or other marketable securities.  Where permitted, we elect to net-by-counterparty certain derivative contracts entered into under a legally enforceable master netting agreement and, therefore, the fair value of those derivative contracts are netted by counterparty in the Condensed Consolidated Statements of Financial Condition. As we elect to net-by-counterparty the fair value of such derivative contracts, we also net-by-counterparty cash collateral exchanged as part of those derivative agreements. We may also require certain counterparties to make a deposit at the inception of a derivative agreement, referred to as “initial margin.” This initial margin is included in “Other payables” on our Condensed Consolidated Statements of Financial Condition.

We are also required to maintain cash or marketable security deposits with the clearing organizations we utilize to clear certain of our interest rate derivative transactions. This initial margin is included as a component of “Receivables from brokers, dealers and clearing organizations” for cash initial margin or “Other investments” for marketable securities initial margin in our Condensed 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.

RJ Bank provides to counterparties for the benefit of its U.S. subsidiaries, a guarantee of payment in the event of the subsidiary’s default under forward foreign exchange contracts.  Due to this RJ Bank guarantee and the short-term nature of these derivatives, RJ Bank’s U.S. subsidiaries are generally not required to post collateral with and do not generally receive collateral from the respective counterparties.


25
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)






Derivative balances included inon our financial statements


The following table below presents the gross fair value and notional amount of derivative contractsderivatives by product type, the amounts of counterparty and cash collateral netting inon our Condensed 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.
  March 31, 2020 September 30, 2019
$ in millions Derivative assets Derivative liabilities Notional amount Derivative assets Derivative liabilities Notional amount
Derivatives not designated as hedging instruments            
Interest rate - matched book $351
 $351
 $2,265
 $280
 $280
 $2,296
Interest rate - other (1)
 359
 286
 16,686
 184
 146
 10,690
Foreign exchange —
 3
 576
 —
 1
 573
Equity —
 1
 1
 —
 6
 6
Subtotal 710

641

19,528

464

433

13,565
Derivatives designated as hedging instruments            
Interest rate —
 1
 850
 1
 —
 850
Foreign exchange —
 3
 816
 —
 1
 856
Subtotal —

4

1,666

1

1

1,706
Total gross fair value/notional amount 710

645

$21,194

465

434

$15,271
Offset on the Condensed Consolidated Statements of Financial Condition            
Counterparty netting (93) (93)   (24) (24)  
Cash collateral netting (170) (125)   (103) (97)  
Total amounts offset (263) (218)   (127) (121)  
Net amounts presented on the Condensed Consolidated Statements of Financial Condition 447

427
   338
 313
  
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition            
Financial instruments (2)
 (372) (351)   (297) (280)  
Total $75
 $76
   $41
 $33
  

  December 31, 2017 September 30, 2017
$ in thousands Derivative assets Derivative liabilities Notional amount Derivative assets Derivative liabilities Notional amount
Derivatives not designated as hedging instruments            
Interest rate contracts:            
Matched book $263,851
 $263,851
 $2,687,828
 $288,035
 $288,035
 $2,766,488
Other 58,660
 85,579
 5,093,255
 86,436
 100,503
 4,931,809
Foreign exchange contracts 4
 7,032
 529,000
 3
 530
 437,783
DBRSU obligation (equity) (1)
 —
 28,413
 28,413
 —
 25,800
 25,800
Subtotal 322,515

384,875

8,338,496

374,474

414,868

8,161,880
Derivatives designated as hedging instruments            
Interest rate contracts —
 1,236
 850,000
 —
 1,390
 850,000
Foreign exchange contracts —
 12,678
 893,317
 29
 116
 1,048,646
Subtotal —

13,914

1,743,317

29

1,506

1,898,646
Total gross fair value/notional amount 322,515

398,789

$10,081,813

374,503

416,374

$10,060,526
Offset in the Statements of Financial Condition            
Counterparty netting (6,471) (6,471)   (6,045) (6,045)  
Cash collateral netting (23,904) (35,813)   (49,683) (53,365)  
Total amounts offset (30,375) (42,284)   (55,728) (59,410)  
Net amounts presented in the Statements of Financial Condition 292,140
 356,505
   318,775
 356,964
  
             
Gross amounts not offset in the Statements of Financial Condition          
Financial instruments (2)
 (267,938) (263,851)   (293,340) (288,035)  
Total $24,202
 $92,654
   $25,435
 $68,929
  

(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.


(1) The DBRSU obligation is not subject to an enforceable master netting arrangement or other similar arrangement. However, we held shares of DB as an economic hedge against this obligation with a fair value of $21 million and $19 million as of December 31, 2017 and September 30, 2017, respectively, which are a component of “Other investments” on our Condensed Consolidated Statements of Financial Condition. See additional discussion offollowing table details the DBRSUs in Note 17.

(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 table above.

Gains recognizedgains/(losses) included in accumulated other comprehensive income/(loss)income (“AOCI”), net of income taxes, on derivatives designated as hedging instruments are as follows (seeinstruments. These gains/(losses) included any amounts reclassified from AOCI to net income during the period. See Note 1516 for additional information):information.
  Three months ended March 31, Six months ended March 31,
$ in millions 2020 2019 2020 2019
Interest rate (cash flow hedges) $(43) $(13) $(33) $(30)
Foreign exchange (net investment hedges) 52
 (11) 39
 26
Total gains/(losses) in AOCI, net of taxes $9
 $(24) $6
 $(4)

  Three months ended December 31,
$ in thousands 2017 2016
Interest rate contracts (cash flow hedges) $6,885
 $25,738
Foreign exchange contracts (net investment hedges) 5,573
 11,326
Total gains recognized in AOCI, net of taxes $12,458
 $37,064


There was no hedge ineffectiveness and nowere 0 components of derivative gains or losses were excluded from the assessment of hedge effectiveness for each of the three and six months ended DecemberMarch 31, 20172020 and 2016.2019. We expect to reclassify an estimated $1$12 million as additionalof interest expense out of AOCI and into earnings within the next 12 months. The maximum length of time over which forecasted transactions are or will be hedged is 108 years.



26
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










Gains/The following table details the gains/(losses) on derivatives not designated as hedging instruments recognized on the Condensed Consolidated Statements of Income and Comprehensive Income were as follows:Income.
$ in millions   Three months ended March 31, Six months ended March 31,
 Location of gain/(loss) 2020 2019 2020 2019
Interest rate Principal transactions/other revenues $—
 $—
 $5
 $2
Foreign exchange Other revenues $43
 $(4) $32
 $22
Equity Compensation, commissions and benefits expense $(1) $—
 $(1) $5

$ in thousands 
Location of gain/(loss) included in the
Condensed Consolidated Statements of Income and Comprehensive Income
 Gain/(loss) recognized during the period
  Three months ended December 31,
  2017 2016
Interest rate contracts:      
Matched book Other revenues $38
 $(26)
Other Net trading profit $1,562
 $2,229
Foreign exchange contracts Other revenues $(1,366) $7,914
DBRSUs Compensation, commissions and benefits expense $(2,613) $(6,725)
DBRSUs Acquisition-related expenses $—
 $350


Risks associated with our derivatives and ourrelated risk mitigation related to, our derivative contracts


Credit risk


We are exposed to credit losses in the event of nonperformance by the counterparties to forward foreign exchange derivative agreements and interest rate contractsderivatives that are not cleared through a clearing organization. Where we are subject to credit exposure, we perform a credit evaluation of counterparties prior to entering into derivative transactions and we monitor their credit standings.  Currently, we anticipate that all of the counterparties will be able to fully satisfy their obligations under those agreements.  We may require initial margin or collateral from counterparties in the form of cash deposits or other marketable securities to support certain of these obligations as established by the credit threshold specified by the agreement and/or as a result of monitoring the credit standing of the counterparties.


Our only exposure to credit risk in the matched book derivatives operations is related to our uncollected derivative transaction fee revenues.revenues, which were insignificant as of both March 31, 2020 and September 30, 2019. We are not exposed to market risk as it relates toon these derivative contractsderivatives due to the pass-through transaction structure previously described.described in Note 2 of our 2019 Form 10-K.


Interest rate and foreign exchange risk


We are exposed to interest rate risk related to certain of our interest rate derivative agreements.derivatives. We are also exposed to foreign exchange risk related to our forward foreign exchange derivative agreements.derivatives.  On a daily basis, we monitor our risk exposure inon our derivative agreementsderivatives based on established limits with respect to a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis and volatility risks.  These exposures are monitoredrisks, both on afor the total portfolio basis and separately for each agreement for selectedby maturity periods.period.


Derivatives with credit-risk-related contingent features


Certain of theour derivative instruments arising from our interest rate contracts and forward foreign exchange contracts contain provisions that require our debt to maintain an investment-grade rating from one1 or more of the major credit rating agencies. If our debt were to fall below investment-grade, the counterparties to the derivative instruments could terminate and request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position was $10 million at Decemberinsignificant as of both March 31, 2017, for which we had posted $1 million of collateral. Such amounts were not material at2020 and September 30, 2017.2019.




RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





NOTE 76 – COLLATERALIZED AGREEMENTS AND FINANCINGS


Collateralized agreements are securities purchased under agreements to resell (“reverse repurchase agreements”) and securities borrowed. Collateralized financings are securities sold under agreements to repurchase (“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 of our 20172019 Form 10-K.


27
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)






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. Although not offset on the Condensed Consolidated Statements of Financial Condition, these transactions are included in the following table.
  Assets Liabilities
$ in millions Reverse repurchase agreements Securities borrowed Repurchase agreements Securities loaned
March 31, 2020        
Gross amounts of recognized assets/liabilities $130
 $250
 $215
 $28
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition —
 —
 —
 —
Net amounts presented on the Condensed Consolidated Statements of Financial Condition 130

250

215

28
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition (130) (240) (215) (24)
Net amounts $—
 $10
 $—
 $4
         
September 30, 2019        
Gross amounts of recognized assets/liabilities $343
 $248
 $150
 $323
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition —
 —
 —
 —
Net amounts presented on the Condensed Consolidated Statements of Financial Condition 343

248

150

323
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition (343) (243) (150) (311)
Net amounts $—
 $5
 $—
 $12

  Assets Liabilities
$ in thousands Reverse repurchase agreements Securities borrowed Repurchase agreements Securities loaned
December 31, 2017        
Gross amounts of recognized assets/liabilities $307,742
 $184,971
 $229,036
 $290,307
Gross amounts offset in the Condensed Consolidated Statements of Financial Condition —
 —
 —
 —
Net amounts presented in the Condensed Consolidated Statements of Financial Condition 307,742

184,971

229,036

290,307
Gross amounts not offset in the Condensed Consolidated Statements of Financial Condition (307,742) (178,524) (229,036) (277,154)
Net amount $—
 $6,447
 $—
 $13,153
September 30, 2017        
Gross amounts of recognized assets/liabilities $404,462
 $138,319
 $220,942
 $383,953
Gross amounts offset in the Condensed Consolidated Statements of Financial Condition —
 —
 —
 —
Net amounts presented in the Condensed Consolidated Statements of Financial Condition 404,462

138,319

220,942

383,953
Gross amounts not offset in the Condensed Consolidated Statements of Financial Condition (404,462) (134,304) (220,942) (373,132)
Net amount $—
 $4,015
 $—
 $10,821


The required market value of the collateral associated with collateralized agreements and financings generally exceeds the amount financed. Accordingly, the totalTotal collateral received under reverse repurchase agreements and the total amount of collateral posted under repurchase agreements exceeds the carrying value of these agreements inon our Condensed Consolidated Statements of Financial Condition. In the event the market value of the securities we pledge as collateral in these activities declines, we may have to post additional collateral or reduce the borrowing amounts. We monitor such levels daily.


Collateral received and pledged


We receive cash and securities as collateral, primarily in connection with reverse repurchase agreements, securities borrowed, derivative transactions not transacted through a clearing organization, and client margin loans. The collateral we receive reduces our credit exposure to individual counterparties.


In many cases, we are permitted to deliver or repledge financial instruments we have received as collateral forto satisfy our own use incollateral requirements under our repurchase agreements, securities lending agreements or other secured borrowings, satisfaction ofto satisfy deposit requirements with clearing organizations, or to otherwise meetingmeet either our or our clients’ settlement requirements.


The following table below presents financial instruments at fair value that we received as collateral, arewere not included on our Condensed Consolidated Statements of Financial Condition, and that were available to be delivered or repledged, along with the balances of such instruments that were delivered or repledged, to satisfy one of our purposes described above:previously described.
$ in millions March 31,
2020		 September 30,
2019
Collateral we received that was available to be delivered or repledged $2,503
 $2,931
Collateral that we delivered or repledged $763
 $897

$ in thousands December 31,
2017		 September 30,
2017
Collateral we received that is available to be delivered or repledged $2,891,841
 $3,030,736
Collateral that we delivered or repledged $957,943
 $1,068,912



28
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










Encumbered assets


We pledge certain of our financial instrumentsassets to collateralize either repurchase agreements or other secured borrowings, maintain lines of credit, or to satisfy our collateral or settlement requirements with counterparties or clearing organizations who may or may not have the right to deliver or repledge such securities.instruments. The following table below presents information about the fair value of our assets that have been pledged for one of the purposes described above:previously described.
$ in thousands December 31,
2017		 September 30,
2017
Financial instruments owned, at fair value, pledged to counterparties that:    
$ in millions March 31,
2020		 September 30,
2019
Had the right to deliver or repledge $341,304
 $363,739
 $304
 $591
Did not have the right to deliver or repledge $129,260
 $44,930
 $65
 $65
Bank loans, net pledged at Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank $5,157
 $4,653


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:borrowings.
$ in millions Overnight and continuous Up to 30 days 30-90 days Greater than 90 days Total
March 31, 2020          
Repurchase agreements:          
Government and agency obligations $45
 $—
 $—
 $—
 $45
Agency MBS and CMOs 170
 —
 —
 —
 170
Total repurchase agreements 215

—

—

—

215
Securities loaned:          
Equity securities 28
 —
 —
 —
 28
Total $243

$—

$—

$—

$243
           
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

$ in thousands Overnight and continuous Up to 30 days 30-90 days Greater than 90 days Total
As of December 31, 2017:  
Repurchase agreements          
Government and agency obligations $48,281
 $—
 $—
 $—
 $48,281
Agency MBS and CMOs 180,755
 —
 —
 —
 180,755
Total Repurchase Agreements 229,036

—

—

—

229,036
           
Securities loaned          
Equity securities 290,307
 —
 —
 —
 290,307
Total $519,343

$—

$—

$—

$519,343
Gross amounts of recognized liabilities for repurchase agreements and securities loaned included in the table within this footnote $519,343
Amounts related to repurchase agreements and securities loaned not included in the table within this footnote $—
           
As of September 30, 2017:          
Repurchase agreements          
Government and agency obligations $107,284
 $—
 $—
 $—
 $107,284
Agency MBS and CMOs 113,658
 —
 —
 —
 113,658
Total Repurchase Agreements 220,942

—

—

—

220,942
           
Securities loaned          
Equity securities 383,953
 —
 —
 —
 383,953
Total $604,895
 $—
 $—
 $—
 $604,895
Gross amounts of recognized liabilities for repurchase agreements and securities loaned included in the table within this footnote $604,895
Amounts related to repurchase agreements and securities loaned not included in the table within this footnote $—


As of both DecemberMarch 31, 20172020 and September 30, 2017,2019, we did not0t have any “repurchase-to-maturity” agreements, which are repurchase agreements where a security is transferred under an agreement to repurchase and the maturity date of the repurchase agreement matches the maturity date of the underlying security.




NOTE 87 – BANK LOANS, NET


Bank client receivables are comprised of loans originated or purchased by RJ Bank and include commercial and industrial (“C&I”) loans, tax-exempt loans, securities based loans (“SBL”), and commercial and residential real estate loans, securities-based loans (“SBL”) and other loans. These receivables are collateralized by first orand, to a lesser extent, second mortgages on residential or other real property, other assets of the borrower, a pledge of revenue or are unsecured. See Note 2 of our 2019 Form 10-K for a discussion of accounting policies related to bank loans and allowances for losses.



29
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





We segregate our loan portfolio into six6 loan portfolio segments: C&I, commercial real estate (“CRE”), CRE construction, tax-exempt, residential mortgage, and SBL.SBL and other. These portfolio segments also serve as the portfolio loan classes for purposes of credit analysis, except for residential mortgage loans which are further disaggregated into residential first mortgage and residential home equity classes.


See Note 2 of our 2017 Form 10-K for a discussion of our accounting policies related
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to bank loans and allowances for losses, including the policies regarding loans held for investment, loans held for sale, off-balance sheet loan commitments, nonperforming assets, troubled debt restructurings (“TDRs”), impaired loans, the allowance for loan losses and reserve for unfunded lending commitments, and loan charge-off policies.Condensed Consolidated Financial Statements (Unaudited)






The following table presents the balances for both the held for sale and held for investment loan portfolios, as well as the associated percentage of each portfolio segment in RJ Bank’s total loan portfolio. “Loans held for sale, net” and “Total loans held for investment, net” in the following table below are presented net of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs.
  March 31, 2020 September 30, 2019
$ in millions Balance % Balance %
Loans held for investment:  
  
  
  
C&I loans $8,316
 38% $8,098
 38%
CRE construction loans 180
 1% 185
 1%
CRE loans 3,830
 17% 3,652
 17%
Tax-exempt loans 1,266
 5% 1,241
 6%
Residential mortgage loans 4,864
 22% 4,454
 21%
SBL and other 3,546
 16% 3,349
 16%
Total loans held for investment 22,002
  
 20,979
  
Net unearned income and deferred expenses (13)  
 (12)  
Total loans held for investment, net 21,989
  
 20,967
  
Loans held for sale, net 123
 1% 142
 1%
Total loans held for sale and investment 22,112
 100% 21,109
 100%
Allowance for loan losses (324)  
 (218)  
Bank loans, net $21,788
  
 $20,891
  

  December 31, 2017 September 30, 2017
$ in thousands Balance % Balance %
Loans held for investment:  
  
  
  
C&I loans $7,490,219
 42% $7,385,910
 43%
CRE construction loans 164,847
 1% 112,681
 1%
CRE loans 3,136,101
 18% 3,106,290
 18%
Tax-exempt loans 1,136,468
 6% 1,017,791
 6%
Residential mortgage loans 3,270,780
 18% 3,148,730
 18%
SBL 2,530,521
 14% 2,386,697
 14%
Total loans held for investment 17,728,936
  
 17,158,099
  
Net unearned income and deferred expenses (30,231)  
 (31,178)  
Total loans held for investment, net 17,698,705
  
 17,126,921
  
Loans held for sale, net 189,862
 1% 70,316
 —
Total loans held for sale and investment 17,888,567
 100% 17,197,237
 100%
Allowance for loan losses (191,269)  
 (190,442)  
Bank loans, net $17,697,298
  
 $17,006,795
  


At DecemberMarch 31, 2017,2020, the FHLB had a blanket lien on RJ Bank’s residential mortgage loan portfolio as security for the repayment of certain borrowings. See Note 12 for more information regarding borrowings from the FHLB.


Loans held for sale


RJ Bank originated or purchased $358$443 million and $522 million$1.15 billion of loans held for sale during the three and six months ended DecemberMarch 31, 20172020, respectively, and 2016,$475 million and $1.27 billion during the three and six months ended March 31, 2019, respectively. Proceeds from the sale of these held for sale loans amounted to $92$220 million and $150$434 million during the three and six months ended DecemberMarch 31, 20172020, respectively, and 2016,$100 million and $357 million during the three and six months ended March 31, 2019, respectively. Net gains resulting from such sales amounted to $1 million in both the three months ended December 31, 2017 and 2016. Unrealized losses recorded in the Condensed Consolidated Statements of Income and Comprehensive Income to reflect the loans held for sale at the lower of cost or market value were insignificant in bothall periods during the three and six months ended DecemberMarch 31, 20172020 and 2016.2019.


Purchases and sales of loans held for investment


The following table presents purchases and sales of any loans held for investment by portfolio segment:segment.
$ in millions C&I loans CRE loans Residential mortgage loans Total
Three months ended March 31, 2020        
Purchases $296
 $5
 $100
 $401
Sales $—
 $—
 $—
 $—
Six months ended March 31, 2020        
Purchases $363
 $5
 $258
 $626
Sales $20
 $—
 $—
 $20
Three months ended March 31, 2019        
Purchases $428
 $25
 $46
 $499
Sales $24
 $—
 $—
 $24
Six months ended March 31, 2019        
Purchases $690
 $25
 $122
 $837
Sales $93
 $—
 $—
 $93

$ in thousands C&I CRE Residential mortgage Total
Three months ended December 31, 2017        
Purchases $147,442
 $20,087
 $45,011
 $212,540
Sales $31,143
 $—
 $—
 $31,143
Three months ended December 31, 2016        
Purchases $114,649
 $38,980
 $81,662
 $235,291
Sales $81,579
 $—
 $—
 $81,579


30
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)






Sales in the preceding table above represent the recorded investment 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 of our 20172019 Form 10-K, corporate loan (C&I, CRE and CRE construction) sales generally occur as part of a loan workout situation.our credit management activities.


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





Aging analysis of loans held for investment


The following table presents an analysis of the payment status of loans held for investment: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 Current and accruing Total loans held for investment
March 31, 2020            
C&I loans $—
 $—
 $—
 $4
 $8,312
 $8,316
CRE construction loans —
 —
 —
 —
 180
 180
CRE loans —
 —
 —
 6
 3,824
 3,830
Tax-exempt loans —
 —
 —
 —
 1,266
 1,266
Residential mortgage loans:     

     

First mortgage loans 1
 —
 1
 14
 4,824
 4,839
Home equity loans/lines —
 —
 —
 —
 25
 25
SBL and other —
 —
 —
 —
 3,546
 3,546
Total loans held for investment $1
 $—
 $1
 $24
 $21,977
 $22,002
             
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

$ in thousands 
30-89
days and accruing
 90 days or more and accruing Total past due and accruing 
Nonaccrual (1)
 Current and accruing 
Total loans held for investment (2)
As of December 31, 2017:            
C&I loans $113
 $—
 $113
 $4,843
 $7,485,263
 $7,490,219
CRE construction loans —
 —
 —
 —
 164,847
 164,847
CRE loans —
 —
 —
 —
 3,136,101
 3,136,101
Tax-exempt loans —
 —
 —
 —
 1,136,468
 1,136,468
Residential mortgage loans:     

     

First mortgage loans 5,886
 —
 5,886
 32,364
 3,205,513
 3,243,763
Home equity loans/lines 75
 —
 75
 126
 26,816
 27,017
SBL 66
 —
 66
 —
 2,530,455
 2,530,521
Total loans held for investment, net $6,140
 $—
 $6,140
 $37,333
 $17,685,463
 $17,728,936
             
As of September 30, 2017:            
C&I loans $—
 $—
 $—
 $5,221
 $7,380,689
 $7,385,910
CRE construction loans —
 —
 —
 —
 112,681
 112,681
CRE loans —
 —
 —
 —
 3,106,290
 3,106,290
Tax-exempt loans —
 —
 —
 —
 1,017,791
 1,017,791
Residential mortgage loans:           
        First mortgage loans 1,853
 —
 1,853
 33,718
 3,086,701
 3,122,272
        Home equity loans/lines 248
 —
 248
 31
 26,179
 26,458
SBL —
 —
 —
 —
 2,386,697
 2,386,697
Total loans held for investment, net $2,101
 $—
 $2,101
 $38,970
 $17,117,028
 $17,158,099


The preceding table includes $9 million and $32 million at March 31, 2020 and September 30, 2019, respectively, of nonaccrual loans which were current pursuant to their contractual terms.
(1)Includes $15 million and $18 million of nonaccrual loans at December 31, 2017 and September 30, 2017, respectively, which are performing pursuant to their contractual terms.

(2)Excludes any net unearned income and deferred expenses.


Other real estate owned, included in “Other assets” on our Condensed Consolidated Statements of Financial Condition, was $4 million and $5$3 million at Decemberboth March 31, 20172020 and September 30, 2017, respectively.2019. The recorded investment in mortgage loans secured by one-to-four family residential properties for which formal foreclosure proceedings were in process was $17 million and $18$7 million at Decemberboth March 31, 20172020 and September 30, 2017, respectively.2019.


31
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)






Impaired loans and troubled debt restructurings


The following table provides a summary of RJ Bank’s impaired loans:loans.
  March 31, 2020 September 30, 2019
$ 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 $4
 $4
 $1
 $19
 $20
 $6
Residential - first mortgage loans 8
 10
 1
 11
 13
 1
Total 12
 14
 2
 30
 33
 7
Impaired loans without allowance for loan losses:    
  
  
  
  
CRE loans 7
 12
 —
 8
 13
 —
Residential - first mortgage loans 11
 17
 —
 11
 17
 —
Total 18
 29
 —
 19
 30
 —
Total impaired loans $30
 $43
 $2
 $49
 $63
 $7

  December 31, 2017 September 30, 2017
$ in thousands 
Gross
recorded
investment
 
Unpaid
principal
balance
 
Allowance
for losses
 
Gross
recorded
investment
 
Unpaid
principal
balance
 
Allowance
for losses
Impaired loans with allowance for loan losses:          
C&I loans $4,843
 $5,910
 $1,846
 $5,221
 $6,160
 $1,963
Residential - first mortgage loans 22,663
 29,403
 2,375
 23,977
 31,100
 2,504
Total 27,506
 35,313
 4,221
 29,198
 37,260
 4,467
Impaired loans without allowance for loan losses:  
  
  
  
  
CRE loans —
 —
 —
 —
 —
 —
Residential - first mortgage loans 16,480
 24,096
 —
 16,737
 24,899
 —
Total 16,480
 24,096
 —
 16,737
 24,899
 —
Total impaired loans $43,986
 $59,409
 $4,221
 $45,935
 $62,159
 $4,467


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.


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





The preceding table includes CRE and residential first mortgage TDR’sloans troubled debt restructurings (“TDRs”) of $26$7 million and $27$17 million, respectively, at DecemberMarch 31, 20172020 and C&I, CRE and residential first mortgage loans TDRs of $19 million, $8 million and $18 million, respectively, at September 30, 2017, respectively.2019.


The average balance of the total impaired loans and the related interest income recognized in the Condensed Consolidated Statements of Income and Comprehensive Income werewas as follows:follows.
  Three months ended March 31, Six months ended March 31,
$ in millions 2020 2019 2020 2019
C&I loans $9
 $27
 $13
 $16
CRE loans 7
 3
 7
 2
Residential - first mortgage loans 20
 25
 21
 26
Total average impaired loan balance $36
 $55
 $41
 $44

  Three months ended December 31,
$ in thousands 2017 2016
Average impaired loan balance:    
C&I loans $4,966
 $32,808
CRE loans —
 2,776
Residential - first mortgage loans 39,935
 46,533
Total $44,901
 $82,117
Interest income recognized:    
Residential - first mortgage loans $287
 $333
Total $287
 $333


Credit quality indicators


The credit quality of RJ Bank’s loan portfolio is summarized monthly by management using 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.  These classifications are divided into three groups:  Not Classified (Pass), Special Mention, and Classified or Adverse Rating (Substandard, Doubtful and Loss). These terms are defined as follows:


Pass – Loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell, of any underlying collateral in a timely manner.


Special Mention – Loans which have potential weaknesses that deserve management’s close attention. These loans are not adversely classified and do not expose RJ Bank 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 Bank 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.


32
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





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 bank 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 Condensed Consolidated Financial Statements (Unaudited)





The following table presents the credit quality of RJ Bank’s held for investment loan portfolio was as follows:portfolio.
$ in millions Pass Special mention Substandard Doubtful Total
March 31, 2020          
C&I loans $8,045
 $142
 $129
 $—
 $8,316
CRE construction loans 180
 —
 —
 —
 180
CRE loans 3,745
 36
 49
 —
 3,830
Tax-exempt loans 1,266
 —
 —
 —
 1,266
Residential mortgage loans:          
First mortgage loans 4,808
 8
 23
 —
 4,839
Home equity loans/lines 25
 —
 —
 —
 25
SBL and other 3,546
 —
 —
 —
 3,546
Total loans held for investment $21,615
 $186
 $201
 $—
 $22,002
           
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 loans held for investment $20,694
 $162
 $123
 $—
 $20,979

$ in thousands Pass Special mention Substandard Doubtful Total
December 31, 2017          
C&I $7,343,153
 $35,606
 $111,460
 $—
 $7,490,219
CRE construction 164,847
 —
 —
 —
 164,847
CRE 3,097,041
 38,933
 127
 —
 3,136,101
Tax-exempt 1,136,468
 —
 —
 —
 1,136,468
Residential mortgage:          
First mortgage 3,194,572
 6,914
 42,277
 —
 3,243,763
Home equity 26,525
 315
 177
 —
 27,017
SBL 2,530,521
 —
 —
 —
 2,530,521
Total $17,493,127
 $81,768
 $154,041
 $—
 $17,728,936
           
September 30, 2017         
C&I $7,232,777
 $63,964
 $89,169
 $—
 $7,385,910
CRE construction 112,681
 —
 —
 —
 112,681
CRE 3,048,847
 57,315
 128
 —
 3,106,290
Tax-exempt 1,017,791
 —
 —
 —
 1,017,791
Residential mortgage:          
First mortgage 3,068,290
 8,467
 45,515
 —
 3,122,272
Home equity 26,352
 75
 31
 —
 26,458
SBL 2,386,697
 —
 —
 —
 2,386,697
Total $16,893,435
 $129,821
 $134,843
 $—
 $17,158,099


Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.

The credit quality of RJ Bank’s performing residential first mortgage loan portfolio is additionally assessed utilizing updated loan-to-value (“LTV”) ratios.  Current LTVs are updated using the most recently available information (generally updated every six months) and are estimated based on the initial appraisal obtained at the time of origination, adjusted using relevant market indices for housing price changes that have occurred since origination.  The value of the homes could vary from actual market values due to changes in the condition of the underlying property, variations in housing price changes within current valuation indices, and other factors. Residential mortgage loans with estimated LTVs in excess of 100% represented much less than 1% of the residential mortgage loan portfolio as of December 31, 2017.








33
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










Allowance for loan losses and reserve for unfunded lending commitments


ChangesThe following table presents changes in the allowance for loan losses of RJ Bank by portfolio segment are as follows:segment.
  Loans held for investment
$ in millions C&I loans CRE construction loans CRE loans Tax-exempt loans Residential mortgage loans SBL and other Total
Three months ended March 31, 2020    
  
    
  
  
Balance at beginning of period $139
 $2
 $46
 $8
 $17
 $4
 $216
Provision for loan losses 59
 1
 42
 3
 1
 3
 109
Net (charge-offs)/recoveries:  
  
  
    
    
Charge-offs —
 —
 —
 —
 —
 —
 —
Recoveries —
 —
 —
 —
 —
 —
 —
Net (charge-offs)/recoveries —
 —
 —
 —
 —
 —
 —
Foreign exchange translation adjustment (1) —
 —
 —
 —
 —
 (1)
Balance at end of period $197
 $3
 $88
 $11
 $18
 $7
 $324
               
Six months ended March 31, 2020              
Balance at beginning of period $139
 $3
 $46
 $9
 $16
 $5
 $218
Provision for loan losses 59
 —
 42
 2
 2
 2
 107
Net (charge-offs)/recoveries:  
  
  
    
  
  
Charge-offs —
 —
 —
 —
 —
 —
 —
Recoveries —
 —
 —
 —
 —
 —
 —
Net (charge-offs)/recoveries —
 —
 —
 —
 —
 —
 —
Foreign exchange translation adjustment (1) —
 —
 —
 —
 —
 (1)
Balance at end of period $197
 $3
 $88
 $11
 $18
 $7
 $324
               
Three months ended March 31, 2019              
Balance at beginning of period $137
 $3
 $46
 $9
 $19
 $5
 $219
Provision/(benefit) for loan losses 6
 —
 2
 (1) (2) —
 5
Net (charge-offs)/recoveries:  
  
  
        
Charge-offs (3) —
 (3) —
 —
 —
 (6)
Recoveries —
 —
 —
 —
 —
 —
 —
Net (charge-offs)/recoveries (3) —
 (3) —
 —
 —
 (6)
Foreign exchange translation adjustment —
 —
 —
 —
 —
 —
 —
Balance at end of period $140
 $3
 $45
 $8
 $17
 $5
 $218
               
Six months ended March 31, 2019              
Balance at beginning of period $123
 $3
 $47
 $9
 $17
 $4
 $203
Provision/(benefit) for loan losses 21
 —
 1
 (1) (1) 1
 21
Net (charge-offs)/recoveries:  
  
  
        
Charge-offs (3) —
 (3) —
 —
 —
 (6)
Recoveries —
 —
 —
 —
 1
 —
 1
Net (charge-offs)/recoveries (3) —
 (3) —
 1
 —
 (5)
Foreign exchange translation adjustment (1) —
 —
 —
 —
 —
 (1)
Balance at end of period $140
 $3
 $45
 $8
 $17
 $5
 $218


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)




  Loans held for investment
$ in thousands C&I 
CRE
construction
 CRE Tax-exempt Residential mortgage SBL Total
Three months ended December 31, 2017  
  
    
  
  
Balance at beginning of period $119,901
 $1,421
 $41,749
 $6,381
 $16,691
 $4,299
 $190,442
Provision/(benefit) for loan losses 2,337
 686
 (1,104) 537
 (1,699) 259
 1,016
Net (charge-offs)/recoveries:  
  
  
    
    
Charge-offs (603) —
 —
 —
 (95) —
 (698)
Recoveries —
 —
 —
 —
 604
 —
 604
Net (charge-offs)/recoveries (603) —
 —
 —
 509
 —
 (94)
Foreign exchange translation adjustment (66) —
 (29) —
 —
 —
 (95)
Balance at end of period $121,569
 $2,107
 $40,616
 $6,918
 $15,501
 $4,558
 $191,269
               
Three months ended December 31, 2016            
Balance at beginning of period $137,701
 $1,614
 $36,533
 $4,100
 $12,664
 $4,766
 $197,378
Provision/(benefit) for loan losses (1,243) 581
 (2,010) 393
 997
 242
 (1,040)
Net (charge-offs)/recoveries:  
  
  
        
Charge-offs (3,389) —
 —
 —
 (87) —
 (3,476)
Recoveries —
 —
 5,013
 —
 65
 —
 5,078
Net (charge-offs)/recoveries (3,389) —
 5,013
 —
 (22) —
 1,602
Foreign exchange translation adjustment (164) (92) (4) —
 —
 —
 (260)
Balance at end of period $132,905
 $2,103
 $39,532
 $4,493
 $13,639
 $5,008
 $197,680


The following table presents, by loan portfolio segment, RJ Bank’s recorded investment (excluding any net unearned income and deferred expenses) and the related allowance for loan losses.
  Loans held for investment
  Allowance for loan losses Recorded investment
$ in thousands Individually evaluated for impairment Collectively evaluated for impairment Total Individually evaluated for impairment Collectively evaluated for impairment Total
December 31, 2017            
C&I $1,846
 $119,723
 $121,569
 $4,843
 $7,485,376
 $7,490,219
CRE construction —
 2,107
 2,107
 —
 164,847
 164,847
CRE —
 40,616
 40,616
 —
 3,136,101
 3,136,101
Tax-exempt —
 6,918
 6,918
 —
 1,136,468
 1,136,468
Residential mortgage 2,389
 13,112
 15,501
 44,429
 3,226,351
 3,270,780
SBL —
 4,558
 4,558
 —
 2,530,521
 2,530,521
Total $4,235
 $187,034
 $191,269
 $49,272
 $17,679,664
 $17,728,936
             
September 30, 2017            
C&I $1,963
 $117,938
 $119,901
 $5,221
 $7,380,689
 $7,385,910
CRE construction —
 1,421
 1,421
 —
 112,681
 112,681
CRE —
 41,749
 41,749
 —
 3,106,290
 3,106,290
Tax-exempt —
 6,381
 6,381
 —
 1,017,791
 1,017,791
Residential mortgage 2,506
 14,185
 16,691
 47,368
 3,101,362
 3,148,730
SBL —
 4,299
 4,299
 —
 2,386,697
 2,386,697
Total $4,469
 $185,973
 $190,442
 $52,589
 $17,105,510
 $17,158,099
  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
March 31, 2020            
C&I loans $1
 $196
 $197
 $4
 $8,312
 $8,316
CRE construction loans —
 3
 3
 —
 180
 180
CRE loans —
 88
 88
 6
 3,824
 3,830
Tax-exempt loans —
 11
 11
 —
 1,266
 1,266
Residential mortgage loans 1
 17
 18
 25
 4,839
 4,864
SBL and other —
 7
 7
 —
 3,546
 3,546
Total $2
 $322
 $324
 $35
 $21,967
 $22,002
             
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


The reserve for unfunded lending commitments, which is included in “Other payables” on our Condensed Consolidated Statements of Financial Condition, was $10$9 million at Decemberboth March 31, 20172020 and $11 million at September 30, 20172019.





34
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










NOTE 98 – 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. Refer to Note 2 of our 20172019 Form 10-K for a discussion of our principal involvement with 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 limited partnerships which are part of our private equity portfolio (“Private Equity Interests, aInterests”), certain Low-Income Housing Tax Credit fund (“LIHTC fund”LIHTC”) in which RJ Bank is an investor and an affiliate of Raymond James Tax Credit Funds, Inc. (“RJTCF”) is the managing member, a LIHTC fund where RJTCF provides an investor member with a guaranteed return on their investment (“Guaranteed LIHTC Fund”), certain other LIHTC funds and the trust we utilize in connection with restricted stock unit (“RSU”) awards granted to certain employees of one of our Canadian subsidiarysubsidiaries (the “Restricted Stock Trust Fund”) require consolidation in our financial statements, as we are deemed the primary beneficiary of such VIEs.  The aggregate assets and liabilities of the VIEs we consolidate are provided in the table below.following table. Aggregate assets and aggregate liabilities may differ from the consolidated carrying value of assets and liabilities due to the elimination of intercompany assets and liabilities held by the consolidated VIE.

$ in millions Aggregate assets Aggregate liabilities
March 31, 2020    
Private Equity Interests $34
 $4
LIHTC funds 75
 5
Restricted Stock Trust Fund 19
 19
Total $128
 $28
     
September 30, 2019  
  
Private Equity Interests $65
 $4
LIHTC funds 80
 5
Restricted Stock Trust Fund 14
 14
Total $159
 $23

$ in thousands Aggregate assets Aggregate liabilities
December 31, 2017    
Private Equity Interests $97,475
 $3,614
LIHTC Fund in which RJ Bank is an investor member 56,556
 1,154
Guaranteed LIHTC Fund 50,870
 2,943
Other LIHTC Funds 7,519
 2,915
Restricted Stock Trust Fund 17,951
 17,951
Total $230,371
 $28,577
     
September 30, 2017  
  
Private Equity Interests $104,414
 $3,851
LIHTC Fund in which RJ Bank is an investor member 57,719
 1,055
Guaranteed LIHTC Fund 51,400
 2,872
Other LIHTC Funds 7,418
 2,544
Restricted Stock Trust Fund 12,122
 12,122
Total $233,073
 $22,444

In the Guaranteed LIHTC Fund, a multi-investor tax credit fund in which RJTCF is the managing member, RJTCF has provided one investor member a guaranteed return on their investment in the fund. See Note 9 in our 2017 Form 10-K for information regarding the financing asset associated with this fund and Note 14 of this Form 10-Q for additional information regarding this commitment.


35
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)






The following table presents information about the carrying value of the assets liabilities and equityliabilities of the VIEs which we consolidate and which are included withinon our Condensed Consolidated Statements of Financial Condition. The noncontrolling interests presentedIntercompany balances are eliminated in this table represent the portion of these net assets which areconsolidation and not ours.
$ in thousands December 31, 2017 September 30, 2017
Assets:    
Cash and cash equivalents $2,343
 $2,052
Assets segregated pursuant to regulations and other segregated assets 4,242
 4,590
Other receivables 79
 168
Intercompany receivables 443
 454
Other investments 94,610
 101,905
Investments in real estate partnerships held by consolidated variable interest entities 110,662
 111,743
Trust fund investment in RJF common stock 17,949
 12,120
Other assets 43
 41
Total assets $230,371
 $233,073
     
Liabilities and equity:  
  
Other payables $11,968
 $9,667
Intercompany payables 22,302
 16,520
Total liabilities 34,270
 26,187
RJF equity 96,968
 101,445
Noncontrolling interests 99,133
 105,441
Total equity 196,101
 206,886
Total liabilities and equity $230,371
 $233,073

The trust fund investment in RJF common stockreflected in the table above is the Restricted Stock Trust Fund, which is included in “Treasury stock” in our Condensed Consolidated Statements of Financial Condition.following table.

$ in millions March 31, 2020 September 30, 2019
Assets:    
Cash, cash equivalents and cash segregated pursuant to regulations $6
 $7
Other investments 33
 63
Other assets 70
 75
Total assets $109
 $145
Liabilities:  
  
Other payables $4
 $4
Total liabilities $4
 $4
Noncontrolling interests $35
 $60


VIEs where we hold a variable interest but are not the primary beneficiary


As discussed in Note 2 inof our 20172019 Form 10-K, we have concluded that for certain VIEs we are not the primary beneficiary and therefore do not consolidate these VIEs. Such VIEs include certain Private Equity Interests, certain LIHTC funds, New Market Tax Credit Funds (“NMTC Funds”) and other limited partnerships. Our risk of loss for these VIEs is limited to our investments in, advances to, and/or receivables due from these VIEs.


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





Aggregate assets, liabilities and risk of loss


The aggregate assets, liabilities, and our exposure to loss from those VIEs in which we hold a variable interest, but as to which we have concluded we are not the primary beneficiary, are provided in the table below.following table.
  March 31, 2020 September 30, 2019
$ in millions 
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
 
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
Private Equity Interests $5,175
 $128
 $59
 $6,317
 $117
 $63
LIHTC funds 6,500
 2,041
 40
 6,001
 2,221
 64
Other 220
 129
 4
 205
 115
 4
Total $11,895

$2,298

$103

$12,523

$2,453

$131

  December 31, 2017 September 30, 2017
$ in thousands 
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
 
Aggregate
assets
 
Aggregate
liabilities
 
Our risk
of loss
Private Equity Interests $9,270,590
 $177,780
 $71,048
 $10,485,611
 $174,354
 $73,457
LIHTC Funds 5,432,342
 2,129,756
 86,098
 5,372,367
 2,134,600
 60,959
NMTC Funds 30,196
 115
 9
 30,297
 105
 9
Other 169,462
 88,615
 3,535
 169,462
 88,615
 3,163
Total $14,902,590

$2,396,266

$160,690

$16,057,737

$2,397,674

$137,588



36
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





NOTE 109 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET


Our goodwill and identified intangible assets result from various acquisitions. See Note 2 and 11 of our 20172019 Form 10-K for a discussion of our intangible assets and goodwill accounting policies. The following areinformation about our goodwill and net identifiableintangible assets, including the related accounting policies.

We perform goodwill and indefinite-lived intangible asset balances as of the dates indicated:
$ in thousands December 31, 2017 September 30, 2017
Goodwill $479,775
 $410,723
Identifiable intangible assets, net 171,564
 82,460
Total goodwill and identifiable intangible assets, net $651,339
 $493,183

As more fully described in Note 3, we acquired Scout Group during the three months ended December 31, 2017, which included a number of identifiable intangible assets as well as goodwill. See Note 12 of our 2017 Form 10-K for a discussion of the components of our goodwill balance and additional information regarding our identifiable intangible assets.

Goodwill

The following summarizes our goodwill by segment, along with the balance and activity for the periods indicated:
  Segment  
$ in thousands Private Client Group Capital Markets Asset Management Total
For the three months ended December 31, 2017        
Goodwill as of beginning of period $276,713
 $134,010
 $—
 $410,723
Additions —
 —
 69,234
 69,234
Foreign currency translation (179) (3) —
 (182)
Goodwill as of end of period $276,534
 $134,007
 $69,234
 $479,775
         
For the three months ended December 31, 2016        
Goodwill as of beginning of period $275,521
 $132,551
 $—
 $408,072
Additions —
 —
 —
 —
Foreign currency translation (537) (1,038) —
 (1,575)
Goodwill as of end of period $274,984
 $131,513
 $—
 $406,497

The addition to goodwill during the three months ended December 31, 2017 arose from acquisition of the Scout Group.

As described in Note 2 of our 2017 Form 10-K, we perform goodwillimpairment 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.value or indicate that the asset is impaired.  We performed our latest annual goodwill impairment testing during the quarter ended March 31, 2017,for our goodwill and indefinite-lived intangible asset as of our January 1, 2020 evaluation date, evaluating balances as of December 31, 2016, and no impairment was identified. In that testing, we2019. We performed both a qualitative impairment assessment for certaineach of our reporting units that had goodwill, as well as for our indefinite-lived intangible asset.  Based upon the outcome of our qualitative assessments, 0 impairment was identified.

Our qualitative assessments consider macroeconomic indicators, such as trends in equity and fixed income markets, gross domestic product, unemployment rates, interest rates, housing markets and trade policy. We also consider regulatory changes, reporting unit specific results, and changes in key personnel and strategy. Changes in these indicators, and our ability to respond to such changes, may trigger the need for impairment testing at a point other than our annual assessment date.

Subsequent to our annual impairment testing, as a result of a deterioration in market conditions due to the COVID-19 pandemic, we performed an evaluation to determine whether the economic impacts resulting from the pandemic were indicators requiring us to perform an impairment test as of March 31, 2020. Multiple factors, including performance, macroeconomic, and fair value indicators, were assessed with respect to each of our reporting units to determine whether it was more likely than not that the estimated fair value of any of these reporting units was less than its estimated carrying value. As a result of our review, we concluded that the fair value of our reporting units had not more likely than not been reduced below their respective carrying values and that the impact of the COVID-19 pandemic through the end of our second fiscal quarter of 2020 was not a triggering event to perform a quantitative test. We will continue to monitor the effects of the COVID-19 pandemic, including continued market declines, unfavorable economic conditions, declining financial performance, and other factors that could increase the risk of impairment of our goodwill and indefinite-lived intangible asset in future periods.


NOTE 10 – 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. We also lease certain office and technology equipment. 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. If the arrangement is determined to be a lease, we recognize a ROU asset and a quantitative impairment assessmentcorresponding lease liability on our balance sheet. 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 have elected the practical expedient, where leases with an initial term of 12 months or less are not recorded as an ROU asset or lease liability. Our lease terms include any noncancelable periods and may reflect periods covered by options to extend or terminate when it is reasonably certain that we will exercise those options. As of March 31, 2020, the weighted average remaining lease term for our two Raymond James Ltd. (“RJ Ltd.”) reporting units operating in Canada. No events have occurred sinceleases was five years.

We record our assessment duringoperating lease ROU assets at the quarter endedamount of the lease liability plus any prepaid rent and initial direct costs, less any lease incentives and accrued rent. We record lease liabilities at commencement date based on the present value of lease payments over the lease term, which is discounted using our commencement date incremental borrowing rate. Our incremental borrowing rate considers the weighted average yields on our senior notes payable, adjusted for collateralization and tenor. As of March 31, 2017 that would cause us to update this impairment testing. See Note 12 in our 2017 Form 10-K for further information about our goodwill impairment testing.


2020, the weighted-
37
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










Identifiable intangibleaverage discount rate for our operating leases was 3.86%. Payments that vary because of changes in facts or circumstances occurring after the commencement date 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. We have not elected the practical expedient for our equipment leases and account for lease and non-lease components separately. As of March 31, 2020, ROU assets netof $327 million and lease liabilities of $351 million were included as components of “Other assets” and “Other payables,” respectively, on our Condensed Consolidated Statements of Financial Condition.


Lease expense

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term if the ROU asset has not been impaired or abandoned.

The followingcomponents of lease expense were as follows.
$ in million Three months ended March 31, 2020 Six months ended March 31, 2020
Operating lease costs $23
 $46
Variable lease costs $4
 $12


Variable lease costs in the preceding table sets forth our identifiable intangible asset balances by segment, netincludes payments for common area maintenance charges and other variable costs that are not reflected in the measurement of accumulated amortization,ROU assets and activitylease liabilities.

Finance leases and sublease income were immaterial for all periods presented. Short-term lease expenses for the periods indicated:
  Segment 
$ in thousands Private Client Group Capital Markets Asset Management Total
For the three months ended December 31, 2017        
Net identifiable intangible assets as of beginning of period $47,026
 $23,077
 $12,357
 $82,460
Additions —
 —
 92,290
 92,290
Amortization expense (1,496) (769) (871) (3,136)
Foreign currency translation (9) —
 (41) (50)
Net identifiable intangible assets as of end of period $45,521
 $22,308
 $103,735
 $171,564
         
For the three months ended December 31, 2016        
Net identifiable intangible assets as of beginning of period $52,936
 $27,937
 $14,101
 $94,974
Additions —
 —

—
 —
Amortization expense (1,520) (1,565) (498) (3,583)
Foreign currency translation (45) (38) (132) (215)
Net identifiable intangible assets as of end of period $51,371
 $26,334
 $13,471
 $91,176

The addition of intangible assets during the three and six months ended DecemberMarch 31, 20172020 were attributable to the Scout Group acquisition.immaterial.


The following table sets forth our acquired intangible asset balances by asset class:Lease liabilities

  
Weighted average useful life
(in years)
 
Amount acquired
(in thousands)
Customer relationships 13 $34,900
Trade name 20 3,590
Developed technology 10 1,800
Intangible assets subtotal 13 $40,290
Non-amortizing customer relationships Indefinite 52,000
Total intangible assets acquired   $92,290

GAAP does not provide for the amortizationMaturities of indefinite-lived intangible assets. 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 often if events or circumstances indicate there may be impairment. In the course of our evaluation of the potential impairment of such indefinite-lived asset, we may perform 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, then performing a quantitative analysis is not required.  However, if we conclude otherwise, we then perform a quantitative impairment analysis.  We have elected January 1 as our annual impairment evaluation date, evaluating balanceslease liabilities as of December 31.

The following summarizes our identifiable intangible assets by type:March 31, 2020 were as follows.
Maturity of lease liabilities for fiscal year ended September 30, $ in millions
Remainder of 2020 $43
2021 95
2022 72
2023 58
2024 44
After 2024 79
Total lease payments 391
Less: interest 40
Present value of lease liabilities $351

  December 31, 2017 September 30, 2017
$ in thousands Gross carrying value Accumulated amortization Gross carrying value Accumulated amortization
Customer relationships $133,610
 $(32,275) $99,749
 $(31,098)
Non-amortizing customer relationships 52,000
 —
 —
 —
Trade name 11,854
 (2,387) 8,366
 (2,076)
Developed technology 3,430
 (809) 1,630
 (706)
Intellectual property 538
 (144) 542
 (131)
Non-compete agreements 2,902
 (1,347) 3,336
 (1,551)
Seller relationship agreements 5,300
 (1,108) 5,300
 (901)
Total $209,634
 $(38,070) $118,923
 $(36,463)


Operating lease payments in the preceding table exclude $93 million of legally binding minimum lease payments for leases signed but not yet commenced. These leases are estimated to commence between fiscal year 2020 and 2021 with lease terms ranging from two years to ten years.


Statement of cash flows supplemental information
38
$ in millions Three months ended March 31, 2020 Six months ended March 31, 2020
Cash outflows - lease liabilities $24
 $47
Non-cash - ROU assets recorded for new and modified leases $27
 $39


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










Minimum future lease commitments (under previous GAAP)

As of the date of adoption, our undiscounted minimum annual rental commitments under operating leases were materially unchanged from the disclosure in Note 17 of our 2019 Form 10-K, which is included 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



NOTE 11 – BANK DEPOSITS


Bank deposits include savings and money market accounts, certificates of deposit ofwith RJ Bank, Negotiable Order of Withdrawal (“NOW”) accounts and demand deposits. The following table presents a summary of bank deposits including the weighted-average rate, the calculation of which was based on the actual deposit balances at December 31, 2017 and September 30, 2017.each respective period.
  March 31, 2020 September 30, 2019
$ in millions Balance Weighted-average rate Balance Weighted-average rate
Savings and money market accounts $28,715
 0.01% $21,654
 0.25%
Certificates of deposit 1,150
 1.99% 605
 2.33%
NOW accounts 136
 1.92% 6
 0.01%
Demand deposits (non-interest-bearing) 22
 —
 16
 —
Total $30,023
 0.09% $22,281
 0.31%

  December 31, 2017 September 30, 2017
$ in thousands Balance Weighted-average rate Balance Weighted-average rate
Savings and money market accounts $18,377,271
 0.14% $17,391,091
 0.14%
Certificates of deposit 333,010
 1.64% 314,685
 1.60%
NOW accounts 5,982
 0.01% 5,197
 0.01%
Demand deposits (non-interest-bearing) 9,282
 —
 21,389
 —
Total bank deposits $18,725,545
 0.17% $17,732,362
 0.17%


Total bank deposits in the preceding table above excludesexclude affiliate deposits of $246$179 million at DecemberMarch 31, 20172020 and $243$163 million at September 30, 2017. These affiliate deposits include $193 million at December 31, 2017 and $192 million at September 30, 2017,2019, all of which were held in a deposit account at RJ Bank on behalf of RJF.


Savings and money market accounts in the preceding table above consist primarily of deposits that are cash balances swept from the client investment accounts maintained at Raymond James & Associates, Inc. (“RJ&A”) to RJ Bank. These balances are held in Federal Deposit Insurance Corporation (“FDIC”) insured-insured bank accounts through the Raymond James Bank Deposit Program (“RJBDP”). The aggregate amount of individual time deposit account balances that exceeded the FDIC insurance limit at DecemberMarch 31, 20172020 was $25approximately $65 million.


ScheduledThe following table sets forth the scheduled maturities of certificates of deposit are as follows:deposit.
  March 31, 2020 September 30, 2019
$ 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 $84
 $20
 $24
 $19
Over three through six months 57
 26
 26
 21
Over six through twelve months 67
 85
 75
 37
Over one through two years 26
 175
 32
 36
Over two through three years 54
 160
 40
 93
Over three through four years 68
 171
 66
 47
Over four through five years 7
 150
 38
 51
Total certificates of deposit $363
 $787
 $301
 $304


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)




  December 31, 2017 September 30, 2017
$ in thousands 
Denominations
greater than or
equal to $100,000
 
Denominations
less than $100,000
 
Denominations
greater than or
equal to $100,000
 
Denominations
less than $100,000
Three months or less $11,405
 $5,583
 $8,704
 $4,132
Over three through six months 5,251
 4,146
 4,692
 3,894
Over six through twelve months 42,837
 16,649
 34,005
 11,865
Over one through two years 37,836
 20,950
 38,713
 20,019
Over two through three years 49,602
 27,797
 48,082
 27,847
Over three through four years 9,462
 7,281
 21,819
 12,761
Over four through five years 62,534
 31,677
 50,805
 27,347
Total $218,927
 $114,083
 $206,820
 $107,865


Interest expense on deposits, excluding interest expense related to affiliate deposits, is summarized as follows:in the following table.
  Three months ended March 31, Six months ended March 31,
$ in millions 2020 2019 2020 2019
Savings, money market, and NOW accounts $6
 $34
 $18
 $67
Certificates of deposit 6
 3
 10
 5
Total interest expense on deposits $12
 $37
 $28
 $72

  Three months ended December 31,
$ in thousands 2017 2016
Certificates of deposit $1,272
 $1,135
Savings, money market, and NOW accounts 6,237
 1,648
Total interest expense on deposits $7,509
 $2,783





39
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





NOTE 12 – OTHER BORROWINGS
 
The following table details the components of other borrowings:borrowings.
$ in millions March 31, 2020 September 30, 2019
FHLB advances $875
 $875
Mortgage notes payable and other 16
 19
Total other borrowings $891
 $894

$ in thousands December 31, 2017 September 30, 2017
FHLB advances $875,000
 $875,000
RJF Credit Facility 300,000
 —
Secured lines of credit 180,000
 260,000
Unsecured lines of credit 150,000
 350,000
Mortgage notes payable and other 27,826
 29,012
Total other borrowings $1,532,826
 $1,514,012


FHLB advances

Borrowings from the FHLB as of March 31, 2020 and September 30, 2019, were comprised of both floating and fixed-rate advances. As of DecemberMarch 31, 20172020 and September 30, 20172019, the floating-rate advances totaled $850 million. The interest rates on the floating-rate advances, which mature in June 2019 and have interest rates whichDecember 2022, reset quarterly totaled $850 million.and are generally based on LIBOR. We use interest rate swaps to manage the risk of increases in interest rates associated with these floating-rate advances by converting the balances subject to variable interest rates to a fixed interest rate. Refer to Note 62 of our 2019 Form 10-K for information regarding these interest rate swaps, which are accounted for as hedging instruments. The fixed-rate advance asAs of both DecemberMarch 31, 20172020 and September 30, 2017, in2019, the amount offixed-rate advance totaled $25 million matures in October 2020 and bears interest at a fixed rate of 3.4%. This advance matures in October 2020. All of the advances were secured by a blanket lien granted to the FHLB on our residential mortgage loan portfolio. The weighted average interest ratesrate on these FHLB advances as of DecemberMarch 31, 20172020 and September 30, 2017 were 1.74%2019 was 1.42% and 1.41%2.17%, respectively.


Secured and unsecured financing arrangements

On February 19, 2019, RJF is a party to aand RJ&A entered into an unsecured revolving credit facility agreement (the “RJF“Credit Facility”). The Credit Facility”) withFacility has a maturity date of May 2022 in whichFebruary 2024 and the lenders areinclude a number of financial institutions. This committed unsecured borrowing facility provides for maximum borrowings of up to $500 million, with a sublimit of $300 million atfor RJF. RJ&A may borrow up to $500 million under the Credit Facility, depending on the amount of outstanding borrowings of RJF. The interest rates on borrowings under the Credit Facility are variable rates of interest. Theand based on LIBOR, as adjusted for RJF’s credit rating. There were 0 borrowings outstanding on the RJF Credit Facility bear interest at a rateas of 2.98% per annum. The outstanding borrowings at DecemberMarch 31, 2017 were subsequently repaid in January 2018.2020. There is a variable rate commitmentfacility fee associated with the RJF Credit Facility, which also varies depending uponwith RJF’s credit rating. Based upon RJF’s credit rating as of DecemberMarch 31, 2017,2020, the variable rate commitmentfacility fee, which would applyis applied to any difference between the daily borrowed amount and the committed amount, was 0.20%0.175% per annum. Any borrowings on

In addition to the Credit Facility, we maintain various secured and unsecured lines of credit, were short-term and were generally utilized for cash management purposes.

Any borrowings on secured lines of credit were day-to-day and werewhich are generally utilized to finance certain fixed income securities. In addition we have other collateralized financings included in “Securities sold under agreements to repurchase”securities or for cash management purposes. Borrowings during the period were generally day-to-day and there were no borrowings outstanding on our Condensed Consolidated Statementsthese arrangements as of Financial Condition. See Note 7 for information regarding our collateralized financing arrangements.

March 31, 2020. The interest rates for all of our U.S. and Canadian secured and unsecured financing facilitiesthese arrangements are variable and are based on the Fed Funds rate, LIBOR, a lenders prime rate, or the Canadian prime rate, as applicable. For the three months ended December 31, 2017, interest rates

We also have other collateralized financings included in “Securities sold under agreements to repurchase” and “Securities loaned” on the U.S. facilities that were utilized during the period,our Condensed Consolidated Statements of Financial Condition. See Note 6 for information regarding our other than the RJF Credit Facility which was previously described, ranged from 0.85% to 5.30%.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 atrate of 5.7% with repayment terms of monthly interest and principal debt service and have a January 2023 maturity.




RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





NOTE 13 – SENIOR NOTES PAYABLE

The following table summarizes our senior notes payable.
$ in millions March 31, 2020 September 30, 2019
5.625% senior notes, due 2024 $250
 $250
3.625% senior notes, due 2026 500
 500
4.65% senior notes, due 2030 500
 —
4.95% senior notes, due 2046 800
 800
Total principal amount 2,050
 1,550
Unaccreted premium/(discount) 10
 11
Unamortized debt issuance costs (16) (11)
Total senior notes payable $2,044
 $1,550


In March 2012, we sold in a registered underwritten public offering $250 million in aggregate principal amount of 5.625% senior notes due April 2024. 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 50 basis points, plus accrued and unpaid interest thereon to the redemption date.

In July 2016, we sold in a registered underwritten public offering $500 million in aggregate principal amount of 3.625% senior notes due September 2026. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 35 basis points, plus accrued and unpaid interest thereon to the redemption date.

In March 2020, we sold in a registered underwritten public offering $500 million in aggregate principal amount of 4.65% senior notes due April 2030. 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 in a registered underwritten public offering $300 million in aggregate principal amount of 4.95% senior notes due July 2046. In May 2017, we reopened the offering and sold, in a registered underwritten public offering, an additional $500 million in aggregate principal amount of 4.95% senior notes due July 2046. These additional senior notes were consolidated, formed into a single series, and are fully fungible with the $300 million in aggregate principal amount 4.95% senior notes issued in July 2016. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 45 basis points, plus accrued and unpaid interest thereon to the redemption date.


NOTE 1314 – INCOME TAXES

For discussion of income tax accounting policies and other income tax related information, see Note 2 and Note 16 of our 2017 Form 10-K.


The income tax provision for interim periods is comprised of tax on ordinary income provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of discrete items.  We estimate the annual effective tax rate quarterly based on the forecasted pretax results of our U.S. and non-U.S. operations. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax.  These discrete items generally relate to changes in tax laws, adjustments to the actual liability determined upon filing tax returns, excess tax benefits related to share-based compensation and adjustments to previously recorded reserves for uncertain tax positions. For discussion of income tax accounting policies and other income tax related information, see Notes 2 and 16 of our 2019 Form 10-K.




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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)









The Tax Cuts and Jobs Act (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 corporate income tax rates from 35% to 21% and implementing a territorial tax system which includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. As the firm’s fiscal year end is September 30th, our U.S. federal statutory tax rate will be 24.5% for our fiscal year ended September 30, 2018, which reflects a blended federal statutory rate of 35% for our first fiscal quarter and 21% for the remaining three fiscal quarters.  This blended statutory rate is the basis for calculating our effective tax rate, which is also impacted by other factors.

In response to the enactment of the Tax Act, the SEC issued guidance which summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Act. Further to (2) above, a registrant should record provisional amounts during a “measurement period” when the registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in tax law. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, not to exceed twelve months from the enactment date of the Tax Act. In accordance with the SEC guidance, our net income for the three months ended December 31, 2017 included an estimate of the discrete impact of the Tax Act of $117 million, primarily due to the remeasurement of U.S. deferred tax assets at the lower enacted corporate tax rate and, to a lesser extent, the transition tax on deemed repatriated earnings of foreign subsidiaries. This estimate incorporates assumptions made based on our current interpretation of the Tax Act and may change, possibly materially, as we complete our analysis and receive additional clarification and implementation guidance.

Reduction of U.S. federal corporate tax rate

We applied the SEC’s guidance in estimating the remeasurement of U.S. deferred tax assets at the lower enacted corporate tax rate, resulting in an estimated impact of $104 million. This calculation includes projections related to the timing of realization of deferred tax assets during the remainder of fiscal year 2018 and beyond. We will update our calculation throughout the year as more information becomes available. These estimates may change, possibly materially, as we obtain further information regarding the timing of realization of deferred tax assets.

Transition tax

We also applied the SEC’s guidance in estimating the transition tax, which we anticipate will be approximately $13 million, including the state tax liability associated with deemed repatriation of foreign earnings. Our tax liability calculations include projected amounts of unremitted earnings for our foreign subsidiaries for the remainder of the fiscal year. We will update our calculations throughout the year as more information on our foreign subsidiaries’ earning and profits becomes available. These estimates incorporate assumptions made based on our current interpretation of the Tax Act and may change, possibly materially, as we complete our analysis and receive additional clarification and implementation guidance.  

Executive compensation deduction limitation

We also applied the SEC’s guidance in accounting for the deferred tax assets potentially impacted by the Tax Act legislation. Effective for tax years beginning after December 31, 2017, the Tax Act eliminates the exception for performance-based compensation from the $1 million executive compensation deduction limitation. Our covered employees are paid a portion of performance-based compensation in the form of RSUs and stock awards which creates a deferred tax asset upon grant. The necessary information is not yet available to determine whether the deferred compensation previously granted will be deductible as a business expense as the legislation published to date is unclear on the effects to the deferred tax assets previously recorded. As such, we are unable to calculate a reasonable impact of this tax law change, thus in accordance with the SEC’s guidance, we did not include a provisional amount in our financial statements. We continue to apply accounting guidance based on the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted. We will report provisional amounts in the first reporting period in which a reasonable estimate can be determined.

Indefinite reinvestment assertion

We are in the process of assessing the impact of the Tax Act on our current policy of indefinitely reinvesting foreign earnings, our related assertion to indefinitely reinvestment foreign earnings, as well as any such impact on our consolidated financial statements.  Accordingly, no adjustments were included in our Condensed Consolidated Financial Statements for the three months ended December 31, 2017 with respect to the firm’s indefinite reinvestment assertion.

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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)






Effective tax rate


For the three months ended December 31, 2017, ourOur effective income tax rate was 61.7%, including26.9% for the estimated discrete impact ofsix months ended March 31, 2020, which was higher than the Tax Act of $117 million, partially offset by a lower blended federal corporate statutory tax rate of 24.5%. The discrete impact of the Tax Act increased our effective tax rate by 37.6 percentage points. The24.8% effective tax rate for fiscal year 20172019. The increase in the effective tax rate was 31.2%.primarily due to the unfavorable impact in the current period of non-deductible valuation losses associated with our company-owned life insurance policies.


Uncertain tax positions


We anticipate that the uncertain tax position liability balance will not change significantly over the next twelve months.




NOTE 1415 – COMMITMENTS, CONTINGENCIES AND GUARANTEES


Commitments and contingencies


Loan and Underwriting Commitmentsunderwriting commitments


In the normal course of business, we enter into commitments for fixed income and equity underwritings. As of DecemberMarch 31, 20172020, we had one4 such open underwriting commitment,commitments, which waswere subsequently settled in open market transactions and did not resultnone of which resulted in a significant loss.


As part of our recruiting efforts, weWe offer loans to prospective financial advisors and certain key revenue producers primarily for recruiting, transitional cost assistance, and retention purposes (see Note 2 of our 20172019 Form 10-K for a discussion of our accounting policies governing these transactions). These commitmentsoffers are contingent upon the occurrence of certain events occurring, including but not limitedthe individuals joining us and meeting certain conditions outlined in their offer. Our unfunded loan commitments related to the individual joining us.  Assuch offers were insignificant as of DecemberMarch 31, 2017, we had made commitments through the extension of formal offers totaling approximately $118 million that had not yet been funded; however, it is possible that not all of our offers will be accepted and therefore, we would not fund the total amount of the offers extended. As of December 31, 2017, $64 million of the total amount extended consisted of unfunded commitments to prospective financial advisors that had accepted our offers, or recently hired producers.2020.

As of December 31, 2017, we had not settled purchases of $121 million in syndicated loans.  These loan purchases are expected to be settled within 90 days.


Commitments to extend credit and other credit-related financial instruments


RJ Bank has outstanding, at any time, a significant number of commitments to extend credit and other credit-related off-balance sheet financial instruments such as standby letters of credit and loan purchases, which then extend over varying periods of time. These arrangements are subject to strict underwriting assessments and each customer’s credit worthiness is evaluated on a case-by-case basis. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and our exposure is limited to the replacement value of those commitments.


The following table presents RJ Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding:outstanding.
$ in millions March 31, 2020 September 30, 2019
Open-end consumer lines of credit (primarily SBL) $10,758
 $9,328
Commercial lines of credit $1,153
 $1,527
Unfunded loan commitments $676
 $599
Standby letters of credit $40
 $40

$ in thousands December 31, 2017 September 30, 2017
Standby letters of credit $38,436
 $39,670
Open-end consumer lines of credit (primarily SBL) $5,782,262
 $5,323,003
Commercial lines of credit $1,723,429
 $1,673,272
Unfunded loan commitments $521,676
 $386,950


Open-end consumer lines of credit primarily represent the unfunded amounts of RJ Bank loans to consumers that are secured by marketable securities at advance rates consistent with industry standards. The proceeds from repayment or, if necessary, the liquidation of collateral, which is monitored daily, are expected to satisfy the amounts drawn against these existing lines of credit. These lines of credit are primarily uncommitted, as we reserve the right to not make any advances or may terminate these lines at any time.

Because many of our lending commitments expire without being funded in whole or part, the contractcontractual amounts are not estimates of our actual future credit exposure or future liquidity requirements. We maintain a reserve to provide for potential losses related to the unfunded lending commitments. See Note 87 for further discussion of this reserve for unfunded lending commitments.


Investment CommitmentsRJ&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.

A subsidiary of RJ Bank has committed $80 million as an investor member in a LIHTC fund in which a subsidiary of RJTCF is the managing member (see Note 2 of our 2017 Form 10-K for information regarding the accounting policies governing these investments). As of December 31, 2017, the RJ Bank subsidiary had invested $62 million of the committed amount.


42
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










Investment commitments

We havehad unfunded commitments to various investments, including private equity investments which aggregate to $36and certain RJ Bank investments, of $41 million as of DecemberMarch 31, 20172020. Of the total, we have unfunded

Other commitments of $18 million to internally-sponsored private equity

Raymond James Tax Credit Funds, Inc. (“RJTCF”) sells investments in which we control the general partner.

Acquisition-Related Commitments and Contingencies

We have potential contingent payments related to our acquisitions of the Scout Group, The Producer’s Choice LLC and Mummert & Company Corporate Finance GmbH. The estimated fair values of such contingent payments were included in our Condensed Consolidated Statements of Financial Condition as of December 31, 2017.

Other Commitments
RJF has committed an amount of up to $225 million, subject to certain limitations and to annual re-approval by the RJF Board of Directors, to either lend to, or guarantee obligations of RJTCF in connection with RJTCF’s low-income housing development/rehabilitation and syndication activities. At December 31, 2017, RJTCF had $111 million outstanding against this commitment. RJTCF may borrow from RJF in order to make investments in, or fund loans or advances to, either partnerships that purchase and develop properties qualifying for tax credits (“project partnerships”) or LIHTC funds. Investments in project partnerships are sold to various LIHTC funds, which have third partythird-party investors, and for which RJTCF serves as the managing member or general partner. RJTCF typically sells investments in project partnerships to LIHTC funds within 90 days of their acquisition,acquisition. Until such investments are sold to LIHTC funds, RJTCF is responsible for funding investment commitments to such partnerships. As of March 31, 2020, RJTCF had committed approximately $204 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.impact our future liquidity requirements. RJTCF may also make short-term loans or advances to project partnerships and LIHTC funds.


As a part of our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMAagency MBS (see the discussion of these activities within Note 2 of our 20172019 Form 10-K).  At DecemberMarch 31, 20172020, we had $851$331 million principal amount of outstanding forward MBS purchase commitments, which were expected to be purchased over thewithin 90 days following 90 days.commitment.  In order to hedge the market interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into to be announced (“TBA”)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 purchasedpurchase commitments are accounted for at fair value. As of DecemberMarch 31, 20172020, the fair value of the TBA securities and the estimated fair value of the purchase commitments were insignificant.

Contingencies

RJF and certain of its subsidiaries are subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. The reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censures to fines and, in serious cases, temporary or permanent suspension from conducting business, or limitations on certain business activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time into industry practices, which can also result in the imposition of such sanctions. Refer to the “Legal and regulatory matter contingencies” discussion within this footnote for information about related loss contingency reserves.


Guarantees


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 obligations to clients. This coverage does not protect against market fluctuations. RJF has provided an indemnity to Lloyd’s of London against any and all losses they may incur associated with the excess SIPC policies.


RJTCF issues certain guarantees to various third parties related to project partnerships whose interests have been sold toWe guarantee the debt of one or more of our private equity investments. The amount of such debt, including the funds in which RJTCF is the managing member or general partner. In some instances, RJTCF is not the primary guarantorundrawn portion of these obligations, which aggregated to $3a revolving credit facility, was $13 million as of DecemberMarch 31, 2017.

RJTCF has provided a guaranteed return on investment to a third-party investor2020. The debt, which matures in the Guaranteed LIHTC Fund and RJF has guaranteed RJTCF’s performance under the arrangement.  Under the terms2021, is secured by substantially all of the performance guarantee, shouldassets of the underlying LIHTC project partnerships held by the Guaranteed LIHTC Fund fail to deliver a certain amount of tax credits and other tax benefits to this investorborrower.

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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





over the next five years, RJTCF is obligated to pay the investor an amount that results in the investor achieving a minimum specified return on their investment.  A $16 million financing asset was included in “Other assets,” and a related $16 million liability was included in “Other payables” on our Condensed Consolidated Statements of Financial Condition as of December 31, 2017 related to this obligation. The maximum exposure to loss under this guarantee was $17 million at December 31, 2017, which represented the undiscounted future payments due the investor.


Legal and regulatory matter contingencies


In addition to theany matters that may be specifically described below,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.


WeRJF and certain of its subsidiaries are also subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. Reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censures to fines and, in serious cases, temporary or permanent suspension from conducting business, or limitations on certain business activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time to other reviews, investigationsinto industry practices, which can also result in the imposition of such sanctions.

We may contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and proceedingsinvestigatory activity (both formal and informal) by governmentalgovernment and self-regulatory agencies regarding our business. Such proceedings may involve, among other things, our sales and trading activities, financial products or offerings we sponsored, underwrote or sold, and operational matters. Some of these proceedings have resulted, and mayhas increased significantly in the future result, in adverse judgments, settlements, fines, penalties, injunctionsfinancial services industry. There can be no assurance that material losses will not be incurred from claims that have not yet been asserted or other relief and/or require usare not yet determined to undertake remedial actions.be material.


We
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





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 discussions; discovery is not complete; there are significant facts in dispute; and numerous parties are named as defendants (including where it is uncertain how liability might be shared among defendants).

We contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased significantly in the financial services industry. While we have identified below certain proceedings that we believe could be material, individually or collectively, there can be no assurance that material losses will not be incurred from claims that have not yet been asserted or are not yet determined to be material.

We may include in some of the descriptions of individual matters below certain quantitative information about the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings. Although this information may provide insight into the potential magnitude of a matter, it does not represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual related thereto.

Subject to the foregoing, we believe, after consultation with counsel, and consideration of the accrued liability amounts included in the accompanying condensed consolidated financial statements,we believe that the outcome of such litigation and regulatory proceedings will not have a material adverse effect on our consolidated financial condition. However, the outcome of such litigation and proceedings could be material to our operating results and cash flows for a particular future period, depending on, among other things, our revenues or income for such period.


There are certain matters for which we are unable to estimate the upper end of the range of reasonably possible loss. With respect to legal and regulatory matters for which management has been able to estimate a range of reasonably possible loss (and excluding amounts subject to the below-described indemnification from Regions Financial Corporation (“Regions”)), as of DecemberMarch 31, 2017,2020, we estimated the upper end of the range of reasonably possible aggregate loss to be approximately $70$80 million in excess of the aggregate reservesaccruals for such matters.  Refer to Note 2 of our 20172019 Form 10-K for a discussion of our criteria for recognizing liabilities for contingencies.


Morgan Keegan LitigationWe 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.


Indemnification from Regions

Under the agreement with Regions governing our 2012 acquisition of Morgan Keegan & Company, Inc., and MK Holding, Inc. and certain of its affiliates (collectively referred to as “Morgan Keegan”), Regions is obligated to indemnify us for losses we may incur in connection with any Morgan Keegan legal proceedings pending as of the closing date for that transaction, which was April 2, 2012, or commenced after the closing date but related to pre-closing matters that were received prior to April 2, 2015.


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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)









The Morgan Keegan matter described below is subject to such indemnification provisions. As of December 31, 2017, management estimated the range of potential liability of all Morgan Keegan matters subject to indemnification, including the cost of defense, to be from $12 million to $44 million. Any loss arising from such matters, after application of any contractual thresholds and other reductions, as set forth in the agreement, will be borne by Regions. As of December 31, 2017 our Condensed Consolidated Statements of Financial Condition included an indemnification asset of $25 million which was included in “Other assets,” and a liability for potential losses of $25 million which was included within “Other payables,” pertaining to the Morgan Keegan matters subject to indemnification. The amount included within “Other payables” is the amount within the range of potential liability related to such matters which management estimated was more likely than any other amount within such range.

Morgan Keegan matter (subject to indemnification)

In July 2006, Morgan Keegan & Company, Inc., a Morgan Keegan affiliate, and one of its former analysts were named as defendants in a lawsuit filed by Fairfax Financial Holdings Limited and an affiliate in the Superior Court of New Jersey, Law Division, in Morris County, New Jersey. Plaintiffs made claims under a civil RICO statute, for commercial disparagement, tortious interference with contractual relationships, tortious interference with prospective economic advantage and common law conspiracy. Plaintiffs alleged that defendants engaged in a multi-year conspiracy to publish and disseminate false and defamatory information about plaintiffs in order to improperly drive down the stock price of Fairfax, so that others could profit from short positions. Plaintiffs alleged that the defendants’ actions disparaged them and harmed their business relationships. Plaintiffs alleged various categories of damages, including lost insurance business, losses on stock and bond offerings, reputational loss, increased audit fees and directors’ and officers’ insurance premiums, and lost acquisitions. They requested actual and punitive damages and treble damages under their RICO claims. On May 11, 2012, the trial court dismissed the plaintiffs’ RICO claims. On June 27, 2012, the trial court dismissed plaintiffs’ tortious interference with prospective relations claim, but allowed the other claims to go forward. Prior to commencement of a jury trial, the court dismissed the remaining claims with prejudice, and the plaintiffs appealed. On April 27, 2017, the Superior Court of New Jersey, Appellate Division, affirmed the trial court’s dismissal of certain claims against Morgan Keegan, including RICO allegations, while remanding to the trial court the claims of disparagement, tortious interference with prospective business relations, and civil conspiracy, and limiting the actual damages to certain lost insurance business. Plaintiffs petitioned the Supreme Court of New Jersey for review of the Appellate Division’s opinion, but on October 17, 2017, the Supreme Court of New Jersey denied the petition.



NOTE 1516 – ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

Other comprehensive income/(loss)

The activity in other comprehensive income/(loss), net of the respective tax effect, was as follows:
  Three months ended December 31,
$ in thousands 2017 2016
Unrealized loss on available-for-sale securities and non-credit portion of other-than-temporary impairment losses $(11,953) $(4,146)
Unrealized gain/(loss) on currency translations, net of the impact of net investment hedges (187) 1,001
Unrealized gain on cash flow hedges 6,885
 25,738
Net other comprehensive income/(loss) $(5,255) $22,593


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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





Accumulated other comprehensive income/(loss)


All of the components of other comprehensive income/(loss) described below,income (“OCI”), net of tax, arewere attributable to RJF. The following table presents the net change in AOCI as well as the changes, and the related tax effects, of each component of accumulated other comprehensive income/(loss):AOCI.
$ in millions Net investment hedges Currency translations Subtotal: net investment hedges and currency translations Available- for-sale securities Cash flow hedges Total
Three months ended March 31, 2020            
AOCI as of beginning of period $97
 $(113) $(16) $20
 $(9) $(5)
OCI:            
OCI before reclassifications and taxes 69
 (78) (9) 85
 (58) 18
Amounts reclassified from AOCI, before tax —
 —
 —
 —
 —
 —
Pre-tax net OCI 69
 (78) (9) 85
 (58) 18
Income tax effect (17) —
 (17) (22) 15
 (24)
OCI for the period, net of tax 52
 (78) (26) 63
 (43) (6)
AOCI as of end of period $149
 $(191) $(42) $83
 $(52) $(11)
             
Six months ended March 31, 2020            
AOCI as of beginning of period $110
 $(135) $(25) $21
 $(19) $(23)
OCI:            
OCI before reclassifications and taxes 52
 (56) (4) 83
 (44) 35
Amounts reclassified from AOCI, before tax —
 —
 —
 —
 —
 —
Pre-tax net OCI 52
 (56) (4) 83
 (44) 35
Income tax effect (13) —
 (13) (21) 11
 (23)
OCI for the period, net of tax 39
 (56) (17) 62
 (33) 12
AOCI as of end of period $149
 $(191) $(42) $83
 $(52) $(11)
             
Three months ended March 31, 2019            
AOCI as of beginning of period $125
 $(161) $(36) $(28) $25
 $(39)
OCI:            
OCI before reclassifications and taxes (15) 19
 4
 26
 (16) 14
Amounts reclassified from AOCI, before tax —
 —
 —
 —
 (2) (2)
Pre-tax net OCI (15) 19
 4
 26
 (18) 12
Income tax effect 4
 —
 4
 (7) 5
 2
OCI for the period, net of tax (11) 19
 8
 19
 (13) 14
AOCI as of end of period $114
 $(142) $(28) $(9) $12
 $(25)
             
Six months ended March 31, 2019            
AOCI as of beginning of period $88
 $(111) $(23) $(46) $42
 $(27)
Cumulative effect of adoption of ASU 2018-02 —
 —
 —
 (4) —
 (4)
OCI:            
OCI before reclassifications and taxes 34
 (31) 3
 58
 (40) 21
Amounts reclassified from AOCI, before tax —
 —
 —
 —
 (3) (3)
Pre-tax net OCI 34
 (31) 3
 58
 (43) 18
Income tax effect (8) —
 (8) (17) 13
 (12)
OCI for the period, net of tax 26
 (31) (5) 41
 (30) 6
AOCI as of end of period $114
 $(142) $(28) $(9) $12
 $(25)


As of October 1, 2018, we adopted accounting guidance (ASU 2016-01) that generally requires changes in the fair value of equity securities to be recorded in net income. Accordingly, as of the date of adoption, we reclassified a cumulative unrealized gain on such securities, net of tax, from AOCI to retained earnings.

Reclassifications from AOCI to net income, excluding taxes, for the three and six months ended March 31, 2019 were recorded in “Interest expense” on the Condensed Consolidated Statements of Income and Comprehensive Income.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)




$ in thousands Net investment hedges Currency translations Sub-total: net investment hedges and currency translations Available- for-sale securities Cash flow hedges Total
Three months ended December 31, 2017            
Accumulated other comprehensive income/(loss) as of the beginning of the period $60,201
 $(79,677) $(19,476) $(2,472) $6,749
 $(15,199)
Other comprehensive income/(loss) before reclassifications and taxes 7,607
 (5,760) 1,847
 (15,549) 6,774
 (6,928)
Amounts reclassified from accumulated other comprehensive income, before tax —
 —
 —
 —
 1,409
 1,409
Pre-tax net other comprehensive income/(loss) 7,607
 (5,760) 1,847
 (15,549) 8,183
 (5,519)
Income tax effect (2,034) —
 (2,034) 3,596
 (1,298) 264
Net other comprehensive income/(loss) for the period, net of tax 5,573
 (5,760) (187) (11,953) 6,885
 (5,255)
Accumulated other comprehensive income/(loss) as of end of period $65,774
 $(85,437) $(19,663) $(14,425) $13,634
 $(20,454)
Three months ended December 31, 2016            
Accumulated other comprehensive income/(loss) as of the beginning of the period $86,482
 $(121,576) $(35,094) $(4,156) $(16,483) $(55,733)
Other comprehensive income/(loss) before reclassifications and taxes 18,098
 (17,756) 342
 (6,858) 39,941
 33,425
Amounts reclassified from accumulated other comprehensive income/(loss), before tax —
 6,537
 6,537
 (12) 1,572
 8,097
Pre-tax net other comprehensive income/(loss) 18,098
 (11,219) 6,879
 (6,870) 41,513
 41,522
Income tax effect (6,772) 894
 (5,878) 2,724
 (15,775) (18,929)
Net other comprehensive income/(loss) for the period, net of tax 11,326
 (10,325) 1,001
 (4,146) 25,738
 22,593
Accumulated other comprehensive income/(loss) as of end of period $97,808
 $(131,901) $(34,093) $(8,302) $9,255
 $(33,140)


Our net investment hedges and cash flow hedges relate to our derivatives associated with RJ Bank’s business operations (seeoperations. See Note 62 of our 2019 Form 10-K and Note 5 for additional information on these derivatives).derivatives.




NOTE 17 – 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 of our 2019 Form 10-K. See Note 22 of this Form 10-Q for additional information on our segment results.
46
  Three months ended March 31, 2020
$ in millions Private Client Group Capital Markets Asset Management RJ Bank Other and intersegment eliminations Total
Revenues:            
Asset management and related administrative fees $833
 $1
 $177
 $—
 $(5) $1,006
Brokerage revenues:            
Securities commissions:            
Mutual and other fund products 163
 1
 2
 —
 —
 166
Insurance and annuity products 99
 —
 —
 —
 —
 99
Equities, ETFs and fixed income products 105
 40
 —
 —
 —
 145
Subtotal securities commissions 367

41

2

—

—

410
Principal transactions (1)
 17
 89
 —
 —
 (1) 105
Total brokerage revenues 384

130

2

—

(1)
515
Account and services fees:            
Mutual fund and annuity service fees 88
 —
 —
 —
 —
 88
RJBDP fees 99
 —
 —
 —
 (48) 51
Client account and other fees 35
 2
 4
 —
 (8) 33
Total account and service fees 222

2

4

—

(56)
172
Investment banking:            
Merger & acquisition and advisory —
 72
 —
 —
 —
 72
Equity underwriting 11
 43
 —
 —
 —
 54
Debt underwriting —
 22
 —
 —
 —
 22
Total investment banking 11

137

—

—

—

148
Other:            
Tax credit fund revenues —
 12
 —
 —
 —
 12
All other (1)
 7
 4
 1
 5
 (44) (27)
Total other 7

16

1

5

(44)
(15)
Total non-interest revenues 1,457

286

184

5

(106)
1,826
Interest income (1)
 45
 10
 —
 223
 7
 285
Total revenues 1,502
 296
 184
 228
 (99) 2,111
Interest expense (7) (6) —
 (18) (12) (43)
Net revenues $1,495
 $290
 $184
 $210
 $(111) $2,068

(1)These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.



RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)









Reclassifications out of accumulated other comprehensive income/(loss)

The following table presents the income statement line items impacted by reclassifications out of accumulated other comprehensive income/(loss), and the related tax effects, for the three months ended December 31, 2017 and 2016:
Accumulated other comprehensive income/(loss) components:
$ in thousands
 Increase/(decrease) in amounts reclassified from accumulated other comprehensive income/(loss) Affected line items in income statement
Three months ended December 31, 2017    
RJ Bank cash flow hedges $1,409
 Interest expense
  1,409
 Total before tax
Income tax effect (402) Provision for income taxes
Total reclassifications for the period $1,007
 Net of tax
Three months ended December 31, 2016
RJ Bank available-for-sale securities $(12) Other revenue
RJ Bank cash flow hedges 1,572
 Interest expense
Currency translations 6,537
 Other expense
  8,097
 Total before tax
Income tax effect (3,076) Provision for income taxes
Total reclassifications for the period $5,021
 Net of tax
  Three months ended March 31, 2019
$ in millions Private Client Group Capital Markets Asset Management RJ Bank Other and intersegment eliminations Total
Revenues:            
Asset management and related administrative fees $638
 $1
 $149
 $—
 $(5) $783
Brokerage revenues:           
Securities commissions:           
Mutual and other fund products 145
 1
 2
 —
 —
 148
Insurance and annuity products 99
 —
 —
 —
 —
 99
Equities, ETFs and fixed income products 74
 30
 —
 —
 (2) 102
Subtotal securities commissions 318
 31
 2
 —
 (2) 349
Principal transactions (1)
 20
 72
 —
 —
 1
 93
Total brokerage revenues 338

103

2

—

(1)
442
Account and services fees:            
Mutual fund and annuity service fees 82
 —
 1
 —
 (5) 78
RJBDP fees 122
 —
 1
 —
 (44) 79
Client account and other fees 27
 2
 8
 —
 (3) 34
Total account and service fees 231

2

10

—

(52)
191
Investment banking:            
Merger & acquisition and advisory —
 121
 —
 —
 —
 121
Equity underwriting 8
 18
 —
 —
 (1) 25
Debt underwriting —
 17
 —
 —
 —
 17
Total investment banking 8

156

—

—

(1)
163
Other:            
Tax credit fund revenues —
 14
 —
 —
 —
 14
All other (1)
 9
 —
 —
 7
 1
 17
Total other 9

14

—

7

1

31
Total non-interest revenues 1,224

276

161

7

(58)
1,610
Interest income (1)
 58
 9
 1
 247
 9
 324
Total revenues 1,282

285

162

254

(49)
1,934
Interest expense (11) (8) —
 (42) (14) (75)
Net revenues $1,271

$277

$162

$212

$(63)
$1,859


(1)These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.
During the quarter ended December 31, 2016, we sold our interests in a number of Latin American joint ventures which had operations in Uruguay and Argentina. As a component of our computation of the gain or loss resulting from such sales, we recognized the sold entities’ cumulative currency translation balances which, prior to such reclassification, had been a component of the accumulated other comprehensive loss.



47

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










  Six months ended March 31, 2020
$ in millions Private Client Group Capital Markets Asset Management RJ Bank Other and intersegment eliminations Total
Revenues:            
Asset management and related administrative fees $1,615
 $3
 $353
 $—
 $(10) $1,961
Brokerage revenues:            
Securities commissions:            
Mutual and other fund products 307
 4
 4
 —
 (1) 314
Insurance and annuity products 200
 —
 —
 —
 —
 200
Equities, ETFs and fixed income products 190
 70
 —
 —
 (1) 259
Subtotal securities commissions 697

74

4

—

(2)
773
Principal transactions (1)
 34
 171
 —
 —
 (3) 202
Total brokerage revenues 731

245

4

—

(5)
975
Account and services fees:            
Mutual fund and annuity service fees 178
 —
 1
 —
 (1) 178
RJBDP fees 204
 —
 —
 —
 (95) 109
Client account and other fees 64
 3
 8
 —
 (12) 63
Total account and service fees 446

3

9

—

(108)
350
Investment banking:           
Merger & acquisition and advisory —
 132
 —
 —
 —
 132
Equity underwriting 22
 82
 —
 —
 —
 104
Debt underwriting —
 53
 —
 —
 —
 53
Total investment banking 22

267

—

—

—

289
Other:           
Tax credit fund revenues —
 30
 —
 —
 —
 30
All other (1)
 16
 4
 1
 11
 (48) (16)
Total other 16

34

1

11

(48)
14
Total non-interest revenues 2,830

552

367

11

(171)
3,589
Interest income (1)
 94
 18
 1
 454
 15
 582
Total revenues 2,924

570

368

465

(156)
4,171
Interest expense (15) (12) —
 (39) (28) (94)
Net revenues $2,909

$558

$368

$426

$(184)
$4,077

(1)These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





  Six months ended March 31, 2019
$ in millions Private Client Group Capital Markets Asset Management RJ Bank Other and intersegment eliminations Total
Revenues:            
Asset management and related administrative fees $1,345
 $3
 $310
 $—
 $(10) $1,648
Brokerage revenues:            
Securities commissions:            
Mutual and other fund products 302
 3
 5
 —
 (2) 308
Insurance and annuity products 203
 —
 —
 —
 —
 203
Equities, ETFs and fixed income products 158
 70
 —
 —
 (2) 226
Subtotal securities commissions 663
 73
 5
 —
 (4) 737
Principal transactions (1)
 39
 129
 —
 1
 —
 169
Total brokerage revenues 702
 202
 5
 1
 (4) 906
Account and services fees:           
Mutual fund and annuity service fees 165
 —
 2
 —
 (8) 159
RJBDP fees 231
 —
 2
 —
 (85) 148
Client account and other fees 60
 2
 15
 —
 (8) 69
Total account and service fees 456
 2
 19
 —
 (101) 376
Investment banking:           
Merger & acquisition and advisory —
 206
 —
 —
 —
 206
Equity underwriting 15
 45
 —
 —
 —
 60
Debt underwriting —
 34
 —
 —
 —
 34
Total investment banking 15
 285
 —
 —
 —
 300
Other:           
Tax credit fund revenues —
 33
 —
 —
 —
 33
All other (1)
 16
 2
 —
 12
 5
 35
Total other 16
 35
 —
 12
 5
 68
Total non-interest revenues 2,534
 527
 334
 13
 (110) 3,298
Interest income (1)
 114
 19
 2
 486
 19
 640
Total revenues 2,648
 546
 336
 499
 (91) 3,938
Interest expense (21) (16) —
 (84) (27) (148)
Net revenues $2,627
 $530
 $336
 $415
 $(118) $3,790

(1)These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.

At March 31, 2020 and September 30, 2019, net receivables related to contracts with customers were $319 million and $347 million, respectively.

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 March 31, 2020 and September 30, 2019.

We have elected the practical expedient allowable 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.


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





NOTE 1618 – INTEREST INCOME AND INTEREST EXPENSE


The following table details the components of interest income and interest expense are as follows:expense.
  Three months ended March 31, Six months ended March 31,
$ in millions 2020 2019 2020 2019
Interest income:        
Assets segregated pursuant to regulations $11
 $17
 $22
 $32
Trading instruments 7
 6
 13
 13
Available-for-sale securities 19
 17
 37
 33
Margin loans 21
 31
 48
 63
Bank loans, net of unearned income and deferred expenses 198
 220
 404
 434
Loans to financial advisors 5
 5
 10
 9
Corporate cash and all other 24
 28
 48
 56
Total interest income $285

$324

$582

$640
Interest expense:  
  
    
Bank deposits $12
 $37
 $28
 $72
Trading instruments sold but not yet purchased 1
 2
 2
 4
Brokerage client payables 3
 5
 6
 11
Other borrowings 5
 5
 10
 11
Senior notes payable 19
 18
 37
 36
Other 3
 8
 11
 14
Total interest expense 43

75

94

148
Net interest income 242
 249
 488
 492
Bank loan loss provision (109) (5) (107) (21)
Net interest income after bank loan loss provision $133
 $244
 $381
 $471

  Three months ended December 31,
$ in thousands 2017 2016
Interest income:    
Margin balances $24,095
 $19,981
Assets segregated pursuant to regulations and other segregated assets 12,122
 7,170
Bank loans, net of unearned income 160,020
 135,525
Available-for-sale securities 10,715
 3,400
Trading instruments 5,138
 5,006
Securities loaned 3,058
 2,732
Loans to financial advisors 3,502
 3,308
Corporate cash and all other 13,079
 5,660
Total interest income $231,729
 $182,782
Interest expense:  
  
Brokerage client liabilities $2,529
 $676
Bank deposits 7,509
 2,783
Trading instruments sold but not yet purchased 1,706
 1,328
Securities borrowed 1,479
 1,228
Borrowed funds 5,865
 3,719
Senior notes 18,180
 24,699
Other 2,163
 1,533
Total interest expense 39,431
 35,966
Net interest income 192,298
 146,816
Bank loan loss (provision)/benefit (1,016) 1,040
Net interest income after bank loan loss provision $191,282
 $147,856


Interest expense related to bank deposits in the abovepreceding table for the three months ended December 31, 2017 and 2016 excludes interest expense associated with affiliate deposits, which has been eliminated in consolidation.




NOTE 1719 – SHARE-BASED AND OTHER COMPENSATION

Share-based compensation plans


We have one1 share-based compensation plan for our employees, Board of Directors and non-employees (comprised of independent(independent contractor financial advisors). Generally, we reissue our treasury shares under The Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”) authorizes us to grant 40,244,000 new shares, including the shares available for grant under six predecessor plans. We generally issue new shares under the 2012 Plan; however, we are also permitted to reissue our treasuryissue new shares. Annual share-based compensation awards are primarily issued during the first fiscal quarter of each year.  Our share-based compensation accounting policies are described in Note 2 of our 20172019 Form 10-K.  Other information related to our share-based awards areis presented in Note 2021 of our 20172019 Form 10-K.  


Stock options

ExpenseDuring the three and income tax benefits related to our stock options awardssix months ended March 31, 2020, we granted approximately 100 thousand and 1.6 million RSUs, respectively, to employees and independent contractor financial advisors is presented below:
  Three months ended December 31,
$ in thousands 2017 2016
Total share-based expense $3,112
 $4,176
Income tax benefit related to share-based expense 307
 545

outside members of our Board of Directors with a weighted-average grant-date fair value of $79.73 and $88.53, respectively. For the three and six months ended DecemberMarch 31, 2017, we realized $12020, total compensation expense for RSUs granted to our employees and members of our Board of Directors was $27 million and $67 million, respectively, compared with $23 million and $61 million, respectively, for the three and six months ended March 31, 2019.

As of March 31, 2020, there were $216 million of excess tax benefits related to our stock option awards which favorably impacted income tax expense in our Condensed Consolidated Statements of Income and Comprehensive Income.


48
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





During the three months ended December 31, 2017, we granted no stock options to employees and the stock option awards granted to independent contractor financial advisors were not material.
Pre-tax expensetotal pre-tax compensation costs not yet recognized for stock option awards granted to employees and independent contractor financial advisors, net(net of estimated forfeitures, and the remaining period over which the expense will be recognized as of December 31, 2017, are presented below:
  Pre-tax expense not yet recognized Remaining weighted-average amortization period
  (in thousands) (in years)
Employees $12,757
 2.4
Independent contractor financial advisors 4,431
 3.5

Restricted stock and RSU awards

Expense and income tax benefitsforfeitures) related to our restricted equity awardsRSUs granted to employees and members of our Board of Directors, are presented below:
  Three months ended December 31,
$ in thousands 2017 2016
Total share-based expense $30,477
 $27,650
Income tax benefit related to share-based expense 8,090
 10,035

Total share-based expenseincluding those granted during the threesix months ended DecemberMarch 31, 2016 included $5 million which is included as a component of “Acquisition-related expenses” on our Condensed Consolidated Statements of Income and Comprehensive Income.

For the three months ended December 31, 2017, we realized $8 million of excess tax benefits related to our restricted equity awards which favorably impacted income tax expense in our Condensed Consolidated Statements of Income and Comprehensive Income.

During the three months ended December 31, 2017, we granted 1,089,000 RSUs to employees with a weighted-average grant-date fair value of $86.50. During the three months ended December 31, 2017, we did not grant RSUs to outside members of our Board of Directors.

As of December 31, 2017, there was $184 million of total pre-tax compensation costs not yet recognized, net of estimated forfeitures, related to restricted equity awards granted to employees and members of our Board of Directors.2020. These costs are expected to be recognized over a weighted-average period of 3.4 years.


There were no outstanding RSUs related to our independent contractor financial advisors as of December 31, 2017.

Restricted stock awards associated with Alex. Brown

As part of our acquisition of Alex. Brown, we assumed certain DBRSU awards, including the associated plan terms and conditions. Refer to Note 20 of our 2017 Form 10-K for additional information regarding these awards. The DBRSUs are accounted for as derivatives. See Note 6 for additional information regarding these derivatives.

The net impact of the DBRSUs in our Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended December 31, 2017 and 2016, including the related income tax effects, is presented below:
  Three months ended December 31,
$ in thousands 2017 2016
Amortization of DBRSU prepaid compensation asset $1,312
 $1,542
Increase in fair value of derivative liability 2,613
 6,375
Net expense before tax $3,925
 $7,917
Income tax benefit $1,104
 $2,920

The table above includes the impact of DBRSUs forfeited during the three months ended December 31, 2016.


49
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










As of December 31, 2017, there was a $9 million prepaid compensation asset included in “Other assets” in our Condensed Consolidated Statements of Financial Condition related to these DBRSUs. This asset is expected to be amortized over a weighted-average period of 1.8 years. As of December 31, 2017, there was a $28 million derivative liability included in “Accrued compensation, commissions and benefits” in our Condensed Consolidated Statements of Financial Condition based on the December 31, 2017 share price of DB shares of $19.03.
We held shares of DB as of December 31, 2017 as an economic hedge against this obligation. Such shares are included in “Other investments” on our Condensed Consolidated Statements of Financial Condition. The gains/losses on this hedge are included as a component of “Compensation, commissions and benefits expense” and offset a portion of the gains/losses on the DBRSUs incurred during the periods discussed above.


NOTE 1820 – REGULATORY CAPITAL REQUIREMENTS


RJF, as a bank holding company and financial holding company, RJ Bank, and our broker-dealer subsidiaries and Raymond James Trust, N.A. (“RJ Trust”) are subject to capital requirements by various regulatory authorities. Capital levels of each entity are monitored to ensure compliance with our various regulatory capital requirements.  Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on our financial results.


As a bank holding company, RJF is subject to the risk-based capital requirements of the Federal Reserve Board.Fed. These risk-based capital requirements are expressed as capital ratios that compare measures of regulatory capital to risk-weighted assets, which involve quantitative measures of our assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting guidelines. RJF’s and RJ Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

In July 2013, the Office of the Comptroller of the Currency (“OCC”), the Fed and the FDIC released final U.S. rules implementing the Basel III capital framework developed by the Basel Committee on Banking Supervision and certain Dodd-Frank Act and other capital provisions and updated the prompt corrective action framework to reflect the new regulatory capital minimums (the “U.S. Basel III Rules”). RJF and RJ Bank report regulatory capital under the Basel III standardized approach. Various aspects of the Basel III rules are subject to multi-year transition periods through December 31, 2018.


RJF and RJ Bank are required to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), Tier 1 capital to average assets (as defined), and under rules defined inunder the Basel III capital framework, Common equity Tier 1 capital (“CET1”) to risk-weighted assets. RJF and RJ Bank each calculate these ratios under the Basel III standardized approach in order to assess compliance with both regulatory requirements and their internal capital policies.  The minimum CET1, Tier 1 Capital, and Total Capital ratios of RJF and RJ Bank are supplemented by an incremental capital conservation buffer, consisting entirely of capital that qualifies as CET1, that began phasing in on January 1, 2016 in increments of 0.625% per year until it reaches 2.5% of risk weighted assets on January 1, 2019. FailureIn order to maintain the capital conservation buffer could limit our ability to take certain capital actions, including dividends and common equity repurchases, and to make discretionary bonus payments.payments, we must hold a capital conservation buffer above our minimum risk-based capital requirements. As of DecemberMarch 31, 2017,2020, both RJF’s and RJ Bank’s capital levels exceeded the fully-phased in capital conservation buffer requirement and arewere each categorized as “well capitalized.“well-capitalized.”


For further discussion of regulatory capital requirements applicable to certain of our businesses and subsidiaries, see Note 2122 of our 20172019 Form 10-K.


50
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)






To meet requirements for capital adequacy purposes or to be categorized as “well capitalized,“well-capitalized,” RJF must maintain minimum CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the table below.following table.
  Actual 
Requirement for capital
adequacy purposes
 
To be well-capitalized
under regulatory provisions
$ in millions Amount Ratio Amount Ratio Amount Ratio
RJF as of March 31, 2020:            
CET1 $6,183
 24.1% $1,156
 4.5% $1,669
 6.5%
Tier 1 capital $6,183
 24.1% $1,541
 6.0% $2,054
 8.0%
Total capital $6,490
 25.3% $2,054
 8.0% $2,568
 10.0%
Tier 1 leverage $6,183
 14.2% $1,745
 4.0% $2,181
 5.0%
             
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%


  Actual 
Requirement for capital
adequacy purposes
 To be well capitalized under regulatory provisions
$ in thousands Amount Ratio Amount Ratio Amount Ratio
RJF as of December 31, 2017:            
CET1 $5,052,629
 22.3% $1,018,048
 4.5% $1,470,513
 6.5%
Tier 1 capital $5,052,629
 22.3% $1,357,397
 6.0% $1,809,862
 8.0%
Total capital $5,266,339
 23.3% $1,809,862
 8.0% $2,262,328
 10.0%
Tier 1 leverage $5,052,629
 14.4% $1,400,054
 4.0% $1,750,068
 5.0%
             
RJF as of September 30, 2017:            
CET1 $5,081,335
 23.0% $994,950
 4.5% $1,437,150
 6.5%
Tier 1 capital $5,081,335
 23.0% $1,326,600
 6.0% $1,768,800
 8.0%
Total capital $5,293,331
 23.9% $1,768,800
 8.0% $2,211,000
 10.0%
Tier 1 leverage $5,081,335
 15.0% $1,359,168
 4.0% $1,698,960
 5.0%


The decrease in RJF’s Tier 1 capital and Total capital ratios at DecemberMarch 31, 20172020 decreased compared to September 30, 2017 was primarily2019, due to an increase in goodwillthe impact of increases to cash segregated pursuant to regulations and identifiable intangiblegrowth of bank assets, relatedprimarily bank loans, partially offset by the impact of higher equity due to the Scout Group acquisitionpositive earnings, net of share repurchases and dividends. RJF’s Tier 1 leverage ratio at March 31, 2020 decreased compared to September 30, 2019 due to the growth of corporateaverage assets, primarily related to cash, cash and cash equivalents segregated pursuant to regulations, and bank loans, at RJ Bank.partially offset by the aforementioned change in equity.


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





To meet the requirements for capital adequacy or to be categorized as “well capitalized,“well-capitalized,” RJ Bank must maintain CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the table below.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 March 31, 2020:            
CET1 $2,232
 12.7% $792
 4.5% $1,144
 6.5%
Tier 1 capital $2,232
 12.7% $1,056
 6.0% $1,408
 8.0%
Total capital $2,454
 13.9% $1,408
 8.0% $1,760
 10.0%
Tier 1 leverage $2,232
 8.1% $1,102
 4.0% $1,377
 5.0%
             
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%

  Actual 
Requirement for capital
adequacy purposes
 To be well capitalized under regulatory provisions
$ in thousands Amount Ratio Amount Ratio Amount Ratio
RJ Bank as of December 31, 2017:            
CET1 $1,825,550
 12.2% $674,617
 4.5% $974,446
 6.5%
Tier 1 capital $1,825,550
 12.2% $899,489
 6.0% $1,199,319
 8.0%
Total capital $2,013,120
 13.4% $1,199,319
 8.0% $1,499,148
 10.0%
Tier 1 leverage $1,825,550
 8.6% $852,884
 4.0% $1,066,105
 5.0%
             
RJ Bank as of September 30, 2017:  
  
  
  
  
  
CET1 $1,821,306
 12.5% $654,901
 4.5% $945,968
 6.5%
Tier 1 capital $1,821,306
 12.5% $873,201
 6.0% $1,164,268
 8.0%
Total capital $2,003,461
 13.8% $1,164,268
 8.0% $1,455,335
 10.0%
Tier 1 leverage $1,821,306
 8.9% $816,304
 4.0% $1,020,379
 5.0%


The decrease in RJ Bank’s Tier 1 capital and Total capital ratios at DecemberMarch 31, 20172020 decreased compared to September 30, 2017 was primarily2019 due to corporate loan growth.dividends paid during the period exceeding earnings and growth in assets, primarily bank loans. RJ Bank’s Tier 1 leverage ratio at March 31, 2020 decreased compared to September 30, 2019 due to the growth in average assets, primarily related to cash and bank loans, as well as the aforementioned change in equity.


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.

The following table presents the net capital position of RJ&A:&A.
$ in millions March 31, 2020 September 30, 2019
Raymond James & Associates, Inc.:
    
(Alternative Method elected)    
Net capital as a percent of aggregate debit items 41.5% 39.7%
Net capital $1,122
 $1,056
Less: required net capital (54) (53)
Excess net capital $1,068
 $1,003

  As of
$ in thousands December 31, 2017 September 30, 2017
Raymond James & Associates, Inc.:    
(Alternative Method elected)    
Net capital as a percent of aggregate debit items 25.37% 21.37%
Net capital $694,733
 $589,420
Less: required net capital (54,758) (55,164)
Excess net capital $639,975
 $534,256



51
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)





The following table presents the net capital positionAs of Raymond James Financial Services, Inc. (“RJFS”):
  As of
$ in thousands December 31, 2017 September 30, 2017
Raymond James Financial Services, Inc.:    
(Alternative Method elected)    
Net capital $23,489
 $34,488
Less: required net capital (250) (250)
Excess net capital $23,239
 $34,238

The following table presents the risk adjusted capital ofMarch 31, 2020, RJFS, RJ Ltd. (in Canadian dollars):
  As of
$ in thousands December 31, 2017 September 30, 2017
Raymond James Ltd.:    
Risk adjusted capital before minimum $77,869
 $108,985
Less: required minimum capital (250) (250)
Risk adjusted capital $77,619
 $108,735

At December 31, 2017,, RJ Trust and all of our other active regulated domestic and international subsidiaries were in compliance with and metexceeded all applicable capital requirements.





52
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










NOTE 1921 – EARNINGS PER SHARE


The following table presents the computation of basic and diluted earnings per common share:share.
  Three months ended March 31, Six months ended March 31,
in millions, except per share amounts 2020 2019 2020 2019
Income for basic earnings per common share:        
Net income $169
 $261
 $437
 $510
Less allocation of earnings and dividends to participating securities —
 —
 (1) —
Net income attributable to RJF common shareholders $169
 $261
 $436
 $510
Income for diluted earnings per common share:  
  
    
Net income $169
 $261
 $437
 $510
Less allocation of earnings and dividends to participating securities —
 —
 (1) —
Net income attributable to RJF common shareholders $169
 $261
 $436
 $510
Common shares:  
  
    
Average common shares in basic computation 138.4
 140.8
 138.4
 142.5
Dilutive effect of outstanding stock options and certain RSUs 2.7
 3.1
 2.9
 2.9
Average common shares used in diluted computation 141.1
 143.9
 141.3
 145.4
Earnings per common share:  
  
    
Basic $1.22
 $1.85
 $3.15
 $3.58
Diluted $1.20
 $1.81
 $3.09
 $3.51
Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive 0.7
 0.5
 0.6
 1.6

  Three months ended December 31,
$ in thousands, except per share amounts 2017 2016
Income for basic earnings per common share:    
Net income attributable to RJF $118,842
 $146,567
Less allocation of earnings and dividends to participating securities (185) (310)
Net income attributable to RJF common shareholders $118,657
 $146,257
Income for diluted earnings per common share:  
  
Net income attributable to RJF $118,842
 $146,567
Less allocation of earnings and dividends to participating securities (182) (303)
Net income attributable to RJF common shareholders $118,660
 $146,264
Common shares:  
  
Average common shares in basic computation 144,469
 142,110
Dilutive effect of outstanding stock options and certain RSUs 3,792
 3,565
Average common shares used in diluted computation 148,261
 145,675
Earnings per common share:  
  
Basic $0.82
 $1.03
Diluted $0.80
 $1.00
Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive 1,355
 2,127


The allocation of earnings and dividends to participating securities in the preceding table above representrepresents dividends paid during the period to participating securities plus an allocation of undistributed earnings to participating securities.  Participating securities represent unvested restricted stock and certain RSUsRSUs. Participating securities and amounted to weighted-average shares of 239 thousand and 310 thousand for the three months ended December 31, 2017 and 2016, respectively. Dividendsrelated dividends paid toon these participating securities were insignificant for the three and six months ended DecemberMarch 31, 20172020 and 2016.2019.  Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.


Dividends per common share declared and paid are as follows:detailed in the following table for each respective period.
 Three months ended March 31, Six months ended March 31,
 2020 2019 2020 2019
Dividends per common share - declared$0.37
 $0.34
 $0.74
 $0.68
Dividends per common share - paid$0.37
 $0.34
 $0.71
 $0.64

 Three months ended December 31,
 2017 2016
Dividends per common share - declared$0.25
 $0.22
Dividends per common share - paid$0.22
 $0.20




NOTE 2022 – SEGMENT INFORMATION


We currently operate through the following five business5 segments: Private Client Group;Group (“PCG”); Capital Markets; Asset Management; RJ Bank; and Other.


The business segments are determined based upon factors such as the services provided and the distribution channels served and are consistent with how we assess performance and determine how to allocate our resources throughout our subsidiaries. For a further discussion of our business segments, see Note 24 of our 20172019 Form 10-K.



53
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










The following tables present information concerning operations in these segments of business:segments.
  Three months ended March 31, Six months ended March 31,
$ in millions 2020 2019 2020 2019
Net revenues:        
Private Client Group $1,495
 $1,271
 $2,909
 $2,627
Capital Markets 290
 277
 558
 530
Asset Management 184
 162
 368
 336
RJ Bank 210
 212
 426
 415
Other (44) —
 (52) 2
Intersegment eliminations (67) (63) (132) (120)
Total net revenues $2,068
 $1,859
 $4,077
 $3,790
Pre-tax income/(loss):        
Private Client Group $170
 $132
 $323
 $296
Capital Markets 28
 41
 57
 53
Asset Management 73
 55
 146
 119
RJ Bank 14
 136
 149
 246
Other (46) (17) (77) (35)
Total pre-tax income $239
 $347
 $598
 $679

  Three months ended December 31,
$ in thousands 2017 2016
Revenues:    
Private Client Group $1,238,040
 $1,043,316
Capital Markets 222,534
 236,982
Asset Management 150,611
 114,096
RJ Bank 178,141
 144,517
Other 16,383
 15,459
Intersegment eliminations (40,117) (25,602)
Total revenues $1,765,592
 $1,528,768
Income/(loss) excluding noncontrolling interests and before provision for income taxes:
Private Client Group $155,063
 $73,358
Capital Markets 4,807
 21,444
Asset Management 57,399
 41,909
RJ Bank 114,155
 104,121
Other (20,181) (34,453)
Pre-tax income excluding noncontrolling interests 311,243
 206,379
Net income attributable to noncontrolling interests 441
 1,136
Income including noncontrolling interests and before provision for income taxes $311,684
 $207,515


No individual client accounted for more than ten percent of total revenues in any of the periods presented.
  Three months ended March 31, Six months ended March 31,
$ in millions 2020 2019 2020 2019
Net interest income/(expense):        
Private Client Group $38
 $47
 $79
 $93
Capital Markets 4
 1
 6
 3
Asset Management —
 1
 1
 2
RJ Bank 205
 205
 415
 402
Other and intersegment eliminations (5) (5) (13) (8)
Net interest income $242
 $249
 $488
 $492

  Three months ended December 31,
$ in thousands 2017 2016
Net interest income/(expense):    
Private Client Group $38,487
 $30,387
Capital Markets 1,456
 2,508
Asset Management 330
 63
RJ Bank 163,039
 134,272
Other (11,014) (20,414)
Net interest income $192,298
 $146,816


The following table presents our total assets on a segment basis:basis.
$ in millions March 31, 2020 September 30, 2019
Total assets:    
Private Client Group $12,531
 $9,042
Capital Markets 2,118
 2,287
Asset Management 348
 401
RJ Bank 33,434
 25,516
Other 1,378
 1,584
Total $49,809
 $38,830

$ in thousands December 31, 2017 September 30, 2017
Total assets:    
Private Client Group $10,328,475
 $9,967,320
Capital Markets 2,375,078
 2,396,033
Asset Management 347,922
 151,111
RJ Bank 21,600,312
 20,611,898
Other 1,433,112
 1,757,094
Total $36,084,899
 $34,883,456


Total assets in the PCG segment included $277 million ofThe following table presents goodwill, at both December 31, 2017 and September 30, 2017. Total assets in the Capital Markets segment included $134 million of goodwill at both December 31, 2017 and September 30, 2017. Total assets in the Asset Management segment included $69 million of goodwill as of December 31, 2017 which was entirely attributable toincluded in our fiscal year 2018 acquisition of the Scout Group.


total assets, on a segment basis.
54
$ in millions March 31, 2020 September 30, 2019
Goodwill:    
Private Client Group $274
 $275
Capital Markets 120
 120
Asset Management 69
 69
Total $463
 $464


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)










We have operations in the U.S., Canada and Europe. Substantially all long-lived assets are located in the U.S.  RevenuesThe following table presents our net revenues and pre-tax income before provision for income taxes and excluding noncontrolling interests, classified by major geographic areasarea in which they were earned, are as follows:earned.
 Three months ended December 31, Three months ended March 31, Six months ended March 31,
$ in thousands 2017 2016
Revenues:    
$ in millions 2020 2019 2020 2019
Net revenues:        
U.S. $1,633,022
 $1,416,281
 $1,920
 $1,729
 $3,795
 $3,525
Canada 99,286
 84,845
 112
 90
 207
 189
Europe 33,284
 22,970
 36
 40
 75
 76
Other —
 4,672
Total $1,765,592
 $1,528,768
 $2,068
 $1,859
 $4,077
 $3,790
    
Pre-tax income/(loss) excluding noncontrolling interests:    
Pre-tax income/(loss):    
    
U.S. $305,289
 $214,205
 $227
 $334
 $579
 $664
Canada 8,665
 (1,537) 13
 7
 21
 23
Europe (2,711) (2,688)
Other —
 (3,601)
Europe (1)
 (1) 6
 (2) (8)
Total $311,243
 $206,379
 $239
 $347
 $598
 $679


(1)The pre-tax loss in Europe for the six months ended March 31, 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.

OurThe following table presents our total assets by major geographic area in which they were held.
$ in millions March 31, 2020 September 30, 2019
Total assets:    
U.S. $46,507
 $35,978
Canada 3,189
 2,754
Europe 113
 98
Total $49,809
 $38,830


The following table presents goodwill, which was included in our total assets, classified by major geographic area in which they were held, are presented below:
$ in thousands December 31, 2017 September 30, 2017
Total assets:    
U.S. $33,291,193
 $32,200,852
Canada 2,706,114
 2,592,480
Europe 78,851
 81,090
Other 8,741
 9,034
Total $36,084,899
 $34,883,456

Total assets in the U.S. included $425 million and $356 million of goodwill at December 31, 2017 and September 30, 2017, respectively. Total assets in Canada included $45 million of goodwill at both December 31, 2017 and September 30, 2017. Total assets in Europe included $10 million of goodwill at both December 31, 2017 and September 30, 2017.

it was held.
55
$ in millions March 31, 2020 September 30, 2019
Goodwill:    
U.S. $433
 $433
Canada 22
 23
Europe 8
 8
Total $463
 $464



RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES


ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


INDEX 
 PAGE
Introduction
57
Factors affecting “forward-looking statements”
5749
Introduction
49
Executive overview
5749
Segments
5952
Reconciliation of GAAP measures to non-GAAP financial measures
6053
Net interest analysis
6053
Results of Operations 
Private Client Group
6356
Capital Markets
6560
Asset Management
6661
RJ Bank
6864
Other
7268
Certain statistical disclosures by bank holding companies
7369
Liquidity and capital resources
73
Sources of liquidity
7470
Statement of financial condition analysis
7773
Contractual obligations
7874
Regulatory
7874
Critical accounting estimates
7875
Recent accounting developments
7976
Off-BalanceOff-balance sheet arrangements
7976
Effects of inflation
8076
Risk management
8076




56
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis



Introduction

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


Factors affecting “forward-looking statements”


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


Executive overviewIntroduction


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

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


Three monthsExecutive overview

Quarter ended DecemberMarch 31, 20172020 compared with the three monthsquarter ended DecemberMarch 31, 20162019


On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency due to the impact of the pandemic. As a result of the spread of COVID-19, governments and other authorities around the world have imposed measures intended to control the spread of the disease, including restrictions on travel and the conduct of business, such as stay-at-home orders, quarantines, travel bans, border closings, business closures and other similar measures. In response, we activated our business continuity plan endeavoring to safeguard our employees, with nearly all of our employees now working remotely, while still maintaining our standard of client service. Our systems and infrastructure have continued to support the increased volumes of activity, without any significant operational or technology disruptions.

The worldwide COVID-19 pandemic had a negative impact on our business during our quarter ended March 31, 2020, as the spread of the disease and measures intended to prevent its spread have caused significant volatility and disruption in the financial markets both globally and in the U.S. We achievedexpect the COVID-19 pandemic and the measures taken to prevent its spread to have a more significant impact on the remainder of fiscal 2020 than it did during the quarter ended March 31, 2020, although the extent of such effects will depend on future developments that are highly uncertain and cannot be predicted.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


During the quarter ended March 31, 2020, net revenues of $1.73$2.07 billion a $233increased $209 million, or 11%, compared with the prior-year quarter. Pre-tax income of $239 million decreased $108 million, or 31%, and net income of $169 million decreased $92 million, or 35%, both primarily due to a significant increase in the bank loan loss provision in response to the rapid and widespread economic deterioration caused by the COVID-19 pandemic. Our earnings per diluted share were $1.20, reflecting a 34% decrease. Our annualized return on equity (“ROE”) for the quarter was 9.9%, compared with 16.7% in the prior-year quarter, and our annualized return on tangible common equity (“ROTCE”) (1) was 10.8%, compared with 18.5% for the prior-year quarter.

The $209 million increase in net revenues compared with the prior-year quarter primarily reflected higher asset management and related administrative fees, attributable to higher PCG assets in fee-based accounts at the beginning of the quarter, which were 31% higher than fee-based assets as of the beginning of the prior-year quarter. Brokerage revenues also increased during the quarter as the significant market volatility in March drove an increase in client activity. Offsetting these increases, other revenues were negatively impacted by valuation losses on private equity investments, a portion of which was attributable to noncontrolling interests, which was reflected as an offset in other expenses. RJBDP fees and net interest income were negatively impacted by lower short-term interest rates.

Compensation, commissions and benefits expense increased $197 million, or 16% increase., due to an increase in compensable net revenues, which primarily include asset management and related administrative fees, brokerage revenues, and investment banking revenues, as well as increased staffing levels required to support our continued growth and regulatory compliance requirements.

Non-compensation expenses increased $120 million, or 42%, primarily due to the aforementioned bank loan loss provision of $109 million.

Pursuant to our Board of Directors’ share repurchase authorization, we repurchased approximately 2.5 million shares of common stock during the quarter for $202 million at an average price of approximately $79 per share. Due to the heightened market uncertainty as a result of the COVID-19 crisis, share buybacks have been suspended since mid-March and, as of March 31, 2020, we had $537 million of availability remaining under this authorization.

The firm ended the quarter with capital ratios well in excess of regulatory requirements and substantial liquidity, with nearly $2 billion(2) of cash at the parent company, which included the proceeds of a $500 million 10-year senior notes issuance in March.

Certain of the impacts of the COVID-19 pandemic will affect our results in future quarters to a greater extent than in the second fiscal quarter. Equity market declines toward the end of the quarter drove a 14% decline in fee-based assets and a 15% decline in financial assets under management as of March 31, 2020, which will negatively impact asset management and related administrative fees in our PCG and Asset Management segments in our third fiscal quarter of 2020. Our net interest income and RJBDP fees from third-party banks will be negatively affected by the full impact of the 150 basis point reduction in March by the Federal Reserve in its benchmark short-term interest rate. In Capital Markets, while our investment banking pipeline remains healthy, it is likely that we will experience a near-term slowdown in mergers & acquisitions and underwriting activity due to market uncertainty. In addition, if market volatility declines, it is likely that brokerage revenues will decline compared with the second fiscal quarter of 2020. While our results during the second quarter were negatively impacted by the bank loan loss provision and private equity valuation losses, further market deterioration could result in additional provisions and losses in future quarters.

A summary of our financial results by segment as compared to the prior-year quarter is as follows:

Our PCG segment net revenues of $1.50 billion increased 18%, while pre-tax income of $170 million increased 29%.  The increase in net revenues was $311 million,primarily attributable to an increase in asset management and related administrative fees due to higher assets in fee-based accounts at the beginning of $105the quarter, as well as an increase in brokerage revenues due to strong client activity driven by market volatility toward the end of the quarter. Non-interest expenses increased $186 million, or 51%16%, primarily resulting from an increase in compensation expenses due to the growth in compensable net revenues and higher staffing levels to support our continued growth and regulatory compliance requirements.

Capital Markets net revenues of $290 million increased 5% and pre-tax income of $28 million decreased 32%. The increase in net revenues was primarily due to an increase in brokerage revenues due to higher client activity as a result of market volatility, as well as an increase in equity underwriting revenues. These increases were partially offset by a decline in merger


(1) “ROTCE” is a non-GAAP financial measure. Please see the “Reconciliation of GAAP measures to non-GAAP financial measures” in this MD&A for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure, and for other important disclosures.

(2)For additional information, please see the “Liquidity and capital resources - Sources of liquidity” section in this MD&A.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


& acquisition revenues compared with a strong prior-year quarter. Non-interest expenses increased $26 million, or 11%, primarily resulting from an increase in compensation expense, primarily due to the mix of revenues.

Our Asset Management segment net revenues of $184 million increased 14% and pre-tax income of $73 million increased 33%. The increase in net revenues was driven by higher average financial assets under management, as well as higher beginning assets in programs for which the segment provides administrative support.

RJ Bank net revenues of $210 million decreased 1% and pre-tax income of $14 million decreased 90%. Net revenues were essentially flat as higher interest-earning banking assets offset the negative impact from lower short-term interest rates. Non-interest expenses increased $120 million, or 158%, as RJ Bank recorded a loan loss provision of $109 million compared to $5 million in the prior-year quarter, in response to the impact of COVID-19.

Our Other segment reflected a pre-tax loss that was $29 million larger compared to the prior-year quarter, primarily the result of private equity valuation losses in the current-year quarter compared with gains of in the prior-year quarter.

Six months ended March 31, 2020 compared with the six months ended March 31, 2019

Net revenues of $4.08 billion increased $287 million, or 8%. Pre-tax income of $598 million decreased $81 million, or 12%. Our net income of $119$437 million reflects a decrease of $28decreased $73 million, or 19%14%, and our earnings per diluted share was $0.80,were $3.09, reflecting a 20%12% decrease.

During Our annualized ROE during the threesix months ended DecemberMarch 31, 2017, earnings were negatively affected by the estimated discrete impact of the Tax Act of $117 million, primarily related to the remeasurement of U.S. deferred tax assets at a lower enacted corporate tax rate. Excluding this discrete impact and $4 million of acquisition-related expenses, adjusted net income2020 was $238.8 million (1)13.0%, an increase of 35% compared with adjusted net income in16.2% for the prior year. Adjusted earnings per diluted share were $1.61 prior-year period, and annualized ROTCE (1) was 14.2%, a 33% increase compared with adjusted earnings per diluted share17.9% for the prior-year period.

The $287 million increase in net revenues compared with the prior year period.

Net revenues increased significantly in theprior-year period reflects higher asset management and related administrative fees, primarily attributable to higher PCG Asset Management and RJ Bank segments. PCG and Asset Management benefited from growth in client assets in fee-based accounts. RJ Bank had significant growthaccounts at the beginning of the current-year periods. Brokerage revenues also increased, primarily due to higher market volatility in our second fiscal quarter. Offsetting these increases, other revenues were negatively impacted by valuation losses on private equity investments, a portion of which was attributable to noncontrolling interests, which was reflected as an offset in other expenses. RJBDP fees and net interest income were negatively impacted due to lower short-term interest rates.

Compensation, commissions and benefits expense increased $283 million, or 11%, due to an increase in average interest-earning assets and an increase in net interest margin. Net revenues in our Capital Markets segment declined compared with the prior year period, reflecting a decline in equity and fixed income sales commissions due to low market volatility. Total client assets under administration reached $727.2 billion at December 31, 2017, an 18% increase, primarily attributable to equity market appreciation and strong financial advisor recruiting and retention results.


(1) “Adjusted net income,” and “adjusted earnings per diluted share” are each non-GAAP financial measures. Please see the “reconciliation of GAAP measures to non-GAAP measures” in this Item 2, for a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures, and for other important disclosures.


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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis


Non-interest expenses increased $129 million, or 10%. The increase primarily resulted from increased compensation, commissions and benefits expense associated with increasedcompensable net revenues, as well as increased staffing levels required to support our continued growth and regulatory and compliance requirements. Offsetting this increase was

Non-compensation expenses increased $85 million, or 14%, primarily due to a $30$107 million decrease in expensesbank loan loss provision compared with a $21 million bank loan loss provision for the prior-year period, partially offset by the $15 million loss on the sale of our operations related to the Jay Peak matter, which was settledresearch, sales and trading of European equities that occurred in the prior fiscal year.prior-year period.


Our effective income tax rate was 61.7%26.9% for the current quarter, reflectingsix months ended March 31, 2020, an increase compared with the estimated discrete impact of the Tax Act of $117 million, partially offset by a lower blended federal corporate statutory tax rate of 24.5%. Excluding the estimated discrete impact of the Tax Act, our adjusted24.8% effective tax rate was 24.1% (1) for the three months ended December 31, 2017. We estimate our effective tax rate to be approximately 28% for the remainder of our fiscal year ended September 30, 2018, which reflects the blended federal corporate statutory tax rate, and approximately 24% for fiscal year 2019, reflectingprimarily due to the lower federal corporate statutory tax rateunfavorable impact in the current-year period of 21% for the full year.  Our future effective tax rates are estimates and are based on assumptions based onnon-deductible valuation losses associated with our current interpretation of the Tax Act and may change, possibly materially, as we complete our analysis.  Our future effective tax rate will also be impacted positively or negatively, by non-taxable items such as the gains or losses earned on our Company-ownedcompany-owned life insurance (“COLI”), tax exempt interest and non-deductible expenses such as meals and entertainment.  See Note 13policies.

Pursuant to our Board of this Form 10-QDirectors’ share repurchase authorization, we repurchased approximately 2.7 million shares of common stock during the six months ended March 31, 2020 for further information on the Tax Act.$213 million at an average price of approximately $80 per share.

A summary of our financial results by segment as compared to the prior year areprior-year period is as follows:


Our Private Client GroupPCG segment generated net revenues of $1.23$2.91 billion a 19% increase, andincreased 11%, while pre-tax income of $155$323 million increased 111% over the prior year period which included $30 million in legal expenses related to the Jay Peak matter.9%. The increase in net revenues was primarily attributable to an increase in securities commissionsasset management and related administrative fees driven by a stronger market environment and continued strong recruiting and retention results. The segment also benefited fromdue to higher assets in fee-based accounts at the impactbeginning of higher short-term interest rates, resulting inthe current-year periods, as well as an increase in accountbrokerage revenues due to strong client activity driven by market volatility in our second fiscal quarter. Offsetting these increases were decreases in RJBDP fees from third-party banks and service fees relatednet interest income due to client cash balances in the RJBDP.lower short-term interest rates. Non-interest expenses increased $111$255 million, or 12%11%, primarily resulting from increasesan increase in compensation commissionsexpenses due to the growth in compensable net revenues and benefits expenses, offset by a decrease in the aforementioned legal expenses.higher staffing levels to support our continued growth and regulatory compliance requirements.


The Capital Markets segment generated net revenues of $217$558 million a 7% decrease over the prior year period.increased 5% and pre-tax income of $57 million increased 8%. The decreaseincrease in net revenues was primarily due to a decreasean increase in institutional commissionsfixed income brokerage revenues, due to lowerhigher client activity driven by market volatility. Investment banking revenues increased slightly,volatility, as higherwell as an increase in equity and debt underwriting revenues. These increases were partially offset by a decline in merger & acquisition and advisory fees more than offset lower equity underwritingrevenues. Non-interest expenses increased 5%, due to higher compensation

(1) “ROTCE” is a non-GAAP financial measure. Please see the “Reconciliation of GAAP measures to non-GAAP financial measures” in this MD&A for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure, and for other important disclosures.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


expenses, as a result of the increase in revenues, and higher business development expenses, professional fees and tax credit fund syndication fees. Non-interest expensesother expenses. These increases were relatively flat compared withpartially offset by the prior year period which, combined withaforementioned $15 million loss on the declinesale of our operations related to research, sales and trading of European equities in net revenues, contributed to a 78% decline in pre-tax income.the prior-year period.


Our Asset Management segment benefited from increased fee-based client assets, generating a 32% increase in net revenues to $151of $368 million whileincreased 10% and pre-tax income of $146 million increased 37% to $57 million.23%. The increase in net revenues primarily reflected increases in advisory fee revenues from managed programs and, to a lesser degree, non-discretionary asset-based administration fee revenues. Financialwas driven by higher average financial assets under management, in managed programs increased 64% overas well as higher assets at the prior year level aided by the acquisitionbeginning of each of the Scout Group duringcurrent-year quarters in programs for which the quarter. Non-interest expenses increased $19 million, or 27%, primarily resulting from increased investment sub-advisory fees and acquisition-related increases insegment provides administrative & incentive compensation and benefits expense.support.


RJ Bank generated a 20%net revenues of $426 million increased 3% and pre-tax income of $149 million decreased 39%. The increase in net revenues to $165 million, while pre-tax income increased 10% to $114 million. The increase in pre-tax income resulted primarily from an increase inreflected higher net interest income partially offset by higher affiliate deposit fees paid to the Private Client Group due to increased balances. Net interest income increased due to growth in average interest-earning assets, andwhich more than offset the lower net interest margin caused by lower short-term interest rates. Non-interest expenses increased $108 million, or 64%, due to an $86 million increase in the loan loss provision, as well as an increase in the net interest margin.fees for RJBDP paid to PCG.


Activities in ourOur Other segment reflected a pre-tax loss that was $14$42 million or 41% less thanlarger compared to the prior year,prior-year period, primarily due to a decreaseprivate equity valuation losses, as compared to gains in acquisition-related expensesthe prior-year period, and lower interest expense relatedincome on corporate cash balances due to a decrease in the average outstanding balance and average yield of our senior notes payable.lower short-term interest rates.











(1) “Adjusted effective tax rate” is a non-GAAP financial measure. Please see the “reconciliation of GAAP measures to non-GAAP measures” in this Item 2, for a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures, and for other important disclosures.

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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis


Segments


We currently operate through four operating segments and our Other segment. The four operatingfive segments. Our business segments are Private Client Group,PCG, Capital Markets, Asset Management and RJ Bank. TheOur Other segment capturesincludes our private equity activities as well asinvestments, interest income on certain corporate cash balances, and certain corporate overhead costs of RJF, that are not allocated to operating segments, including the interest costcosts on our public debt and the acquisition and integration costs associated with our acquisitions.debt.


The following table presents our consolidated and segment net revenues and pre-tax income/(loss), the latter excluding noncontrolling interests, for the periods indicated:indicated.
 Three months ended December 31, Three months ended March 31, Six months ended March 31,
$ in thousands 2017 2016 % change
$ in millions 2020 2019 % change 2020 2019 % change
Total company                  
Net revenues $1,726,161
 $1,492,802
 16 % $2,068
 $1,859
 11 % $4,077
 $3,790
 8 %
Pre-tax income excluding noncontrolling interests $311,243
 $206,379
 51 %
Pre-tax income $239
 $347
 (31)% $598
 $679
 (12)%
                  
Private Client Group  
  
    
  
        
Net revenues $1,233,051
 $1,040,089
 19 % $1,495
 $1,271
 18 % $2,909
 $2,627
 11 %
Pre-tax income $155,063
 $73,358
 111 % $170
 $132
 29 % $323
 $296
 9 %
           
      
Capital Markets  
  
    
  
 
      
Net revenues $216,665
 $233,016
 (7)% $290
 $277
 5 % $558
 $530
 5 %
Pre-tax income $4,807
 $21,444
 (78)% $28
 $41
 (32)% $57
 $53
 8 %
           
      
Asset Management  
  
    
  
 
      
Net revenues $150,600
 $114,082
 32 % $184
 $162
 14 % $368
 $336
 10 %
Pre-tax income $57,399
 $41,909
 37 % $73
 $55
 33 % $146
 $119
 23 %
           
      
RJ Bank  
  
    
  
 
      
Net revenues $165,185
 $138,015
 20 % $210
 $212
 (1)% $426
 $415
 3 %
Pre-tax income $114,155
 $104,121
 10 % $14
 $136
 (90)% $149
 $246
 (39)%
           
      
Other  
  
    
  
 
      
Net revenues $(2,920) $(9,643) 70 % $(44) $—
 NM
 $(52) $2
 NM
Pre-tax loss $(20,181) $(34,453) 41 % $(46) $(17) (171)% $(77) $(35) (120)%
                  
Intersegment eliminations  
  
    
  
        
Net revenues $(36,420) $(22,757) 
 $(67) $(63) NM
 $(132) $(120) NM



59
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis




Reconciliation of GAAP measures to non-GAAP financial measures


We utilize certain non-GAAP calculations as additionalfinancial measures to aid in, and enhance, the understanding of our financial results and related measures. These non-GAAP financial measures have been separately identified in this document. We believe that the non-GAAP measures provide useful information by excluding certain material items that may not be indicative of our core operating results. We believe that these non-GAAP measures will allow for better evaluation of the operating performance of the business and facilitate aannualized return on tangible common equity is meaningful to investors as this measure facilitates comparison of our results into the current period to those in prior and future periods. Theresults of other companies. This non-GAAP financial informationmeasure should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP. In addition, ourthis non-GAAP measuresfinancial measure may not be comparable to similarly titled non-GAAP financial measures of other companies. The following table provides a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measures to non-GAAP measuresfinancial measure for the periods which include non-GAAP adjustments. Non-GAAP measuresindicated.
  Three months ended March 31, Six months ended March 31,
$ in millions 2020 2019 2020 2019
Average equity $6,820
 $6,255
 $6,740
 $6,292
Less:        
Average goodwill and identifiable intangible assets, net 606
 632
 608
 634
Average deferred tax liabilities, net (31) (35) (30) (34)
Average tangible common equity $6,245
 $5,658
 $6,162
 $5,692
         
Return on equity 9.9% 16.7% 13.0% 16.2%
Return on tangible common equity 10.8% 18.5% 14.2% 17.9%

Return on equity is computed by dividing annualized net income for the three months ended December 31, 2016 have been revised from those previously reportedperiod indicated by average equity for each respective period or, in the case of return on tangible common equity, computed by dividing annualized net income by average tangible common equity for each respective period.

Average equity for the quarter-to-date period is computed by adding the total equity attributable to conform to our current presentation, which includes amounts relatedRaymond James Financial, Inc. as of the date indicated to the Jay Peak matter.prior quarter-end total, and dividing by two, or in the case of average tangible common equity, computed by adding tangible common equity as of the date indicated to the prior quarter-end total, and dividing by two. Average equity for the year-to-date period is computed by adding the total equity attributable to Raymond James Financial, Inc. as of each quarter-end date during the indicated year-to-date period to the beginning of the year total, and dividing by three, or in the case of average tangible common equity, computed by adding tangible common equity as of each quarter-end date during the indicated year-to-date period to the beginning of the year total, and dividing by three.
  Three months ended December 31,
$ in thousands, except per share amounts 2017 2016
Net income (1)
 $118,842
 $146,567
Non-GAAP adjustments:
    
Acquisition-related expenses (2)
 3,927
 12,666
Jay Peak matter (3)
 —
 30,000
Sub-total pre-tax non-GAAP adjustments 3,927
 42,666
Tax effect on non-GAAP adjustments above (1,100) (12,365)
Discrete impact of the Tax Act (4)
 117,169
 —
Total non-GAAP adjustments, net of tax 119,996
 30,301
Adjusted net income $238,838
 $176,868
     
Earnings per common share:
    
Basic $0.82
 $1.03
Diluted $0.80
 $1.00
Adjusted earnings per common share:
    
Adjusted basic $1.65
 $1.24
Adjusted diluted $1.61
 $1.21
Effective tax rate:      
For the three months ended December 31, 2017
($ in thousands)
 Pre-tax income including noncontrolling interests Provision for income taxes Effective tax rate
  $311,684
 $192,401
 61.7%
Less: discrete impact of the Tax Act (4)
   117,169
  
As adjusted for discrete impact of the Tax Act   $75,232
 24.1%

(1)Excludes noncontrolling interests.

(2)See Note 3 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

(3)See Part I. Item 3 - Legal proceedings in our 2017 Form 10-K for more information on the Jay Peak matter.

(4)See Note 13 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for more information related to the discrete impact of the Tax Act.


Net interest analysis


In response to macroeconomic concerns resulting from the COVID-19 pandemic, The Federal Reserve Bank announced an increase indecreased its benchmark short-term interest rate twice toward the end of 25our second fiscal quarter to a range of 0-0.25%, for a total decrease of 150 basis points in December 2017. This increase is in addition to three 25 basis point interest rate increases since December 2016.during the quarter. These increasesdecreases in short-term interest rates, as well as the three rate cuts implemented in 2019 (225 basis points in total) have had a significantnegative impact on our overall financial performance,fiscal year 2020 results, as we have certain assets and liabilities, primarily held in our PCG, and RJ Bank and Other segments, which are sensitive to changes in interest rates. Fees we earn from third-party banks on client cash balances swept to such banks as part of the RJBDP are also sensitive to changes in interest rates. As the interest rate decreases during our second fiscal quarter occurred in March, we expect that these decreases will have a more significant negative impact on our results for the remainder of fiscal 2020. In addition, during the second fiscal quarter of 2020 we issued $500 million in aggregate principal amount of 4.65% senior notes. While this issuance strengthened our liquidity position, it will also increase our interest expense in future periods.

Given the relationship ofbetween our interest sensitiveinterest-sensitive assets toand liabilities held in each of these segments increasesand the nature of fees we earn from third-party banks on the RJBDP, decreases in short-term interest rates generally result in an overall increasedecrease in our net earnings, although the magnitude of the impact to our net interest margin depends on the yields on interest-earning assets relative to the cost of interest-bearing liabilities.

In PCG, we also earn fees in lieu of interest income from RJBDP, a multi-bank sweep program in which clients’liabilities, including deposit rates paid to clients on their cash deposits in their brokerage accounts are swept into interest-bearing deposit accounts at RJ Bank and various third-party banks. Such fees are recorded in “Account and service fees” in our Condensed Consolidated Statements of Income and Comprehensive Income. RJBDP fees from third-party banks fluctuate based on changesbalances. Conversely, any increases in short-term interest rates relative toand/or decreases in the deposit rates paid to clients generally have a positive impact on clientour earnings.

Refer to the discussion of the specific components of our net interest income within the “Management’s Discussion and Analysis - Results of Operations” of our PCG, RJ Bank, and Other segments. Also refer to “Management’s Discussion and Analysis - Results of Operations - Private Client Group - Clients’ domestic cash balances.sweep balances” for further information on the RJBDP.



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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis




The following table details the components of our domestic client cash balances:
  As of
$ in millions December 31,
2017		 September 30,
2017		 December 31,
2016
RJBDP      
RJ Bank $18,374
 $17,387
 $14,893
Third-party banks 20,836
 20,704
 25,456
Sub-total RJBDP 39,210
 38,091
 40,349
Money market 1,710
 1,818
 2,036
Client interest program 3,334
 3,101
 3,696
Total domestic client cash balances $44,254
 $43,010
 $46,081

The short-term interest rate increases in 2017 had a significant impact on fees earned from RJBDP; however, they have not had as significant of an impact on market deposit rates paid on client cash balances. However, subsequent to the December 2017 rate increase, we announced increases in our deposit rates paid on client cash balances and we expect market deposit rates will continue to rise with future increases in short-term interest rates. As such, any future increases in short-term interest rates may have less of an impact on our fees earned from our RJBDP, or could actually reduce our fees earned in this program, depending on the level of deposit rates paid on client cash balances.

If the Federal Reserve Bank was to reverse its previous actions and decrease the benchmark short-term interest rate or if deposit rates that we pay on client cash balances increased and resulted in a decline in spreads earned on our RJBDP program, the impact on our net interest income and account and service fees would be an unfavorable reversal of the positive impact described above.


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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis


The following table presentstables present our consolidated average balance,balances, interest income and expense and the related yieldyields and rates. Average balances are calculated on a daily basis, with the exception of Trading instruments, Loans to financial advisors, net and Corporate cash and all other, which are calculated based on the average of the end of monthend-of-month balances for each month within the period.

Quarter ended March 31, 2020 compared with the quarter ended March 31, 2019
 Three months ended December 31, Three months ended March 31,
 2017 2016 2020 2019
$ in thousands 
Average
balance
 
Interest
inc./exp.
 
Average
yield/cost
 
Average
balance
 
Interest
inc./exp.
 
Average
yield/cost
$ in millions Average
balance		 Interest
inc./exp.		 Average
yield/cost		 Average
balance		 Interest
inc./exp.		 Average
yield/cost
Interest-earning assets:                        
Assets segregated pursuant to regulations and other segregated assets $2,887,422
 $12,122
 1.68% $3,589,973
 $7,170
 0.80%
Securities loaned 361,749
 3,058
 3.38% 533,000
 2,732
 2.05%
Assets segregated pursuant to regulations $2,820
 $11
 1.58% $2,711
 $17
 2.47%
Trading instruments 648,088
 5,138
 3.17% 604,749
 5,006
 3.31% 708
 7
 4.21% 687
 6
 3.59%
Available-for-sale securities 2,275,219
 10,715
 1.88% 999,359
 3,400
 1.36% 3,443
 19
 2.28% 2,876
 17
 2.43%
Margin loans 2,484,016
 24,095
 3.88% 2,427,230
 19,981
 3.29% 2,367
 21
 3.55% 2,599
 31
 4.76%
Bank loans, net of unearned income            
Bank loans, net of unearned income and deferred expenses:            
Loans held for investment:                        
C&I loans 7,413,409
 73,792
 3.89% 7,477,477
 71,306
 3.75% 8,043
 81
 3.99% 8,160
 97
 4.76%
CRE construction loans 140,472
 1,723
 4.80% 132,506
 1,505
 4.44% 181
 2
 4.58% 197
 3
 5.70%
CRE loans 3,036,603
 28,759
 3.71% 2,549,914
 22,254
 3.42% 3,735
 36
 3.81% 3,379
 40
 4.73%
Tax-exempt loans 1,039,814
 6,706
 2.58% 808,160
 5,246
 2.60% 1,212
 8
 3.36% 1,280
 8
 3.34%
Residential mortgage loans 3,245,333
 24,790
 3.06% 2,559,074
 18,564
 2.84% 4,847
 38
 3.13% 3,979
 34
 3.33%
SBL 2,471,054
 23,240
 3.68% 1,951,644
 15,389
 3.09%
SBL and other 3,469
 31
 3.60% 3,066
 37
 4.71%
Loans held for sale 115,882
 1,010
 3.46% 180,052
 1,261
 2.81% 142
 2
 3.85% 144
 1
 4.26%
Total bank loans, net 17,462,567
 160,020
 3.65% 15,658,827
 135,525
 3.47% 21,629
 198
 3.67% 20,205
 220
 4.38%
Loans to financial advisors 869,326
 3,502
 1.61% 833,760
 3,308
 1.59%
Loans to financial advisors, net 979
 5
 2.08% 901
 5
 2.01%
Corporate cash and all other 4,330,440
 13,079
 1.21% 3,215,887
 5,660
 0.69% 6,321
 24
 1.40% 4,897
 28
 2.38%
Total interest-earning assets $31,318,827
 $231,729
 2.96% $27,862,785
 $182,782
 2.62% $38,267

$285
 2.97% $34,876

$324
 3.72%
                        
Interest-bearing liabilities:  
  
  
  
  
  
    
  
  
  
  
Bank deposits            
Bank deposits:            
Savings, money market and NOW accounts $22,877
 $6
 0.12% $20,751
 $34
 0.64%
Certificates of deposit $323,503
 $1,272
 1.56% $303,243
 $1,135
 1.48% 1,094
 6
 2.03% 560
 3
 2.26%
Savings, money market and NOW accounts 17,820,706
 6,237
 0.15% 14,411,122
 1,648
 0.05%
Securities borrowed 122,310
 1,479
 4.84% 126,247
 1,228
 3.89%
Trading instruments sold but not yet purchased 258,095
 1,706
 2.64% 266,206
 1,328
 2.00% 222
 1
 1.93% 286
 2
 2.67%
Brokerage client liabilities 4,442,992
 2,529
 0.23% 4,919,792
 676
 0.05%
Brokerage client payables 3,838
 3
 0.26% 3,582
 5
 0.58%
Other borrowings 1,031,298
 5,865
 2.26% 768,178
 3,719
 1.94% 892
 5
 2.26% 967
 5
 2.35%
Senior notes 1,548,885
 18,180
 4.69% 1,680,417
 24,699
 5.88%
Senior notes payable 1,556
 19
 4.71% 1,550
 18
 4.70%
Other 256,161
 2,163
 3.38% 249,595
 1,533
 2.46% 483
 3
 3.84% 762
 8
 3.62%
Total interest-bearing liabilities $25,803,950
 $39,431
 0.61% $22,724,800
 $35,966
 0.63% $30,962
 $43
 0.57% $28,458
 $75
 1.04%
Net interest income  
 $192,298
  
  
 $146,816
  
   $242
     $249
  


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


Six months ended March 31, 2020 compared with the six months ended March 31, 2019
  Six months ended March 31,
  2020 2019
$ in millions Average
balance		 Interest
inc./exp.		 Average
yield/cost		 Average
balance		 Interest
inc./exp.		 Average
yield/cost
Interest-earning assets:            
Assets segregated pursuant to regulations $2,578
 $22
 1.70% $2,572
 $32
 2.45%
Trading instruments 738
 13
 3.60% 705
 13
 3.73%
Available-for-sale securities 3,265
 37
 2.29% 2,796
 33
 2.38%
Margin loans 2,402
 48
 4.04% 2,665
 63
 4.71%
Bank loans, net of unearned income and deferred expenses:            
Loans held for investment:            
C&I loans 8,061
 167
 4.07% 7,959
 188
 4.67%
CRE construction loans 207
 5
 4.75% 184
 5
 5.66%
CRE loans 3,673
 73
 3.91% 3,469
 81
 4.64%
Tax-exempt loans 1,218
 16
 3.36% 1,282
 17
 3.34%
Residential mortgage loans 4,743
 75
 3.16% 3,934
 66
 3.32%
SBL and other 3,403
 65
 3.78% 3,085
 73
 4.65%
Loans held for sale 151
 3
 3.97% 165
 4
 4.90%
Total bank loans, net 21,456
 404
 3.76% 20,078
 434
 4.32%
Loans to financial advisors, net 977
 10
 2.09% 908
 9
 1.97%
Corporate cash and all other 5,663
 48
 1.63% 4,850
 56
 2.36%
Total interest-earning assets $37,079
 $582
 3.14% $34,574
 $640
 3.70%
             
Interest-bearing liabilities:  
  
  
  
  
  
Bank deposits:            
Savings, money market and NOW accounts $22,260
 $18
 0.16% $20,612
 $67
 0.64%
Certificates of deposit 937
 10
 2.10% 510
 5
 2.13%
Trading instruments sold but not yet purchased 254
 2
 1.94% 291
 4
 2.77%
Brokerage client payables 3,513
 6
 0.31% 3,563
 11
 0.63%
Other borrowings 893
 10
 2.23% 956
 11
 2.39%
Senior notes payable 1,553
 37
 4.71% 1,550
 36
 4.70%
Other 573
 11
 3.92% 760
 14
 3.41%
Total interest-bearing liabilities $29,983
 $94
 0.62% $28,242
 $148
 1.05%
Net interest income  
 $488
  
  
 $492
  

Nonaccrual loans are included in the average loan balances in the table above. Payment or incomepreceding tables. Any payments received onfor corporate nonaccrual loans are applied entirely to principal. IncomeInterest income on otherresidential mortgage nonaccrual loans is recognized on a cash basis.


Fee income on allbank loans included in interest income for thewas $5 million and $9 million during three and six months ended DecemberMarch 31, 20172020, respectively, and 2016 was $9$6 million for both periods.

Threeand $11 million during three and six months ended DecemberMarch 31, 2017 compared with the three months ended December 31, 20162019, respectively.

Net interest income increased $45 million, or 31%, primarily reflecting increases in our RJ Bank and PCG segments, as well as a decrease in interest expense in our Other segment related to our senior notes payable.


The RJ Bank segment’s net interest income increased $29 million, or 21%, resulting from an increaseyield on tax-exempt loans in average loans outstanding and an increase the available-for-sale securities portfolio, as well as an increase in net interest margin. Refer topreceding tables is presented on a taxable-equivalent basis utilizing the discussionapplicable federal statutory rates for each of the specific components of RJ Bank’s net interest income in the RJ Bank section of this MD&A.years presented.



62
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis



Net interest income in the PCG segment increased $8 million, or 27%, driven by an increase in interest income from segregated assets, due to the impact of an increase in short-term interest rates on these balances, and an increase in interest income from margin loans primarily due to higher yields on these balances. The favorable impact of the higher interest rates was partially offset by a decrease in average segregated asset balances. A decrease in average client cash balances partially offset the impact of the increased rates paid on these balances.

Interest expense on our senior notes decreased by $7 million, or 26% as a result of a decrease in average outstanding balances, as well as the average rate on our outstanding borrowings. The average outstanding balance and average rate of our senior notes decreased due to our March 2017 redemption of our $350 million 6.90% senior notes and our September 2017 redemption of our $300 million 8.60% senior notes, partially offset by the May 2017 issuance of $500 million 4.95% senior notes.


Results of Operations – Private Client Group


For an overview of our PCG segment operations, as well as thea description of the key factors impacting our PCG results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20172019 Form 10-K.


Operating results
  Three months ended December 31,
$ in thousands 2017 2016 % change
Revenues:      
Securities commissions and fees:      
Fee-based accounts $596,259
 $472,899
 26 %
Mutual funds 163,147
 158,590
 3 %
Insurance and annuity products 110,789
 95,351
 16 %
Equity products 83,220
 79,436
 5 %
Fixed income products 28,337
 28,952
 (2)%
New issue sales credits 9,302
 17,991
 (48)%
Sub-total securities commissions and fees 991,054
 853,219
 16 %
Interest 43,476
 33,614
 29 %
Account and service fees:     

Mutual fund and annuity service fees 80,621
 68,726
 17 %
RJBDP fees - third-party banks 61,007
 36,564
 67 %
RJBDP fees - RJ Bank 21,258
 11,653
 82 %
Client account and service fees 22,754
 24,697
 (8)%
Client transaction fees and other 7,745
 6,786
 14 %
Sub-total account and service fees 193,385
 148,426
 30 %
Other 10,125
 8,057
 26 %
Total revenues 1,238,040
 1,043,316
 19 %
Interest expense (4,989) (3,227) 55 %
Net revenues 1,233,051
 1,040,089
 19 %
Non-interest expenses:  
  
 

Sales commissions 736,459
 634,512
 16 %
Admin & incentive compensation and benefit costs 198,917
 171,889
 16 %
Communications and information processing 52,800
 44,017
 20 %
Occupancy and equipment costs 37,757
 35,488
 6 %
Business development 21,563
 23,450
 (8)%
Jay Peak matter —
 30,000
 (100)%
Other 30,492
 27,375
 11 %
Total non-interest expenses 1,077,988
 966,731
 12 %
Pre-tax income $155,063
 $73,358
 111 %
  Three months ended March 31, Six months ended March 31,
$ in millions 2020 2019 % change 2020 2019 % change
Revenues:            
Asset management and related administrative fees $833
 $638
 31 % $1,615
 $1,345
 20 %
Brokerage revenues:     

     

Mutual and other fund products 163
 145
 12 % 307
 302
 2 %
Insurance and annuity products 99
 99
 —
 200
 203
 (1)%
Equities, ETFs and fixed income products 122
 94
 30 % 224
 197
 14 %
Total brokerage revenues 384
 338
 14 % 731
 702
 4 %
Account and service fees:     

     

Mutual fund and annuity service fees 88
 82
 7 % 178
 165
 8 %
RJBDP fees:     

     

Third-party banks 51
 80
 (36)% 109
 148
 (26)%
RJ Bank 48
 42
 14 % 95
 83
 14 %
Client account and other fees 35
 27
 30 % 64
 60
 7 %
Total account and service fees 222
 231
 (4)% 446
 456
 (2)%
Investment banking 11
 8
 38 % 22
 15
 47 %
Interest income 45
 58
 (22)% 94
 114
 (18)%
All other 7
 9
 (22)% 16
 16
 —
Total revenues 1,502

1,282

17 %
2,924

2,648

10 %
Interest expense (7) (11) (36)% (15) (21) (29)%
Net revenues 1,495
 1,271
 18 % 2,909
 2,627
 11 %
Non-interest expenses:  
  
 

  
  
 

Financial advisor compensation and benefits 915
 750
 22 % 1,772
 1,553
 14 %
Administrative compensation and benefits 245
 234
 5 % 492
 463
 6 %
Total compensation, commissions and benefits 1,160
 984
 18 % 2,264
 2,016
 12 %
Non-compensation expenses:     

     

Communications and information processing 62
 59
 5 % 121
 117
 3 %
Occupancy and equipment 44
 41
 7 % 88
 79
 11 %
Business development 24
 26
 (8)% 51
 53
 (4)%
Professional fees 9
 7
 29 % 17
 16
 6 %
All other 26
 22
 18 % 45
 50
 (10)%
Total non-compensation expenses 165
 155
 6 % 322
 315
 2 %
Total non-interest expenses $1,325
 $1,139
 16 % $2,586
 $2,331
 11 %
Pre-tax income $170
 $132
 29 % $323
 $296
 9 %



63
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis




Selected key metrics


Client Asset Balances:
PCG client asset balances:
  As of % change from
$ in billions December 31,
2017		 September 30,
2017		 December 31,
2016		 September 30,
2017		 December 31,
2016
PCG assets under administration $692.1
 $659.5
 $585.6
 5% 18%
PCG assets in fee-based accounts $316.7
 $294.5
 $240.2
 8% 32%
  As of
$ in billions March 31,
2020		 December 31,
2019		 September 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018
Assets under administration (“AUA”) $734.0
 $855.2
 $798.4
 $760.0
 $690.7
 $755.7
Assets in fee-based accounts (1)
 $383.5
 $444.2
 $409.1
 $378.4
 $338.8
 $366.3
Percent of AUA in fee-based accounts 52.2% 51.9% 51.2% 49.8% 49.1% 48.5%


(1)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.”

Financial Advisors: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 revenues is shared with the Asset Management segment.

 December 31, 2017 September 30, 2017 December 31, 2016
Employees3,038
 3,041
 2,985
Independent Contractors4,499
(1) 
4,305
 4,143
Total advisors7,537
 7,346
 7,128
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.


(1) Our independent contractor financial advisor counts include 126 registered individuals who metThe vast majority of the requirements torevenues we earn from fee-based accounts are recorded in “Asset management and related administrative fees” on our Condensed Consolidated Statements of Income and Comprehensive Income. Fees received from such accounts are based on the value of client assets in fee-based accounts and vary based on the specific account types in which the client participates and the level of assets in the client relationship. As fees for substantially all of such accounts are billed based on balances as of the beginning of the quarter, revenues from fee-based accounts may not be classified asimmediately affected by changes in asset values, but rather the impacts are seen in the following quarter.

Despite the net addition of financial advisors in the December 31, 2017 period following our periodic review procedures.

current quarter, PCG assets under administration increased 18% over December 31, 2016, resulting fromdecreased due to the decline in equity market appreciation and net client inflows. Our net client inflows were primarily attributable to strong financial advisor recruiting results.markets as a result of the COVID-19 pandemic. PCG assets in fee-based accounts continued to increase as a percentage of overall PCG assets under administration increased compareddue to December 31, 2016, due in part to clients moving toclients’ preference for fee-based alternatives versus traditional transaction-based accounts in response to regulatory changes.
Excluding the impactaccounts. As a result of the individuals newly qualifyingshift to be classified asfee-based accounts over the past several years, a larger portion of our PCG revenues are more directly impacted by market movements. Therefore, further declines in equity markets would negatively affect our PCG revenues.

Financial advisors:
  March 31,
2020		 December 31,
2019		 September 30,
2019		 March 31,
2019
Employees 3,376
 3,331
 3,301
 3,192
Independent contractors 4,772
 4,729
 4,710
 4,670
Total advisors 8,148
 8,060
 8,011
 7,862

The number of financial advisors the net increase in financial advisors as of December 31, 2017 comparedincreased primarily due to December 31, 2016 primarily resulted from strongcontinued financial advisor recruiting and high levels of retention. NotwithstandingThe impact of COVID-19 on future recruiting is uncertain; however, we are likely to see a slowdown in recruiting until travel restrictions and other social distancing measures subside.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


Clients’ domestic cash sweep balances:
  As of
$ in millions March 31,
2020		 December 31,
2019		 September 30,
2019		 March 31,
2019
RJBDP        
RJ Bank $28,711
 $21,891
 $21,649
 $21,023
Third-party banks 20,379
 15,061
 14,043
 14,343
Subtotal RJBDP 49,090
 36,952
 35,692
 35,366
Money market funds —
 —
 —
 4,001
Client Interest Program (“CIP”) 3,782
 2,528
 2,022
 2,349
Total clients’ domestic cash sweep balances $52,872
 $39,480
 $37,714
 $41,716
  Three months ended March 31, Six months ended March 31,
  2020 2019 2020 2019
Average yield on RJBDP - third-party banks 1.33% 2.00% 1.48% 1.87%

A significant portion of our clients’ cash is included in the futureRJBDP, a multi-bank sweep program in which clients’ cash deposits in their accounts are swept into interest-bearing deposit accounts at RJ Bank and various third-party banks. We earn servicing fees for the administrative services we provide related to our clients’ deposits that are swept to such banks as part of the RJBDP. The amounts from third-party banks are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates and the interest paid to clients by the third-party banks on balances in the RJBDP. The “Average yield on RJBDP - third party banks” in the preceding table is computed by dividing annualized RJBDP fees from third-party banks, which are net of the interest expense paid to clients by the third-party banks, by the average daily RJBDP balance at third-party banks. The PCG segment also earns RJBDP servicing fees from RJ Bank, which are based on the number of accounts that are swept to RJ Bank. The fees from RJ Bank are eliminated in consolidation.

RJBDP fees from third-party banks and the average yield on RJBDP (third-party banks) were negatively impacted by the significant decrease in short-term interest rates. The Federal Reserve decreased its benchmark short-term interest rate twice toward the end of our second fiscal quarter, to a range of 0-0.25%, a total decrease of 150 basis points. These decreases were in addition to the three rate cuts implemented in 2019 (225 basis points in total). As the interest rate decreases during our second fiscal quarter of 2020 occurred in March, we expect that our average yield on RJBDP (third-party banks) will decrease to approximately 0.30% beginning with our third fiscal quarter. Any additional decreases in short-term interest rates, increases in deposit rates paid to clients, and/or a significant decline in our clients’ cash balances will likely have a negative impact ofon our earnings. Further, PCG segment results are impacted by changes in the overall economy,allocation of client cash balances in the RJBDP between RJ Bank and more specifically their impact onthird-party banks.

Money market funds were discontinued as a sweep option in June 2019. Balances in those funds were converted to the markets, we believe that thisRJBDP or reinvested by the client.

The significant increase in financial advisors isclients’ cash balances as of March 31, 2020 was a positive indicationresult of potential future revenue growththe market volatility and the steep declines in this segment.the equity markets during the second fiscal quarter of 2020.


Three monthsQuarter ended DecemberMarch 31, 20172020 compared with the three monthsquarter ended DecemberMarch 31, 20162019


Net revenues of $1.23$1.50 billion increased $193$224 million, or 19%. The portion18%, and pre-tax income of total segment revenues that we consider$170 million increased $38 million, or 29%.

Asset management and related administrative fees increased $195 million, or 31%, due to be recurring was 82% forhigher asset balances in fee-based accounts at the three months ended December 31, 2017, an increase from 78% forbeginning of the prior year period. Recurring revenues include asset-basedquarter. As assets in fee-based accounts are billed primarily on balances at the beginning of the quarter, the 14% decline in fee-based assets during the current quarter will negatively impact asset management fees trailing commissions from mutual funds and variable annuities/insurance products, mutual fund and annuity service fees, fees earned in our RJBDP program, and interest, all of which contributed to the increase.third fiscal quarter.


Pre-tax income of $155 millionBrokerage revenues increased $82$46 million, or 111%.

Securities commissions and fees increased $138 million, or 16%.  The increased securities commissions and fee revenues were primarily driven by a stronger market environment as well as strong recruiting results.

Total account and service fees increased $45 million, or 30%14%, primarily due to higherstrong client activity driven by market volatility toward the end of the quarter as a result of the COVID-19 pandemic.

Account and service fees decreased $9 million, or 4%, due to the decline in RJBDP fees from third-party banks, primarily resulting fromdriven by lower short-term interest rates compared with the prior-year quarter. Partially offsetting this decrease was an increase in short-term interest rates since December 2016. Mutual fund and annuity serviceRJBDP fees increased reflecting higher education and marketing support (“EMS”) fees and mutual fund omnibus fees. The increase in EMS fees is primarilyfrom RJ Bank, due to the increased assets in the program, while the increase in omnibus fees was a result of an increase in the number of positions investedaccounts, and increases in mutual fund families on the omnibus platform.

As previously discussed, net interest income in the PCG segment increased $8 million, or 27%.

Non-interest expenses increased $111 million, or 12%,service fees and client account and other fees, primarily due to an increase in sales commission expenses, which increased $102higher average assets and activity during the quarter.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


Net interest income decreased $9 million, or 16%19%, driven by a decrease in line withinterest income from client margin loans and assets segregated pursuant to regulations due to a decline in short-term interest rates. Partially offsetting the increasedecrease in securities commissions and fees. Administrative & incentive compensation and benefitsinterest income, interest expense also decreased due to the impact of lower deposit rates paid on client cash balances in CIP.

Compensation-related expenses increased $27$176 million, or 16%18%, primarily due to higher compensable net revenues, as well as increased staffing levels over the prior-year quarter to support our continued growth and regulatory and compliance requirements. Communications

Non-compensation expenses increased $10 million, or 6%, primarily due to increased costs to support our growth, as well as higher legal reserves.

Six months ended March 31, 2020 compared with the six months ended March 31, 2019

Net revenues of $2.91 billion increased $282 million, or 11%, and information processing expensepre-tax income of $323 million increased $9$27 million, or 9%.

Asset management and related administrative fees increased $270 million, or 20%, primarily due to higher assets in fee-based accounts at the beginning of the current-year periods.

Brokerage revenues increased $29 million, or 4%, primarily due to strong client activity driven by market volatility toward the end of our second fiscal quarter. Partially offsetting this increase was a decline in mutual fund trails, which were impacted by the conversion of client assets into mutual fund share classes which pay lower rates, and the continued shift to fee-based accounts.

Account and service fees decreased $10 million, or 2%, driven by a decline in RJBDP fees from third-party banks, as a result of lower short-term interest rates. Partially offsetting this decrease was an increase in mutual fund service fees, primarily due to higher assets, and higher RJBDP fees from RJ Bank due to an increase in the number of accounts at RJ Bank.

Net interest income decreased $14 million, or 15%, driven by a decrease in interest income from assets segregated pursuant to regulations, due a decline in short-term interest rates, and a decrease in interest income from client margin loans, due to the decline in short-term interest rates and a decline in average balances. Partially offsetting the decrease in interest income, interest expense also decreased due to the impact of lower deposit rates paid on client cash balances in CIP.

Compensation-related expenses increased $248 million, or 12%, due to higher compensable net revenues, as well as increased staffing levels in the current year to support our continued investment in information technology infrastructuregrowth and regulatory compliance requirements.

Non-compensation expenses increased $7 million, or 2%, primarily due to increased costs to support our growth. Offsetting these increases is a $30 million decrease in expenses related to the Jay Peak matter, which was settled in fiscal year 2017.



64
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis




Results of Operations – Capital Markets


For an overview of our Capital Markets segment operations, as well as thea description of the key factors impacting our Capital Markets results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20172019 Form 10-K.


Operating results
  Three months ended December 31,
$ in thousands 2017 2016 % change
Revenues:      
Securities commissions and fees:      
Equity $53,371
 $64,319
 (17)%
Fixed income 65,201
 75,374
 (13)%
Sub-total securities commissions and fees 118,572
 139,693
 (15)%
Equity underwriting fees 8,956
 14,509
 (38)%
Merger & acquisition and advisory fees 42,998
 27,174
 58 %
Fixed income investment banking 8,132
 8,478
 (4)%
Tax credit funds syndication fees 4,817
 11,126
 (57)%
Sub-total investment banking 64,903
 61,287
 6 %
Investment advisory fees 8,335
 5,223
 60 %
Net trading profit 19,230
 19,319
 —
Interest 7,325
 6,474
 13 %
Other 4,169
 4,986
 (16)%
Total revenues 222,534
 236,982
 (6)%
Interest expense (5,869) (3,966) 48 %
Net revenues 216,665
 233,016
 (7)%
Non-interest expenses:     

Sales commissions 42,218
 50,973
 (17)%
Admin & incentive compensation and benefit costs 114,322
 102,867
 11 %
Communications and information processing 17,834
 17,647
 1 %
Occupancy and equipment costs 8,384
 8,455
 (1)%
Business development 10,155
 9,602
 6 %
Losses and non-interest expenses of real estate partnerships held by consolidated VIEs 2,666
 1,796
 48 %
Other 18,986
 22,337
 (15)%
Total non-interest expenses 214,565
 213,677
 —
Income before taxes and including noncontrolling interests 2,100
 19,339
 (89)%
Noncontrolling interests (2,707) (2,105) 29 %
Pre-tax income excluding noncontrolling interests $4,807
 $21,444
 (78)%
  Three months ended March 31, Six months ended March 31,
$ in millions 2020 2019 % change 2020 2019 % change
Revenues:            
Brokerage revenues:  
  
        
Fixed income $90
 $71
 27 % $171
 $128
 34 %
Equity 40
 32
 25 % 74
 74
 —
Total brokerage revenues 130
 103
 26 % 245
 202
 21 %
Investment banking:     

      
Merger & acquisition and advisory 72
 121
 (40)% 132
 206
 (36)%
Equity underwriting 43
 18
 139 % 82
 45
 82 %
Debt underwriting 22
 17
 29 % 53
 34
 56 %
Total investment banking 137
 156
 (12)% 267
 285
 (6)%
Interest income 10
 9
 11 % 18
 19
 (5)%
Tax credit fund revenues 12
 14
 (14)% 30
 33
 (9)%
All other 7
 3
 133 % 10
 7
 43 %
Total revenues 296
 285
 4 % 570
 546
 4 %
Interest expense (6) (8) (25)% (12) (16) (25)%
Net revenues 290
 277
 5 % 558
 530
 5 %
Non-interest expenses:  
  
 

     

Compensation, commissions and benefits 184
 168
 10 % 350
 326
 7 %
Non-compensation expenses:            
Communications and information processing 20
 19
 5 % 39
 38
 3 %
Occupancy and equipment 9
 9
 —
 18
 18
 —
Business development 15
 13
 15 % 31
 25
 24 %
Professional fees 13
 10
 30 % 23
 20
 15 %
Acquisition and disposition-related expenses —
 —
 —
 —
 15
 (100)%
All other 21
 17
 24 % 40
 35
 14 %
Total non-compensation expenses 78
 68
 15 % 151
 151
 —
Total non-interest expenses 262
 236
 11 % 501
 477
 5 %
Pre-tax income $28
 $41
 (32)% $57
 $53
 8 %


Three monthsQuarter ended DecemberMarch 31, 20172020 compared with the three monthsquarter ended DecemberMarch 31, 20162019


Net revenues of $217$290 million increased $13 million, or 5%, and pre-tax income of $28 million decreased $13 million, or 32%.

Brokerage revenues increased $27 million, or 26%, due to an increase in both fixed income and equity brokerage revenues. The increase in brokerage revenues reflected an increase in client activity during the current-year quarter resulting from market volatility, partially offset by losses of approximately $6 million on our trading inventory, both due to the COVID-19 pandemic. We reduced our trading inventory toward the end of the quarter to reduce our risk.

Investment banking revenues decreased $19 million, or 12%, due to a decrease in the number of completed merger & acquisition transactions compared with a strong prior-year quarter. Partially offsetting the decrease in mergers & acquisitions was an increase in equity underwriting revenues primarily due to an increase in activity compared with a difficult prior-year quarter, which was negatively impacted by the U.S. government shutdown during that period. While investment banking results during the second fiscal quarter were solid, merger & acquisition and underwriting activity may be negatively impacted in future quarters if market uncertainty continues.

Compensation-related expenses increased $16 million, or 10%, primarily due to the mix of revenues, as revenues with higher payout percentages increased, while revenues with lower payout percentages declined.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


Non-compensation expenses increased $10 million, or 15%, reflecting increases in professional fees and business development costs, primarily related to the increase in underwriting revenues, as well as an increase in other expenses.

Six months ended March 31, 2020 compared with the six months ended March 31, 2019

Net revenues of $558 million increased $28 million, or 5%, and pre-tax income of $57 million increased $4 million, or 8%.

Brokerage revenues increased $43 million, or 21%, due to an increase in fixed income brokerage revenues. The increase in fixed income brokerage revenues was primarily due to an increase in client activity during the current-year period, largely a result of higher market volatility, particularly toward the end of our second fiscal quarter. Equity brokerage revenues were challenged earlier in the year, but increased during our second fiscal quarter due to strong client activity driven by market volatility as a result of the COVID-19 pandemic.

Investment banking revenues decreased $18 million, or 6% due to a significant decline in merger & acquisition activity compared with a strong first half of fiscal 2019. Offsetting the decrease was an increase in both equity underwriting and debt underwriting net revenues, with an increase in the number of deals, as well as larger individual transactions.

Compensation-related expenses increased $24 million, or 7%, primarily due to lower commissions. Pre-tax income of $5 million decreased $17 million, or 78%.the increase in revenues.


Total commission revenues decreased $21 million, or 15%. Institutional fixed income and equity commissions each decreased $11 millionNon-compensation expenses were unchanged compared with the prior-year period, as a result of lower client trading volumes driven by low levels of interest rate and equity market volatility.

Investment banking revenues increased $4 million, or 6%, due to higher merger & acquisition and advisory fees, partially offset by lower tax credit fund syndicationincreases in business development, professional fees and equity underwriting fees. Merger & acquisition and advisory fees increased $16 million, or 58%, primarily due to a stronger volume of both domestic and foreign merger & acquisition activity and higher average fees per transaction in the current year period versus the prior year period. Tax credit fund syndication fees decreased $6 million, or 57%, due in part to uncertainty over corporate tax reform impacting new investment activity and the timing of transactions.

65
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis


Equity underwriting fees decreased $6 million, or 38%, primarily due to fewer domestic lead-managed deals in the current year period as compared to the prior year period.

Non-interest expenses were flat over the prior year period, as a decline in sales commissions, in line with the decline in securities commissions and fees, and a decline in other expenses were largely offset by an increasea loss in administrative & incentive compensationthe prior-year period of $15 million associated with the sale of our operations related to research, sales and benefits expense.trading of European equities.


Results of Operations – Asset Management


For an overview of our Asset Management segment operations as well as thea description of the key factors impacting our Asset Management results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20172019 Form 10-K.


Operating results
  Three months ended December 31,
$ in thousands 2017 2016 % change
Revenues:      
Investment advisory and related administrative fees:      
Managed programs $103,845
 $76,308
 36 %
Non-discretionary asset-based administration 27,068
 21,194
 28 %
Sub-total investment advisory and related administrative fees 130,913
 97,502
 34 %
Account and service fees and other 19,698
 16,594
 19 %
Total revenues 150,611
 114,096
 32 %
Interest expense (11) (14) (21)%
Net revenues 150,600
 114,082
 32 %
Non-interest expenses:  
  
 

Compensation and benefits 36,597
 27,682
 32 %
Communications and information processing 8,444
 6,671
 27 %
Occupancy and equipment costs 1,424
 1,160
 23 %
Business development 2,647
 2,313
 14 %
Investment sub-advisory fees 21,694
 17,384
 25 %
Other 19,527
 15,756
 24 %
Total non-interest expenses 90,333
 70,966
 27 %
Income before taxes and including noncontrolling interests 60,267
 43,116
 40 %
Noncontrolling interests 2,868
 1,207
 138 %
Pre-tax income excluding noncontrolling interests $57,399
 $41,909
 37 %
  Three months ended March 31, Six months ended March 31,
$ in millions 2020 2019 % change 2020 2019 % change
Revenues:            
Asset management and related administrative fees:            
Managed programs $124
 $109
 14 % $249
 $226
 10 %
Administration and other 53
 40
 33 % 104
 84
 24 %
Total asset management and related administrative fees 177
 149
 19 % 353
 310
 14 %
Account and service fees 4
 10
 (60)% 9
 19
 (53)%
All other 3
 3
 —
 6
 7
 (14)%
Net revenues 184
 162
 14 % 368
 336
 10 %
Non-interest expenses:  
  
 

  
  
 

Compensation, commissions and benefits 45
 45
 —
 90
 88
 2 %
Non-compensation expenses:            
Communications and information processing 12
 10
 20 % 23
 21
 10 %
Investment sub-advisory fees 26
 21
 24 % 51
 45
 13 %
All other 28
 31
 (10)% 58
 63
 (8)%
Total non-compensation expenses 66
 62
 6 % 132
 129
 2 %
Total non-interest expenses 111
 107
 4 % 222
 217
 2 %
Pre-tax income $73
 $55
 33 % $146
 $119
 23 %


Selected key metrics


Managed Programs - Our investment advisoryprograms

Management fees recorded in thisour Asset Management segment wereare generally calculated as a percentage of the value of our fee-billable financial assets under management (“AUM”). These AUM include the portion of fee-based AUA in our PCG segment that is invested in programs overseen by our Asset Management segment (included in the “AMS” line of the following table), as well as retail accounts
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


managed on behalf of third-party institutions, institutional accounts and proprietary mutual funds that we manage (collectively included in the “Carillon Tower Advisers” line of the following table).

Revenues related to fee-based AUA in our PCG segment are shared by the PCG and Asset Management segments, the amount of which depends on whether clients are invested in assets that are in managed programs overseen by our Asset Management segment and the administrative services provided (see our “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for more information). Our AUM in AMS are impacted by market fluctuations and net inflows or outflows of assets, including transfers between fee-based accounts and transaction-based accounts within our PCG segment.

Revenues earned by Carillon Tower Advisers for retail accounts managed on behalf of third-party institutions, institutional accounts and our proprietary mutual funds are recorded entirely in the Asset Management segment. Our AUM in Carillon Tower Advisers are impacted by market and investment performance and net inflows or outflows of assets.

Fees are generally collected quarterly. Approximately 65% of these fees are based on balances either atas of the beginning of the quarter, end of the quarter or average assets throughout the quarter. Following the Scout Group acquisition during the three months ended December 30, 2017, approximately 60% of our fees were determined10% are based on asset balances at the beginningas of the quarter, 20% were based on asset balances at the end of the quarter, and 20% wereapproximately 25% are based on average assetsdaily balances throughout the quarter.


66
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis



Financial assets under management:

The following table reflects fee-billable financial assets under management in managed programs at the dates indicated:
$ in millions December 31, 2017 September 30, 2017 December 31,
2016		 March 31,
2020		 December 31,
2019		 September 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018
Asset management services division of RJ&A (“AMS”) $74,607
 $69,962
 $56,524
Carillon Tower Advisers and affiliates (“Carillon Tower”) 61,245
 31,831
 27,933
Sub-total financial assets under management 135,852
 101,793
 84,457
AMS (1)
 $83,971
 $98,648
 $91,802
 $84,906
 $76,235
 $83,289
Carillon Tower Advisers 51,674
 60,637
 58,521
 59,852
 55,925
 63,330
Subtotal financial assets under management 135,645
 159,285
 150,323
 144,758
 132,160
 146,619
Less: Assets managed for affiliated entities (5,542) (5,397) (4,805) (7,456) (7,633) (7,221) (6,220) (5,653) (5,702)
Total financial assets under management $130,310
 $96,396
 $79,652
 $128,189
 $151,652
 $143,102
 $138,538
 $126,507
 $140,917
Carillon Tower above includes its subsidiaries and affiliates Eagle Asset Management, ClariVest Asset Management, Cougar Global Investments, and the newly acquired Scout Group.
(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.

The following table reflects fee-billable financial assets under management (including assets managed for affiliates) in managed programs by objective at the dates indicated:
$ in millions December 31, 2017 September 30, 2017 December 31,
2016
Equity $57,971
 $48,936
 $40,959
Fixed 33,806
 11,814
 10,920
Balanced 44,075
 41,043
 32,578
Total financial assets under management $135,852
 $101,793
 $84,457


Activity (including activity in assets managed for affiliated entities):
 Three months ended December 31, Three months ended March 31, Six months ended March 31,
$ in millions 2017 2016 2020 2019 2020 2019
Financial assets under management at beginning of period $101,793
 $81,729
 $159,285
 $132,160
 $150,323
 $146,619
Carillon Tower - net inflows:    
Scout group acquisition 27,087
 —
Other 720
 88
Carillon Tower Advisers - net outflows (2,016) (1,094) (2,388) (2,674)
AMS - net inflows 2,178
 1,896
 1,189
 1,869
 3,272
 2,387
Net market appreciation in asset values 4,074
 744
Net market appreciation/(depreciation) in asset values (22,813) 11,823
 (15,562) (1,574)
Financial assets under management at end of period $135,852
 $84,457
 $135,645
 $144,758
 $135,645
 $144,758


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.

Carillon Tower Advisers

Assets managed by Carillon Tower Advisers include assets managed by its subsidiaries and affiliates: Eagle Asset Management, ClariVest Asset Management, Cougar Global Investments and the Scout Group. The following table presents Carillon Tower Advisers’ AUM by objective, excluding assets for which it does not exercise discretion, as well as the approximate average client fee rate earned on such assets for the most recent fiscal year period.
$ in millions March 31, 2020 Average fee rate
Equity $21,518
 0.54%
Fixed income 25,641
 0.18%
Balanced 4,515
 0.37%
Total financial assets under management $51,674
 0.35%
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


Non-discretionary asset-based programs - Our
$ in billions March 31,
2020		 December 31,
2019		 September 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018
Total assets $217.3
 $251.3
 $229.7
 $207.0
 $184.3
 $200.1

The preceding 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 those managed for affiliated entities) totaled $170.9 billion, $157.0 billion, and $123.9 billion as of December 31, 2017, September 30, 2017 and December 31, 2016, respectively.. The increase in assets over the prior yearprior-year level was primarily due to market appreciation and to clients moving to fee-based accounts from the traditional transaction-based accounts and successful financial advisor recruiting. The decrease in responseassets during our second fiscal quarter was due to U.S. Departmentthe decline in equity markets toward the end of Labor (“DOL”) regulatory changes. The majority ofour second fiscal quarter due to the COVID-19 pandemic. As administrative fees associated with these programs are determinedpredominantly based on balances at the beginning of the quarter.quarter, the 14% decline in assets during the quarter will negatively impact our third fiscal quarter revenues.


RJ Trust
$ in billions March 31,
2020		 December 31,
2019		 September 30,
2019		 March 31,
2019		 December 31,
2018		 September 30,
2018
Total assets $6.4
 $7.2
 $6.6
 $6.2
 $5.7
 $6.1

The preceding table includes assets held in asset-based programs in RJ Trust (including those managed for affiliated entities).

Three monthsQuarter ended DecemberMarch 31, 20172020 compared with the three monthsquarter ended DecemberMarch 31, 20162019


Net revenues of $151$184 million increased $37$22 million, or 32%. Pre-tax14%, and pre-tax income of $57$73 million increased $15$18 million, or 37%33%.


Total investment advisoryAsset management and related administrative fee revenues increased $33$28 million, or 34%19%, primarily driven by an increase in financial advisory fees due to higher financial assets under management. The increase inaverage financial assets under management was primarily a resultand higher beginning assets in non-discretionary asset-based programs. Although financial assets under management and assets in non-discretionary asset-based programs at the end of the Scout Group acquisition,quarter were lower than the end of the prior-year quarter, revenues increased as wellthe majority of assets in these programs are billed based on balances as both market appreciation and recruiting. Administrative fees also increased duringof the quarterbeginning of the quarter. The decline in these assets as of March 31, 2020, primarily due to the aforementionednegative market impact of the COVID-19 pandemic toward the end of the quarter, will negatively affect our third fiscal quarter results.

Non-compensation expenses increased $4 million, or 6%, due to an increase in investment sub-advisory fees resulting from an increase in assets heldunder management in sub-advised programs.

Six months ended March 31, 2020 compared with the six months ended March 31, 2019

Net revenues of $368 million increased $32 million, or 10%, and pre-tax income of $146 million increased $27 million, or 23%.

Asset management and related administrative fees increased $43 million, or 14%, driven by higher average financial assets under management and higher beginning assets in non-discretionary asset-based programs. Although financial assets under management and assets in non-discretionary asset-based programs at the end of the period were lower than the end of the prior-year period, revenues increased as the majority of assets in these programs are billed based on balances as of the beginning of each quarter.


Account and service fees and other incomeNon-compensation expenses increased $3 million, or 19%2%, primarily reflecting increased trust fee revenue due to a 12%an increase in trustinvestment sub-advisory fees resulting from an increase in assets under management in RJ Trust.sub-advised programs.



67
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis



Non-interest expenses increased $19 million, or 27%, primarily resulting from a $9 million increase in compensation and benefit expenses, a $4 million increase in investment sub-advisory fees and a $4 million increase in other expense. Compensation and benefit expenses increased primarily due to the Scout Group acquisition, annual salary increases and an increase in personnel over the prior year to support the growth of the business. The increase in investment sub-advisory fees resulted from increased assets under management in applicable programs. The increase in other expense was primarily due to expenses incurred to support the new funds offered on our platform as a result of the Scout Group acquisition during the current year.


Results of Operations – RJ Bank


For an overview of our RJ Bank segment operations, as well as thea description of the key factors impacting our RJ Bank results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20172019 Form 10-K.


Operating results
 Three months ended December 31, Three months ended March 31, Six months ended March 31,
$ in thousands 2017 2016 % change
$ in millions 2020 2019 % change 2020 2019 % change
Revenues:                  
Interest income $175,995
 $140,774
 25 % $223
 $247
 (10)% $454
 $486
 (7)%
Interest expense (12,956) (6,502) 99 % (18) (42) (57)% (39) (84) (54)%
Net interest income 163,039
 134,272
 21 % 205
 205
 —
 415
 402
 3 %
Other income 2,146
 3,743
 (43)%
All other 5
 7
 (29)% 11
 13
 (15)%
Net revenues 165,185
 138,015
 20 % 210
 212
 (1)% 426
 415
 3 %
Non-interest expenses:  
  
 

  
  
 

  
  
 

Compensation and benefits 8,876
 7,724
 15 % 13
 12
 8 % 25
 23
 9 %
Communications and information processing 2,585
 1,867
 38 %
Occupancy and equipment costs 362
 351
 3 %
Non-compensation expenses:     

      
Loan loss provision/(benefit) 1,016
 (1,040) NM
 109
 5
 2,080 % 107
 21
 410 %
FDIC insurance premiums 4,834
 4,260
 13 %
Affiliate deposit account servicing fees 21,258
 11,653
 82 %
Other 12,099
 9,079
 33 %
RJBDP fees to PCG 48
 42
 14 % 95
 83
 14 %
All other 26
 17
 53 % 50
 42
 19 %
Total non-compensation expenses 183
 64
 186 % 252
 146
 73 %
Total non-interest expenses 51,030
 33,894
 51 % 196
 76
 158 % 277
 169
 64 %
Pre-tax income $114,155
 $104,121
 10 % $14
 $136
 (90)% $149
 $246
 (39)%



Quarter ended March 31, 2020 compared with the quarter ended March 31, 2019

Net revenues of $210 million decreased $2 million, or 1%, and pre-tax income of $14 million decreased $122 million, or 90%, primarily due to a higher bank loan loss provision.  

Net interest income was flat as the impacts of higher interest-earning banking assets offset the negative impact from lower short-term interest rates. The increase in average interest-earning banking assets was driven by growth in average loans of $1.42 billion, average cash balances of $661 million, and average available-for-sale portfolio of $567 million. The net interest margin decreased to 3.02% from 3.35% due to the decline in short-term interest rates. As the most recent rate cuts implemented by the Federal Reserve did not occur until late in our second fiscal quarter, we expect this decline to have a more significant impact on our net interest income and net interest margin in the third fiscal quarter. In addition, most of RJ Bank’s assets are priced based on LIBOR. Based on current LIBOR rates, we expect our net interest margin to decline to approximately 2.5% over the next two quarters.

The loan loss provision was $109 million compared to $5 million in the prior-year quarter. The increase in the provision in the current-year quarter was in response to the rapid and widespread economic deterioration caused by COVID-19. Continued deterioration of macroeconomic conditions may require us to increase our allowance for loan losses in the future or to experience loan losses in excess of current reserves.

Compensation and benefits expenses increased $1 million, or 8%, due increased staffing levels to support our continued growth.

Non-compensation expenses (excluding the provision for loan losses) increased $15 million. The increase in non-compensation expenses included a $6 million, or 14%, increase in fees for RJBDP paid to PCG, primarily driven by an increase in the number of accounts, and an increase in FDIC insurance premiums due to the increase in deposit balances. RJBDP fees paid to PCG are eliminated in consolidation.

68
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis




The following table presents average balance,balances, interest income and expense, the related yieldyields and rates, and interest spreads and margins for RJ Bank:Bank.
 Three months ended December 31, Three months ended March 31,
 2017 2016 2020 2019
$ in thousands 
Average
balance
 
Interest
inc./exp.
 
Average
yield/
cost
 
Average
balance
 
Interest
inc./exp.
 
Average
yield/
cost
$ in millions Average
balance		 Interest
inc./exp.		 Average
yield/
cost		 Average
balance		 Interest
inc./exp.		 Average
yield/
cost
Interest-earning banking assets:                        
Cash $1,354,464
 $4,432
 1.30% $905,877
 $1,244
 0.54% $2,052
 $5
 0.89% $1,391
 $9
 2.40%
Available-for-sale securities 2,168,610
 10,143
 1.87% 872,859
 3,077
 1.41% 3,443
 19
 2.28% 2,876
 17
 2.43%
Bank loans, net of unearned income:  
          
Bank loans, net of unearned income and deferred expenses:            
Loans held for investment:                        
C&I loans 7,413,409
 73,792
 3.89% 7,477,477
 71,306
 3.75% 8,043
 81
 3.99% 8,160
 97
 4.76%
CRE construction loans 140,472
 1,723
 4.80% 132,506
 1,505
 4.44% 181
 2
 4.58% 197
 3
 5.70%
CRE loans 3,036,603
 28,759
 3.71% 2,549,914
 22,254
 3.42% 3,735
 36
 3.81% 3,379
 40
 4.73%
Tax-exempt loans 1,039,814
 6,706
 3.42% 808,160
 5,246
 3.99% 1,212
 8
 3.36% 1,280
 8
 3.34%
Residential mortgage loans 3,245,333
 24,790
 3.06% 2,559,074
 18,564
 2.84% 4,847
 38
 3.13% 3,979
 34
 3.33%
SBL 2,471,054
 23,240
 3.68% 1,951,644
 15,389
 3.09%
SBL and other 3,469
 31
 3.60% 3,066
 37
 4.71%
Loans held for sale 115,882
 1,010
 3.46% 180,052
 1,261
 2.81% 142
 2
 3.85% 144
 1
 4.26%
Total loans, net 17,462,567
 160,020
 3.65% 15,658,827
 135,525
 3.47%
FHLB stock, FRB stock, and other 130,817
 1,400
 4.25% 171,818
 928
 2.14%
Total bank loans, net 21,629
 198
 3.67% 20,205
 220
 4.38%
FHLB stock, FRB stock and other 230
 1
 2.48% 153
 1
 4.44%
Total interest-earning banking assets 21,116,458
 $175,995
 3.32% 17,609,381
 $140,774
 3.21% 27,354
 $223
 3.28% 24,625

$247
 4.04%
Non-interest-earning banking assets:  
  
  
  
  
  
  
  
  
  
  
  
Unrealized loss on available-for-sale securities (15,508)  
  
 (5,138)  
  
Unrealized gain/(loss) on available-for-sale securities 53
  
  
 (33)  
  
Allowance for loan losses (190,503)  
  
 (196,895)  
  
 (217)  
  
 (220)    
Other assets 402,839
  
  
 358,673
  
  
 399
  
  
 400
  
  
Total non-interest-earning banking assets 196,828
  
  
 156,640
  
  
 235
  
  
 147
  
  
Total banking assets $21,313,286
  
  
 $17,766,021
  
  
 $27,589
  
  
 $24,772
  
  
Interest-bearing banking liabilities:  
  
  
  
  
  
  
  
  
  
  
  
Deposits:  
  
  
  
  
  
Bank deposits:  
  
  
  
  
  
Savings, money market and NOW accounts $23,045
 $7
 0.13% $20,923
 $35
 0.66%
Certificates of deposit $323,503
 $1,272
 1.56% $303,243
 $1,135
 1.48% 1,094
 6
 2.03% 560
 3
 2.26%
Savings, money market, and NOW accounts 18,065,017
 6,945
 0.15% 14,888,763
 2,156
 0.06%
FHLB advances and other 989,239
 4,739
 1.87% 796,174
 3,211
 1.58% 893
 5
 2.24% 914
 4
 2.17%
Total interest-bearing banking liabilities 19,377,759
 $12,956
 0.26% 15,988,180
 $6,502
 0.16% 25,032
 $18
 0.29% 22,397
 $42
 0.77%
Non-interest-bearing banking liabilities 93,462
  
  
 86,936
  
  
 242
  
  
 258
  
  
Total banking liabilities 19,471,221
  
  
 16,075,116
  
  
 25,274
  
  
 22,655
  
  
Total banking shareholder’s equity 1,842,065
  
  
 1,690,905
  
  
 2,315
  
  
 2,117
  
  
Total banking liabilities and shareholder’s equity $21,313,286
  
  
 $17,766,021
  
  
 $27,589
  
  
 $24,772
  
  
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income $1,738,699
 $163,039
   $1,621,201
 $134,272
   $2,322
 $205
   $2,228
 $205
  
Bank net interest:  
  
    
  
    
  
    
  
  
Spread  
  
 3.06%  
  
 3.05%  
  
 2.99%  
  
 3.27%
Margin (net yield on interest-earning banking assets)  
  
 3.08%  
  
 3.06%  
  
 3.02%  
  
 3.35%
Ratio of interest-earning banking assets to interest-bearing banking liabilities  
  
 108.97%  
   110.14%  
  
 109.28%  
   109.95%


Nonaccrual loans are included in the average loan balances presented in the table above. Payment or incomepreceding table. Any payments received onfor corporate nonaccrual loans are applied entirely to principal. IncomeInterest income on otherresidential mortgage nonaccrual loans is recognized on a cash basis.


Fee income on bank loans included in interest income for both the three months ended DecemberMarch 31, 20172020 and 20162019 was $9 million.$5 million and $6 million, respectively.


The yield on tax-exempt loans in the preceding table above is presented on a tax equivalenttax-equivalent basis utilizing the applicable federal statutory tax rates for each of the three months ended DecemberMarch 31, 20172020 and 2016.2019.



69
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis




Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning banking assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on itsour interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous year’s volume. Changes applicableattributable to both volume and rate have been allocated proportionately.
 Three months ended December 31, Three months ended March 31,
 2017 compared to 2016 2020 compared to 2019
 Increase/(decrease) due to Increase/(decrease) due to
$ in thousands Volume Rate Total
Interest revenue:      
$ in millions Volume Rate Total
Interest income:      
Interest-earning banking assets:            
Cash $616
 $2,572
 $3,188
 $4
 $(8) $(4)
Available-for-sale securities 4,131
 2,935
 7,066
 3
 (1) 2
Bank loans, net of unearned income:      
Bank loans, net of unearned income and deferred expenses:      
Loans held for investment:      
      
C&I loans (611) 3,097
 2,486
 (1) (15) (16)
CRE construction loans 90
 128
 218
 —
 (1) (1)
CRE loans 4,247
 2,258
 6,505
 4
 (8) (4)
Tax-exempt loans 1,503
 (43) 1,460
Residential mortgage loans 4,978
 1,248
 6,226
 6
 (2) 4
SBL 4,096
 3,755
 7,851
SBL and other 6
 (12) (6)
Loans held for sale (449) 198
 (251) 1
 —
 1
Total bank loans, net 13,854
 10,641
 24,495
 16

(38) (22)
FHLB stock, FRB stock, and other (221) 693
 472
Total interest-earning banking assets 18,380
 16,841

35,221
 23
 (47) (24)
Interest expense:  
  
  
  
  
 

Interest-bearing liabilities:  
  
  
Interest-bearing banking liabilities:  
  
  
Bank deposits:  
  
  
  
  
  
Savings, money market, and NOW accounts 4
 (32) (28)
Certificates of deposit 76
 61
 137
 4
 (1) 3
Money market, savings and NOW accounts 460
 4,329
 4,789
FHLB advances and other 779
 749
 1,528
 (1) 2
 1
Total interest-bearing liabilities 1,315
 5,139
 6,454
Total interest-bearing banking liabilities 7
 (31) (24)
Change in net interest income $17,065
 $11,702
 $28,767
 $16
 $(16) $—

The following tables present certain credit quality trends for loans held by RJ Bank:
  Three months ended December 31,
$ in thousands 2017 2016
Net loan (charge-offs)/recoveries:    
C&I loans $(603) $(3,389)
CRE loans —
 5,013
Residential mortgage loans 509
 (22)
Total $(94) $1,602


70
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis


$ in thousands December 31,
2017		 September 30,
2017
Nonperforming assets:  
  
Nonperforming loans:  
  
C&I loans $4,843
 $5,221
Residential mortgage loans:    
Residential first mortgage 32,364
 33,718
Home equity loans/lines 126
 31
Total nonperforming loans 37,333
 38,970
Other real estate owned:  
  
Residential first mortgage 4,299
 4,729
Total other real estate owned 4,299
 4,729
Total nonperforming assets $41,632
 $43,699
Total nonperforming assets as a % of RJ Bank total assets 0.19% 0.21%
Total loans:    
Loans held for sale, net $189,862
 $70,316
Loans held for investment:    
C&I loans 7,490,219
 7,385,910
CRE construction loans 164,847
 112,681
CRE loans 3,136,101
 3,106,290
Tax-exempt loans 1,136,468
 1,017,791
Residential mortgage loans 3,270,780
 3,148,730
SBL 2,530,521
 2,386,697
Net unearned income and deferred expenses (30,231) (31,178)
Total loans held for investment 17,698,705
 17,126,921
Total loans $17,888,567
 $17,197,237

Total loans in the above table are net of unearned income and deferred expenses. Total loans held for investment included $1.77 billion and $1.61 billion of loans to borrowers domiciled in Canada at December 31, 2017 and September 30, 2017, respectively. At December 31, 2017 and September 30, 2017, there were $1.09 billion and $1.00 billion, respectively, in Canadian dollar-denominated loans held for investment.

The following table presents RJ Bank’s allowance for loan losses by loan category:
  December 31, 2017 September 30, 2017
$ in thousands Allowance Loan category as a % of total loans receivable Allowance Loan category as a % of total loans receivable
Loans held for sale $—
 1% $—
 —
C&I loans 121,569
 42% 119,901
 43%
CRE construction loans 2,107
 1% 1,421
 1%
CRE loans 40,616
 18% 41,749
 18%
Tax-exempt loans 6,918
 6% 6,381
 6%
Residential mortgage loans 15,501
 18% 16,691
 18%
SBL 4,558
 14% 4,299
 14%
Total $191,269
 100% $190,442
 100%



ThreeSix months ended DecemberMarch 31, 20172020 compared with the threesix months ended DecemberMarch 31, 20162019


Net revenues of $165$426 million increased $27$11 million, or 20%3%, primarily reflecting an increase in net interest income. Pre-taxand pre-tax income of $114$149 million increased $10decreased $97 million, or 10%39%.


Net interest income increased $29$13 million, or 21%3%, due to a $3.51 billion increase in averageas higher interest-earning banking assets as well as an increase in netoffset the negative impact from lower short-term interest margin.rates. The increase in average interest-earning banking assets was primarily driven by a $1.80 billion increasegrowth in average loans of $1.38 billion and a $1.30 billion$469 million increase in our average available-for-sale securities portfolio and a $449portfolio. The net interest margin decreased to 3.12% from 3.30%.

The loan loss provision was $107 million, increasecompared to $21 million in average cash.the prior-year period. The increase in average loansthe provision in the current-year period was comprisedprimarily attributable to the economic impacts of increasesCOVID-19 during the second fiscal quarter.

Compensation and benefits expenses increased $2 million due increased staffing levels to support our continued growth.

Non-compensation expenses (excluding the provision for loan losses) increased $20 million, including a $12 million, or 14%, increase in average residential mortgage loans, corporate loans, tax-exempt loans,fees for RJBDP paid to PCG, primarily driven by an increase in the number of accounts. These fees are eliminated in consolidation.


71
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis




The following table presents average balances, interest income and SBL. The netexpense, the related yields and rates, and interest margin increased to 3.08% from 3.06% due to an increase in asset yields partially offset by an increasespreads and margins for RJ Bank.
  Six months ended March 31,
  2020 2019
$ in millions 
Average
balance
 
Interest
inc./exp.
 
Average
yield/
cost
 
Average
balance
 
Interest
inc./exp.
 
Average
yield/
cost
Interest-earning banking assets:            
Cash $1,624
 $10
 1.17% $1,347
 $16
 2.32%
Available-for-sale securities 3,265
 37
 2.29% 2,796
 33
 2.38%
Bank loans, net of unearned income and deferred expenses:  
          
Loans held for investment:            
C&I loans 8,061
 167
 4.07% 7,959
 188
 4.67%
CRE construction loans 207
 5
 4.75% 184
 5
 5.66%
CRE loans 3,673
 73
 3.91% 3,469
 81
 4.64%
Tax-exempt loans 1,218
 16
 3.36% 1,282
 17
 3.34%
Residential mortgage loans 4,743
 75
 3.16% 3,934
 66
 3.32%
SBL and other 3,403
 65
 3.78% 3,085
 73
 4.65%
Loans held for sale 151
 3
 3.97% 165
 4
 4.90%
Total bank loans, net 21,456
 404
 3.76% 20,078
 434
 4.32%
FHLB stock, FRB stock and other 222
 3
 2.74% 161
 3
 4.19%
Total interest-earning banking assets 26,567
 $454
 3.41% 24,382
 $486
 3.99%
Non-interest-earning banking assets:  
  
  
  
  
  
Unrealized gain/(loss) on available-for-sale securities 41
  
  
 (52)  
  
Allowance for loan losses (218)  
  
 (212)  
  
Other assets 379
  
  
 411
  
  
Total non-interest-earning banking assets 202
  
  
 147
  
  
Total banking assets $26,769
  
  
 $24,529
  
  
Interest-bearing banking liabilities:  
  
  
  
  
  
Bank deposits:  
  
  
  
  
  
Savings, money market and NOW accounts $22,431
 $19
 0.17% $20,798
 $69
 0.66%
Certificates of deposit $937
 $10
 2.10% $510
 $5
 2.13%
FHLB advances and other 890
 10
 2.23% 931
 10
 2.15%
Total interest-bearing banking liabilities 24,258
 $39
 0.32% 22,239
 $84
 0.76%
Non-interest-bearing banking liabilities 211
  
  
 208
  
  
Total banking liabilities 24,469
  
  
 22,447
  
  
Total banking shareholder’s equity 2,300
  
  
 2,082
  
  
Total banking liabilities and shareholder’s equity $26,769
  
  
 $24,529
  
  
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income $2,309
 $415
   $2,143
 $402
  
Bank net interest:  
  
    
  
  
Spread  
  
 3.09%  
  
 3.23%
Margin (net yield on interest-earning banking assets)  
  
 3.12%  
  
 3.30%
Ratio of interest-earning banking assets to interest-bearing banking liabilities  
  
 109.52%  
   109.64%

Nonaccrual loans are included in the total cost of funds. The total assets yield increase resulted from an increaseaverage loan balances in the loan portfoliopreceding table. Any payments received for corporate nonaccrual loans are applied entirely to principal. Interest income on residential mortgage nonaccrual loans is recognized on a cash basis.

Fee income on bank loans included in interest income for the six months ended March 31, 2020 and 2019 was $9 million and $11 million, respectively.

The yield and an increaseon tax-exempt loans in the yieldpreceding table is presented on cash, both due to an increasea taxable-equivalent basis utilizing the applicable federal statutory tax rates for each of the six months ended March 31, 2020 and 2019.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


Increases and decreases in short-terminterest 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 total costfollowing 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 funds increased due to an increasechanges in deposit costs. Corresponding tovolume is determined by multiplying the increasechange in volume by the previous period’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average interest-earning banking assets, average interest-bearing banking liabilities increased $3.39 billionyield/cost by the previous year’s volume. Changes attributable to $19.38 billion.both volume and rate have been allocated proportionately.

The loan loss provision increased by $2 million primarily due to the prior year reflecting a net benefit, a result of the resolution of certain corporate criticized loans. Additionally, the current period loan loss provision increased due to loan growth, partially offset by lower reserve rates on pass-rated loans as a result of improved credit characteristics.
  Six months ended March 31,
  2020 compared to 2019
  Increase/(decrease) due to
$ in millions Volume Rate Total
Interest income:      
Interest-earning banking assets:      
Cash $3
 $(9) $(6)
Available-for-sale securities 5
 (1) 4
Bank loans, net of unearned income and deferred expenses:      
Loans held for investment:      
C&I loans 2
 (23) (21)
CRE construction loans 1
 (1) —
CRE loans 5
 (13) (8)
Tax-exempt loans (1) —
 (1)
Residential mortgage loans 13
 (4) 9
SBL and other 8
 (16) (8)
Loans held for sale —
 (1) (1)
Total bank loans, net 28
 (58) (30)
FHLB stock, FRB stock, and other 1
 (1) —
Total interest-earning banking assets 37
 (69) (32)
Interest expense:  
  
  
Interest-bearing banking liabilities:  
  
  
Bank deposits:  
  
  
Savings, money market, and NOW accounts 5
 (55) (50)
Certificates of deposit 5
 —
 5
Total interest-bearing banking liabilities 10
 (55) (45)
Change in net interest income $27
 $(14) $13
Non-interest expenses (excluding provision for loan losses) increased $15 million, or 43%, primarily reflecting a $10 million increase in affiliate deposit account servicing fees due to an increase in client account balances.


Results of Operations – Other


This segment includes our private equity activities as well asinvestments, interest income on certain corporate cash balances, and certain corporate overhead costs of RJF that are not allocated to other segments, including the interest costcosts on our public debt, and the acquisition and integration costs associated with certain acquisitions.debt. For an overview of our Other segment operations, refer to the information presented in “Item 1 - Business” of our 20172019 Form 10-K.


Operating results
  Three months ended December 31,
$ in thousands 2017 2016 % change
Revenues:      
Interest income $8,289
 $4,688
 77 %
Investment advisory fees 397
 484
 (18)%
Other 7,697
 10,287
 (25)%
Total revenues 16,383
 15,459
 6 %
Interest expense (19,303) (25,102) (23)%
Net revenues (2,920) (9,643) 70 %
      

Non-interest expenses:     

Compensation and other 13,055
 10,109
 29 %
Acquisition-related expenses 3,927
 12,666
 (69)%
Total non-interest expenses 16,982
 22,775
 (25)%
Loss before taxes and including noncontrolling interests (19,902) (32,418) 39 %
Noncontrolling interests 279
 2,035
 86 %
Pre-tax loss excluding noncontrolling interests $(20,181) $(34,453) 41 %
  Three months ended March 31, Six months ended March 31,
$ in millions 2020 2019 % change 2020 2019 % change
Revenues:            
Interest income $12
 $14
 (14)% $24
 $30
 (20)%
Gains/(losses) on private equity investments (39) 2
 NM
 (41) 6
 NM
All other —
 3
 (100)% 2
 4
 (50)%
Total revenues (27) 19
 NM
 (15) 40
 NM
Interest expense (17) (19) (11)% (37) (38) (3)%
Net revenues (44) —
 NM
 (52) 2
 NM
Total non-interest expenses 2
 17
 (88)% 25
 37
 (32)%
Pre-tax loss $(46) $(17) (171)% $(77) $(35) (120)%



Three months ended December 31, 2017 compared with the three months ended December 31, 2016

The pre-tax loss generated by this segment of $20 million decreased by $14 million, or 41%.

Net revenues in this segment increased $7 million, or 70%, due to an increase in our net interest income of $9 million resulting from both a decrease in interest expense and to a lesser extent, an increase in interest income. The decrease in interest expense was due to a decline in the average outstanding balance and average yield of our senior notes. Interest income increased as a result of the increase in interest rates and higher corporate cash balances. Other revenues decreased $3 million, due to lower net gains (both realized and unrealized) arising from our private equity portfolio.

The acquisition-related expenses for the three months ended December 31, 2017 related to incremental expenses incurred in connection with our acquisition of the Scout Group which closed in November 2017. Prior year acquisition-related expenses primarily related to our acquisitions of Alex. Brown and 3Macs late in our 2016 fiscal year. See Note 3 of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q for further information.


72
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis




Quarter ended March 31, 2020 compared with the quarter ended March 31, 2019

The pre-tax loss of $46 million was $29 million larger than the loss generated in the prior-year quarter.

Net revenues for the current quarter included $39 million of private equity valuation losses, compared with gains of $2 million in the prior-year quarter. During the current quarter, $22 million of the losses on private equity were attributable to noncontrolling interests, which were reflected as an offset within other expenses. These valuation losses were primarily the result of the negative impact of the COVID-19 pandemic on certain of our investments. Although net interest was flat compared with the prior-year quarter, we expect the impact of the decline in short-term interest rates implemented toward the end of the quarter, and the issuance of $500 million of senior notes payable at the end of the quarter to negatively affect our net interest in this segment in future quarters.

Non-interest expenses decreased $15 million, or 88%, primarily due to the aforementioned $22 million offset of private equity valuation losses related to noncontrolling interests in other expenses. Increases in compensation-related expenses and advertising expenses partially offset the decrease in other expenses.

Six months ended March 31, 2020 compared with the six months ended March 31, 2019

The pre-tax loss of $77 million was $42 million larger than the loss generated in the prior-year period.

Net revenues decreased $54 million from income of $2 million in the prior-year period to a loss of $52 million, primarily due to $41 million of private equity valuation losses, compared with gains of $6 million in the prior-year period. In the current-year period, $23 million of the losses on private equity investments were attributable to noncontrolling interests, which were reflected as an offset within other expenses. These valuation losses were primarily the result of the negative impact of the COVID-19 pandemic on certain of our investments. Interest earned on corporate cash balances also decreased due to lower short-term interest rates, partially offset by the impact of higher average balances.

Non-interest expenses decreased $12 million, or 32%, primarily due to the aforementioned $23 million offset of private equity valuation losses attributable to noncontrolling interests. Increases in compensation-related expenses and advertising expenses partially offset the decrease in other expenses.

Certain statistical disclosures by bank holding companies


We are required to provide certain statistical disclosures required foras a bank holding companies pursuant tocompany under the SEC’s Industry Guide 3.  The following table provides certain of those disclosures.
 For the three months ended December 31,Three months ended March 31, Six months ended March 31,
 2017 20162020 2019 2020 2019
Return on average assets 1.3% 1.9%
Return on average equity 8.4% 11.7%
Return on assets1.5% 2.7% 2.0% 2.7%
Return on equity9.9% 16.7% 13.0% 16.2%
Average equity to average assets 15.9% 15.8%15.2% 16.3% 15.7% 16.5%
Dividend payout ratio 31.3% 22.0%30.8% 18.8% 23.9% 19.4%

Return on average assets is computed by dividing annualized net income attributable to RJF for the period indicated by average assets for each respective period. Average assets for the quarter is computed by adding total assets as of the date indicated to the prior quarter-end total, and dividing by two. Average assets for the year-to-date period is computed by adding total assets as of each quarter-end date during the year-to-date period to the beginning of the year total, and dividing by two.three.


Return on average equity is computed by dividing annualized net income attributable to RJF for the period indicated by average equity attributable to RJF for each respective period. Average equity for the quarter is computed by adding the total equity attributable to RJF as of the date indicated to the prior quarter-end total, and dividing by two. Average equity for the year-to-date period is computed by adding total equity attributable to RJF as of each quarter-end date during the year-to-date period to the beginning of the year total, and dividing by two.three.


Average equity to average assets is computed by dividing average equity by average assets, as calculated in accordance with the aboveprevious explanations.


Dividend payout ratio is computed by dividing dividends declared per common share during the period by diluted earnings per diluted common share.share for the period.


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


Refer to the “Results of Operations - RJ Bank sectionBank” and “Risk management - Credit risk” sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations and to the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for the other required disclosures.


Liquidity and capital resources


Liquidity is 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 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 capital 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 objectivesobjective of these policies arethis framework is to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity.


Liquidity is provided primarily through our business operations and financing activities.  Financing activities could include bank borrowings, repurchase agreement transactions or additional capital raising activities under our “universal” shelf registration statement.


Cash and cash equivalents increased $6.69 billion to $10.65 billion during the six months ended March 31, 2020, primarily due to $7.95 billion of cash provided by financing activities, partially offset by investing activities, which used $2.09 billion. Cash provided by operatingfinancing activities during the three months ended December 31, 2017 was $326 million. In addition to operating cash flowsmainly related to net income, other increasesan increase in cash from operations included:

An increase of $467 million in brokerage client payables and other accounts payable, mostly due to increasedbank deposits, as client cash balances in brokerage accounts.
A decrease in our brokerage client receivablesincreased significantly due to the impact of COVID-19, and other receivables of $124 million, including a decrease in margin loans.
A decrease of $104 million in securities purchased under agreements to resell, net of securities sold under agreements to repurchase.

Offsetting these, cash used in operations resulted from:
A decrease of $266 million in accrued compensation, commissions and benefits, primarily resulting from the annual payment of certain incentive awards.
A decrease in securities loaned, net of securities borrowed of $140 million.

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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis


Purchases and originations of loans held for sale, net of proceeds from sales of securitizationsour senior notes issuance during the current period, partially offset by our open-market share repurchases and loans held for sale used $108 million.
An increase of $97 million in assets segregated pursuant to regulations and other segregated assets, primarily resulting from the increases in client cash balances.
Net trading instruments increased $47 million.

dividends on our common stock. Investing activities resultedprimarily related to an increase in the usebank loans and growth of $1.07 billion of cashour available-for-sale securities portfolio during the three months ended December 31, 2017.  current period.

The primary investing activities were:
A net increase in RJ Bank loans used $624 million.  
Purchases of available-for-sale securities held at RJ Bank, net of proceeds from maturations, repayments and redemptions within the portfolio, used $225 million.
We used $159 million, net of cash acquired, for our acquisition of the Scout Group.
We used $36 million to fund property investments, primarily software and computer equipment.

Financing activities provided $979 million of cash during the three months ended December 31, 2017.  

Increases in cash from financing activities resulted from:
An increase in RJ Bank deposit balances of $993 million.
Net proceeds of $300 million from borrowings on the RJF Credit Facility.

Offsetting these, decreases in cash from financing activities resulted from:
Net repayments of $280 million of other lines of credit.
Payment of dividends to our shareholders of $32 million.


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.


Sources of liquidity


Approximately $1.44Nearly $2 billion of our total DecemberMarch 31, 20172020 cash and cash equivalents (a portionincluded cash on hand at the parent, as well as parent cash loaned to RJ&A. The following table presents our holdings of which residescash and cash equivalents.
$ in millions March 31, 2020
RJF $445
RJ&A 2,193
RJ Bank 6,992
RJ Ltd. 666
RJFS 155
Carillon Tower Advisers 52
Other subsidiaries 145
Total cash and cash equivalents $10,648
The significant increase in depository accounts at RJ Bank) was available to us without restrictions. The cash and cash equivalents held were as follows: of March 31, 2020 was primarily due to an increase in client cash balances as a result of the market volatility toward the end of our second fiscal quarter. Subsequent to March 31, 2020, we utilized additional capacity with third-party banks in our RJBDP, which reduced cash and cash equivalents at RJ Bank by approximately $4 billion.
$ in thousands December 31, 2017
RJF $330,258
RJ&A 1,506,746
RJ Bank 1,276,703
RJ Ltd. 440,736
RJFS 125,269
Carillon Tower Advisers 65,033
Other subsidiaries 152,784
Total cash and cash equivalents $3,897,529

RJF maintained depository accounts at RJ Bank with a balance of $193$179 million as of DecemberMarch 31, 2017.2020. The portion of this total that iswas available on demand without restrictions, which amounted to $152$108 million at Decemberas of March 31, 2017,2020, is reflected in the RJF total and(and is excluded from the RJ Bank totalcash balance in the table above.preceding table).


RJF had loaned $1.14$1.50 billion to RJ&A as of DecemberMarch 31, 20172020 (such amount is included in the RJ&A cash balance presented in the table above)preceding table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business activities. On April 1, 2020, we deposited approximately $350 million of cash into RJ&A’s segregated reserve accounts as a result of our March 31, 2020 reserve calculation.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


In addition to the cash balances described, above, we have various other various potential sources of cash available to the parent from subsidiaries, which areas described in the following section.


Liquidity available from subsidiaries


Liquidity is principally available to RJF, the parent company, from RJ&A and RJ Bank.



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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's DiscussionCertain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities and Analysis


Exchange Act of 1934. As a member firm of FINRA, RJ&A is requiredsubject to maintainFINRA’s capital requirements, which are substantially the same as Rule 15c3-1. Rule 15c3-1 provides for an “alternative net capital requirement,” which RJ&A has elected. Regulations require that minimum net capital, as defined, be equal to the greater of $1$1.5 million or 2% of aggregate debit balancesitems arising from client transactions. In addition, covenants in RJ&A’s committed secured financing facilities require its net capital to be a minimum of 10% of aggregate debit items.  At DecemberMarch 31, 2017,2020, RJ&A significantly exceeded both the minimum regulatory requirements, and the covenants in its financing arrangements pertaining to net capital. At that date, RJ&A had excesscapital, as well as its internally-targeted net capital tolerances.  FINRA may impose certain restrictions, such as restricting withdrawals of $640 million, of which $284 million was available for dividend while still maintaining the internally targetedequity capital, if a member firm were to fall below a certain threshold or fail to meet minimum net capital ratiorequirements.

RJ&A, as a nonbank custodian of 15% of aggregate debit items.  There areIndividual Retirement Accounts (“IRAs”), must also limitations onsatisfy certain Internal Revenue Service (“IRS”) regulations in order to accept new IRA and plan accounts and retain the accounts for which it serves as nonbank custodian. To maintain adequate net worth under these regulations, RJ&A may have to limit dividends to RJF. We evaluate regulatory requirements, loan covenants and certain internal tolerances when determining the amount of dividends that may be declared by a broker-dealer without Financial Industry Regulatory Authority approval.liquidity available to RJF from RJ&A.


RJ Bank may pay dividends to the parent companyRJF without the prior approval of its regulator as long as the dividend does not exceed the sum of RJ Bank’s current calendar year and the previous two calendar years’ retained net income, and RJ Bank maintains its targeted regulatory capital ratios. At DecemberMarch 31, 2017,2020, RJ Bank had $139$253 million of capital in excess of the amount it would need at December 31, 2017that date to maintain its targeted totalregulatory capital to risk-weighted assets ratio of 12.5%,ratios, and could pay a dividend of such amount without requiring prior approval of its regulator.


Although we have liquidity available to us from our other subsidiaries, the available amounts are not as significant as the amountsthose previously described above and, in certain instances, may be subject to regulatory requirements.


Borrowings and financing arrangements


Committed financing arrangements


Our ability to borrow is dependent upon compliance with the conditions in theour various loan agreements and, in the case of secured borrowings, collateral eligibility requirements. Our committed financing arrangements are in the form of either tri-party repurchase agreements or, in the case of the RJF Credit Facility, an unsecured line of credit. The required market value of the collateral associated with the committed secured facilities ranges from 102%105% to 125% of the amount financed.


The following table presents our committed financing arrangements with third-party lenders, which we generally utilize to finance a portion of our fixed income trading instruments held, and the outstanding balances related thereto:

thereto.
 As of December 31, 2017 March 31, 2020
$ in thousands RJ&A RJF Total Total number of arrangements
$ in millions RJ&A RJF Total Total number of arrangements
Financing arrangement:                
Committed secured $200,000
 $—
 $200,000
 2
 $100
 $—
 $100
 1
Committed unsecured —
 300,000
 300,000
 1
Committed unsecured (1)
 200
 300
 500
 1
Total committed financing arrangements $200,000
 $300,000
 $500,000
 3
 $300
 $300
 $600
 2
                
Outstanding borrowing amount:                
Committed secured $70,000
 $—
 $70,000
   $—
 $—
 $—
  
Committed unsecured —
 300,000
 300,000
   —
 —
 —
  
Total outstanding borrowing amount $70,000
 $300,000
 $370,000
   $—
 $—
 $—
  

(1)The Credit Facility provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF. RJ&A may borrow up to $500 million under the Credit Facility, depending on the amount of outstanding borrowings by RJF. For additional details on our committed unsecured financing arrangement, see our discussion of the Credit Facility in Note 12 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


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 or for cash management purposes. Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed. As of DecemberMarch 31, 2017,2020, we had three outstanding borrowings under two uncommitted secured borrowing arrangements with lenders out of a total of 1511 uncommitted financing arrangements (nine(six uncommitted secured and sixfive uncommitted unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities.


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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis



The following table presents our borrowings on uncommitted financing arrangements, all of which were in RJ&A.
$ in thousands As of December 31, 2017
$ in millions March 31, 2020
Outstanding borrowing amount:    
Uncommitted secured $339,036
 $215
Uncommitted unsecured 150,000
 —
Total outstanding borrowing amount $489,036
 $215


Other financings


RJ Bank had $875 million in FHLB borrowings outstanding at DecemberMarch 31, 2017,2020, comprised of floating-rate advances totaling $850 million and a $25 million fixed-rate advance, all of which arewere secured by a blanket lien on RJ Bank’s residential mortgage loan portfolio (see Note 12 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for additional information regarding these borrowings). RJ Bank had an additional $1.49$2.82 billion in immediate credit available from the FHLB as of DecemberMarch 31, 20172020 and, with the pledge of additional eligible collateral to the FHLB, total available credit of 30% of total assets.


RJ Bank is eligible to participate in the Fed’sFRB’s discount-window program; however, we do not view borrowings from the FedFRB as a primary source of funding.  The credit available in this program is subject to periodic review, may be terminated or reduced at the discretion of the Fed,FRB, and would beis secured by pledged C&I loans.


We act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from one broker-dealer and then lend them to another.  Where permitted, we have also loaned, to broker-dealers and other financial institutions, securities owned by clients or the firm.  We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balances related to the securities loaned included in “Securities loaned” on our Condensed Consolidated Statements of Financial Condition of this Form 10-Q, in the amount of $28 million as of March 31, 2020. See Note 6 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for more information on our securities borrowed and securities loaned.

From time to time we enter into repurchase agreements and reverse repurchase agreements.  We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balances onof the repurchase agreements included in “Securities sold under agreements to repurchase” on our Condensed Consolidated Statements of Financial Condition included inof this Form 10-Q, in the amount of $229$215 million as of DecemberMarch 31, 2017 (which2020. These balances are reflected in the preceding table of uncommitted financing arrangements above).arrangements. Such financings are generally collateralized by non-customer, RJ&A owned&A-owned securities or by securities that we have received as collateral under reverse repurchase agreements.
 
The average daily balance outstanding during the five most recent successive quarters, the maximum month-end balance outstanding during the quarter and the period endperiod-end balances for repurchase agreements and reverse repurchase agreements were as follows: are detailed in the following table.
  Repurchase transactions Reverse repurchase transactions
For the quarter ended:  ($ in thousands)
 
Average daily
balance
outstanding
 
Maximum month-end
balance outstanding
during the quarter
 
End of period
balance
outstanding
 
Average daily
balance
outstanding
 
Maximum month-end
balance outstanding
during the quarter
 
End of period
balance
outstanding
December 31, 2017 $218,690
 $229,036
 $229,036
 $443,391
 $506,711
 $307,742
September 30, 2017 241,365
 247,048
 220,942
 463,618
 503,462
 404,462
June 30, 2017 231,378
 226,972
 226,972
 479,653
 540,823
 483,820
March 31, 2017 204,623
 222,476
 222,476
 410,678
 535,224
 535,224
December 31, 2016 219,095
 241,773
 203,378
 424,548
 445,646
 358,493
  Repurchase transactions Reverse repurchase transactions
For the quarter ended:
($ 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
March 31, 2020 $218
 $238
 $215
 $283
 $388
 $130
December 31, 2019 $184
 $200
 $200
 $355
 $351
 $326
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


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


At DecemberMarch 31, 2017,2020, in addition to the financing arrangements previously described, above, we had $28$16 million outstanding on a mortgage loan for our St. Petersburg, Florida home-office complex that is included in “Other borrowings” inon our Condensed Consolidated Statements of Financial Condition included inof this Form 10-Q.


At DecemberMarch 31, 2017,2020, we had aggregate outstanding senior notes payable of $1.55$2.04 billion. Our senior notes payable, exclusive of any unaccreted premiums or discounts and debt issuance costs, iswas comprised of $250 million par 5.625% senior notes due 2024, $500 million par 3.625% senior notes due 2026, $500 million par 4.65% senior notes due 2030, which were issued during our second fiscal quarter of 2020, and $800 million par 4.95% senior notes due 2046. See Note 1513 of our 2017the Notes to Condensed Consolidated Financial Statements of this Form 10-K10-Q for additional information.


Our issuer and senior long-term debt ratings as of the most current report are:are detailed in the following table.
Rating Agency Rating Outlook
Standard & Poor’s Ratings Services BBB+ Stable
Moody’s Investors Services Baa1 Stable


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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis



Our current long-term debt ratings depend upon a number of factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trends and volatility, balance sheet composition, liquidity and liquidity management, our capital structure, our overall risk management, business diversification and market share, and competitive position in the markets in which we operate. Deteriorations 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 65 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for additional information). A credit downgrade could create a reputational issuedamage our reputation and could also result in certain counterparties limiting their business with us, result in negative comments by analysts, and potentially negatively impact investor and/or clients’ perception of us, and resultantly impactcause a decline in our stock price and/price. None of our borrowing arrangements contains a condition or event of default related to our clients’ perception of us. Acredit ratings. However, a credit downgrade would result in RJFthe firm incurring a higher commitmentfacility fee on any unused balance on one of its borrowing arrangements, the $300$500 million RJF Credit Facility, in addition to triggering a higher interest rate applicable to any borrowings outstanding on that line as of and subsequent to such downgrade. Conversely, an improvement in RJF’s current credit rating could have a favorable impact on the commitmentfacility fee, as well as the interest rate applicable to any borrowings on such line. None of our credit agreements contain a condition or event of default related to our credit ratings.  


Other sources and uses of liquidity


We have company-owned life insurance (“COLI”) policies which are utilized to fund certain non-qualified deferred compensation plans and other employee benefit plans. Certain of our non-qualified deferred compensation plans and other employee benefit plans are self-directedemployee-directed while others are company-directed. The COLICertain policies thatwhich we could readily borrow against havehad a cash surrender value of approximately $460$512 million as of DecemberMarch 31, 2017,2020, comprised of $254$298 million related to employee-directed plans and $206$214 million related to company-directed plans, and we were able to borrow up to 90%, or $414$461 million, of the DecemberMarch 31, 20172020 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 arewere no borrowings outstanding against any of these policies as of DecemberMarch 31, 2017.2020.

During January 2018, we repaid the $300 million outstanding borrowing on the RJF Credit Facility as of December 31, 2017.


On May 22, 2015,18, 2018, we filed a “universal” shelf registration statement with the SEC pursuant to be in a position to access thewhich we can issue debt, equity and other capital marketsinstruments if and when necessary or perceived by us to be opportune. Subject to certain conditions, this registration statement will be effective through May 18, 2021.

See the “Contractual obligations”Contractual obligations section belowof this MD&A for information regarding our contractual obligations.


Statement of financial condition analysis


The assets on our condensed consolidated statementCondensed Consolidated Statements of financial condition consistFinancial 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 either 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.


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


Total assets of $36.08$49.81 billion at Decemberas of March 31, 20172020 were $1.20$10.98 billion, or 3%28%, greater than our total assets as of September 30, 2017. Our2019. The increase in assets was primarily due to a $8.72 billion increase in cash and cash and cash equivalents, balances increased $228 million; referincluding cash and cash equivalents segregated pursuant to the discussion of the components of this increase in the “Liquidity and Capital Resources” section within this Item 2. Net bank loans receivable increased $691 millionregulations, primarily due to the growth of RJ Bank’s securities-based, residential mortgage, tax-exempt and C&I loan portfolios during the period. Our available-for-sale securities portfolio increased $205 million, as RJ Bank increased their investmentsa significant increase in such securities during the period in line with our growth plan for this portfolio. Goodwill and identifiable intangible assets increased $158 millionclient cash balances due to the Scout Group acquisition. Offsetting these increases was a net decrease in deferred income taxes of $114 million, primarily due to the remeasurement of U.S. deferred tax assets at a lower enacted corporate tax ratemarket volatility as a result of the Tax Act, which was enacted during the quarter. Brokerage client receivables,COVID-19 pandemic, as well as proceeds from our $500 million senior notes issuance in March 2020. In addition, available-for-sale securities increased $1.17 billion, bank loans, net decreased $101increased $897 million and other assets increased $321 million, primarily due to ROU assets recorded as a result of the adoption of new guidance related to the accounting for leases. Offsetting these increases, securities purchased under agreements to resell and trading instruments decreased margin lending at December 31, 2017.$213 million and $263 million, respectively.


As of DecemberMarch 31, 2017,2020, our total liabilities of $30.28$42.98 billion were $1.09$10.79 billion, or 4%34%, greater than our total liabilities as of September 30, 2017. Bank deposit2019. The increase in total liabilities increased $993 million aswas primarily related to the significant increase in client cash balances and was comprised of a $7.74 billion increase in bank deposits, reflecting higher RJBDP balances held at RJ Bank retainedand certificates of deposit issuances during the period, and a higher portion of RJBDP balances$2.72 billion increase in brokerage client payables, primarily due to fund a portion of their increased securities portfolio and net loan growth. Brokerage client payable balances increased $409 million, reflecting

77
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis


an increase in client cash balancesheld in our client interest program.CIP as of March 31, 2020. In addition, other payables increased $516 million, primarily due to operating lease liabilities recorded as a result of the adoption of new guidance related to the accounting for leases, and senior notes payable increased $494 million due to the issuance of $500 million of 4.65% senior notes due April 2030. Offsetting these increases was a decrease in accrued compensation, commissions and benefits decreased $266of $343 million, as a result ofprimarily due to the annual paymentspayment of certain incentive compensation paid during the quarter.six months ended March 31, 2020.


See Notes 2 and 10 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information on our adoption of the new leasing guidance.

Contractual obligations


The Tax Act, which was enacted duringIn March 2020, we sold in a registered underwritten public offering $500 million in aggregate principal amount of 4.65% senior notes due April 2030. Refer to Note 13 of the quarter ended December 31, 2017, includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries, which is permittedNotes to be paid in annual installments over a period of 8 years based on the schedule outlined in the Tax Act. We currently estimate this transition tax to be $11 million (which excludes the related state tax liability), which is included in our provision for income taxes in our Condensed Consolidated Financial Statements of Income and Comprehensive Incomethis Form 10-Q for the quarter ended December 31, 2017.additional information regarding our senior notes.

Other than the item previously described, above, as of December 31, 2017, there have beenwere no materialother changes in ourto the contractual obligations presented in our 20172019 Form 10-K, other than in the ordinary course of business. See Note 1415 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for additional information regarding certainour commitments as of DecemberMarch 31, 2017.2020.


Regulatory


Refer to the discussion of the regulatory environment in which we operate and the impact on our operations of certain rules and regulations including the DOL Rule and the Dodd-Frank Act, in Item“Item 1 “Business- Business - Regulation” and Item“Item 7 “Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory” inof our 20172019 Form 10-K.


RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As of DecemberMarch 31, 2017,2020, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. In addition, RJF and RJ Bank were categorized as “well capitalized”“well-capitalized” as of DecemberMarch 31, 2017.

2020. The maintenance of certain risk-based and other regulatory capital levels could impactinfluence various capital allocation decisions impacting one or more of our businesses.  However, due to the strongcurrent capital position of RJF and its regulated subsidiaries, we do not anticipate these capital requirements will have a negative impact on our future business activities.


Legislative and regulatory changes in connection with COVID-19

The COVID-19 pandemic has resulted in governments around the world implementing several measures to help control the spread of the virus, including, among others, quarantines, travel restrictions and business curtailments. In addition, governments globally intervened with fiscal policy to mitigate the impact of the pandemic, including the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in the U.S., which aimed to provide economic relief to businesses and individuals.

The CARES Act includes a broad range of provisions intended to support the U.S. economy. Among its provisions, the act allocates funds for a new Paycheck Protection Program that expands an existing Small Business Administration (“SBA”) loan guarantee program for small businesses to keep their employees on payroll and make other eligible payments. Currently, the firm does not act as a lender under these programs and facilities, and has no plans to do so.

The CARES Act also provides certain temporary regulatory relief for financial institutions, including RJF and its subsidiaries. The act permits financial institutions to temporarily suspend requirements under GAAP for COVID-19-related loan modifications that
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


would otherwise be classified as TDRs and to suspend any determination of a loan modified as a result of the effects of COVID-19 as being a TDR, including impairment for accounting purposes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” for further information on the impact of such loan modifications. The act also permits financial institutions to temporarily delay the implementation of CECL for estimating allowances for credit losses. Given our later adoption date of October 1, 2020, we do not anticipate delaying our adoption. In addition, the Federal Reserve, the FDIC and the OCC issued a joint statement providing banking organizations optional temporary relief by delaying the initial adoption impact of CECL on regulatory capital for two years, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during 2020 and 2021 (i.e., a five-year transition period). As we do not adopt CECL until October 1, 2020, we are currently evaluating whether we intend to avail ourselves of such relief.

The CARES Act grants potential tax relief and liquidity to businesses, including corporate tax provisions that: temporarily allow for the carryback of net operating losses and remove limitations on the use of loss carryforwards, increase interest expense deduction limitations, and allow accelerated depreciation deductions on certain asset improvements. In addition, the CARES Act allows employers to defer the payment, including the deposit, of payroll taxes for the 2020 calendar year from March 27, 2020 until December 31, 2021 for 50 percent of such taxes and December 31, 2022 for the remaining 50 percent.

The CARES Act further provides a number of consumer finance protections. The act also provides a range of forbearance rights with respect to any federally backed residential or multi-family mortgage loan and generally limits the ability of a lender or servicer to institute foreclosure or similar proceedings. The act additionally imposes a moratorium on evictions from dwellings of many tenants. These provisions are consistent with supervisory guidance previously issued by federal banking agencies, which also stated that they would not criticize financial institutions for working with customers affected by the outbreak in a safe and sound manner. We are modifying our processes to ensure full compliance and are working as appropriate to support affected businesses and individuals during this time.

In addition to guidance regarding supporting customers, federal banking agencies have also taken a number of other actions. The Federal Reserve, for example, has taken active steps to inject liquidity into the economy. The Federal Reserve has reduced the benchmark interest rate in an attempt to stimulate the economy. As previously mentioned, this has and will continue to negatively impact our net interest earnings. In addition, the Federal Reserve has established a number of new facilities, including to provide liquidity for issuers of commercial paper, money market funds, new bond and loan issuances, outstanding corporate bonds, primary dealers, and small and medium-sized businesses, and has reduced the interest rates on borrowings under its discount window.

The Company’s legislative and regulatory environment is continually changing in response to the outbreak of COVID-19, and new or modified laws, regulations and guidance may be promulgated at very short notice.

See Note 1820 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for further information on regulatory capital requirements.


Critical accounting estimates


The condensed 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 condensed 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 the Consolidated Financial Statements inof our 20172019 Form 10-K.


We believe that of our accounting estimates and assumptions, those described below involve a high degree of judgment and complexity. Due to their nature, estimates involve judgment based upon available information. Actual results or amounts could differ from estimates and the difference could have a material impact on the consolidated financial statements. Therefore, understanding these critical accounting estimates is important in understanding theour reported results of our operations and our financial position. We believe that of our accounting estimates and assumptions, those described in the following sections involve a high degree of judgment and complexity. Recent market disruptions as a result of the COVID-19 pandemic have made it more challenging for us to determine the amount of our allowance for loan losses and the fair value of certain of our assets, particularly our private equity investments. The current circumstances have required a greater reliance on judgment than in recent periods in determining these amounts as of March 31, 2020.


Valuation of financial instruments


The use of fair value to measure financial instruments, with related gains or losses recognized in our Condensed Consolidated Statements of Income and Comprehensive Income, is fundamental to our financial statements and our risk management processes. See Note 2 of
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


the Notes to Consolidated Financial Statements of our 20172019 Form 10-K for a discussion of our fair value accounting policies regarding financial instruments owned and financial instruments sold but not yet purchased.

Investments in private equity measured at net asset value per share

Our investments in private equity measured at NAV amounted to $100 million at December 31, 2017.



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Management's Discussion and Analysis


Level See Note 3 assets and liabilities

As of December 31, 2017, 10% of our total assets and 2% of our total liabilities were financial instruments measured at fair value on a recurring basis. Financial instruments measured at fair value on a recurring basis categorized as Level 3 amounted to $199 million as of December 31, 2017 and represented 5% of our assets measured at fair value. Of the Level 3 assets as of December 31, 2017, our ARS positions comprised $107 million, or 54%, and our private equity investments not measured at NAV comprised $89 million, or 45%, of the total.  Level 3 assets represented 3% of total equity as of December 31, 2017.

Financial instruments which are liabilities categorized as Level 3 were insignificant as of December 31, 2017.

See Notes 4, 5 and 6 of the Notes to the Condensed Consolidated Financial Statements inof this Form 10-Q for additional information on our financial instruments at fair value.


Loss provisions


Refer to Item“Item 7 “Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical accounting estimates - Loss provisions” inof our 20172019 Form 10-K for more information.


Loss provisions arising fromfor legal and regulatory matters


The recorded amount of liabilities related to legal and regulatory matters is subject to significant management judgment. For a description of the significant estimates and judgments associated with establishing such accruals, see the “Contingent liabilities” section of Note 2 of the Notes to Consolidated Financial Statements of our 20172019 Form 10-K. In addition, refer to Note 1415 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for information regarding legal and regulatory matter contingencies as of DecemberMarch 31, 2017.2020.

Loss provisions arising from operations of our Broker-Dealers

The recorded amounts of loss provisions associated with brokerage client receivables and loans to financial advisors and certain key revenue producers are subject to significant management judgment. For a description of the significant estimates and judgments associated with establishing these broker-dealer related loss provisions and the related allowances for doubtful accounts, see the “Brokerage client receivables, net” and “Loans to financial advisors, net” sections of Note 2 of our 2017 Form 10-K and Note 2 in this Form 10-Q for information regarding the allowance for doubtful accounts associated with loans to financial advisors as of December 31, 2017.


Loan loss provisions arising from operations of RJ Bank


RJ Bank providesWe provide an allowance for loan losses which reflects our continuing evaluation of the probable losses inherent in theRJ Bank’s loan portfolio. See the discussion regarding RJ Bank’sour methodology in estimating itsthe allowance for loan losses in Note 2 of the Notes to Consolidated Financial Statements of our 20172019 Form 10-K. See Note 7 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on our bank loans.


At DecemberMarch 31, 20172020, the amortized cost of all RJ Bank loans was $17.9$22.11 billion and an allowance for loan losses of $191 million was recorded against that balance. The totalthe allowance for loan losses was equal to 1.08%$324 million, which was 1.47% of the amortized cost of theheld for investment loan portfolio.


RJ Bank’sOur process of evaluating its probable loan losses includes a complex analysis of several quantitative and qualitative factors, requiring a substantial amount ofmanagement judgment. As a result, the allowance for loan losses could be insufficient to cover actual losses. In such an event, any losses in excess of our allowance would result in a decrease in our net income, as well as a decrease in the level of regulatory capital at RJ Bank.capital.


Recent accounting developments


For information regarding our recent accounting developments, see Note 2 of the Notes to the Condensed Consolidated Financial Statements inof this Form 10-Q.


Off-BalanceOff-balance sheet arrangements


For information regarding our off-balance sheet arrangements, see Note 222 of the Notes to Consolidated Financial Statements inof our 20172019 Form 10-K and Note 1415 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q.



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Management's Discussion and Analysis


Effects 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, to the extent inflation results in rising interest rates and has adverse effects upon the securities markets, it may adversely affect our financial position and results of operations.


Risk management


Risks are an inherent part of our business and activities. Management of these risks is critical to our fiscal soundness and profitability. Our risk management processes are multi-faceted and require communication, judgment and knowledge of financial products and markets. We have a formal Enterprise Risk Management (“ERM”) program to assess and review aggregate risks across the firm. Our management takes an active role in the ERM process, which requires specific administrative and business functions to participate in the identification, assessment, monitoring and control of various risks. The results of this process are extensively documented and reported to executive management and the RJF Audit and Risk Committee of the Board of Directors.


The principal risks related to our business activities are market, credit, liquidity, operational, model, and regulatorycompliance.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and legal.Analysis



Governance

Our Board of Directors oversees the firm’s management and mitigation of risk, setting a culture that encourages ethical conduct and risk management throughout the firm.  Senior management communicates and reinforces this culture through three lines of risk management and a number of senior-level management committees.  Our first line of risk management, which includes all of our businesses, owns its risks and is responsible for helping to identify, escalate, and mitigate risks arising from its day-to-day activities.  The second line of risk management, which includes the Compliance, Legal, and Risk Management departments, supports and provides guidance, advice, and oversight to client-facing businesses and other first-line risk management functions in identifying and mitigating risk. The second line of risk management also tests and monitors the effectiveness of controls, escalates risks when appropriate, and reports on these risks.  The third line of risk management, Internal Audit, independently reviews activities conducted by the previous lines of risk management to assess their management and mitigation of risk, providing additional assurance to the Board of Directors and senior management, with a view toward enhancing our oversight, management, and mitigation of risk.

Market risk


Market risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory, derivativederivatives and investment positions. We have exposure to market risk primarily through our broker-dealer trading operations and, to a lesser extent, through our banking operations. See Item“Item 7 “Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Managementmanagement - Market Risk” inrisk” of our 20172019 Form 10-K for a discussion of our market risk, including how we manage such risk. See Notes 3, 4 5 and 65 of the Notes to the Condensed Consolidated Financial Statements inof this Form 10-Q for fair value and other information regarding our trading inventories, available-for-sale securities and derivative instruments.


Interest rate risk


Trading activities


We are exposed to interest rate risk as a result of our trading inventoriesinventory (primarily comprised of fixed income instruments) in our Capital Markets segment. We actively manage the interest rate risk arising from our fixed income trading securities through the use of hedging strategies that involve U.S. Treasury securities, futures contracts, liquid spread products and derivatives. During our second fiscal quarter of 2020, in response to the significant market volatility as a result of the COVID-19 pandemic, we took steps to proactively manage our market risk exposures, including enhanced review and monitoring of exposures and risk mitigation efforts. As a result, we reduced our trading inventory during the quarter to reduce risk.


We monitor daily, the Value-at-Risk (“VaR”) for all of our trading portfolios.portfolios on a daily basis. 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. We apply 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, OCCthe Office of the Comptroller of the Currency (“OCC”) and FDIC, requires us to calculate VaR numbers for all of our trading portfolios, including fixed income, equity, foreign exchange and derivative instruments.derivatives.


To calculate VaR, we use 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 numbers for a ten-day time horizon.


The Fed’s MRR requires us to perform daily back testingback-testing procedures of our VaR model, whereby we compare each day’s projected VaR to its regulatory-defined daily trading losses, which exclude fees, commissions, reserves, net interest income and intraday trading. Regulatory-defined daily trading losses are used to evaluate the performance of our VaR model and are not comparable to our actual daily net revenues. Based on these daily “ex ante” versus “ex post” comparisons, we determine whether the number of times that regulatory-defined daily trading losses exceed VaR is consistent with our expectations at a 99% confidence level. During the three and six months ended DecemberMarch 31, 2017,2020, our regulatory-defined daily loss in our trading portfolios did not exceed VaR.exceeded our predicted VaR on eleven occasions due to higher levels of market volatility as a result of the COVID-19 pandemic.



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Management'sManagement’s Discussion and Analysis




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: indicated.
  Six months ended March 31, 2020 Period-end VaR   Three months ended March 31, Six months ended March 31,
$ in millions High Low March 31,
2020		 September 30,
2019		 $ in millions 2020 2019 2020 2019
Daily VaR $2
 $1
 $1
 $1
 Daily average VaR $1
 $1
 $1
 $1
  Three months ended December 31, 2017 Period end VaR Daily average VaR
$ in thousands High Low December 31,
2017		 September 30,
2017		 December 31,
2017		 September 30,
2017		 December 31,
2016
Daily VaR $2,256
 $848
 $848
 $1,427
 $1,601
 $1,827
 $1,670


The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations. While management believes that itsthese 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 rule are available on our website under https://www.raymondjames.com/investor-relations/financial-report under “Market Risk Rule Disclosure.financial-information/filings-and-reports within “Other Reports and Information.”


Should markets suddenly become more volatile, as they did in our second fiscal quarter of 2020, 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.  risk, as we did during our second fiscal quarter of 2020.

As a part of our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMA MBS which are issued on behalf of various state and local housing finance agencies.  These activities result in exposure to interest rate risk. In order to hedge the interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into TBA security contracts with investors for generic MBS at specific rates and prices to be delivered on settlement dates in the future. See Note 14 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information regarding these activities.


Banking operations


RJ Bank maintains an earning asset portfolio that is comprised of cash, C&I loans, tax-exempt loans, SBL, and commercial and residential real estate loans, SBL and other loans, as well as MBS and CMOs (both of which are held(held in the available-for-sale securities portfolio), Small Business AdministrationSBA loan securitizations and a trading portfolio of corporate loans.  ThoseThese earning assets are primarily funded by client deposits.  Based on its current earning asset portfolio, RJ Bank is subject to interest rate risk.  During the current period, RJ Bank has focused its interest rate risk analysis on the risk of market interest rates rising given the Federal Reserve Bank’s increases in short-term interest rates.  RJ Bank analyzes interest rate risk based on forecasted net interest income, which is the net amount of interest received and interest paid, and the net portfolio valuation, both in a range of interest rate scenarios.


One of the objectives of RJ Bank’s Asset Liability Management Committee is to manage the sensitivity of net interest income to changes in market interest rates. The methods used to measure this sensitivity are described in Item“Item 7 “Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Managementmanagement - Market Risk”risk” of our 20172019 Form 10-K.


We utilize a hedging strategy using interest rate swaps as a result of RJ Bank’s asset and liability management process. For further information regarding this risk management objective, see the discussion of this hedging strategy, insee Note 2 of the Notes to Consolidated Financial Statements of our 20172019 Form 10-K and in Note 6 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.10-K.


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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis



The following table is an analysis of RJ Bank’s estimated net interest income over a 12 month12-month period based on instantaneous shifts in interest rates (expressed in basis points) using RJ Bank’s own asset/liability model:model.
Instantaneous changes in rate 
Net interest income
($ in thousands)
 
Projected change in
net interest income
 
Net interest income
($ in millions)
 
Projected change in
net interest income
+200 $734,185 (0.53)% $951 30.27%
+100 $765,382 3.69% $893 22.33%
0 $738,110 — $730 —
-100 $599,527 (18.78)%
-25 $683 (6.44)%


Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net Interest Analysis” withininterest analysis” of this Form 10-Q for a discussion of the impact that an increasechanges in short-term interest rates could have on the firm’s operations.


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


The following table shows the contractual maturities of RJ Bank’s loan portfolio at DecemberMarch 31, 20172020, including contractual principal repayments.  This table does not however, include any estimates of prepayments.  These prepayments, which could shorten the average loan lives and cause the actual timing of the loan repayments to differ significantly from those shown in the following table. Loan amounts in the table below exclude unearned income and deferred expenses.
 Due in Due in
$ in thousands One year or less > One year – five years > 5 years Total
$ in millions One year or less > One year – five years > five years Total
Loans held for investment:  
  
    
  
  
    
C&I loans $152,551
 $3,826,227
 $3,511,441
 $7,490,219
 $165
 $4,077
 $4,074
 $8,316
CRE construction loans 11,612
 153,235
 —
 164,847
 10
 128
 42
 180
CRE loans 509,914
 2,014,252
 611,935
 3,136,101
 627
 2,610
 593
 3,830
Tax-exempt loans —
 22,630
 1,113,838
 1,136,468
 —
 76
 1,190
 1,266
Residential mortgage loans 1,016
 2,739
 3,267,025
 3,270,780
 —
 4
 4,860
 4,864
SBL 2,527,003
 3,518
 —
 2,530,521
SBL and other 3,526
 20
 —
 3,546
Total loans held for investment 3,202,096
 6,022,601
 8,504,239
 17,728,936
 4,328
 6,915
 10,759
 22,002
Loans held for sale —
 17,098
 161,592
 178,690
 —
 —
 115
 115
Total loans $3,202,096
 $6,039,699
 $8,665,831
 $17,907,626
 $4,328
 $6,915
 $10,874
 $22,117


The following table shows the distribution of the recorded investment of those RJ Bank loans that mature in more than one year between fixed and adjustable interest rate loans at DecemberMarch 31, 2017.2020. Loan amounts in the table below exclude unearned income and deferred expenses.
 Interest rate type Interest rate type
$ in thousands Fixed Adjustable Total
$ in millions Fixed Adjustable Total
Loans held for investment:  
  
  
  
  
  
C&I loans $1,700
 $7,335,968
 $7,337,668
 $140
 $8,011
 $8,151
CRE construction loans 4,588
 148,647
 153,235
 2
 168
 170
CRE loans 43,732
 2,582,455
 2,626,187
 70
 3,133
 3,203
Tax-exempt loans 1,104,568
 31,900
 1,136,468
 1,266
 —
 1,266
Residential mortgage loans 230,142
 3,039,622

3,269,764
 222
 4,642

4,864
SBL 3,518
 —
 3,518
SBL and other —
 20
 20
Total loans held for investment 1,388,248
 13,138,592
 14,526,840
 1,700
 15,974
 17,674
Loans held for sale 5,650
 173,040
 178,690
 2
 113
 115
Total loans $1,393,898
 $13,311,632
 $14,705,530
 $1,702
 $16,087
 $17,789


Contractual loan terms for C&I, CRE, CRE construction and residential mortgage loans may include an interest rate floor, cap and/or fixed interest rates for a certain period of time, which would impact the timing of the interest rate reset for the respective loan.

See the discussion within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit Riskrisk - Risk Monitoringmonitoring process” section of this Form 10-Q for additional information regarding RJ Bank’s interest-only residential mortgage loan portfolio.

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Management's Discussion and Analysis



In our RJ Bank available-for-sale securities portfolio, we hold primarily fixed-rate agency MBS and CMOs which were carried at fair value inon our Condensed Consolidated Statements of Financial Condition at DecemberMarch 31, 20172020, with changes in the fair value of the portfolio recorded through “Other comprehensive income”OCI in our Condensed Consolidated Statements of Income and Comprehensive Income. At DecemberMarch 31, 2017,2020, our RJ Bank available-for-sale securities portfolio had a fair value $2.29of $4.27 billion with a weighted-average yield of 1.99%2.27% and an average expecteda duration of three years. See Note 5 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information on the fair value of these securities.

Other

We hold ARS, which are long-term variable rate securities tied to short-term interest rates, that are accounted for as available-for-sale and are carried at fair value on our Condensed Consolidated Statements of Financial Condition. These securities generally have embedded penalty interest rate provisions in the event auctions fail to set the security’s interest rate. These penalty rates are based upon a stated interest rate spread over what is typically a short-term base interest rate index.  As short-term interest rates rise, the penalty rate that is specified in the security increases.  Changes in interest rates impact the fair value of our ARS portfolio, as we estimate that at some level of increase in short-term interest rates, issuers of the securities will have the economic incentive to refinance (and thus prepay) the securities.  The faster and steeper short-term interest rates rise, the earlier prepayments will likely occur and the higher the fair value of the security. See Note 4 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for additional information on the fair value of these securities.information.


Equity price risk


We are exposed to equity price risk as a consequenceresult of makingour capital markets in equity securities.activities. Our broker-dealer activities are primarily client-driven, with the objective of meeting clients’ needs while earning a trading profitrevenues to compensate for the risk associated with carrying inventory.  We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions throughout each day and establishing position limits.

In addition, our private equity investments may be impacted by equity prices.


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


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 $1.11 billion and $1.10 billion at March 31, 2020 and September 30, 2019, respectively. A portion of such loans are held by RJ Bank’s Canadian subsidiary, which is discussed in the following sections.


Investments in foreign subsidiaries


RJ Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate thisits foreign exchange risk, RJ Bank utilizes short-term, forward foreign exchange contracts. These derivative agreementsderivatives are primarily accounted for as net investment hedges in the condensed consolidated financial statements. See Note 65 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for further information regarding these derivative contracts.derivatives.


We had foreign exchange risk in our investment in RJ Ltd. of CDN $320CAD 338 million at DecemberMarch 31, 2017,2020, which was not hedged. Foreign exchange gains/losses related to this investment are primarily reflected in other comprehensive income/(loss) (“OCI”)OCI on our Condensed Consolidated Statements of Income and Comprehensive Income. See Note 1516 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for further information regarding all of our components of OCI.


We also have foreign exchange risk associated with our investments in subsidiaries located in the United Kingdom, Germany and France.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.


Transactions and resulting balances denominated in a currency other than the U.S. dollar


We are subject to foreign exchange risk due to our holdings of cash and certain other assets and liabilities resulting from transactions denominated in a currency other than the U.S. dollar. Any currency relatedcurrency-related gains/losses arising from these foreign currency denominated balances are reflected in “Other revenues”“Other” revenues in our Condensed Consolidated Statements of Income and Comprehensive Income. The foreign exchange risk associated with a portion of such transactions and balances denominated in foreign currency are mitigated utilizing short-term, forward foreign exchange contracts. Such derivatives are not designated hedges and therefore, the related gains/losses associated with these contracts are included in “Other revenues”“Other” revenues in our Condensed Consolidated Statements of Income and

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Comprehensive Income. See Note 65 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for information regarding our derivative contracts.derivatives.


Credit risk


Credit risk is the risk of loss due to adverse changes in a borrower’s, issuer’s or counterparty’s ability to meet its financial obligations under contractual or agreed upon terms. The nature and amount of credit risk depends on the type of transaction, the structure and duration of that transaction, and the parties involved. Credit risk is an integral component of the profit assessment of lending and other financing activities. See further discussion of our credit risk, including how we manage such risk, in Item“Item 7 “Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Managementmanagement - Credit Risk”risk” of our 20172019 Form 10-K.


The sharp decline in economic activity as a result of COVID-19 has caused increased credit risk in general and particularly with regard to companies in sectors that have been most significantly impacted by the economic disruption, including oil and gas, airlines, entertainment and leisure, restaurants and gaming. Given the stresses on our clients’ liquidity, we have enhanced our credit monitoring activities, with an increased focus on monitoring our credit exposures and counterparty credit risk, including the risk that trades may not settle with a given counterparty. We have required collateral to be posted across our credit risk exposures in accordance with agreements with our borrowers and counterparties.

RJ Bank has a substantial C&I, CRE, tax-exempt, SBL and residential mortgage loan portfolios.  Aportfolio.  While RJ Bank’s loan portfolio is diversified, a significant downturn in the overall economy, such as the downturn during our second fiscal quarter, deterioration in real estate values or a significant issue within any sector or sectors where RJ Bank has a concentration couldwill generally result in large provisions for loan losses and/or charge-offs. RJ Bank determines the allowance 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.


Our allowance for loan losses is regularly evaluated with adjustments made on a quarterly basis. Several factors were taken into consideration in evaluating the allowance for loan losses at DecemberMarch 31, 20172020, including the risk profile of the portfolios, net charge-offs during the period, the level of nonperforming loans, delinquency ratios and delinquency ratios.the impact of the COVID-19 pandemic. RJ Bank also
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


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 determinedIn response to the COVID-19 pandemic, we performed a portfolio-wide assessment on our loan portfolio. As a result, we downgraded loans in certain impacted industries, which gave rise to an increase in the loan loss provision during the current quarter. We will continue to assess the impact of COVID-19 and, as more information becomes available regarding the financial repercussions to our borrowers, the risk ratings for individual loans will be updated and the allowance that was required for specific loan grades based on relative risk characteristics of the loan portfolio.will be adjusted accordingly.

Changes in theRJ Bank’s allowance for loan losses as a percentage of bank loans outstanding was 1.47% and 1.04% at March 31, 2020 and September 30, 2019, respectively. See Note 7 in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for detail on the changes in RJ Bank were as follows:
  Three months ended December 31,
$ in thousands 2017 2016
Allowance for loan losses, beginning of year $190,442
 $197,378
Provision for loan losses 1,016
 (1,040)
Charge-offs:    
C&I loans (603) (3,389)
Residential mortgage loans (95) (87)
Total charge-offs (698) (3,476)
Recoveries:  
  
CRE loans —
 5,013
Residential mortgage loans 604
 65
Total recoveries 604
 5,078
Net (charge-offs)/recoveries (94) 1,602
Foreign exchange translation adjustment (95) (260)
Allowance for loan losses, end of period $191,269
 $197,680
Allowance for loan losses to bank loans outstanding 1.08% 1.25%

Bank’s allowance for loan losses.
The bank loan loss provision increasedfor the six months ended March 31, 2020 was $107 million compared to $1 million from a net $1 million benefit in the prior year. The current year loan loss provision increased due to loan growth, partially offset by lower reserve rates on pass-rated loans resulting from improved credit characteristics. The prior year net benefit resulted fromof $21 million for the resolutionprior-year period. See further explanation of certain corporate criticized loans. As a result of improved quality in the loan portfolio, the total allowance for loan losses to total to bank loans outstanding declined to 1.08% at December 31, 2017 from 1.25% at December 31, 2016.

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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sloss provision increase in “Management’s Discussion and Analysis - Results of Operations - RJ Bank” of this Form 10-Q.



The level of charge-off activity is a factor that is considered in evaluating the potential for severity of future credit losses. The following table presents net loan (charge-offs)/recoveries and the percentage of net loan (charge-offs)/recoveries to the average outstanding loan balances by loan portfolio segment: segment.
 Three months ended December 31, Three months ended March 31, Six months ended March 31,
 2017 2016 2020 2019 2020 2019
$ in thousands 
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
 
% of avg.
outstanding
loans
 
Net loan
(charge-off)/recovery
amount
 
% of avg.
outstanding
loans
 Net loan
(charge-off)/recovery
amount		 
% of avg.
outstanding
loans
 Net loan
(charge-off)/recovery
amount		 
% of avg.
outstanding
loans
C&I loans $(603) 0.03% $(3,389) 0.18% $—
 —
 $(3) 0.06% $—
 —
 $(3) 0.06%
CRE loans —
 —
 5,013
 0.79% —
 —
 (3) 0.20% —
 —
 (3) 0.19%
Residential mortgage loans 509
 0.06% (22) —
 —
 —
 —
 —
 —
 —
 1
 0.04%
Total $(94) —
 $1,602
 0.04% $—
 —
 $(6) 0.06% $—
 —
 $(5) 0.05%

The level of charge-off activity is a factor that is considered in evaluating the potential for severity of future credit losses. The activity during the current period resulted in an insignificant net charge-off, while the prior period reflected net recoveries primarily resulting from the favorable resolution of a CRE criticized loan.

The table below presents the nonperforming loans balance and total allowance for loan losses as of the period presented:
  December 31, 2017 September 30, 2017
$ in thousands 
Nonperforming
loan balance
 
Allowance for
loan losses
balance
 
Nonperforming
loan balance
 
Allowance for
loan losses
balance
Loans held for investment:  
  
  
  
C&I loans $4,843
 $(121,569) $5,221
 $(119,901)
CRE construction loans —
 (2,107) —
 (1,421)
CRE loans —
 (40,616) —
 (41,749)
Tax-exempt loans —
 (6,918) —
 (6,381)
Residential mortgage loans 32,490
 (15,501) 33,749
 (16,691)
SBL —
 (4,558) —
 (4,299)
Total $37,333
 $(191,269) $38,970
 $(190,442)
Total nonperforming loans as a % of RJ Bank total loans 0.21%   0.23%  


The level of nonperforming loans is another indicator of potential future credit losses. The amount offollowing table presents the nonperforming loans decreased duringbalance and total allowance for loan losses for the three months ended December 31, 2017.  This decrease was due to a $1 million decrease in nonperforming residential mortgage loans and an insignificant decrease in nonperforming C&I loans. periods presented.
  March 31, 2020 September 30, 2019
$ 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 $4
 $197
 $19
 $139
CRE construction loans —
 3
 —
 3
CRE loans 6
 88
 8
 46
Tax-exempt loans —
 11
 —
 9
Residential mortgage loans 14
 18
 16
 16
SBL and other —
 7
 —
 5
Total $24
 $324
 $43
 $218
Total nonperforming loans as a % of RJ Bank total loans 0.11%   0.21%  

Included in nonperforming residential mortgage loans are $29were $7 million in loans for which $14$4 million in charge-offs were previously recorded, resulting in less exposure within the remaining balance. See Note 7 in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for loan categories as a percentage of total loans receivable.


The nonperforming loan balances abovein the preceding table exclude $12$11 million and $14$12 million as of DecemberMarch 31, 20172020 and September 30, 2017,2019, respectively, of residential TDRs which were returned to accrual status in accordance with our policy.


85
Total nonperforming assets, including other real estate acquired in the settlement of residential mortgages, amounted to $27 million and $46 million at March 31, 2020 and September 30, 2019, respectively. Total nonperforming assets as a percentage of RJ Bank total assets were 0.08% and 0.18% at March 31, 2020 and September 30, 2019, respectively. Although our nonperforming assets as a percentage of RJ Bank assets remained low as of March 31, 2020, and we had no charge-offs during our second fiscal quarter, prolonged or further market deterioration could result in an increase in our nonperforming assets, an increase in our allowance for loan losses and/or an increase
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management'sManagement’s Discussion and Analysis




in net charge-offs in future periods, although the extent will depend on future developments that are highly uncertain and cannot be predicted.

We have received requests from certain clients for forbearance, or deferral of their loan payments to us, driven or exacerbated by the economic impacts of the COVID pandemic. Certain clients have also requested modifications of covenant terms. The CARES Act permits, among other things, financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 and is intended to provide interpretive guidance as to conditions that would constitute a short-term modification that would not meet the definition of a TDR. We have made certain loan modifications that relate to short-term payment deferrals that are not considered TDRs. Based on the outstanding principal balance as of the end of April 2020, we have received payment deferral requests on approximately 3% and 2% of our corporate and residential loans, respectively.

Loan underwriting policies


RJ Bank’s underwriting policies for the major types of loans are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” of our 20172019 Form 10-K. There were no material changes in RJ Bank’s underwriting policies during the threesix months ended DecemberMarch 31, 2017.2020.


Risk monitoring process


Another component of credit risk strategy at RJ Bank is the ongoing risk monitoring and review processes for all residential, SBL, corporate and tax-exempt credit exposures, as well as our rigorous processes to manage and limit credit losses arising from loan delinquencies. There are various other factors included in these processes, depending on the loan portfolio. There were no material changes to those processes and policies during the threesix months ended DecemberMarch 31, 2017.2020.


Residential mortgage and SBL and residential mortgage loansother loan portfolios


The marketable collateral securing RJ Bank’s SBL and other portfolio is monitored on a recurring basis, with marketable collateral monitored on a daily basis. Collateral adjustments are made by the borrower as necessary to ensure RJ Bank’s loans are adequately secured, resulting in minimizing its 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’s residential mortgage loan portfolio. The qualitative factors include, but are not limited to: loan performance trends, loan product parameters and qualification requirements, borrower credit scores, occupancy (i.e., owner occupied, second home or investment property), level of documentation, loan purpose, geographic concentrations, average loan size loan policy exceptions and updated LTV ratios. These qualitative measures, while considered and reviewed in establishing the allowance for loan losses, have not resulted in any material quantitative adjustments to RJ Bank’s historical loss rates.

RJ Bank obtains the most recently available information (generally updated every six months) to estimate current LTV ratios on the individual loans in the performing residential mortgage loan portfolio. Current LTV ratios are estimated based on the initial appraisal obtained at the time of origination, adjusted using relevant market indices for housing price changes that have occurred since origination. The value of the homes could vary from actual market values due to change in the condition of the underlying property, variations in housing price changes within current valuation indices and other factors.

At December 31, 2017, the average estimated LTV was 53% for the total residential mortgage loan portfolio. Residential mortgage loans with estimated LTVs in excess of 100% represented much less than 1% of the residential mortgage loan portfolio as of December 31, 2017. Credit risk management considers this data in conjunction with delinquency statistics, loss experience and economic circumstances to establish appropriate allowance for loan losses for the residential mortgage loan portfolio.

At December 31, 2017, loans over 30 days delinquent (including nonperforming loans) increased to 0.84% of residential mortgage loans outstanding, compared to 0.73% over 30 days delinquent at September 30, 2017.  Our December 31, 2017 percentage, however, continues to compare favorably to the national average for over 30 day delinquencies of 4.09% as most recently reported by the Fed.
RJ Bank’s significantly lower delinquency rate as compared to its peers is the result of our uniform underwriting policies, the lack of subprime loans and the limited amount of non-traditional loan products.


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Management's Discussion and Analysis



The following table presents a summary of delinquent residential mortgage loans, the vast majority of which isare first mortgage loans, which are comprised of loans which are two or more payments past due as well as loans in the process of foreclosure.
  Amount of delinquent residential loans Delinquent residential loans as a percentage of outstanding loan balances
$ in thousands 30-89 days 90 days or more Total 30-89 days 90 days or more Total
December 31, 2017            
Residential mortgage loans:     

      
First mortgage loans $8,203
 $19,164
 $27,367
 0.25% 0.59% 0.84%
Home equity loans/lines 75
 115
 190
 0.27% 0.41% 0.68%
Total residential mortgage loans $8,278
 $19,279
 $27,557
 0.25% 0.59% 0.84%
             
September 30, 2017  
  
  
  
  
  
Residential mortgage loans:            
First mortgage loans $3,061
 $19,823
 $22,884
 0.10% 0.63% 0.73%
Home equity loans/lines 248
 18
 266
 0.91% 0.07% 0.98%
Total residential mortgage loans $3,309
 $19,841
 $23,150
 0.10% 0.63% 0.73%
  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
March 31, 2020 $2
 $8
 $10
 0.04% 0.16% 0.20%
September 30, 2019 $2
 $10
 $12
 0.04% 0.22% 0.26%


Our March 31, 2020 percentage continues to compare favorably to the national average for over 30 day delinquencies of 2.54%, as most recently reported by the Fed.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


Credit risk is also managed by diversifying the residential mortgage portfolio. Most of the loans in our residential loan portfolio are to Private Client Group clients across the country. The following table details the geographic concentrations (top five states) of RJ Bank’s one-to-four family residential mortgage loans were as follows:loans.
December 31, 2017 September 30, 2017
 March 31, 2020
Loans outstanding as a % of RJ Bank total residential mortgage loans Loans outstanding as a % of RJ Bank total loans Loans outstanding as a % of RJ Bank total residential mortgage loans Loans outstanding as a % of RJ Bank total loans Loans outstanding as a % of RJ Bank total residential mortgage loans Loans outstanding as a % of RJ Bank total loans
CA24.9% 4.6% CA23.8% 4.4% 26.0% 5.7%
FL18.2% 3.4% FL18.9% 3.5% 16.5% 3.6%
TX7.6% 1.4% TX7.8% 1.4% 8.1% 1.8%
NY6.9% 1.3% NY6.8% 1.3% 7.2% 1.6%
CO3.5% 0.6% CO3.4% 0.6% 3.9% 0.9%


Loans where borrowers may be subject to payment increases include adjustable rate mortgage loans with terms that initially require payment of interest only.  Payments may increase significantly when the interest-only period ends and the loan principal begins to amortize.  At DecemberMarch 31, 20172020 and September 30, 2017,2019, these loans totaled $748 million$1.51 billion and $683 million,$1.29 billion, respectively, or approximately 20%30% of the residential mortgage portfolio atas of each period.of these dates.  The weighted average number of years before the remainder of the loans, which were still in their interest-only period at DecemberMarch 31, 20172020, begins amortizing is 6.95.9 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/LTV ratios and FICO scores at origination of RJ Bank’s residential first mortgage loan portfolio are as follows:were 64% and 762, respectively.
December 31, 2017September 30, 2017
Residential first mortgage loan weighted-average LTV/FICO65%/75865%/758


Corporate and tax-exempt loans


Other than loans classified as nonperforming, the amount ofCredit risk in RJ Bank’s corporate and tax-exempt loan portfolios are monitored on an individual loan basis. The majority of RJ Bank’s tax-exempt loan portfolio is comprised of loans that were delinquent greater than 30 days was not significant as of December 31, 2017.to investment-grade borrowers.


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Management's Discussion and Analysis



Credit risk is also managed by diversifying the corporate loan portfolio. RJ Bank’s corporate 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’s corporate loans are as follows:loans.
December 31, 2017 September 30, 2017
 Loans outstanding as a % of RJ Bank total corporate loans Loans outstanding as a % of RJ Bank total loans  Loans outstanding as a % of RJ Bank total corporate loans Loans outstanding as a % of RJ Bank total loans
Power & infrastructure5.6% 3.8% Office (real estate)5.9% 4.0%
Hospitality4.9% 3.3% Retail real estate5.3% 3.6%
Retail real estate4.9% 3.3% Power & infrastructure5.3% 3.6%
Consumer products and services4.7% 3.2% Consumer products and services5.2% 3.5%
Office (real estate)4.5% 3.0% Hospitality4.7% 3.2%
  March 31, 2020
  Loans outstanding as a % of RJ Bank total corporate loans Loans outstanding as a % of RJ Bank total loans
Automotive/transportation 7.4% 4.1%
Office real estate 7.2% 3.9%
Business systems and services 7.1% 3.9%
Hospitality 6.9% 3.8%
Multifamily 5.3% 2.9%



RJ Bank’s exposure to the energy, airline, entertainment/leisure, restaurant and gaming sectors, those most affected by the economic disruption from the COVID-19 pandemic, were each less than 2% of the loan portfolio as of March 31, 2020.

Although we saw significant deterioration in oil prices during our second fiscal quarter, our energy portfolio primarily consists of loans to midstream distribution companies and convenience stores, with no loans to exploration and production enterprises. As a result, the portfolio has minimal direct commodity price exposure. However, if we continue to see a significant deterioration in oil prices, our clients, and as a result our loans to such clients, could be negatively impacted in the future.

Liquidity risk


See the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and capital resources” of this Form 10-Q for information regarding our liquidity and how we manage liquidity risk.


Operational risk


Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes, including cyber securitycybersecurity incidents. See Item“Item 7 “Management’s- Management’s Discussion and
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis


Analysis of Financial Condition and Results of Operations - Risk Managementmanagement - Operational Risk” inrisk” of our 20172019 Form 10-K for a discussion of our operational risk and certain of our risk mitigation processes. There

In response to the COVID-19 pandemic, we activated and successfully executed on our business continuity protocols and continue to monitor the COVID-19 crisis under such protocols. We have been noendeavored to safeguard our employees and to ensure continuity of business operations for our clients. As a result, nearly all of our employees are working remotely. Our systems and infrastructure have continued to support the increased volumes of activity, without any significant operational or technology disruptions. We did not incur any material changes in such processeslosses related to our operational risks during the threesix months ended DecemberMarch 31, 2017.2020.


As more fully described in the discussion of our business technology risks included in various risk factors presented in “Item 1A - Risk Factors” inof our 20172019 Form 10-K and “Part II - Other Information - Item 1A - Risk Factors” of this Form 10-Q, despite our implementation of protective measures and endeavoring to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to human error, natural disasters, power loss, spam attacks, unauthorized access, distributed denial of service attacks, computer virusescyber-attacks and other malicious codeinformation security breaches, and other events that could have an impact on the security and stability of our operations.  Notwithstanding the precautions we take, if one or more of these events were to occur, this could jeopardize the information we confidentially maintain, including that of our clients and counterparties, which is processed, stored in and transmitted through our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our clients or counterparties. To-date, we have not experienced any material losses relating to cyberattackscyber-attacks or other information security breaches; however, there can be no assurances that we will not suffer such losses in the future.


Model Riskrisk


Model risk refers to the possibility of unintended business outcomes arising from the design, implementation or use of models. See Item“Item 7 “Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Managementmanagement - Model Risk” inrisk” of our 20172019 Form 10-K for information regarding how we utilize models throughout the firm and how we manage model risk.


Regulatory andCompliance risk

Compliance risk is the risk of legal risk

or regulatory sanctions, financial loss, or reputational damage that the firm may suffer from a failure to comply with applicable laws, external standards, or internal requirements. See Item“Item 7 “Management’s- Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Managementmanagement - Regulatory and legalCompliance risk” inof our 20172019 Form 10-K for information on our regulatory and legalcompliance risks, including how we manage such risks.

There have been no material changes in our compliance risk mitigation processes during the threesix months ended DecemberMarch 31, 2017.2020.


ItemITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


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



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Management's Discussion and Analysis


ItemITEM 4. CONTROLS AND PROCEDURES


Disclosure Controls and Procedures


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


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


Changes in Internal Control over Financial Reporting


There were no changes in our internal control over financial reporting during the quarter ended DecemberMarch 31, 20172020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS


Not applicable.


ITEM 1A. RISK FACTORS


Not applicable.Our operations and financial results are subject to various risks and uncertainties which could adversely affect our business, financial condition, results of operations, liquidity and the trading price of our common stock. For information regarding these risks and uncertainties, see “Item 1A - Risk Factors” of our 2019 Form 10-K. The following represents material changes to our risk factors disclosed in our 2019 Form 10-K.



RISKS RELATED TO OUR BUSINESS AND INDUSTRY

89The recent outbreak of COVID-19 has adversely affected, and will likely continue to adversely affect, our business, financial condition, liquidity and results of operations.

The worldwide COVID-19 pandemic has negatively affected our business and the entire financial services industry and is likely to continue to do so. Since the beginning of January 2020, the outbreak has caused significant volatility and disruption in the financial markets both globally and in the U.S., and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The pandemic has led governments and other authorities around the world, including federal, state and local authorities in the U.S., to impose measures intended to control its spread, including restrictions on travel and the conduct of business, such as stay-at-home orders, quarantines, travel bans, border closings, business closures and other similar measures. If COVID-19, or another highly infectious or contagious disease, continues to spread or the response to contain it is unsuccessful, we will likely experience further adverse effects on our business, financial condition, liquidity, and results of operations. A prolonged period of economic deterioration may also result in impairment of goodwill and identifiable intangible assets. The extent of such effects will depend on future developments which are highly uncertain and cannot be predicted, including the geographic spread of the virus, the overall severity of the disease, the duration of the outbreak, the measures taken by various governmental authorities in response to the outbreak and the possible further impacts on the global economy.

The continued spread of COVID-19, or another highly infectious or contagious disease, has caused and could continue to cause severe disruptions in our business. These effects have included restrictions on our employees’ ability to travel, as well as temporary closures of our facilities and the facilities of our customers, suppliers, or other vendors. We often recruit skilled professionals and new clients by visiting their offices or having them visit our offices. Consequently, any travel restrictions or other disruptions that prevent us from meeting with professional prospects or potential new clients may adversely impact our ability to recruit such professional prospects or engage potential new clients. Although we maintain contingency plans for events such as pandemic outbreaks, the further spread of COVID-19 or a similar contagious disease could also impair the availability of our executive officers who are necessary to conduct our business. In addition, any continued spread of COVID-19 or new outbreak could harm the operations of third-party service providers who perform critical services for our business.

The COVID-19 pandemic has caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. As a result of a shift to fee-based accounts over the past several years, a larger portion of our client assets is more directly affected by market movements. The significant decrease in the market value of our clients’ assets has had and will continue to have a negative impact on our financial results due to the fact that asset-based fees are earned on the market value of the underlying client assets, many of which are billed based on assets as of the beginning of a quarter. This market decline will likely have a greater negative affect on revenues and profitability than would have been experienced in prior years due to the increased proportion of our asset-based revenues. Market volatility 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 securities prices in times of market volatility, which would result in lower brokerage revenues, including losses on firm inventory. The fair values of certain of our investments could also continue to be negatively impacted, resulting in additional unrealized or realized losses on such investments. In addition, the market volatility and uncertainty related to the COVID-19 pandemic may cause our institutional clients to abandon announced transactions and/or cease exploration of potential transactions which could negatively impact our Capital Markets revenues, including those derived from our investment banking business.

Moreover, certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of COVID-19 have had, and will continue to have, a negative effect on our business. The Fed significantly lowered interest rates in response to COVID-19 pandemic concerns in March. These decreases in short-term interest rates, in addition
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES


ITEM 2.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

to those in late 2019, have had a negative impact on our results, as we have certain assets and liabilities, primarily held in our PCG, RJ Bank and Other segments, which are sensitive to changes in interest rates. Fees we earn from third-party banks on client cash balances swept to such banks as part of RJBDP are also sensitive to changes in interest rates. These market interest rate declines will continue to negatively impact results in future quarters.

In addition, we are generally exposed to the credit risk that third-parties that owe us money, securities or other assets will fail to meet their obligations to us due to numerous causes, and this risk has been and may further be exacerbated by the macroeconomic effects of COVID-19. We lend 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 has increased, and such risk and credit losses may continue to increase to the extent our loans or investments are to borrowers or issuers who as a group may be uniquely or disproportionately affected by declining economic or market conditions as a result of COVID-19 such as those operating in the airline, restaurant, gaming, entertainment/leisure and energy sectors. The deterioration of our credit exposure due to COVID-19 has led to additional loan loss provisions and could lead to further additional loan loss provisions and/or charges-offs, or credit impairment of our investments, and subsequently have a material impact on our net income, regulatory capital and liquidity.

We cannot assure you that conditions in financial markets will not continue to deteriorate as a result of the pandemic, or that our access to capital and other sources of funding will not become constrained, resulting in actions such as restructuring debt or obtaining additional financing on terms that may be onerous or highly dilutive.

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. 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 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, since mid-March 2020, we have shifted the majority of our associates to remote work arrangements in response to the COVID-19 pandemic. This change in our operating model has enabled us to successfully continue business operations, but also introduces potential new vulnerabilities to cyber threats. We seek to continuously monitor for and nimbly react to any and all such activity, and we develop our systems to protect our technology infrastructure and data from misuse, misappropriation or corruption.

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 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, 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, natural disasters, power loss, spam attacks, unauthorized access, distributed denial of service attacks, computer viruses and other malicious code, and other events that could result in significant liability and damage to our reputation, and have an ongoing impact on the security and stability of our operations.

We also rely on numerous third-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. In addition, in order to access our products and services, our customers 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,
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

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. 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, the large number of our clients, partners and counterparties, the increasing sophistication of malicious actors, and the COVID-19 pandemic response, a cyber-attack could occur and persist for an extended period of time without detection. We expect that any investigation of a cyber-attack would take substantial amounts of time, and that there may be extensive delays before we obtain full and reliable information. During such time we would not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, all of which would further increase the costs and consequences of such an attack.

We may also be subject to liability under various data protection laws. In providing services to clients, we manage, utilize and store sensitive or confidential client or employee data, including personal data. As a result, we are subject to numerous laws and regulations designed to protect this information, such as U.S. federal, state and international laws governing the protection of personally identifiable information. These laws and regulations are increasing in complexity and number. If any person, including any of our associates, negligently disregards or intentionally breaches our established controls with respect to client or employee data, or otherwise mismanages or misappropriates such data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution. In addition, unauthorized disclosure of sensitive or confidential client or employee data, whether through system failure, employee negligence, fraud or misappropriation, could damage our reputation and cause us to lose clients and related revenue. Potential liability in the event of a security breach of 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.

See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Operational risk” of our 2019 Form 10-K and Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Operational risk” of this Form 10-Q for additional information regarding our exposure to and approaches for managing operational risks.

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

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

We did not have any sales of unregistered securities for the six months ended March 31, 2020.

We purchase our own stock from time to time in conjunction with a number of activities, each of which is described below.in the following paragraphs. The following table presents information on our purchases of our own stock, on a monthly basis, for the threesix months ended DecemberMarch 31, 2017:2020.
 
Total number of shares
purchased
 
Average price
per share
 Number of shares purchased as part of publicly announced plans or programs Approximate dollar value (in thousands) at each month-end, of securities that may yet be purchased under the plans or programs
        
October 1, 2017 – October 31, 20178,493
 $85.25
 —
 $135,671
November 1, 2017 – November 30, 201718,539
 $85.32
 —
 $135,671
December 1, 2017 – December 31, 2017205,504
 $87.32
 —
 $135,671
First quarter232,536
 $87.08
 —
  
 
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, 2019 – October 31, 20195,582
 $84.80
 —
 $750
November 1, 2019 – November 30, 201986,720
 $89.35
 —
 $750
December 1, 2019 – December 31, 2019132,723
 $89.33
 125,567
 $739
First quarter225,025
 $89.23
 125,567
  
        
January 1, 2020 – January 31, 202040,106
 $89.74
 32,988
 $736
February 1, 2020 – February 29, 2020721,432
 $89.47
 719,250
 $672
March 1, 2020 – March 31, 20201,800,682
 $74.94
 1,795,764
 $537
Second quarter2,562,220
 $79.26
 2,548,002
 
Fiscal year-to-date total2,787,245
 $80.06
 2,673,569
 


OfIn the preceding table, the total for the three months ended December 31, 2017, share purchases for the trust fundnumber of shares purchased includes shares purchased pursuant to our Restricted Stock Trust Fund, which was established to acquire our common stock in the open market and used to settle RSUs granted as a retention vehicle for certain employees of our wholly owned Canadian subsidiary approximated 72 thousand shares, for a total consideration of $6 million (forsubsidiaries. For more information on this trust fund, see Note 2 of the Notes to Consolidated Financial Statements of our 20172019 Form 10-K and Note 98 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q).10-Q. These activities do not utilize the repurchase authorityauthorization presented in the table above.preceding table.


WeThe total number of shares purchased also repurchaseincludes shares whenrepurchased as a result of employees surrendersurrendering shares as payment for option exercises or withholding taxes. Of the total for the three months ended December 31, 2017, shares surrendered to us by employees for such purposes approximated 161 thousand shares, for a total consideration of $14 million. These activities do not utilize the repurchase authorityauthorization presented in the table above.preceding table.


In response to the heightened market volatility as a result of the COVID-19 pandemic, we have suspended our share repurchases since mid-March 2020.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.


ITEM 4.MINE SAFETY DISCLOSURES

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.OTHER INFORMATION

ITEM 5. OTHER INFORMATION

Not applicable.



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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES


ITEM 6.EXHIBITS
ITEM 6. EXHIBITS
Exhibit Number

Description
3.1

Restated Articles of Incorporation of Raymond James Financial, Inc. as filed with the Secretary of State of Florida on November 25, 2008, incorporated by reference to Exhibit 3(i).1 to the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on November 28, 2008.
3.2

Amended and Restated By-Laws of Raymond James Financial, Inc., reflecting amendments adopted by the Board of Directors on November 30, 2017, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 5, 2017.
4.1
Seventh Supplemental Indenture, dated as of March 31, 2020, for the 4.650% Senior Notes due 2030, between Raymond James Financial, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 31, 2020.
10.1

Form of Restricted Stock Unit Award Notice and Agreement for Stock Bonus Award (time-based vesting), as revised and approved on May 17, 2017, under theRaymond James Financial, Inc. Amended and Restated 2012 Stock Incentive Plan.
10.2
Plan (as amended through February 20, 2020), incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form of Restricted Stock Unit Award Notice8-K, filed with the Securities and Agreement for Stock Bonus Award (performance-based vesting), as revised and approvedExchange Commission on May 17, 2017, under the Amended and Restated 2012 Stock Incentive Plan.
10.3
Form of Restricted Stock Unit Award Notice and Agreement for Non-Bonus Award, as revised and approved on May 17, 2017, under the Amended and Restated 2012 Stock Incentive Plan.
10.4
Form of Restricted Stock Unit Award Notice and Agreement for Stock Bonus Award (time-based vesting) for Canadian Employees, as revised and approved on May 17, 2017, under the Amended and Restated 2012 Stock Incentive Plan.
10.5
Form of Restricted Stock Unit Award Notice and Agreement for Stock Bonus Award (performance-based vesting) for Canadian Employees, as revised and approved on May 17, 2017, under the Amended and Restated 2012 Stock Incentive Plan.
10.6
Form of Restricted Stock Unit Award Notice and Agreement for Non-Bonus Award for Canadian Employees, as revised and approved on May 17, 2017, under the Amended and Restated 2012 Stock Incentive Plan.
11
Statement Re: Computation of per Share Earnings (the calculation of per share earnings is included in Part I, Item 1 in the Notes to Condensed Consolidated Financial Statements (Earnings Per Share) and is omitted here in accordance with Section (b)(11) of Item 601 of Regulation S-K).
12
Statement of Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.February 24, 2020.
31.1

Certification of Paul C. Reilly pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2

Certification of Jeffrey P. JulienPaul M. Shoukry pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32

Certification of Paul C. Reilly and Jeffrey P. JulienPaul M. Shoukry pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS

XBRL Instance Document.Document (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.).
101.SCH

Inline XBRL Taxonomy Extension Schema Document.
101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.


SIGNATURES


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

   RAYMOND JAMES FINANCIAL, INC.
   (Registrant)
    
Date:FebruaryMay 8, 20182020 /s/ Paul C. Reilly
   Paul C. Reilly
   Chairman and Chief Executive Officer
    
Date:FebruaryMay 8, 20182020 /s/ Jeffrey P. JulienPaul M. Shoukry
   Jeffrey P. JulienPaul M. Shoukry
   Executive Vice President - Finance Chief Financial Officer and Treasurer


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