Washington, D.C. 20549
RAYMOND JAMES FINANCIAL, INC.
880 Carillon Parkway, St. Petersburg, Florida 33716
(Former name, former address and former fiscal year, if changed since last report)
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
PART I. FINANCIAL INFORMATION
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 to 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 20.23 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.
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-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(“2020 Form 10-K”) for the year ended September 30, 2017,2020, as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) and in Note 9 herein.10 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.
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 20172020 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 and 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.
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.
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%which is uncertain.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to be liquidated over a period of nine years.Condensed Consolidated Financial Statements (Unaudited)
The following table below presents the recorded value and unfunded commitments related to our private equity investments portfolio.
| | | | | | | | | | | | | | |
$ in millions | | Recorded value | | Unfunded commitment |
June 30, 2021 | | | | |
Private equity investments measured at NAV | | $ | 93 | | | $ | 8 | |
Private equity investments not measured at NAV | | 66 | | | |
Total private equity investments | | $ | 159 | | | |
| | | | |
September 30, 2020 | | | | |
Private equity investments measured at NAV | | $ | 79 | | | $ | 9 | |
Private equity investments not measured at NAV | | 37 | | | |
Total private equity investments | | $ | 116 | | | |
|
| | | | | | | | | | | | | | | | |
| | | | Unfunded commitment |
$ in thousands | | Recorded value | | RJF | | Noncontrolling 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$115 million and $145$90 million as of December 31, 2017June 30, 2021 and September 30, 2017,2020, respectively.The portions of the private equity investments we did not own were $51$44 million and $54$26 million as of December 31, 2017June 30, 2021 and September 30, 2017,2020, respectively, and were included as a component of noncontrolling interests inon our Condensed Consolidated Statements of Financial Condition.
ManyAs a financial holding company, we are subject to holding period limitations for our merchant banking activities. As a result, we will be required to exit certain of theseour private equity investments by February 2022. Additionally, many of our private equity 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(“Dodd-Frank Act”). We have received approval from the Board of Governors of the Federal Reserve System (the “Fed”(“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 20222022.
Financial instruments measured at fair value on a nonrecurring basis
The following table presents assets measured at fair value on a nonrecurring basis along with the valuation techniques and significant unobservable inputs used in the valuation of the assets classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | | | Level 2 | | Level 3 | | Total fair value | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
June 30, 2021 | | | | | | | | | | | | | | |
Bank loans: | | | | | | | | | | | | | | |
Residential mortgage loans | | | | $ | 4 | | | $ | 11 | | | $ | 15 | | | Collateral or discounted cash flow (1) | | Prepayment rate | | 7 yrs. - 12 yrs. (10.6 yrs.) |
Corporate loans | | | | $ | 0 | | | $ | 25 | | | $ | 25 | | | Collateral or discounted cash flow (1) | | Not meaningful (1) | | Not meaningful (1) |
Loans held for sale | | | | $ | 68 | | | $ | 0 | | | $ | 68 | | | N/A | | N/A | | N/A |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
September 30, 2020 | | | | | | | | | | | | | | |
Bank loans: | | | | | | | | | | | | | | |
Residential mortgage loans | | | | $ | 4 | | | $ | 13 | | | $ | 17 | | | Collateral or discounted cash flow (1) | | Prepayment rate | | 7 yrs. - 12 yrs. (10.6 yrs.) |
Corporate loans | | | | $ | 0 | | | $ | 15 | | | $ | 15 | | | Collateral or discounted cash flow (1) | | Not meaningful (1) | | Not meaningful (1) |
Loans held for sale | | | | $ | 38 | | | $ | 0 | | | $ | 38 | | | N/A | | N/A | | N/A |
Other assets: other real estate owned | | | | $ | 1 | | | $ | 0 | | | $ | 1 | | | N/A | | N/A | | N/A |
(1) The valuation techniques used to estimate the fair values are based on collateral value less selling costs for such investments. However our current focus is on the divestiture of this portfolio.collateral-dependent loans and discounted cash flows for loans that are not collateral-dependent.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Fair value option
TheFinancial instruments not recorded at fair value option is an accounting election that allows the reporting entity to apply fair value accounting for certain financial assets and liabilities on an instrument by instrument basis. As of December 31, 2017, the amount of financial instruments for which we had elected the fair value option was not material.
Other 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 June 30, 2021 and September 30, 2020. This table excludes financial instruments that are carried at amounts which approximate fair value. Refer to Note 43 of our 20172020 Form 10-K for a discussion of the methods and assumptions we apply to the determination of fair value hierarchy classifications of our financial instruments that are not recorded at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | | | Level 2 | | Level 3 | | Total estimated fair value | | Carrying amount |
June 30, 2021 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Bank loans, net | | | | $ | 69 | | | $ | 23,614 | | | $ | 23,683 | | | $ | 23,788 | |
Financial liabilities: | | | | | | | | | | |
Bank deposits - certificates of deposit | | | | $ | 0 | | | $ | 904 | | | $ | 904 | | | $ | 880 | |
Senior notes payable | | | | $ | 2,457 | | | $ | 0 | | | $ | 2,457 | | | $ | 2,037 | |
| | | | | | | | | | |
September 30, 2020 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Bank loans, net | | | | $ | 72 | | | $ | 21,119 | | | $ | 21,191 | | | $ | 21,125 | |
Financial liabilities: | | | | | | | | | | |
Bank deposits - certificates of deposit | | | | $ | 0 | | | $ | 1,056 | | | $ | 1,056 | | | $ | 1,017 | |
Senior notes payable | | | | $ | 2,504 | | | $ | 0 | | | $ | 2,504 | | | $ | 2,045 | |
NOTE 5 – AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are primarily comprised of agency MBS and agency CMOs owned by Raymond James Bank. As of October 1, 2020, we adopted new accounting guidance related to the measurement of credit losses on financial instruments, including available-for-sale securities. Refer to Note 2 for further information about this guidance and a discussion of our available-for-sale securities.
The following table below presentsdetails the estimatedamortized costs and fair values by level within the fair value hierarchy and the carrying amounts of certain of our financial instruments not carried atavailable-for-sale securities.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Cost basis | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
June 30, 2021 | | | | | | | | |
Agency residential MBS | | $ | 4,958 | | | $ | 53 | | | $ | (16) | | | $ | 4,995 | |
Agency commercial MBS | | 1,263 | | | 10 | | | (18) | | | 1,255 | |
Agency CMOs | | 1,928 | | | 11 | | | (13) | | | 1,926 | |
Other securities | | 15 | | | 0 | | | 0 | | | 15 | |
Total available-for-sale securities | | $ | 8,164 | | | $ | 74 | | | $ | (47) | | | $ | 8,191 | |
| | | | | | | | |
September 30, 2020 | | | | | | | | |
Agency residential MBS | | $ | 4,064 | | | $ | 74 | | | $ | (3) | | | $ | 4,135 | |
Agency commercial MBS | | 948 | | | 22 | | | (1) | | | 969 | |
Agency CMOs | | 2,504 | | | 27 | | | (1) | | | 2,530 | |
Other securities | | 15 | | | 1 | | | 0 | | | 16 | |
Total available-for-sale securities | | $ | 7,531 | | | $ | 124 | | | $ | (5) | | | $ | 7,650 | |
The amortized costs and fair value. The carrying amounts belowvalues in the preceding table exclude financial instruments$14 million and $15 million of accrued interest on available-for-sale securities as of June 30, 2021 and September 30, 2020, respectively, which have been recorded at fair value and those recorded at amounts which approximate fair valuewas included in the“Other receivables, net” on our 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 |
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 5 – AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are 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 2017 Form 10-K.
The amortized cost and fair values of available-for-sale securities were as follows:
|
| | | | | | | | | | | | | | | | |
$ 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 4 for additional information regarding the fair value of available-for-sale securities.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table details the contractual maturities, amortized cost,costs, carrying values and current yields for our available-for-sale securities are as presented below.securities. Since RJ Bank’sour MBS and CMO available-for-sale securities (MBS and CMOs) are backed by mortgages, actual maturities willmay differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. Expected maturitiesAs a result, as of ARS may differ significantly from contractual maturities, as issuers may haveJune 30, 2021, the right to call or prepay obligations with or without call or prepayment penalties.weighted-average life of our available-for-sale securities portfolio was approximately 4 years.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 |
$ in millions | | Within one year | | After one but within five years | | After five but within ten years | | After ten years | | Total |
Agency residential MBS | | | | | | | | | | |
Amortized cost | | $ | 0 | | | $ | 49 | | | $ | 2,160 | | | $ | 2,749 | | | $ | 4,958 | |
Carrying value | | $ | 0 | | | $ | 51 | | | $ | 2,187 | | | $ | 2,757 | | | $ | 4,995 | |
Agency commercial MBS | | | | | | | | | | |
Amortized cost | | $ | 19 | | | $ | 297 | | | $ | 814 | | | $ | 133 | | | $ | 1,263 | |
Carrying value | | $ | 19 | | | $ | 301 | | | $ | 803 | | | $ | 132 | | | $ | 1,255 | |
Agency CMOs | | | | | | | | | | |
Amortized cost | | $ | 0 | | | $ | 1 | | | $ | 44 | | | $ | 1,883 | | | $ | 1,928 | |
Carrying value | | $ | 0 | | | $ | 1 | | | $ | 45 | | | $ | 1,880 | | | $ | 1,926 | |
Other securities | | | | | | | | | | |
Amortized cost | | $ | 0 | | | $ | 7 | | | $ | 8 | | | $ | 0 | | | $ | 15 | |
Carrying value | | $ | 0 | | | $ | 7 | | | $ | 8 | | | $ | 0 | | | $ | 15 | |
Total available-for-sale securities | | | | | | | | | | |
Amortized cost | | $ | 19 | | | $ | 354 | | | $ | 3,026 | | | $ | 4,765 | | | $ | 8,164 | |
Carrying value | | $ | 19 | | | $ | 360 | | | $ | 3,043 | | | $ | 4,769 | | | $ | 8,191 | |
Weighted-average yield | | 2.10 | % | | 1.67 | % | | 1.22 | % | | 1.09 | % | | 1.17 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 | % |
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 |
June 30, 2021 | | | | | | | | | | | | |
Agency residential MBS | | $ | 2,294 | | | $ | (16) | | | $ | 0 | | | $ | 0 | | | $ | 2,294 | | | $ | (16) | |
Agency commercial MBS | | 851 | | | (18) | | | 0 | | | 0 | | | 851 | | | (18) | |
Agency CMOs | | 968 | | | (13) | | | 44 | | | 0 | | | 1,012 | | | (13) | |
Other securities | | 3 | | | 0 | | | 0 | | | 0 | | | 3 | | | 0 | |
Total | | $ | 4,116 | | | $ | (47) | | | $ | 44 | | | $ | 0 | | | $ | 4,160 | | | $ | (47) | |
September 30, 2020 | | | | | | | | | | | | |
Agency residential MBS | | $ | 966 | | | $ | (3) | | | $ | 0 | | | $ | 0 | | | $ | 966 | | | $ | (3) | |
Agency commercial MBS | | 177 | | | (1) | | | 0 | | | 0 | | | 177 | | | (1) | |
Agency CMOs | | 410 | | | (1) | | | 0 | | | 0 | | | 410 | | | (1) | |
| | | | | | | | | | | | |
Total | | $ | 1,553 | | | $ | (5) | | | $ | 0 | | | $ | 0 | | | $ | 1,553 | | | $ | (5) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 December 31, 2017,June 30, 2021, of the 195 U.S. government-sponsored enterprise MBS and CMOs208 available-for-sale securities in an unrealized loss position, 133205 were in a continuous unrealized loss position for less than 12 months and 623 securities were in a continuous unrealized loss position for greater than 12 months or more.months. We do not consider unrealized losses associated with these securities to be other-than-temporarily impairedcredit losses 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. In addition, unrealized losses related to these available-for-sale securities are generally due to changes in market interest rates. At December 31, 2017,June 30, 2021, based on our assessment of this portfolio, we did not recognize an allowance for credit losses on our available-for-sale securities. At June 30, 2021, debt securities we held from FNMAin excess of ten percent of our equity included those issued by the Federal National Home Mortgage Association (“FNMA”) and FHLMC had anFederal Home Loan Mortgage Corporation (“FHLMC”) with amortized costcosts of $1.56$4.84 billion and $626 million,$2.79 billion, respectively, and awhich also approximated the fair valuevalues of $1.54 billion and $617 million, respectively.the securities.
During the three and nine months ended December 31, 2017, there were noJune 30, 2021, we received proceeds of $450 million and $969 million, respectively, from the sales of agency MBS and agency CMO available-for-sale securities. During the three and nine months ended December 31, 2016, there were $7June 30, 2020, we received proceeds of $222 million in proceeds from the salesales of non-agency CMO available-for-sale securities. These sales resulted in an insignificant loss,
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
gains in each period, which waswere included in “Other revenues”“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.
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 6 – DERIVATIVE FINANCIAL INSTRUMENTSASSETS AND DERIVATIVE LIABILITIES
Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative liabilities” inon our 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 20172020 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
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.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Derivative balances included inon our financial statements
The following table below presents the gross fair valuevalues and notional amountamounts of derivative contractsderivatives by product type, the amounts of counterparty and cash collateral netting inon our 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | September 30, 2020 |
$ in millions | | Derivative assets | | Derivative liabilities | | Notional amount | | Derivative assets | | Derivative liabilities | | Notional amount |
Derivatives not designated as hedging instruments | | | | | | | | | | | | |
Interest rate - matched book | | $ | 221 | | | $ | 221 | | | $ | 1,862 | | | $ | 333 | | | $ | 333 | | | $ | 2,174 | |
Interest rate - other (1) | | 157 | | | 121 | | | 14,977 | | | 240 | | | 161 | | | 19,206 | |
Foreign exchange | | 3 | | | 0 | | | 755 | | | 0 | | | 2 | | | 605 | |
Other | | 1 | | | 4 | | | 578 | | | 0 | | | 6 | | | 608 | |
Subtotal | | 382 | | | 346 | | | 18,172 | | | 573 | | | 502 | | | 22,593 | |
Derivatives designated as hedging instruments | | | | | | | | | | | | |
Interest rate | | 0 | | | 0 | | | 850 | | | 0 | | | 0 | | | 850 | |
Foreign exchange | | 4 | | | 0 | | | 918 | | | 0 | | | 3 | | | 866 | |
Subtotal | | 4 | | | 0 | | | 1,768 | | | 0 | | | 3 | | | 1,716 | |
Total gross fair value/notional amount | | 386 | | | 346 | | | $ | 19,940 | | | 573 | | | 505 | | | $ | 24,309 | |
Offset on the Condensed Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Counterparty netting | | (45) | | | (45) | | | | | (40) | | | (40) | | | |
Cash collateral netting | | (50) | | | (38) | | | | | (95) | | | (72) | | | |
Total amounts offset | | (95) | | | (83) | | | | | (135) | | | (112) | | | |
Net amounts presented on the Condensed Consolidated Statements of Financial Condition | | 291 | | | 263 | | | | | 438 | | | 393 | | | |
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Financial instruments (2) | | (233) | | | (221) | | | | | (349) | | | (333) | | | |
Total | | $ | 58 | | | $ | 42 | | | | | $ | 89 | | | $ | 60 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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) The DBRSU obligation is not subjectSubstantially all relates to an enforceable master netting arrangement or other similar arrangement. However, we held sharesinterest rate derivatives entered into as part of DBour fixed income business operations, including to-be-announced (“TBA”) security contracts that are accounted for 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 of the DBRSUs in Note 17.derivatives.
(2) Although the matched book derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the agreement with the third-party intermediary includes terms that are similar to a master netting agreement. As a result, we present the matched book amounts net in the preceding table.
The following table above.
Gains recognizeddetails the gains/(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 1517 for additional information):information.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Interest rate (cash flow hedges) | | $ | (2) | | | $ | (4) | | | $ | 22 | | | $ | (37) | |
Foreign exchange (net investment hedges) | | (9) | | | (21) | | | (48) | | | 18 | |
Total gains/(losses) in AOCI, net of taxes | | $ | (11) | | | $ | (25) | | | $ | (26) | | | $ | (19) | |
|
| | | | | | | | |
| | 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 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 nine months ended December 31, 2017June 30, 2021 and 2016.2020. We expect to reclassify an estimated $1$16 million as additionalof interest expense out of AOCI and into earnings within the next 12 months. The maximum length of time over which forecasted transactions are or will be hedged is 106 years.
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 June 30, | | Nine months ended June 30, |
| Location of gain/(loss) | | 2021 | | 2020 | | 2021 | | 2020 |
Interest rate | | Principal transactions/other revenues | | $ | 2 | | | $ | 0 | | | $ | 12 | | | $ | 5 | |
Foreign exchange | | Other revenues | | $ | (9) | | | $ | (19) | | | $ | (39) | | | $ | 13 | |
Other | | Principal transactions | | $ | 1 | | | $ | 0 | | | $ | 3 | | | $ | 0 | |
Other | | Compensation, commissions and benefits expense | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (1) | |
|
| | | | | | | | | | |
$ 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 theon matched book derivatives operations is related to our uncollected derivative transaction fee revenues.revenues, which were insignificant as of both June 30, 2021 and September 30, 2020. We are not exposed to market risk as it relates toon these derivative contractsderivatives due to the pass-through transaction structure previously described.described in Note 2 of our 2020 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Certain of the derivative instruments arising from our interest rate contracts and forward foreign exchange contracts contain provisions that require our debtNotes to maintain an investment-grade rating from one or more of the major credit rating agencies. If our debt were to fall below investment-grade, the counterparties to the derivative instruments could terminate and request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position was $10 million at December 31, 2017, for which we had posted $1 million of collateral. Such amounts were not material at September 30, 2017.Condensed Consolidated Financial Statements (Unaudited)
NOTE 7 – COLLATERALIZED AGREEMENTS AND FINANCINGS
Collateralized agreements are comprised of securities purchased under agreements to resell (“reverse repurchase agreements”) and securities borrowed. Collateralized financings are comprised of 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 20172020 Form 10-K.
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. For financial statement purposes, we do not offset our reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned because the conditions for netting as specified by GAAP are not met. Although not offset on the Condensed Consolidated Statements of Financial Condition, these transactions are included in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Collateralized agreements | | Collateralized financings |
$ in millions | | Reverse repurchase agreements | | Securities borrowed | | Total | | Repurchase agreements | | Securities loaned | | Total |
June 30, 2021 | | | | | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 289 | | | $ | 350 | | | $ | 639 | | | $ | 185 | | | $ | 100 | | | $ | 285 | |
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Net amounts presented on the Condensed Consolidated Statements of Financial Condition | | 289 | | | 350 | | | 639 | | | 185 | | | 100 | | | 285 | |
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | (289) | | | (339) | | | (628) | | | (185) | | | (96) | | | (281) | |
Net amounts | | $ | 0 | | | $ | 11 | | | $ | 11 | | | $ | 0 | | | $ | 4 | | | $ | 4 | |
September 30, 2020 | | | | | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 207 | | | $ | 215 | | | $ | 422 | | | $ | 165 | | | $ | 85 | | | $ | 250 | |
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Net amounts presented on the Condensed Consolidated Statements of Financial Condition | | 207 | | | 215 | | | 422 | | | 165 | | | 85 | | | 250 | |
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | (207) | | | (209) | | | (416) | | | (165) | | | (79) | | | (244) | |
Net amounts | | $ | 0 | | | $ | 6 | | | $ | 6 | | | $ | 0 | | | $ | 6 | | | $ | 6 | |
|
| | | | | | | | | | | | | | | | |
| | 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 valuetotal amount of the collateral associated with collateralized agreements and financings generally exceeds the amount financed. Accordingly, the total collateral received under reverse repurchase agreements and the total amount of collateral posted under repurchase agreements exceeds the carrying value of these agreements inon our 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.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 | | June 30, 2021 | | September 30, 2020 |
Collateral we received that was available to be delivered or repledged | | $ | 3,515 | | | $ | 2,869 | |
Collateral that we delivered or repledged | | $ | 973 | | | $ | 788 | |
|
| | | | | | | | |
$ 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 |
|
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 millions | | June 30, 2021 | | September 30, 2020 |
Had the right to deliver or repledge | | $ | 379 | | | $ | 325 | |
Did not have the right to deliver or repledge | | $ | 65 | | | $ | 65 | |
Bank loans, net pledged at the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank of Atlanta | | $ | 5,581 | | | $ | 5,367 | |
|
| | | | | | | | |
$ in thousands | | December 31, 2017 | | September 30, 2017 |
Financial instruments owned, at fair value, pledged to counterparties that: | | | | |
Had the right to deliver or repledge | | $ | 341,304 |
| | $ | 363,739 |
|
Did not have the right to deliver or repledge | | $ | 129,260 |
| | $ | 44,930 |
|
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 |
June 30, 2021 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 88 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 88 | |
Agency MBS and agency CMOs | | 97 | | | 0 | | | 0 | | | 0 | | | 97 | |
Total repurchase agreements | | 185 | | | 0 | | | 0 | | | 0 | | | 185 | |
Securities loaned: | | | | | | | | | | |
Equity securities | | 100 | | | 0 | | | 0 | | | 0 | | | 100 | |
Total collateralized financings | | $ | 285 | |
| $ | 0 | |
| $ | 0 | |
| $ | 0 | |
| $ | 285 | |
September 30, 2020 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 87 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 87 | |
Agency MBS and agency CMOs | | 78 | | | 0 | | | 0 | | | 0 | | | 78 | |
Total repurchase agreements | | 165 | | | 0 | | | 0 | | | 0 | | | 165 | |
Securities loaned: | | | | | | | | | | |
Equity securities | | 85 | | | 0 | | | 0 | | | 0 | | | 85 | |
Total collateralized financings | | $ | 250 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 250 | |
|
| | | | | | | | | | | | | | | | | | | | |
$ 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 December 31, 2017June 30, 2021 and September 30, 2017,2020, we did not have any “repurchase-to-maturity” agreements, which are repurchase agreements where a security is transferred under an agreement to repurchase and the maturity date of the repurchase agreement matches the maturity date of the underlying security.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 8 – BANK LOANS, NET
Bank client receivables are comprised of loans originated or purchased by RJRaymond James Bank and include commercial and industrial (“C&I”)&I loans, REIT loans, tax-exempt loans, securities based loans (“SBL”), and commercial and residential real estate loans, and SBL and other loans. These receivables are collateralized by first orand, to a lesser extent, second mortgages on residential or other real property, other assets of the borrower, a pledge of revenue, securities or are unsecured.
Notes to Condensed Consolidated Financial Statements (Unaudited)
We segregate our loan portfolio into six loan portfolio segments: C&I, commercial real estate (“CRE”), CRE construction, tax-exempt, residential mortgage, and SBL. These portfolio segments also serve as the portfolio loan classes for purposes of credit analysis, except for residential mortgage loans which are further disaggregated into residential first mortgage and residential home equity classes.
See Note 2 of our 20172020 Form 10-K for a discussion of accounting policies related to bank loans.
As of October 1, 2020, we adopted new accounting guidance related to the measurement of credit losses on financial instruments. See Note 2 for further information about this guidance and a discussion of our accounting policies related to bank loansour allowance for credit losses. We segregate our loan portfolio into 6 loan portfolio segments: C&I, CRE, REIT, tax-exempt, residential mortgage, and allowancesSBL and other. Upon adoption, we redefined certain of our portfolio segments to align with the new methodology applied in determining the allowance for losses, includingcredit losses. Prior-period loan portfolio segment balances have been revised to conform to the policies regarding loans heldcurrent presentation. Loan balances in the following tables are presented at amortized cost (outstanding principal balance net of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs), except for investment, loanscertain held for sale off-balance sheet loan commitments, nonperforming assets, troubled debt restructurings (“TDRs”), impaired loans recorded at fair value. Bank loans are presented on our Condensed Consolidated Statements of Financial Condition at amortized cost (or fair value where applicable) less the allowance for loan losses and reserve for unfunded lending commitments, and loan charge-off policies.credit losses.
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 RJRaymond James Bank’s total loan portfolio. “Loans held
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | September 30, 2020 |
$ in millions | | Balance | | % | | Balance | | % |
C&I loans | | $ | 8,011 | | | 33 | % | | $ | 7,421 | | | 34 | % |
CRE loans | | 2,728 | | | 11 | % | | 2,489 | | | 12 | % |
REIT loans | | 1,270 | | | 5 | % | | 1,210 | | | 5 | % |
Tax-exempt loans | | 1,320 | | | 6 | % | | 1,259 | | | 6 | % |
Residential mortgage loans | | 5,170 | | | 21 | % | | 4,973 | | | 23 | % |
SBL and other | | 5,582 | | | 23 | % | | 4,087 | | | 19 | % |
Total loans held for investment | | 24,081 | | | 99 | % | | 21,439 | | | 99 | % |
Held for sale loans | | 137 | | | 1 | % | | 110 | | | 1 | % |
Total loans held for sale and investment | | 24,218 | | | 100 | % | | 21,549 | | | 100 | % |
Allowance for credit losses | | (322) | | | | | (354) | | | |
Bank loans, net | | $ | 23,896 | | | | | $ | 21,195 | | | |
Accrued interest receivable on bank loans | | $ | 47 | | | | | $ | 45 | | | |
The allowance for sale, net”credit losses as of June 30, 2021 was determined using the new CECL methodology, which was adopted on October 1, 2020. Prior periods have not been restated and “Total loans held for investment, net”were calculated under the incurred loss methodology.
Accrued interest receivables presented in the preceding table below are presented netreported in “Other receivables, net” on our Condensed Consolidated Statements of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs.Financial Condition.
|
| | | | | | | | | | | | | | |
| | 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 December 31, 2017,June 30, 2021, the FHLB had a blanket lien on RJRaymond James Bank’s residential mortgage loan portfolio as security for the repayment of certain borrowings. See Note 1214 of our 2020 Form 10-K for more information regarding borrowings from the FHLB.
Loans heldHeld for sale loans
RJRaymond James Bank originated or purchased $358$385 million and $522 million$1.50 billion of loans held for sale during the three and nine months ended December 31, 2017June 30, 2021, respectively, and 2016,$185 million and $1.33 billion during the three and nine months ended June 30, 2020, respectively. Proceeds from the sale of these held for sale loans amounted to $92$230 million and $150$625 million during the three and nine months ended December 31, 2017June 30, 2021, respectively, and 2016,$130 million and $564 million during the three and nine months ended June 30, 2020, 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 nine months ended December 31, 2017June 30, 2021 and 2016.2020.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 thousands | | C&I | | CRE | | Residential mortgage | | Total | |
Three months ended December 31, 2017 | | | | | | | | | |
$ in millions | | $ in millions | | C&I loans | | CRE loans | | Residential mortgage loans | | Total |
Three months ended June 30, 2021 | | Three months ended June 30, 2021 | | | | | | | | |
Purchases | | $ | 147,442 |
| | $ | 20,087 |
| | $ | 45,011 |
| | $ | 212,540 |
| Purchases | | $ | 381 | | | $ | 0 | | | $ | 190 | | | $ | 571 | |
Sales | | $ | 31,143 |
| | $ | — |
| | $ | — |
| | $ | 31,143 |
| Sales | | $ | 116 | | | $ | 0 | | | $ | 0 | | | $ | 116 | |
Three months ended December 31, 2016 | | | | | | | | | |
Nine months ended June 30, 2021 | | Nine months ended June 30, 2021 | |
Purchases | | $ | 114,649 |
| | $ | 38,980 |
| | $ | 81,662 |
| | $ | 235,291 |
| Purchases | | $ | 1,041 | | | $ | 0 | | | $ | 350 | | | $ | 1,391 | |
Sales | | $ | 81,579 |
| | $ | — |
| | $ | — |
| | $ | 81,579 |
| Sales | | $ | 216 | | | $ | 0 | | | $ | 0 | | | $ | 216 | |
Three months ended June 30, 2020 | | Three months ended June 30, 2020 | |
Purchases | | Purchases | | $ | 0 | | | $ | 0 | | | $ | 113 | | | $ | 113 | |
Sales | | Sales | | $ | 265 | | | $ | 27 | | | $ | 0 | | | $ | 292 | |
Nine months ended June 30, 2020 | | Nine months ended June 30, 2020 | |
Purchases | | Purchases | | $ | 363 | | | $ | 5 | | | $ | 371 | | | $ | 739 | |
Sales | | Sales | | $ | 285 | | | $ | 27 | | | $ | 0 | | | $ | 312 | |
Other real estate owned, included in “Other assets” on our Condensed Consolidated Statements of Financial Condition, was $4 million and $5 millioninsignificant at December 31, 2017both June 30, 2021 and September 30, 2017, respectively.2020.
Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.
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 20172020 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.
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.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 10 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET
OurWe perform goodwill and identified intangible assets result from various acquisitions. See Note 2 of our 2017 Form 10-K for a discussion of our intangible assets and goodwill accounting policies. The following are our goodwill and net identifiableindefinite-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 January 1, 2021, our annual evaluation date, evaluating balances as of December 31, 2016, and no impairment was identified.2020. In that testing,this annual evaluation, we performed both a qualitative impairment assessment for certaineach of our reporting units and a quantitative impairment assessmentthat had goodwill, as well as for our two Raymond James Ltd. (“RJ Ltd.”)indefinite-lived intangible asset.
Our qualitative assessments consider macroeconomic indicators, such as trends in equity and fixed income markets, gross domestic product, unemployment rates, interest rates, and housing markets. We also consider regulatory changes, reporting units operatingunit specific results, and changes in Canada.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. Based upon the outcome of these qualitative assessments, 0 impairment was identified. No events have occurred since our assessment during the quarter ended March 31, 2017such assessments that would cause us to update this impairment testing.
NOTE 12 – LEASES
The following table presents the balances related to our leases on our Condensed Consolidated Statements of Financial Condition. The weighted-average remaining lease term and discount rate for our leases was 5.8 years and 3.70%, respectively, as of June 30, 2021. See Note 12 in2 of our 20172020 Form 10-K for further information abouta discussion of our goodwill impairment testing.accounting policies related to leases.
| | | | | | | | | | | | | | |
$ in millions | | June 30, 2021 | | September 30, 2020 |
ROU assets (included in Other assets) | | $ | 344 | | | $ | 321 | |
Lease liabilities (included in Other payables) | | $ | 372 | | | $ | 345 | |
Lease expense
The following table details the components of lease expense, which is included in “Occupancy and equipment” expense on our Condensed Consolidated Statements of Income and Comprehensive Income. Lease expense is recognized on a straight-line basis over the lease term if the ROU asset has not been impaired or abandoned.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Lease costs | | $ | 27 | | | 25 | | | $ | 81 | | | 71 | |
Variable lease costs | | $ | 7 | | | 6 | | | $ | 20 | | | 18 | |
Variable lease costs in the preceding table include payments for common area maintenance charges and other variable costs that are not reflected in the measurement of ROU assets and lease liabilities.
Lease liabilities
The maturities by fiscal year of our lease liabilities as of June 30, 2021 are presented in the following table.
| | | | | | | | |
| | $ in millions |
Remainder of 2021 | | $ | 18 | |
2022 | | 98 | |
2023 | | 81 | |
2024 | | 60 | |
2025 | | 46 | |
Thereafter | | 114 | |
Gross lease payments | | 417 | |
Less: interest | | (45) | |
Present value of lease liabilities | | $ | 372 | |
Lease payments in the preceding table exclude $136 million of legally binding minimum lease payments for leases signed but not yet commenced. These leases are estimated to commence between fiscal year 2021 and 2022 with lease terms ranging from one year to 11 years.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Identifiable intangible assets, net
The following table sets forth our identifiable intangible asset balances by segment, net of accumulated amortization, 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 | | | | | | | | |
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 months ended December 31, 2017 were attributable to the Scout Group acquisition.
The following table sets forth our acquired intangible asset balances by asset class:
|
| | | | | | |
| | 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 amortization 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 balances as of December 31.
The following summarizes our identifiable intangible assets by type:
|
| | | | | | | | | | | | | | | | |
| | 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 | ) |
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1113 – BANK DEPOSITS
Bank deposits include savings and money market accounts, certificates of deposit of RJwith Raymond James Bank, Negotiable Order of Withdrawal (“NOW”) accounts and demand deposits. The following table presents a summary of bank deposits, includingas well as the weighted-average rate, theinterest rates on such deposits. The calculation of which wasthe weighted-average rates were based on the actual deposit balances and rates at December 31, 2017 and September 30, 2017.each respective period end.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | September 30, 2020 |
$ in millions | | Balance | | Weighted-average rate | | Balance | | Weighted-average rate |
Savings and money market accounts | | $ | 29,257 | | | 0.01 | % | | $ | 25,604 | | | 0.01 | % |
Certificates of deposit | | 880 | | | 1.91 | % | | 1,017 | | | 1.94 | % |
NOW accounts | | 171 | | | 1.76 | % | | 156 | | | 1.92 | % |
Demand deposits (non-interest-bearing) | | 32 | | | 0 | | | 24 | | | 0 | |
Total bank deposits | | $ | 30,340 | | | 0.07 | % | | $ | 26,801 | | | 0.09 | % |
|
| | | | | | | | | | | | | | |
| | 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$185 million at December 31, 2017both June 30, 2021 and $243 million at September 30, 2017. These affiliate deposits include $193 million at December 31, 2017 and $192 million at September 30, 2017,2020, all of which were held in a deposit account at RJRaymond James Bank on behalf of RJF.
Savings and money market accounts in the preceding table above consist primarily of deposits that are cash balances swept to Raymond James Bank from the client investment accounts maintained at 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 December 31, 2017June 30, 2021 was $25approximately $23 million.
ScheduledThe following table sets forth the scheduled maturities of certificates of deposit are as follows:deposit.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | September 30, 2020 |
$ in millions | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 |
Three months or less | | $ | 29 | | | $ | 26 | | | $ | 59 | | | $ | 76 | |
Over three through six months | | 11 | | | 85 | | | 26 | | | 18 | |
Over six through twelve months | | 33 | | | 104 | | | 19 | | | 26 | |
Over one through two years | | 61 | | | 149 | | | 43 | | | 206 | |
Over two through three years | | 55 | | | 157 | | | 67 | | | 170 | |
Over three through four years | | 6 | | | 149 | | | 37 | | | 165 | |
Over four through five years | | 8 | | | 7 | | | 7 | | | 98 | |
Total certificates of deposit | | $ | 203 | | | $ | 677 | | | $ | 258 | | | $ | 759 | |
|
| | | | | | | | | | | | | | | | |
| | 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 June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Savings, money market, and NOW accounts | | $ | 1 | | | $ | 2 | | | $ | 4 | | | $ | 20 | |
Certificates of deposit | | 4 | | | 5 | | | 13 | | | 15 | |
Total interest expense on deposits | | $ | 5 | | | $ | 7 | | | $ | 17 | | | $ | 35 | |
|
| | | | | | | | |
| | 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 |
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1214 – OTHER BORROWINGSSENIOR NOTES PAYABLE
The following table detailssummarizes our senior notes payable.
| | | | | | | | | | | | | | |
$ in millions | | June 30, 2021 | | September 30, 2020 |
4.65% senior notes, due 2030 | | $ | 500 | | | $ | 500 | |
4.95% senior notes, due 2046 | | 800 | | | 800 | |
3.750% senior notes, due 2051 | | 750 | | | 0 | |
5.625% senior notes, due 2024 | | 0 | | | 250 | |
3.625% senior notes, due 2026 | | 0 | | | 500 | |
Total principal amount | | 2,050 | | | 2,050 | |
Unaccreted premium | | 5 | | | 10 | |
Unamortized debt issuance costs | | (18) | | | (15) | |
Total senior notes payable | | $ | 2,037 | | | $ | 2,045 | |
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 componentsgreater of other borrowings:(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 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 |
|
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 of 4.95% senior notes issued in July 2016. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 45 basis points, plus accrued and unpaid interest thereon to the redemption date.
BorrowingsIn April 2021, we sold in a registered underwritten public offering $750 million in aggregate principal amount of 3.75% senior notes due April 2051. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to October 1, 2050, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 20 basis points; and on or after October 1, 2050, at 100% of the principal amount of the notes redeemed; plus, in each case, accrued and unpaid interest thereon to the redemption date.
Tender offers and redemptions of certain senior notes
Concurrently with the launch of our offering of $750 million in aggregate principal amount of 3.75% senior notes due April 2051 described above, we commenced cash tender offers (the “Tender Offers”) for any and all of our then outstanding 5.625% senior notes due 2024 and 3.625% senior notes due 2026 (the “Pre-existing Notes”). Pursuant to the Tender Offers, in April 2021 we repurchased an aggregate of $332 million outstanding Pre-existing Notes for an aggregate purchase price of $373 million.
In addition, in April 2021 we issued notices of redemption to holders of the Pre-existing Notes pursuant to the indentures governing such notes, to redeem any Pre-existing Notes that remained outstanding following the closing of the Tender Offers. In May 2021 we redeemed the remaining outstanding balance of the Pre-existing Notes of $418 million for an aggregate redemption price of $473 million.
These repurchases and redemptions of the Pre-existing Notes were funded with the net proceeds from the FHLB wereour 3.75% senior notes due April 2051 and cash on hand, and resulted in a loss of $98 million which is comprised of both floatingmake-whole premiums, unamortized debt issuance costs which were accelerated, and fixed-rate advances. Ascertain legal and professional fees. This loss was presented in
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
“Losses on extinguishment of December 31, 2017 and September 30, 2017 the floating-rate advances, which mature in June 2019 and have interest rates which reset quarterly, totaled $850 million. 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 6 for information regarding these interest rate swaps, which are accounted for as hedging instruments. The fixed-rate advance as of both December 31, 2017 and September 30, 2017, in the amount of $25 million, matures in October 2020 and bears interest at a fixed rate of 3.4%. All of the advances were secured by a blanket lien granted to the FHLB on our residential mortgage loan portfolio. The weighted average interest rates on these advances as of December 31, 2017 and September 30, 2017 were 1.74% and 1.41%, respectively.
RJF is a party to a revolving credit facility agreement (the “RJF Credit Facility”) with a maturity date of May 2022 in which the lenders are a number of financial institutions. This committed unsecured borrowing facility provides for maximum borrowings of up to $300 million at variable rates of interest. The borrowings outstanding on the RJF Credit Facility bear interest at a rate of 2.98% per annum. The outstanding borrowings at December 31, 2017 were subsequently repaid in January 2018. There is a variable rate commitment fee associated with the RJF Credit Facility, which varies depending upon RJF’s credit rating. Based upon RJF’s credit rating as of December 31, 2017, the variable rate commitment fee which would apply to any difference between the daily borrowed amount and the committed amount, was 0.20% per annum. Any borrowings on 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 were generally utilized to finance certain fixed income securities. In addition we have other collateralized financings included in “Securities sold under agreements to repurchase”debt” on our Condensed Consolidated Statements of Financial Condition. See Note 7 for information regardingIncome and Comprehensive Income in our collateralized financing arrangements.third fiscal quarter of 2021.
The interest rates for all of our U.S. and Canadian secured and unsecured financing facilities are variable and are based on the Fed Funds rate, LIBOR, a lenders prime rate, or the Canadian prime rate, as applicable. For the three months ended December 31, 2017, interest rates on the U.S. facilities that were utilized during the period, other than the RJF Credit Facility which was previously described, ranged from 0.85% to 5.30%.
Mortgage notes payable pertain to mortgage loans on certain of our corporate headquarters offices located in St. Petersburg, Florida. These mortgage loans are secured by land, buildings, and improvements. These mortgage loans bear interest at 5.7% with repayment terms of monthly interest and principal debt service and have a January 2023 maturity.
NOTE 1315 – 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 pretaxpre-tax 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.
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 For discussion of income tax system by, amongaccounting policies and other things, lowering corporate income tax rates from 35% to 21%related information, see Notes 2 and implementing a territorial tax system which includes a one-time transition tax on deemed repatriated earnings16 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.2020 Form 10-K.
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.
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%, including20.9% for the estimated discrete impact ofnine months ended June 30, 2021, which was lower 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. The22.2% effective tax rate for fiscal year 20172020. The decrease in the effective income tax rate was 31.2%.primarily due to an increase in valuation gains associated with our company-owned life insurance policies which are not subject to tax.
Uncertain tax positions
We anticipateAlthough management cannot predict with any degree of certainty the timing of ultimate resolution of matters under review by various taxing jurisdictions, it is reasonably possible that theour uncertain tax position liability balance will not change significantly overmay decrease within the next twelve months.12 months by up to $4 million as a result of the expiration of statutes of limitations and the completion of tax authorities’ examinations.
NOTE 1416 – COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments and contingencies
Loan and Underwriting Commitmentscommitments
In the normal course of business, we enter into commitments for fixed incomedebt and equity underwritings. As of December 31, 2017,June 30, 2021, we had one3 such open underwriting commitment,commitments, which waswere subsequently settled in open market transactions and did not result in significant loss.losses.
As part of our recruiting efforts, we offer loans to prospective financial advisors and certain key revenue producers primarily for recruiting, transitional cost assistance, and retention purposes (see Note 2 of our 2017 Form 10-K for a discussion of our accounting policies governing these transactions). TheseLending commitments are contingent upon the occurrence of certain events, including, but not limited to, the individual joining us. As of December 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.
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
RJRaymond James 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 RJRaymond James Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding:outstanding.
| | | | | | | | | | | | | | |
$ in millions | | June 30, 2021 | | September 30, 2020 |
Open-end consumer lines of credit (primarily SBL) | | $ | 15,866 | | | $ | 12,148 | |
Commercial lines of credit | | $ | 1,813 | | | $ | 1,482 | |
Unfunded lending commitments | | $ | 502 | | | $ | 532 | |
Standby letters of credit | | $ | 24 | | | $ | 33 | |
Open-end consumer lines of credit primarily represent the unfunded amounts of bank loans to consumers that are secured by marketable securities at advance rates consistent with industry standards. The proceeds from repayment or, if necessary, the liquidation of collateral, which is monitored daily, are expected to satisfy the amounts drawn against these existing lines of
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | | | | | | |
$ 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 |
|
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 ourRaymond James Bank’s lending commitments expire without being funded in whole or in part, the contractcontractual amounts are not estimates of our actual future credit exposure or future liquidity requirements. We maintain a reserve to provideThe allowance for credit losses calculated under CECL provides for potential losses related to the unfunded lending commitments. See NoteNotes 2 and 8 for further discussion of this reserveallowance for credit losses related to unfunded lending commitments.
RJ&A enters into margin lending arrangements which allow customers to borrow against the value of qualifying securities. Margin loans are collateralized by the securities held in the customer’s account at RJ&A. Collateral levels and established credit terms are monitored daily and we require customers to deposit additional collateral or reduce balances as necessary.
We offer loans to prospective financial advisors for recruiting and retention purposes (see Notes 2 and 9 for further discussion of our loans to financial advisors). These offers are contingent upon certain events occurring, including the individuals joining us and meeting certain conditions outlined in their offer.
Investment Commitmentscommitments
A subsidiary of RJ Bank has committed $80 million as an investor member in a LIHTC fund in which a subsidiary of RJTCF is the managing member (see Note 2 of our 2017 Form 10-K for information regarding the accounting policies governing these investments). As of December 31, 2017, the RJ Bank subsidiaryWe had invested $62 million of the committed amount.
Notes to Condensed Consolidated Financial Statements (Unaudited)
We have unfunded commitments to various investments, including private equity investments which aggregate to $36and certain Raymond James Bank investments, of $37 million as of December 31, 2017. Of the total, we have unfundedJune 30, 2021.
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 June 30, 2021, RJTCF had committed approximately $167 million to project partnerships that had not yet been sold to LIHTC funds. Because we expect to sell these project partnerships to LIHTC funds and the proceeds fromequity funding events arise over future periods, the salescontractual commitments are usednot expected to repay RJTCF’s borrowings from RJF.materially impact our future liquidity requirements. RJTCF may also make short-term loans or advances to project partnerships and LIHTC funds.
As a part of our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMA MBS (see the discussion of these activities withinagency MBS. See Note 2 of our 20172020 Form 10-K).10-K for further discussion of these activities. At December 31, 2017,June 30, 2021, we had $851$222 million of 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 December 31, 2017,June 30, 2021, the fair value of the TBA securities and the estimated fair value of the purchase commitments were insignificant.
ContingenciesFor information regarding our lease commitments, including the maturities of our lease liabilities, see Note 12.
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 its obligations to clients. This coverage does not protect against market fluctuations. RJF has provided an indemnity to Lloyd’s of London against any and all losses they may incur associated with the excess SIPC policies.
RJTCF issues certain guarantees to various third parties related to project partnerships whose interests have been sold toWe guarantee the debt of one or more of our private equity investments. The amount of such debt, including the funds in which RJTCF is the managing member or general partner. In some instances, RJTCF is not the primary guarantorundrawn portion of these obligations, which aggregated to $3a revolving credit facility, was $13 million as of December 31, 2017.
RJTCF has provided a guaranteed return on investment to a third-party investorJune 30, 2021. The debt, which matures in the Guaranteed LIHTC Fund and RJF has guaranteed RJTCF’s performance under the arrangement. Under the terms2022, is secured by substantially all of the performance guarantee, shouldassets of the underlying LIHTC project partnerships held by the Guaranteed LIHTC Fund fail to deliver a certain amount of tax credits and other tax benefits to this investorborrower.
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 the matters specifically described below, in the normal course of our business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities as a diversified financial services institution.
WeRJF and certain of its subsidiaries are also subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. Reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censures to fines and, in serious cases, temporary or permanent suspension from conducting business, or limitations on certain business activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time, toamong other reviews, investigationsthings, into industry practices, which can also result in the imposition of such sanctions.
We may contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and proceedingsinvestigatory activity (both formal and informal) by governmentalgovernment and self-regulatory agencies regarding our business. Such proceedings may involve, among other things, our sales and trading activities, financial products or offerings we sponsored, underwrote or sold, and operational matters. Some of these proceedings have resulted, and may in the future result, in adverse judgments, settlements, fines, penalties, injunctionsfinancial services industry continues to be significant. There can be no assurance that material losses will not be incurred from claims that have not yet been asserted or other relief and/or require usare not yet determined to undertake remedial actions.be material.
WeFor many legal and regulatory matters, we are unable to estimate a range of reasonably possible loss as we cannot predict if, how or when such proceedings or investigations will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be. A large number of factors may contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental proceedings, potential fines and penalties); the matters present significant legal uncertainties; we have not engaged in settlement discussions; discovery is not complete; there are significant facts in dispute; and numerous parties are named as defendants (including where it is uncertain how liability might be shared among defendants).
We contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased significantly in the financial services industry. While we have identified below certain proceedings that we believe could be material, individually or collectively, there can be no assurance that material losses will not be incurred from claims that have not yet been asserted or are not yet determined to be material.
We 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 regulatory proceedings could be material to our operating results and cash flows for a particular future period, depending on, among other things, our revenues or income for such period.
There are certain matters for which we are unable to estimate the upper end of the range of reasonably possible loss. With respect to legal and regulatory matters for which management has been able to estimate a range of reasonably possible loss (and excluding amounts subject to the below-described indemnification from Regions Financial Corporation (“Regions”)), as of December 31, 2017,June 30, 2021, we estimated the upper end of the range of reasonably possible aggregate loss to be approximately $70$175 million in excess of the aggregate reservesaccruals for such matters. Refer to Note 2 of our 20172020 Form 10-K for a discussion of our criteria for recognizing liabilities for contingencies.
Morgan Keegan Litigation
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.
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 1517 – 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 |
|
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 June 30, 2021 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 76 | | | $ | (81) | | | $ | (5) | | | $ | (4) | | | $ | (29) | | | $ | (38) | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | (12) | | | 14 | | | 2 | | | 36 | | | (7) | | | 31 | |
Amounts reclassified from AOCI, before tax | | 0 | | | 0 | | | 0 | | | (2) | | | 3 | | | 1 | |
Pre-tax net OCI | | (12) | | | 14 | | | 2 | | | 34 | | | (4) | | | 32 | |
Income tax effect | | 3 | | | 0 | | | 3 | | | (9) | | | 2 | | | (4) | |
OCI for the period, net of tax | | (9) | | | 14 | | | 5 | | | 25 | | | (2) | | | 28 | |
AOCI as of end of period | | $ | 67 | | | $ | (67) | | | $ | 0 | | | $ | 21 | | | $ | (31) | | | $ | (10) | |
| | | | | | | | | | | | |
Nine months ended June 30, 2021 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 115 | | | $ | (140) | | | $ | (25) | | | $ | 89 | | | $ | (53) | | | $ | 11 | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | (63) | | | 71 | | | 8 | | | (84) | | | 18 | | | (58) | |
Amounts reclassified from AOCI, before tax | | 0 | | | 2 | | | 2 | | | (7) | | | 11 | | | 6 | |
Pre-tax net OCI | | (63) | | | 73 | | | 10 | | | (91) | | | 29 | | | (52) | |
Income tax effect | | 15 | | | 0 | | | 15 | | | 23 | | | (7) | | | 31 | |
OCI for the period, net of tax | | (48) | | | 73 | | | 25 | | | (68) | | | 22 | | | (21) | |
AOCI as of end of period | | $ | 67 | | | $ | (67) | | | $ | 0 | | | $ | 21 | | | $ | (31) | | | $ | (10) | |
| | | | | | | | | | | | |
Three months ended June 30, 2020 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 149 | | | $ | (191) | | | $ | (42) | | | $ | 83 | | | $ | (52) | | | $ | (11) | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | (29) | | | 32 | | | 3 | | | 7 | | | (7) | | | 3 | |
Amounts reclassified from AOCI, before tax | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | | 2 | |
Pre-tax net OCI | | (29) | | | 32 | | | 3 | | | 7 | | | (5) | | | 5 | |
Income tax effect | | 8 | | | 0 | | | 8 | | | (2) | | | 1 | | | 7 | |
OCI for the period, net of tax | | (21) | | | 32 | | | 11 | | | 5 | | | (4) | | | 12 | |
AOCI as of end of period | | $ | 128 | | | $ | (159) | | | $ | (31) | | | $ | 88 | | | $ | (56) | | | $ | 1 | |
| | | | | | | | | | | | |
Nine months ended June 30, 2020 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 110 | | | $ | (135) | | | $ | (25) | | | $ | 21 | | | $ | (19) | | | $ | (23) | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | 23 | | | (24) | | | (1) | | | 90 | | | (51) | | | 38 | |
Amounts reclassified from AOCI, before tax | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | | | 2 | |
Pre-tax net OCI | | 23 | | | (24) | | | (1) | | | 90 | | | (49) | | | 40 | |
Income tax effect | | (5) | | | 0 | | | (5) | | | (23) | | | 12 | | | (16) | |
OCI for the period, net of tax | | 18 | | | (24) | | | (6) | | | 67 | | | (37) | | | 24 | |
AOCI as of end of period | | $ | 128 | | | $ | (159) | | | $ | (31) | | | $ | 88 | | | $ | (56) | | | $ | 1 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ 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 | ) |
Reclassifications from AOCI to net income, excluding taxes, for the three and nine months ended June 30, 2021 were primarily recorded in “Other” revenue and “Interest expense” on the Condensed Consolidated Statements of Income and Comprehensive Income.
Our net investment hedges and cash flow hedges relate to our derivatives associated with RJRaymond James Bank’s business operations (seeoperations. For further information about our significant accounting policies related to derivatives, see Note 2 of our 2020 Form 10-K. See Note 6 of this Form 10-Q for additional information on these derivatives).derivatives.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 18 – REVENUES
Reclassifications out of accumulated other comprehensive income/(loss)
The following table presents the income statement line items impactedtables present our sources of revenues by reclassifications out of accumulated other comprehensive income/(loss), and thesegment. For further information about our significant accounting policies related tax effects, for the 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 |
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 componentto revenue recognition, see Note 2 of our computation2020 Form 10-K. See Note 23 of this Form 10-Q for additional information on our segment results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2021 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Raymond James Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 1,050 | | | $ | 1 | | | $ | 218 | | | $ | 0 | | | $ | (7) | | | $ | 1,262 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 167 | | | 2 | | | 2 | | | 0 | | | 0 | | | 171 | |
Insurance and annuity products | | 113 | | | 0 | | | 0 | | | 0 | | | 0 | | | 113 | |
Equities, exchange-traded funds (“ETFs”) and fixed income products | | 97 | | | 33 | | | 0 | | | 0 | | | 1 | | | 131 | |
Subtotal securities commissions | | 377 | | | 35 | | | 2 | | | 0 | | | 1 | | | 415 | |
Principal transactions (1) | | 13 | | | 125 | | | 0 | | | 0 | | | (1) | | | 137 | |
Total brokerage revenues | | 390 | | | 160 | | | 2 | | | 0 | | | 0 | | | 552 | |
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 105 | | | 0 | | | 0 | | | 0 | | | (1) | | | 104 | |
RJBDP fees | | 65 | | | 0 | | | 0 | | | 0 | | | (47) | | | 18 | |
Client account and other fees | | 39 | | | 1 | | | 4 | | | 0 | | | (5) | | | 39 | |
Total account and service fees | | 209 | | | 1 | | | 4 | | | 0 | | | (53) | | | 161 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | 0 | | | 153 | | | 0 | | | 0 | | | 0 | | | 153 | |
Equity underwriting | | 11 | | | 69 | | | 0 | | | 0 | | | 0 | | | 80 | |
Debt underwriting | | 0 | | | 43 | | | 0 | | | 0 | | | 0 | | | 43 | |
Total investment banking | | 11 | | | 265 | | | 0 | | | 0 | | | 0 | | | 276 | |
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | 0 | | | 17 | | | 0 | | | 0 | | | 0 | | | 17 | |
All other (1) | | 7 | | | 1 | | | 1 | | | 8 | | | 21 | | | 38 | |
Total other | | 7 | | | 18 | | | 1 | | | 8 | | | 21 | | | 55 | |
Total non-interest revenues | | 1,667 | | | 445 | | | 225 | | | 8 | | | (39) | | | 2,306 | |
Interest income (1) | | 31 | | | 4 | | | 0 | | | 172 | | | (2) | | | 205 | |
Total revenues | | 1,698 | | | 449 | | | 225 | | | 180 | | | (41) | | | 2,511 | |
Interest expense | | (2) | | | (3) | | | 0 | | | (11) | | | (24) | | | (40) | |
Net revenues | | $ | 1,696 | | | $ | 446 | | | $ | 225 | | | $ | 169 | | | $ | (65) | | | $ | 2,471 | |
(1) These revenues are generally not in scope of the gain or loss resultingaccounting guidance for revenue from such sales, we recognized the sold entities’ cumulative currency translation balances which, prior to such reclassification, had been a component of the accumulated other comprehensive loss.contracts with customers.
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2020 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Raymond James Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 715 | | | $ | 1 | | | $ | 157 | | | $ | 0 | | | $ | (6) | | | $ | 867 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 131 | | | 2 | | | 2 | | | 0 | | | (1) | | | 134 | |
Insurance and annuity products | | 88 | | | 0 | | | 0 | | | 0 | | | 0 | | | 88 | |
Equities, ETFs and fixed income products | | 84 | | | 37 | | | 0 | | | 0 | | | 0 | | | 121 | |
Subtotal securities commissions | | 303 | | | 39 | | | 2 | | | 0 | | | (1) | | | 343 | |
Principal transactions (1) | | 16 | | | 127 | | | 0 | | | 0 | | | 0 | | | 143 | |
Total brokerage revenues | | 319 | | | 166 | | | 2 | | | 0 | | | (1) | | | 486 | |
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 82 | | | 0 | | | 1 | | | 0 | | | 0 | | | 83 | |
RJBDP fees | | 63 | | | 1 | | | 0 | | | 0 | | | (44) | | | 20 | |
Client account and other fees | | 32 | | | 1 | | | 2 | | | 0 | | | (4) | | | 31 | |
Total account and service fees | | 177 | | | 2 | | | 3 | | | 0 | | | (48) | | | 134 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | 0 | | | 60 | | | 0 | | | 0 | | | 0 | | | 60 | |
Equity underwriting | | 7 | | | 35 | | | 0 | | | 0 | | | 0 | | | 42 | |
Debt underwriting | | 0 | | | 37 | | | 0 | | | 0 | | | 0 | | | 37 | |
Total investment banking | | 7 | | | 132 | | | 0 | | | 0 | | | 0 | | | 139 | |
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | 0 | | | 20 | | | 0 | | | 0 | | | 0 | | | 20 | |
All other (1) | | 4 | | | 0 | | | 1 | | | 9 | | | (1) | | | 13 | |
Total other | | 4 | | | 20 | | | 1 | | | 9 | | | (1) | | | 33 | |
Total non-interest revenues | | 1,222 | | | 321 | | | 163 | | | 9 | | | (56) | | | 1,659 | |
Interest income (1) | | 31 | | | 4 | | | 0 | | | 181 | | | 1 | | | 217 | |
Total revenues | | 1,253 | | | 325 | | | 163 | | | 190 | | | (55) | | | 1,876 | |
Interest expense | | (4) | | | (2) | | | 0 | | | (12) | | | (24) | | | (42) | |
Net revenues | | $ | 1,249 | | | $ | 323 | | | $ | 163 | | | $ | 178 | | | $ | (79) | | | $ | 1,834 | |
(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)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended June 30, 2021 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Raymond James Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 2,914 | | | $ | 3 | | | $ | 607 | | | $ | 0 | | | $ | (22) | | | $ | 3,502 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 498 | | | 5 | | | 7 | | | 0 | | | (2) | | | 508 | |
Insurance and annuity products | | 320 | | | 0 | | | 0 | | | 0 | | | 0 | | | 320 | |
Equities, ETFs and fixed income products | | 300 | | | 110 | | | 0 | | | 0 | | | 1 | | | 411 | |
Subtotal securities commissions | | 1,118 | | | 115 | | | 7 | | | 0 | | | (1) | | | 1,239 | |
Principal transactions (1) | | 38 | | | 394 | | | 0 | | | 1 | | | (1) | | | 432 | |
Total brokerage revenues | | 1,156 | | | 509 | | | 7 | | | 1 | | | (2) | | | 1,671 | |
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 298 | | | 0 | | | 0 | | | 0 | | | (1) | | | 297 | |
RJBDP fees | | 192 | | | 1 | | | 0 | | | 0 | | | (135) | | | 58 | |
Client account and other fees | | 113 | | | 5 | | | 13 | | | 0 | | | (21) | | | 110 | |
Total account and service fees | | 603 | | | 6 | | | 13 | | | 0 | | | (157) | | | 465 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | 0 | | | 424 | | | 0 | | | 0 | | | 0 | | | 424 | |
Equity underwriting | | 33 | | | 196 | | | 0 | | | 0 | | | 0 | | | 229 | |
Debt underwriting | | 0 | | | 126 | | | 0 | | | 0 | | | 0 | | | 126 | |
Total investment banking | | 33 | | | 746 | | | 0 | | | 0 | | | 0 | | | 779 | |
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | 0 | | | 57 | | | 0 | | | 0 | | | 0 | | | 57 | |
All other (1) | | 20 | | | 5 | | | 2 | | | 22 | | | 49 | | | 98 | |
Total other | | 20 | | | 62 | | | 2 | | | 22 | | | 49 | | | 155 | |
Total non-interest revenues | | 4,726 | | | 1,326 | | | 629 | | | 23 | | | (132) | | | 6,572 | |
Interest income (1) | | 91 | | | 12 | | | 0 | | | 505 | | | 0 | | | 608 | |
Total revenues | | 4,817 | | | 1,338 | | | 629 | | | 528 | | | (132) | | | 7,180 | |
Interest expense | | (7) | | | (7) | | | 0 | | | (32) | | | (69) | | | (115) | |
Net revenues | | $ | 4,810 | | | $ | 1,331 | | | $ | 629 | | | $ | 496 | | | $ | (201) | | | 7,065 | |
(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)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended June 30, 2020 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Raymond James Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 2,330 | | | $ | 4 | | | $ | 510 | | | $ | 0 | | | $ | (16) | | | $ | 2,828 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 438 | | | 6 | | | 6 | | | 0 | | | (2) | | | 448 | |
Insurance and annuity products | | 288 | | | 0 | | | 0 | | | 0 | | | 0 | | | 288 | |
Equities, ETFs and fixed income products | | 274 | | | 107 | | | 0 | | | 0 | | | (1) | | | 380 | |
Subtotal securities commissions | | 1,000 | | | 113 | | | 6 | | | 0 | | | (3) | | | 1,116 | |
Principal transactions (1) | | 50 | | | 298 | | | 0 | | | 0 | | | (3) | | | 345 | |
Total brokerage revenues | | 1,050 | | | 411 | | | 6 | | | 0 | | | (6) | | | 1,461 | |
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 260 | | | 0 | | | 2 | | | 0 | | | (1) | | | 261 | |
RJBDP fees | | 267 | | | 1 | | | 0 | | | 0 | | | (139) | | | 129 | |
Client account and other fees | | 96 | | | 4 | | | 10 | | | 0 | | | (16) | | | 94 | |
Total account and service fees | | 623 | | | 5 | | | 12 | | | 0 | | | (156) | | | 484 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | 0 | | | 192 | | | 0 | | | 0 | | | 0 | | | 192 | |
Equity underwriting | | 29 | | | 117 | | | 0 | | | 0 | | | 0 | | | 146 | |
Debt underwriting | | 0 | | | 90 | | | 0 | | | 0 | | | 0 | | | 90 | |
Total investment banking | | 29 | | | 399 | | | 0 | | | 0 | | | 0 | | | 428 | |
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | 0 | | | 50 | | | 0 | | | 0 | | | 0 | | | 50 | |
All other (1) | | 20 | | | 4 | | | 2 | | | 20 | | | (49) | | | (3) | |
Total other | | 20 | | | 54 | | | 2 | | | 20 | | | (49) | | | 47 | |
Total non-interest revenues | | 4,052 | | | 873 | | | 530 | | | 20 | | | (227) | | | 5,248 | |
Interest income (1) | | 125 | | | 22 | | | 1 | | | 635 | | | 16 | | | 799 | |
Total revenues | | 4,177 | | | 895 | | | 531 | | | 655 | | | (211) | | | 6,047 | |
Interest expense | | (19) | | | (14) | | | 0 | | | (51) | | | (52) | | | (136) | |
Net revenues | | $ | 4,158 | | | $ | 881 | | | $ | 531 | | | $ | 604 | | | $ | (263) | | | $ | 5,911 | |
(1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.
At June 30, 2021 and September 30, 2020, net receivables related to contracts with customers were $359 million and $342 million, respectively.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1619 – INTEREST INCOME AND INTEREST EXPENSE
The following table details the components of interest income and interest expense are as follows:expense.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Interest income: | | | | | | | | |
Cash and cash equivalents | | $ | 3 | | | $ | 4 | | | $ | 9 | | | $ | 37 | |
Assets segregated pursuant to regulations | | 3 | | | 3 | | | 11 | | | 25 | |
Available-for-sale securities | | 20 | | | 23 | | | 64 | | | 60 | |
Brokerage client receivables | | 19 | | | 18 | | | 56 | | | 66 | |
Bank loans, net of unearned income and deferred expenses | | 150 | | | 157 | | | 437 | | | 561 | |
All other | | 10 | | | 12 | | | 31 | | | 50 | |
Total interest income | | $ | 205 | | | $ | 217 | | | $ | 608 | | | $ | 799 | |
Interest expense: | | | | | | | | |
Bank deposits | | $ | 5 | | | $ | 7 | | | $ | 17 | | | $ | 35 | |
Brokerage client payables | | 1 | | | 3 | | | 3 | | | 9 | |
Other borrowings | | 4 | | | 5 | | | 14 | | | 15 | |
Senior notes payable | | 25 | | | 24 | | | 73 | | | 61 | |
All other | | 5 | | | 3 | | | 8 | | | 16 | |
Total interest expense | | 40 | | | 42 | | | 115 | | | 136 | |
Net interest income | | 165 | | | 175 | | | 493 | | | 663 | |
Bank loan (provision)/benefit for credit losses | | 19 | | | (81) | | | 37 | | | (188) | |
Net interest income after bank loan (provision)/benefit for credit losses | | $ | 184 | | | $ | 94 | | | $ | 530 | | | $ | 475 | |
|
| | | | | | | | |
| | 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 1720 – 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 contractor financial advisors).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 reissueissue new shares. Annual share-based compensation awards are primarily issued during our treasury shares.fiscal first quarter of each year. Our share-based compensation accounting policies are described in Note 2 of our 20172020 Form 10-K. Other information related to our share-based awards areis presented in Note 2021 of our 20172020 Form 10-K.
Stock options
ExpenseDuring the three and income tax benefits related to our stock options awardsnine months ended June 30, 2021, we granted approximately 50 thousand and 1.5 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 $131.81 and $94.75, respectively. For the three and nine months ended December 31, 2017, we realized $1June 30, 2021, total compensation expense for RSUs granted to our employees and members of our Board of Directors was $27 million and $98 million, respectively, compared with $22 million and $89 million for the three and nine months ended June 30, 2020, respectively.
As of June 30, 2021, there were $209 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.
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 threenine months ended December 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.June 30, 2021. These costs are expected to be recognized over a weighted-average period of 3.43.1 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.
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 1821 – REGULATORY CAPITAL REQUIREMENTS
RJF, as a bank holding company and financial holding company, Raymond James Bank, our banking subsidiary, Raymond James Trust, N.A. (“RJ Bank,Trust”), and our broker-dealer subsidiaries are subject to capital requirements by various regulatory authorities. Capital levels of each entity are monitored to ensure compliance with our various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial results.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”) that has made an election to be a financial holding company (“FHC”), RJF is subject to supervision, examination and regulation by the risk-basedFed.We are subject to the Fed’s capital requirementsrules which establish an integrated regulatory capital framework and implement, in the U.S., the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. We apply the standardized approach for calculating risk-weighted assets and are also subject to the market risk provisions of the Federal Reserve Board. These risk-basedFed’s capital rules (“market risk rule”).
Under these rules, minimum requirements are expressed asestablished for both the quantity and quality of capital held by banking organizations. RJF and Raymond James Bank are required to maintain minimum ratios that compare measures of regulatorycommon equity tier 1 (“CET1”), tier 1 and total capital to risk-weighted assets, which involveas well as minimum leverage ratios (defined as tier 1 capital divided by adjusted average assets).These capital ratios incorporate quantitative measures of our assets, liabilities, and certain off-balance-sheetoff-balance sheet items as calculated under the regulatory accounting guidelines. RJF’scapital rules and RJ Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.
In July 2013, the 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 in Basel III, Common equity Tier 1 capital (“CET1”) to risk-weighted assets. RJF and RJRaymond James Bank each calculate these ratios in order to assess compliance with both regulatory requirements and their internal capital policies. 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 December 31, 2017,June 30, 2021, both RJF’s and RJRaymond James Bank’s capital levels exceeded the fully-phased in capital conservation buffer requirement and arewere each categorized as “well capitalized.“well-capitalized.”
For further discussion of regulatory capital requirements applicable to certain of our businesses and subsidiaries, see Note 2122 of our 20172020 Form 10-K.
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 June 30, 2021: | | | | | | | | | | | | |
CET1 | | $ | 7,040 | | | 24.4 | % | | $ | 1,297 | | | 4.5 | % | | $ | 1,874 | | | 6.5 | % |
Tier 1 capital | | $ | 7,040 | | | 24.4 | % | | $ | 1,730 | | | 6.0 | % | | $ | 2,306 | | | 8.0 | % |
Total capital | | $ | 7,382 | | | 25.6 | % | | $ | 2,306 | | | 8.0 | % | | $ | 2,883 | | | 10.0 | % |
Tier 1 leverage | | $ | 7,040 | | | 12.6 | % | | $ | 2,240 | | | 4.0 | % | | $ | 2,800 | | | 5.0 | % |
| | | | | | | | | | | | |
RJF as of September 30, 2020: | | | | | | | | | | | | |
CET1 | | $ | 6,490 | | | 24.2 | % | | $ | 1,208 | | | 4.5 | % | | $ | 1,744 | | | 6.5 | % |
Tier 1 capital | | $ | 6,490 | | | 24.2 | % | | $ | 1,610 | | | 6.0 | % | | $ | 2,147 | | | 8.0 | % |
Total capital | | $ | 6,804 | | | 25.4 | % | | $ | 2,147 | | | 8.0 | % | | $ | 2,684 | | | 10.0 | % |
Tier 1 leverage | | $ | 6,490 | | | 14.2 | % | | $ | 1,824 | | | 4.0 | % | | $ | 2,280 | | | 5.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well capitalized under regulatory provisions |
$ in thousands | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
RJF as of 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 inAs of June 30, 2021, RJF’s Tier 1regulatory capital increase was driven by positive earnings, partially offset by dividends and Total capital ratios at December 31, 2017 compared to September 30, 2017 was primarily due toshare repurchases, as well as an increase in goodwill and identifiable intangible assets relatedarising from the NWPS and Financo acquisitions. See Note 3 for additional information. RJF’s Tier 1 and Total capital ratios increased compared to September 30, 2020, resulting from the Scout Group acquisitionincrease in regulatory capital, partially offset by an increase in risk-weighted assets. The increase in risk-weighted assets was driven by increases in our loan portfolio and available-for-sale securities. RJF’s Tier 1 leverage ratio at June 30, 2021 decreased compared to September 30, 2020 due to increased average assets, driven by higher assets segregated pursuant to regulations due to an increase in client cash in the Client Interest Program (“CIP”), as well as growth in loans and available-for-sale securities. The impact of corporate loans at RJ Bank.higher average assets was partially offset by the increase in regulatory capital.
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,” RJRaymond James Bank must maintain CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the table below.following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well-capitalized under regulatory provisions |
$ in millions | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
Raymond James Bank as of June 30, 2021: | | | | | | | | | | | | |
CET1 | | $ | 2,542 | | | 13.5 | % | | $ | 848 | | | 4.5 | % | | $ | 1,225 | | | 6.5 | % |
Tier 1 capital | | $ | 2,542 | | | 13.5 | % | | $ | 1,131 | | | 6.0 | % | | $ | 1,508 | | | 8.0 | % |
Total capital | | $ | 2,779 | | | 14.7 | % | | $ | 1,508 | | | 8.0 | % | | $ | 1,885 | | | 10.0 | % |
Tier 1 leverage | | $ | 2,542 | | | 7.5 | % | | $ | 1,355 | | | 4.0 | % | | $ | 1,693 | | | 5.0 | % |
| | | | | | | | | | | | |
Raymond James Bank as of September 30, 2020: | | | | | | | | | | | | |
CET1 | | $ | 2,279 | | | 13.0 | % | | $ | 788 | | | 4.5 | % | | $ | 1,138 | | | 6.5 | % |
Tier 1 capital | | $ | 2,279 | | | 13.0 | % | | $ | 1,051 | | | 6.0 | % | | $ | 1,401 | | | 8.0 | % |
Total capital | | $ | 2,500 | | | 14.3 | % | | $ | 1,401 | | | 8.0 | % | | $ | 1,751 | | | 10.0 | % |
Tier 1 leverage | | $ | 2,279 | | | 7.7 | % | | $ | 1,183 | | | 4.0 | % | | $ | 1,479 | | | 5.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well capitalized under regulatory provisions |
$ in thousands | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
RJ Bank as of 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 RJAs of June 30, 2021, Raymond James Bank’s regulatory capital increase was driven by positive earnings. Raymond James Bank’s Tier 1 capital and Total capital ratios at December 31, 2017June 30, 2021 increased compared to September 30, 2017 was primarily2020, due to corporatethe increase in regulatory capital, partially offset by the impact of higher risk-weighted assets, primarily resulting from increases in our loan growth.portfolio and available-for-sale securities. Raymond James Bank’s Tier 1 leverage ratio at June 30, 2021 decreased compared to September 30, 2020, due to increased average assets, driven by the growth in loans and available-for-sale securities, which was partially offset by the impact of the increase in regulatory capital.
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 | | June 30, 2021 | | September 30, 2020 |
Raymond James & Associates, Inc.: | | | | |
(Alternative Method elected) | | | | |
Net capital as a percent of aggregate debit items | | 62.1 | % | | 48.0 | % |
Net capital | | $ | 1,811 | | | $ | 1,245 | |
Less: required net capital | | (58) | | | (52) | |
Excess net capital | | $ | 1,753 | | | $ | 1,193 | |
|
| | | | | | | | |
| | 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 |
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the net capital positionAs of June 30, 2021, 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 of , Raymond James Ltd. (“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.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1922 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per common share:share.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
in millions, except per share amounts | | 2021 | | 2020 | | 2021 | | 2020 |
Income for basic earnings per common share: | | | | | | | | |
Net income | | $ | 307 | | | $ | 172 | | | $ | 974 | | | $ | 609 | |
Less allocation of earnings and dividends to participating securities | | 0 | | | 0 | | | (1) | | | (1) | |
Net income attributable to RJF common shareholders | | $ | 307 | | | $ | 172 | | | $ | 973 | | | $ | 608 | |
Income for diluted earnings per common share: | | | | | | | | |
Net income | | $ | 307 | | | $ | 172 | | | $ | 974 | | | $ | 609 | |
Less allocation of earnings and dividends to participating securities | | 0 | | | 0 | | | (1) | | | (1) | |
Net income attributable to RJF common shareholders | | $ | 307 | | | $ | 172 | | | $ | 973 | | | $ | 608 | |
Common shares: | | | | | | | | |
Average common shares in basic computation | | 137.2 | | | 137.1 | | | 137.2 | | | 137.9 | |
Dilutive effect of outstanding stock options and certain RSUs | | 3.9 | | | 2.3 | | | 3.4 | | | 2.6 | |
Average common and common equivalent shares used in diluted computation | | 141.1 | | | 139.4 | | | 140.6 | | | 140.5 | |
Earnings per common share: | | | | | | | | |
Basic | | $ | 2.24 | | | $ | 1.25 | | | $ | 7.09 | | | $ | 4.41 | |
Diluted | | $ | 2.18 | | | $ | 1.23 | | | $ | 6.92 | | | $ | 4.33 | |
Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive | | 0 | | | 1.8 | | | 0.1 | | | 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, consisting of certain RSUs, plus an allocation of undistributed earnings to such participating securities. Participating securities represent unvested restricted stock and certain RSUs 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 nine months ended December 31, 2017June 30, 2021 and 2016.2020. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.
Dividends per common share declared and paid are as follows:detailed in the following table for each respective period.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Nine months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Dividends per common share - declared | $ | 0.39 | | | $ | 0.37 | | | $ | 1.17 | | | $ | 1.11 | |
Dividends per common share - paid | $ | 0.39 | | | $ | 0.37 | | | $ | 1.15 | | | $ | 1.08 | |
|
| | | | | | | |
| 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 2023 – SEGMENT INFORMATION
We currently operate through the following five business5 segments: Private Client Group;PCG; Capital Markets; Asset Management; RJRaymond James 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.resources. For a further discussion of our business segments, see Note 24 of our 20172020 Form 10-K.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following tables presenttable presents information concerning operations in these segments of business:segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Net revenues: | | | | | | | | |
Private Client Group | | $ | 1,696 | | | $ | 1,249 | | | $ | 4,810 | | | $ | 4,158 | |
Capital Markets | | 446 | | | 323 | | | 1,331 | | | 881 | |
Asset Management | | 225 | | | 163 | | | 629 | | | 531 | |
Raymond James Bank | | 169 | | | 178 | | | 496 | | | 604 | |
Other | | 2 | | | (20) | | | (6) | | | (72) | |
Intersegment eliminations | | (67) | | | (59) | | | (195) | | | (191) | |
Total net revenues | | $ | 2,471 | | | $ | 1,834 | | | $ | 7,065 | | | $ | 5,911 | |
Pre-tax income/(loss): | | | | | | | | |
Private Client Group | | $ | 195 | | | $ | 91 | | | $ | 527 | | | $ | 414 | |
Capital Markets | | 115 | | | 62 | | | 349 | | | 119 | |
Asset Management | | 105 | | | 60 | | | 275 | | | 206 | |
Raymond James Bank | | 104 | | | 14 | | | 286 | | | 163 | |
Other | | (134) | | | (29) | | | (206) | | | (106) | |
Total pre-tax income | | $ | 385 | | | $ | 198 | | | $ | 1,231 | | | $ | 796 | |
|
| | | | | | | | |
| | 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 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 net interest income on a segment basis. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Net interest income/(expense): | | | | | | | | |
Private Client Group | | $ | 29 | | | $ | 27 | | | $ | 84 | | | $ | 106 | |
Capital Markets | | 1 | | | 2 | | | 5 | | | 8 | |
Asset Management | | 0 | | | 0 | | | 0 | | | 1 | |
Raymond James Bank | | 161 | | | 169 | | | 473 | | | 584 | |
Other | | (26) | | | (23) | | | (69) | | | (36) | |
Net interest income | | $ | 165 | | | $ | 175 | | | $ | 493 | | | $ | 663 | |
The following table presents our total assets on a segment basis:basis.
| | | | | | | | | | | | | | |
$ in millions | | June 30, 2021 | | September 30, 2020 |
Total assets: | | | | |
Private Client Group | | $ | 17,949 | | | $ | 12,574 | |
Capital Markets | | 2,359 | | | 2,336 | |
Asset Management | | 389 | | | 380 | |
Raymond James Bank | | 34,363 | | | 30,356 | |
Other | | 2,101 | | | 1,836 | |
Total | | $ | 57,161 | | | $ | 47,482 | |
|
| | | | | | | | |
$ 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 |
|
The following table presents goodwill, which was included in our total assets, on a segment basis.
Total assets in the PCG segment included $277 | | | | | | | | | | | | | | |
$ in millions | | June 30, 2021 | | September 30, 2020 |
Goodwill: | | | | |
Private Client Group (1) | | $ | 418 | | | $ | 277 | |
Capital Markets (2) | | 150 | | | 120 | |
Asset Management | | 69 | | | 69 | |
Total | | $ | 637 | | | $ | 466 | |
(1) The balance includes $139 million of goodwill at botharising from our acquisition of NWPS in December 31, 2017 and September 30, 2017. Total assets in the Capital Markets segment included $1342020.
(2) The balance includes $30 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 toarising from our fiscal year 2018 acquisition of the Scout Group.Financo in March 2021.
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 June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Net revenues: | | | | | | | | |
U.S. | | $ | 2,275 | | | $ | 1,706 | | | $ | 6,548 | | | $ | 5,501 | |
Canada | | 128 | | | 86 | | | 363 | | | 293 | |
Europe | | 68 | | | 42 | | | 154 | | | 117 | |
Total | | $ | 2,471 | | | $ | 1,834 | | | $ | 7,065 | | | $ | 5,911 | |
Pre-tax income: | | | | | | | | |
U.S. | | $ | 353 | | | $ | 191 | | | $ | 1,165 | | | $ | 770 | |
Canada | | 15 | | | 5 | | | 41 | | | 26 | |
Europe | | 17 | | | 2 | | | 25 | | | 0 | |
Total | | $ | 385 | | | $ | 198 | | | $ | 1,231 | | | $ | 796 | |
|
| | | | | | | | |
| | Three months ended December 31, |
$ in thousands | | 2017 | | 2016 |
Revenues: | | | | |
U.S. | | $ | 1,633,022 |
| | $ | 1,416,281 |
|
Canada | | 99,286 |
| | 84,845 |
|
Europe | | 33,284 |
| | 22,970 |
|
Other | | — |
| | 4,672 |
|
Total | | $ | 1,765,592 |
| | $ | 1,528,768 |
|
| | | | |
Pre-tax income/(loss) excluding noncontrolling interests: | | | | |
|
U.S. | | $ | 305,289 |
| | $ | 214,205 |
|
Canada | | 8,665 |
| | (1,537 | ) |
Europe | | (2,711 | ) | | (2,688 | ) |
Other | | — |
| | (3,601 | ) |
Total | | $ | 311,243 |
| | $ | 206,379 |
|
The following table presents our total assets by major geographic area in which they were held.
Our | | | | | | | | | | | | | | |
$ in millions | | June 30, 2021 | | September 30, 2020 |
Total assets: | | | | |
U.S. | | $ | 53,361 | | | $ | 44,090 | |
Canada | | 3,627 | | | 3,260 | |
Europe | | 173 | | | 132 | |
Total | | $ | 57,161 | | | $ | 47,482 | |
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:it was held. |
| | | | | | | | |
$ 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 |
|
| | | | | | | | | | | | | | |
$ in millions | | June 30, 2021 | | September 30, 2020 |
Goodwill: | | | | |
U.S. (1) | | $ | 602 | | | $ | 433 | |
Canada | | 26 | | | 24 | |
Europe | | 9 | | | 9 | |
Total | | $ | 637 | | | $ | 466 | |
Total assets in the U.S. included $425 million and $356(1) The balance includes $139 million of goodwill atarising from our acquisition of NWPS in December 31, 20172020 and September 30, 2017, respectively. Total assets in Canada included $45$30 million of goodwill at both December 31, 2017 and September 30, 2017. Total assetsarising from our acquisition of Financo in Europe included $10 million of goodwill at both December 31, 2017 and September 30, 2017.
March 2021.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
| | | | |
INDEX | |
| PAGE |
Introduction | |
Factors affecting “forward-looking statements” | |
Executive overviewIntroduction | |
SegmentsExecutive overview | |
Reconciliation of GAAPnon-GAAP financial measures to non-GAAPGAAP financial measures | |
Segments | |
Net interest analysis | |
Results of Operations | |
Private Client Group | |
Capital Markets | |
Asset Management | |
RJRaymond James Bank | |
Other | |
Certain statistical disclosures by bank holding companies | |
Liquidity and capital resources | |
Sources of liquidity | |
Statement of financial condition analysis | |
Contractual obligationsRegulatory | |
RegulatoryCritical accounting estimates | |
CriticalRecent accounting estimatesdevelopments | |
Recent accounting developmentsRisk management | |
Off-Balance sheet arrangements | |
Effects of inflation | |
Risk management | |
Management'sManagement’s Discussion and Analysis
FACTORS AFFECTING “FORWARD-LOOKING STATEMENTS”
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), anticipated timing and benefits of our acquisitions and our level of success in integrating acquired businesses, industry or market conditions, demand for and pricing of our products, acquisitions and divestitures, anticipated results of litigation, changes in tax rules, regulatory developments, impacts of the COVID-19 pandemic, 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 December 31, 2017June 30, 2021 compared with the three monthsquarter ended December 31, 2016June 30, 2020
We achieved netNet revenues of $1.73$2.47 billion a $233increased $637 million, or 16% increase. Our35%, and pre-tax income was $311of $385 million an increase of $105increased $187 million, or 51%. Our net94%, compared with the prior-year quarter, which was negatively impacted by uncertainty resulting from the onset of the COVID-19 pandemic. Net income of $119$307 million reflects a decrease of $28increased $135 million, or 19%78%, and our earnings per diluted share were $2.18, reflecting a 77% increase. Our annualized return on equity (“ROE”) for the quarter was $0.80, a 20% decrease.15.9%, compared with 10.0% in the prior-year quarter, and annualized return on tangible common equity (“ROTCE”)was 17.7% (1), compared with 10.9% (1) for the prior-year quarter.
During the three months ended December 31, 2017, earnings were negatively affected byquarter, we completed a $750 million, 30-year senior notes offering at 3.75%, utilizing the estimated discrete impact ofproceeds from the Tax Act of $117 million, primarily relatedoffering and cash on hand to the remeasurement of U.S. deferred tax assets at a lower enacted corporate tax rate. Excluding this discrete impact and $4early-redeem our $250 million of 5.625% senior notes due 2024 and our $500 million of 3.625% senior notes due 2026. We recognized losses on the extinguishment of such notes of $98 million. Excluding these losses and acquisition-related expenses of $7 million, our adjusted net income was $238.8$386 million (1), an increase of 35% compared withand our adjusted net income in the prior year. Adjusted earnings per diluted share were $1.61 $2.74 (1),.Adjusted annualized ROE for the quarter was 19.9% (1) and adjusted annualized ROTCEwas 22.2% (1). Client assets under administration increased to $1.17 trillion as of June 30, 2021, a 33% increase compared withover June 30, 2020.
(1) ROTCE, adjusted net income, adjusted earnings per diluted share, in the prior year period.
Net revenues increased significantly in the PCG, Asset Managementadjusted annualized ROE and RJ Bank segments. PCG and Asset Management benefited from growth in client assets in fee-based accounts. RJ Bank had significant growth 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”adjusted annualized ROTCE are each non-GAAP financial measures. Please see the “reconciliation“Reconciliation of GAAPnon-GAAP financial measures to non-GAAPGAAP financial measures” in this Item 2,MD&A for a reconciliation of ourthese non-GAAP financial measures to the most directly comparable GAAP measures,measure, and for other important disclosures.
Management'sManagement’s Discussion and Analysis
Non-interest expenses increased $129The $637 million, or 10%. The35%, increase in net revenues compared with the prior-year quarter was primarily resulteddriven by significantly higher asset management and related administrative fees, largely attributable to higher PCG assets in fee-based accounts, and strong investment banking revenues, also significantly higher than the prior-year quarter. Brokerage revenues were also strong and increased compared with the prior-year quarter. Revenues in the current-year quarter included $24 million of private equity valuation gains, of which $10 million were attributable to noncontrolling interests and were offset in other expenses, compared with insignificant gains in the prior-year quarter.
Compensation, commissions and benefits expense increased $384 million, or 30%, primarily resulting from increasedthe growth in revenues and pre-tax income compared with the prior-year quarter. Our compensation ratio, or the ratio of compensation, commissions and benefits expense to net revenues, decreased to 67.2%, compared with 69.6% for the prior-year quarter, primarily due to a change in the composition of net revenues compared with the prior-year quarter. Our current quarter compensation ratio reflected the impact of strong net revenues in the Capital Markets segment, which had a 57% compensation ratio for the quarter, and from the private equity valuation gains, which do not have direct compensation associated with them.
Non-compensation expenses increased net revenues, as well as$66 million, or 18%, primarily due to the losses on extinguishment of debt of $98 million described above, the aforementioned private equity valuation gains attributable to noncontrolling interests in the current quarter that were offset within other expenses, acquisition-related expenses, and increased staffing levels requiredinvestment sub-advisory fees. Business development expenses also increased from the very low prior-year quarter level, primarily due to support our continued growthhigher recruiting-related expenses and regulatoryan increase in travel, meal and compliance requirements. Offsetting this increase wasevent-related expenses. These increases were offset by a $30$100 million decrease in expenses related to the Jay Peak matter,bank loan provision for credit losses, which was settleda benefit of $19 million in the priorcurrent-year quarter computed under the CECL methodology compared with a provision of $81 million in the prior-year quarter computed under the incurred loss methodology.
Our effective income tax rate was 20.3% for our fiscal year.
third quarter of 2021, an increase compared with a 13.1% effective income tax rate for the prior-year quarter. Our tax rate in the prior-year quarter was unusually low due to a significant change in the projected impact of our corporate-owned life insurance portfolio on our effective tax rate was 61.7% for the currentduring that quarter, reflecting the estimated discrete impactfrom a large non-deductible loss projected at March 31, 2020, to a relatively small non-taxable gain projected as of the Tax ActJune 30, 2020 resulting from a significant rebound in equity markets during our fiscal third quarter 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 adjusted effective tax rate was 24.1% (1) for the three months ended December 31, 2017.2020. We estimateexpect our effective tax rate to be approximately 28% for21% in the remainderfiscal fourth quarter of 2021.
The firm ended our fiscal year ended Septemberthird quarter of 2021 with capital ratios well in excess of regulatory requirements and substantial liquidity, with approximately $1.6 billion (1) of cash at the parent company. Pursuant to our Board of Directors’ share repurchase authorization, we repurchased 375,000 shares of common stock during our fiscal third quarter for $48 million at an average price of $128.55 per share, leaving $632 million of availability remaining under the authorization as of June 30, 2018,2021. We expect to continue to be opportunistic in deploying our capital in future quarters, through a combination of organic growth, additional share repurchases and acquisitions, as evidenced by the NWPS and Financo acquisitions, which reflectswere announced and completed during fiscal 2021, and the blended federal corporate statutory tax rate,announced acquisitions of Charles Stanley and approximately 24%Cebile.
Our results for our fiscal year 2019, reflectingthird quarter of 2021 were strong and we remain well-positioned entering our fiscal fourth quarter, with strong capital ratios, over $1 trillion of client assets under administration, a 9% increase in PCG fee-based assets from March 31, 2021 to June 30, 2021, and a strong investment banking backlog. However, we expect to continue to face headwinds from near-zero short-term interest rates and continued economic uncertainty resulting from the lower federal corporate statutory tax rate of 21% forongoing COVID-19 pandemic, which continues to evolve as recently experienced with the full year. Our future effective tax rates are estimates and are based on assumptions based on our current interpretationrapid spread of the Tax ActDelta variant. As a result, we may experience volatility of brokerage revenues and investment banking revenues, which may change, possibly materially,negatively impact our ability to sustain the level of revenues in future periods which were achieved in the current quarter. Although our results during the quarter were positively impacted by a benefit for credit losses related to our bank loan portfolio, net loan growth and/or future market deterioration could result in increased provisions in future quarters. In addition, we expect that expenses may continue to increase over the next several quarters as business and event-related travel increase and as we completecontinue to make investments in 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-owned life insurance (“COLI”), tax exempt interesttechnology and non-deductible expenses such as meals and entertainment. See Note 13 of this Form 10-Q for further information on the Tax Act.growth.
A summary of our financial results by segment as compared to the prior year areprior-year quarter is as follows:
Our Private Client Group•PCG segment generated net revenues of $1.23$1.70 billion a 19% increase,increased 36% and pre-tax income of $155$195 million increased 111% over114%. The $447 million increase in net revenues was primarily attributable to a significant increase in asset management fees due to higher assets in fee-based accounts at the priorbeginning of the current-year quarter, and higher brokerage and account and service fee revenues. Non-interest expenses increased $343 million, or 30%, primarily resulting from an increase in compensation expenses largely due to the growth in net revenues.
(1) 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
•Capital Markets net revenues of $446 million increased 38% and pre-tax income of $115 million increased 85%. The $123 million increase in net revenues was due to a significant increase in investment banking revenues from both mergers & acquisition activity and equity underwriting activity compared with the prior-year quarter, which was negatively impacted by the COVID-19 pandemic. Non-interest expenses increased $70 million, or 27%, primarily due to higher compensation expenses resulting from the increase in revenues.
•Asset Management segment net revenues of $225 million increased 38% and pre-tax income of $105 million increased 75%. The $62 million increase in net revenues was primarily driven by higher financial assets under management. Non-interest expenses increased $17 million, or 17%, primarily due to higher investment sub-advisory fees.
•Raymond James Bank net revenues of $169 million decreased 5%, while pre-tax income of $104 million increased 643%. The $9 million decrease in net revenues primarily reflected the negative impact of lower short-term interest rates and a shift in the composition of interest-earning assets, which more than offset the growth in interest-earning assets. Non-interest expenses decreased $99 million, or 60%, primarily due to the $100 million decrease in the bank loan provision for credit losses.
•The Other segment reflected a pre-tax loss that was $105 million larger than the loss in the prior-year quarter, due to the aforementioned losses on extinguishment of debt of $98 million and acquisition-related expenses of $4 million, partially offset by the impact of the private equity gains in the current-year quarter.
Nine months ended June 30, 2021 compared with the nine months ended June 30, 2020
Net revenues of $7.07 billion increased $1.15 billion, or 20%, and pre-tax income of $1.23 billion increased $435 million, or 55%. Net income of $974 million increased $365 million, or 60% and our earnings per diluted share were $6.92, also reflecting a 60% increase. Our annualized ROE for the nine months ended June 30, 2021 was 17.4%, compared with 11.9% for the prior-year period, and annualized ROTCE was 19.3% (1), compared with 13.1% (1) for the prior-year period. Excluding the impact of losses on extinguishment of debt and acquisition-related expenses, adjusted net income was $1.06 billion and adjusted earnings per diluted share were $7.50 (1). Adjusted annualized ROE was 18.7% (1) and adjusted annualized ROTCE was 20.8% (1).
The $1.15 billion increase in net revenues compared with the prior-year period was primarily driven by higher asset management and related administrative fees, largely attributable to higher PCG assets in fee-based accounts, as well as strong investment banking and brokerage revenues, which also increased compared with the prior-year period. Revenues in the current year also included private equity gains of $56 million ($20 million attributable to noncontrolling interests), compared with $40 million of losses in the prior-year period ($23 million attributable to noncontrolling interests). Offsetting these increases was the negative impact of lower short-term interest rates on our net interest income and RJBDP fees from third-party banks.
Compensation, commissions and benefits expense increased $759 million, or 19%, primarily resulting from the growth in revenues and pre-tax income compared with the prior-year period. Our compensation ratio was 68.1%, compared with 68.5% for the prior-year period.
Non-compensation expenses decreased $40 million, or 4%, primarily due to a $225 million decrease in the bank loan provision for credit losses, which included $30was a benefit of $37 million in legalthe current year computed under the CECL methodology compared with a provision of $188 million in the prior-year period computed under the incurred loss methodology. Business development expenses relatedalso declined, due to lower travel and event-related expenses as a result of the COVID-19 pandemic, partially offset by an increase in recruiting-related expenses. Offsetting these decreases was the aforementioned losses on extinguishment of debt of $98 million in the current-year period and an increase in other expenses, primarily due to the Jay Peak matter.change in private equity valuations attributable to noncontrolling interests compared with the prior-year period.
Our effective income tax rate was 20.9% for the nine months ended June 30, 2021, a decrease from 23.5% for the prior-year period, primarily due to the impact of larger non-taxable gains on our corporate-owned life insurance portfolio in the current-year period.
Pursuant to the Board of Directors’ repurchase authorization, we repurchased 982,750 shares of common stock during the nine months ended June 30, 2021 for approximately $118 million at an average price of approximately $120 per share.
(1) ROTCE, adjusted net income, adjusted earnings per diluted share, adjusted annualized ROE and adjusted annualized ROTCE are non-GAAP financial measures. Please see the “Reconciliation of non-GAAP financial measures to GAAP financial measures” in this MD&A for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure, and for other important disclosures.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
A summary of our financial results by segment as compared to the prior-year period is as follows:
•PCG segment net revenues of $4.81 billion increased 16% and pre-tax income of $527 million increased 27%. The $652 million increase in net revenues was primarily attributable to an increase in securities commissionsasset management fees largely due to higher assets in fee-based accounts at the beginning of each quarterly billing period within the current-year period, and higher brokerage revenues, partially offset by decreases in RJBDP fees driven by a stronger market environmentfrom third-party banks and continued strong recruiting and retention results. The segment also benefited from the impact of highernet interest income due to lower short-term interest rates, resulting in an increase in account and service fees related to client cash balances in the RJBDP.rates. Non-interest expenses increased $111$539 million, or 12%14%, primarily resulting from increasesan increase in compensation commissions and benefits expenses offset by a decreaselargely due to the growth in the aforementioned legal expenses.revenues.
The •Capital Markets segment generated net revenues of $217$1.33 billion increased 51% and pre-tax income of $349 million a 7% decrease over the prior year period.increased 193%. The decrease$450 million increase in net revenues was primarily due to a significant increase in investment banking revenues from both mergers & acquisition activity and underwriting activity, as well as growth in fixed income brokerage revenues. Non-interest expenses increased $220 million, or 29%, due to higher compensation expenses primarily attributable to the increase in revenues, partially offset by a decrease in institutional commissions due to lower market volatility. Investment banking revenues increased slightly, as higher merger & acquisition and advisory fees more than offset lower equity underwriting fees and tax credit fund syndication fees. Non-interest expenses were relatively flat compared with the prior year period which, combined with the decline in net revenues, contributed to a 78% decline in pre-tax income.business development expenses.
Our •Asset Management segment benefited fromnet revenues of $629 million increased fee-based client assets, generating a 32%18% and pre-tax income of $275 million increased 33%. The $98 million increase in net revenues was primarily driven by higher financial assets under management. Non-interest expenses increased $29 million, or 9%, primarily due to $151higher investment sub-advisory fees.
•Raymond James Bank segment net revenues of $496 million decreased 18%, while pre-tax income of $286 million increased 37% to $57 million.75%. The increase$108 million decrease in net revenues reflected the negative impact of lower short-term interest rates, which more than offset the growth in interest-earning assets. Non-interest expenses decreased $231 million, or 52%, primarily reflected increases in advisory fee revenues from managed programs and,due to a lesser degree, non-discretionary asset-based administration fee revenues. Financial assets under management in managed programs increased 64% over the prior year level aided by the acquisition of the Scout Group during the quarter. Non-interest expenses increased $19$225 million or 27%, primarily resulting from increased investment sub-advisory fees and acquisition-related increases in administrative & incentive compensation and benefits expense.
RJ Bank generated a 20% 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 in 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 and an increasedecrease in the net interest margin.bank loan provision for credit losses.
Activities in our•The Other segment reflected a pre-tax loss that was $14$100 million or 41% lessgreater than the prior year,loss in the prior-year period, primarily due to a decrease inthe losses on extinguishment of debt of $98 million and acquisition-related expenses and lower interest expense related to a decreaseof $6 million in the average outstanding balance and average yield of our senior notes payable.current-year period. These negative impacts were partially offset by the aforementioned private equity gains compared with losses in the prior-year period.
(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.
Management'sManagement’s Discussion and Analysis
Segments
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES
We currently operate through four operating segments and our Other segment. The four operating segments are Private Client Group, Capital Markets, Asset Management, and RJ Bank. The Other segment captures private equity activities as well as certain corporate overhead costs of RJF that are not allocated to operating segments, including the interest cost on our public debt and the acquisition and integration costs associated with our acquisitions.
The following table presents our consolidated and segment net revenues and pre-tax income/(loss), the latter excluding noncontrolling interests, for the periods indicated:
|
| | | | | | | | | | | |
| | Three months ended December 31, |
$ in thousands | | 2017 | | 2016 | | % change |
Total company | | | | | | |
Net revenues | | $ | 1,726,161 |
| | $ | 1,492,802 |
| | 16 | % |
Pre-tax income excluding noncontrolling interests | | $ | 311,243 |
| | $ | 206,379 |
| | 51 | % |
| | | | | | |
Private Client Group | | |
| | |
| | |
Net revenues | | $ | 1,233,051 |
| | $ | 1,040,089 |
| | 19 | % |
Pre-tax income | | $ | 155,063 |
| | $ | 73,358 |
| | 111 | % |
| | | | | | |
Capital Markets | | |
| | |
| | |
Net revenues | | $ | 216,665 |
| | $ | 233,016 |
| | (7 | )% |
Pre-tax income | | $ | 4,807 |
| | $ | 21,444 |
| | (78 | )% |
| | | | | | |
Asset Management | | |
| | |
| | |
Net revenues | | $ | 150,600 |
| | $ | 114,082 |
| | 32 | % |
Pre-tax income | | $ | 57,399 |
| | $ | 41,909 |
| | 37 | % |
| | | | | | |
RJ Bank | | |
| | |
| | |
Net revenues | | $ | 165,185 |
| | $ | 138,015 |
| | 20 | % |
Pre-tax income | | $ | 114,155 |
| | $ | 104,121 |
| | 10 | % |
| | | | | | |
Other | | |
| | |
| | |
Net revenues | | $ | (2,920 | ) | | $ | (9,643 | ) | | 70 | % |
Pre-tax loss | | $ | (20,181 | ) | | $ | (34,453 | ) | | 41 | % |
| | | | | | |
Intersegment eliminations | | |
| | |
| | |
Net revenues | | $ | (36,420 | ) | | $ | (22,757 | ) | |
|
Management's Discussion and Analysis
Reconciliation of GAAP measures to non-GAAP measures
We utilize certain non-GAAP calculationsfinancial measures as additional measures to aid in, and enhance, the understanding of our financial results and related measures. These non-GAAP financial measures include adjusted net income, adjusted earnings per diluted share, adjusted ROE, ROTCE, and adjusted ROTCE. We believe that thecertain of these non-GAAP financial measures provideprovides useful information to management and investors by excluding certain material items that may not be indicative of our core operating results. We believe thatutilize these non-GAAP financial measures will allow for better evaluation ofin assessing the operatingfinancial performance of the business, andas they facilitate a meaningful comparison of current- and prior-period results. We believe that ROTCE is meaningful to investors as this measure facilitates comparison of our results into the current period to those in prior and future periods. Theresults of other companies. In the following tables, the tax effect of non-GAAP adjustments reflects the statutory rate associated with each non-GAAP item. These non-GAAP financial informationmeasures should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures of other companies. The following table providestables provide a reconciliation of GAAPnon-GAAP financial measures to non-GAAPthe most directly comparable GAAP financial measures for the periods which include non-GAAP adjustments. Non-GAAP measuresindicated.
| | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
$ in millions | | June 30, 2021 | | | | June 30, 2021 | | |
Net income | | $ | 307 | | | | | $ | 974 | | | |
Non-GAAP adjustments: | | | | | | | | |
Losses on extinguishment of debt | | 98 | | | | | 98 | | | |
Acquisition-related expenses | | 7 | | | | | 9 | | | |
Pre-tax impact of non-GAAP adjustments | | 105 | | | | | 107 | | | |
Tax effect of non-GAAP adjustments | | (26) | | | | | (26) | | | |
Total non-GAAP adjustments, net of tax | | 79 | | | | | 81 | | | |
Adjusted net income | | $ | 386 | | | | | $ | 1,055 | | | |
| | | | | | | | |
Earnings per common share - diluted | | $ | 2.18 | | | | | $ | 6.92 | | | |
Non-GAAP adjustments: | | | | | | | | |
Losses on extinguishment of debt | | 0.69 | | | | | 0.70 | | | |
Acquisition-related expenses | | 0.05 | | | | | 0.06 | | | |
Tax effect of non-GAAP adjustments | | (0.18) | | | | | (0.18) | | | |
Total non-GAAP adjustments, net of tax | | 0.56 | | | | | 0.58 | | | |
Adjusted earnings per common share - diluted | | $ | 2.74 | | | | | $ | 7.50 | | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Annualized return on equity | | | | | | | | |
Average equity | | $ | 7,728 | | | $ | 6,882 | | | $ | 7,483 | | | $ | 6,797 | |
Impact on average equity of non-GAAP adjustments: | | | | | | | | |
Losses on extinguishment of debt | | 49 | | | NA | | 25 | | | NA |
Acquisition-related expenses | | 4 | | | NA | | 2 | | | NA |
Tax effect of non-GAAP adjustments | | (13) | | | NA | | (7) | | | NA |
Adjusted average equity | | $ | 7,768 | | | NA | | $ | 7,503 | | | NA |
| | | | | | | | |
Average equity | | $ | 7,728 | | | $ | 6,882 | | | $ | 7,483 | | | $ | 6,797 | |
Less: | | | | | | | | |
Average goodwill and identifiable intangible assets, net | | 865 | | | 603 | | | 791 | | | 606 | |
Average deferred tax liabilities, net | | (56) | | | (32) | | | (51) | | | (30) | |
Average tangible common equity | | $ | 6,919 | | | $ | 6,311 | | | $ | 6,743 | | | $ | 6,221 | |
Impact on average equity of non-GAAP adjustments: | | | | | | | | |
Losses on extinguishment of debt | | 49 | | | NA | | 25 | | | NA |
Acquisition-related expenses | | 4 | | | NA | | 2 | | | NA |
Tax effect of non-GAAP adjustments | | (13) | | | NA | | (7) | | | NA |
Adjusted average tangible common equity | | $ | 6,959 | | | NA | | $ | 6,763 | | | NA |
| | | | | | | | |
Return on equity | | 15.9 | % | | 10.0 | % | | 17.4 | % | | 11.9 | % |
Adjusted annualized return on equity | | 19.9 | % | | NA | | 18.7 | % | | NA |
Return on tangible common equity | | 17.7 | % | | 10.9 | % | | 19.3 | % | | 13.1 | % |
Adjusted annualized return on tangible common equity | | 22.2 | % | | NA | | 20.8 | % | | NA |
Average equity for the three months ended December 31, 2016 have been revised from those previously reportedquarterly periods is computed by adding the total equity attributable to conform to our current presentation, which includes amounts relatedRJF 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. Tangible common equity is computed by subtracting goodwill and identifiable intangible assets, net, along with the associated deferred tax liabilities, from total equity attributable to RJF. Average equity for the year-to-date periods is computed by adding the total equity attributable to RJF as of each quarter-end date during the indicated year-to-date period to the beginning of the year total, and dividing by four, 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 four. Adjusted average equity is computed by adjusting for the impact on average equity of the non-GAAP adjustments, as applicable for each respective period. Adjusted average tangible common equity is computed by adjusting for the impact on average tangible common equity of the non-GAAP adjustments, as applicable for each respective period.
ROE is computed by dividing annualized net income for the period indicated by average equity for each respective period or, in the case of ROTCE, computed by dividing annualized net income by average tangible common equity for each respective period. Adjusted ROE is computed by dividing annualized adjusted net income by adjusted average equity for each respective period, or in the case of adjusted ROTCE, computed by dividing annualized adjusted net income by adjusted average tangible common equity for each respective period.
|
| | | | | | | | |
| | 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 |
|
57
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
|
| | | | | | | | | | | |
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 | % |
Management’s Discussion and Analysis
| |
(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. |
NetSEGMENTS
We currently operate through five segments. Our business segments are PCG, Capital Markets, Asset Management and Raymond James Bank. Our Other segment includes our private equity investments, interest analysisincome on certain corporate cash balances, certain acquisition-related expenses, and certain corporate overhead costs of RJF, including the interest costs on our public debt and any losses on extinguishment of such debt.
The following table presents our consolidated and segment net revenues and pre-tax income/(loss) for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Total company | | | | | | | | | | | | |
Net revenues | | $ | 2,471 | | | $ | 1,834 | | | 35 | % | | $ | 7,065 | | | $ | 5,911 | | | 20 | % |
Pre-tax income | | $ | 385 | | | $ | 198 | | | 94 | % | | $ | 1,231 | | | $ | 796 | | | 55 | % |
| | | | | | | | | | | | |
Private Client Group | | | | | | | | | | | | |
Net revenues | | $ | 1,696 | | | $ | 1,249 | | | 36 | % | | $ | 4,810 | | | $ | 4,158 | | | 16 | % |
Pre-tax income | | $ | 195 | | | $ | 91 | | | 114 | % | | $ | 527 | | | $ | 414 | | | 27 | % |
| | | | | | | | | | | | |
Capital Markets | | | | | | | | | | | | |
Net revenues | | $ | 446 | | | $ | 323 | | | 38 | % | | $ | 1,331 | | | $ | 881 | | | 51 | % |
Pre-tax income | | $ | 115 | | | $ | 62 | | | 85 | % | | $ | 349 | | | $ | 119 | | | 193 | % |
| | | | | | | | | | | | |
Asset Management | | | | | | | | | | | | |
Net revenues | | $ | 225 | | | $ | 163 | | | 38 | % | | $ | 629 | | | $ | 531 | | | 18 | % |
Pre-tax income | | $ | 105 | | | $ | 60 | | | 75 | % | | $ | 275 | | | $ | 206 | | | 33 | % |
| | | | | | | | | | | | |
Raymond James Bank | | | | | | | | | | | | |
Net revenues | | $ | 169 | | | $ | 178 | | | (5) | % | | $ | 496 | | | $ | 604 | | | (18) | % |
Pre-tax income | | $ | 104 | | | $ | 14 | | | 643 | % | | $ | 286 | | | $ | 163 | | | 75 | % |
| | | | | | | | | | | | |
Other | | | | | | | | | | | | |
Net revenues | | $ | 2 | | | $ | (20) | | | NM | | $ | (6) | | | $ | (72) | | | 92 | % |
Pre-tax loss | | $ | (134) | | | $ | (29) | | | (362) | % | | $ | (206) | | | $ | (106) | | | (94) | % |
| | | | | | | | | | | | |
Intersegment eliminations | | | | | | | | | | | | |
Net revenues | | $ | (67) | | | $ | (59) | | | (14) | % | | $ | (195) | | | $ | (191) | | | (2) | % |
NET INTEREST ANALYSIS
The following table presents the high, low and end of period target federal funds rates for the periods presented.
| | | | | | | | | | | | | | | | | | | | |
| | Target federal funds rate |
| | Low | | High | | End of period |
Three months ended | | | | | | |
June 30, 2021 | | 0.00% | | 0.25% | | 0% - 0.25% |
June 30, 2020 | | 0.00% | | 0.25% | | 0% - 0.25% |
Nine months ended | | | | | | |
June 30, 2021 | | 0.00% | | 0.25% | | 0% - 0.25% |
June 30, 2020 | | 0.00% | | 2.00% | | 0% - 0.25% |
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 in March 2020 to a range of 250-0.25%, a reduction of 150 basis points. These decreases, in addition to other interest rate cuts implemented during calendar 2019 (225 basis points in December 2017. This increase is in additiontotal), have negatively impacted our net interest income, as well as the fees we earn from third-party banks on client cash balances swept to three 25 basis point interest rate increases since December 2016. These increases in short-term interest rates have had a significant impact on our overall financial performance,such banks as we have certain assets and liabilities, primarily held in our PCG and RJ Bank segments,part of the RJBDP which are also sensitive to changes in interest rates. GivenThe negative impact of the relationship of our interest sensitive assets to liabilities held in each of these segments, increasesdecline in short-term interest rates has outweighed the growth in interest-earning assets and RJBDP balances swept to third-party banks compared with the prior-year periods. We expect the current near-zero interest rate environment to continue for the remainder of fiscal 2021 and into fiscal 2022.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Given the relationship between our interest-sensitive assets and liabilities (primarily held in our PCG, Raymond James Bank and Other segments) and the nature of fees we earn from third-party banks on the RJBDP, decreases in short-term interest rates generally result in an overall increasedecrease in our net earnings, although the magnitude of the impact to ourthe 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’ 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 changes in short-term interest rates relative toliabilities, including deposit rates paid to clients on clienttheir cash balances.
Management'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, Conversely, any future increases in short-term interest rates mayand/or decreases in the deposit rates paid to clients generally have less of ana positive impact on our fees earned from our RJBDP, or could actually reduce our fees earned in this program, depending onearnings.
Refer to the leveldiscussion 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 onspecific components of our net interest income and account and service fees would be an unfavorable reversal of the positive impact described above.
Management'swithin “Management’s Discussion and Analysis - Results of Operations” for our PCG, Raymond James Bank, and Other segments. Also refer to “Management’s Discussion and Analysis - Results of Operations - Private Client Group - Clients’ domestic cash sweep balances” for further information on the RJBDP.
The following table presentstables present our consolidated average balance,interest-earning asset and interest-bearing liability balances, interest income and expense and the related yield and rates. Average balances are calculated on a daily basis
Quarter ended June 30, 2021 compared 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 month balances for each month within the period.quarter ended June 30, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, |
| | 2021 | | 2020 |
$ in millions | | Average daily balance | | Interest | | Annualized average rate | | Average daily balance | | Interest | | Annualized average rate |
Interest-earning assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 5,644 | | $ | 3 | | | 0.20 | % | | $ | 6,605 | | | $ | 4 | | | 0.26 | % |
Assets segregated pursuant to regulations | | 9,016 | | 3 | | | 0.16 | % | | 3,408 | | | 3 | | | 0.36 | % |
Available-for-sale securities | | 8,041 | | 20 | | | 0.96 | % | | 4,437 | | | 23 | | | 2.01 | % |
Brokerage client receivables | | 2,363 | | 19 | | | 3.33 | % | | 2,065 | | | 18 | | | 3.47 | % |
Bank loans, net of unearned income and deferred expenses: | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | 7,936 | | | 50 | | | 2.51 | % | | 7,957 | | | 58 | | | 2.93 | % |
CRE loans | | 2,748 | | | 18 | | | 2.59 | % | | 2,610 | | | 19 | | | 2.85 | % |
REIT loans | | 1,327 | | | 9 | | | 2.53 | % | | 1,412 | | | 9 | | | 2.45 | % |
Tax-exempt loans | | 1,294 | | | 9 | | | 3.33 | % | | 1,272 | | | 9 | | | 3.34 | % |
Residential mortgage loans | | 5,126 | | | 34 | | | 2.70 | % | | 4,983 | | | 37 | | | 2.97 | % |
SBL and other | | 5,208 | | | 29 | | | 2.22 | % | | 3,576 | | | 24 | | | 2.59 | % |
Loans held for sale | | 142 | | | 1 | | | 2.92 | % | | 111 | | | 1 | | | 3.22 | % |
Total bank loans, net | | 23,781 | | | 150 | | | 2.54 | % | | 21,921 | | | 157 | | | 2.87 | % |
All other interest-earning assets | | 2,288 | | | 10 | | | 1.51 | % | | 1,964 | | | 12 | | | 2.66 | % |
Total interest-earning assets | | $ | 51,133 | | | $ | 205 | | | 1.60 | % | | $ | 40,400 | | | $ | 217 | | | 2.16 | % |
Interest-bearing liabilities: | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | |
Savings, money market and NOW accounts | | $ | 28,908 | | | $ | 1 | | | 0.02 | % | | $ | 25,060 | | | $ | 2 | | | 0.02 | % |
Certificates of deposit | | 883 | | | 4 | | | 1.91 | % | | 1,104 | | | 5 | | | 2.00 | % |
Total bank deposits | | 29,791 | | | 5 | | | 0.08 | % | | 26,164 | | | 7 | | | 0.10 | % |
Brokerage client payables | | 10,486 | | | 1 | | | 0.03 | % | | 4,751 | | | 3 | | | 0.18 | % |
Other borrowings | | 860 | | | 4 | | | 2.19 | % | | 891 | | | 5 | | | 2.23 | % |
Senior notes payable | | 2,211 | | | 25 | | | 4.49 | % | | 2,067 | | | 24 | | | 4.69 | % |
All other interest-bearing liabilities | | 602 | | | 5 | | | 1.12 | % | | 586 | | | 3 | | | 1.10 | % |
Total interest-bearing liabilities | | $ | 43,950 | | | $ | 40 | | | 0.34 | % | | $ | 34,459 | | | $ | 42 | | | 0.48 | % |
Net interest income | | | | $ | 165 | | | | | | | $ | 175 | | | |
Firmwide net interest margin (net yield on interest-earning assets) | | | | | | 1.31 | % | | | | | | 1.75 | % |
Raymond James Bank net interest margin | | | | | | 1.92 | % | | | | | | 2.29 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, |
| | 2017 | | 2016 |
$ in thousands | | 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 | % |
Trading instruments | | 648,088 |
| | 5,138 |
| | 3.17 | % | | 604,749 |
| | 5,006 |
| | 3.31 | % |
Available-for-sale securities | | 2,275,219 |
| | 10,715 |
| | 1.88 | % | | 999,359 |
| | 3,400 |
| | 1.36 | % |
Margin loans | | 2,484,016 |
| | 24,095 |
| | 3.88 | % | | 2,427,230 |
| | 19,981 |
| | 3.29 | % |
Bank loans, net of unearned income | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | 7,413,409 |
| | 73,792 |
| | 3.89 | % | | 7,477,477 |
| | 71,306 |
| | 3.75 | % |
CRE construction loans | | 140,472 |
| | 1,723 |
| | 4.80 | % | | 132,506 |
| | 1,505 |
| | 4.44 | % |
CRE loans | | 3,036,603 |
| | 28,759 |
| | 3.71 | % | | 2,549,914 |
| | 22,254 |
| | 3.42 | % |
Tax-exempt loans | | 1,039,814 |
| | 6,706 |
| | 2.58 | % | | 808,160 |
| | 5,246 |
| | 2.60 | % |
Residential mortgage loans | | 3,245,333 |
| | 24,790 |
| | 3.06 | % | | 2,559,074 |
| | 18,564 |
| | 2.84 | % |
SBL | | 2,471,054 |
| | 23,240 |
| | 3.68 | % | | 1,951,644 |
| | 15,389 |
| | 3.09 | % |
Loans held for sale | | 115,882 |
| | 1,010 |
| | 3.46 | % | | 180,052 |
| | 1,261 |
| | 2.81 | % |
Total bank loans, net | | 17,462,567 |
| | 160,020 |
| | 3.65 | % | | 15,658,827 |
| | 135,525 |
| | 3.47 | % |
Loans to financial advisors | | 869,326 |
| | 3,502 |
| | 1.61 | % | | 833,760 |
| | 3,308 |
| | 1.59 | % |
Corporate cash and all other | | 4,330,440 |
| | 13,079 |
| | 1.21 | % | | 3,215,887 |
| | 5,660 |
| | 0.69 | % |
Total interest-earning assets | | $ | 31,318,827 |
| | $ | 231,729 |
| | 2.96 | % | | $ | 27,862,785 |
| | $ | 182,782 |
| | 2.62 | % |
| | | | | | | | | | | | |
Interest-bearing liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
Bank deposits | | | | | | | | | | | | |
Certificates of deposit | | $ | 323,503 |
| | $ | 1,272 |
| | 1.56 | % | | $ | 303,243 |
| | $ | 1,135 |
| | 1.48 | % |
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 | % |
Brokerage client liabilities | | 4,442,992 |
| | 2,529 |
| | 0.23 | % | | 4,919,792 |
| | 676 |
| | 0.05 | % |
Other borrowings | | 1,031,298 |
| | 5,865 |
| | 2.26 | % | | 768,178 |
| | 3,719 |
| | 1.94 | % |
Senior notes | | 1,548,885 |
| | 18,180 |
| | 4.69 | % | | 1,680,417 |
| | 24,699 |
| | 5.88 | % |
Other | | 256,161 |
| | 2,163 |
| | 3.38 | % | | 249,595 |
| | 1,533 |
| | 2.46 | % |
Total interest-bearing liabilities | | $ | 25,803,950 |
| | $ | 39,431 |
| | 0.61 | % | | $ | 22,724,800 |
| | $ | 35,966 |
| | 0.63 | % |
Net interest income | | |
| | $ | 192,298 |
| | |
| | |
| | $ | 146,816 |
| | |
|
Nonaccrual loans are included in the average loan balances 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 all loans included in interest income for the three months ended December 31, 2017 and 2016 was $9 million for both periods.
Three months ended December 31, 2017 compared with the three months ended December 31, 2016
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 increase in average loans outstanding and an increase the available-for-sale securities portfolio, as well as an increase in net interest margin. Refer to the discussion of the specific components of RJ Bank’s net interest income in the RJ Bank section of this MD&A.
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 the 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 2017 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 | % |
Management's Discussion and Analysis
Selected key metrics
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 | % |
Financial Advisors:
|
| | | | | | | | |
| December 31, 2017 | | September 30, 2017 | | December 31, 2016 |
Employees | 3,038 |
| | 3,041 |
| | 2,985 |
|
Independent Contractors | 4,499 |
| (1) | 4,305 |
| | 4,143 |
|
Total advisors | 7,537 |
| | 7,346 |
| | 7,128 |
|
(1) Our independent contractor financial advisor counts include 126 registered individuals who met the requirements to be classified as financial advisors in the December 31, 2017 period following our periodic review procedures.
PCG assets under administration increased 18% over December 31, 2016, resulting from equity market appreciation and net client inflows. Our net client inflows were primarily attributable to strong financial advisor recruiting results. PCG assets in fee-based accounts as a percentage of overall PCG assets under administration increased compared to December 31, 2016, due in part to clients moving to fee-based alternatives versus traditional transaction-based accounts in response to regulatory changes.
Excluding the impact of the individuals newly qualifying to be classified as financial advisors, the net increase in financial advisors as of December 31, 2017 compared to December 31, 2016 primarily resulted from strong financial advisor recruiting and high levels of retention. Notwithstanding the future impact of changes in the overall economy, and more specifically their impact on the markets, we believe that this increase in financial advisors is a positive indication of potential future revenue growth in this segment.
Three months ended December 31, 2017 compared with the three months ended December 31, 2016
Net revenues of $1.23 billion increased $193 million, or 19%. The portion of total segment revenues that we consider to be recurring was 82% for the three months ended December 31, 2017, an increase from 78% for the prior year period. Recurring revenues include asset-based 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.
Pre-tax income of $155 million increased $82 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%, primarily due to higher RJBDP fees, primarily resulting from an increase in short-term interest rates since December 2016. Mutual fund and annuity service fees increased reflecting higher education and marketing support (“EMS”) fees and mutual fund omnibus fees. The increase in EMS fees is primarily 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 invested in 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%, primarily due to an increase in sales commission expenses, which increased $102 million, or 16%, in line with the increase in securities commissions and fees. Administrative & incentive compensation and benefits expense increased $27 million, or 16%, primarily due to increased staffing levels to support our continued growth and regulatory and compliance requirements. Communications and information processing expense increased $9 million, or 20%, a result of our continued investment in information technology infrastructure 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.
Management's Discussion and Analysis
Results of Operations – Capital Markets
For an overview of our Capital Markets segment operations as well as the 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 Financial Condition and Results of Operations” of our 2017 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 December 31, 2017 compared with the three months ended December 31, 2016
Net revenues of $217 million decreased $16 million, or 7%, primarily due to lower commissions. Pre-tax income of $5 million decreased $17 million, or 78%.
Total commission revenues decreased $21 million, or 15%. Institutional fixed income and equity commissions each decreased $11 million 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 syndication 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.
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 increase in administrative & incentive compensation and benefits expense.
Results of Operations – Asset Management
For an overview of our Asset Management segment operations as well as the 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 2017 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 | % |
Selected key metrics
Managed Programs - Our investment advisory fees recorded in this segment were earned based on balances either at 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 determined based on asset balances at the beginning of the quarter, 20% were based on asset balances at the end of the quarter and 20% were based on average assets throughout the quarter.
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 |
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 |
|
Less: Assets managed for affiliated entities | | (5,542 | ) | | (5,397 | ) | | (4,805 | ) |
Total financial assets under management | | $ | 130,310 |
| | $ | 96,396 |
| | $ | 79,652 |
|
Carillon Tower above includes its subsidiaries and affiliates Eagle Asset Management, ClariVest Asset Management, Cougar Global Investments, and the newly acquired Scout Group.
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, |
$ in millions | | 2017 | | 2016 |
Financial assets under management at beginning of period | | $ | 101,793 |
| | $ | 81,729 |
|
Carillon Tower - net inflows: | | | | |
Scout group acquisition | | 27,087 |
| | — |
|
Other | | 720 |
| | 88 |
|
AMS - net inflows | | 2,178 |
| | 1,896 |
|
Net market appreciation in asset values | | 4,074 |
| | 744 |
|
Financial assets under management at end of period | | $ | 135,852 |
| | $ | 84,457 |
|
Non-discretionary asset-based programs - Our assets held in certain non-discretionary asset-based programs (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 year level was primarily due to market appreciation and to clients moving to fee-based accounts from the traditional transaction-based accounts in response to U.S. Department of Labor (“DOL”) regulatory changes. The majority of the administrative fees associated with these programs are determined based on balances at the beginning of the quarter.
Three months ended December 31, 2017 compared with the three months ended December 31, 2016
Net revenues of $151 million increased $37 million, or 32%. Pre-tax income of $57 million increased $15 million, or 37%.
Total investment advisory and related administrative fee revenues increased $33 million, or 34%, primarily driven by an increase in financial advisory fees due to higher financial assets under management. The increase in financial assets under management was primarily a result of the Scout Group acquisition, as well as both market appreciation and recruiting. Administrative fees also increased during the quarter due to the aforementioned increase in assets held in non-discretionary programs.
Account and service fees and other income increased $3 million, or 19%, primarily reflecting increased trust fee revenue due to a 12% increase in trust assets in RJ Trust.
Management'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 the 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 Financial Condition and Results of Operations” of our 2017 Form 10-K.
Operating results
|
| | | | | | | | | | | |
| | Three months ended December 31, |
$ in thousands | | 2017 | | 2016 | | % change |
Revenues: | | | | | | |
Interest income | | $ | 175,995 |
| | $ | 140,774 |
| | 25 | % |
Interest expense | | (12,956 | ) | | (6,502 | ) | | 99 | % |
Net interest income | | 163,039 |
| | 134,272 |
| | 21 | % |
Other income | | 2,146 |
| | 3,743 |
| | (43 | )% |
Net revenues | | 165,185 |
| | 138,015 |
| | 20 | % |
Non-interest expenses: | | |
| | |
| |
|
|
Compensation and benefits | | 8,876 |
| | 7,724 |
| | 15 | % |
Communications and information processing | | 2,585 |
| | 1,867 |
| | 38 | % |
Occupancy and equipment costs | | 362 |
| | 351 |
| | 3 | % |
Loan loss provision/(benefit) | | 1,016 |
| | (1,040 | ) | | NM |
|
FDIC insurance premiums | | 4,834 |
| | 4,260 |
| | 13 | % |
Affiliate deposit account servicing fees | | 21,258 |
| | 11,653 |
| | 82 | % |
Other | | 12,099 |
| | 9,079 |
| | 33 | % |
Total non-interest expenses | | 51,030 |
| | 33,894 |
| | 51 | % |
Pre-tax income | | $ | 114,155 |
| | $ | 104,121 |
| | 10 | % |
Management's Discussion and Analysis
The following table presents average balance, interest income and expense, the related yield and rates, and interest spreads and margins for RJ Bank:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, |
| | 2017 | | 2016 |
$ in thousands | | 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 | % |
Available-for-sale securities | | 2,168,610 |
| | 10,143 |
| | 1.87 | % | | 872,859 |
| | 3,077 |
| | 1.41 | % |
Bank loans, net of unearned income: | | |
| | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | 7,413,409 |
| | 73,792 |
| | 3.89 | % | | 7,477,477 |
| | 71,306 |
| | 3.75 | % |
CRE construction loans | | 140,472 |
| | 1,723 |
| | 4.80 | % | | 132,506 |
| | 1,505 |
| | 4.44 | % |
CRE loans | | 3,036,603 |
| | 28,759 |
| | 3.71 | % | | 2,549,914 |
| | 22,254 |
| | 3.42 | % |
Tax-exempt loans | | 1,039,814 |
| | 6,706 |
| | 3.42 | % | | 808,160 |
| | 5,246 |
| | 3.99 | % |
Residential mortgage loans | | 3,245,333 |
| | 24,790 |
| | 3.06 | % | | 2,559,074 |
| | 18,564 |
| | 2.84 | % |
SBL | | 2,471,054 |
| | 23,240 |
| | 3.68 | % | | 1,951,644 |
| | 15,389 |
| | 3.09 | % |
Loans held for sale | | 115,882 |
| | 1,010 |
| | 3.46 | % | | 180,052 |
| | 1,261 |
| | 2.81 | % |
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 interest-earning banking assets | | 21,116,458 |
| | $ | 175,995 |
| | 3.32 | % | | 17,609,381 |
| | $ | 140,774 |
| | 3.21 | % |
Non-interest-earning banking assets: | | |
| | |
| | |
| | |
| | |
| | |
|
Unrealized loss on available-for-sale securities | | (15,508 | ) | | |
| | |
| | (5,138 | ) | | |
| | |
|
Allowance for loan losses | | (190,503 | ) | | |
| | |
| | (196,895 | ) | | |
| | |
|
Other assets | | 402,839 |
| | |
| | |
| | 358,673 |
| | |
| | |
|
Total non-interest-earning banking assets | | 196,828 |
| | |
| | |
| | 156,640 |
| | |
| | |
|
Total banking assets | | $ | 21,313,286 |
| | |
| | |
| | $ | 17,766,021 |
| | |
| | |
|
Interest-bearing banking liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
Deposits: | | |
| | |
| | |
| | |
| | |
| | |
|
Certificates of deposit | | $ | 323,503 |
| | $ | 1,272 |
| | 1.56 | % | | $ | 303,243 |
| | $ | 1,135 |
| | 1.48 | % |
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 | % |
Total interest-bearing banking liabilities | | 19,377,759 |
| | $ | 12,956 |
| | 0.26 | % | | 15,988,180 |
| | $ | 6,502 |
| | 0.16 | % |
Non-interest-bearing banking liabilities | | 93,462 |
| | |
| | |
| | 86,936 |
| | |
| | |
|
Total banking liabilities | | 19,471,221 |
| | |
| | |
| | 16,075,116 |
| | |
| | |
|
Total banking shareholder’s equity | | 1,842,065 |
| | |
| | |
| | 1,690,905 |
| | |
| | |
|
Total banking liabilities and shareholder’s equity | | $ | 21,313,286 |
| | |
| | |
| | $ | 17,766,021 |
| | |
| | |
|
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income | | $ | 1,738,699 |
| | $ | 163,039 |
| | | | $ | 1,621,201 |
| | $ | 134,272 |
| | |
Bank net interest: | | |
| | |
| | | | |
| | |
| | |
Spread | | |
| | |
| | 3.06 | % | | |
| | |
| | 3.05 | % |
Margin (net yield on interest-earning banking assets) | | |
| | |
| | 3.08 | % | | |
| | |
| | 3.06 | % |
Ratio of interest-earning banking assets to interest-bearing banking liabilities | | |
| | |
| | 108.97 | % | | |
| | | | 110.14 | % |
Nonaccrual loans are included in the average loan balances presented in the table above. Payment or income received on corporate nonaccrual loans are applied to principal. Income on other nonaccrual loans is recognized on a cash basis.
Fee income on loans included in interest income for both the three months ended December 31, 2017 and 2016 was $9 million.
The yield on tax-exempt loans in the preceding table above is presented on a tax equivalenttaxable-equivalent basis utilizing the applicable federal statutory rates for each of the three months ended December 31, 2017June 30, 2021 and 2016.2020.
Management's Discussion and Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning banking assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on itsour interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous year’speriod’s volume. Changes applicableattributable to both volume and rate have been allocated proportionately.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | | | | |
| | 2021 compared to 2020 | | | |
| | Increase/(decrease) due to | | | |
$ in millions | | Volume | | Rate | | Total | | | | | | | |
Interest income: | | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | (1) | | | $ | (1) | | | | | | | | |
Assets segregated pursuant to regulations | | 5 | | | (5) | | | — | | | | | | | | |
Available-for-sale securities | | 18 | | | (21) | | | (3) | | | | | | | | |
Brokerage client receivables | | 2 | | | (1) | | | 1 | | | | | | | | |
Bank loans, net of unearned income and deferred expenses: | | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | | |
C&I loans | | — | | | (8) | | | (8) | | | | | | | | |
CRE loans | | 1 | | | (2) | | | (1) | | | | | | | | |
REIT loans | | 1 | | | (1) | | | — | | | | | | | | |
Tax-exempt loans | | — | | | — | | | — | | | | | | | | |
Residential mortgage loans | | 1 | | | (4) | | | (3) | | | | | | | | |
SBL and other | | 9 | | | (4) | | | 5 | | | | | | | | |
Loans held for sale | | — | | | — | | | — | | | | | | | | |
Total bank loans, net | | 12 | | | (19) | | | (7) | | | | | | | | |
All other interest-earning assets | | 2 | | | (4) | | | (2) | | | | | | | | |
Total interest-earning assets | | $ | 39 | | | $ | (51) | | | $ | (12) | | | | | | | | |
Interest expense: | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | | |
Savings, money market and NOW accounts | | $ | — | | | $ | (1) | | | $ | (1) | | | | | | | | |
Certificates of deposit | | (1) | | | — | | | (1) | | | | | | | | |
Total bank deposits | | (1) | | | (1) | | | (2) | | | | | | | | |
Brokerage client payables | | 2 | | | (4) | | | (2) | | | | | | | | |
Other borrowings | | — | | | (1) | | | (1) | | | | | | | | |
Senior notes payable | | 2 | | | (1) | | | 1 | | | | | | | | |
All other interest-bearing liabilities | | — | | | 2 | | | 2 | | | | | | | | |
Total interest-bearing liabilities | | $ | 3 | | | $ | (5) | | | $ | (2) | | | | | | | | |
Change in net interest income | | $ | 36 | | | $ | (46) | | | $ | (10) | | | | | | | | |
|
| | | | | | | | | | | | |
| | Three months ended December 31, |
| | 2017 compared to 2016 |
| | Increase/(decrease) due to |
$ in thousands | | Volume | | Rate | | Total |
Interest revenue: | | | | | | |
Interest-earning banking assets: | | | | | | |
Cash | | $ | 616 |
| | $ | 2,572 |
| | $ | 3,188 |
|
Available-for-sale securities | | 4,131 |
| | 2,935 |
| | 7,066 |
|
Bank loans, net of unearned income: | | | | | | |
Loans held for investment: | | | | | | |
|
C&I loans | | (611 | ) | | 3,097 |
| | 2,486 |
|
CRE construction loans | | 90 |
| | 128 |
| | 218 |
|
CRE loans | | 4,247 |
| | 2,258 |
| | 6,505 |
|
Tax-exempt loans | | 1,503 |
| | (43 | ) | | 1,460 |
|
Residential mortgage loans | | 4,978 |
| | 1,248 |
| | 6,226 |
|
SBL | | 4,096 |
| | 3,755 |
| | 7,851 |
|
Loans held for sale | | (449 | ) | | 198 |
| | (251 | ) |
Total bank loans, net | | 13,854 |
| | 10,641 |
| | 24,495 |
|
FHLB stock, FRB stock, and other | | (221 | ) | | 693 |
| | 472 |
|
Total interest-earning banking assets | | 18,380 |
| | 16,841 |
|
| 35,221 |
|
Interest expense: | | |
| | |
| | |
|
Interest-bearing liabilities: | | |
| | |
| | |
|
Bank deposits: | | |
| | |
| | |
|
Certificates of deposit | | 76 |
| | 61 |
| | 137 |
|
Money market, savings and NOW accounts | | 460 |
| | 4,329 |
| | 4,789 |
|
FHLB advances and other | | 779 |
| | 749 |
| | 1,528 |
|
Total interest-bearing liabilities | | 1,315 |
| | 5,139 |
| | 6,454 |
|
Change in net interest income | | $ | 17,065 |
| | $ | 11,702 |
| | $ | 28,767 |
|
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 |
|
Management'sManagement’s Discussion and Analysis
Nine months ended June 30, 2021 compared with the nine months ended June 30, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended June 30, |
| | 2021 | | 2020 |
$ in millions | | Average daily balance | | Interest | | Annualized average rate | | Average daily balance | | Interest | | Annualized average rate |
Interest-earning assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 5,548 | | | $ | 9 | | | 0.22 | % | | $ | 5,013 | | | $ | 37 | | | 0.99 | % |
Assets segregated pursuant to regulations | | 8,307 | | | 11 | | | 0.18 | % | | 2,853 | | | 25 | | | 1.20 | % |
Available-for-sale securities | | 7,837 | | | 64 | | | 1.08 | % | | 3,654 | | | 60 | | | 2.18 | % |
Brokerage client receivables | | 2,222 | | | 56 | | | 3.38 | % | | 2,290 | | | 66 | | | 3.87 | % |
Bank loans, net of unearned income and deferred expenses: | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | 7,670 | | | 149 | | | 2.57 | % | | 8,012 | | | 225 | | | 3.70 | % |
CRE loans | | 2,665 | | | 52 | | | 2.57 | % | | 2,593 | | | 72 | | | 3.63 | % |
REIT loans | | 1,290 | | | 25 | | | 2.49 | % | | 1,349 | | | 34 | | | 3.33 | % |
Tax-exempt loans | | 1,253 | | | 25 | | | 3.34 | % | | 1,236 | | | 25 | | | 3.35 | % |
Residential mortgage loans | | 5,044 | | | 103 | | | 2.73 | % | | 4,823 | | | 112 | | | 3.09 | % |
SBL and other | | 4,709 | | | 80 | | | 2.24 | % | | 3,460 | | | 89 | | | 3.37 | % |
Loans held for sale | | 153 | | | 3 | | | 2.54 | % | | 138 | | | 4 | | | 3.77 | % |
Total bank loans, net | | 22,784 | | | 437 | | | 2.57 | % | | 21,611 | | | 561 | | | 3.46 | % |
All other interest-earning assets | | 2,264 | | | 31 | | | 1.79 | % | | 2,329 | | | 50 | | | 2.82 | % |
Total interest-earning assets | | $ | 48,962 | | | $ | 608 | | | 1.66 | % | | $ | 37,750 | | | $ | 799 | | | 2.83 | % |
Interest-bearing liabilities: | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | |
Savings, money market and NOW accounts | | $ | 27,732 | | | $ | 4 | | | 0.02 | % | | $ | 23,190 | | | $ | 20 | | | 0.11 | % |
Certificates of deposit | | 911 | | | 13 | | | 1.90 | % | | 993 | | | 15 | | | 2.06 | % |
Total bank deposits | | 28,643 | | | 17 | | | 0.08 | % | | 24,183 | | | 35 | | | 0.19 | % |
Brokerage client payables | | 9,765 | | | 3 | | | 0.03 | % | | 3,929 | | | 9 | | | 0.31 | % |
Other borrowings | | 863 | | | 14 | | | 2.20 | % | | 893 | | | 15 | | | 2.23 | % |
Senior notes payable | | 2,115 | | | 73 | | | 4.62 | % | | 1,742 | | | 61 | | | 4.66 | % |
All other interest-bearing liabilities | | 591 | | | 8 | | | 1.05 | % | | 878 | | | 16 | | | 1.81 | % |
Total interest-bearing liabilities | | $ | 41,977 | | | $ | 115 | | | 0.36 | % | | $ | 31,625 | | | $ | 136 | | | 0.56 | % |
Net interest income | | | | $ | 493 | | | | | | | $ | 663 | | | |
Firmwide net interest margin (net yield on interest-earning assets) | | | | | | 1.35 | % | | | | | | 2.36 | % |
Raymond James Bank net interest margin | | | | | | 1.96 | % | | | | | | 2.82 | % |
|
| | | | | | | | |
$ 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 |
|
Nonaccrual loans are included in the average loan balances in the preceding 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.
Total
The yield on tax-exempt loans in the abovepreceding table is presented on a taxable-equivalent basis utilizing the applicable federal statutory rates for each of the nine months ended June 30, 2021 and 2020.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous period’s volume. Changes attributable to both volume and rate have been allocated proportionately.
| | | | | | | | | | | | | | | | | | | | |
| | Nine months ended June 30, |
| | 2021 compared to 2020 |
| | Increase/(decrease) due to |
$ in millions | | Volume | | Rate | | Total |
Interest income: | | | | | | |
Interest-earning assets: | | | | | | |
Cash and cash equivalents | | $ | 10 | | | $ | (38) | | | $ | (28) | |
Assets segregated pursuant to regulations | | 52 | | | (66) | | | (14) | |
Available-for-sale securities | | 69 | | | (65) | | | 4 | |
Brokerage client receivables | | (3) | | | (7) | | | (10) | |
Bank loans, net of unearned income and deferred expenses: | | | | | | |
Loans held for investment: | | | | | | |
C&I loans | | (11) | | | (65) | | | (76) | |
CRE loans | | 1 | | | (21) | | | (20) | |
REIT loans | | — | | | (9) | | | (9) | |
Tax-exempt loans | | 2 | | | (2) | | | — | |
Residential mortgage loans | | 5 | | | (14) | | | (9) | |
SBL and other | | 27 | | | (36) | | | (9) | |
Loans held for sale | | 1 | | | (2) | | | (1) | |
Total bank loans, net | | 25 | | | (149) | | | (124) | |
All other interest-earning assets | | (4) | | | (15) | | | (19) | |
Total interest-earning assets | | $ | 149 | | | $ | (340) | | | $ | (191) | |
Interest expense: | | | | | | |
Interest-bearing liabilities: | | | | | | |
Bank deposits: | | | | | | |
Savings, money market and NOW accounts | | $ | 4 | | | $ | (20) | | | $ | (16) | |
Certificates of deposit | | (1) | | | (1) | | | (2) | |
Total bank deposits | | 3 | | | (21) | | | (18) | |
Brokerage client payables | | 15 | | | (21) | | | (6) | |
Other borrowings | | — | | | (1) | | | (1) | |
Senior notes payable | | 13 | | | (1) | | | 12 | |
All other interest-bearing liabilities | | (7) | | | (1) | | | (8) | |
Total interest-bearing liabilities | | $ | 24 | | | $ | (45) | | | $ | (21) | |
Change in net interest income | | $ | 125 | | | $ | (295) | | | $ | (170) | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
RESULTS OF OPERATIONS – PRIVATE CLIENT GROUP
For an overview of our PCG segment operations, as well as a description of the key factors impacting our PCG results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 1,050 | | | $ | 715 | | | 47 | % | | $ | 2,914 | | | $ | 2,330 | | | 25 | % |
Brokerage revenues: | | | | | | | | | | | | |
Mutual and other fund products | | 167 | | | 131 | | | 27 | % | | 498 | | | 438 | | | 14 | % |
Insurance and annuity products | | 113 | | | 88 | | | 28 | % | | 320 | | | 288 | | | 11 | % |
Equities, ETFs and fixed income products | | 110 | | | 100 | | | 10 | % | | 338 | | | 324 | | | 4 | % |
Total brokerage revenues | | 390 | | | 319 | | | 22 | % | | 1,156 | | | 1,050 | | | 10 | % |
Account and service fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 105 | | | 82 | | | 28 | % | | 298 | | | 260 | | | 15 | % |
RJBDP fees: | | | | | | | | | | | | |
Third-party banks | | 18 | | | 20 | | | (10) | % | | 58 | | | 129 | | | (55) | % |
Raymond James Bank | | 47 | | | 43 | | | 9 | % | | 134 | | | 138 | | | (3) | % |
Client account and other fees | | 39 | | | 32 | | | 22 | % | | 113 | | | 96 | | | 18 | % |
Total account and service fees | | 209 | | | 177 | | | 18 | % | | 603 | | | 623 | | | (3) | % |
Investment banking | | 11 | | | 7 | | | 57 | % | | 33 | | | 29 | | | 14 | % |
Interest income | | 31 | | | 31 | | | — | | | 91 | | | 125 | | | (27) | % |
All other | | 7 | | | 4 | | | 75 | % | | 20 | | | 20 | | | — | |
Total revenues | | 1,698 | | | 1,253 | | | 36 | % | | 4,817 | | | 4,177 | | | 15 | % |
Interest expense | | (2) | | | (4) | | | (50) | % | | (7) | | | (19) | | | (63) | % |
Net revenues | | 1,696 | | | 1,249 | | | 36 | % | | 4,810 | | | 4,158 | | | 16 | % |
Non-interest expenses: | | | | | | | | | | | | |
Financial advisor compensation and benefits | | 1,082 | | | 783 | | | 38 | % | | 3,053 | | | 2,555 | | | 19 | % |
Administrative compensation and benefits | | 251 | | | 235 | | | 7 | % | | 760 | | | 727 | | | 5 | % |
Total compensation, commissions and benefits | | 1,333 | | | 1,018 | | | 31 | % | | 3,813 | | | 3,282 | | | 16 | % |
Non-compensation expenses: | | | | | | | | | | | | |
Communications and information processing | | 70 | | | 66 | | | 6 | % | | 201 | | | 187 | | | 7 | % |
Occupancy and equipment | | 45 | | | 42 | | | 7 | % | | 133 | | | 130 | | | 2 | % |
Business development | | 19 | | | 12 | | | 58 | % | | 50 | | | 63 | | | (21) | % |
Professional fees | | 10 | | | 8 | | | 25 | % | | 33 | | | 25 | | | 32 | % |
All other | | 24 | | | 12 | | | 100 | % | | 53 | | | 57 | | | (7) | % |
Total non-compensation expenses | | 168 | | | 140 | | | 20 | % | | 470 | | | 462 | | | 2 | % |
Total non-interest expenses | | 1,501 | | | 1,158 | | | 30 | % | | 4,283 | | | 3,744 | | | 14 | % |
Pre-tax income | | $ | 195 | | | $ | 91 | | | 114 | % | | $ | 527 | | | $ | 414 | | | 27 | % |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Selected key metrics
PCG client asset balances
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
$ in billions | | June 30, 2021 | | March 31, 2021 | | September 30, 2020 | | | | June 30, 2020 | | March 31, 2020 | | September 30, 2019 |
Assets under administration (“AUA”) | | $ | 1,102.9 | | | $ | 1,028.1 | | | $ | 883.3 | | | | | $ | 833.1 | | | $ | 734.0 | | | $ | 798.4 | |
Assets in fee-based accounts (1) | | $ | 616.7 | | | $ | 567.6 | | | $ | 475.3 | | | | | $ | 443.0 | | | $ | 383.5 | | | $ | 409.1 | |
Percent of AUA in fee-based accounts | | 55.9 | % | | 55.2 | % | | 53.8 | % | | | | 53.2 | % | | 52.2 | % | | 51.2 | % |
(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.”
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.
We also offer our clients fee-based accounts that are invested in “managed programs” overseen by AMS, which is part of our Asset Management segment. Fee-billable assets invested in managed programs are included in both “Assets in fee-based accounts” in the preceding table and “Financial assets under management” in the Asset Management segment. Revenues related to managed programs are shared by our PCG and Asset Management segments. The Asset Management segment receives a higher portion of the revenues related to accounts invested in managed programs, as compared to the portion received for non-managed programs, as it is performing portfolio management services in addition to administrative services.
The vast majority of the revenues we earn from fee-based accounts are recorded in “Asset management and related administrative fees” on our Condensed Consolidated Statements of Income and Comprehensive Income. Fees received from such accounts are based on the value of client assets in fee-based accounts and vary based on the specific account types in which the client invests and the level of assets in the client relationship. As fees for substantially all of such accounts are billed based on balances as of the beginning of the quarter, revenues from fee-based accounts may not be immediately affected by changes in asset values, but rather the impacts are seen in the following quarter.
PCG assets under administration increased during the three months ended June 30, 2021, primarily due to equity market appreciation, as well as net inflows of client assets. In addition, PCG assets in fee-based accounts continued to increase as a percentage of overall PCG assets under administration due to clients’ increased preference for fee-based alternatives versus transaction-based accounts. As a result of the shift to fee-based accounts over the past several years, a larger portion of our PCG revenues are more directly impacted by market movements.
Financial advisors
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | March 31, 2021 | | September 30, 2020 | | | | June 30, 2020 | | |
Employees | | 3,423 | | | 3,375 | | | 3,404 | | | | | 3,379 | | | |
Independent contractors | | 4,990 | | | 4,952 | | | 4,835 | | | | | 4,776 | | | |
Total advisors | | 8,413 | | | 8,327 | | | 8,239 | | | | | 8,155 | | | |
The number of financial advisors increased compared with the prior quarter and September 30, 2020 due to strong recruiting of financial advisors and new trainees that were moved into production roles, partially offset by the impact of advisors who left the firm, including planned retirements, where assets are generally retained at the firm. The growth in the number of financial advisors has been impacted by the transfer of advisors who were previously affiliated with the firm as independent contractors or employees to our RIA & Custody Services (“RCS”) division. Advisors in RCS are not included in the financial advisor count, although their assets are still included in client assets under administration. The recruiting pipeline remains strong across our affiliation options despite an increasingly competitive recruiting environment.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Clients’ domestic cash sweep balances
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
$ in millions | | June 30, 2021 | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | |
RJBDP | | | | | | | | | | | | |
Raymond James Bank | | $ | 29,253 | | | $ | 28,174 | | | $ | 26,697 | | | $ | 25,599 | | | $ | 24,101 | | | |
Third-party banks | | 25,080 | | | 25,110 | | | 26,142 | | | 25,998 | | | 24,661 | | | |
Subtotal RJBDP | | 54,333 | | | 53,284 | | | 52,839 | | | 51,597 | | | 48,762 | | | |
CIP | | 8,610 | | | 9,517 | | | 8,769 | | | 3,999 | | | 3,157 | | | |
Total clients’ domestic cash sweep balances | | $ | 62,943 | | | $ | 62,801 | | | $ | 61,608 | | | $ | 55,596 | | | $ | 51,919 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Average yield on RJBDP - third-party banks | | 0.29 | % | | 0.33 | % | | 0.30 | % | | 0.97 | % |
A significant portion of our clients’ cash is included in the RJBDP, a multi-bank sweep program in which clients’ cash deposits in their accounts are swept into interest-bearing deposit accounts at Raymond James Bank and various third-party banks. We earn servicing fees for the administrative services we provide related to our clients’ deposits that are swept to such banks as part of the RJBDP. The amounts from third-party banks are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates and the interest paid to clients by the third-party banks on balances in the RJBDP. The “Average yield on RJBDP - third party banks” in the preceding table is computed by dividing annualized RJBDP fees from third-party banks, which are net of unearnedthe 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 the Raymond James Bank segment, which are based on the number of accounts that are swept to Raymond James Bank. The fees from the Raymond James Bank segment are eliminated in consolidation. PCG segment results are impacted by changes in the allocation of client cash balances in RJBDP between Raymond James Bank and third-party banks. PCG segment results are also impacted by changes in the allocation of cash balances between RJBDP and CIP, as the net yield to the firm on cash balances in CIP (i.e., the spread between amounts earned on assets segregated for regulatory purposes and the interest paid to clients on CIP balances) is lower than the yield to the firm on RJBDP balances, on average.
Client cash balances remained elevated as of June 30, 2021 compared to prior year balances as a result of a number of factors, including the continuing economic uncertainty caused by the COVID-19 pandemic, as well as uncertainty related to the nature and timing of policy changes that may be put forth by the new federal government administration. The average yield on RJBDP - third-party banks decreased compared with the prior-year periods due to a decline in short-term interest rates. We expect the average yield on RJBDP balances at third-party banks to remain approximately 0.29% for the remainder of our 2021 fiscal year; however, this projected yield could decline in fiscal 2022 if demand for deposits from third-party banks does not improve from current levels.
Quarter ended June 30, 2021 compared with the quarter ended June 30, 2020
Net revenues of $1.70 billion increased $447 million, or 36%, and pre-tax income of $195 million increased $104 million, or 114%.
Asset management and deferredrelated administrative fees increased $335 million, or 47%, primarily due to higher assets in fee-based accounts at the beginning of the current quarter. As assets in these accounts are billed primarily on balances as of the beginning of the quarter, the 9% increase in fee-based assets as of June 30, 2021 compared to March 31, 2021, should positively impact asset management fees in our fiscal fourth quarter of 2021.
Brokerage revenues increased $71 million, or 22%, due to higher trailing revenues from mutual and other fund products and annuity products, resulting from higher asset values in the current quarter, as well as higher transactional revenues.
Account and service fees increased $32 million, or 18%, primarily due to an increase in mutual fund service fees, primarily resulting from higher average mutual fund assets, as well as incremental client account and other fees resulting from our acquisition of NWPS at the end of our fiscal first quarter of 2021.
Compensation-related expenses increased $315 million, or 31%, primarily due to higher compensable net revenues.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Non-compensation expenses increased $28 million, or 20%, in part due to increased recruiting costs and other business development expenses, including travel-related expenses. Total loans
Nine months ended June 30, 2021 compared with the nine months ended June 30, 2020
Net revenues of $4.81 billion increased $652 million, or 16%, and pre-tax income of $527 million increased $113 million, or 27%.
Asset management and related administrative fees increased $584 million, or 25%, primarily due to higher assets in fee-based accounts at the beginning of each of the current-year quarterly billing periods compared with the prior-year quarterly billing periods.
Brokerage revenues increased $106 million, or 10%, primarily due to higher trailing revenues from mutual and other fund products and annuity products, resulting from higher average asset values, as well as higher transactional revenues due to increased client activity.
Account and service fees decreased $20 million, or 3%, primarily due to 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, resulting from higher average mutual fund assets, as well as incremental client account and other fees resulting from our acquisition of NWPS at the end of our fiscal first quarter of 2021.
Net interest income decreased $22 million, or 21%, driven by a decline in interest income due to lower short-term interest rates applicable to both cash and segregated asset balances, which more than offset the impact of higher segregated asset balances. Our CIP balances increased significantly compared with the prior-year period resulting in the increase in segregated assets, and a majority of the increase was held in segregated short-term U.S. Treasury securities at very low interest rates. Partially offsetting the impact of a decrease in interest income, interest expense also decreased, despite the significant increase in client cash balances in our CIP, due to the impact of lower deposit rates paid on these balances.
Compensation-related expenses increased $531 million, or 16%, primarily due to higher compensable net revenues.
Non-compensation expenses increased $8 million, or 2%, largely due to higher communications and information processing expenses, partially offset by lower business development expenses due to limited travel and event-related expenses during the COVID-19 pandemic.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
RESULTS OF OPERATIONS – CAPITAL MARKETS
For an overview of our Capital Markets segment operations, as well as a description of the key factors impacting our Capital Markets results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Revenues: | | | | | | | | | | | | |
Brokerage revenues: | | | | | | | | | | | | |
Fixed income | | $ | 124 | | | $ | 125 | | | (1) | % | | $ | 397 | | | $ | 296 | | | 34 | % |
Equity | | 36 | | | 41 | | | (12) | % | | 112 | | | 115 | | | (3) | % |
Total brokerage revenues | | 160 | | | 166 | | | (4) | % | | 509 | | | 411 | | | 24 | % |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | 153 | | | 60 | | | 155 | % | | 424 | | | 192 | | | 121 | % |
Equity underwriting | | 69 | | | 35 | | | 97 | % | | 196 | | | 117 | | | 68 | % |
Debt underwriting | | 43 | | | 37 | | | 16 | % | | 126 | | | 90 | | | 40 | % |
Total investment banking | | 265 | | | 132 | | | 101 | % | | 746 | | | 399 | | | 87 | % |
Interest income | | 4 | | | 4 | | | — | | | 12 | | | 22 | | | (45) | % |
Tax credit fund revenues | | 17 | | | 20 | | | (15) | % | | 57 | | | 50 | | | 14 | % |
All other | | 3 | | | 3 | | | — | | | 14 | | | 13 | | | 8 | % |
Total revenues | | 449 | | | 325 | | | 38 | % | | 1,338 | | | 895 | | | 49 | % |
Interest expense | | (3) | | | (2) | | | 50 | % | | (7) | | | (14) | | | (50) | % |
Net revenues | | 446 | | | 323 | | | 38 | % | | 1,331 | | | 881 | | | 51 | % |
Non-interest expenses: | | | | | | | | | | | | |
Compensation, commissions and benefits | | 256 | | | 195 | | | 31 | % | | 767 | | | 545 | | | 41 | % |
Non-compensation expenses: | | | | | | | | | | | | |
Communications and information processing | | 22 | | | 19 | | | 16 | % | | 61 | | | 58 | | | 5 | % |
Occupancy and equipment | | 9 | | | 9 | | | — | | | 27 | | | 27 | | | — | |
Business development | | 8 | | | 7 | | | 14 | % | | 23 | | | 38 | | | (39) | % |
Professional fees | | 12 | | | 12 | | | — | | | 38 | | | 35 | | | 9 | % |
Acquisition-related expenses | | 3 | | | — | | | NM | | 3 | | | — | | | NM |
All other | | 21 | | | 19 | | | 11 | % | | 63 | | | 59 | | | 7 | % |
Total non-compensation expenses | | 75 | | | 66 | | | 14 | % | | 215 | | | 217 | | | (1) | % |
Total non-interest expenses | | 331 | | | 261 | | | 27 | % | | 982 | | | 762 | | | 29 | % |
Pre-tax income | | $ | 115 | | | $ | 62 | | | 85 | % | | $ | 349 | | | $ | 119 | | | 193 | % |
Quarter ended June 30, 2021 compared with the quarter ended June 30, 2020
Net revenues of $446 million increased $123 million, or 38%, and pre-tax income of $115 million increased $53 million, or 85%.
Brokerage revenues decreased $6 million, or 4%, primarily due to a decrease in equity brokerage revenues, as uncertainty related to the onset of the COVID-19 pandemic drove high levels of client activity in the prior-year quarter. Similarly, fixed income brokerage revenues continued to be strong but were slightly lower than the prior-year quarter.
Investment banking revenues increased $133 million, or 101%, compared with the prior-year quarter, due to a combination of strong results in the current quarter, and a prior-year quarter which had been negatively impacted by a slowdown in activity during the onset of the COVID-19 pandemic. Merger & acquisition and advisory revenues increased significantly compared with the prior-year quarter, due to an increase in both the number and size of transactions, and reflected strong activity in both the U.S. and U.K. Equity underwriting revenues increased significantly, primarily due to higher levels of client activity and larger transactions in the current quarter. Debt underwriting revenues also increased, due to higher revenues from corporate underwritings, partially offset by lower revenues from public finance and asset-backed transactions. In addition to the strong results during the quarter, our investment banking pipelines remain strong and, in part, reflect the investments we have made
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
over the past several years, which has positioned us to enhance our services to our clients. The most recent example of such investments is our acquisition of Financo which closed at the end of our fiscal second quarter of 2021.
Compensation-related expenses increased $61 million, or 31%, primarily due to the increase in revenues.
Non-compensation expenses increased $9 million, or 14%, and included $3 million of acquisition-related expenses, comprised of the amortization expense related to intangible assets with short useful lives which arose in our acquisition of Financo.
Nine months ended June 30, 2021 compared with the nine months ended June 30, 2020
Net revenues of $1.33 billion increased $450 million, or 51%, and pre-tax income of $349 million increased $230 million, or 193%.
Brokerage revenues increased $98 million, or 24%, due to a significant increase in fixed income brokerage revenues as a result of an increase in client activity levels throughout the current-year period. The significant increase in client activity levels, particularly with depository clients, began toward the end of our fiscal second quarter of fiscal 2020.
Investment banking revenues increased $347 million, or 87%, due to a significant increase in merger & acquisition and advisory revenues and underwriting revenues. The significant increase in merger & acquisition and advisory revenues reflected larger individual transactions and an increase in the number of transactions, as the current-year period reflected high levels of client activity, while the prior-year period was impacted by low levels of client activity during the onset of the pandemic. Equity underwriting revenues also increased significantly, primarily due to an increase in market activity in both the U.S. and Canada. An increase in debt underwriting primarily reflected higher revenues from corporate and asset-backed underwritings, partially offset by lower revenues from public finance transactions.
Compensation-related expenses increased $222 million, or 41%, primarily due to the increase in net revenues.
Non-compensation expenses decreased $2 million, or 1%, primarily due to lower travel and event-related expenses as a result of the COVID-19 pandemic, partially offset by smaller increases across various expense categories, including the aforementioned acquisition-related expenses associated with the Financo acquisition.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
RESULTS OF OPERATIONS – ASSET MANAGEMENT
For an overview of our Asset Management segment operations as well as a description of the key factors impacting our Asset Management results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees: | | | | | | | | | | | | |
Managed programs | | $ | 148 | | | $ | 109 | | | 36 | % | | $ | 414 | | | $ | 358 | | | 16 | % |
Administration and other | | 70 | | | 48 | | | 46 | % | | 193 | | | 152 | | | 27 | % |
Total asset management and related administrative fees | | 218 | | | 157 | | | 39 | % | | 607 | | | 510 | | | 19 | % |
Account and service fees | | 4 | | | 3 | | | 33 | % | | 13 | | | 12 | | | 8 | % |
All other | | 3 | | | 3 | | | — | | | 9 | | | 9 | | | — | |
Net revenues | | 225 | | | 163 | | | 38 | % | | 629 | | | 531 | | | 18 | % |
Non-interest expenses: | | | | | | | | | | | | |
Compensation, commissions and benefits | | 43 | | | 44 | | | (2) | % | | 138 | | | 134 | | | 3 | % |
Non-compensation expenses: | | | | | | | | | | | | |
Communications and information processing | | 12 | | | 10 | | | 20 | % | | 35 | | | 33 | | | 6 | % |
Investment sub-advisory fees | | 33 | | | 23 | | | 43 | % | | 91 | | | 74 | | | 23 | % |
All other | | 32 | | | 26 | | | 23 | % | | 90 | | | 84 | | | 7 | % |
Total non-compensation expenses | | 77 | | | 59 | | | 31 | % | | 216 | | | 191 | | | 13 | % |
Total non-interest expenses | | 120 | | | 103 | | | 17 | % | | 354 | | | 325 | | | 9 | % |
Pre-tax income | | $ | 105 | | | $ | 60 | | | 75 | % | | $ | 275 | | | $ | 206 | | | 33 | % |
Selected key metrics
Managed programs
Management fees recorded in our Asset Management segment are generally calculated as a percentage of the value of our fee-billable financial assets under management (“AUM”). These AUM include the portion of fee-based AUA in our PCG segment that is invested in programs overseen by our Asset Management segment (included in the “AMS” line of the following table), as well as retail accounts managed on behalf of third-party institutions, institutional accounts and 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, as well as 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 included $1.77 billionperformance and $1.61 billionnet inflows or outflows of loans to borrowers domiciledassets.
Fees for our managed programs are generally collected quarterly. Approximately 65% of these fees are based on balances as of the beginning of the quarter, approximately 10% are based on balances as of the end of the quarter, and approximately 25% are based on average daily balances throughout the quarter.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Financial assets under management
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | June 30, 2021 | | March 31, 2021 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | September 30, 2019 |
AMS (1) | | $ | 131.8 | | | $ | 121.2 | | | $ | 102.2 | | | $ | 96.0 | | | $ | 84.0 | | | $ | 91.8 | |
Carillon Tower Advisers | | 69.2 | | | 66.6 | | | 59.5 | | | 57.5 | | | 51.7 | | | 58.5 | |
Subtotal financial assets under management | | 201.0 | | | 187.8 | | | 161.7 | | | 153.5 | | | 135.7 | | | 150.3 | |
Less: Assets managed for affiliated entities | | (10.0) | | | (9.6) | | | (8.6) | | | (8.1) | | | (7.5) | | | (7.2) | |
Total financial assets under management | | $ | 191.0 | | | $ | 178.2 | | | $ | 153.1 | | | $ | 145.4 | | | $ | 128.2 | | | $ | 143.1 | |
(1)Represents the portion of our PCG segment fee-based AUA (as disclosed in Canada at December 31, 2017“Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and September 30, 2017, respectively. At December 31, 2017Analysis - Results of Operations - Private Client Group”) that is invested in managed programs overseen by the Asset Management segment. See “Management’s Discussion and September 30, 2017, there were $1.09 billionAnalysis - 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.
Activity (including activity in assets managed for affiliated entities)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in billions | | 2021 | | 2020 | | 2021 | | 2020 |
Financial assets under management at beginning of period | | $ | 187.8 | | | $ | 135.7 | | | $ | 161.7 | | | $ | 150.3 | |
Carillon Tower Advisers - net inflows/(outflows) | | (0.3) | | | (2.0) | | | 0.8 | | | (4.4) | |
AMS - net inflows | | 4.5 | | | 1.5 | | | 9.8 | | | 4.8 | |
Net market appreciation in asset values | | 9.0 | | | 18.3 | | | 28.7 | | | 2.8 | |
Financial assets under management at end of period | | $ | 201.0 | | | $ | 153.5 | | | $ | 201.0 | | | $ | 153.5 | |
Carillon Tower Advisers
Assets managed by Carillon Tower Advisers include assets managed by its subsidiaries and $1.00 billion, respectively, in Canadian dollar-denominated loans heldaffiliates: Eagle Asset Management, Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management and Cougar Global Investments. The following table presents Carillon Tower Advisers’ AUM by objective, excluding assets for investment.which it does not exercise discretion, as well as the approximate average client fee rate earned on such assets for the period presented.
| | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | June 30, 2021 | | Average fee rate for the three months ended June 30, 2021 | | | | | | | | |
Equity | | $ | 31.6 | | | 0.52 | % | | | | | | | | |
Fixed income | | 31.6 | | | 0.18 | % | | | | | | | | |
Balanced | | 6.0 | | | 0.35 | % | | | | | | | | |
Total financial assets under management | | $ | 69.2 | | | 0.35 | % | | | | | | | | |
Non-discretionary asset-based programs
The following table presents includes assets held in certain non-discretionary asset-based programs for which the Asset Management segment does not exercise discretion but provides administrative support (including for affiliated entities). The vast majority of these assets are also included in our PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and Analysis - Results of Operations - Private Client Group”). Administrative fees associated with these programs are predominantly based on balances at the beginning of the quarter.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | June 30, 2021 | | March 31, 2021 | | September 30, 2020 | | | | June 30, 2020 | | March 31, 2020 | | September 30, 2019 |
Total assets | | $ | 361.5 | | | $ | 334.2 | | | $ | 280.6 | | | | | $ | 253.7 | | | $ | 217.3 | | | $ | 229.7 | |
RJ Bank’s allowanceTrust
The following table includes assets held in asset-based programs in RJ Trust (including those managed for loan losses by loan category:affiliated entities).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | June 30, 2021 | | March 31, 2021 | | September 30, 2020 | | | | June 30, 2020 | | March 31, 2020 | | September 30, 2019 |
Total assets | | $ | 8.1 | | | $ | 7.8 | | | $ | 7.1 | | | | | $ | 7.1 | | | $ | 6.4 | | | $ | 6.6 | |
|
| | | | | | | | | | | | | | |
| | 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 | % |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Three monthsQuarter ended December 31, 2017June 30, 2021 compared with the three monthsquarter ended December 31, 2016June 30, 2020
Net revenues of $165$225 million increased $27$62 million, or 20%38%, primarily reflecting anand pre-tax income of $105 million increased $45 million, or 75%.
Asset management and related administrative fees increased $61 million, or 39%, driven by higher AUM and higher assets in non-discretionary asset-based programs.
Compensation expenses decreased $1 million, or 2%, and non-compensation expenses increased $18 million, or 31%. The increase in net interest income. Pre-taxnon-compensation expenses was primarily due to investment sub-advisory fees, which resulted from the increase in AUM in sub-advised programs.
Nine months ended June 30, 2021 compared with the nine months ended June 30, 2020
Net revenues of $629 million increased $98 million, or 18%, and pre-tax income of $114$275 million increased $10$69 million, or 10%33%.
Asset management and related administrative fees increased $97 million, or 19%, driven by higher AUM and higher assets in non-discretionary asset-based programs, resulting from both equity market appreciation and net inflows. Carillon Tower Advisers generated net inflows during the current-year period, despite the structural headwinds for active asset managers resulting from the industry shift from actively managed investment strategies to passive investment strategies.
Compensation expenses increased $4 million, or 3%, and included the impact of higher net revenues. Non-compensation expenses increased $25 million, or 13%, largely due to investment sub-advisory fees which resulted from the increase in AUM in sub-advised programs.
RESULTS OF OPERATIONS – RAYMOND JAMES BANK
For an overview of our Raymond James Bank segment operations, as well as a description of the key factors impacting our Raymond James Bank segment results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2020 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Revenues: | | | | | | | | | | | | |
Interest income | | $ | 172 | | | $ | 181 | | | (5) | % | | $ | 505 | | | $ | 635 | | | (20) | % |
Interest expense | | (11) | | | (12) | | | (8) | % | | (32) | | | (51) | | | (37) | % |
Net interest income | | 161 | | | 169 | | | (5) | % | | 473 | | | 584 | | | (19) | % |
All other | | 8 | | | 9 | | | (11) | % | | 23 | | | 20 | | | 15 | % |
Net revenues | | 169 | | | 178 | | | (5) | % | | 496 | | | 604 | | | (18) | % |
Non-interest expenses: | | | | | | | | | | | | |
Compensation and benefits | | 13 | | | 13 | | | — | | | 38 | | | 38 | | | — | |
Non-compensation expenses: | | | | | | | | | | | | |
Bank loan provision/(benefit) for credit losses | | (19) | | | 81 | | | NM | | (37) | | | 188 | | | NM |
RJBDP fees to PCG | | 47 | | | 43 | | | 9 | % | | 134 | | | 138 | | | (3) | % |
All other | | 24 | | | 27 | | | (11) | % | | 75 | | | 77 | | | (3) | % |
Total non-compensation expenses | | 52 | | | 151 | | | (66) | % | | 172 | | | 403 | | | (57) | % |
Total non-interest expenses | | 65 | | | 164 | | | (60) | % | | 210 | | | 441 | | | (52) | % |
Pre-tax income | | $ | 104 | | | $ | 14 | | | 643 | % | | $ | 286 | | | $ | 163 | | | 75 | % |
Quarter ended June 30, 2021 compared with the quarter ended June 30, 2020
Net revenues of $169 million decreased $9 million, or 5%, and pre-tax income of $104 million increased $90 million, or 643%.
Net interest income increased $29decreased $8 million, or 21%5%, as the negative impacts from lower average LIBOR and a shift in the composition of interest-earning assets compared with the prior-year quarter more than offset the impact of higher average interest-earning assets. The net interest margin decreased to 1.92% from 2.29% for the prior-year quarter, primarily due to a $3.51 billion increasethe decline in average interest-earning banking assetsLIBOR, as well as an increase ina higher concentration of agency-backed available-for-sale securities, which have a lower
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
yield on average than loans. Based on current rates, as well as the elevated prepayment of higher-yielding securities and mortgages, we project our net interest margin.margin to decline to approximately 1.90% for our fiscal fourth quarter of 2021.
The bank loan benefit for credit losses was $19 million in the current quarter, which was calculated under the CECL model, compared with an $81 million provision in the prior-year quarter, which was calculated under the incurred loss model. The current quarter benefit reflected an improved economic forecast, as well as improved credit ratings within our corporate loan portfolio. The provision for credit losses in the prior-year quarter reflected the rapid and widespread economic deterioration and uncertainty at the onset of the COVID-19 pandemic.
Nine months ended June 30, 2021 compared with the nine months ended June 30, 2020
Net revenues of $496 million decreased $108 million, or 18%, and pre-tax income of $286 million increased $123 million, or 75%.
Net interest income decreased $111 million, or 19%, as the negative impact from lower short-term interest rates more than offset the impact of higher average interest-earning assets. The increase in average interest-earning banking assets was primarily driven by a $1.80 billion increasesignificant growth in average loans, a $1.30 billion increase in our averagethe available-for-sale securities portfolio and a $449 million increase in average cash. The increase in averagesecurities-based loans was comprised of increases in average residential mortgage loans, corporate loans, tax-exempt loans,
Management's Discussion and Analysis
and SBL.to PCG clients. The net interest margin increaseddecreased to 3.08%1.96% from 3.06% due to an increase in asset yields partially offset by an increase in2.82% for the total cost of funds. The total assets yield increase resulted from an increase in the loan portfolio yield and an increase in the yield on cash, both due to an increase in short-term interest rates. The total cost of funds increased due to an increase in deposit costs. Corresponding to the increase in average interest-earning banking assets, average interest-bearing banking liabilities increased $3.39 billion to $19.38 billion.
The loan loss provision increased by $2 millionprior-year period, primarily due to the prior year reflectingsignificant decline in short-term interest rates, as well as a nethigher concentration of agency-backed available-for-sale securities, which on average have a lower yield than loans.
We had a bank loan benefit for credit losses of $37 million, which was calculated under the CECL model, compared with a result$188 million provision in the prior-year period, which was calculated under the incurred loss model. The current period benefit was largely attributable to improved economic forecasts utilized in our CECL model since our October 1, 2020 adoption date, including improved outlooks on unemployment and gross domestic product, which favorably impact most of our loan portfolios, as well as improved credit ratings within our corporate loan portfolio. The provision for credit losses in the prior-year period reflected the rapid and widespread economic deterioration and uncertainty caused by the onset 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.COVID-19 pandemic.
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 Results of Operations – Other
This segment includes our private equity activities as well asinvestments, interest income on certain corporate cash balances, certain acquisition-related expenses, and certain corporate overhead costs of RJF 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.any losses on extinguishment of such debt. For an overview of our Other segment operations, refer to the information presented in “Item 1 - Business” of our 20172020 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Revenues: | | | | | | | | | | | | |
Interest income | | $ | — | | | $ | 3 | | | (100) | % | | $ | 6 | | | $ | 27 | | | (78) | % |
Gains/(losses) on private equity investments | | 24 | | | 1 | | | 2,300 | % | | 56 | | | (40) | | | NM |
All other | | 4 | | | 2 | | | 100 | % | | 7 | | | 4 | | | 75 | % |
Total revenues | | 28 | | | 6 | | | 367 | % | | 69 | | | (9) | | | NM |
Interest expense | | (26) | | | (26) | | | — | | | (75) | | | (63) | | | 19 | % |
Net revenues | | 2 | | | (20) | | | NM | | (6) | | | (72) | | | 92 | % |
Non-interest expenses: | | | | | | | | | | | | |
Compensation and all other | | 34 | | | 9 | | | 278 | % | | 96 | | | 34 | | | 182 | % |
Losses on extinguishment of debt | | 98 | | | — | | | NM | | 98 | | | — | | | NM |
Acquisition-related expenses | | 4 | | | — | | | NM | | 6 | | | — | | | NM |
Total non-interest expenses | | 136 | | | 9 | | | 1,411 | % | | 200 | | | 34 | | | 488 | % |
Pre-tax loss | | $ | (134) | | | $ | (29) | | | (362) | % | | $ | (206) | | | $ | (106) | | | (94) | % |
|
| | | | | | | | | | | |
| | 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 monthsQuarter ended December 31, 2017June 30, 2021 compared with the three monthsquarter ended December 31, 2016June 30, 2020
The pre-tax loss generated by this segment of $20$134 million decreased by $14was $105 million or 41%.larger than the loss in the prior-year quarter.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Net revenues increased $22 million, as the current quarter included $24 million of private equity valuation gains, of which $10 million were attributable to noncontrolling interests and were offset within other expenses, compared with $1 million of gains in this segmentthe prior-year quarter. The current quarter valuation gains primarily reflected the impact of continued improvement in market conditions and an improved outlook for certain of our investments.
Non-interest expenses increased $7$127 million, or 70%,primarily due to an increaselosses on the extinguishment of debt of $98 million (see Note 14 for further information), as well as the aforementioned $10 million offset of private equity valuation losses attributable to noncontrolling interests in the current quarter. The $4 million of acquisition-related expenses in the current quarter primarily included professional expenses associated with our acquisitions of Cebile Capital, which was announced in our netfiscal third quarter of 2021, and Charles Stanley, which was announced in July 2021.
Nine months ended June 30, 2021 compared with the nine months ended June 30, 2020
The pre-tax loss of $206 million was $100 million larger than the loss in the prior-year period.
Net revenues increased $66 million, primarily due to private equity valuation gains in the current period, compared with losses in the prior-year period, which reflected the impact of challenging market conditions at the onset of the COVID-19 pandemic. The current period included $56 million of private equity valuation gains, of which $20 million were attributable to noncontrolling interests and were offset within other expenses. These valuation gains were primarily the result of continued improvement in market conditions and an improved outlook for certain of our investments. The prior-year period included $40 million of private equity valuation losses, of which $23 million were attributable to noncontrolling interests and were offset within other expenses. Interest income earned on corporate cash balances decreased compared with the prior-year period due to lower short-term interest incomerates, partially offset by the impact of $9 million resulting from both a decrease inhigher average balances, and 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 primarily as a result of the increaseissuance of $500 million of senior notes in interest rates and higher corporate cash balances. Other revenues decreased $3March 2020.
Non-interest expenses increased $166 million, or 488%, primarily due to lower netthe aforementioned losses on extinguishment of debt of $98 million, as well as the aforementioned $20 million in gains (both realized and unrealized) arising from our private equity portfolio.
attributable to noncontrolling interests, compared with $23 million in losses in the prior-year period. The $6 million of acquisition-related expenses forin the three months ended December 31, 2017 related to incrementalcurrent year primarily included professional and integration expenses incurred in connectionassociated with our acquisition of the Scout Group which closed in November 2017. Prior year acquisition-related expenses primarily related to our acquisitions of Alex. BrownNWPS and 3Macs late inFinanco during fiscal 2021, as well as our 2016 fiscal year. See Note 3announced acquisitions of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q for further information.Cebile Capital and Charles Stanley.
CERTAIN STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES Management's Discussion and Analysis
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Nine months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Return on assets | | 2.2% | | 1.5% | | 2.4% | | 1.9% |
Return on equity | | 15.9% | | 10.0% | | 17.4% | | 11.9% |
Average equity to average assets | | 13.6% | | 14.6% | | 14.0% | | 15.7% |
Dividend payout ratio | | 17.9% | | 30.1% | | 16.9% | | 25.6% |
|
| | | | |
| | For the three months ended December 31, |
| | 2017 | | 2016 |
Return on average assets | | 1.3% | | 1.9% |
Return on average equity | | 8.4% | | 11.7% |
Average equity to average assets | | 15.9% | | 15.8% |
Dividend payout ratio | | 31.3% | | 22.0% |
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.four.
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.four.
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 RJ Bank section“Net interest analysis” and “Risk management - Credit risk” sections of this Management’s DiscussionMD&A and Analysis of Financial Condition and Results of Operations andto the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for the other required disclosures.
Liquidity and capital resourcesLIQUIDITY 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 transactionscollateralized financing arrangements or additional capital raising activities under our “universal” shelf registration statement.
Cash and cash equivalents increased $592 million during the nine months ended June 30, 2021 to $5.98 billion. During the nine months ended June 30, 2021, cash provided by operating activities duringour operations (including significant net income) and proceeds from our $750 million of 3.75% senior notes offering (net of debt issuance costs), were offset by cash used for the three months ended December 31, 2017 was $326 million. In addition to operating cash flowsearly-redemption of $750 million of our pre-existing senior notes and the related to net income, othermake-whole premiums, dividend payments, share repurchases, and investments in future growth with our acquisitions of NWPS and Financo. We also had significant increases in client cash from operations included:
An increase of $467 million inbalances, which increased both our brokerage client payables and other accounts payable, mostly dueour bank deposits. However, this cash was largely used to increased client cash balances in brokerage accounts.
A decrease inincrease our brokerage client receivables 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.
Management's Discussion and Analysis
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale used $108 million.
An increase of $97 million in assets segregated pursuant to regulations, primarily through the purchase of U.S. Treasuries, as part of our brokerage activities, and other segregated assets, primarily resulting from the increases in client cash balances.
Net trading instruments increased $47 million.
Investing activities resulted in the use of $1.07 billion of cash during the three months ended December 31, 2017.
The primary investing activities were:
A netto increase in RJ Bank loans used $624 million.
Purchases ofour bank loan portfolio and available-for-sale securities held at RJ Bank, netas part of proceeds from maturations, repayments and redemptions within the portfolio, used $225 million.our banking activities.
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 $1.44$1.6 billion of our total December 31, 2017June 30, 2021 cash and cash equivalents (a portionincluded cash held directly at the parent, or parent cash loaned to RJ&A. As of which resides in depository accounts at RJ Bank) was available to us without restrictions. The cash and cash equivalents held were as follows:
|
| | | | |
$ in thousands | | 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 million as of December 31, 2017. The portion of this total that is available on demand without restrictions, which amounted to $152 million at December 31, 2017, is reflected in the RJF total and is excluded from the RJ Bank total in the table above.
June 30, 2021, RJF had loaned $1.14$1.09 billion to RJ&A as of December 31, 2017 (such amount is included in the RJ&A cash balance presented in the table above)following table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business activities. The following table presents our holdings of cash and cash equivalents.
| | | | | | | | |
$ in millions | | June 30, 2021 |
RJF | | $ | 480 | |
RJ&A | | 2,262 | |
Raymond James Bank | | 1,847 | |
RJ Ltd. | | 869 | |
RJFS | | 123 | |
Carillon Tower Advisers | | 82 | |
Other subsidiaries | | 319 | |
Total cash and cash equivalents | | $ | 5,982 | |
RJF maintained depository accounts at Raymond James Bank with a balance of $185 million as of June 30, 2021. The portion of this total that was available on demand without restrictions, which amounted to $108 million as of June 30, 2021, is reflected in the RJF total (and is excluded from the Raymond James Bank cash balance in the preceding table).
A large portion of the RJ Ltd. cash and cash equivalents balance as of June 30, 2021 was held to meet regulatory requirements and was not available for use by the parent.
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 RJRaymond James Bank.
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 the Financial Industry Regulatory Authority (“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 December 31, 2017,June 30, 2021, RJ&A significantly exceeded both the minimum regulatory requirements, and the covenants in its financing arrangements pertaining to net capital. At that date, RJ&A 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%Individual Retirement Accounts (“IRAs”), must also satisfy certain Internal Revenue Service regulations in order to accept new IRAs and qualified plans and retain the accounts for which it serves as nonbank custodian. With growth in the value of aggregate debit items. There are also limitations onclient assets in such accounts, the capital of RJ&A may need to grow to continue to satisfy this requirement. As a result, RJ&A may limit dividends it would otherwise remit to RJF. We evaluate regulatory requirements, loan covenants and certain internal tolerances when determining the amount of dividends that may be declared by a broker-dealer without Financial Industry Regulatory Authority approval.liquidity available to RJF from RJ&A.
RJRaymond James Bank may pay dividends to the parent companyRJF without the prior approval of its regulator as long as the dividend doesdividends do not exceed the sum of RJRaymond James Bank’s current calendar year and the previous two calendar years’ retained net income, and RJRaymond James Bank maintains its targeted regulatory capital ratios. At December 31, 2017, RJDividends from Raymond James Bank had $139 million ofmay be limited to the extent that capital in excess of the amount it would need at December 31, 2017is needed to maintainsupport its targeted total capital to risk-weighted assets ratio of 12.5%, and could pay a dividend of such amount without requiring prior approval of its regulator.balance sheet growth.
Although we have liquidity available to us from our other subsidiaries, the available amounts are not as significant as the amountsthose previously described above and, in certain instances, may be subject to regulatory requirements.
Borrowings and financing arrangements
Committed financing arrangements
Our ability to borrow is dependent upon compliance with the conditions in theour various loan agreements and, in the case of secured borrowings, collateral eligibility requirements. Our committed financing arrangements are in the formconsist of eithera tri-party repurchase agreement (i.e., securities sold under agreements or,to repurchase) and, in the case of the RJF Credit Facility,$500 million revolving credit facility agreement (the “Credit Facility”), an unsecured line of credit. The required market value of the collateral associated with the committed secured facilitiestri-party repurchase agreement ranges from 102%105% to 125% of the amount financed.
The following table presents our 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 |
$ in millions | | RJ&A | | | | RJF | | Total | | Total number of arrangements |
Financing arrangement: | | | | | | | | | | |
Committed secured | | $ | 100 | | | | | $ | — | | | $ | 100 | | | 1 | |
Committed unsecured | | 200 | | | | | 300 | | | 500 | | | 1 | |
Total committed financing arrangements | | $ | 300 | | | | | $ | 300 | | | $ | 600 | | | 2 | |
| | | | | | | | | | |
Outstanding borrowing amount: | | | | | | | | | | |
Committed secured | | $ | — | | | | | $ | — | | | $ | — | | | |
Committed unsecured | | — | | | | | — | | | — | | | |
Total outstanding borrowing amount | | $ | — | | | | | $ | — | | | $ | — | | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
|
| | | | | | | | | | | | | | | |
| | As of December 31, 2017 |
$ in thousands | | RJ&A | | RJF | | Total | | Total number of arrangements |
Financing arrangement: | | | | | | | | |
Committed secured | | $ | 200,000 |
| | $ | — |
| | $ | 200,000 |
| | 2 |
|
Committed unsecured | | — |
| | 300,000 |
| | 300,000 |
| | 1 |
|
Total committed financing arrangements | | $ | 200,000 |
| | $ | 300,000 |
| | $ | 500,000 |
| | 3 |
|
| | | | | | | | |
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 |
| | |
Our committed unsecured financing arrangement in the preceding table represents our Credit Facility, which provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF. RJ&A may borrow up to $500 million under the Credit Facility, depending on the amount of outstanding borrowings by RJF. For additional details on our committed unsecured financing arrangement, see our discussion of the Credit Facility in Note 14 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K. In April 2021, we amended our Credit Facility, maintaining the $500 million maximum borrowing amount, but extending the term through April 2026 and incorporating a lower cost of borrowing under the facility and certain favorable covenant modifications.
Uncommitted financing arrangements
Our uncommitted financing arrangements are in the form of secured lines of credit, secured bilateral or tri-party repurchase agreements, or unsecured lines of credit. Our arrangements with third-party lenders are generally utilized to finance a portion of our fixed income securities or for cash management purposes. Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed.borrowed and are generally collateralized by RJ&A-owned securities or by securities that we have received as collateral under reverse repurchase agreements. As of December 31, 2017,June 30, 2021, we had three outstanding borrowings under three uncommitted secured borrowing arrangements with lenders out of a total of 1511 uncommitted financing arrangements (nine(seven uncommitted secured and sixfour uncommitted unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities.
Management's Discussion and Analysis
The following table presents our borrowings on uncommitted financing arrangements, all of which were in the form of repurchase agreements in RJ&A.&A and were included in “Collateralized financings” on our Condensed Consolidated Statements of Financial Condition.
| | | | | | | | | | | | | | |
$ in millions | | | | | | | | June 30, 2021 |
Outstanding borrowing amount: | | | | | | | | |
Uncommitted secured | | | | | | | | $ | 185 | |
Uncommitted unsecured | | | | | | | | — | |
Total outstanding borrowing amount | | | | | | | | $ | 185 | |
|
| | | | |
$ in thousands | | As of December 31, 2017 |
Outstanding borrowing amount: | | |
Uncommitted secured | | $ | 339,036 |
|
Uncommitted unsecured | | 150,000 |
|
Total outstanding borrowing amount | | $ | 489,036 |
|
The average daily balance outstanding during the five most recent quarters, the maximum month-end balance outstanding during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements are detailed in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Repurchase transactions | | Reverse repurchase transactions |
For the quarter ended: ($ in millions) | | Average daily balance outstanding | | Maximum month-end balance outstanding during the quarter | | End of period balance outstanding | | Average daily balance outstanding | | Maximum month-end balance outstanding during the quarter | | End of period balance outstanding |
June 30, 2021 | | $ | 194 | | | $ | 185 | | | $ | 185 | | | $ | 283 | | | $ | 339 | | | $ | 289 | |
March 31, 2021 | | $ | 226 | | | $ | 260 | | | $ | 222 | | | $ | 242 | | | $ | 280 | | | $ | 224 | |
December 31, 2020 | | $ | 211 | | | $ | 236 | | | $ | 233 | | | $ | 204 | | | $ | 259 | | | $ | 162 | |
September 30, 2020 | | $ | 140 | | | $ | 165 | | | $ | 165 | | | $ | 199 | | | $ | 260 | | | $ | 207 | |
June 30, 2020 | | $ | 222 | | | $ | 278 | | | $ | 228 | | | $ | 168 | | | $ | 193 | | | $ | 193 | |
Other borrowings and collateralized financings
RJ BankWe had $875$850 million in FHLB borrowings outstanding at December 31, 2017,June 30, 2021, 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 RJRaymond James Bank’s residential mortgage loan portfolio (see Note 1214 of the Notes to Condensed Consolidated Financial Statements in thisof our 2020 Form 10-Q10-K for additional information regarding these borrowings). RJRaymond James Bank had an additional $1.49$3.11 billion in immediate credit available from the FHLB as of December 31, 2017June 30, 2021 and, with the pledge of additional eligible collateral to the FHLB, total available credit of 30% of total assets.
RJRaymond James Bank is eligible to participate in the Fed’s discount-windowFederal Reserve’s discount window program; however, we do not view borrowings from the FedFederal Reserve as a primary source of funding. The credit available in this program is subject to periodic review, may be terminated or reduced at the discretion of the Fed,Federal Reserve, and would beis secured by pledged C&I loans.
From timeWe act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from one broker-dealer and then lend them to timeanother. Where permitted, we enter into repurchase agreementshave also loaned, to broker-dealers and reverse repurchase agreements.other financial
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 onbalance of $100 million as of June 30, 2021 related to the repurchase agreementssecurities loaned included in “Securities sold under agreements to repurchase”“Collateralized financings” on our Condensed Consolidated Statements of Financial Condition included inof this Form 10-Q. See Note 7 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q in the amount of $229 million as of December 31, 2017 (which are reflected in the table of financing arrangements above). Such financings are generallyfor more information on our collateralized by non-customer, RJ&A owned securities or by securities that we have received as collateral under reverse repurchase agreements.
The average daily balance outstanding during the five most recent successive quarters, the maximum month-end balance outstanding during the quarter and the period end balances for repurchase agreements and reverse repurchase agreements were as follows: financings.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Repurchase transactions | | Reverse repurchase transactions |
For the quarter ended: ($ in thousands) | | Average daily balance outstanding | | Maximum month-end balance outstanding during the quarter | | End of period balance outstanding | | Average daily balance outstanding | | Maximum month-end balance outstanding during the quarter | | End of period balance outstanding |
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 |
|
At December 31, 2017,June 30, 2021, in addition to the financing arrangements previously described, above, we had $28$9 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 DecemberSenior notes payable
In April 2021, we sold in a registered underwritten public offering $750 million in aggregate principal amount of 3.75% senior notes due April 2051. We utilized the proceeds from the offering and cash on hand to early-redeem our $250 million par 5.625% senior notes due 2024 and our $500 million par 3.625% senior notes due 2026, which had been outstanding as of March 31, 2017,2021. See Note 14 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information.
After the issuance of the 3.75% senior notes due April 2051 and repurchase and redemption of the 5.625% senior notes due 2024 and 3.625% senior notes due 2026, at June 30, 2021, we had aggregate outstanding senior notes payable of $1.55 billion. Our senior notes payable,$2.04 billion, which, exclusive of any unaccreted premiums or discounts and debt issuance costs, iswas comprised of $250$500 million par 5.625%4.65% senior notes due 2024, $500 million par 3.625% senior notes due 2026, and2030, $800 million par 4.95% senior notes due 2046. See Note 15 of our 2017 Form 10-K for additional information.2046, and $750 million par 3.75% senior notes due 2051.
Credit ratings
Our issuer and senior long-term debt ratings as of the most current report are:
are detailed in the following table. In April 2021, Fitch Ratings, Inc. assigned its first issuer and senior long-term debt rating for Raymond James Financial, Inc. |
| | | | | | | | | | | | | |
Rating Agency | | Rating | | Outlook |
Fitch Ratings, Inc. | | A- | | Stable |
Moody’s Investors Services | | Baa1 | | Stable |
Standard & Poor’s Ratings Services | | BBB+ | | Stable |
Moody’s Investors Services | | Baa1 | | Stable |
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. DeteriorationsDeterioration in any of these factors could impact our credit ratings. Any rating downgrades could increase our costs in the event we were to obtain additional financing.
Should our credit rating be downgraded prior to a public debt offering, it is probable that we would have to offer a higher rate of interest to bond holders. A downgrade to below investment grade may make a public debt offering difficult to execute on terms we would consider to be favorable. A downgrade below investment grade could result in the termination of certain derivative contracts and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions (see Note 6 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q for additional information).positions. A credit downgrade could create a reputational issuedamage our reputation and could also result in certain counterparties limiting their business with us, result in negative comments by analysts, and potentially negatively impact investorinvestors’ and/or clients’ perception of us, and resultantly impactcause a decline in our stock price and/price. None of our borrowing arrangements contains a condition or event of default related to our clients’ perception of us. Acredit ratings. However, a credit downgrade would result in RJFthe firm incurring a higher commitmentfacility fee on any unused balance on one of its borrowing arrangements, the $300 million 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$828 million as of December 31, 2017,June 30, 2021, comprised of $254$509 million related to employee-directed plans and $206$319 million related to company-directed plans, and we were able to borrow up to 90%, or $414$745 million, of the December 31, 2017June 30, 2021 total
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 December 31, 2017.June 30, 2021.
During January 2018, we repaid the $300 million outstanding borrowing on the RJF Credit Facility as of December 31, 2017.
On May 22, 2015,12, 2021, we filed a “universal” shelf registration statement with the SEC pursuant to be in a position to access thewhich we can issue debt, equity and other capital marketsinstruments if and when necessary or perceived by us to be opportune. Subject to certain conditions, this registration statement will be effective through May 12, 2024.
On May 25, 2021, we announced we had entered into a definitive agreement to acquire all of the outstanding shares of Cebile. We expect the closing date of the transaction to occur in our fiscal fourth quarter of 2021. We currently have the ability to utilize our cash on hand to fund the purchase. See Note 3 of the “Contractual obligations” section belowNotes to Condensed Consolidated Financial Statements of this Form 10-Q for information regardingadditional information.
On July 29, 2021, we announced our contractual obligations.intention to make an offer for the entire issued and to be issued share capital of U.K.-based Charles Stanley at a price of £5.15 per share, or approximately £279 million ($387 million as of July 28, 2021). The transaction, subject to U.K. Financial Conduct Authority and Charles Stanley shareholder approval, is expected to close in our fiscal first quarter of 2022. We currently have the ability to utilize our cash on hand to fund the purchase. Under the terms of the intended offer, a loan note alternative will be available to Charles Stanley shareholders which will enable eligible Charles Stanley shareholders to elect to receive a loan note in lieu of part or all of the cash consideration to which they would otherwise be entitled under the terms of the offer. The initial interest rate for the loan note alternative for the first year is 0.1%. The note bears interest at a variable rate reset annually, calculated as the Bank of England’s base rate, plus a differential defined in the loan note, with the interest rate not to exceed 1.5% in any period. See Note 3 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information.
Statement of financial condition analysisSTATEMENT 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 isassets segregated pursuant to regulations (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 wereare liquid in nature, providing us with flexibility in financing our business.
Total assets of $36.08$57.16 billion at December 31, 2017as of June 30, 2021 were $1.20$9.68 billion, or 3%20%, greater than our total assets as of September 30, 2017. Our2020. The increase in assets was primarily due to a $4.64 billion increase in assets segregated pursuant to regulations, primarily due to a significant increase in client cash balances. Bank loans, net increased by $2.70 billion, primarily due to an increase in securities-based loans to PCG clients and corporate loans. In addition, cash and cash equivalents balances increased $228 million; refer to the discussion of the components of this increase in the “Liquidity$592 million and Capital Resources” section within this Item 2. Net bank loans receivable increased $691 million 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 investments in such securities during the period in line with our growth plan for this portfolio.$541 million. Goodwill and identifiable intangible assets, net increased $158$262 million due to the Scout Group acquisition. Offsetting these increases was a net decrease in deferred income taxesacquisitions of $114 million, primarily due to the remeasurement of U.S. deferred tax assets at a lower enacted corporate tax rate as a result of the Tax Act, which was enactedNWPS and Financo during the quarter. Brokerage client receivables, net decreased $101 million primarily due to decreased margin lending at December 31, 2017.nine months ended June 30, 2021.
As of December 31, 2017,June 30, 2021, our total liabilities of $30.28$49.24 billion were $1.09$8.94 billion, or 4%22%, greater than our total liabilities as of September 30, 2017. Bank deposit2020. The increase in total liabilities increased $993 millionwas primarily related to the significant increase in client cash balances as RJ Bank retainedof June 30, 2021, including a higher portion of RJBDP balances$5.05 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
Management's Discussion and Analysis
an increase in client cash balancesheld in our client interest program. Offsetting these increases, accrued compensation, commissionsCIP, and benefits decreased $266 million as a result of annual payments of certain incentive compensation paid during the quarter.$3.54 billion increase in bank deposits, reflecting higher RJBDP balances held at Raymond James Bank.
Contractual obligationsREGULATORY
The Tax Act, which was enacted during the quarter ended December 31, 2017, includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries, which is permitted 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 Statements of Income and Comprehensive Income for the quarter ended December 31, 2017.
Other than the item described above, as of December 31, 2017, there have been no material changes in our contractual obligations presented in our 2017 Form 10-K, other than in the ordinary course of business. See Note 14 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q, for additional information regarding certain commitments as of December 31, 2017.
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 20172020 Form 10-K.
RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As of December 31, 2017,June 30, 2021, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. In addition, RJF and RJRaymond James Bank were categorized as “well capitalized”“well-capitalized” as of December 31, 2017.
June 30, 2021. The maintenance of certain risk-based and other regulatory capital levels could impactinfluence various capital allocation decisions impacting one or more of our businesses. However, due to the strongcurrent capital position of RJF and its regulated subsidiaries, we do not anticipate these capital requirements will have a negative impact on our future business activities.
See Note 1821 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for further information on regulatory capital requirements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Legislative and regulatory changes in connection with the COVID-19 pandemic
In addition to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act enacted in March 2020, the U.S. government enacted the Consolidated Appropriations Act, 2021 in December 2020. This additional stimulus bill provided further emergency COVID-19 relief, as well as extended certain provisions of the CARES Act. Under the CARES Act, financial institutions were permitted to temporarily suspend any determination of a loan modification as a result of the effects of COVID-19 as being a TDR, including impairment for accounting estimatespurposes. The Consolidated Appropriations Act, 2021 extended such relief until the earlier of: (1) 60 days after the date on which the national emergency concerning COVID-19 terminates; or (2) January 1, 2022. We elected to apply the extension for relief under the Consolidated Appropriations Act, 2021 to certain loan modifications that primarily relate to short-term payment deferral and have not classified such modifications as TDRs. 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 loans.
Raymond James Bank
On February 2, 2021, Raymond James Bank filed an application with the Florida Office of Financial Regulation (“OFR”) to convert from a national bank primarily supervised by the Office of the Comptroller of the Currency (the “OCC”) to a Florida-chartered state bank. Raymond James Bank also filed an application with the Federal Reserve Bank of Atlanta to retain its membership in the Federal Reserve System. Effective June 1, 2021, upon conversion to a state member bank following approval by the Florida OFR, Raymond James Bank is no longer supervised by the OCC and is jointly supervised by the OFR and the Fed. As a state member bank, Raymond James Bank will also continue to be supervised by the FDIC and the Consumer Financial Protection Bureau. As a state member bank, we do not anticipate that there will be any material changes to Raymond James Bank’s existing business or operations.
Standard of care
The U.S. Department of Labor (“DOL”) is expected to amend the rule that determines whether an investment professional is a fiduciary to their clients’ retirement accounts under the Employee Retirement Income Security Act and Internal Revenue Code. While the DOL has finalized a new exemption to allow investment advice fiduciaries to receive transaction-based compensation and engage in certain principal trades, imposing a new standard of care on additional client relationships could lead to incremental costs for our business. We are evaluating how these regulatory changes may impact our business.
Community Reinvestment Act (“CRA”) regulations
On July 20, 2021, the Fed, the FDIC and the OCC issued a joint statement in which they committed to work together to jointly modernize the CRA regulations. Until such new regulations are implemented, Raymond James Bank will continue to operate under the Fed’s CRA regulations currently in effect. At this time it is uncertain what impact, if any, the impending CRA regulations will have on Raymond James Bank and other depositories with respect to their CRA activities.
Discontinuation of LIBOR
The administrator of LIBOR has proposed to extend publication of the most commonly used U.S. dollar LIBOR settings to June 30, 2023 and to cease publishing other LIBOR settings on December 31, 2021. The U.S. federal banking agencies have issued guidance strongly encouraging banking organizations to cease using the U.S. dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021. Our enterprise-wide initiative is continuing to assess and implement necessary changes to our contracts pursuant to the Alternative Reference Rate Committee’s (“ARRC”) fallback recommendations, as well as updating systems, processes, documentation, and models. We also began offering Secured Overnight Financing Rate (“SOFR”)-linked derivatives.
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 in our 2017 Form 10-K.
We believe that of our accounting estimates2020 Form 10-K and assumptions, those described below involve a high degreeNote 2 of judgmentthe Notes to Condensed Consolidated Financial Statements of this Form 10-Q.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and complexity. Analysis
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. Economic uncertainty as a result of the COVID-19 pandemic has made it more challenging for us to determine the amount of our allowance for credit losses and has required a greater reliance on judgment in recent periods in determining this amount.
Valuation of financial instruments
The use of fair value to measure financial instruments, with related gains or losses recognized inon our Condensed Consolidated Statements of Income and Comprehensive Income, is fundamental to our financial statements and our risk management processes. See Note 2 of the Notes to Consolidated Financial Statements of our 20172020 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.
Management's Discussion and Analysis
Level 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.
instrument liabilities. See NotesNote 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 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical accounting estimates - Loss provisions” in our 2017 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 20172020 Form 10-K. In addition, refer to Note 1416 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for information regarding legal and regulatory matter contingencies as of December 31, 2017.June 30, 2021.
Loss provisions arising from operations ofAllowance for credit losses
We evaluate our Broker-Dealers
The recorded amounts of loss provisions associated with brokerage client receivables andheld for investment bank loans, unfunded lending commitments, loans to financial advisors and certain key revenue producers are subjectother financial assets to significant management judgment. For a description ofestimate an allowance for credit losses. Effective October 1, 2020, we adopted the significant estimates and judgments associated with establishing these broker-dealer related loss provisions andCECL accounting guidance which changed the related allowances for doubtful accounts, see the “Brokerage client receivables, net” and “Loansmethodology used to financial advisors, net” sections of Note 2 of our 2017 Form 10-K and Note 2 in this Form 10-Q for information regardingmeasure the allowance for doubtful accounts associated with loanscredit losses from an allowance based on incurred losses to an allowance based on expected credit losses over a financial advisors asasset’s lifetime. The remaining life of December 31, 2017.
Loan loss provisions arising from operations of RJ Bank
RJ Bank providesour financial assets is determined by considering contractual terms and expected prepayments, among other factors. We employ multiple methodologies in estimating an allowance for loancredit losses which reflectsand our continuing evaluationapproaches differ by type of financial asset and the risk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of the probable losses inherent inportfolio, the loan portfolio. Seerelated credit risk characteristics, and the discussion regarding RJ Bank’s methodology in estimating itsoverall economic and environmental conditions affecting the financial assets. Our process for determining the allowance for loan losses in Note 2 of our 2017 Form 10-K.
At December 31, 2017, the amortized cost of all RJ Bank loans was $17.9 billion and an allowance for loan losses of $191 million was recorded against that balance. The total allowance for loan losses was equal to 1.08% of the amortized cost of the loan portfolio.
RJ Bank’s process of evaluating its probable loancredit losses includes a complex analysis of several quantitative and qualitative factors, requiring a substantial amount of judgment. As a result,significant management judgment due to matters that are inherently uncertain. This uncertainty can produce volatility in our allowance for credit losses. In addition, the allowance for loancredit losses could be insufficient to cover actual losses. In such an event, any losses in excess of our allowance would result in a decrease in our net income, as well as a decrease in the level of regulatory capital at RJ Bank.
Recent accounting developments
For informationcapital. See the discussion regarding our recent accounting developments, seemethodology in estimating the allowance for credit losses in Note 2 of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q.
Off-Balance sheet arrangements
For information regarding our off-balance sheet arrangements, see Note 22 of the Notes to Consolidated Financial Statements in our 2017 Form 10-K and Note 14 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q. See Notes 8 and 9 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on our bank loan and financial advisor loan portfolios.
Our allowance for credit losses at June 30, 2021 was primarily related to bank loans and loans to financial advisors. At June 30, 2021, the amortized cost of all bank loans was $24.22 billion and the related allowance for credit losses was $322 million, or 1.34% of the held for investment loan portfolio. At June 30, 2021, the amortized cost of loans to financial advisors was $1.07 billion and the related allowance for credit losses was $29 million, which was 2.71% of the loan portfolio.
RECENT ACCOUNTING DEVELOPMENTS
The FASB has issued certain accounting updates which were assessed and either determined to be not applicable or are not expected to have a significant impact on our financial statements.
Management'sManagement’s Discussion and Analysis
Effects of inflation
RISK MANAGEMENT
Our assets are primarily liquid in nature and are not significantly affected by inflation. However, the rate of inflation affects our expenses, including employee compensation, communications and occupancy, which may not be readily recoverable through charges for services we provide to our clients.
Risk management
Risks are an inherent part of our business and activities. Management of these risksrisk is critical to our fiscal soundness and profitability. Our risk management processes are multi-faceted and require communication, judgment and knowledge of financial products and markets. We have a formal Enterprise Risk Management (“ERM”) program to assess and review aggregate risks across the firm. Our management takes an active role in the ERM process, which requires specific administrative and business functions to participate in the identification, assessment, monitoring and control of various risks. The results of this process are extensively documented and reported to executive management and the RJF Audit and Risk Committee of the Board of Directors.
The principal risks related to our business activities are market, credit, liquidity, operational, model, and regulatorycompliance.
Governance
Our Board of Directors oversees the firm’s management and legal.mitigation of risk, reinforcing a culture that encourages ethical conduct and risk management throughout the firm. Senior management communicates and reinforces this culture through three lines of risk management and a number of senior-level management committees. Our first line of risk management, which includes all of our businesses, owns its risks and is responsible for helping to identify, escalate, and mitigate risks arising from its day-to-day activities. The second line of risk management, which includes the Compliance, Legal, and Risk Management departments, supports and provides guidance and oversight to client-facing businesses and other first-line risk management functions in identifying and mitigating risk. The second line of risk management also tests and monitors the effectiveness of controls, escalates risks when appropriate, and reports on these 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 20172020 Form 10-K for a discussion of our market risk, including how we manage such risk. See Notes 4, 5 and 6 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.
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, the OCC and FDIC, requires us to calculate VaR numbers for all of our trading portfolios including(including derivatives), which include fixed income, equity, and foreign exchange and derivative instruments.
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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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”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 threenine months ended December 31, 2017,June 30, 2021, our regulatory-defined daily losslosses in our trading portfolios did not exceed our predicted VaR.
Management'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 derivativeequity instruments, for the period and dates indicated: indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended June 30, 2021 | | Period-end VaR | | | | Three months ended June 30, | | Nine months ended June 30, |
$ in millions | | High | | Low | | June 30, 2021 | | September 30, 2020 | | $ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Daily VaR | | $ | 11 | | | $ | 1 | | | $ | 1 | | | $ | 8 | | | Average daily VaR | | $ | 2 | | | $ | 2 | | | $ | 5 | | | $ | 2 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
Average daily VaR was higher during the current year-to-date period compared with the prior year-to-date period, as a result of the impact of increased volatility from the COVID-19 pandemic on our VaR model during the first half of fiscal 2021. However, during our third fiscal quarter of 2021, the remaining COVID-19 pandemic-related scenarios fell outside of the VaR model’s twelve-month historical simulation period, resulting in period-end VaR decreasing to $1 million as of June 30, 2021.
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 ruleMRR which are available on the Investor Relations section of our website under www.raymondjames.com/investor-relations/financial-report under “Market Risk Rule Disclosure.“SEC filings and Other Reports - Other Reports and Information.”
Should markets suddenly become more volatile, actual trading losses may exceed VaR results presented on a single day and might accumulate over a longer time horizon, such as a number of consecutive trading days. Accordingly, management applies additional controls including position limits, a daily review of trading results, review of the status of aged inventory, independent controls on pricing, monitoring of concentration risk, review of issuer ratings and stress testing. We utilize stress testing to complement our VaR analysis so as to measure risk under historical and hypothetical adverse scenarios. During volatile markets, we may choose to pare our trading inventories to reduce risk.
As a part of our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMA MBS which are issued on behalf of various state and local housing finance agencies. These activities result in exposure to interest rate risk. In order to hedge the interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into 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
RJRaymond James Bank maintains an earninginterest-earning asset portfolio that is comprised of cash, C&I loans, tax-exempt loans, SBL, and commercial and residential real estate loans, REIT loans, tax-exempt loans and SBL and other loans, as well as agency MBS and agency 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. Those earningThese interest-earning assets are primarily funded by client deposits. Based on its current earning asset portfolio, RJRaymond James Bank is subject to interest rate risk. During the 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. RJRaymond James Bank analyzes interest rate risk based on forecasted net interest income, which is the net amount of interest received and interest paid, and the net portfolio valuation, both inacross a range of interest rate scenarios.
One of the objectives of RJRaymond James Bank’s Asset 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 20172020 Form 10-K.
We utilize a hedging strategy using interest rate swaps as a result of RJRaymond James 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 20172020 Form 10-K and in Note 6 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.10-K.
Management'sManagement’s Discussion and Analysis
The following table is an analysis of RJRaymond James 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 ownour asset/liability model:model, which assumes that interest rates do not decline below zero.
| | | | | | | | | | | | | | |
Instantaneous changes in rate | | Net interest income ($ in millions) | | Projected change in net interest income |
+200 | | $915 | | 38.0% |
+100 | | $855 | | 29.0% |
0 | | $663 | | — |
-25 | | $637 | | (3.9)% |
|
| | | | |
Instantaneous changes in rate | | Net interest income ($ in thousands) | | Projected change in net interest income |
+200 | | $734,185 | | (0.53)% |
+100 | | $765,382 | | 3.69% |
0 | | $738,110 | | — |
-100 | | $599,527 | | (18.78)% |
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.
The following table shows the contractual maturities of RJ Bank’sour bank loan portfolio at December 31, 2017,June 30, 2021, including contractual principal repayments. This table does not however, include any estimates of prepayments. These prepayments, which could shorten the average loan lives and cause the actual timing of the loan repayments to differ significantly from those shown in the following table. Loan amounts in the table below exclude unearned income and deferred expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Due in |
$ in millions | | One year or less | | > One year – five years | | > Five years | | Total |
C&I loans | | $ | 204 | | | $ | 4,300 | | | $ | 3,507 | | | $ | 8,011 | |
CRE loans | | 699 | | | 1,535 | | | 494 | | | 2,728 | |
REIT loans | | 112 | | | 1,148 | | | 10 | | | 1,270 | |
Tax-exempt loans | | 1 | | | 69 | | | 1,250 | | | 1,320 | |
Residential mortgage loans | | — | | | 4 | | | 5,166 | | | 5,170 | |
SBL and other | | 5,545 | | | 37 | | | — | | | 5,582 | |
Total loans held for investment | | 6,561 | | | 7,093 | | | 10,427 | | | 24,081 | |
Held for sale loans | | — | | | — | | | 137 | | | 137 | |
Total loans | | $ | 6,561 | | | $ | 7,093 | | | $ | 10,564 | | | $ | 24,218 | |
|
| | | | | | | | | | | | | | | | |
| | Due in |
$ in thousands | | One year or less | | > One year – five years | | > 5 years | | Total |
Loans held for investment: | | |
| | |
| | | | |
|
C&I loans | | $ | 152,551 |
| | $ | 3,826,227 |
| | $ | 3,511,441 |
| | $ | 7,490,219 |
|
CRE construction loans | | 11,612 |
| | 153,235 |
| | — |
| | 164,847 |
|
CRE loans | | 509,914 |
| | 2,014,252 |
| | 611,935 |
| | 3,136,101 |
|
Tax-exempt loans | | — |
| | 22,630 |
| | 1,113,838 |
| | 1,136,468 |
|
Residential mortgage loans | | 1,016 |
| | 2,739 |
| | 3,267,025 |
| | 3,270,780 |
|
SBL | | 2,527,003 |
| | 3,518 |
| | — |
| | 2,530,521 |
|
Total loans held for investment | | 3,202,096 |
| | 6,022,601 |
| | 8,504,239 |
| | 17,728,936 |
|
Loans held for sale | | — |
| | 17,098 |
| | 161,592 |
| | 178,690 |
|
Total loans | | $ | 3,202,096 |
| | $ | 6,039,699 |
| | $ | 8,665,831 |
| | $ | 17,907,626 |
|
The following table shows the distribution of the recorded investment of those RJ Bankbank loans that mature in more than one year between fixed and adjustable interest rate loans at December 31, 2017. Loan amounts in the table below exclude unearned income and deferred expenses.June 30, 2021.
| | | | | | | | | | | | | | | | | | | | |
| | Interest rate type |
$ in millions | | Fixed | | Adjustable | | Total |
C&I loans | | $ | 301 | | | $ | 7,506 | | | $ | 7,807 | |
CRE loans | | 91 | | | 1,938 | | | 2,029 | |
REIT loans | | — | | | 1,158 | | | 1,158 | |
Tax-exempt loans | | 1,319 | | | — | | | 1,319 | |
Residential mortgage loans | | 191 | | | 4,979 | |
| 5,170 | |
SBL and other | | — | | | 37 | | | 37 | |
Total loans held for investment | | 1,902 | | | 15,618 | | | 17,520 | |
Held for sale loans | | 1 | | | 136 | | | 137 | |
Total loans | | $ | 1,903 | | | $ | 15,754 | | | $ | 17,657 | |
|
| | | | | | | | | | | | |
| | Interest rate type |
$ in thousands | | Fixed | | Adjustable | | Total |
Loans held for investment: | | |
| | |
| | |
|
C&I loans | | $ | 1,700 |
| | $ | 7,335,968 |
| | $ | 7,337,668 |
|
CRE construction loans | | 4,588 |
| | 148,647 |
| | 153,235 |
|
CRE loans | | 43,732 |
| | 2,582,455 |
| | 2,626,187 |
|
Tax-exempt loans | | 1,104,568 |
| | 31,900 |
| | 1,136,468 |
|
Residential mortgage loans | | 230,142 |
| | 3,039,622 |
|
| 3,269,764 |
|
SBL | | 3,518 |
| | — |
| | 3,518 |
|
Total loans held for investment | | 1,388,248 |
| | 13,138,592 |
| | 14,526,840 |
|
Loans held for sale | | 5,650 |
| | 173,040 |
| | 178,690 |
|
Total loans | | $ | 1,393,898 |
| | $ | 13,311,632 |
| | $ | 14,705,530 |
|
Contractual loan terms for C&I, CRE, CRE constructionREIT and residential mortgage loans may include an interest rate floor, cap and/or fixed interest rates for a certain period of time, which would impact the timing of the interest rate reset for the respective loan.
See the discussion within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit Riskrisk - Risk Monitoringmonitoring process” section of this Form 10-Q for additional information regarding RJRaymond James Bank’s interest-only residential mortgage loan portfolio.
Management's Discussion and Analysis
In our RJ Bank available-for-sale securities portfolio, we hold primarily fixed-rate agency MBS and agency CMOs which wereare carried at fair value inon our Condensed Consolidated Statements of Financial Condition, at December 31, 2017 with changes in the fair value of the portfolio recorded through “Other comprehensive income” inOCI on our Condensed Consolidated Statements of Income and Comprehensive Income. At December 31, 2017,June 30, 2021, our available-for-sale securities portfolio had a fair value $2.29of $8.19 billion with a weighted-average yield of 1.99%1.17% and an average expected durationa weighted-average life of threeapproximately 4 years. See Note 5 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for additional information on the fair value of these securities.information.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
We hold ARS, which are long-term variable rate securities tied to short-term interest rates, that are accounted for as available-for-saleManagement’s Discussion 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 in this Form 10-Q for additional information on the fair value of these securities.Analysis
Equity price risk
We are exposed to equity price risk as a consequenceresult of makingour capital markets in equity securities.activities. Our broker-dealer activities are primarilygenerally client-driven, withand we carry equity securities as part of our trading inventory to facilitate such activities, although the objective of meeting clients’ needs while earning aamounts are not as significant as our fixed income trading profit to compensate for the risk associated with carrying inventory. We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions throughout each day and establishing position limits. Equity securities held in our trading inventory are generally included in VaR.
In addition, we have a private equity portfolio, included in “Other investments” on our Condensed Consolidated Statements of Financial Condition, which is comprised of various direct investments, as well as investments in third-party private equity funds and various legacy private equity funds which we sponsor. Of the total private equity investments may be impacted by equity prices.at June 30, 2021 of $159 million, the portion we owned was $115 million. See Note 4 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on this portfolio.
Foreign exchange risk
We are subject to foreign exchange risk due to our investments in foreign subsidiaries as well as transactions and resulting balances denominated in a currency other than the U.S. dollar. For example, our bank loan portfolio includes loans which are denominated in Canadian dollars, totaling $1.21 billion and $1.05 billion at June 30, 2021 and September 30, 2020, respectively, when converted to the U.S. dollar. A majority of such loans are held by Raymond James Bank’s Canadian subsidiary, which is discussed in the following sections.
Investments in foreign subsidiaries
RJRaymond James Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate thisits foreign exchange risk, RJRaymond James Bank utilizes short-term, forward foreign exchange contracts. These derivative agreementsderivatives are primarily accounted for as net investment hedges in the condensed consolidated financial statements. See Note 2 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K and Note 6 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 393 million at December 31, 2017,June 30, 2021, 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 1517 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 havehad material foreign exchange risk either individually, or in the aggregate, pertaining to these subsidiaries.subsidiaries as of June 30, 2021. As previous noted, on July 29, 2021 we announced our intention to make an offer for the entire issued and to be issued share capital of U.K.-based Charles Stanley at a price of £5.15 per share, or approximately £279 million. Upon closing, this transaction would increase our foreign exchange exposure associated with investments in subsidiaries located in Europe.
Transactions and resulting balances denominated in a currency other than the U.S. dollar
We are subject to foreign exchange risk due to our holdings of cash and certain other assets and liabilities resulting from transactions denominated in a currency other than the U.S. dollar. Any currency relatedcurrency-related gains/losses arising from these foreign currency denominated balances are reflected in “Other revenues”“Other” revenues in our 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
Management's Discussion and Analysis
Comprehensive Income. See Note 6 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 uponagreed-upon terms. The nature and amount of credit risk depends on the type of transaction, the structure and duration of that transaction, and the parties involved. Credit risk is an integral component of the profit assessment of lending and other financing activities. See further discussion of our credit risk, including how we manage such
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 20172020 Form 10-K.
The initial decline in economic activity as a result of the COVID-19 pandemic caused increased credit risk particularly with regard to companies in sectors that were most significantly impacted by the economic disruption, including energy, airlines, entertainment and leisure, restaurants and gaming. The speed and magnitude in which various sectors have recovered since the onset of the pandemic has been continually evolving. Given the stresses on certain of our clients’ liquidity, we enhanced our credit monitoring activities, with an increased focus on monitoring our credit exposures and counterparty credit risk. Since the onset of the pandemic, Raymond James Bank has enacted risk mitigation strategies including, but not limited to, the sale of loans in those sectors with a high likelihood of adverse impact arising from the pandemic. We have also required collateral to be posted across our credit risk exposures in accordance with agreements with our borrowers and counterparties. Although economic conditions have generally improved, we have maintained our increased focus on monitoring our credit exposures and counterparty credit risk.
Brokerage activities
We are engaged in various trading and brokerage activities in which our counterparties primarily include broker-dealers, banks and other financial institutions. We are exposed to risk that these counterparties may not fulfill their obligations. The risk of default depends on the creditworthiness of the counterparty and/or the issuer of the instrument. We manage this risk by imposing and monitoring individual and aggregate position limits within each business segment for each counterparty, conducting regular credit reviews of financial counterparties, reviewing security and loan concentrations, holding and calculating the fair value of collateral on certain transactions and conducting business through clearing organizations, which may guarantee performance.
Our client activities involve the execution, settlement, and financing of various transactions on behalf of our clients. Client activities are transacted on either a cash or margin basis. Credit exposure results from client margin loans, which are monitored daily and are collateralized by the securities in the clients’ accounts. We monitor exposure to industry sectors and individual securities and perform analysis on a daily basis in connection with our margin lending activities. We adjust our margin requirements if we believe our risk exposure is not appropriate based on market conditions. In addition, when clients execute a purchase, we are at some risk that the client will default on their financial obligation associated with the trade. If this occurs, we may have to liquidate the position at a loss.
We offer loans to financial advisors and certain other key revenue producers primarily for recruiting, transitional cost assistance and retention purposes. We have credit risk and may incur a loss primarily in the event that such borrower is no longer affiliated with us. See Notes 2 and 9 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information about our loans to financial advisors.
Banking activities
Raymond James Bank has a substantial C&I, CRE, tax-exempt, SBL and residential mortgage loan portfolios. Aportfolio. While our bank loan portfolio is diversified, a significant downturn in the overall economy, such as that experienced in our fiscal year 2020 as a result of the COVID-19 pandemic, deterioration in real estate values or a significant issue within any sector or sectors where RJ Bank haswe have a concentration couldwill generally result in large provisions for loancredit losses and/or charge-offs. Conversely, should the economy recover at a faster pace than initially forecasted, or the negative impact of the significant downtown event be less than originally projected, the timing and magnitude of any decreases in required reserves for credit losses can be uncertain. We determine the allowance required for specific loan grades based on relative risk characteristics of the loan portfolio. On an ongoing basis, we evaluate our methods for determining the allowance for each class of loans and make enhancements we consider appropriate.
Our allowance for credit losses methodology is described in Note 2 of the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q. As our bank loan portfolio is segregated into six portfolio segments, likewise, the allowance for credit losses is segregated by these same segments. The risk characteristics relevant to each portfolio segment are as follows.
C&I: Loans in this segment are made to businesses and are generally secured by all assets of the business. Repayment is expected from the cash flows of the respective business. Unfavorable economic and political conditions, including the resultant decrease in consumer or business spending, may have an adverse effect on the credit quality of loans in this segment.
CRE: Loans in this segment are primarily secured by income-producing properties. For owner-occupied properties, the cash flows are derived from the operations of the business, and the underlying cash flows may be adversely affected by the
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
deterioration in the financial condition of the operating business. The underlying cash flows generated by non-owner-occupied properties may be adversely affected by increased vacancy and rental rates, which are monitored on a quarterly basis. This portfolio segment includes CRE construction loans which also look at other risks such as project budget overruns and performance variables related to the contractor and subcontractors. With respect to commercial construction of residential developments, there is also the risk that the builder has a geographical concentration of developments. Adverse developments in any of these areas may have a negative effect on the credit quality of loans in this segment.
REIT: Loans in this segment are made to businesses that own or finance income-producing real estate across various property sectors. This portfolio segment may include extensions of credit to companies that engage in real estate development. Repayment of these loans is dependent on income generated from real estate properties or the sale of real estate. A portion of this segment may consist of loans secured by residential product types (single-family residential, including condominiums and land held for residential development) within a range of markets. Deterioration in the financial condition of the operating business, reductions in the value of real estate, as well as increased vacancy and rental rates may all adversely affect the loans in this segment.
Tax-exempt: Loans in this segment are made to governmental and nonprofit entities and are generally secured by a pledge of revenue and, in some cases, by a security interest in or a mortgage on the asset being financed. For loans to governmental entities, repayment is expected from a pledge of certain revenues or taxes. For nonprofit entities, repayment is expected from revenues which may include fundraising proceeds. These loans are subject to demographic risk, therefore much of the credit assessment of tax-exempt loans is driven by the entity’s revenue base and the general economic environment. Adverse developments in either of these areas may have a negative effect on the credit quality of loans in this segment.
Residential mortgage (includes home equity loans/lines): All of our residential mortgage loans adhere to stringent underwriting parameters pertaining to credit score and credit history, debt-to-income ratio of borrower, LTV, and combined LTV (including second mortgage/home equity loans). We do not originate or purchase adjustable rate mortgage (“ARM”) loans with negative amortization, reverse mortgages, or loans to subprime borrowers. Loans with deeply discounted teaser rates are not originated or purchased. All loans in this segment are collateralized by residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. A decline in the strength of the economy, particularly unemployment rates and housing prices, among other factors, could have a significant effect on the credit quality of loans in this segment.
SBL and other: Loans in this segment are collateralized generally by the borrower’s marketable securities at advance rates consistent with industry standards. These loans are monitored daily for adherence to LTV guidelines and when a loan exceeds the required LTV, a collateral call is issued. Past due loans are minimal as any past due amounts result in a notice to the client for payment or the potential sale of the collateral which will bring the loan to a current status.
In evaluating credit risk, we consider trends in loan performance, the level of allowance coverage relative to similar banking institutions, industry or customer concentrations, the loan portfolio composition and macroeconomic factors (both current and forecasted). These factors have a potentially negative impact on loan performance and net charge-offs.
Our allowance for credit losses as of June 30, 2021 was determined under the CECL model due to our October 1, 2020 adoption of the new credit impairment standard. See Notes 2 and 8 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information. Our allowance for credit losses, as well as our methodologies and assumptions used in estimating the allowance, are regularly evaluated to determine if our methods and estimates continue to be appropriate for each class of loans, with adjustments made on a quarterly basis. Several factors were taken into consideration in evaluating the allowance for loancredit losses at December 31, 2017,June 30, 2021, including loan and borrower characteristics, such as internal risk ratings, delinquency status, collateral type and the risk profileremaining term of the portfolios,loan adjusted for expected prepayments. In addition, the estimate of credit losses considered the relatively small amount of net charge-offs during the period, the level of nonperforming loans and delinquency ratios. RJ Bankthe impact of the COVID-19 pandemic. We also considered the uncertainty related to certain industry sectors, including commercial real estate, and the extent of credit exposure to specific borrowers within the portfolio. Finally, RJ Bankwe considered current economic conditions that might impact the portfolio. RJ Bank determinedWe continue to assess the impact of both the COVID-19 pandemic and the economic recovery therefrom, as new information becomes available regarding the financial repercussions to our borrowers, the risk ratings for individual loans will be updated and the allowance that was required for specific loan grades based on relative risk characteristics of the loan portfolio.will be adjusted accordingly.
Changes in theOur allowance for loancredit losses as a percentage of 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 | % |
The loan loss provision increased to $1 million frombank loans held for investment was 1.34%, 1.69% and 1.65% at June 30, 2021, October 1, 2020 (our CECL adoption date) and September 30, 2020, respectively. During the three and nine months ended June 30, 2021, we had 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 ratesfor credit losses on pass-rated loans resulting from improved credit characteristics. The prior year net benefit resulted from the resolution of certain corporate criticized loans. As a result of improved quality in theour bank 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.
of $19 million and $37 million, respectively,
Management'sManagement’s Discussion and Analysis
compared to a provision for credit losses of $81 million and $188 million for the three and nine months ended June 30, 2020, respectively. See further explanation of the credit loss provision increase in “Management’s Discussion and Analysis - Results of Operations - Raymond James Bank” of this Form 10-Q and Note 8 in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for detail on the changes in our allowance for credit losses.
The level of charge-off activity is a factor that is considered in evaluating the potential severity of future credit losses. The following table presents net loan (charge-offs)/recoveries and the percentage of net loan (charge-offs)/recoveries to the average outstanding loan balances by loan portfolio segment: segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30 | | Nine Months Ended June 30 |
| | 2021 | | 2020 | | 2021 | | 2020 |
$ in millions | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans |
C&I loans | | $ | (1) | | | 0.05 | % | | $ | (71) | | | 3.55 | % | | $ | (3) | | | 0.05 | % | | $ | (71) | | | 1.18 | % |
CRE loans | | (3) | | | 0.44 | % | | (2) | | | 0.21 | % | | (3) | | | 0.15 | % | | (2) | | | 0.07 | % |
| | | | | | | | | | | | | | | | |
Residential mortgage loans | | — | | | — | % | | 1 | | | 0.08 | % | | — | | | — | % | | 1 | | | 0.03 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total | | $ | (4) | | | 0.07 | % | | $ | (72) | | | 1.31 | % | | $ | (6) | | | 0.04 | % | | $ | (72) | | | 0.44 | % |
|
| | | | | | | | | | | | | | |
| | Three months ended December 31, |
| | 2017 | | 2016 |
$ in thousands | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans |
C&I loans | | $ | (603 | ) | | 0.03 | % | | $ | (3,389 | ) | | 0.18 | % |
CRE loans | | — |
| | — |
| | 5,013 |
| | 0.79 | % |
Residential mortgage loans | | 509 |
| | 0.06 | % | | (22 | ) | | — |
|
Total | | $ | (94 | ) | | — |
| | $ | 1,602 |
| | 0.04 | % |
The level of charge-off activity is a factor that is considered in evaluating the potential for severity of future credit losses. The activity(1) Charge-offs related to loan sales during the current period resulted in an insignificant net charge-off, whilewere $1 million and $3 million for the prior period reflected net recoveries primarily resulting fromthree and nine months ended June 30, 2021, respectively, and $61 million for both the favorable resolution of a CRE criticized loan.three and nine months ended June 30, 2020.
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 credit losses for the three months ended December 31, 2017. This decrease was dueperiods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | September 30, 2020 |
$ in millions | | Nonperforming loan balance | | Allowance for credit losses balance | | Nonperforming loan balance | | Allowance for credit losses balance |
C&I loans | | $ | — | | | $ | 188 | | | $ | 2 | | | $ | 200 | |
CRE loans | | 27 | | | 73 | | | 14 | | | 81 | |
REIT loans | | — | | | 26 | | | — | | | 36 | |
Tax-exempt loans | | — | | | 2 | | | — | | | 14 | |
Residential mortgage loans | | 15 | | | 29 | | | 14 | | | 18 | |
SBL and other | | — | | | 4 | | | — | | | 5 | |
Total nonperforming loans held for investment | | $ | 42 | | | $ | 322 | | | $ | 30 | | | $ | 354 | |
Total nonperforming loans as a % of total bank loans | | 0.17 | % | | | | 0.14 | % | | |
See Note 8 in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for loan categories as a $1 million decrease in nonperforming residential mortgagepercentage of total loans and an insignificant decrease in nonperforming C&I loans. Included in nonperforming residential mortgage loans are $29 million in loans for which $14 million in charge-offs were previously recorded, resulting in less exposure within the remaining balance.receivable.
The nonperforming loan balances abovein the preceding table exclude $12$8 million and $14$10 million as of December 31, 2017June 30, 2021 and September 30, 2017,2020, respectively, of residential TDRs which were returned to accrual status in accordance with our policy. Total nonperforming assets, including the nonperforming loans in the preceding table and other real estate acquired in the settlement of residential mortgages, amounted to $43 million and $32 million at June 30, 2021 and September 30, 2020, respectively. Total nonperforming assets as a percentage of Raymond James Bank’s total assets were 0.12% and 0.10% at June 30, 2021 and September 30, 2020, respectively. Although our nonperforming assets as a percentage of Raymond James Bank’s assets remained low as of June 30, 2021, prolonged or further market deterioration could result in an increase in our nonperforming assets, an increase in our allowance for credit losses and/or an increase in net charge-offs in future periods, although the extent will depend on future developments that are highly uncertain.
We have received requests from certain borrowers for forbearance, which is generally a short-term deferral of their loan payments, or modification of certain covenant terms, driven or exacerbated by the economic impacts of the COVID-19 pandemic. Based on the amortized costs, approximately $34 million and $8 million of our corporate and residential loans, respectively, were in active forbearance as of June 30, 2021. As certain borrowers exit forbearance we have received requests for loan modifications, including repayment plans. In accordance with the CARES Act and the Consolidated Appropriations Act, 2021, we are not applying TDR classification to any COVID-19 related loan modifications performed from March 1, 2020 through December 31, 2021, to borrowers who were current as of December 31, 2019. As of June 30, 2021, we had residential loans of $12 million for which the borrower had requested a loan modification, where the request had been initiated but not completed or approved. As the delinquency status is not affected for loans that are in active forbearance or for loan
Management'sManagement’s Discussion and Analysis
modifications that have not yet been approved, the recognition of charge-offs, delinquencies, and nonaccrual status could be delayed for those borrowers who would have otherwise moved into past due or nonaccrual status. Forbearance and modification requests have continued to decline and the majority of the borrowers that have exited forbearance but have not requested loan modifications, have become current on their principal and interest payments.
Loan underwriting policies
RJ Bank’sOur underwriting policies for the major types of bank loans are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” of our 20172020 Form 10-K. There were no material changes in RJ Bank’sour bank loan underwriting policies during the threenine months ended December 31, 2017.June 30, 2021.
Risk monitoring process
Another component of credit risk strategy at RJ Bankfor our bank loan portfolio is the ongoing risk monitoring and review processes for all residential, SBL, corporate and tax-exempt credit exposures, 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 threenine months ended December 31, 2017.June 30, 2021.
Residential mortgage and SBL and residential mortgage loansother loan portfolios
The marketable collateral securing RJ Bank’sour SBL and other portfolio is monitored on a recurring basis, with marketable collateral monitored on a daily basis. Collateral adjustments are made by the borrower as necessary to ensure RJ Bank’sour 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’sour residential mortgage loan portfolio. The qualitative factors include, but are not limited to: loan performance trends, loan product parameters and qualification requirements, borrower credit scores, occupancy (i.e., owner occupied, second home or investment property), level of documentation, loan purpose, geographic concentrations, average loan size, loan policy exceptionsrisk rating and updated LTV ratios. These qualitative measures, while considered and reviewed in establishing the allowance for loan losses, have not resulted in any material quantitative adjustments to RJ Bank’s historical loss rates.
RJ Bank obtains the most recently available information (generally updated every six months) to estimate current LTV ratios on the individual loansSee Note 8 in the performing residential mortgage loan portfolio. Current LTV ratios are estimated based on the initial appraisal obtained at the 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 favorablyNotes to the national averageCondensed Consolidated Financial Statements of this Form 10-Q for over 30 day delinquencies of 4.09% as most recently reported by the Fed.additional information.
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.
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. Amounts in the following table do not include residential loans to borrowers who were granted forbearance as a result of the COVID-19 pandemic and whose loans were not considered delinquent prior to the forbearance. Such loans may be considered delinquent after the forbearance period or completion of loss mitigation efforts, depending on their payment status. As a result, the amount of residential loans considered delinquent may increase significantly in the future.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of delinquent residential loans | | Delinquent residential loans as a percentage of outstanding loan balances |
$ in millions | | 30-89 days | | 90 days or more | | Total | | 30-89 days | | 90 days or more | | Total |
June 30, 2021 | | $ | 5 | | | $ | 6 | | | $ | 11 | | | 0.10 | % | | 0.12 | % | | 0.22 | % |
September 30, 2020 | | $ | 3 | | | $ | 7 | | | $ | 10 | | | 0.06 | % | | 0.14 | % | | 0.20 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 | % |
Our June 30, 2021 percentage continues to compare favorably to the national average for over 30 day delinquencies of 2.92%, as most recently reported by the Fed.
Credit risk is also managed by diversifying the residential mortgage portfolio. Most of the loans in our residential loan portfolio are to PCG clients across the country. The following table details the geographic concentrations (top five states) of RJ Bank’sour one-to-four family residential mortgage loans were as follows:loans.
| | | | | | | | | | | | | | |
| | June 30, 2021 |
| | Loans outstanding as a % of total residential mortgage loans | | Loans outstanding as a % of total bank loans |
CA | | 25.3% | | 5.4% |
FL | | 17.5% | | 3.7% |
TX | | 8.9% | | 1.9% |
NY | | 7.5% | | 1.6% |
CO | | 4.1% | | 0.9% |
|
| | | | | | | | |
December 31, 2017 | | September 30, 2017 |
| Loans outstanding as a % of RJ Bank total residential mortgage loans | | Loans outstanding as a % of RJ Bank total loans | | | Loans outstanding as a % of RJ Bank total residential mortgage loans | | Loans outstanding as a % of RJ Bank total loans |
CA | 24.9% | | 4.6% | | CA | 23.8% | | 4.4% |
FL | 18.2% | | 3.4% | | FL | 18.9% | | 3.5% |
TX | 7.6% | | 1.4% | | TX | 7.8% | | 1.4% |
NY | 6.9% | | 1.3% | | NY | 6.8% | | 1.3% |
CO | 3.5% | | 0.6% | | CO | 3.4% | | 0.6% |
Loans where borrowers may be subject to payment increases include adjustable rate mortgageARM loans with terms that initially require payment of interest only. Payments may increase significantly when the interest-only period ends and the loan principal begins to
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
amortize. At December 31, 2017June 30, 2021 and September 30, 2017,2020, these loans totaled $748 million$1.92 billion and $683 million,$1.67 billion, respectively, or approximately 20%37% and 34% of the residential mortgage portfolio, at each period.respectively. The weighted averageweighted-average number of years before the remainder of the loans, which were still in their interest-only period at December 31, 2017,June 30, 2021, begins amortizing is 6.96 years.
A component of credit risk management for the residential portfolio is the LTV and borrower credit score at origination or purchase. The most recent weighted-average LTV/FICO scores at origination of RJ Bank’s residential first mortgage loan portfolio are as follows:
|
| | | |
| December 31, 2017 | | September 30, 2017 |
Residential first mortgage loan weighted-average LTV/FICO | 65%/758 | | 65%/758 |
Corporate and tax-exempt loans
Other than loans classified as nonperforming, the amount ofCredit risk in our corporate and tax-exempt bank loan portfolios is monitored on an individual loan basis. The majority of our tax-exempt bank 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.
Management's Discussion and Analysis
Credit risk is also managed by diversifying the corporate bank loan portfolio. RJ Bank’sOur corporate bank loan portfolio does not contain a significant concentration in any single industry. The following table details the industry concentrations (top five categories) of RJ Bank’sour corporate bank loans.
| | | | | | | | | | | | | | |
| | June 30, 2021 |
| | Loans outstanding as a % of total corporate bank loans | | Loans outstanding as a % of total bank loans |
Office real estate | | 7.7% | | 3.8% |
Business systems and services | | 6.9% | | 3.4% |
Automotive/transportation | | 6.3% | | 3.1% |
Multi-family | | 6.1% | | 3.0% |
Consumer products and services | | 5.8% | | 2.9% |
The COVID-19 pandemic negatively impacted our corporate loan portfolio in fiscal 2020. Although we reduced our exposure and revised our credit limits related to sectors that we believe to be most vulnerable to the COVID-19 pandemic, such as the energy, airlines, entertainment and leisure, restaurant and gaming sectors, we may experience further losses on our remaining loans to borrowers in these sectors, particularly if economic conditions do not continue to improve in the future. In addition, we continue to monitor our exposure to office real estate, where trends have changed rapidly and possibly permanently as a result of the COVID-19 pandemic, and may experience additional losses on loans in this sector in the future. We may also experience further losses on corporate loans arein other industries as follows:a direct or indirect result of the pandemic, including on our CRE loans secured by retail and hospitality properties.
|
| | | | | | | | |
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 & infrastructure | 5.6% | | 3.8% | | Office (real estate) | 5.9% | | 4.0% |
Hospitality | 4.9% | | 3.3% | | Retail real estate | 5.3% | | 3.6% |
Retail real estate | 4.9% | | 3.3% | | Power & infrastructure | 5.3% | | 3.6% |
Consumer products and services | 4.7% | | 3.2% | | Consumer products and services | 5.2% | | 3.5% |
Office (real estate) | 4.5% | | 3.0% | | Hospitality | 4.7% | | 3.2% |
Although we saw deterioration in oil prices for much of fiscal year 2020 due to the pandemic, oil prices continued to improve during the first nine months of fiscal year 2021 and have now surpassed pre-pandemic levels as of the end of the fiscal third quarter of 2021. Our energy portfolio has minimal direct commodity price exposure since it consists of loans to midstream distribution companies and convenience stores, with no loans to exploration and production enterprises. However, in the event of significant deterioration in oil prices in the future, our borrowers, and our loans to such borrowers, could be negatively impacted.
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 Analysis of Financial Condition and Results of Operations - Risk Managementmanagement - Operational Risk” inrisk” of our 20172020 Form 10-K for a discussion of our operational risk and certain of our risk mitigation processes. There have been no material changes in such processes during
In response to the three months ended December 31, 2017.
As more fully described in the discussion ofCOVID-19 pandemic, we activated and successfully executed on our business technology risks included in various risk factors presented in “Item 1A - Risk Factors” incontinuity protocols and continue to monitor the COVID-19 pandemic under such protocols. We have endeavored to protect our 2017 Form 10-K, despite our implementation of protective measuresassociates 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 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 throughto ensure continuity of business operations for our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operationsclients. As a result, a substantial portion of our clients or counterparties. To-date,associates continue to work remotely. The firm continues to monitor conditions and has developed a phased approach to reopening our offices which complies with all applicable laws, regulations, and Centers for Disease Control guidelines. As of June 30, 2021, we had reopened most of our offices in a limited capacity and have not experienced any material losses relatingbeen operating under strict public health and safety protocols in such locations. We continue to cyberattacks or other information security breaches; however, there can be no assurances that we will not suffer such lossesmonitor reports from health officials and had hoped for a full return to office in September 2021, which would include more flexibility for our associates. However, the recent disruptions in the future. U.S. caused by the Delta variant may impact the timing of the implementation of these plans.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Periods of severe market volatility, such as those that arose most notably in fiscal 2020 in response to the onset of the COVID-19 pandemic, can result in a significantly higher level of transactions on specific days and other activity which may present operational challenges from time to time that may result in losses. These losses can result from, but are not limited to, trade errors, failed transaction settlements, late collateral calls to borrowers and counterparties, or interruptions to our system processing. We did not incur any significant losses related to such operational challenges during the nine months ended June 30, 2021.
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 20172020 Form 10-K for information regarding how we utilize models throughout the firm and how we manage model risk.
Regulatory and legalCompliance risk
Compliance risk is the risk of legal or regulatory sanctions, financial loss, or reputational damage that the firm may suffer from a failure to comply with applicable laws, external standards, or internal requirements. 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 20172020 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 risk mitigation processes during the three months ended December 31, 2017.
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.
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 quarterthree and nine months ended December 31, 2017June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 1A. RISK FACTORS
Not applicable.
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ITEM 2. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not have any sales of unregistered securities for the nine months ended June 30, 2021.
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 threenine months ended June 30, 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Total number of shares purchased | | Average price per share | | Number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value (in millions) at each month-end of securities that may yet be purchased under the plans or programs |
October 1, 2020 – October 31, 2020 | 1,204 | | | $ | 80.04 | | | — | | | $487 |
November 1, 2020 – November 30, 2020 | 93,225 | | | $ | 90.50 | | | — | | | $487 |
December 1, 2020 – December 31, 2020 | 116,759 | | | $ | 93.02 | | | 107,750 | | | $740 |
First quarter | 211,188 | | | $ | 91.84 | | | 107,750 | | | |
| | | | | | | |
January 1, 2021 – January 31, 2021 | 2,401 | | | $ | 100.06 | | | — | | | $740 |
February 1, 2021 – February 28, 2021 | 6,941 | | | $ | 99.93 | | | — | | | $740 |
March 1, 2021 – March 31, 2021 | 501,760 | | | $ | 120.05 | | | 500,000 | | | $680 |
Second quarter | 511,102 | | | $ | 119.69 | | | 500,000 | | | |
| | | | | | | |
April 1, 2021 – April 30, 2021 | 887 | | | $ | 128.91 | | | — | | | $680 |
May 1, 2021 – May 31, 2021 | — | | | $ | — | | | — | | | $680 |
June 1, 2021 – June 30, 2021 | 375,000 | | | $ | 128.55 | | | 375,000 | | | $632 |
Third quarter | 375,887 | | | $ | 128.55 | | | 375,000 | | | |
| | | | | | | |
Fiscal year-to-date total | 1,098,177 | | | $ | 117.36 | | | 982,750 | | | |
In December 31, 2017:2020, the Board of Directors authorized repurchase of our common stock in an aggregate amount of up to $750 million, which replaced the previous authorization.
|
| | | | | | | | | | | | | |
| 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, 2017 | 8,493 |
| | $ | 85.25 |
| | — |
| | $ | 135,671 |
|
November 1, 2017 – November 30, 2017 | 18,539 |
| | $ | 85.32 |
| | — |
| | $ | 135,671 |
|
December 1, 2017 – December 31, 2017 | 205,504 |
| | $ | 87.32 |
| | — |
| | $ | 135,671 |
|
First quarter | 232,536 |
| | $ | 87.08 |
| | — |
| | |
OfIn the preceding table, the total fornumber of shares purchased includes shares purchased pursuant to the three months ended December 31, 2017, share purchases for the trust fundRestricted 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 ownedwholly-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 20172020 Form 10-K and Note 910 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.
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ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
| |
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.ITEM 5. OTHER INFORMATION
None.
Not applicable.
ITEM 6. EXHIBITS
|
| | |
Exhibit Number |
| Description |
3.1 |
| |
3.2 |
| |
10.1 | 4.1 | FormEighth Supplemental Indenture, dated as of Restricted Stock Unit Award NoticeApril 1, 2021, for the 3.750% Senior Notes due 2051, between Raymond James Financial, Inc. and Agreement for Stock Bonus Award (time-based vesting)The Bank of New York Mellon Trust Company, N.A., as revisedtrustee, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the Securities and approvedExchange Commission on May 17, 2017, under the Amended and Restated 2012 Stock Incentive Plan.April 2, 2021. |
10.2 | 10.1 | Third Amendment to Credit Agreement, dated as of April 19, 2021, among Raymond James Financial, Inc., Raymond James & Associates, Inc., the Lenders party thereto and Bank of America, N.A., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 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.April 22, 2021. |
10.3 | 31.1 | |
10.4 |
| |
10.5 |
| |
10.6 |
| |
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 |
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31.1 |
| |
31.2 |
| |
32 |
| |
101.INS |
| XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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.
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| | | | | | | | | | |
| | | RAYMOND JAMES FINANCIAL, INC. |
| | | (Registrant) |
| | | |
Date: | February 8, 2018August 9, 2021 | | /s/ Paul C. Reilly |
| | | Paul C. Reilly |
| | | Chairman and Chief Executive Officer |
| | | |
Date: | February 8, 2018August 9, 2021 | | /s/ Jeffrey P. JulienPaul M. Shoukry |
| | | Jeffrey P. JulienPaul M. Shoukry |
| | | Executive Vice President - Finance Chief Financial Officer and Treasurer |