|
| | | | | | | | | | | | | | | | | | | | |
$ 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 54 – 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 20172022 Form 10-K.10-K for a discussion of our accounting policies applicable to our available-for-sale securities.
The following table details the amortized costcosts and fair values of our 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 |
|
securities. See Note 43 for additional information regarding the fair value of available-for-sale securities.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Cost basis | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
December 31, 2022 | | | | | | | | |
Agency residential MBS | | $ | 5,486 | | | $ | 1 | | | $ | (588) | | | $ | 4,899 | |
Agency commercial MBS | | 1,484 | | | — | | | (199) | | | 1,285 | |
Agency CMOs | | 1,585 | | | — | | | (240) | | | 1,345 | |
Other agency obligations | | 692 | | | — | | | (29) | | | 663 | |
Non-agency residential MBS | | 495 | | | — | | | (41) | | | 454 | |
U.S. Treasuries | | 1,016 | | | — | | | (29) | | | 987 | |
Corporate bonds | | 146 | | | — | | | (4) | | | 142 | |
Other | | 18 | | | — | | | — | | | 18 | |
Total available-for-sale securities | | $ | 10,922 | | | $ | 1 | | | $ | (1,130) | | | $ | 9,793 | |
| | | | | | | | |
September 30, 2022 | | | | | | | | |
Agency residential MBS | | $ | 5,662 | | | $ | — | | | $ | (668) | | | $ | 4,994 | |
Agency commercial MBS | | 1,518 | | | — | | | (208) | | | 1,310 | |
Agency CMOs | | 1,637 | | | — | | | (233) | | | 1,404 | |
Other agency obligations | | 613 | | | — | | | (31) | | | 582 | |
Non-agency residential MBS | | 492 | | | — | | | (41) | | | 451 | |
U.S. Treasuries | | 1,014 | | | — | | | (28) | | | 986 | |
Corporate bonds | | 146 | | | — | | | (5) | | | 141 | |
Other | | 18 | | | — | | | (1) | | | 17 | |
Total available-for-sale securities | | $ | 11,100 | | | $ | — | | | $ | (1,215) | | | $ | 9,885 | |
The amortized costs and fair values in the preceding table exclude $26 million and $24 million of accrued interest on available-for-sale securities as of December 31, 2022 and September 30, 2022, respectively, which was included in “Other receivables, net” on our Condensed Consolidated Statements of Financial Condition.
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 securitiessecurities. Weighted-average yields are as presented below.calculated on a taxable-equivalent basis based on estimated annual income divided by the average amortized cost of these securities. Since RJ Bank’sour MBS and CMO available-for-sale securities (MBS and CMOs) are backed by mortgages, actual maturities willmay differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. Expected maturitiesAs a result, as of ARS may differ significantly from contractual maturities, as issuers may haveDecember 31, 2022, 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 4.49 years.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
$ in millions | | Within one year | | After one but within five years | | After five but within ten years | | After ten years | | Total |
Agency residential MBS | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | 142 | | | $ | 2,427 | | | $ | 2,917 | | | $ | 5,486 | |
Carrying value | | $ | — | | | $ | 137 | | | $ | 2,189 | | | $ | 2,573 | | | $ | 4,899 | |
Weighted-average yield | | — | % | | 2.47 | % | | 1.28 | % | | 1.88 | % | | 1.63 | % |
Agency commercial MBS | | | | | | | | | | |
Amortized cost | | $ | 2 | | | $ | 803 | | | $ | 607 | | | $ | 72 | | | $ | 1,484 | |
Carrying value | | $ | 2 | | | $ | 725 | | | $ | 497 | | | $ | 61 | | | $ | 1,285 | |
Weighted-average yield | | 1.90 | % | | 1.67 | % | | 1.23 | % | | 1.55 | % | | 1.48 | % |
Agency CMOs | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | 11 | | | $ | 29 | | | $ | 1,545 | | | $ | 1,585 | |
Carrying value | | $ | — | | | $ | 11 | | | $ | 25 | | | $ | 1,309 | | | $ | 1,345 | |
Weighted-average yield | | — | % | | 2.22 | % | | 1.56 | % | | 1.57 | % | | 1.57 | % |
Other agency obligations | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | 567 | | | $ | 114 | | | $ | 11 | | | $ | 692 | |
Carrying value | | $ | — | | | $ | 544 | | | $ | 108 | | | $ | 11 | | | $ | 663 | |
Weighted-average yield | | — | % | | 2.64 | % | | 3.55 | % | | 2.94 | % | | 2.80 | % |
Non-agency residential MBS | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | — | | | $ | — | | | $ | 495 | | | $ | 495 | |
Carrying value | | $ | — | | | $ | — | | | $ | — | | | $ | 454 | | | $ | 454 | |
Weighted-average yield | | — | % | | — | % | | — | % | | 4.06 | % | | 4.06 | % |
U.S. Treasuries | | | | | | | | | | |
Amortized cost | | $ | 107 | | | $ | 909 | | | $ | — | | | $ | — | | | $ | 1,016 | |
Carrying value | | $ | 104 | | | $ | 883 | | | $ | — | | | $ | — | | | $ | 987 | |
Weighted-average yield | | 2.22 | % | | 2.69 | % | | — | % | | — | % | | 2.63 | % |
Corporate bonds | | | | | | | | | | |
Amortized cost | | $ | 1 | | | $ | 117 | | | $ | 28 | | | $ | — | | | $ | 146 | |
Carrying value | | $ | 1 | | | $ | 114 | | | $ | 27 | | | $ | — | | | $ | 142 | |
Weighted-average yield | | 2.83 | % | | 5.51 | % | | 4.86 | % | | — | % | | 5.37 | % |
Other | | | | | | | | | | |
Amortized cost | | $ | — | | | $ | 5 | | | $ | 5 | | | $ | 8 | | | $ | 18 | |
Carrying value | | $ | — | | | $ | 5 | | | $ | 5 | | | $ | 8 | | | $ | 18 | |
Weighted-average yield | | — | % | | 5.79 | % | | 5.23 | % | | 7.17 | % | | 6.30 | % |
Total available-for-sale securities | | | | | | | | | | |
Amortized cost | | $ | 110 | | | $ | 2,554 | | | $ | 3,210 | | | $ | 5,048 | | | $ | 10,922 | |
Carrying value | | $ | 107 | | | $ | 2,419 | | | $ | 2,851 | | | $ | 4,416 | | | $ | 9,793 | |
Weighted-average yield | | 2.22 | % | | 2.48 | % | | 1.39 | % | | 2.01 | % | | 1.94 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 |
December 31, 2022 | | | | | | | | | | | | |
Agency residential MBS | | $ | 1,322 | | | $ | (99) | | | $ | 3,516 | | | $ | (489) | | | $ | 4,838 | | | $ | (588) | |
Agency commercial MBS | | 322 | | | (21) | | | 963 | | | (178) | | | 1,285 | | | (199) | |
Agency CMOs | | 247 | | | (24) | | | 1,098 | | | (216) | | | 1,345 | | | (240) | |
Other agency obligations | | 615 | | | (28) | | | 19 | | | (1) | | | 634 | | | (29) | |
Non-agency residential MBS | | 454 | | | (41) | | | — | | | — | | | 454 | | | (41) | |
U.S. Treasuries | | 981 | | | (28) | | | 6 | | | (1) | | | 987 | | | (29) | |
Corporate bonds | | 107 | | | (4) | | | — | | | — | | | 107 | | | (4) | |
Other | | 18 | | | — | | | — | | | — | | | 18 | | | — | |
Total | | $ | 4,066 | | | $ | (245) | | | $ | 5,602 | | | $ | (885) | | | $ | 9,668 | | | $ | (1,130) | |
September 30, 2022 | | | | | | | | | | | | |
Agency residential MBS | | $ | 2,165 | | | $ | (226) | | | $ | 2,829 | | | $ | (442) | | | $ | 4,994 | | | $ | (668) | |
Agency commercial MBS | | 494 | | | (41) | | | 816 | | | (167) | | | 1,310 | | | (208) | |
Agency CMOs | | 337 | | | (32) | | | 1,067 | | | (201) | | | 1,404 | | | (233) | |
Other agency obligations | | 582 | | | (31) | | | — | | | — | | | 582 | | | (31) | |
Non-agency residential MBS | | 451 | | | (41) | | | — | | | — | | | 451 | | | (41) | |
U.S. Treasuries | | 982 | | | (28) | | | 4 | | | — | | | 986 | | | (28) | |
Corporate bonds | | 128 | | | (5) | | | — | | | — | | | 128 | | | (5) | |
Other | | 17 | | | (1) | | | — | | | — | | | 17 | | | (1) | |
Total | | $ | 5,156 | | | $ | (405) | | | $ | 4,716 | | | $ | (810) | | | $ | 9,872 | | | $ | (1,215) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 flowsAt December 31, 2022, of the agency MBS and CMOs. At December 31, 2017, of the 195 U.S. government-sponsored enterprise MBS and CMOs1,066 available-for-sale securities in an unrealized loss position, 133635 were in a continuous unrealized loss position for less than 12 months and 62431 securities were in a continuous unrealized loss position for greater than 12 months or more. We do not consider these securities to be other-than-temporarily impaired due to the guarantee provided by FNMA, FHLMC, and GNMA of the full payment of principal and interest, and the fact that we have the ability and intent to hold these securities. months.
At December 31, 2017,2022, debt securities we held from FNMAin excess of ten percent of our equity included those issued by the Federal National Home Mortgage Association and FHLMC had anFederal Home Loan Mortgage Corporation with amortized costcosts of $1.56$5.24 billion and $626 million,$3.13 billion, respectively, and a fair valuevalues of $1.54$4.62 billion and $617 million,$2.75 billion, respectively.
During the three months ended December 31, 2017,2022 and December 31, 2021, there were no sales of agency MBS and CMO available-for-sale securities. During the three months ended December 31, 2016, there were $7 million in proceeds from the sale of non-agency CMO available-for-sale securities. These sales resulted in an insignificant loss, which was included in “Other revenues” on our Condensed Consolidated Statements of Income and Comprehensive Income.
ARS
Our cost basis in the ARS we hold is the fair value of the securities in the period in which we acquired them. The par value of the ARS we held as of December 31, 2017 was $120 million. Only those ARS whose amortized cost basis we do not expect to recover in full are considered to be other-than-temporarily impaired, as we have the ability and intent to hold these securities. All of our ARS securities are evaluated for OTTI on a quarterly basis. As of December 31, 2017, there were no ARS preferred securities with a fair value less than cost basis.
During the three months ended December 31, 2017, there were no sales of ARS. During the three months ended December 31, 2016, sales of ARS were insignificant.
Other-than-temporarily impaired securities
There is no intent to sell our ARS and it was not more likely than not that we would be required to sell these securities as of December 31, 2017.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Changes in the amount of OTTI related to credit losses recognized in “Other revenues” on available-for-sale securities were as follows:
|
| | | | | | | | |
| | Three months ended December 31, |
$ in thousands | | 2017 | | 2016 |
Amount related to credit losses on securities we held at the beginning of the period | | $ | — |
| | $ | 8,107 |
|
Decreases to the amount related to credit losses for securities sold during the period | | — |
| | (2,353 | ) |
Amount related to credit losses on securities we held at the end of the period | | $ | — |
| | $ | 5,754 |
|
NOTE 65 – DERIVATIVE FINANCIAL INSTRUMENTSASSETS AND DERIVATIVE LIABILITIES
Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative liabilities” inon our Condensed Consolidated Statements of Financial Condition. Cash flows related to our derivative contractsderivatives are included within operating activities inon the Condensed Consolidated Statements of Cash Flows. The significant accounting policies governing our derivative financial instruments,derivatives, including our methodologies for determining fair value, are described in Note 2 of our 20172022 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | September 30, 2022 |
$ in millions | | Derivative assets | | Derivative liabilities | | Notional amount | | Derivative assets | | Derivative liabilities | | Notional amount |
Derivatives not designated as hedging instruments | | | | | | | | | | | | |
Interest rate - matched book | | $ | 14 | | | $ | 14 | | | $ | 414 | | | $ | 52 | | | $ | 52 | | | $ | 1,340 | |
Interest rate - other (1) | | 408 | | | 482 | | | 14,066 | | | 462 | | | 535 | | | 14,647 | |
Foreign exchange | | — | | | 6 | | | 1,023 | | | 4 | | | 5 | | | 958 | |
Other | | — | | | 4 | | | 534 | | | — | | | 3 | | | 531 | |
Subtotal | | 422 | | | 506 | | | 16,037 | | | 518 | | | 595 | | | 17,476 | |
Derivatives designated as hedging instruments | | | | | | | | | | | | |
Interest rate - other (2) | | 12 | | | — | | | 1,400 | | | 12 | | | — | | | 1,050 | |
Foreign exchange | | — | | | 7 | | | 1,130 | | | 6 | | | — | | | 1,092 | |
Subtotal | | 12 | | | 7 | | | 2,530 | | | 18 | | | — | | | 2,142 | |
Total gross fair value/notional amount | | 434 | | | 513 | | | $ | 18,567 | | | 536 | | | 595 | | | $ | 19,618 | |
Offset on the Condensed Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Counterparty netting | | (22) | | | (22) | | | | | (35) | | | (35) | | | |
Cash collateral netting | | (305) | | | (39) | | | | | (313) | | | (30) | | | |
Total amounts offset | | (327) | | | (61) | | | | | (348) | | | (65) | | | |
Net amounts presented on the Condensed Consolidated Statements of Financial Condition | | 107 | | | 452 | | | | | 188 | | | 530 | | | |
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Financial instruments (3) | | (21) | | | (14) | | | | | (60) | | | (52) | | | |
Total | | $ | 86 | | | $ | 438 | | | | | $ | 128 | | | $ | 478 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 notRelates to interest rate derivatives entered into as part of our fixed income business operations, including to-be-announced security contracts that are accounted for as derivatives, as well as our banking operations.
(2) During the quarter ended December 31, 2022, we entered into an interest rate swap to manage our risk of increases in interest rates associated with certain bank deposits by converting the balances subject to an enforceable master netting arrangement or other similar arrangement. However, we held sharesvariable interest rates to a fixed interest rate. Such interest rate swap has been designated and accounted for as a cash flow hedge. Refer to Note 12 of DB as an economic hedge against this obligation with a fair value of $21 million and $19 million as of December 31, 2017 and September 30, 2017, respectively, which are a component of “Other investments” on our Condensed Consolidated Statements of Financial Condition. See additional discussion of the DBRSUs in Note 17.Form 10-Q for information regarding these bank deposits.
(2)(3) 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) (“AOCI”), net of income taxes, on derivatives designated as hedging instruments are as follows (seeinstruments. These gains/(losses) included any amounts reclassified from AOCI to net income during the period. See Note 1516 for additional information):information.
| | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
$ in millions | | 2022 | | 2021 | | | | |
Interest rate (cash flow hedges) | | $ | (2) | | | $ | 9 | | | | | |
Foreign exchange (net investment hedges) | | (14) | | | (1) | | | | | |
Total gains/(losses) included in AOCI, net of taxes | | $ | (16) | | | $ | 8 | | | | | |
|
| | | | | | | | |
| | 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 andwere no components of derivative gains or losses were excluded from the assessment of hedge effectiveness for each of the three months ended December 31, 20172022 and 2016.2021. We expect to reclassify an estimated $1$32 million as additionalof interest expense out of AOCI and into earnings within the next 12 months. The maximum length of time over which forecasted transactions are or will be hedged is 10five years.
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. These amounts do not include any offsetting gains/(losses) on the related hedged item.
| | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | | | Three months ended December 31, | | |
| Location of gain/(loss) | | 2022 | | 2021 | | | | |
Interest rate | | Principal transactions/other revenues | | $ | 6 | | | $ | 3 | | | | | |
Foreign exchange | | Other revenues | | $ | (30) | | | $ | (1) | | | | | |
Other | | Principal transactions | | $ | (1) | | | $ | 3 | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | |
$ 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 primarily in the event of nonperformance by the counterparties to forward foreign exchange derivative agreements and interest rate contractsderivatives that are not cleared through a clearing organization. Where we are subject to credit exposure, we perform a credit evaluation of counterparties prior to entering into derivative transactions and we continue to monitor their credit standings. Currently, we anticipate that all of the counterparties will be able to fully satisfy their obligations under those agreements.standings on an ongoing basis. We may require initial margin or collateral from counterparties, generally in the form of cash deposits or other marketable securities to support certain of these obligations as established by the credit threshold specified by the agreement and/or as a result of monitoring the credit standing of the counterparties. We also enter into derivatives with clients to which Raymond James Bank and TriState Capital Bank have provided loans. Such derivatives are generally collateralized by marketable securities or other assets of the client.
Our only exposure to credit risk in the matched book derivatives operations is related to our uncollected derivative transaction fee revenues. We are not exposed to market risk as it relates to these derivative contracts due to the pass-through transaction structure previously described.
Interest rate and foreign exchange risk
We are exposed to interest rate risk related to certain of our interest rate derivative agreements.derivatives. We are also exposed to foreign exchange risk related to our forward foreign exchange derivative agreements.derivatives. On a daily basis, we monitor our risk exposure inon our derivative agreementsderivatives based on established limits with respect to a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis and volatility risks. These exposures are monitoredrisks, both on afor the total portfolio basis and separately for each agreement for selectedby maturity periods.period.
Derivatives with credit-risk-related contingent features
Certain of theour derivative instruments arising from our interest rate contracts and forward foreign exchange contracts contain provisions that require our debt to maintain an investment-grade rating from one or more of the major credit rating agencies.agencies or contain provisions related to default on certain of our outstanding debt. If our debt were to fall below investment-grade or we were to default on certain of our outstanding debt, the counterparties to the derivative instruments could terminate the derivative and request immediate payment, or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position was $10$7 million at as of December 31, 2017, for which we had posted $12022 and $8 million as of collateral. Such amounts were not material at September 30, 2017.2022.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 76 – 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 20172022 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 |
December 31, 2022 | | | | | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 156 | | | $ | 179 | | | $ | 335 | | | $ | 150 | | | $ | 44 | | | $ | 194 | |
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition | | — | | | — | | | — | | | — | | | — | | | — | |
Net amounts included in the Condensed Consolidated Statements of Financial Condition | | 156 | | | 179 | | | 335 | | | 150 | | | 44 | | | 194 | |
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | (156) | | | (174) | | | (330) | | | (150) | | | (40) | | | (190) | |
Net amounts | | $ | — | | | $ | 5 | | | $ | 5 | | | $ | — | | | $ | 4 | | | $ | 4 | |
September 30, 2022 | | | | | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 367 | | | $ | 337 | | | $ | 704 | | | $ | 294 | | | $ | 172 | | | $ | 466 | |
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition | | — | | | — | | | — | | | — | | | — | | | — | |
Net amounts included in the Condensed Consolidated Statements of Financial Condition | | 367 | | | 337 | | | 704 | | | 294 | | | 172 | | | 466 | |
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | (367) | | | (327) | | | (694) | | | (294) | | | (162) | | | (456) | |
Net amounts | | $ | — | | | $ | 10 | | | $ | 10 | | | $ | — | | | $ | 10 | | | $ | 10 | |
|
| | | | | | | | | | | | | | | | |
| | 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
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Repurchase agreements and securities loaned accounted for as secured borrowings
The following table presents the event the market valueremaining contractual maturity of therepurchase agreements and securities we pledgelending transactions accounted for as collateral in these activities declines, we may have to post additional collateral or reduce the borrowing amounts. We monitor such levels daily.secured borrowings.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Overnight and continuous | | Up to 30 days | | 30-90 days | | Greater than 90 days | | Total |
December 31, 2022 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 139 | | | $ | — | | | $ | — | | | $ | — | | | $ | 139 | |
Agency MBS and agency CMOs | | 11 | | | — | | | — | | | — | | | 11 | |
Total repurchase agreements | | 150 | | | — | | | — | | | — | | | 150 | |
Securities loaned: | | | | | | | | | | |
Equity securities | | 44 | | | — | | | — | | | — | | | 44 | |
Total collateralized financings | | $ | 194 | |
| $ | — | |
| $ | — | |
| $ | — | |
| $ | 194 | |
September 30, 2022 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 183 | | | $ | — | | | $ | — | | | $ | — | | | $ | 183 | |
Agency MBS and agency CMOs | | 111 | | | — | | | — | | | — | | | 111 | |
Total repurchase agreements | | 294 | | | — | | | — | | | — | | | 294 | |
Securities loaned: | | | | | | | | | | |
Equity securities | | 172 | | | — | | | — | | | — | | | 172 | |
Total collateralized financings | | $ | 466 | | | $ | — | | | $ | — | | | $ | — | | | $ | 466 | |
Collateral received and pledged
We receive cash and securities as collateral, primarily in connection with reverse repurchase agreements, securities borrowed,borrowing agreements, derivative transactions, not transacted through a clearing organization, and client margin loans. The collateral we receive reduces our credit exposure to individual counterparties.
In many cases, we are permitted to deliver or repledge financial instruments we have received as collateral forto satisfy our own use incollateral requirements under our repurchase agreements, securities lending agreements or other secured borrowings, satisfaction ofto satisfy deposit requirements with clearing organizations, or to otherwise meetingmeet either our or our clients’ settlement requirements.
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 | | December 31, 2022 | | September 30, 2022 |
Collateral we received that was available to be delivered or repledged | | $ | 3,256 | | | $ | 3,812 | |
Collateral that we delivered or repledged | | $ | 523 | | | $ | 947 | |
|
| | | | | | | | |
$ 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. We pledge certain of our bank loans with the Federal Home Loan Bank (“FHLB”) as security for both the repayment of certain borrowings and to secure capacity for additional borrowings as needed as well as with the Federal Reserve Bank of Atlanta (“FRB”) to be eligible to participate in the Federal Reserve’s discount window program. For additional information regarding our outstanding FHLB advances see Note 13. 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 | | December 31, 2022 | | September 30, 2022 |
Had the right to deliver or repledge | | $ | 1,058 | | | $ | 1,276 | |
Did not have the right to deliver or repledge | | $ | 64 | | | $ | 63 | |
Bank loans, net pledged with the: | | | | |
FHLB | | $ | 8,360 | | | $ | 8,009 | |
FRB | | 746 | | | 791 | |
Total bank loans, net pledged with the FHLB and FRB | | $ | 9,106 | | | $ | 8,800 | |
|
| | | | | | | | |
$ 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:
|
| | | | | | | | | | | | | | | | | | | | |
$ 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, 2017 and September 30, 2017, 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.
NOTE 87 – BANK LOANS, NET
Bank client receivables are comprised of loans originated or purchased by RJour Bank segment and include commercialsecurities-based loans (“SBL”), corporate loans (commercial and industrial (“C&I”) loans, tax-exemptcommercial real estate (“CRE”) loans, securities basedand real estate investment trust (“REIT”) loans), residential mortgage loans, (“SBL”), and commercial and residential real estatetax-exempt loans. These receivables are collateralized by first orand, to a lesser extent, second mortgages on residential or other real property, other assets of the borrower, a pledge of revenue, securities or are unsecured. We segregate our loan portfolio into six loan portfolio segments: SBL, C&I, CRE, REIT, residential mortgage, and tax-exempt. See Note 2 of our 2022 Form 10-K for a discussion of accounting policies related to bank loans and the allowance for credit losses.
Loan balances in the following tables are presented at amortized cost (outstanding principal balance net of unamortized purchase discounts or premiums, unearned income, and deferred origination fees and costs), except for certain held for sale loans recorded at fair value. Bank loans are presented on our Condensed Consolidated Statements of Financial Condition at amortized cost (or fair value where applicable) less the allowance for credit losses (“ACL”). As it pertains to TriState Capital Bank’s loans acquired as of June 1, 2022, the amortized cost of such purchased loans reflects the fair value of the loans on the acquisition date, and as described further in Note 3 of our 2022 Form 10-K, the purchase discount on such loans is accreted to interest income over the weighted-average life of the underlying loans, which may vary based on prepayments.
The following table presents the balances for held for investment loans by portfolio segment and held for sale loans.
| | | | | | | | | | | | | | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
SBL | | $ | 14,885 | | | $ | 15,297 | |
C&I loans | | 11,405 | | | 11,173 | |
CRE loans | | 6,929 | | | 6,549 | |
REIT loans | | 1,680 | | | 1,592 | |
Residential mortgage loans | | 7,818 | | | 7,386 | |
Tax-exempt loans | | 1,667 | | | 1,501 | |
Total loans held for investment | | 44,384 | | | 43,498 | |
Held for sale loans | | 90 | | | 137 | |
Total loans held for sale and investment | | 44,474 | | | 43,635 | |
Allowance for credit losses | | (408) | | | (396) | |
Bank loans, net (1) | | $ | 44,066 | | | $ | 43,239 | |
| | | | |
ACL as a % of total loans held for investment | | 0.92 | % | | 0.91 | % |
Accrued interest receivable on bank loans (included in “Other receivables, net”) | | $ | 182 | | | $ | 137 | |
(1) Bank loans, net as of December 31, 2022 and September 30, 2022 are presented net of $108 million and $112 million, respectively, of net unamortized discount, unearned income, and deferred loan fees and costs. The net unamortized discount primarily arose from the acquisition date fair value purchased discount on bank loans acquired in the TriState Capital acquisition. See Note 3 of our 2022 Form 10-K for further information.
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 2017 Form 10-K6 for a discussion of our accounting policies related tomore information regarding bank loans, and allowances for losses, including the policies regarding loans held for investment, loans held for sale, off-balance sheet loan commitments, nonperforming assets, troubled debt restructurings (“TDRs”), impaired loans, the allowance for loan losses and reserve for unfunded lending commitments, and loan charge-off policies.
The following table presents the balances for both the held for sale and held for investment loan portfolios, as well as the associated percentage of each portfolio segment in RJ Bank’s total loan portfolio. “Loans held for sale, net” and “Total loans held for investment, net” in the table below are presented net of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs.
|
| | | | | | | | | | | | | | |
| | 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,pledged with the FHLB had a blanket lien on RJ Bank’s residential mortgage loan portfolio as security for the repayment of certain borrowings. Seeand FRB and Note 1213 for more information regarding borrowings from the FHLB.
Loans heldHeld for sale loans
RJ BankWe originated or purchased $358$802 million and $522$968 million of loans held for sale during the three months ended December 31, 20172022 and 2016,2021, respectively. The majority of these loans were purchases of the guaranteed portions of Small Business Administration (“SBA”) loans that were initially classified as loans held for sale upon purchase and subsequently transferred to trading instruments once they had been securitized into pools. Proceeds from the salesales of theseall loans held for sale loansand not securitized amounted to $92$198 million and $150$338 million during the three months ended December 31, 20172022 and 2016,2021, respectively. Net gains resulting from such sales amounted to $1 million in bothwere insignificant for each of the three months ended December 31, 20172022 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 both the three months ended December 31, 2017 and 2016.2021.
Purchases and sales of loans held for investment
The following table presents purchases and sales of any loans held for investment by portfolio segment:segment. | $ in millions | | $ in millions | | C&I loans | | CRE loans | | REIT loans | | | Residential mortgage loans | | | Total |
Three months ended December 31, 2022 | | Three months ended December 31, 2022 | | | | | | | | | | | | |
Purchases | | Purchases | | $ | 163 | | | $ | 39 | | | $ | 24 | | | | $ | 190 | | | | $ | 416 | |
Sales | | Sales | | $ | — | | | $ | — | | | $ | — | | | | $ | — | | | | $ | — | |
| | $ in thousands | | C&I | | CRE | | Residential mortgage | | Total | |
Three months ended December 31, 2017 | | | | | | | | | |
| Three months ended December 31, 2021 | | Three months ended December 31, 2021 | | | | | |
Purchases | | $ | 147,442 |
| | $ | 20,087 |
| | $ | 45,011 |
| | $ | 212,540 |
| Purchases | | $ | 339 | | | $ | — | | | $ | — | | | | $ | 184 | | | | $ | 523 | |
Sales | | $ | 31,143 |
| | $ | — |
| | $ | — |
| | $ | 31,143 |
| Sales | | $ | 51 | | | $ | — | | | $ | — | | | | $ | — | | | | $ | 51 | |
Three months ended December 31, 2016 | | | | | | | | | |
Purchases | | $ | 114,649 |
| | $ | 38,980 |
| | $ | 81,662 |
| | $ | 235,291 |
| |
Sales | | $ | 81,579 |
| | $ | — |
| | $ | — |
| | $ | 81,579 |
| |
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
Sales in the preceding table above represent the recorded investment (i.e., net of charge-offs and discounts or premiums) of loans held for investment that were transferred to loans held for sale and subsequently sold to a third party during the respective period. As more fully described in Note 2 of our 20172022 Form 10-K, corporate loan sales generally occur as part of a loan workout situation.our credit management activities.
Aging analysis of loans held for investment
The following table presents an analysisinformation on delinquency status of the payment status ofour loans held for investment:investment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | 30-89 days and accruing | | 90 days or more and accruing | | Total past due and accruing | | Nonaccrual with allowance | | Nonaccrual with no allowance | | Current and accruing | | Total loans held for investment |
December 31, 2022 | | | | | | | | | | | | | | |
SBL | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 14,885 | | | $ | 14,885 | |
C&I loans | | 10 | | | — | | | 10 | | | 27 | | | — | | | 11,368 | | | 11,405 | |
CRE loans | | 9 | | | — | | | 9 | | | — | | | 19 | | | 6,901 | | | 6,929 | |
REIT loans | | — | | | — | | | — | | | — | | | — | | | 1,680 | | | 1,680 | |
Residential mortgage loans | | 4 | | | — | | | 4 | | | — | | | 15 | | | 7,799 | | | 7,818 | |
Tax-exempt loans | | — | | | — | | | — | | | — | | | — | | | 1,667 | | | 1,667 | |
Total loans held for investment | | $ | 23 | | | $ | — | | | $ | 23 | | | $ | 27 | | | $ | 34 | | | $ | 44,300 | | | $ | 44,384 | |
| | | | | | | | | | | | | | |
September 30, 2022 | | | | | | | | | | | | | | |
SBL | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 15,297 | | | $ | 15,297 | |
C&I loans | | — | | | — | | | — | | | 32 | | | — | | | 11,141 | | | 11,173 | |
CRE loans | | — | | | — | | | — | | | 12 | | | 16 | | | 6,521 | | | 6,549 | |
REIT loans | | — | | | — | | | — | | | — | | | — | | | 1,592 | | | 1,592 | |
Residential mortgage loans | | 4 | | | — | | | 4 | | | — | | | 14 | | | 7,368 | | | 7,386 | |
Tax-exempt loans | | — | | | — | | | — | | | — | | | — | | | 1,501 | | | 1,501 | |
Total loans held for investment | | $ | 4 | | | $ | — | | | $ | 4 | | | $ | 44 | | | $ | 30 | | | $ | 43,420 | | | $ | 43,498 | |
The preceding table includes $39 million and $63 million at December 31, 2022 and September 30, 2022, respectively, of nonaccrual loans which were current pursuant to their contractual terms. The table also includes troubled debt restructurings of $11 million, $8 million, and $10 million for C&I loans, CRE loans, and residential first mortgage loans, respectively, at
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ in thousands | | 30-89 days and accruing | | 90 days or more and accruing | | Total past due and accruing | | Nonaccrual (1) | | Current and accruing | | Total loans held for investment (2) |
As of December 31, 2017: | | | | | | | | | | | | |
C&I loans | | $ | 113 |
| | $ | — |
| | $ | 113 |
| | $ | 4,843 |
| | $ | 7,485,263 |
| | $ | 7,490,219 |
|
CRE construction loans | | — |
| | — |
| | — |
| | — |
| | 164,847 |
| | 164,847 |
|
CRE loans | | — |
| | — |
| | — |
| | — |
| | 3,136,101 |
| | 3,136,101 |
|
Tax-exempt loans | | — |
| | — |
| | — |
| | — |
| | 1,136,468 |
| | 1,136,468 |
|
Residential mortgage loans: | | | | | |
|
| | | | | |
|
|
First mortgage loans | | 5,886 |
| | — |
| | 5,886 |
| | 32,364 |
| | 3,205,513 |
| | 3,243,763 |
|
Home equity loans/lines | | 75 |
| | — |
| | 75 |
| | 126 |
| | 26,816 |
| | 27,017 |
|
SBL | | 66 |
| | — |
| | 66 |
| | — |
| | 2,530,455 |
| | 2,530,521 |
|
Total loans held for investment, net | | $ | 6,140 |
| | $ | — |
| | $ | 6,140 |
| | $ | 37,333 |
| | $ | 17,685,463 |
| | $ | 17,728,936 |
|
| | | | | | | | | | | | |
As of September 30, 2017: | | | | | | | | | | | | |
C&I loans | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5,221 |
| | $ | 7,380,689 |
| | $ | 7,385,910 |
|
CRE construction loans | | — |
| | — |
| | — |
| | — |
| | 112,681 |
| | 112,681 |
|
CRE loans | | — |
| | — |
| | — |
| | — |
| | 3,106,290 |
| | 3,106,290 |
|
Tax-exempt loans | | — |
| | — |
| | — |
| | — |
| | 1,017,791 |
| | 1,017,791 |
|
Residential mortgage loans: | | | | | | | | | | | |
|
First mortgage loans | | 1,853 |
| | — |
| | 1,853 |
| | 33,718 |
| | 3,086,701 |
| | 3,122,272 |
|
Home equity loans/lines | | 248 |
| | — |
| | 248 |
| | 31 |
| | 26,179 |
| | 26,458 |
|
SBL | | — |
| | — |
| | — |
| | — |
| | 2,386,697 |
| | 2,386,697 |
|
Total loans held for investment, net | | $ | 2,101 |
| | $ | — |
| | $ | 2,101 |
| | $ | 38,970 |
| | $ | 17,117,028 |
| | $ | 17,158,099 |
|
December 31, 2022, and $11 million, $9 million, and $10 million for C&I loans, CRE loans and residential first mortgage loans, respectively, at September 30, 2022.
| |
(1) | Includes $15 million and $18 million of nonaccrual loans at December 31, 2017 and September 30, 2017, respectively, which are performing pursuant to their contractual terms. |
| |
(2) | Excludes any net unearned income and deferred expenses. |
Other real estate owned, included in “Other assets” on our Condensed Consolidated Statements of Financial Condition, was $4 million and $5 millioninsignificant at both December 31, 20172022 and September 30, 2017, respectively. 2022.
Collateral-dependent loans
A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the underlying collateral. Collateral-dependent loans are recorded based upon the fair value of the collateral less the estimated selling costs.
| | | | | | | | | | | | | | | | | | | | | | |
Loan type ($ in millions) | | Nature of collateral | | December 31, 2022 | | | September 30, 2022 | |
| | | | | | | | |
C&I loans | | Commercial real estate and other business assets | | $ | 11 | | | | $ | 11 | | |
CRE loans | | Retail, industrial, and health care real estate | | $ | 19 | | | | $ | 21 | | |
| | | | | | | | |
Residential mortgage loans | | Single family homes | | $ | 8 | | | | $ | 6 | | |
| | | | | | | | |
The recorded investment in residential mortgage loans secured by one-to-four family residential properties for which formal foreclosure proceedings were in process was $17 million and $18$5 million at both December 31, 20172022 and September 30, 2017, respectively.2022.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Impaired loans and troubled debt restructurings
The following table provides a summary of RJ Bank’s impaired loans: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | September 30, 2017 |
$ in thousands | | Gross recorded investment | | Unpaid principal balance | | Allowance for losses | | Gross recorded investment | | Unpaid principal balance | | Allowance for losses |
Impaired loans with allowance for loan losses: | | | | | | | | | | |
C&I loans | | $ | 4,843 |
| | $ | 5,910 |
| | $ | 1,846 |
| | $ | 5,221 |
| | $ | 6,160 |
| | $ | 1,963 |
|
Residential - first mortgage loans | | 22,663 |
| | 29,403 |
| | 2,375 |
| | 23,977 |
| | 31,100 |
| | 2,504 |
|
Total | | 27,506 |
| | 35,313 |
| | 4,221 |
| | 29,198 |
| | 37,260 |
| | 4,467 |
|
Impaired loans without allowance for loan losses: | | |
| | |
| | |
| | |
| | |
|
CRE loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Residential - first mortgage loans | | 16,480 |
| | 24,096 |
| | — |
| | 16,737 |
| | 24,899 |
| | — |
|
Total | | 16,480 |
| | 24,096 |
| | — |
| | 16,737 |
| | 24,899 |
| | — |
|
Total impaired loans | | $ | 43,986 |
| | $ | 59,409 |
| | $ | 4,221 |
| | $ | 45,935 |
| | $ | 62,159 |
| | $ | 4,467 |
|
Impaired loan balances with allowances for loan losses have had reserves established based upon management’s analysis. There is no allowance required when the discounted cash flow, collateral value or market value of a loan equals or exceeds the carrying value. These are generally loans in process of foreclosure that have already been adjusted to fair value.
The preceding table includes residential first mortgage TDR’s of $26 million and $27 million at December 31, 2017 and September 30, 2017, respectively.
The average balance of the total impaired loans and the related interest income recognized in the Condensed Consolidated Statements of Income and Comprehensive Income were as follows:
|
| | | | | | | | |
| | Three months ended December 31, |
$ in thousands | | 2017 | | 2016 |
Average impaired loan balance: | | | | |
C&I loans | | $ | 4,966 |
| | $ | 32,808 |
|
CRE loans | | — |
| | 2,776 |
|
Residential - first mortgage loans | | 39,935 |
| | 46,533 |
|
Total | | $ | 44,901 |
| | $ | 82,117 |
|
Interest income recognized: | | | | |
Residential - first mortgage loans | | $ | 287 |
| | $ | 333 |
|
Total | | $ | 287 |
| | $ | 333 |
|
Credit quality indicators
The credit quality of RJ Bank’sour bank loan portfolio is summarized monthly by management using internal risk ratings, which align with the standard asset classification system utilized by bank regulators for the SBL and residential mortgage loan portfolios and internal risk ratings, which correspond to the same standard asset classifications for the corporate loan portfolios.regulators. These classifications are divided into three groups: Not Classified (Pass), Special Mention, and Classified or Adverse Rating (Substandard, Doubtful and Loss). These terms are defined as follows:
Pass – Loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell, of any underlying collateral and generally are performing in a timely manner.accordance with the contractual terms.
Special Mention – Loans which have potential weaknesses that deserve management’s close attention. These loans are not adversely classified and do not expose RJ Bankus to sufficient risk to warrant an adverse classification.
Substandard – Loans which are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans with this classification are characterized by the distinct possibility that RJ Bankwe will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans which have all the weaknesses inherent in loans classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently-known facts, conditions and values.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Loss – Loans which are considered by management to be uncollectible and of such little value that their continuance on RJ Bank’sour books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. RJ Bank doesWe do not have any loan balances within this classification because, in accordance with itsour accounting policy, loans, or a portion thereof considered to be uncollectible are charged-off prior to the assignment of this classification.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The credit quality of RJ Bank’sfollowing tables present our held for investment bank loan portfolio was as follows:
|
| | | | | | | | | | | | | | | | | | | | |
$ in thousands | | Pass | | Special mention | | Substandard | | Doubtful | | Total |
December 31, 2017 | | | | | | | | | | |
C&I | | $ | 7,343,153 |
| | $ | 35,606 |
| | $ | 111,460 |
| | $ | — |
| | $ | 7,490,219 |
|
CRE construction | | 164,847 |
| | — |
| | — |
| | — |
| | 164,847 |
|
CRE | | 3,097,041 |
| | 38,933 |
| | 127 |
| | — |
| | 3,136,101 |
|
Tax-exempt | | 1,136,468 |
| | — |
| | — |
| | — |
| | 1,136,468 |
|
Residential mortgage: | | | | | | | | | | |
First mortgage | | 3,194,572 |
| | 6,914 |
| | 42,277 |
| | — |
| | 3,243,763 |
|
Home equity | | 26,525 |
| | 315 |
| | 177 |
| | — |
| | 27,017 |
|
SBL | | 2,530,521 |
| | — |
| | — |
| | — |
| | 2,530,521 |
|
Total | | $ | 17,493,127 |
| | $ | 81,768 |
| | $ | 154,041 |
| | $ | — |
| | $ | 17,728,936 |
|
| | | | | | | | | | |
September 30, 2017 | | | | | | | | | |
C&I | | $ | 7,232,777 |
| | $ | 63,964 |
| | $ | 89,169 |
| | $ | — |
| | $ | 7,385,910 |
|
CRE construction | | 112,681 |
| | — |
| | — |
| | — |
| | 112,681 |
|
CRE | | 3,048,847 |
| | 57,315 |
| | 128 |
| | — |
| | 3,106,290 |
|
Tax-exempt | | 1,017,791 |
| | — |
| | — |
| | — |
| | 1,017,791 |
|
Residential mortgage: | | | | | | | | | | |
First mortgage | | 3,068,290 |
| | 8,467 |
| | 45,515 |
| | — |
| | 3,122,272 |
|
Home equity | | 26,352 |
| | 75 |
| | 31 |
| | — |
| | 26,458 |
|
SBL | | 2,386,697 |
| | — |
| | — |
| | — |
| | 2,386,697 |
|
Total | | $ | 16,893,435 |
| | $ | 129,821 |
| | $ | 134,843 |
| | $ | — |
| | $ | 17,158,099 |
|
by credit quality indicator. Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| | Loans by origination fiscal year | | | | | | |
$ in millions | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving loans | | | | Total |
SBL | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 5 | | $ | 14 | | $ | 79 | | $ | 54 | | $ | 27 | | $ | 93 | | $ | 14,613 | | | | $ | 14,885 |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total SBL | | $ | 5 | | $ | 14 | | $ | 79 | | $ | 54 | | $ | 27 | | $ | 93 | | $ | 14,613 | | | | $ | 14,885 |
The credit quality of RJ Bank’s performing residential first mortgage loan portfolio is additionally assessed utilizing updated loan-to-value (“LTV”) ratios. Current LTVs are updated using the most recently available information (generally updated every six months) and are estimated based on the initial appraisal obtained at the time of origination, adjusted using relevant market indices for housing price changes that have occurred since origination. The value of the homes could vary from actual market values due to changes in the condition of the underlying property, variations in housing price changes within current valuation indices, and other factors. Residential mortgage loans with estimated LTVs in excess of 100% represented much less than 1% of the residential mortgage loan portfolio as of December 31, 2017. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
C&I loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 187 | | $ | 1,129 | | $ | 1,418 | | $ | 1,295 | | $ | 1,074 | | $ | 3,372 | | $ | 2,620 | | | | $ | 11,095 |
Special mention | | — | | 10 | | 29 | | 38 | | 9 | | 75 | | 5 | | | | 166 |
Substandard | | — | | — | | — | | 59 | | 23 | | 45 | | 13 | | | | 140 |
Doubtful | | — | | — | | — | | — | | — | | 4 | | — | | | | 4 |
Total C&I loans | | $ | 187 | | $ | 1,139 | | $ | 1,447 | | $ | 1,392 | | $ | 1,106 | | $ | 3,496 | | $ | 2,638 | | | | $ | 11,405 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
CRE loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 384 | | $ | 2,362 | | $ | 1,206 | | $ | 812 | | $ | 665 | | $ | 1,232 | | $ | 161 | | | | $ | 6,822 |
Special mention | | 5 | | — | | 1 | | 14 | | — | | 38 | | — | | | | 58 |
Substandard | | — | | — | | — | | 3 | | 13 | | 33 | | — | | | | 49 |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total CRE loans | | $ | 389 | | $ | 2,362 | | $ | 1,207 | | $ | 829 | | $ | 678 | | $ | 1,303 | | $ | 161 | | | | $ | 6,929 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
REIT loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 213 | | $ | 226 | | $ | 217 | | $ | 100 | | $ | 54 | | $ | 202 | | $ | 668 | | | | $ | 1,680 |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total REIT loans | | $ | 213 | | $ | 226 | | $ | 217 | | $ | 100 | | $ | 54 | | $ | 202 | | $ | 668 | | | | $ | 1,680 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Residential mortgage loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 538 | | $ | 2,988 | | $ | 1,672 | | $ | 989 | | $ | 466 | | $ | 1,093 | | $ | 42 | | | | $ | 7,788 |
Special mention | | — | | — | | 1 | | — | | 2 | | 5 | | — | | | | 8 |
Substandard | | — | | 2 | | — | | — | | — | | 20 | | — | | | | 22 |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total residential mortgage loans | | $ | 538 | | $ | 2,990 | | $ | 1,673 | | $ | 989 | | $ | 468 | | $ | 1,118 | | $ | 42 | | | | $ | 7,818 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Tax-exempt loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 165 | | $ | 297 | | $ | 169 | | $ | 56 | | $ | 109 | | $ | 871 | | $ | — | | | | $ | 1,667 |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total tax-exempt loans | | $ | 165 | | $ | 297 | | $ | 169 | | $ | 56 | | $ | 109 | | $ | 871 | | $ | — | | | | $ | 1,667 |
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 |
| | Loans by origination fiscal year | | | | | | |
$ in millions | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving loans | | | | Total |
SBL | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 14 | | $ | 27 | | $ | 72 | | $ | 44 | | $ | 36 | | $ | 41 | | $ | 15,063 | | | | $ | 15,297 |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total SBL | | $ | 14 | | $ | 27 | | $ | 72 | | $ | 44 | | $ | 36 | | $ | 41 | | $ | 15,063 | | | | $ | 15,297 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
C&I loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,011 | | $ | 1,448 | | $ | 1,301 | | $ | 1,124 | | $ | 1,389 | | $ | 2,200 | | $ | 2,380 | | | | $ | 10,853 |
Special mention | | 10 | | 28 | | 3 | | 37 | | — | | 82 | | 6 | | | | 166 |
Substandard | | 1 | | — | | 60 | | 28 | | 40 | | 6 | | 14 | | | | 149 |
Doubtful | | — | | — | | | | — | | 5 | | — | | — | | | | 5 |
Total C&I loans | | $ | 1,022 | | $ | 1,476 | | $ | 1,364 | | $ | 1,189 | | $ | 1,434 | | $ | 2,288 | | $ | 2,400 | | | | $ | 11,173 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
CRE loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 1,916 | | $ | 1,345 | | $ | 892 | | $ | 707 | | $ | 816 | | $ | 551 | | $ | 176 | | | | $ | 6,403 |
Special mention | | — | | 1 | | — | | — | | 36 | | 2 | | — | | | | 39 |
Substandard | | — | | — | | 14 | | 17 | | 46 | | 30 | | — | | | | 107 |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total CRE loans | | $ | 1,916 | | $ | 1,346 | | $ | 906 | | $ | 724 | | $ | 898 | | $ | 583 | | $ | 176 | | | | $ | 6,549 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
REIT loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 169 | | $ | 230 | | $ | 96 | | $ | 53 | | $ | 40 | | $ | 222 | | $ | 782 | | | | $ | 1,592 |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total REIT loans | | $ | 169 | | $ | 230 | | $ | 96 | | $ | 53 | | $ | 40 | | $ | 222 | | $ | 782 | | | | $ | 1,592 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Residential mortgage loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 2,984 | | $ | 1,704 | | $ | 1,023 | | $ | 477 | | $ | 290 | | $ | 843 | | $ | 35 | | | | $ | 7,356 |
Special mention | | 1 | | 1 | | — | | 2 | | — | | 4 | | — | | | | 8 |
Substandard | | 1 | | — | | — | | — | | 1 | | 20 | | — | | | | 22 |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total residential mortgage loans | | $ | 2,986 | | $ | 1,705 | | $ | 1,023 | | $ | 479 | | $ | 291 | | $ | 867 | | $ | 35 | | | | $ | 7,386 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Tax-exempt loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 264 | | $ | 169 | | $ | 56 | | $ | 115 | | $ | 192 | | $ | 705 | | $ | — | | | | $ | 1,501 |
Special mention | | — | | — | | — | | — | | — | | — | | — | | | | — |
Substandard | | — | | — | | — | | — | | — | | — | | — | | | | — |
Doubtful | | — | | — | | — | | — | | — | | — | | — | | | | — |
Total tax-exempt loans | | $ | 264 | | $ | 169 | | $ | 56 | | $ | 115 | | $ | 192 | | $ | 705 | | $ | — | | | | $ | 1,501 |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
We also monitor the credit quality of the residential mortgage loan portfolio utilizing FICO scores and loan-to-value (“LTV”) ratios. A FICO score measures a borrower’s creditworthiness by considering factors such as payment and credit history. LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan. The following table presents the held for investment residential mortgage loan portfolio by FICO score and by LTV ratio at origination.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | | | | | |
| | Loans by origination fiscal year | | | | | | | | | | | | |
$ in millions | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving loans | | | | Total | | | | | | |
FICO score: | | | | | | | | | | | | | | | | | | | | | | | | |
Below 600 | | $ | 1 | | $ | 1 | | $ | 3 | | $ | 2 | | $ | 3 | | $ | 55 | | $ | — | | | | $ | 65 | | | | | | |
600 - 699 | | 30 | | 156 | | 109 | | 89 | | 31 | | 85 | | 4 | | | | 504 | | | | | | |
700 - 799 | | 435 | | 2,411 | | 1,274 | | 721 | | 342 | | 667 | | 26 | | | | 5,876 | | | | | | |
800 + | | 72 | | 419 | | 283 | | 176 | | 86 | | 306 | | 9 | | | | 1,351 | | | | | | |
FICO score not available | | — | | 3 | | 4 | | 1 | | 6 | | 5 | | 3 | | | | 22 | | | | | | |
Total | | $ | 538 | | $ | 2,990 | | $ | 1,673 | | $ | 989 | | $ | 468 | | $ | 1,118 | | $ | 42 | | | | $ | 7,818 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
LTV ratio: | | | | | | | | | | | | | | | | | | | | | | | | |
Below 80% | | $ | 387 | | $ | 2,287 | | $ | 1,308 | | $ | 776 | | $ | 350 | | $ | 856 | | $ | 37 | | | | $ | 6,001 | | | | | | |
80%+ | | 151 | | 703 | | 365 | | 213 | | 118 | | 262 | | 5 | | | | 1,817 | | | | | | |
Total | | $ | 538 | | $ | 2,990 | | $ | 1,673 | | $ | 989 | | $ | 468 | | $ | 1,118 | | $ | 42 | | | | $ | 7,818 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 |
| | Loans by origination fiscal year | | | | | | |
$ in millions | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving loans | | | | Total |
FICO score: | | | | | | | | | | | | | | | | | | |
Below 600 | | $ | 1 | | $ | 3 | | $ | 2 | | $ | 3 | | $ | 1 | | $ | 54 | | $ | — | | | | $ | 64 |
600 - 699 | | 155 | | 112 | | 90 | | 32 | | 20 | | 68 | | 4 | | | | 481 |
700 - 799 | | 2,403 | | 1,301 | | 744 | | 353 | | 219 | | 470 | | 22 | | | | 5,512 |
800 + | | 424 | | 284 | | 184 | | 87 | | 48 | | 273 | | 6 | | | | 1,306 |
FICO score not available | | 3 | | 5 | | 3 | | 4 | | 3 | | 2 | | 3 | | | | 23 |
Total | | $ | 2,986 | | $ | 1,705 | | $ | 1,023 | | $ | 479 | | $ | 291 | | $ | 867 | | $ | 35 | | | | $ | 7,386 |
| | | | | | | | | | | | | | | | | | |
LTV ratio: | | | | | | | | | | | | | | | | | | |
Below 80% | | $ | 2,287 | | $ | 1,333 | | $ | 797 | | $ | 358 | | $ | 226 | | $ | 661 | | $ | 31 | | | | $ | 5,693 |
80%+ | | 699 | | 372 | | 226 | | 121 | | 65 | | 206 | | 4 | | | | 1,693 |
Total | | $ | 2,986 | | $ | 1,705 | | $ | 1,023 | | $ | 479 | | $ | 291 | | $ | 867 | | $ | 35 | | | | $ | 7,386 |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Allowance for loancredit losses and reserve for unfunded lending commitments
Changes in the allowance for loan losses of RJ Bank by portfolio segment are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Loans held for investment |
$ in thousands | | C&I | | CRE construction | | CRE | | Tax-exempt | | Residential mortgage | | SBL | | Total |
Three months ended December 31, 2017 | | |
| | |
| | | | |
| | |
| | |
|
Balance at beginning of period | | $ | 119,901 |
| | $ | 1,421 |
| | $ | 41,749 |
| | $ | 6,381 |
| | $ | 16,691 |
| | $ | 4,299 |
| | $ | 190,442 |
|
Provision/(benefit) for loan losses | | 2,337 |
| | 686 |
| | (1,104 | ) | | 537 |
| | (1,699 | ) | | 259 |
| | 1,016 |
|
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | |
| | | | |
|
Charge-offs | | (603 | ) | | — |
| | — |
| | — |
| | (95 | ) | | — |
| | (698 | ) |
Recoveries | | — |
| | — |
| | — |
| | — |
| | 604 |
| | — |
| | 604 |
|
Net (charge-offs)/recoveries | | (603 | ) | | — |
| | — |
| | — |
| | 509 |
| | — |
| | (94 | ) |
Foreign exchange translation adjustment | | (66 | ) | | — |
| | (29 | ) | | — |
| | — |
| | — |
| | (95 | ) |
Balance at end of period | | $ | 121,569 |
| | $ | 2,107 |
| | $ | 40,616 |
| | $ | 6,918 |
| | $ | 15,501 |
| | $ | 4,558 |
| | $ | 191,269 |
|
| | | | | | | | | | | | | | |
Three months ended December 31, 2016 | | | | | | | | | | | | |
Balance at beginning of period | | $ | 137,701 |
| | $ | 1,614 |
| | $ | 36,533 |
| | $ | 4,100 |
| | $ | 12,664 |
| | $ | 4,766 |
| | $ | 197,378 |
|
Provision/(benefit) for loan losses | | (1,243 | ) | | 581 |
| | (2,010 | ) | | 393 |
| | 997 |
| | 242 |
| | (1,040 | ) |
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | | | | | |
Charge-offs | | (3,389 | ) | | — |
| | — |
| | — |
| | (87 | ) | | — |
| | (3,476 | ) |
Recoveries | | — |
| | — |
| | 5,013 |
| | — |
| | 65 |
| | — |
| | 5,078 |
|
Net (charge-offs)/recoveries | | (3,389 | ) | | — |
| | 5,013 |
| | — |
| | (22 | ) | | — |
| | 1,602 |
|
Foreign exchange translation adjustment | | (164 | ) | | (92 | ) | | (4 | ) | | — |
| | — |
| | — |
| | (260 | ) |
Balance at end of period | | $ | 132,905 |
| | $ | 2,103 |
| | $ | 39,532 |
| | $ | 4,493 |
| | $ | 13,639 |
| | $ | 5,008 |
| | $ | 197,680 |
|
The following table presents changes in the allowance for credit losses on held for investment bank loans by loan portfolio segment, RJ Bank’s recordedsegment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | SBL | | C&I loans | | CRE loans | | REIT loans | | Residential mortgage loans | | Tax-exempt loans | | Total |
Three months ended December 31, 2022 | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 3 | | | $ | 226 | | | $ | 87 | | | $ | 21 | | | $ | 57 | | | $ | 2 | | | $ | 396 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Provision/(benefit) for credit losses | | 1 | | | — | | | 2 | | | (6) | | | 17 | | | — | | | 14 | |
| | | | | | | | | | | | | | |
Net (charge-offs)/recoveries: | | | | | | | | | | | | | | |
Charge-offs | | — | | | (4) | | | (1) | | | — | | | — | | | — | | | (5) | |
Recoveries | | — | | | — | | | 3 | | | — | | | — | | | — | | | 3 | |
Net (charge-offs)/recoveries | | — | | | (4) | | | 2 | | | — | | | — | | | — | | | (2) | |
Foreign exchange translation adjustment | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance at end of period | | $ | 4 | | | $ | 222 | | | $ | 91 | | | $ | 15 | | | $ | 74 | | | $ | 2 | | | $ | 408 | |
ACL by loan portfolio segment as a % of total ACL | | 1.0 | % | | 54.4 | % | | 22.3 | % | | 3.7 | % | | 18.1 | % | | 0.5 | % | | 100.0 | % |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Three months ended December 31, 2021 | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 4 | | | $ | 191 | | | $ | 66 | | | $ | 22 | | | $ | 35 | | | $ | 2 | | | $ | 320 | |
| | | | | | | | | | | | | | |
Provision/(benefit) for credit losses | | (1) | | | (10) | | | 6 | | | — | | | (6) | | | — | | | (11) | |
Net (charge-offs)/recoveries: | | | | | | | | | | | | | | |
Charge-offs | | — | | | (2) | | | — | | | — | | | — | | | — | | | (2) | |
Recoveries | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Net (charge-offs)/recoveries | | — | | | (2) | | | — | | | — | | | 1 | | | — | | | (1) | |
Foreign exchange translation adjustment | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Balance at end of period | | $ | 3 | | | $ | 179 | | | $ | 72 | | | $ | 22 | | | $ | 30 | | | $ | 2 | | | $ | 308 | |
ACL by loan portfolio segment as a % of total ACL | | 1.0 | % | | 58.2 | % | | 23.4 | % | | 7.1 | % | | 9.7 | % | | 0.6 | % | | 100.0 | % |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
The allowance for credit losses on held for investment (excluding any net unearned income and deferred expenses)bank loans increased $12 million during the three months ended December 31, 2022 resulting from a $14 million provision for credit losses, primarily due to a weaker macroeconomic outlook, primarily on the residential mortgage portfolio, and the relatedimpact of loan growth during the quarter.
The allowance for loan losses.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Loans held for investment |
| | Allowance for loan losses | | Recorded investment |
$ in thousands | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total |
December 31, 2017 | | | | | | | | | | | | |
C&I | | $ | 1,846 |
| | $ | 119,723 |
| | $ | 121,569 |
| | $ | 4,843 |
| | $ | 7,485,376 |
| | $ | 7,490,219 |
|
CRE construction | | — |
| | 2,107 |
| | 2,107 |
| | — |
| | 164,847 |
| | 164,847 |
|
CRE | | — |
| | 40,616 |
| | 40,616 |
| | — |
| | 3,136,101 |
| | 3,136,101 |
|
Tax-exempt | | — |
| | 6,918 |
| | 6,918 |
| | — |
| | 1,136,468 |
| | 1,136,468 |
|
Residential mortgage | | 2,389 |
| | 13,112 |
| | 15,501 |
| | 44,429 |
| | 3,226,351 |
| | 3,270,780 |
|
SBL | | — |
| | 4,558 |
| | 4,558 |
| | — |
| | 2,530,521 |
| | 2,530,521 |
|
Total | | $ | 4,235 |
| | $ | 187,034 |
| | $ | 191,269 |
| | $ | 49,272 |
| | $ | 17,679,664 |
| | $ | 17,728,936 |
|
| | | | | | | | | | | | |
September 30, 2017 | | | | | | | | | | | | |
C&I | | $ | 1,963 |
| | $ | 117,938 |
| | $ | 119,901 |
| | $ | 5,221 |
| | $ | 7,380,689 |
| | $ | 7,385,910 |
|
CRE construction | | — |
| | 1,421 |
| | 1,421 |
| | — |
| | 112,681 |
| | 112,681 |
|
CRE | | — |
| | 41,749 |
| | 41,749 |
| | — |
| | 3,106,290 |
| | 3,106,290 |
|
Tax-exempt | | — |
| | 6,381 |
| | 6,381 |
| | — |
| | 1,017,791 |
| | 1,017,791 |
|
Residential mortgage | | 2,506 |
| | 14,185 |
| | 16,691 |
| | 47,368 |
| | 3,101,362 |
| | 3,148,730 |
|
SBL | | — |
| | 4,299 |
| | 4,299 |
| | — |
| | 2,386,697 |
| | 2,386,697 |
|
Total | | $ | 4,469 |
| | $ | 185,973 |
| | $ | 190,442 |
| | $ | 52,589 |
| | $ | 17,105,510 |
| | $ | 17,158,099 |
|
The reserve forcredit losses on unfunded lending commitments, which is included in “Other payables” on our Condensed Consolidated Statements of Financial Condition, was $10$19 million at both December 31, 20172022 and $11 million at September 30, 2017.2022.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 8 – LOANS TO FINANCIAL ADVISORS, NET
Loans to financial advisors are primarily comprised of loans originated as a part of our recruiting activities. See Note 2 of our 2022 Form 10-K for a discussion of our accounting policies related to loans to financial advisors and the related allowance for credit losses. The following table presents the balances for our loans to financial advisors and the related accrued interest receivable.
| | | | | | | | | | | | | | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
Affiliated with the firm as of period-end (1) | | $ | 1,143 | | | $ | 1,173 | |
No longer affiliated with the firm as of period-end (2) | | 9 | | | 8 | |
Total loans to financial advisors | | 1,152 | | | 1,181 | |
Allowance for credit losses | | (30) | | | (29) | |
Loans to financial advisors, net | | $ | 1,122 | | | $ | 1,152 | |
Accrued interest receivable on loans to financial advisors (included in “Other receivables, net”) | | $ | 5 | | | $ | 5 | |
Allowance for credit losses as a percent of total loans to financial advisors | | 2.60 | % | | 2.46 | % |
(1) These loans were predominantly current.
(2) These loans were predominantly past due for a period of 180 days or more.
NOTE 9 – VARIABLE INTEREST ENTITIES
A VIE requires consolidation by the entity’s primary beneficiary. We evaluate all of the entities in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. Refer to Note 2 of our 20172022 Form 10-K for a discussion of our principal involvement with VIEs and the accounting policies regarding determination of whether we are deemed to be the primary beneficiary of VIEs.
VIEs where we are the primary beneficiary
Of the VIEs in which we hold an interest, we have determined that certain Private Equity Interests, a Low-Income Housing Tax Credit fundinvestments in low-income housing tax credit (“LIHTC fund”LIHTC”) in which RJ Bank is an investor and an affiliate of Raymond James Tax Credit Funds, Inc. (“RJTCF”) is the managing member, a LIHTC fund where RJTCF provides an investor member with a guaranteed return on their investment (“Guaranteed LIHTC Fund”), certain other LIHTC funds and the trust we utilize in connection with restricted stock unit (“RSU”) awards granted to certain employees of one of our Canadian subsidiarysubsidiaries (the “Restricted Stock Trust Fund”) require consolidation in our financial statements, as we are deemed the primary beneficiary of such VIEs. The aggregate assets and liabilities of the VIEs we consolidate are provided in the table below.following table. Aggregate assets and aggregate liabilities may differ from the consolidated carrying value of assets and liabilities due to the elimination of intercompany assets and liabilities held by the consolidated VIE.
| | | | | | | | | | | | | | |
$ in millions | | Aggregate assets | | Aggregate liabilities |
December 31, 2022 | | | | |
| | | | |
LIHTC funds | | $ | 60 | | | $ | 6 | |
Restricted Stock Trust Fund | | 27 | | | 27 | |
Total | | $ | 87 | | | $ | 33 | |
| | | | |
September 30, 2022 | | | | |
| | | | |
LIHTC funds | | $ | 59 | | | $ | 6 | |
Restricted Stock Trust Fund | | 17 | | | 17 | |
Total | | $ | 76 | | | $ | 23 | |
|
| | | | | | | | |
$ in thousands | | Aggregate assets | | Aggregate liabilities |
December 31, 2017 | | | | |
Private Equity Interests | | $ | 97,475 |
| | $ | 3,614 |
|
LIHTC Fund in which RJ Bank is an investor member | | 56,556 |
| | 1,154 |
|
Guaranteed LIHTC Fund | | 50,870 |
| | 2,943 |
|
Other LIHTC Funds | | 7,519 |
| | 2,915 |
|
Restricted Stock Trust Fund | | 17,951 |
| | 17,951 |
|
Total | | $ | 230,371 |
| | $ | 28,577 |
|
| | | | |
September 30, 2017 | | |
| | |
|
Private Equity Interests | | $ | 104,414 |
| | $ | 3,851 |
|
LIHTC Fund in which RJ Bank is an investor member | | 57,719 |
| | 1,055 |
|
Guaranteed LIHTC Fund | | 51,400 |
| | 2,872 |
|
Other LIHTC Funds | | 7,418 |
| | 2,544 |
|
Restricted Stock Trust Fund | | 12,122 |
| | 12,122 |
|
Total | | $ | 233,073 |
| | $ | 22,444 |
|
In the Guaranteed LIHTC Fund, a multi-investor tax credit fund in which RJTCF is the managing member, RJTCF has provided one investor member a guaranteed return on their investment in the fund. See Note 9 in our 2017 Form 10-K for information regarding the financing asset associated with this fund and Note 14 of this Form 10-Q for additional information regarding this commitment.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents information about the carrying value of the assets liabilities and equityliabilities of the VIEs which we consolidate and which are included withinon our Condensed Consolidated Statements of Financial Condition. The noncontrolling interests presentedIntercompany balances are eliminated in this table represent the portion of these net assets whichconsolidation and are not ours.
|
| | | | | | | | |
$ in thousands | | December 31, 2017 | | September 30, 2017 |
Assets: | | | | |
Cash and cash equivalents | | $ | 2,343 |
| | $ | 2,052 |
|
Assets segregated pursuant to regulations and other segregated assets | | 4,242 |
| | 4,590 |
|
Other receivables | | 79 |
| | 168 |
|
Intercompany receivables | | 443 |
| | 454 |
|
Other investments | | 94,610 |
| | 101,905 |
|
Investments in real estate partnerships held by consolidated variable interest entities | | 110,662 |
| | 111,743 |
|
Trust fund investment in RJF common stock | | 17,949 |
| | 12,120 |
|
Other assets | | 43 |
| | 41 |
|
Total assets | | $ | 230,371 |
| | $ | 233,073 |
|
| | | | |
Liabilities and equity: | | |
| | |
|
Other payables | | $ | 11,968 |
| | $ | 9,667 |
|
Intercompany payables | | 22,302 |
| | 16,520 |
|
Total liabilities | | 34,270 |
| | 26,187 |
|
RJF equity | | 96,968 |
| | 101,445 |
|
Noncontrolling interests | | 99,133 |
| | 105,441 |
|
Total equity | | 196,101 |
| | 206,886 |
|
Total liabilities and equity | | $ | 230,371 |
| | $ | 233,073 |
|
The trust fund investment in RJF common stockreflected in the table above is the Restricted Stock Trust Fund, which is included in “Treasury stock” in our Condensed Consolidated Statements of Financial Condition.following table.
| | | | | | | | | | | | | | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
Assets: | | | | |
Cash and cash equivalents and assets segregated for regulatory purposes and restricted cash | | $ | 5 | | | $ | 5 | |
| | | | |
| | | | |
Other assets | | 55 | | | 54 | |
Total assets | | $ | 60 | | | $ | 59 | |
Liabilities: | | | | |
Other payables | | $ | — | | | $ | — | |
| | | | |
Total liabilities | | $ | — | | | $ | — | |
Noncontrolling interests | | $ | (26) | | | $ | (26) | |
VIEs where we hold a variable interest but are not the primary beneficiary
As discussed in Note 2 inof our 20172022 Form 10-K, we have concluded that for certain VIEs we are not the primary beneficiary and therefore do not consolidate these VIEs. Such VIEs include certain LIHTC funds, certain Private Equity Interests, certain LIHTC funds, New Market Tax Credit Funds (“NMTC Funds”) and other limited partnerships. Our risk of loss for these VIEs is limited to our investments in, advances to, and/or receivables due from these VIEs.
Aggregate assets, liabilities, and risk of loss
The aggregate assets, liabilities, and our exposure to loss from those VIEs in which we hold a variable interest, but as to which we have concluded we are not the primary beneficiary, are provided in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | September 30, 2022 |
$ in millions | | Aggregate assets | | Aggregate liabilities | | Our risk of loss | | Aggregate assets | | Aggregate liabilities | | Our risk of loss |
LIHTC funds | | $ | 8,101 | | | $ | 2,697 | | | $ | 76 | | | $ | 7,752 | | | $ | 2,584 | | | $ | 136 | |
Private Equity Interests | | 2,207 | | | 531 | | | 94 | | | 2,177 | | | 448 | | | 90 | |
Other | | 158 | | | 101 | | | 3 | | | 159 | | | 101 | | | 8 | |
Total | | $ | 10,466 | | | $ | 3,329 | | | $ | 173 | | | $ | 10,088 | | | $ | 3,133 | | | $ | 234 | |
NOTE 10 - OTHER ASSETS
The following table below.details the components of other assets. See Note 2 of our 2022 Form 10-K for a discussion of the accounting polices related to certain of these components.
| | | | | | | | | | | | | | |
| | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
Investments in company-owned life insurance policies | | $ | 1,024 | | | $ | 944 | |
Property and equipment, net | | 502 | | | 503 | |
Lease right of use (“ROU”) assets | | 468 | | | 480 | |
Prepaid expenses | | 186 | | | 173 | |
| | | | |
Investments in FHLB and FRB stock | | 86 | | | 88 | |
| | | | |
All other | | 254 | | | 264 | |
Total other assets | | $ | 2,520 | | | $ | 2,452 | |
See Note 13 of our 2022 Form 10-K for further information regarding our property and equipment and Note 11 of this Form 10-Q and Note 14 of our 2022 Form 10-K for further information regarding our leases.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, NET11 – LEASES
Our goodwillThe following table presents the balances related to our leases on our Condensed Consolidated Statements of Financial Condition. See Notes 2 and identified intangible assets result from various acquisitions. See Note 214 of our 20172022 Form 10-K for additional information related to our leases, including a discussion of our intangible assets and goodwill accounting policies. The following are our goodwill and net identifiable intangible asset balances as of the dates indicated:
| | | | | | | | | | | | | | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
ROU assets (included in Other assets) | | $ | 468 | | | $ | 480 | |
Lease liabilities (included in Other payables) | | $ | 471 | | | $ | 482 | |
|
| | | | | | | | |
$ 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 goodwill testing on an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We performed our latest annual goodwill impairment testing during the quarter ended March 31, 2017, evaluating balancesLease liabilities as of December 31, 2016,2022 excluded $63 million of minimum lease payments related to lease arrangements that were legally binding but had not yet commenced. These leases are estimated to commence between dates later in fiscal year 2023 and no impairment was identified. In that testing, we performed both a qualitative impairment assessment for certain of our reporting units and a quantitative impairment assessment for our two Raymond James Ltd. (“RJ Ltd.”) reporting units operating in Canada. No events have occurred since our assessment during the quarter ended March 31, 2017 that would cause usfiscal year 2025 with lease terms ranging from three to update this impairment testing. See Note 12 in our 2017 Form 10-K for further information about our goodwill impairment testing.13 years.
Lease expense
Notes to Condensed Consolidated Financial Statements (Unaudited)
Identifiable intangible assets, net
The following table sets forthdetails the components of lease expense, which is included in “Occupancy and equipment” expense on 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)of Income and Comprehensive Income.
| | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
$ in millions | | 2022 | | 2021 | | | | |
Lease costs | | $ | 31 | | | $ | 28 | | | | | |
Variable lease costs | | $ | 7 | | | $ | 7 | | | | | |
Variable lease costs in the preceding table include payments required under lease arrangements for common area maintenance charges and other variable costs that are not reflected in the measurement of ROU assets and lease liabilities.
NOTE 1112 – BANK DEPOSITS
Bank deposits include savings and money market and savings accounts, interest-bearing checking accounts, which include Negotiable Order of Withdrawal accounts, certificates of deposit, of RJ Bank, Negotiable Order of Withdrawal (“NOW”) accounts and demand deposits.non-interest-bearing checking accounts. The following table presents a summary of bank deposits, includingas well as the weighted-average rate, theinterest rates on such deposits. The calculation of whichthe weighted-average rates was based on the actual deposit balances and rates at each respective period end.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | September 30, 2022 |
$ in millions | | Balance | | Weighted-average rate | | Balance | | Weighted-average rate |
Money market and savings accounts | | $ | 44,767 | | | 1.20 | % | | $ | 44,446 | | | 1.01 | % |
Interest-bearing checking accounts | | 5,309 | | | 4.10 | % | | 5,286 | | | 2.77 | % |
Certificates of deposit | | 1,415 | | | 3.09 | % | | 999 | | | 1.85 | % |
Non-interest-bearing checking accounts | | 488 | | | — | | | 626 | | | — | |
Total bank deposits | | $ | 51,979 | | | 1.55 | % | | $ | 51,357 | | | 1.21 | % |
At December 31, 20172022 and September 30, 2017.
|
| | | | | | | | | | | | | | |
| | 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 table above excludes affiliate deposits of $246 million at December 31, 20172022, money market and $243 million at September 30, 2017. These affiliate deposits include $193 million at December 31, 2017 and $192 million at September 30, 2017, held in a deposit account at RJ Bank on behalf of RJF.
Savings and money marketsavings accounts in the preceding table above consist primarilyincluded $39.10 billion and $38.71 billion, respectively, of deposits that are cash balances swept to our Bank segment from the client investment accounts maintained at Raymond James & Associates, Inc. (“RJ&A”) to RJ Bank. These balances, which are held in Federal Deposit Insurance Corporation (“FDIC”) insured-insured bank accounts through the Raymond James Bank Deposit Program (“RJBDP”). The aggregateAs of December 31, 2022 and September 30, 2022, money market and savings accounts also included direct accounts held by TriState Capital Bank on behalf of third-party clients.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As of December 31, 2022 and September 30, 2022, the estimated amount of time deposit account balancestotal bank deposits that exceeded the FDIC insurance limit at December 31, 2017 was $25 million.
Scheduled maturities$8.18 billion and $7.84 billion, respectively. The following table sets forth the estimated amount of certificates of deposit arethat exceeded the FDIC insurance limit by time remaining until maturity as follows:of December 31, 2022.
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | |
$ in millions | | December 31, 2022 |
Three months or less | | $ | 37 | |
Over three through six months | | 16 | |
Over six through twelve months | | 15 | |
Over twelve months | | 12 | |
Total estimated certificates of deposit that exceeded the FDIC insurance limit | | $ | 80 | |
Interest expense on deposits, excluding interest expense related to affiliateaffiliated deposits, is summarized in the following table.
| | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
$ in millions | | 2022 | | 2021 | | | | |
Money market and savings accounts | | $ | 117 | | | $ | 1 | | | | | |
Interest-bearing checking accounts | | 47 | | | 1 | | | | | |
Certificates of deposit | | 8 | | | 4 | | | | | |
Total interest expense on deposits | | $ | 172 | | | $ | 6 | | | | | |
We use an interest rate swap to manage the risk of increases in interest rates associated with certain bank deposits by converting the balances subject to variable interest rates to a fixed interest rate. Refer to Note 5 of this Form 10-Q for information regarding this interest rate swap, which has been designated and accounted for as follows:a cash flow hedge.
|
| | | | | | | | |
| | 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 1213 – OTHER BORROWINGS
The following table details the components of our other borrowings:
|
| | | | | | | | |
$ 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 |
|
Borrowings from the FHLB wereborrowings, which are primarily comprised of both floatingshort-term and fixed-rate advances. Aslong-term FHLB advances and subordinated notes.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | September 30, 2022 |
$ in millions | | Weighted average interest rate | Maturity date | Balance | | Weighted average interest rate | Maturity date | Balance |
FHLB advances: | | | | | | | | |
Floating rate - term (1) | | 4.58 | % | December 2023 | $ | 200 | | | 3.32 | % | December 2023 | $ | 850 | |
Floating rate - term (1) | | 4.60 | % | June 2024 | 650 | | | N/A | N/A | — | |
Floating rate - overnight (1) | | N/A | Overnight | — | | | 3.11 | % | Overnight | 140 | |
Fixed rate | | 4.82 | % | March 2023 | 200 | | | 3.45 | % | December 2022 | 200 | |
Total FHLB advances | | | | 1,050 | | | | | 1,190 | |
Subordinated notes - fixed-to-floating (including an unaccreted premium of $2 and $2, respectively) (2) | | 5.75 | % | May 2030 | 100 | | | 5.75 | % | May 2030 | 100 | |
Other | | | | — | | | | | 1 | |
Total other borrowings | | | | $ | 1,150 | | | | | $ | 1,291 | |
(1) Interest rates on these advances reset daily.
(2) Incur interest at a fixed rate of December 31, 20175.75% until May 2025 and September 30, 2017thereafter at a variable interest rate based on London Interbank Offered Rate, or an appropriate alternative reference rate. We may redeem these subordinated notes beginning in August 2025 at a redemption price equal to 100% of the floating-rate advances, which mature in June 2019principal amount of the notes to be redeemed plus accrued and haveunpaid interest rates which reset quarterly, totaled $850 million. thereon to the redemption date.
We use interest rate swaps to manage the risk of increases in interest rates associated with theseour floating-rate FHLB advances by converting the balances subject to variable interest rates to a fixed interest rate. Refer to Note 62 of our 2022 Form 10-K and Note 5 of this Form 10-Q for information regarding these interest rate swaps, which arehave been designated and 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 grantedcash flow hedges. Refer to Note 6 for more information regarding bank loans, net pledged with the FHLB as security for our FHLB borrowings.
For further information 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 partyother borrowing arrangements refer 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” on our Condensed Consolidated Statements of Financial Condition. See Note 7 for information regarding our collateralized financing arrangements.
The interest rates for all of our U.S. and Canadian secured and unsecured financing facilities are variable and are based on the Fed Funds rate, LIBOR, a lenders prime rate, or the Canadian prime rate, as applicable. For the 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 13 – INCOME TAXES
For discussion of income tax accounting policies and other income tax related information, see Note 2 and Note 16 of our 20172022 Form 10-K.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 14 – INCOME TAXES
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 territorial18 of our 2022 Form 10-K.
Effective tax system which includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. As the firm’s fiscal year end is September 30th, our U.S. federal statutoryrate
Our effective income tax rate will be 24.5% for our fiscal year ended September 30, 2018, which reflects a blended federal statutory rate of 35% for our first fiscal quarter and 21% for the remaining three fiscal quarters. This blended statutory rate is the basis for calculating our effective tax rate, which is also impacted by other factors.
In response to the enactment of the Tax Act, the SEC issued guidance which summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Act. Further to (2) above, a registrant should record provisional amounts during a “measurement period” when the registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in tax law. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, not to exceed twelve months from the enactment date of the Tax Act. In accordance with the SEC guidance, our net income21.9% for the three months ended December 31, 2017 included an estimate of2022 was lower than 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 corporate25.4% effective tax rate and, to a lesser extent, the transition tax on deemed repatriated earnings of foreign subsidiaries. This estimate incorporates assumptions made based onfor 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 compensation2022. The decrease 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, our effective income tax rate was 61.7%, includingprimarily due to non-taxable valuation gains associated with our company-owned life insurance policies that were recognized during the estimated discrete impact of the Tax Act of $117 million, partially offset by a lower blended federal corporate statutory tax rate of 24.5%. The discrete impact of the Tax Act increased our effective tax rate by 37.6 percentage points. The effective tax rate forcurrent period compared to fiscal year 2017 was 31.2%.2022 which had non-deductible losses.
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 $10 million as a result of the expiration of statutes of limitations and the completion of tax authorities’ examinations.
NOTE 1415 – 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, 2017,2022, we had one such open underwriting commitment, which was subsequently settled in an open market transactionstransaction and did not result in a significant loss.
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
RJ Bank hasWe have outstanding, at any time, a significant number of commitments to extend credit and other credit-related off-balance sheetoff-balance-sheet financial instruments, such as standby letters of credit and loan purchases, which then extend over varying periods of time. These arrangements are subject to strict underwriting assessments and each customer’sclient’s credit worthiness is evaluated on a case-by-case basis. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and our exposure is limited to the replacement value of those commitments.
The following table presents RJ Bank’sour commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding:outstanding at our Bank segment.
| | | | | | | | | | | | | | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
SBL and other consumer lines of credit | | $ | 35,159 | | | $ | 33,641 | |
Commercial lines of credit | | $ | 3,809 | | | $ | 3,792 | |
Unfunded lending commitments | | $ | 1,227 | | | $ | 1,255 | |
Standby letters of credit | | $ | 99 | | | $ | 94 | |
SBL and other consumer lines of credit primarily represent the unfunded amounts of bank loans to consumers that are secured by marketable securities or other liquid collateral at advance rates consistent with industry standards. The proceeds from repayment or, if necessary, the liquidation of collateral, which is monitored daily, are expected to satisfy the amounts drawn against these existing lines of credit. These lines of credit are primarily uncommitted, as we reserve the right to not make any advances or may terminate these lines at any time.
|
| | | | | | | | |
$ 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 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Because many of our 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 the current expected credit losses (“CECL”) model provides for potential losses related to the unfunded lending commitments. See Note 82 of our 2022 Form 10-K and Note 7 of this Form 10-Q for further discussion ofinformation on this reserveallowance for credit losses related to unfunded lending commitments.
Investment CommitmentsRJ&A enters into margin lending arrangements which allow customers to borrow against the value of qualifying securities. Margin loans are collateralized by the securities held in the customer’s account at RJ&A. Collateral levels and established credit terms are monitored daily and we require customers to deposit additional collateral or reduce balances as necessary.
A subsidiary of RJ Bank has committed $80 million as an investor member in a LIHTC fund in which a subsidiary of RJTCF is the managing memberWe offer loans to prospective financial advisors for recruiting and retention purposes (see Note 2 of our 20172022 Form 10-K and Note 8 of this Form 10-Q for information regardingfurther discussion of our loans to financial advisors). These offers are contingent upon certain events occurring, including the accounting policies governing these investments). As of December 31, 2017, the RJ Bank subsidiaryindividuals joining us and meeting certain other conditions outlined in their offer.
Investment commitments
We had invested $62 million of the committed amount.
Notes to Condensed Consolidated Financial Statements (Unaudited)
We have unfunded commitments to various private equity investments, which aggregate to $36primarily held by Raymond James Bank and TriState Capital Bank, of $48 million as of December 31, 2017. Of the total, we have unfunded commitments of $18 million to internally-sponsored private equity 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, 2017.2022.
Other Commitmentscommitments
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 makeRaymond James Affordable Housing Investments, Inc. (“RJAHI”) sells 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 RJTCFRJAHI serves as the managing member or general partner. RJTCFRJAHI typically sells investments in project partnerships to LIHTC funds within 90 days of their acquisition,acquisition. Until such investments are sold to LIHTC funds, RJAHI is responsible for funding investment commitments to such partnerships. As of December 31, 2022, RJAHI had committed approximately $254 million to project partnerships that had not yet been sold to LIHTC funds. Because we expect to sell these project partnerships to LIHTC funds and the proceeds fromequity funding events arise over future periods, the salescontractual commitments are usednot expected to repay RJTCF’s borrowings from RJF. RJTCFmaterially impact our future liquidity requirements. RJAHI may also make short-term loans or advances to project partnerships and LIHTC funds.
As a partFor information regarding our lease commitments see Note 11 of this Form 10-Q and for information on the maturities of our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMA MBS (see the discussion of these activities withinlease liabilities see Note 214 of our 20172022 Form 10-K). At December 31, 2017, we had $851 million principal amount of outstanding forward MBS purchase commitments which were expected to be purchased over the following 90 days. In order to hedge the market interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into to be announced (“TBA”) security contracts with investors for generic MBS at specific rates and prices to be delivered on settlement dates in the future. These TBA securities and related purchased commitments are accounted for at fair value. As of December 31, 2017, the fair value of the TBA securities and the estimated fair value of the purchase commitments were insignificant.10-K.
Contingencies
RJF and certain of its subsidiaries are subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. The reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censures to fines and, in serious cases, temporary or permanent suspension from conducting business, or limitations on certain business activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time into industry practices, which can also result in the imposition of such sanctions. Refer to the “Legal and regulatory matter contingencies” discussion within this footnote for information about related loss contingency reserves.
Guarantees
Our U.S. broker-dealer subsidiaries are required by federal law to be members of the Securities Investors Protection Corporation (“SIPC”). The SIPC fund provides protection up to $500 thousand per client for securities and cash held in client accounts, including a limitation of $250 thousand on claims for cash balances. We have purchased excess SIPC coverage through various syndicates of Lloyd’s of London. For RJ&A, our clearing broker-dealer, the additional protection currently provided has an aggregate firm limit of $750 million for cash and securities, including a sub-limit of $1.9 million per client for cash above basic SIPC. Account protection applies when a SIPC member fails financially and is unable to meet its obligations to clients. This coverage does not protect against market fluctuations. RJF has provided an indemnity to Lloyd’s of London against any and all losses they may incur associated with the excess SIPC policies.
RJTCF issues certain guarantees to various third parties related to project partnerships whose interests have been sold to one or more of the funds in which RJTCF is the managing member or general partner. In some instances, RJTCF is not the primary guarantor of these obligations, which aggregated to $3 million as of December 31, 2017.
RJTCF has provided a guaranteed return on investment to a third-party investor in the Guaranteed LIHTC Fund and RJF has guaranteed RJTCF’s performance under the arrangement. Under the terms of the performance guarantee, should the underlying LIHTC project partnerships held by the Guaranteed LIHTC Fund fail to deliver a certain amount of tax credits and other tax benefits to this investor
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 mattermatters contingencies
In addition to the matters specifically described below, in the normal course of our business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities as a diversified financial services institution.
WeRJF and certain of its subsidiaries are also subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. Reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censures to fines and, in serious cases, temporary or permanent suspension from conducting business, or limitations on certain business activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time, among other things, into industry practices, which can also result in the imposition of such sanctions. For example, the firm is continuing its cooperation with the SEC in connection with an investigation of the firm’s investment advisory business’ compliance with records preservation requirements relating to business communications sent over electronic messaging channels that have not been approved by the firm. The SEC is reportedly conducting similar investigations of record preservation practices at other reviews, investigationsfinancial institutions.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
We may contest liability and/or the amount of damages, as appropriate, in each pending matter. The level of litigation and proceedingsinvestigatory activity (both formal and informal) by governmentalgovernment and self-regulatory agencies regarding our business. Such proceedings may involve, among other things, our sales and trading activities, financial products or offerings we sponsored, underwrote or sold, and operational matters. Some of these proceedings have resulted, and may in the future result, in adverse judgments, settlements, fines, penalties, injunctionsfinancial services industry continues to be significant. There can be no assurance that material losses will not be incurred from claims that have not yet been asserted or other relief and/or require usare not yet determined to undertake remedial actions.be material.
WeFor many legal and regulatory matters, we are unable to estimate a range of reasonably possible loss as we cannot predict if, how or when such proceedings or investigations will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be. A large number of factors may contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental proceedings, potential fines and penalties); the matters present significant legal uncertainties; we have not engaged in settlement discussions; discovery is not complete; there are significant facts in dispute; and numerous parties are named as defendants (including where it is uncertain how liability might be shared among defendants).
We contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased significantly in the financial services industry. While we have identified below certain proceedings that we believe could be material, individually or collectively, there can be no assurance that material losses will not be incurred from claims that have not yet been asserted or are not yet determined to be material.
We 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, 2017,2022, we estimated the upper end of the range of reasonably possible aggregate loss to be approximately $70$100 million in excess of the aggregate reservesaccruals for such matters. Refer to Note 2 of our 20172022 Form 10-K for a discussion of our criteria for recognizing liabilities for contingencies.
Morgan Keegan Litigation
Indemnification from RegionsNOTE 16 – SHAREHOLDERS’ EQUITY
Under
Preferred stock
The following table details the agreement with Regions governingshares outstanding, carrying value, and aggregate liquidation preference of our 2012 acquisitionpreferred stock. For further details regarding our preferred stock see Note 20 of Morgan Keegan & Company, Inc.,our 2022 Form 10-K.
| | | | | | | | | | | | | | |
$ in millions, except share count | | December 31, 2022 | | September 30, 2022 |
6.75% Fixed-to-Floating Rate Series A Non-Cumulative Perpetual Preferred Stock (“Series A Preferred Stock”): | | | | |
Shares outstanding | | 40,250 | | 40,250 |
Carrying value | | $ | 41 | | | $ | 41 | |
Aggregate liquidation preference | | $ | 40 | | | $ | 40 | |
6.375% Fixed-to-Floating Rate Series B Non-Cumulative Perpetual Preferred Stock (“Series B Preferred Stock”): | | | | |
Shares outstanding | | 80,500 | | 80,500 |
Carrying value | | $ | 79 | | | $ | 79 | |
Aggregate liquidation preference | | $ | 81 | | | $ | 81 | |
The following table details dividends declared and MK Holding, Inc.dividends paid on our Series A and certain of its affiliates (collectively referred to as “Morgan Keegan”), Regions is obligated to indemnify usSeries B preferred stock 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.three months ended December 31, 2022.
| | | | | | | | | | | | | | | | | | |
| | | |
$ in millions, except per share amounts | | Total dividends | | Per preferred share amount | | | | |
Dividends declared: | | | | | | | | |
Series A Preferred Stock | | $ | 1 | | | $ | 16.88 | | | | | |
Series B Preferred Stock | | 1 | | | $ | 15.94 | | | | | |
Total preferred stock dividends declared | | $ | 2 | | | | | | | |
Dividends paid: | | | | | | | | |
Series A Preferred Stock | | $ | 1 | | | $ | 16.88 | | | | | |
Series B Preferred Stock | | 1 | | | $ | 15.94 | | | | | |
Total preferred stock dividends paid | | $ | 2 | | | | | | | |
Notes to Condensed Consolidated Financial Statements (Unaudited)
Common equity
Common stock issuance
The Morgan Keegan matter described below is subjectWe issue shares from time-to-time during the year to satisfy obligations under certain of our share-based compensation programs. See Note 19 of this Form 10-Q and Note 23 of our 2022 Form 10-K for additional information on these programs. We may also reissue treasury shares for such indemnification provisions.purposes.
Share repurchases
We repurchase shares of our common stock from time to time for a number of reasons, including to offset dilution from share-based compensation. In December 2022, our Board of Directors authorized common stock repurchases of up to $1.5 billion, which replaced the previous authorization. Our share repurchases are effected primarily through regular open-market purchases, typically under a SEC Rule 10b-18 plan, the amounts and timing of which are determined primarily by our current and projected capital position, applicable law and regulatory constraints, general market conditions, and the price and trading volumes of our common stock. During the three months ended December 31, 2022, we repurchased 1.29 million shares of our common stock for $138 million at an average price of $106 per share under the Board of Directors’ common stock repurchase authorization. As of December 31, 2017, management estimated2022, approximately $1.4 billion remained available under such authorization.
Common stock dividends
Dividends per common share declared and paid are detailed in the rangefollowing table for each respective period.
| | | | | | | | | | | | | | | |
| Three months ended December 31, | | |
| 2022 | | 2021 | | | | |
Dividends per common share - declared | $ | 0.42 | | | $ | 0.34 | | | | | |
Dividends per common share - paid | $ | 0.34 | | | $ | 0.26 | | | | | |
Our dividend payout ratio is detailed in the following table for each respective period and is computed by dividing dividends declared per common share by earnings per diluted common share.
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| | Three months ended December 31, |
| | 2022 | | 2021 |
Dividend payout ratio | | 18.3 | % | | 16.2 | % |
RJF expects to continue paying cash dividends. However, the payment and rate of potential liability of all Morgan Keegan mattersdividends on our common stock are subject to indemnification,several factors including our operating results, financial and regulatory requirements or restrictions, and the costavailability of defense,funds from our subsidiaries, including our broker-dealer and bank subsidiaries, which may also be subject to restrictions under regulatory capital rules. The availability of funds from subsidiaries may also be from $12 millionsubject to $44 million. Any loss arising from such matters, after applicationrestrictions contained in loan covenants of any contractual thresholdscertain broker-dealer loan agreements and other reductions, as set forth in the agreement, will be bornerestrictions 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,” pertainingbank regulators on dividends to the Morgan Keegan matters subject to indemnification. The amount included within “Other payables” is the amount within the rangeparent from Raymond James Bank and TriState Capital Bank. See Note 20 of potential liability related to such matters which management estimated was more likely than any other amount within such range.this Form 10-Q for additional information on our regulatory capital requirements.
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 15 – 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,(“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.
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$ 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 December 31, 2022 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 153 | | | $ | (276) | | | $ | (123) | | | $ | (902) | | | $ | 43 | | | $ | (982) | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | (19) | | | 60 | | | 41 | | | 85 | | | 2 | | | 128 | |
Amounts reclassified from AOCI, before tax | | — | | | — | | | — | | | — | | | (5) | | | (5) | |
Pre-tax net OCI | | (19) | | | 60 | | | 41 | | | 85 | | | (3) | | | 123 | |
Income tax effect | | 5 | | | — | | | 5 | | | (38) | | | 1 | | | (32) | |
OCI for the period, net of tax | | (14) | | | 60 | | | 46 | | | 47 | | | (2) | | | 91 | |
AOCI as of end of period | | $ | 139 | | | $ | (216) | | | $ | (77) | | | $ | (855) | | | $ | 41 | | | $ | (891) | |
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Three months ended December 31, 2021 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 81 | | | $ | (90) | | | $ | (9) | | | $ | (5) | | | $ | (27) | | | $ | (41) | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | (2) | | | 1 | | | (1) | | | (72) | | | 8 | | | (65) | |
Amounts reclassified from AOCI, before tax | | — | | | — | | | — | | | — | | | 4 | | | 4 | |
Pre-tax net OCI | | (2) | | | 1 | | | (1) | | | (72) | | | 12 | | | (61) | |
Income tax effect | | 1 | | | — | | | 1 | | | 17 | | | (3) | | | 15 | |
OCI for the period, net of tax | | (1) | | | 1 | | | — | | | (55) | | | 9 | | | (46) | |
AOCI as of end of period | | $ | 80 | | | $ | (89) | | | $ | (9) | | | $ | (60) | | | $ | (18) | | | $ | (87) | |
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$ 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 |
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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 |
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Amounts reclassified from accumulated other comprehensive income/(loss), before tax | | — |
| | 6,537 |
| | 6,537 |
| | (12 | ) | | 1,572 |
| | 8,097 |
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Pre-tax net other comprehensive income/(loss) | | 18,098 |
| | (11,219 | ) | | 6,879 |
| | (6,870 | ) | | 41,513 |
| | 41,522 |
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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 |
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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 months ended December 31, 2022 and 2021 were recorded in “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 RJ Bank’s business operations (seeour Bank segment. For further information about our significant accounting policies related to derivatives, see Note 62 of our 2022 Form 10-K. In addition, see Note 5 of this Form 10-Q for additional information on these derivatives).derivatives.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 17 – 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:
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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 computation2022 Form 10-K. See and Note 22 of this Form 10-Q for additional information on our segment results.
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| | Three Months Ended December 31, 2022 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 1,053 | | | $ | 1 | | | $ | 197 | | | $ | — | | | $ | (9) | | | $ | 1,242 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 128 | | | 1 | | | 1 | | | — | | | — | | | 130 | |
Insurance and annuity products | | 104 | | | — | | | — | | | — | | | — | | | 104 | |
Equities, exchange traded funds (“ETFs”) and fixed income products | | 85 | | | 33 | | | — | | | — | | | — | | | 118 | |
Subtotal securities commissions | | 317 | | | 34 | | | 1 | | | — | | | — | | | 352 | |
Principal transactions (1) | | 28 | | | 100 | | | — | | | 4 | | | — | | | 132 | |
Total brokerage revenues | | 345 | | | 134 | | | 1 | | | 4 | | | — | | | 484 | |
Account and service fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 98 | | | — | | | — | | | — | | | — | | | 98 | |
RJBDP fees | | 405 | | | 1 | | | — | | | — | | | (269) | | | 137 | |
Client account and other fees | | 60 | | | 2 | | | 5 | | | — | | | (13) | | | 54 | |
Total account and service fees | | 563 | | | 3 | | | 5 | | | — | | | (282) | | | 289 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | — | | | 102 | | | — | | | — | | | — | | | 102 | |
Equity underwriting | | 9 | | | 15 | | | — | | | — | | | (1) | | | 23 | |
Debt underwriting | | — | | | 16 | | | — | | | — | | | — | | | 16 | |
Total investment banking | | 9 | | | 133 | | | — | | | — | | | (1) | | | 141 | |
Other: | | | | | | | | | | | | |
Affordable housing investments business revenues | | — | | | 24 | | | — | | | — | | | — | | | 24 | |
All other (1) | | 6 | | | — | | | 2 | | | 13 | | | (1) | | | 20 | |
Total other | | 6 | | | 24 | | | 2 | | | 13 | | | (1) | | | 44 | |
Total non-interest revenues | | 1,976 | | | 295 | | | 205 | | | 17 | | | (293) | | | 2,200 | |
Interest income (1) | | 109 | | | 23 | | | 2 | | | 676 | | | 17 | | | 827 | |
Total revenues | | 2,085 | | | 318 | | | 207 | | | 693 | | | (276) | | | 3,027 | |
Interest expense | | (22) | | | (23) | | | — | | | (185) | | | (11) | | | (241) | |
Net revenues | | $ | 2,063 | | | $ | 295 | | | $ | 207 | | | $ | 508 | | | $ | (287) | | | $ | 2,786 | |
(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)
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| | Three Months Ended December 31, 2021 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 1,162 | | | $ | 1 | | | $ | 227 | | | $ | — | | | $ | (8) | | | $ | 1,382 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 171 | | | 2 | | | 2 | | | — | | | — | | | 175 | |
Insurance and annuity products | | 111 | | | — | | | — | | | — | | | — | | | 111 | |
Equities, ETFs and fixed income products | | 104 | | | 35 | | | — | | | — | | | — | | | 139 | |
Subtotal securities commissions | | 386 | | | 37 | | | 2 | | | — | | | — | | | 425 | |
Principal transactions (1) | | 11 | | | 122 | | | — | | | — | | | — | | | 133 | |
Total brokerage revenues | | 397 | | | 159 | | | 2 | | | — | | | — | | | 558 | |
Account and service fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 114 | | | — | | | — | | | — | | | (1) | | | 113 | |
RJBDP fees | | 67 | | | — | | | — | | | — | | | (50) | | | 17 | |
Client account and other fees | | 49 | | | 2 | | | 6 | | | — | | | (10) | | | 47 | |
Total account and service fees | | 230 | | | 2 | | | 6 | | | — | | | (61) | | | 177 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | — | | | 271 | | | — | | | — | | | — | | | 271 | |
Equity underwriting | | 13 | | | 97 | | | — | | | — | | | — | | | 110 | |
Debt underwriting | | — | | | 44 | | | — | | | — | | | — | | | 44 | |
Total investment banking | | 13 | | | 412 | | | — | | | — | | | — | | | 425 | |
Other: | | | | | | | | | | | | |
Affordable housing investments business revenues | | — | | | 35 | | | — | | | — | | | — | | | 35 | |
All other (1) | | 7 | | | 2 | | | 1 | | | 6 | | | — | | | 16 | |
Total other | | 7 | | | 37 | | | 1 | | | 6 | | | — | | | 51 | |
Total non-interest revenues | | 1,809 | | | 611 | | | 236 | | | 6 | | | (69) | | | 2,593 | |
Interest income (1) | | 33 | | | 5 | | | — | | | 187 | | | — | | | 225 | |
Total revenues | | 1,842 | | | 616 | | | 236 | | | 193 | | | (69) | | | 2,818 | |
Interest expense | | (3) | | | (2) | | | — | | | (10) | | | (22) | | | (37) | |
Net revenues | | $ | 1,839 | | | $ | 614 | | | $ | 236 | | | $ | 183 | | | $ | (91) | | | $ | 2,781 | |
(1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.
At December 31, 2022 and September 30, 2022, net receivables related to contracts with customers were $432 million and $511 million, respectively.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1618 – INTEREST INCOME AND INTEREST EXPENSE
The following table details the components of interest income and interest expense are as follows:expense.
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| | Three months ended December 31, | | |
$ in millions | | 2022 | | 2021 | | | | |
Interest income: | | | | | | | | |
Cash and cash equivalents | | $ | 55 | | | $ | 3 | | | | | |
Assets segregated for regulatory purposes and restricted cash | | 50 | | | 4 | | | | | |
Trading assets — debt securities | | 14 | | | 4 | | | | | |
Available-for-sale securities | | 53 | | | 22 | | | | | |
Brokerage client receivables | | 41 | | | 21 | | | | | |
Bank loans, net | | 599 | | | 164 | | | | | |
All other | | 15 | | | 7 | | | | | |
Total interest income | | $ | 827 | | | $ | 225 | | | | | |
Interest expense: | | | | | | | | |
Bank deposits | | $ | 172 | | | $ | 6 | | | | | |
Trading liabilities — debt securities | | 10 | | | 1 | | | | | |
Brokerage client payables | | 17 | | | 1 | | | | | |
Other borrowings | | 9 | | | 5 | | | | | |
Senior notes payable | | 23 | | | 23 | | | | | |
All other | | 10 | | | 1 | | | | | |
Total interest expense | | $ | 241 | | | $ | 37 | | | | | |
Net interest income | | $ | 586 | | | $ | 188 | | | | | |
Bank loan (provision)/benefit for credit losses | | (14) | | | 11 | | | | | |
Net interest income after bank loan (provision)/benefit for credit losses | | $ | 572 | | | $ | 199 | | | | | |
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| | 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 |
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Bank loans, net of unearned income | | 160,020 |
| | 135,525 |
|
Available-for-sale securities | | 10,715 |
| | 3,400 |
|
Trading instruments | | 5,138 |
| | 5,006 |
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Securities loaned | | 3,058 |
| | 2,732 |
|
Loans to financial advisors | | 3,502 |
| | 3,308 |
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Corporate cash and all other | | 13,079 |
| | 5,660 |
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Total interest income | | $ | 231,729 |
| | $ | 182,782 |
|
Interest expense: | | |
| | |
|
Brokerage client liabilities | | $ | 2,529 |
| | $ | 676 |
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Bank deposits | | 7,509 |
| | 2,783 |
|
Trading instruments sold but not yet purchased | | 1,706 |
| | 1,328 |
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Securities borrowed | | 1,479 |
| | 1,228 |
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Borrowed funds | | 5,865 |
| | 3,719 |
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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 |
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Interest expense related to bank deposits in the abovepreceding table for the three months ended December 31, 2017 and 2016 excludes interest expense associated with affiliate deposits which has been eliminated in consolidation.
NOTE 1719 – SHARE-BASED AND OTHER COMPENSATION
Share-based compensation plans
We have one share-based compensation plan, for our employees, Board of Directors and non-employees (comprised of independent contractor financial advisors). The Amended and Restated 2012 Stock Incentive Plan (the “2012(“the Plan”) authorizes us to grant 40,244,000 new shares, including the shares available, for grant under six predecessor plans. We generally issue newour employees, Board of Directors, and independent contractor financial advisors. Generally, we reissue our treasury shares under the 2012 Plan; however, we are also permitted to reissue our treasuryissue new shares. Our share-based compensation awards are primarily issued during the fiscal first quarter of each year. Our share-based compensation accounting policies are described in Note 2 of our 20172022 Form 10-K. Other information related to our share-based awards areis presented in Note 2023 of our 20172022 Form 10-K.
Stock options
Expense and income tax benefits related to our stock options awards granted to employees and independent contractor financial advisors is presented below:
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| | | | | | | | |
| | 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 |
|
For the three months ended December 31, 2017, we realized $1 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 expense not yet recognized for stock option awards granted to employees and independent contractor financial advisors, net of estimated forfeitures, and the remaining period over which the expense will be recognized as of December 31, 2017, are presented below:
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| | | | | | |
| | 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 awardsunits
Expense and income tax benefits related to our restricted equity awards 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 expense during the three 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, 2017,2022, we granted 1,089,000approximately 1.9 million RSUs to employees with a weighted-average grant-date fair value of $86.50. During$117.66, compared with approximately 2.3 million RSUs granted during the three months ended December 31, 2017, we did not grant2021, with a weighted-average grant-date fair value of $96.99. For the three months ended December 31, 2022, total share-based compensation amortization related to RSUs to outside members of our Board of Directors.was $76 million, compared with $63 million for the three months ended December 31, 2021.
As of December 31, 2017,2022, there was $184were $462 million of total pre-tax compensation costs not yet recognized net(net of estimated forfeitures,forfeitures) related to restricted equity awardsRSUs, including those granted to employees and members of our Board of Directors.during the three months ended December 31, 2022. These costs are expected to be recognized over a weighted-average period of 3.4three 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)
Restricted stock awards
Restricted stock awards (“RSAs”) were issued as a component of our total purchase consideration for TriState Capital Holdings, Inc. (“TriState Capital”) on June 1, 2022, in accordance with the terms of the acquisition. See Note 23 of our 2022 Form 10-K for further discussion of these awards. For the three months ended December 31, 2022 total share-based compensation amortization related to RSAs was $3 million. As of December 31, 2017,2022, there was a $9were $18 million prepaidof total pre-tax compensation asset included in “Other assets” in our Condensed Consolidated Statements of Financial Condition related tocosts not yet recognized for these DBRSUs. This asset isRSAs. These costs are expected to be amortizedrecognized over a weighted-average period of 1.82.5 years. As of December 31, 2017, there was a $28 million derivative liability included in “Accrued compensation, commissions and benefits” in our Condensed Consolidated Statements of Financial Condition based on the December 31, 2017 share price of DB shares of $19.03.
We held shares of DB as of December 31, 2017 as an economic hedge against this obligation. Such shares are included in “Other investments” on our Condensed Consolidated Statements of Financial Condition. The gains/losses on this hedge are included as a component of “Compensation, commissions and benefits expense” and offset a portion of the gains/losses on the DBRSUs incurred during the periods discussed above.
NOTE 1820 – REGULATORY CAPITAL REQUIREMENTS
RJF, as a bank holding company and financial holding company, RJas well as Raymond James Bank, TriState Capital Bank, our broker-dealer subsidiaries and our broker-dealertrust subsidiaries are subject to capital requirements by various regulatory authorities. Capital levels of each entity are monitored to ensure compliance with our various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial results.
As a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”) that has made an election to be a financial holding company, RJF is subject to supervision, examination, and regulation by the risk-based capital requirementsBoard of Governors of the Federal Reserve Board. These risk-basedSystem (“the Fed”).We are subject to the Fed’s capital rules which establish an integrated regulatory capital framework and implement, in the U.S., the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The FDIC’s capital rules, which are substantially similar to the Fed’s rules, apply to TriState Capital Bank. We apply the standardized approach for calculating risk-weighted assets and are also subject to the market risk provisions of the Fed’s capital rules (“market risk rule”).
Under these rules, minimum requirements are expressedestablished for both the quantity and quality of capital held by banking organizations. RJF, Raymond James Bank, and TriState Capital Bank are required to maintain minimum leverage ratios (defined as tier 1 capital divided by adjusted average assets), as well as minimum ratios that compare measures of regulatorytier 1 capital, common equity tier 1 (“CET1”), and total capital to risk-weighted assets, which involveassets.These capital ratios incorporate quantitative measures of our assets, liabilities, and certain off-balance-sheetoff-balance sheet items as calculated under the regulatory 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 RJ Bank each We 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, both RJF’s and RJ Bank’s2022, capital levels at RJF, Raymond James Bank, and TriState Capital Bank exceeded the fully-phased in capital conservation buffer requirement and are each entity was categorized as “well capitalized.“well-capitalized.”
For further discussion of regulatory capital requirements applicable to certain of our businesses and subsidiaries, see Note 2124 of our 20172022 Form 10-K.
To meet requirements for capital adequacy purposes or to be categorized as “well capitalized,“well-capitalized,” RJF must maintain minimum CET1,Tier 1 leverage, Tier 1 capital, CET1, and 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 December 31, 2022: | | | | | | | | | | | | |
Tier 1 leverage | | $ | 8,844 | | | 11.3 | % | | $ | 3,121 | | | 4.0 | % | | $ | 3,901 | | | 5.0 | % |
Tier 1 capital | | $ | 8,844 | | | 20.3 | % | | $ | 2,618 | | | 6.0 | % | | $ | 3,490 | | | 8.0 | % |
CET1 | | $ | 8,728 | | | 20.0 | % | | $ | 1,963 | | | 4.5 | % | | $ | 2,836 | | | 6.5 | % |
Total capital | | $ | 9,407 | | | 21.6 | % | | $ | 3,490 | | | 8.0 | % | | $ | 4,363 | | | 10.0 | % |
| | | | | | | | | | | | |
RJF as of September 30, 2022: | | | | | | | | | | | | |
Tier 1 leverage | | $ | 8,480 | | | 10.3 | % | | $ | 3,304 | | | 4.0 | % | | $ | 4,130 | | | 5.0 | % |
Tier 1 capital | | $ | 8,480 | | | 19.2 | % | | $ | 2,651 | | | 6.0 | % | | $ | 3,534 | | | 8.0 | % |
CET1 | | $ | 8,380 | | | 19.0 | % | | $ | 1,988 | | | 4.5 | % | | $ | 2,871 | | | 6.5 | % |
Total capital | | $ | 9,031 | | | 20.4 | % | | $ | 3,534 | | | 8.0 | % | | $ | 4,418 | | | 10.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 December 31, 2022, RJF’s regulatory capital increase compared with September 30, 2022 was driven by positive earnings, net of share repurchases and dividends paid during our fiscal first quarter of 2023. RJF’s Tier 1 capital and Total capital ratios at December 31, 2017increased compared to with September 30, 20172022 resulting from the increase in regulatory capital, as well as a decrease in risk-weighted assets. The decrease in risk-weighted assets was primarily due todriven by a decrease in our assets segregated for regulatory purposes and restricted cash, as well as a decrease in receivables, partially offset by an increase in goodwill and identifiable intangible assets relatedour bank loan portfolio.
RJF’s Tier 1 leverage ratio at December 31, 2022 increased compared with September 30, 2022 due to the Scout Group acquisition and the growth of corporate loans at RJ Bank.increase in regulatory capital, as well as lower average assets primarily driven by a decrease in assets segregated for regulatory purposes, partially offset by an increase in our bank loan portfolio.
To meet the requirements for capital adequacy or to be categorized as “well capitalized,“well-capitalized,” RJRaymond James Bank and TriState Capital Bank must maintain CET1,Tier 1 leverage, Tier 1 capital, CET1, and Total capital and Tier 1 leverage amounts and ratios as set forth in the table below.following tables. Our intention is to maintain Raymond James Bank’s and TriState Capital Bank’s “well-capitalized” status. In the unlikely event that Raymond James Bank or TriState Capital Bank failed to maintain their “well-capitalized” status, the consequences could include a requirement to obtain a waiver from the FDIC prior to acceptance, renewal, or rollover of brokered deposits and result in higher FDIC premiums, but would not significantly impact our operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well-capitalized under regulatory provisions |
$ in millions | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
Raymond James Bank as of December 31, 2022: | | | | | | | | | | | | |
Tier 1 leverage | | $ | 3,189 | | | 7.4 | % | | $ | 1,722 | | | 4.0 | % | | $ | 2,152 | | | 5.0 | % |
Tier 1 capital | | $ | 3,189 | | | 12.6 | % | | $ | 1,520 | | | 6.0 | % | | $ | 2,026 | | | 8.0 | % |
CET1 | | $ | 3,189 | | | 12.6 | % | | $ | 1,140 | | | 4.5 | % | | $ | 1,646 | | | 6.5 | % |
Total capital | | $ | 3,506 | | | 13.8 | % | | $ | 2,026 | | | 8.0 | % | | $ | 2,533 | | | 10.0 | % |
| | | | | | | | | | | | |
Raymond James Bank as of September 30, 2022: | | | | | | | | | | | | |
Tier 1 leverage | | $ | 2,998 | | | 7.1 | % | | $ | 1,695 | | | 4.0 | % | | $ | 2,119 | | | 5.0 | % |
Tier 1 capital | | $ | 2,998 | | | 12.1 | % | | $ | 1,485 | | | 6.0 | % | | $ | 1,979 | | | 8.0 | % |
CET1 | | $ | 2,998 | | | 12.1 | % | | $ | 1,113 | | | 4.5 | % | | $ | 1,608 | | | 6.5 | % |
Total capital | | $ | 3,308 | | | 13.4 | % | | $ | 1,979 | | | 8.0 | % | | $ | 2,474 | | | 10.0 | % |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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 RJRaymond James Bank’s regulatory capital increased compared with September 30, 2022, driven by positive earnings, partially offset by dividends paid to RJF. Raymond James Bank’s Tier 1 and Total capital ratios increased compared with September 30, 2022 resulting from the increase in regulatory capital, partially offset by an increase in risk-weighted assets due to growth in the bank loan portfolio. Raymond James Bank’s Tier 1 leverage ratio at December 31, 20172022 increased compared to with September 30, 2017 was primarily2022 due to corporatethe increase in regulatory capital, partially offset by an increase in average assets, primarily driven by an increase in the bank loan growth.portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well-capitalized under regulatory provisions |
$ in millions | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
TriState Capital Bank as of December 31, 2022: | | | | | | | | | | | | |
Tier 1 leverage | | $ | 1,131 | | | 7.3 | % | | $ | 621 | | | 4.0 | % | | $ | 776 | | | 5.0 | % |
Tier 1 capital | | $ | 1,131 | | | 14.0 | % | | $ | 486 | | | 6.0 | % | | $ | 649 | | | 8.0 | % |
CET1 | | $ | 1,131 | | | 14.0 | % | | $ | 365 | | | 4.5 | % | | $ | 527 | | | 6.5 | % |
Total capital | | $ | 1,162 | | | 14.3 | % | | $ | 649 | | | 8.0 | % | | $ | 811 | | | 10.0 | % |
| | | | | | | | | | | | |
TriState Capital Bank as of September 30, 2022: | | | | | | | | | | | | |
Tier 1 leverage | | $ | 1,093 | | | 7.3 | % | | $ | 601 | | | 4.0 | % | | $ | 752 | | | 5.0 | % |
Tier 1 capital | | $ | 1,093 | | | 14.1 | % | | $ | 463 | | | 6.0 | % | | $ | 618 | | | 8.0 | % |
CET1 | | $ | 1,093 | | | 14.1 | % | | $ | 348 | | | 4.5 | % | | $ | 502 | | | 6.5 | % |
Total capital | | $ | 1,122 | | | 14.5 | % | | $ | 618 | | | 8.0 | % | | $ | 772 | | | 10.0 | % |
TriState Capital Bank’s regulatory capital increased compared with September 30, 2022, driven by positive earnings. TriState Capital Bank’s Tier 1 and Total capital ratios decreased compared with September 30, 2022, due to an increase in risk-weighted assets, primarily resulting from increases in bank loans and available-for-sale securities, partially offset by the increase in regulatory capital. TriState Capital Bank’s Tier 1 leverage ratio at December 31, 2022 was flat compared with September 30, 2022 as the increase in regulatory capital was offset by an increase in average assets, primarily driven by the increases in bank loans and available-for-sale securities.
Our banking subsidiaries may pay dividends to RJF without prior approval of their respective regulators subject to certain restrictions including retained net income and targeted regulatory capital ratios. Dividends paid to RJF from our banking subsidiaries may be limited to the extent that capital is needed to support their balance sheet growth.
Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934.
The following table presents the net capital position of RJ&A:&A.
| | | | | | | | | | | | | | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
Raymond James & Associates, Inc.: | | | | |
(Alternative Method elected) | | | | |
Net capital as a percent of aggregate debit items | | 45.7 | % | | 40.9 | % |
Net capital | | $ | 1,168 | | | $ | 1,152 | |
Less: required net capital | | (51) | | | (56) | |
Excess net capital | | $ | 1,117 | | | $ | 1,096 | |
|
| | | | | | | | |
| | 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 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 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, 2017,2022, 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 1921 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per common share:share.
| | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
in millions, except per share amounts | | 2022 | | 2021 | | | | |
Income for basic earnings per common share: | | | | | | | | |
Net income available to common shareholders | | $ | 507 | | | $ | 446 | | | | | |
Less allocation of earnings and dividends to participating securities | | (1) | | | (1) | | | | | |
Net income available to common shareholders after participating securities | | $ | 506 | | | $ | 445 | | | | | |
Income for diluted earnings per common share: | | | | | | | | |
Net income available to common shareholders | | $ | 507 | | | $ | 446 | | | | | |
Less allocation of earnings and dividends to participating securities | | (1) | | | (1) | | | | | |
Net income available to common shareholders after participating securities | | $ | 506 | | | $ | 445 | | | | | |
Common shares: | | | | | | | | |
Average common shares in basic computation | | 214.7 | | | 206.3 | | | | | |
Dilutive effect of outstanding stock options and certain RSUs | | 5.7 | | | 6.1 | | | | | |
Average common and common equivalent shares used in diluted computation | | 220.4 | | | 212.4 | | | | | |
Earnings per common share: | | | | | | | | |
Basic | | $ | 2.36 | | | $ | 2.16 | | | | | |
Diluted | | $ | 2.30 | | | $ | 2.10 | | | | | |
Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive | | 1.2 | | | — | | | | | |
|
| | | | | | | | |
| | 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, as well as the RSAs granted as part of our acquisition of TriState Capital, plus an allocation of undistributed earnings to such participating securities. Participating securities represent unvested restricted stock and certain RSUs and amounted to weighted-average sharesrelated dividends paid on these participating securities were insignificant for each of 239 thousand and 310 thousand for the three months ended December 31, 20172022 and 2016, respectively. Dividends paid to participating securities were insignificant for the three months ended December 31, 2017 and 2016.2021. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.
Dividends per common share declared and paid are as follows:
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | | | | | |
| Three months ended December 31, |
| 2017 | | 2016 |
Dividends per common share - declared | $ | 0.25 |
| | $ | 0.22 |
|
Dividends per common share - paid | $ | 0.22 |
| | $ | 0.20 |
|
NOTE 2022 – SEGMENT INFORMATION
We currently operate through the following five business segments: Private Client Group;PCG; Capital Markets; Asset Management; RJ Bank; and Other.
The business segments are determined based upon factors such as the services provided and the distribution channels served and are consistent with how we assess performance and determine how to allocate our resources throughout our subsidiaries.resources. For a further discussion of our business segments, see Note 2426 of our 20172022 Form 10-K.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following tables presenttable presents information concerning operations in these segmentssegments.
| | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
$ in millions | | 2022 | | 2021 | | | | |
Net revenues: | | | | | | | | |
Private Client Group | | $ | 2,063 | | | $ | 1,839 | | | | | |
Capital Markets | | 295 | | | 614 | | | | | |
Asset Management | | 207 | | | 236 | | | | | |
Bank | | 508 | | | 183 | | | | | |
Other | | 9 | | | (15) | | | | | |
Intersegment eliminations | | (296) | | | (76) | | | | | |
Total net revenues | | $ | 2,786 | | | $ | 2,781 | | | | | |
Pre-tax income/(loss): | | | | | | | | |
Private Client Group | | $ | 434 | | | $ | 195 | | | | | |
Capital Markets | | (16) | | | 201 | | | | | |
Asset Management | | 80 | | | 107 | | | | | |
Bank | | 136 | | | 102 | | | | | |
Other (1) | | 18 | | | (47) | | | | | |
Total pre-tax income | | $ | 652 | | | $ | 558 | | | | | |
(1) The three months ended December 31, 2022 included the favorable impact of business:a $32 million insurance settlement received during the quarter related to a previously settled litigation matter. This item has been reflected as an offset to “Other” expenses on our Condensed Consolidated Statements of Income and Comprehensive income.
|
| | | | | | | | |
| | 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 December 31, | | |
$ in millions | | 2022 | | 2021 | | | | |
Net interest income/(expense): | | | | | | | | |
Private Client Group | | $ | 87 | | | $ | 30 | | | | | |
Capital Markets | | — | | | 3 | | | | | |
Asset Management | | 2 | | | — | | | | | |
Bank | | 491 | | | 177 | | | | | |
Other | | 6 | | | (22) | | | | | |
Net interest income | | $ | 586 | | | $ | 188 | | | | | |
The following table presents our total assets on a segment basis:basis.
| | | | | | | | | | | | | | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
Total assets: | | | | |
Private Client Group | | $ | 13,920 | | | $ | 17,770 | |
Capital Markets | | 2,898 | | | 3,951 | |
Asset Management | | 558 | | | 556 | |
Bank | | 57,623 | | | 56,737 | |
Other | | 2,048 | | | 1,937 | |
Total | | $ | 77,047 | | | $ | 80,951 | |
|
| | | | | | | | |
$ in thousands | | December 31, 2017 | | September 30, 2017 |
Total assets: | | | | |
Private Client Group | | $ | 10,328,475 |
| | $ | 9,967,320 |
|
Capital Markets | | 2,375,078 |
| | 2,396,033 |
|
Asset Management | | 347,922 |
| | 151,111 |
|
RJ Bank | | 21,600,312 |
| | 20,611,898 |
|
Other | | 1,433,112 |
| | 1,757,094 |
|
Total | | $ | 36,084,899 |
| | $ | 34,883,456 |
|
Total assets in the PCG segment included $277 million of goodwill at both December 31, 2017 and September 30, 2017. Total assets in the Capital Markets segment included $134 million of goodwill at both December 31, 2017 and September 30, 2017. Total assets in the Asset Management segment included $69 million of goodwill as of December 31, 2017 which was entirely attributable to our fiscal year 2018 acquisition of the Scout Group.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents goodwill, which was included in our total assets, on a segment basis.
| | | | | | | | | | | | | | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
Goodwill: | | | | |
Private Client Group | | $ | 562 | | | $ | 550 | |
Capital Markets | | 275 | | | 274 | |
Asset Management | | 69 | | | 69 | |
Bank | | 529 | | | 529 | |
Total | | $ | 1,435 | | | $ | 1,422 | |
We have operations in the U.S., Canada, and Europe. Substantially all long-lived assets are located in the U.S. RevenuesThe following table presents our net revenues and pre-tax income before provision for income taxes and excluding noncontrolling interests, classified by major geographic areasarea in which they were earned, are as follows:earned.
| | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
$ in millions | | 2022 | | 2021 | | | | |
Net revenues: | | | | | | | | |
U.S. | | $ | 2,540 | | | $ | 2,589 | | | | | |
Canada | | 134 | | | 137 | | | | | |
Europe | | 112 | | | 55 | | | | | |
Total | | $ | 2,786 | | | $ | 2,781 | | | | | |
Pre-tax income: | | | | | | | | |
U.S. | | $ | 609 | | | $ | 531 | | | | | |
Canada | | 31 | | | 17 | | | | | |
Europe | | 12 | | | 10 | | | | | |
Total | | $ | 652 | | | $ | 558 | | | | | |
The following table presents our total assets by major geographic area in which they were held.
| | | | Three months ended December 31, | |
$ in thousands | | 2017 | | 2016 | |
Revenues: | | | | | |
$ in millions | | $ in millions | | December 31, 2022 | | September 30, 2022 |
Total assets: | | Total assets: | | | | |
U.S. | | $ | 1,633,022 |
| | $ | 1,416,281 |
| U.S. | | $ | 70,762 | | | $ | 74,428 | |
Canada | | 99,286 |
| | 84,845 |
| Canada | | 3,594 | | | 3,631 | |
Europe | | 33,284 |
| | 22,970 |
| Europe | | 2,691 | | | 2,892 | |
Other | | — |
| | 4,672 |
| |
Total | | $ | 1,765,592 |
| | $ | 1,528,768 |
| Total | | $ | 77,047 | | | $ | 80,951 | |
| | | | | |
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 |
| |
OurThe 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 |
|
Total assets in the U.S. included $425 million and $356 million of goodwill at December 31, 2017 and September 30, 2017, respectively. Total assets in Canada included $45 million of goodwill at both December 31, 2017 and September 30, 2017. Total assets in Europe included $10 million of goodwill at both December 31, 2017 and September 30, 2017.
| | | | | | | | | | | | | | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
Goodwill: | | | | |
U.S. | | $ | 1,250 | | | $ | 1,250 | |
Canada | | 23 | | | 23 | |
Europe | | 162 | | | 149 | |
Total | | $ | 1,435 | | | $ | 1,422 | |
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 | |
Net interest analysis | |
Results of Operations | |
Private Client Group | |
Capital Markets | |
Asset Management | |
RJ Bank | |
Other | |
Certain statistical disclosures by bank holding companies | |
Liquidity and capital resources | |
Sources of liquidity | |
Statement of financial condition analysis | |
Contractual obligationsLiquidity and capital resources | |
Regulatory | |
Critical accounting estimates | |
Recent accounting developments | |
Off-Balance sheet arrangementsRisk management | |
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), industry or market conditions, demand for and pricing of our products, acquisitions, and divestitures, anticipated results of litigation, changes in tax rules, regulatory developments, effects of accounting pronouncements, and general economic conditions. In addition, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “forecasts,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” as well as any other statement that necessarily depends on future events, areis 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 QuarterlyCurrent Reports on Form 10-Q,8-K, 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, 20172022 compared with the three monthsquarter ended December 31, 20162021
We achievedFor our fiscal first quarter of 2023, we generated net revenues of $1.73$2.79 billion, a $233 million, or 16% increase. Ourflat compared with the prior-year quarter, while pre-tax income was $311of $652 million an increase of $105 million, or 51%increased 17%. Our net income available to common shareholders of $119$507 million reflects a decrease of $28 million, or 19%increased 14%, and our earnings per diluted share were $2.30, reflecting a 10% increase. Our annualized return on common equity (“ROCE”) for the quarter was $0.80, a 20% decrease.21.3%, compared with 21.2% for the prior-year quarter, and our annualized return on tangible common equity (“ROTCE”)was 26.2%(1), compared with 23.4%(1) for the prior-year quarter.
During theThe three months ended December 31, 2017, earnings were negatively affected by2022 included the estimated discretefavorable impact of a $32 million insurance settlement received during the quarter related to a previously settled litigation matter. Excluding the favorable impact of the Tax Act of $117 million, primarilyinsurance settlement received, as well as expenses related to the remeasurementacquisitions completed in prior years, such as compensation related to retention awards and amortization of U.S. deferred taxidentifiable intangible assets, at a lower enacted corporate tax rate. Excluding this discrete impact and $4 million of acquisition-related expenses,our adjusted net income available to common shareholders was $238.8$505 million(1), an increase of 35% compared with9% higher than adjusted net income infor the prior year. Adjustedprior-year quarter, and our adjusted earnings per diluted share were $1.61 $2.29(1), a 33% increase compared with6% higher than adjusted earnings per diluted share infor the prior year period.
Net revenues increased significantly inprior-year quarter.Adjusted annualized ROCE for the PCG, Asset Managementquarter was 21.2%(1) 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 declinedadjusted annualized ROTCEwas 26.1%(1), compared with adjusted annualized ROCE of 21.9%(1) and adjusted annualized ROTCE of 24.3%(1) for 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.prior-year quarter.
(1) “AdjustedROTCE, adjusted net income” and “adjusted available to common shareholders, adjusted earnings per diluted share”share, adjusted annualized ROCE, and 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, and for other important disclosures.
Management'sManagement’s Discussion and Analysis
Quarterly net revenues were flat compared with the prior-year quarter as the benefit of higher short-term interest rates on net interest income and RJBDP fees from third-party banks, as well as incremental revenues from our prior-year acquisitions of TriState Capital, Charles Stanley Group PLC (“Charles Stanley”), and SumRidge Partners, LLC (“SumRidge Partners”) were offset by lower investment banking revenues due to a challenging market environment during the current quarter, and a decrease in asset management and related administrative fees, as a result of lower fee-based assets at the beginning of the current quarter compared with the prior-year quarter. Brokerage revenues also declined compared with the prior-year quarter primarily due to decreased activity from depository clients, as well as lower asset-based trailing revenues in the PCG segment.
Non-interest
Compensation, commissions and benefits expense decreased 8%, primarily attributable to the decrease in compensable revenues compared with the prior-year quarter, partially offset by incremental compensation expenses increased $129 million,related to the aforementioned acquisitions. Our compensation ratio, or 10%. The increase primarily resulted from increasedthe ratio of compensation, commissions and benefits expense associated with increasedto net revenues, was 62.3%, compared with 67.7% for the prior-year quarter. Excluding acquisition-related compensation expenses, our adjusted compensation ratio was 61.7%(1), compared with 67.3%(1) for the prior-year quarter. The decline in the compensation ratio primarily resulted from changes in our revenue mix due to higher net interest income and RJBDP fees from third-party banks, which have little associated direct compensation.
Non-compensation expenses increased 17%, due to incremental expenses from the aforementioned acquisitions, as well as increased staffing levels required to support our continued growth and regulatory and compliance requirements. Offsetting this increase was a $30 million decrease in expenses related to the Jay Peak matter, which was settledincreases in the prior fiscal year.bank loan provision for credit losses, business development expenses and communications and information processing expenses. The bank loan provision for credit losses was $14 million for the current-year quarter, compared with a benefit of $11 million for the prior-year quarter. Partially offsetting these increases was the aforementioned favorable insurance settlement received.
Our effective income tax rate was 61.7%21.9% for our fiscal first quarter of 2023, an increase compared with the 20.1% effective income tax rate for the currentprior-year quarter, reflectinga modest increase, as both periods included similar levels of non-taxable gains associated with our company-owned life insurance policies, as well as excess tax benefits on share-based compensation.
As of December 31, 2022, our Tier 1 leverage ratio of 11.3% and Total capital ratio of 21.6% were both more than double the estimated discrete impactregulatory requirement to be considered well-capitalized. We also continue to have substantial liquidity with $2.0 billion(2) of cash at the Tax Actparent as of $117 million, partially offset by a lower blended federal corporate statutory tax rateDecember 31, 2022, which includes cash the parent loans to RJ&A to invest on its behalf. We believe our funding and capital position provide us the opportunity to continue to grow our balance sheet prudently. In December, the Board of 24.5%. ExcludingDirectors increased the estimated discrete impactquarterly cash dividend on common shares to $0.42 per share and authorized common stock repurchases of the Tax Act, our adjusted effective tax rate was 24.1% (1) forup to $1.5 billion. During the three months ended December 31, 2017. We estimate our effective tax rate to be approximately 28% for the remainder2022, we repurchased 1.29 million shares of our common stock for $138 million at an average price of $106 per share under the Board of Directors’ common stock repurchase authorization. After the effect of those repurchases, $1.4 billion remained under such authorization. We currently expect to continue to repurchase our common stock in fiscal year ended September 30, 2018, which reflects2023 to offset the blended federal corporate statutory tax rate,shares issued with the acquisition of TriState Capital in fiscal 2022, as well as to offset dilution from share-based compensation; however, we will continue to monitor market conditions and approximately 24% forother capital needs as we consider these repurchases.
We remain well-positioned entering our fiscal year 2019, reflectingsecond quarter of 2023. We expect our fiscal second quarter results to positively benefit from the lower federal corporate statutory taxrealization of a full quarter impact of the increases in the Fed’s short-term benchmark interest rate of 21%75-basis points in November 2022 and 50-basis points in December 2022, as well as the 25-basis points increase in February 2023. With clients’ domestic cash sweep balances of $60.4 billion as of December 31, 2022 and our high concentration of floating-rate assets, we also believe we are well-positioned for any further increases in short-term interest rates, which we expect to positively impact our net interest income and our RJBDP fees from third-party banks; however, we anticipate further declines in client cash balances during the full year. Our future effective tax rates are estimates and are based on assumptions basedsecond quarter as clients continue to move their cash from our cash sweep program into higher-yielding investment alternatives which could partially offset the otherwise positive impact on our current interpretationresults from the increase in interest rates. Asset management and related administrative fees will be positively impacted by the 8% increase in PCG fee-based assets as of the Tax ActDecember 31, 2022, and may change, possibly materially, as we complete our analysis. Our future effective tax rate will also be impacted positively or negatively, by non-taxable items such as the gains or losses earned on our Company-owned life insurance (“COLI”), tax exempt interest and non-deductible expenses such as meals and entertainment. See Note 13 ofanticipate this Form 10-Q for further information on the Tax Act.
A summary of our financial results by segment asto result in a benefit approximating 5%-6% compared to the prior year are as follows:
Our Private Client Group segment generated netfirst quarter level. In addition, our recruiting pipelines remain solid across our affiliation options and we continue to see solid retention of existing advisors. However, we expect to continue to face macroeconomic uncertainties which may continue to have a negative impact on equity and fixed income markets. As a result, we may continue to experience headwinds for brokerage revenues and investment banking revenues, despite our healthy investment banking pipelines. Net loan growth should result in additional provisions for credit losses and future economic deterioration could result in increased bank loan provisions for credit losses in future periods. In addition, although we remain focused on the management of $1.23 billion, a 19% increase, and pre-tax income of $155 million increased 111% over the prior year period which included $30 million in legal expenses, relatedwe expect that expenses will continue to the Jay Peak matter. The increase in net revenues was primarily attributablepart as a result of inflationary pressures on our costs, and as we continue to an increase in securities commissions and fees, driven by a stronger market environment and continued strong recruiting and retention results. The segment also benefited from the impact of higher short-term interest rates, resulting in an increase in account and service fees related to client cash balances in the RJBDP. Non-interest expenses increased $111 million, or 12%, primarily resulting from increases in compensation, commissions and benefits expenses, offset by a decrease in the aforementioned legal expenses.
The Capital Markets segment generated net revenues of $217 million, a 7% decrease over the prior year period. The decrease in net revenues was primarily due to 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.
Our Asset Management segment benefited from increased fee-based client assets, generating a 32% increase in net revenues to $151 million, while pre-tax income increased 37% to $57 million. The increase in net revenues primarily reflected increases in advisory fee revenues from managed programs and, to a lesser degree, non-discretionary asset-based administration fee revenues. 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 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 increase in the net interest margin.
Activitiesmake investments in our Other segment reflected a pre-tax loss that was $14 million, or 41% less than the prior year, primarily duepeople and technology to a decrease in acquisition-related expenses and lower interest expense related to a decrease in the average outstanding balance and average yield ofsupport our senior notes payable.growth.
(1) “Adjusted effective tax rate”Adjusted compensation ratio is a non-GAAP financial measure. 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, and for other important disclosures.
(2) For additional information, please see the “Liquidity and capital resources - Sources of liquidity” section in this MD&A.
Management'sManagement’s Discussion and Analysis
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES
Segments
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 have been separately identified in this document. We believe that thecertain of these non-GAAP financial measures provide useful information to management and investors by excluding certain material items that may not be indicative of our core operating results. We believe thatutilize these non-GAAP financial measures will allow for better evaluation ofin assessing the operatingfinancial performance of the business, andas they facilitate a comparison of current- and prior-period results. Beginning with our fiscal third quarter of 2022, certain of our non-GAAP financial measures have been adjusted for additional expenses directly related to our acquisitions that we believe are not indicative of our core operating results, such as those related to amortization of identifiable intangible assets arising from acquisitions and acquisition-related retention. Prior periods have been conformed to the current period presentation. We believe that return on tangible common equity is meaningful comparisonto investors as it facilitates comparisons 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-GAAP measures for the periods which include non-GAAP adjustments. Non-GAAP measures for the three months ended December 31, 2016 have been revised from those previously reported to conform to our current presentation, which includes amounts related to the Jay Peak matter.most directly comparable GAAP measures.
| | | | | | | | | | | | | | | | | | |
| | Three months ended | |
$ in millions | | December 31, 2022 | | December 31, 2021 | | | | |
Net income available to common shareholders | | $ | 507 | | | $ | 446 | | | | | |
Non-GAAP adjustments: | | | | | | | | |
Expenses directly related to acquisitions included in the following financial statement line items: | | | | | | | | |
| | | | | | | | |
Compensation, commissions and benefits — Acquisition-related retention | | 18 | | | 11 | | | | | |
| | | | | | | | |
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Professional fees | | — | | | 2 | | | | | |
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Other — Amortization of identifiable intangible assets | | 11 | | | 8 | | | | | |
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Total expenses related to acquisitions | | 29 | | | 21 | | | | | |
Other — Insurance settlement received | | (32) | | | — | | | | | |
Pre-tax impact of non-GAAP adjustments | | (3) | | | 21 | | | | | |
Tax effect of non-GAAP adjustments | | 1 | | | (5) | | | | | |
Total non-GAAP adjustments, net of tax | | (2) | | | 16 | | | | | |
Adjusted net income available to common shareholders | | $ | 505 | | | $ | 462 | | | | | |
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Compensation, commissions and benefits expense | | $ | 1,736 | | | $ | 1,884 | | | | | |
Less: Acquisition-related retention (as detailed above) | | 18 | | | 11 | | | | | |
Adjusted “Compensation, commissions and benefits” expense | | $ | 1,718 | | | $ | 1,873 | | | | | |
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| | Three months ended | | |
| | December 31, 2022 | | December 31, 2021 | | | | |
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Total compensation ratio | | 62.3 | % | | 67.7 | % | | | | |
Less the impact of non-GAAP adjustments on compensation ratio: | | | | | | | | |
Acquisition-related retention | | 0.6 | % | | 0.4 | % | | | | |
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Adjusted total compensation ratio | | 61.7 | % | | 67.3 | % | | | | |
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| | Three months ended December 31, |
$ in thousands, except per share amounts | | 2017 | | 2016 |
Net income (1) | | $ | 118,842 |
| | $ | 146,567 |
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Non-GAAP adjustments: | | | | |
Acquisition-related expenses (2) | | 3,927 |
| | 12,666 |
|
Jay Peak matter (3) | | — |
| | 30,000 |
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Sub-total pre-tax non-GAAP adjustments | | 3,927 |
| | 42,666 |
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Tax effect on non-GAAP adjustments above | | (1,100 | ) | | (12,365 | ) |
Discrete impact of the Tax Act (4) | | 117,169 |
| | — |
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Total non-GAAP adjustments, net of tax | | 119,996 |
| | 30,301 |
|
Adjusted net income | | $ | 238,838 |
| | $ | 176,868 |
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Earnings per common share: | | | | |
Basic | | $ | 0.82 |
| | $ | 1.03 |
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Diluted | | $ | 0.80 |
| | $ | 1.00 |
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Adjusted earnings per common share: | | | | |
Adjusted basic | | $ | 1.65 |
| | $ | 1.24 |
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Adjusted diluted | | $ | 1.61 |
| | $ | 1.21 |
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49
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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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
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| | Three months ended | | | |
Earnings per common share | | December 31, 2022 | | December 31, 2021 | | | | |
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Diluted earnings per common share | | $ | 2.30 | | | $ | 2.10 | | | | | |
Impact of non-GAAP adjustments on diluted earnings per common share: | | | | | | | | |
Compensation, commissions and benefits — Acquisition-related retention | | 0.08 | | | 0.05 | | | | | |
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Professional fees | | — | | | 0.01 | | | | | |
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Other — Amortization of identifiable intangible assets | | 0.06 | | | 0.03 | | | | | |
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Total expenses related to acquisitions | | 0.14 | | | 0.09 | | | | | |
Other — Insurance settlement received | | (0.15) | | | — | | | | | |
Tax effect of non-GAAP adjustments | | — | | | (0.02) | | | | | |
Total non-GAAP adjustments, net of tax | | (0.01) | | | 0.07 | | | | | |
Adjusted diluted earnings per common share | | $ | 2.29 | | | $ | 2.17 | | | | | |
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(1) | Excludes noncontrolling interests. |
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(2) | See Note 3 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q. |
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(3) | See Part I. Item 3 - Legal proceedings in our 2017 Form 10-K for more information on the Jay Peak matter. |
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(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. | | | |
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Return on common equity | | Three months ended | | |
$ in millions | | December 31, 2022 | | December 31, 2021 | | | | |
Average common equity | | $ | 9,537 | | | $ | 8,423 | | | | | |
Impact of non-GAAP adjustments on average common equity: | | | | | | | | |
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Compensation, commissions and benefits — Acquisition-related retention | | 9 | | | 6 | | | | | |
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Professional fees | | — | | | 1 | | | | | |
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Other — Amortization of identifiable intangible assets | | 5 | | | 4 | | | | | |
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Total expenses related to acquisitions | | 14 | | | 11 | | | | | |
Other — Insurance settlement received | | (16) | | | — | | | | | |
Tax effect of non-GAAP adjustments | | 1 | | | (3) | | | | | |
Total non-GAAP adjustments, net of tax | | (1) | | | 8 | | | | | |
Adjusted average common equity | | $ | 9,536 | | | $ | 8,431 | | | | | |
Net interest analysis
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| | Three months ended | | |
$ in millions | | December 31, 2022 | | December 31, 2021 | | | | |
Average common equity | | $ | 9,537 | | | $ | 8,423 | | | | | |
Less: | | | | | | | | |
Average goodwill and identifiable intangible assets, net | | 1,935 | | | 878 | | | | | |
Average deferred tax liabilities related to goodwill and identifiable intangible assets, net | | (128) | | | (64) | | | | | |
Average tangible common equity | | $ | 7,730 | | | $ | 7,609 | | | | | |
Impact of non-GAAP adjustments on average tangible common equity: | | | | | | | | |
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Compensation, commissions and benefits — Acquisition-related retention | | 9 | | | 6 | | | | | |
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Professional fees | | — | | | 1 | | | | | |
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Other — Amortization of identifiable intangible assets | | 5 | | | 4 | | | | | |
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Total expenses related to acquisitions | | 14 | | | 11 | | | | | |
Other — Insurance settlement received | | (16) | | | — | | | | | |
Tax effect of non-GAAP adjustments | | 1 | | | (3) | | | | | |
Total non-GAAP adjustments, net of tax | | (1) | | | 8 | | | | | |
Adjusted average tangible common equity | | $ | 7,729 | | | $ | 7,617 | | | | | |
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Return on common equity | | 21.3 | % | | 21.2 | % | | | | |
Adjusted return on common equity | | 21.2 | % | | 21.9 | % | | | | |
Return on tangible common equity | | 26.2 | % | | 23.4 | % | | | | |
Adjusted return on tangible common equity | | 26.1 | % | | 24.3 | % | | | | |
The Federal Reserve Bank announced an increase
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Total compensation ratio is computed by dividing compensation, commissions and benefits expense by net revenues for each respective period. Adjusted total compensation ratio is computed by dividing adjusted compensation, commissions and benefits expense by net revenues for each respective period.
Tangible common equity is computed by subtracting goodwill and identifiable intangible assets, net, along with the associated deferred tax liabilities, from total common equity attributable to RJF. Average common equity is computed by adding the total common equity attributable to RJF as of the date indicated to the 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. Adjusted average common equity is computed by adjusting for the impact on average common equity of the non-GAAP adjustments, as applicable for each respective period. Adjusted average tangible common equity is computed by adjusting for the impact on average tangible common equity of the non-GAAP adjustments, as applicable for each respective period.
ROCE is computed by dividing annualized net income available to common shareholders for the period indicated by average common equity for each respective period or, in the case of ROTCE, computed by dividing annualized net income available to common shareholders by average tangible common equity for each respective period. Adjusted ROCE is computed by dividing annualized adjusted net income available to common shareholders by adjusted average common equity for each respective period, or in the case of adjusted ROTCE, computed by dividing annualized adjusted net income available to common shareholders by adjusted average tangible common equity for each respective period.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
NET INTEREST ANALYSIS
Largely in response to inflationary pressures, the Fed rapidly increased its benchmark short-term interest raterates, commencing in March 2022 and continuing into our fiscal first quarter of 25 basis points2023, including a 75-basis point increase in November 2022, a 50-basis point increase in December 2017. This2022, and a 25-basis point increase is in additionFebruary 2023. The Fed indicated that it intends to three 25 basis pointclosely monitor short-term interest rates throughout the remainder of our fiscal 2023. The following table details the Fed’s recent short-term interest rate increases since December 2016. Theseactivity.
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Fed Funds Target Rate Schedule |
RJF Fiscal quarter ended | | Date of interest rate action | | Increase/(decrease) in interest rates (in basis points) | | Fed funds target rate |
March 31 2020 | | March 16, 2020 | | (100) | | 0.00% - 0.25% |
March 31, 2022 | | March 17, 2022 | | 25 | | 0.25% - 0.50% |
June 30, 2022 | | May 5, 2022 | | 50 | | 0.75% - 1.00% |
June 30, 2022 | | June 16, 2022 | | 75 | | 1.50% - 1.75% |
September 30, 2022 | | July 28, 2022 | | 75 | | 2.25% - 2.50% |
September 30, 2022 | | September 22, 2022 | | 75 | | 3.00% - 3.25% |
December 31, 2022 | | November 3, 2022 | | 75 | | 3.75% - 4.00% |
December 31, 2022 | | December 15, 2022 | | 50 | | 4.25% - 4.50% |
Rate changes subsequent to December 31, 2022 | | | | |
March 31, 2023 | | February 1, 2023 | | 25 | | 4.50% - 4.75% |
Increases in short-term interest rates positively impacted our net interest income during our fiscal first quarter 2023, as well as the fee income we earn from third-party banks on client cash balances swept to such banks as part of the RJBDP (included in account and service fees), which are also sensitive to changes in interest rates.
Given the relationship between our interest-sensitive assets and liabilities (primarily held in our PCG, Bank, and Other segments) and the nature of fees we earn from third-party banks in the RJBDP, increases in short-term interest rates have had a significant impact on our overall financial performance, as we have certain assets and liabilities, primarily held in our PCG and RJ Bank segments, which are sensitive to changes in interest rates. Given the relationship of our interest sensitive assets to liabilities held in each of these segments, increases in short-term interest ratesgenerally result in an overall increase in our net earnings, although the magnitude of the impact to our net interest margin depends on the yields on interest-earning assets relative to the cost of interest-bearing liabilities.
liabilities, including deposit rates paid to clients on their cash balances. Changes to the regulatory landscape governing the fees the firm earns on client assets, including cash sweep balances, could negatively impact our earnings. In PCG,addition, our pace of loan growth may continue to fluctuate over time in response to changes in interest rates. As a result of our diverse funding sources, strong loan growth and high concentration of floating-rate assets, we also earn fees in lieu of interest incomebenefited 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 changesthe increases in short-term interest rates relativein our fiscal first quarter 2023 and believe we are well-positioned for our net interest earnings and RJBDP fees to depositcontinue to be favorably impacted by the recent increases in short-term interest rates, paid onas well as any further fiscal 2023 increases. However, we also expect this benefit to be offset to some degree by declines in domestic client cash balances.
Management's Discussion and Analysis
The following table details the componentssweep balances as clients invest a portion of these cash balances in higher-yielding investment alternatives. In addition, our domestic client cash balances:
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| | As of |
$ in millions | | December 31, 2017 | | September 30, 2017 | | December 31, 2016 |
RJBDP | | | | | | |
RJ Bank | | $ | 18,374 |
| | $ | 17,387 |
| | $ | 14,893 |
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Third-party banks | | 20,836 |
| | 20,704 |
| | 25,456 |
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Sub-total RJBDP | | 39,210 |
| | 38,091 |
| | 40,349 |
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Money market | | 1,710 |
| | 1,818 |
| | 2,036 |
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Client interest program | | 3,334 |
| | 3,101 |
| | 3,696 |
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Total domestic client cash balances | | $ | 44,254 |
| | $ | 43,010 |
| | $ | 46,081 |
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sweep balances represent a relatively low-cost funding source. The short-term interest rate increases in 2017 had a significantfavorable impact on fees earnedwe experience from RJBDP; however, they have not had as significant of an impact on market deposit rates paid on client cash balances. However, subsequent to the December 2017 rate increase, we announced increases in our deposit rates paid on client cash balances and we expect market deposit rates will continue to rise with future increases in short-term interest rates. As such, any futurefurther increases in short-term interest rates may have less of an impact onbe partially offset to the extent we pursue diversified funding sources other than our fees earned from our RJBDP, or could actually reduce our fees earned in this program, depending on the level of deposit rates paid ondomestic 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 onsweep balances, as those funding sources are typically more expensive than our domestic client cash balances increased and resulted in a decline in spreads earned on our RJBDP program,sweep balances.
Refer to the impact ondiscussion of our net interest income within the “Management’s Discussion and accountAnalysis - Results of Operations” of our PCG, Bank, and service fees would be an unfavorable reversalOther segments, where applicable. Also refer to “Management’s Discussion and Analysis - Results of Operations - Private Client Group - Clients’ domestic cash sweep balances” for further information on the positive impact described above.RJBDP.
Management'sManagement’s Discussion and Analysis
The following table presents our consolidated average balance,interest-earning asset and interest-bearing liability balances, interest income and expense and the related yield and rates. Average balances are calculated on a daily basis
Quarter ended December 31, 2022 compared with the exceptionquarter ended December 31, 2021
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| | Three months ended December 31, |
| | 2022 | | | 2021 |
$ in millions | | Average daily balance | | Interest | | Annualized average rate | | | Average daily balance | | Interest | | Annualized average rate |
Interest-earning assets: | | | | | | | | | | | | | |
Bank segment: | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 2,325 | | $ | 22 | | 3.72 | % | | | $ | 2,145 | | $ | 1 | | 0.17 | % |
Available-for-sale securities | | 11,050 | | 53 | | 1.92 | % | | | 8,511 | | 22 | | 1.02 | % |
Loans held for sale and investment: (1) (2) | | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | | |
SBL | | 15,038 | | | 226 | | | 5.87 | % | | | 6,289 | | | 35 | | | 2.20 | % |
C&I loans | | 11,176 | | | 169 | | | 5.91 | % | | | 8,581 | | | 55 | | | 2.49 | % |
CRE loans | | 6,798 | | | 110 | | | 6.35 | % | | | 2,941 | | | 20 | | | 2.67 | % |
REIT loans | | 1,628 | | | 24 | | | 5.87 | % | | | 1,133 | | | 7 | | | 2.56 | % |
Residential mortgage loans | | 7,626 | | | 57 | | | 2.99 | % | | | 5,451 | | | 37 | | | 2.68 | % |
Tax-exempt loans (3) | | 1,594 | | | 10 | | | 3.06 | % | | | 1,297 | | | 8 | | | 3.19 | % |
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Loans held for sale | | 189 | | | 3 | | | 5.39 | % | | | 239 | | | 2 | | | 2.94 | % |
Total loans held for sale and investment | | 44,049 | | | 599 | | | 5.35 | % | | | 25,931 | | | 164 | | | 2.52 | % |
All other interest-earning assets | | 143 | | | 2 | | | 5.29 | % | | | 169 | | | — | | | 1.85 | % |
Interest-earning assets — Bank segment | | $ | 57,567 | | | $ | 676 | | | 4.63 | % | | | $ | 36,756 | | | $ | 187 | | | 2.03 | % |
All other segments: | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 3,436 | | | $ | 33 | | | 3.78 | % | | | $ | 3,931 | | | $ | 2 | | | 0.18 | % |
Assets segregated for regulatory purposes and restricted cash | | 6,237 | | | 50 | | | 3.17 | % | | | 13,011 | | | 4 | | | 0.12 | % |
Trading assets — debt securities | | 1,080 | | | 14 | | | 5.10 | % | | | 544 | | | 4 | | | 2.95 | % |
Brokerage client receivables | | 2,398 | | | 41 | | | 6.70 | % | | | 2,484 | | | 21 | | | 3.35 | % |
All other interest-earning assets | | 2,001 | | | 13 | | | 2.58 | % | | | 1,663 | | | 7 | | | 1.57 | % |
Interest-earning assets — all other segments | | $ | 15,152 | | | $ | 151 | | | 3.93 | % | | | $ | 21,633 | | | $ | 38 | | | 0.69 | % |
Total interest-earning assets | | $ | 72,719 | | | $ | 827 | | | 4.48 | % | | | $ | 58,389 | | | $ | 225 | | | 1.53 | % |
Interest-bearing liabilities: | | | | | | | | | | | | | |
Bank segment: | | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | | |
Money market and savings accounts | | $ | 45,165 | | | $ | 121 | | | 1.06 | % | | | $ | 31,960 | | | $ | 1 | | | 0.01 | % |
Interest-bearing checking accounts | | 5,149 | | | 47 | | | 3.59 | % | | | 187 | | | 1 | | | 1.62 | % |
Certificates of deposit | | 1,225 | | | 8 | | | 2.48 | % | | | 843 | | | 4 | | | 1.87 | % |
Total bank deposits (4) | | 51,539 | | | 176 | | | 1.35 | % | | | 32,990 | | | 6 | | | 0.07 | % |
FHLB advances and all other interest-bearing liabilities | | 1,397 | | | 9 | | | 2.61 | % | | | 863 | | | 4 | | | 2.21 | % |
Interest-bearing liabilities — Bank segment | | $ | 52,936 | | | $ | 185 | | | 1.38 | % | | | $ | 33,853 | | | $ | 10 | | | 0.12 | % |
All other segments: | | | | | | | | | | | | | |
Trading liabilities — debt securities | | $ | 778 | | | $ | 10 | | | 5.07 | % | | | $ | 206 | | | $ | 1 | | | 1.43 | % |
Brokerage client payables | | 5,597 | | | 17 | | | 1.17 | % | | | 14,300 | | | 1 | | | 0.03 | % |
Senior notes payable | | 2,038 | | | 23 | | | 4.44 | % | | | 2,037 | | | 23 | | | 4.44 | % |
All other interest-bearing liabilities | | 245 | | | 6 | | | 3.65 | % | | | 185 | | | 2 | | | 3.84 | % |
Interest-bearing liabilities — all other segments | | $ | 8,658 | | | $ | 56 | | | 2.36 | % | | | $ | 16,728 | | | $ | 27 | | | 0.62 | % |
Total interest-bearing liabilities | | $ | 61,594 | | | $ | 241 | | | 1.52 | % | | | $ | 50,581 | | | $ | 37 | | | 0.28 | % |
Firmwide net interest income | | | | $ | 586 | | | | | | | | $ | 188 | | | |
Net interest margin (net yield on interest-earning assets) | | | | | | | | | | | | | |
Bank segment | | | | | | 3.36 | % | | | | | | | 1.92 | % |
Firmwide | | | | | | 3.19 | % | | | | | | | 1.29 | % |
(1) Loans are presented net of Trading instruments, Loans to financial advisors, netunamortized purchase discounts or premiums, unearned income, and Corporate cashdeferred origination fees and all other, which are calculated based on the average of the end of month balances for each month within the period.costs.
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| | 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 |
| | |
|
(2) Nonaccrual loans are included in the average loan balances in the table above. Payment or incomebalances. 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.
(3) The yield on tax-exempt loans in the preceding table is presented on a taxable-equivalent basis utilizing the applicable federal statutory rates for each of the years presented.
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(4) The average balance, interest expense, and average rate for “Total bank deposits” included amounts associated with affiliate deposits. Such amounts are eliminated 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 increaseconsolidation and are offset 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.
“All other interest-bearing liabilities” under “All other segments”.
Management'sManagement’s Discussion and Analysis
Net interest income in the PCG segment increased $8 million, or 27%, driven by an increaseIncreases and decreases in interest income and interest expense result 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 decreasechanges in average segregated asset balances. A decrease in average client cash balances partially offset the impact(volume) 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,interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate 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.previous period’s volume. Changes attributable to both volume and rate have been allocated proportionately.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | | | | | | |
| | 2022 compared to 2021 | | | |
| | Increase/(decrease) due to | | | |
$ in millions | | Volume | | Rate | | Total | | | | | | | |
Interest-earning assets: | | Interest income |
Bank segment: | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | 21 | | | $ | 21 | | | | | | | | |
Available-for-sale securities | | 8 | | | 23 | | | 31 | | | | | | | | |
Loans held for sale and investment: | | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | | |
SBL | | 87 | | | 104 | | | 191 | | | | | | | | |
C&I loans | | 21 | | | 93 | | | 114 | | | | | | | | |
CRE loans | | 44 | | | 46 | | | 90 | | | | | | | | |
REIT loans | | 4 | | | 13 | | | 17 | | | | | | | | |
Residential mortgage loans | | 16 | | | 4 | | | 20 | | | | | | | | |
Tax-exempt loans | | 4 | | | (2) | | | 2 | | | | | | | | |
| | | | | | | | | | | | | |
Loans held for sale | | (3) | | | 4 | | | 1 | | | | | | | | |
Total loans held for sale and investment | | 173 | | | 262 | | | 435 | | | | | | | | |
All other interest-earning assets | | (1) | | | 3 | | | 2 | | | | | | | | |
Interest-earning assets — Bank segment | | $ | 180 | | | $ | 309 | | | $ | 489 | | | | | | | | |
All other segments: | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | (2) | | | $ | 33 | | | $ | 31 | | | | | | | | |
Assets segregated for regulatory purposes and restricted cash | | (15) | | | 61 | | | 46 | | | | | | | | |
Trading assets — debt securities | | 6 | | | 4 | | | 10 | | | | | | | | |
Brokerage client receivables | | (5) | | | 25 | | | 20 | | | | | | | | |
All other interest-earning assets | | 1 | | | 5 | | | 6 | | | | | | | | |
Interest-earning assets — all other segments | | $ | (15) | | | $ | 128 | | | $ | 113 | | | | | | | | |
Total interest-earning assets | | $ | 165 | | | $ | 437 | | | $ | 602 | | | | | | | | |
| | | | | | | | | | | | | |
Interest-bearing liabilities: | | Interest expense |
Bank segment: | | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | | |
Money market and savings accounts | | $ | — | | | $ | 120 | | | $ | 120 | | | | | | | | |
Interest-bearing checking accounts | | 44 | | | 2 | | | 46 | | | | | | | | |
Certificates of deposit | | 2 | | | 2 | | | 4 | | | | | | | | |
Total bank deposits | | 46 | | | 124 | | | 170 | | | | | | | | |
FHLB advances and all other interest-bearing liabilities | | 4 | | | 1 | | | 5 | | | | | | | | |
Interest-bearing liabilities — Bank segment | | $ | 50 | | | $ | 125 | | | $ | 175 | | | | | | | | |
All other segments: | | | | | | | | | | | | | |
Trading liabilities — debt securities | | 5 | | | 4 | | | 9 | | | | | | | | |
Brokerage client payables | | (5) | | | 21 | | | 16 | | | | | | | | |
| | | | | | | | | | | | | |
All other interest-bearing liabilities | | 2 | | | 2 | | | 4 | | | | | | | | |
Interest-bearing liabilities — all other segments | | $ | 2 | | | $ | 27 | | | $ | 29 | | | | | | | | |
Total interest-bearing liabilities | | $ | 52 | | | $ | 152 | | | $ | 204 | | | | | | | | |
Change in firmwide net interest income | | $ | 113 | | | $ | 285 | | | $ | 398 | | | | | | | | |
Results of Operations
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
RESULTS OF OPERATIONS – Private Client GroupPRIVATE CLIENT GROUP
For an overview of our PCG segment operations, as well as thea description of the key factors impacting our PCG results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20172022 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
$ in millions | | 2022 | | 2021 | | % change | | | | | | |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 1,053 | | | $ | 1,162 | | | (9) | % | | | | | | |
Brokerage revenues: | | | | | | | | | | | | |
Mutual and other fund products | | 128 | | | 171 | | | (25) | % | | | | | | |
Insurance and annuity products | | 104 | | | 111 | | | (6) | % | | | | | | |
Equities, ETFs and fixed income products | | 113 | | | 115 | | | (2) | % | | | | | | |
Total brokerage revenues | | 345 | | | 397 | | | (13) | % | | | | | | |
Account and service fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 98 | | | 114 | | | (14) | % | | | | | | |
RJBDP fees: | | | | | | | | | | | | |
Bank segment | | 268 | | | 50 | | | 436 | % | | | | | | |
Third-party banks | | 137 | | | 17 | | | 706 | % | | | | | | |
Client account and other fees | | 60 | | | 49 | | | 22 | % | | | | | | |
Total account and service fees | | 563 | | | 230 | | | 145 | % | | | | | | |
Investment banking | | 9 | | | 13 | | | (31) | % | | | | | | |
Interest income | | 109 | | | 33 | | | 230 | % | | | | | | |
All other | | 6 | | | 7 | | | (14) | % | | | | | | |
Total revenues | | 2,085 | | | 1,842 | | | 13 | % | | | | | | |
Interest expense | | (22) | | | (3) | | | 633 | % | | | | | | |
Net revenues | | 2,063 | | | 1,839 | | | 12 | % | | | | | | |
Non-interest expenses: | | | | | | | | | | | | |
Financial advisor compensation and benefits | | 1,075 | | | 1,187 | | | (9) | % | | | | | | |
Administrative compensation and benefits | | 342 | | | 283 | | | 21 | % | | | | | | |
Total compensation, commissions and benefits | | 1,417 | | | 1,470 | | | (4) | % | | | | | | |
Non-compensation expenses: | | | | | | | | | | | | |
Communications and information processing | | 89 | | | 71 | | | 25 | % | | | | | | |
Occupancy and equipment | | 51 | | | 46 | | | 11 | % | | | | | | |
Business development | | 37 | | | 27 | | | 37 | % | | | | | | |
Professional fees | | 13 | | | 9 | | | 44 | % | | | | | | |
All other | | 22 | | | 21 | | | 5 | % | | | | | | |
Total non-compensation expenses | | 212 | | | 174 | | | 22 | % | | | | | | |
Total non-interest expenses | | 1,629 | | | 1,644 | | | (1) | % | | | | | | |
Pre-tax income | | $ | 434 | | | $ | 195 | | | 123 | % | | | | | | |
|
| | | | | | | | | | | |
| | 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'sManagement’s Discussion and Analysis
Selected key metrics
ClientPCG client asset balances
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
$ in billions | | December 31, 2022 | | September 30, 2022 | | | | | | December 31, 2021 | | | | September 30, 2021 |
Assets under administration (“AUA”) (1) | | $ | 1,114.3 | | | $ | 1,039.0 | | | | | | | $ | 1,199.8 | | | | | $ | 1,115.4 | |
Assets in fee-based accounts (1) (2) | | $ | 633.1 | | | $ | 586.0 | | | | | | | $ | 677.8 | | | | | $ | 627.1 | |
Percent of AUA in fee-based accounts | | 56.8 | % | | 56.4 | % | | | | | | 56.5 | % | | | | 56.2 | % |
(1)Includes assets associated with firms affiliated with us through our Registered Investment Advisor and Custody Services (“RCS”) division of $115.6 billion as of December 31, 2022, $108.5 billion as of September 30, 2022, $101.6 billion as of December 31, 2021, and $92.7 billion as of September 30, 2021. Of these amounts, $96.6 billion as of December 31, 2022, $89.9 billion as of September 30, 2022, $85.5 billion as of December 31, 2021, and $77.2 billion as of September 30, 2021 were fee-based assets. Based on the nature of the services provided to such firms, revenues related to these assets are included in “Account and service fees.”
(2)A portion of our “Assets in fee-based accounts” is invested in “managed programs” overseen by our Asset Balances: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.”
|
| | | | | | | | | | | | | | | | | | |
| | 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 | % |
PCG net new assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended |
$ in millions | | December 31, 2022 | | September 30, 2022 | | | | | | December 31, 2021 | | | | |
Domestic Private Client Group net new assets (1) | | $ | 23,226 | | | $ | 20,184 | | | | | | | $ | 36,101 | | | | | |
Domestic Private Client Group net new assets growth - annualized (2) | | 9.8 | % | | 8.3 | % | | | | | | 13.7 | % | | | | |
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 metDomestic Private Client Group net new assets represents domestic Private Client Group client inflows, including dividends and interest, less domestic Private Client Group client outflows, including commissions, advisory fees and other fees.
(2) The Domestic Private Client Group net new asset growth - annualized percentage is based on the requirements to be classified as financial advisors inbeginning Domestic Private Client Group AUA balance for the December 31, 2017 period following our periodic review procedures.indicated period.
PCG assets under administration increased 18% over December 31, 2016, resulting from equity market appreciationAUA and net client inflows. Our net client inflows were primarily attributable to strong financial advisor recruiting results. PCG assets in fee-based accounts increased 7% and 8%, respectively, as of December 31, 2022 compared with September 30, 2022, primarily due to equity market appreciation and strong net inflows of client assets during the quarter. We expect that the increase in fee-based accounts, compared with the preceding beginning of the quarter level, will positively impact our asset management and related administrative fees for our fiscal second quarter of 2023. Compared with December 31, 2021, PCG AUA declined 7%, primarily due to declines in the equity market since such time, offset by the favorable impacts of our recruiting as well as our January 21, 2022 acquisition of Charles Stanley. PCG assets in fee-based accounts continued to be a significant percentage of overall PCG assets under administration increased comparedAUA due to December 31, 2016, due in part to clients moving tomany clients’ preference for fee-based alternatives versus traditional transaction-based accounts and, as a result, a significant portion of our PCG revenues is more directly impacted by market movements.
Fee-based accounts within our PCG segment are comprised of a wide array of products and programs that we offer our clients. The majority of assets in response to regulatory changes.
Excluding the impactfee-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 individuals newly qualifyingrelated revenue is shared with the Asset Management segment.
We also offer our clients fee-based accounts that are invested in “managed programs” overseen by AMS, which is part of our Asset Management segment. Fee-billable assets invested in managed programs are included in both “Assets in fee-based accounts” in the preceding table and “Financial assets under management” in the Asset Management segment. Revenues related to managed programs are shared by our PCG and Asset Management segments. The Asset Management segment receives a higher portion of the revenues related to accounts invested in managed programs, as compared to the portion received for non-managed programs, as it is performing portfolio management services in addition to administrative services.
The vast majority of the revenues we earn from fee-based accounts is 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 the majority of such accounts are billed based on balances as of the beginning of the quarter, revenues from fee-based accounts may not be classified as financialimmediately affected by changes in asset values, but rather the impacts are seen in the following quarter.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Financial advisors the net increase in
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | September 30, 2022 | | | | | | | | December 31, 2021 | | September 30, 2021 |
Employees | | 3,631 | | | 3,638 | | | | | | | | | 3,447 | | | 3,461 | |
Independent contractors | | 5,068 | | | 5,043 | | | | | | | | | 5,017 | | | 5,021 | |
Total advisors | | 8,699 | | | 8,681 | | | | | | | | | 8,464 | | | 8,482 | |
The number of financial advisors as of December 31, 20172022 increased slightly compared to December 31, 2016 primarily resulted from strongSeptember 30, 2022, as the impacts of new recruits and trainees that were moved into production roles were partially offset by financial advisors who left the firm, including planned retirements where assets are generally retained at the firm pursuant to advisor succession plans. The recruiting pipeline remains solid across our affiliation options; however, the timing of financial advisors joining the firm may be impacted by market uncertainty. We expect to continue to experience transfers to our RCS division in fiscal 2023; however, consistent with our experience in fiscal 2022, we do not expect these financial advisor recruitingtransfers to significantly impact our results of operations. Advisors in our RCS division are not included in our financial advisor metric although their client assets are included in PCG AUA.
Clients’ domestic cash sweep balances
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
$ in millions | | December 31, 2022 | | September 30, 2022 | | | | | | | | December 31, 2021 | | September 30, 2021 |
RJBDP: | | | | | | | | | | | | | | |
Bank segment | | $ | 39,098 | | | $ | 38,705 | | | | | | | | | $ | 33,097 | | | $ | 31,410 | |
Third-party banks | | 18,231 | | | 21,964 | | | | | | | | | 24,316 | | | 24,496 | |
Subtotal RJBDP | | 57,329 | | | 60,669 | | | | | | | | | 57,413 | | | 55,906 | |
Client Interest Program (“CIP”) | | 3,053 | | | 6,445 | | | | | | | | | 16,065 | | | 10,762 | |
Total clients’ domestic cash sweep balances | | $ | 60,382 | | | $ | 67,114 | | | | | | | | | $ | 73,478 | | | $ | 66,668 | |
| | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
| | 2022 | | 2021 | | | | |
Average yield on RJBDP - third-party banks | | 2.72 | % | | 0.28 | % | | | | |
A significant portion of our domestic clients’ cash is included in the RJBDP, a multi-bank sweep program in which clients’ cash deposits in their accounts are swept into interest-bearing deposit accounts at either Raymond James Bank or TriState Capital Bank, which are included in our Bank segment, or various third-party banks. Our PCG segment earns servicing fees for the administrative services we provide related to our clients’ deposits that are swept to such banks as part of the RJBDP. These servicing fees are variable in nature and high levelsfluctuate based on client cash balances in the program, as well as the level of retention. Notwithstandingshort-term interest rates and the futureinterest paid to clients on balances in the RJBDP. Under our intersegment policies, the PCG segment receives the greater of a base servicing fee or a net yield equivalent to the average yield that the firm would otherwise receive from third-party banks in the RJBDP. The impact of this policy on our segment results in the current market environment is that the PCG segment revenues will reflect fee revenues derived from the yield from third-party banks in the program and the Bank segment RJBDP servicing costs reflect such market rate for the deposits. The fees that the PCG segment earns from the Bank segment, as well as the servicing costs incurred on the deposits in the Bank segment, are eliminated in consolidation.
The “Average yield on RJBDP - third-party banks” in the preceding table is computed by dividing annualized RJBDP fees from third-party banks, which are net of the interest expense paid to clients by the third-party banks, by the average daily RJBDP balance at third-party banks. The average yield on RJBDP - third-party banks increased from the prior-year quarter as a result of the combined 300-basis point increase in the Fed’s short-term benchmark interest rate during our fiscal 2022, as well as the 75-basis point increase in November 2022 and, to a lesser extent, the 50-basis point increase in December 2022. These increases in short-term interest rates more than offset the decline in average RJBDP balances due to a continued decline in client cash balances. We expect our fiscal second quarter of 2023 results to be favorably impacted by the recent increases in short-term rates; however, RJBDP fees are expected to be negatively impacted by the continued decrease of RJBDP balances with third-party banks, as well as two fewer billable days in our fiscal second quarter of 2023 compared with our fiscal first quarter.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Client cash balances declined $6.7 billion, or 10%, compared with September 30, 2022, including a $3.4 billion, or 53%, decrease in cash balances in the CIP, as a result of continued cash sorting activity given the higher short-term interest rate environment. We expect this trend to continue, as clients continue to move cash from lower-yielding bank deposits to higher-yielding investment products. PCG segment results can be impacted by not only changes in the overall economy,level of client cash balances, but also by the allocation of client cash balances between RJBDP and more specifically their impactour CIP, as the PCG segment may earn different amounts from each of these client cash destinations, depending on the markets, we believe that this increase in financial advisors is a positive indication of potential future revenue growth in this segment.multiple factors.
Three monthsQuarter ended December 31, 20172022 compared with the three monthsquarter ended December 31, 20162021
Net revenues of $1.23$2.06 billion increased $19312% and pre-tax income of $434 million increased 123%.
Asset management and related administrative fees decreased $109 million, or 19%. The portion9%, primarily due to lower assets in fee-based accounts at the beginning of total segmentthe current quarter compared with the prior-year quarter due to declines in the equity market, partially offset by incremental revenues that we considerarising in the current quarter from our January 21, 2022 acquisition of Charles Stanley.
Brokerage revenues decreased $52 million, or 13%, primarily due to be recurring was 82% for the three months ended December 31, 2017, an increaselower trailing revenues 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 earnedproducts primarily resulting from market-driven declines in our RJBDP program, and interest, all ofasset values for products for which contributed to the increase.we receive trails, partially offset by incremental revenues arising from Charles Stanley.
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 accountAccount and service fees increased $45$333 million, or 30%145%, primarily due to higher RJBDP fees primarilyfrom both third-party banks and our Bank segment resulting from ansignificantly higher short-term interest rates compared with the prior-year quarter. Client account and other fees also increased primarily as a result of incremental revenues arising from Charles Stanley. Mutual fund service fees decreased primarily due to market-driven declines in average mutual fund assets.
Net interest income increased $57 million, or 190%, due to the increase in short-term interest rates since December 2016. Mutual fundapplicable to our cash, segregated cash, 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.client margin account balances.
As previously discussed, net interest income in the PCG segment increased $8Compensation-related expenses decreased $53 million, or 27%.
Non-interest expenses increased $111 million, or 12%4%, primarily due to lower asset management and related administrative fees and brokerage revenues, partially offset by incremental expenses arising from Charles Stanley and 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 infrastructurecosts to support our growth. Offsetting these increases is a $30
Non-compensation expenses increased $38 million, decreaseor 22%, driven by incremental expenses resulting from Charles Stanley, higher communications and information processing expenses, primarily due to ongoing enhancements of our technology platforms, and an increase in travel and event-related expenses related tocompared with the Jay Peak matter, which was settledrelatively low levels in fiscal year 2017.the prior-year quarter.
Management'sManagement’s Discussion and Analysis
Results of Operations
RESULTS OF OPERATIONS – Capital MarketsCAPITAL MARKETS
For an overview of our Capital Markets segment operations, as well as thea description of the key factors impacting our Capital Markets results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20172022 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
$ in millions | | 2022 | | 2021 | | % change | | | | | | |
Revenues: | | | | | | | | | | | | |
Brokerage revenues: | | | | | | | | | | | | |
Fixed income | | $ | 100 | | | $ | 120 | | | (17) | % | | | | | | |
Equity | | 34 | | | 39 | | | (13) | % | | | | | | |
Total brokerage revenues | | 134 | | | 159 | | | (16) | % | | | | | | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | 102 | | | 271 | | | (62) | % | | | | | | |
Equity underwriting | | 15 | | | 97 | | | (85) | % | | | | | | |
Debt underwriting | | 16 | | | 44 | | | (64) | % | | | | | | |
Total investment banking | | 133 | | | 412 | | | (68) | % | | | | | | |
Interest income | | 23 | | | 5 | | | 360 | % | | | | | | |
Affordable housing investments business revenues | | 24 | | | 35 | | | (31) | % | | | | | | |
All other | | 4 | | | 5 | | | (20) | % | | | | | | |
Total revenues | | 318 | | | 616 | | | (48) | % | | | | | | |
Interest expense | | (23) | | | (2) | | | 1,050 | % | | | | | | |
Net revenues | | 295 | | | 614 | | | (52) | % | | | | | | |
Non-interest expenses: | | | | | | | | | | | | |
Compensation, commissions and benefits | | 213 | | | 331 | | | (36) | % | | | | | | |
Non-compensation expenses: | | | | | | | | | | | | |
Communications and information processing | | 24 | | | 22 | | | 9 | % | | | | | | |
Occupancy and equipment | | 10 | | | 9 | | | 11 | % | | | | | | |
Business development | | 15 | | | 8 | | | 88 | % | | | | | | |
Professional fees | | 13 | | | 14 | | | (7) | % | | | | | | |
All other | | 36 | | | 29 | | | 24 | % | | | | | | |
Total non-compensation expenses | | 98 | | | 82 | | | 20 | % | | | | | | |
Total non-interest expenses | | 311 | | | 413 | | | (25) | % | | | | | | |
Pre-tax income/(loss) | | $ | (16) | | | $ | 201 | | | NM | | | | | | |
|
| | | | | | | | | | | |
| | 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 monthsQuarter ended December 31, 20172022 compared with the three monthsquarter ended December 31, 20162021
Net revenues of $217$295 million decreased 52% and the pre-tax loss was $16 million or 7%, primarily due to lower commissions. Pre-taxcompared with pre-tax income of $5$201 million decreased $17 million, or 78%.in the prior-year quarter.
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 $4decreased $279 million, or 6%68%, duecompared with a strong prior-year quarter as activity levels were negatively impacted in the current quarter by very different market conditions compared with the prior-year quarter, including a notable increase in macroeconomic uncertainties in the current period. Our investment banking pipeline remains healthy and, in part, reflects the investments we have made over the past several years; however, continued market uncertainty could continue 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 $16delay, or ultimately prevent, the closing of transactions, which could negatively impact our results.
Brokerage revenues decreased $25 million, or 58%16%, primarily due to a stronger volumedecrease in fixed income brokerage revenues resulting from decreased activity from depository institution clients, partially offset by incremental revenues from SumRidge Partners, which was acquired on July 1, 2022. We expect our fixed income brokerage revenues to continue to be negatively impacted by challenging market conditions driven by higher interest rates which have resulted in a decline in cash balances at many of both domesticour depository institution clients which decreases their immediate demand for our products 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.services.
Management'sManagement’s Discussion and Analysis
Equity underwriting feesAffordable housing investment business revenues decreased $6$11 million, or 38%31%, primarily due to fewer domestic lead-managed dealsgains on the sales of certain properties during the prior-year quarter which did not recur in the current year period as comparedquarter.
Compensation-related expenses decreased $118 million, or 36%, due to lower revenues, partially offset by incremental compensation expenses due to the acquisition of SumRidge Partners, higher salaries, including due to inflationary and market compensation pressures, and higher share-based compensation amortization resulting from production related awards granted in prior year period.periods.
Non-interestNon-compensation expenses were flat over the prior year period, as a decline in sales commissions, in lineincreased $16 million, or 20%, primarily attributable to incremental expenses associated with the decline in securities commissionsSumRidge Partners and fees, and a decline in other expenses were largely offset by an increase in administrative & incentive compensationbusiness development expenses resulting from increased travel and benefits expense.event-related expenses.
Results of OperationsRESULTS OF OPERATIONS – Asset ManagementASSET MANAGEMENT
For an overview of our Asset Management segment operations as well as thea description of the key factors impacting our Asset Management results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20172022 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
$ in millions | | 2022 | | 2021 | | % change | | | | | | |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees: | | | | | | | | | | | | |
Managed programs | | $ | 134 | | | $ | 151 | | | (11) | % | | | | | | |
Administration and other | | 63 | | | 76 | | | (17) | % | | | | | | |
Total asset management and related administrative fees | | 197 | | | 227 | | | (13) | % | | | | | | |
Account and service fees | | 5 | | | 6 | | | (17) | % | | | | | | |
All other | | 5 | | | 3 | | | 67 | % | | | | | | |
Net revenues | | 207 | | | 236 | | | (12) | % | | | | | | |
Non-interest expenses: | | | | | | | | | | | | |
Compensation, commissions and benefits | | 47 | | | 46 | | | 2 | % | | | | | | |
Non-compensation expenses: | | | | | | | | | | | | |
Communications and information processing | | 14 | | | 12 | | | 17 | % | | | | | | |
Investment sub-advisory fees | | 34 | | | 37 | | | (8) | % | | | | | | |
| | | | | | | | | | | | |
All other | | 32 | | | 34 | | | (6) | % | | | | | | |
Total non-compensation expenses | | 80 | | | 83 | | | (4) | % | | | | | | |
Total non-interest expenses | | 127 | | | 129 | | | (2) | % | | | | | | |
Pre-tax income | | $ | 80 | | | $ | 107 | | | (25) | % | | | | | | |
|
| | | | | | | | | | | |
| | 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 advisoryprograms
Management fees recorded in thisour Asset Management segment wereare generally calculated as a percentage of the value of our fee-billable financial assets under management (“AUM”). These AUM include the portion of fee-based AUA in our PCG segment that is invested in programs overseen by our Asset Management segment (included in the “AMS” line of the following table), as well as retail accounts managed on behalf of third-party institutions, institutional accounts and mutual funds that we manage (collectively included in the “Raymond James Investment Management” line of the following table).
Revenues related to fee-based AUA in our PCG segment are shared by the PCG and Asset Management segments, the amount of which depends on whether or not clients are invested in assets that are in managed programs overseen by our Asset Management segment and the administrative services provided (see our “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for more information). Our AUM in AMS are impacted by market fluctuations and net inflows or outflows of assets, including transfers between fee-based accounts and transaction-based accounts within our PCG segment.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Revenues earned by Raymond James Investment Management for retail accounts managed on behalf of third-party institutions, institutional accounts and our mutual funds are recorded entirely in the Asset Management segment. Our AUM in Raymond James Investment Management are impacted by market and investment performance and net inflows or outflows of assets.
Fees for our managed programs are generally collected quarterly. Approximately 65% of these fees are based on balances either atas of the beginning of the quarter end of the quarter or average assets throughout the quarter. Following the Scout Group acquisition during the three months ended December 30, 2017,(primarily in AMS), approximately 60% of our fees were determined15% are based on asset balances at the beginningas of the quarter, 20% were based on asset balances at the end of the quarter, and approximately 20% wereare based on average assetsdaily balances throughout the quarter.
Management's Discussion and Analysis
Financial assets under management:management
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | December 31, 2022 | | September 30, 2022 | | | | December 31, 2021 | | | | September 30, 2021 |
AMS (1) | | $ | 129.5 | | | $ | 119.8 | | | | | $ | 145.0 | | | | | $ | 134.4 | |
Raymond James Investment Management | | 67.4 | | | 64.2 | | | | | 68.9 | | | | | 67.8 | |
Subtotal financial assets under management | | 196.9 | | | 184.0 | | | | | 213.9 | | | | | 202.2 | |
Less: Assets managed for affiliated entities | | (10.9) | | | (10.2) | | | | | (10.7) | | | | | (10.3) | |
Total financial assets under management | | $ | 186.0 | | | $ | 173.8 | | | | | $ | 203.2 | | | | | $ | 191.9 | |
The following table reflects fee-billable financial assets under management
(1)Represents the portion of our PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and Analysis - Results of Operations - Private Client Group”) that is invested in managed programs atoverseen by 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.segment.
The following table reflects fee-billable financial assets under management (including assets managed for affiliates) in managed programs by objective at the dates indicated:
|
| | | | | | | | | | | | |
$ in millions | | December 31, 2017 | | September 30, 2017 | | December 31, 2016 |
Equity | | $ | 57,971 |
| | $ | 48,936 |
| | $ | 40,959 |
|
Fixed | | 33,806 |
| | 11,814 |
| | 10,920 |
|
Balanced | | 44,075 |
| | 41,043 |
| | 32,578 |
|
Total financial assets under management | | $ | 135,852 |
| | $ | 101,793 |
| | $ | 84,457 |
|
Activity (including activity in assets managed for affiliated entities):
| | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
$ in billions | | 2022 | | 2021 | | | | |
Financial assets under management at beginning of period | | $ | 184.0 | | | $ | 202.2 | | | | | |
| | | | | | | | |
| | | | | | | | |
Raymond James Investment Management - net inflows/(outflows) | | 0.5 | | | (0.4) | | | | | |
AMS - net inflows | | 1.0 | | | 3.5 | | | | | |
Net market appreciation in asset values | | 11.4 | | | 8.6 | | | | | |
Financial assets under management at end of period | | $ | 196.9 | | | $ | 213.9 | | | | | |
AMS
See “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for further information about our retail client assets, including those fee-based assets invested in programs managed by AMS.
Raymond James Investment Management
Assets managed by Raymond James Investment Management include assets managed by our subsidiaries: Eagle Asset Management, Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management, Cougar Global Investments, and Chartwell Investment Partners (“Chartwell”), which was acquired on June 1, 2022 in connection with our acquisition of TriState Capital. The following table presents Raymond James Investment Management’s AUM by objective, excluding assets for which it does not exercise discretion, as well as the approximate average client fee rate earned on such assets.
| | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 | | | | | | | | |
$ in billions | | AUM | | Average fee rate | | | | | | | | |
Equity | | $ | 24.0 | | | 0.56 | % | | | | | | | | |
Fixed income | | 35.6 | | | 0.20 | % | | | | | | | | |
Balanced | | 7.8 | | | 0.33 | % | | | | | | | | |
Total financial assets under management | | $ | 67.4 | | | 0.34 | % | | | | | | | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
|
| | | | | | | | |
| | 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
The following table includes assets held in certain non-discretionary asset-based programs for which the Asset Management segment does not exercise discretion but provides administrative support (including those managed for affiliated entities) totaled $170.9 billion, $157.0 billion,. The vast majority of these assets are also included in our PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and $123.9 billionAnalysis - Results of Operations - Private Client Group”).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | December 31, 2022 | | September 30, 2022 | | | | | | December 31, 2021 | | | | September 30, 2021 |
Total assets | | $ | 355.6 | | | $ | 329.2 | | | | | | | $ | 392.4 | | | | | $ | 365.3 | |
The increase in assets as of December 31, 2017,2022 compared with September 30, 20172022 was largely due to equity market appreciation and continued growth in the PCG segment. Compared to December 31, 2016, respectively. The increase in assets over the prior year level was2021, PCG fee-based AUA declined 7%, primarily due to declines in the equity market appreciation and to clients moving to fee-based accounts fromsince such time, partially offset by the traditional transaction-based accounts in response to U.S. Departmentfavorable impact of Labor (“DOL”) regulatory changes. The majorityour June 1, 2022 acquisition of the administrativeChartwell. Administrative fees associated with these programs are determinedpredominantly based on balances at the beginning of the quarter.
Three months
The following table includes assets held in asset-based programs in Raymond James Trust, N.A. (including those managed for affiliated entities).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | December 31, 2022 | | September 30, 2022 | | | | | | December 31, 2021 | | | | September 30, 2021 |
Total assets | | $ | 7.8 | | | $ | 7.3 | | | | | | | $ | 8.8 | | | | | $ | 8.1 | |
Quarter ended December 31, 20172022 compared with the three monthsquarter ended December 31, 20162021
Net revenues of $151$207 million increased $37 million, or 32%. Pre-taxdecreased 12% and pre-tax income of $57$80 million increased $15 million, or 37%decreased 25%.
Total investment advisoryAsset management and related administrative fee revenues increased $33fees decreased $30 million, or 34%13%, primarily driven by an increasea lower beginning balance of assets in financial advisory fees due to highernon-discretionary asset-based programs and financial assets under management. Themanagement at AMS, as well as lower average financial assets under management at Raymond James Investment Management, in each case primarily due to market-driven depreciation in asset values. We expect the increase in financial assets under management was primarily a resultand assets in non-discretionary asset-based programs as of the Scout Group acquisition, as well as bothDecember 31, 2022 compared with September 30, 2022, which occurred due to equity market appreciation and recruiting. Administrative fees also increasednet inflows during the quarter, due to positively affect our fiscal second quarter of 2023, as the aforementioned increase in assets held in non-discretionary programs.majority of our asset management and related administrative fees are billed based on balances as of the beginning of the quarter.
Account and service fees and other incomeCompensation expenses increased $1 million, or 2%. Non-compensation expenses decreased $3 million, or 19%4%, primarily reflecting increased trust fee revenue due to a 12% increaselower investment sub-advisory fees, resulting from the decrease in trustthe beginning balance of assets under management in RJ Trust.sub-advised programs.
Management'sManagement’s Discussion and Analysis
Non-interest expenses increased $19 million, or 27%, primarily resulting from a $9 million increase in compensation and benefit expenses, a $4 million increase in investment sub-advisory fees and a $4 million increase in other expense. Compensation and benefit expenses increased primarily due to the Scout Group acquisition, annual salary increases and an increase in personnel over the prior year to support the growth of the business. The increase in investment sub-advisory fees resulted from increased assets under management in applicable programs. The increase in other expense was primarily due to expenses incurred to support the new funds offered on our platform as a result of the Scout Group acquisition during the current year.
RESULTS OF OPERATIONS – BANK
Results of Operations – RJ Bank
For an overview of our RJ Bank segment operations, as well as thea description of the key factors impacting our RJ Bank 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 20172022 Form 10-K. Our Bank segment results include the results of TriState Capital Bank since the acquisition date of June 1, 2022.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
$ in millions | | 2022 | | 2021 | | % change | | | | | | |
Revenues: | | | | | | | | | | | | |
Interest income | | $ | 676 | | | $ | 187 | | | 261 | % | | | | | | |
Interest expense | | (185) | | | (10) | | | 1,750 | % | | | | | | |
Net interest income | | 491 | | | 177 | | | 177 | % | | | | | | |
All other | | 17 | | | 6 | | | 183 | % | | | | | | |
Net revenues | | 508 | | | 183 | | | 178 | % | | | | | | |
Non-interest expenses: | | | | | | | | | | | | |
Compensation and benefits | | 40 | | | 13 | | | 208 | % | | | | | | |
Non-compensation expenses: | | | | | | | | | | | | |
Bank loan provision/(benefit) for credit losses | | 14 | | | (11) | | | NM | | | | | | |
RJBDP fees to PCG | | 268 | | | 50 | | | 436 | % | | | | | | |
| | | | | | | | | | | | |
All other | | 50 | | | 29 | | | 72 | % | | | | | | |
Total non-compensation expenses | | 332 | | | 68 | | | 388 | % | | | | | | |
Total non-interest expenses | | 372 | | | 81 | | | 359 | % | | | | | | |
Pre-tax income | | $ | 136 | | | $ | 102 | | | 33 | % | | | | | | |
Quarter ended December 31, 2022 compared with the quarter ended December 31, 2021
|
| | | | | | | | | | | |
| | 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 | % |
Net revenues of $508 million increased 178% and pre-tax income of $136 million increased 33%.
Net interest income increased $314 million, or 177%, primarily due to the increase in short-term interest rates and higher average interest-earning assets at Raymond James Bank, as well as incremental net interest income from the June 1, 2022 acquisition of TriState Capital Bank. The increase in average interest-earning assets at Raymond James Bank was primarily driven by growth in average corporate loans, as well as securities-based loans and residential mortgage loans to PCG clients, and an increase in average available-for-sale securities. The net interest margin increased to 3.36% from 1.92% for the prior-year quarter. We anticipate that the Bank segment net interest income for our fiscal second quarter of 2023 will benefit from the Fed’s short-term interest rate increases enacted during our fiscal first quarter and in February 2023. Given that a significant portion of our interest-earning assets are sensitive to changes in market interest rates, we expect our net interest earnings to also be favorably impacted by any additional increases in short-term interest rates that may occur.
The bank loan provision for credit losses was $14 million for the current quarter, compared with a benefit for credit losses of $11 million for the prior-year quarter. The current quarter provision primarily reflects the impact of a weaker macroeconomic outlook, primarily on the residential mortgage portfolio, and the impact of loan growth during the quarter. The prior-year quarter benefit was largely attributable to improvement in credit quality in the C&I bank loan portfolio and improvement in macroeconomic inputs to our CECL model at that time, which positively impacted most loan portfolios, partially offset by provisions for credit losses related to loan growth.
Compensation expenses increased $27 million, or 208%, primarily due to incremental expenses of TriState Capital Bank.
Management'sManagement’s Discussion and Analysis
The following table presents average balance, interest income and expense,Non-compensation expenses, excluding the related yield and rates, and interest spreads and marginsbank loan provision/(benefit) 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 table above is presented on a tax equivalent basis utilizing the applicable federal statutory rates for each of the three months ended December 31, 2017 and 2016.
Management's Discussion and Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning banking assets and liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on its interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous year’s volume. Changes applicable to both volume and rate have been allocated proportionately.
|
| | | | | | | | | | | | |
| | 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's Discussion and Analysis
|
| | | | | | | | |
$ in thousands | | December 31, 2017 | | September 30, 2017 |
Nonperforming assets: | | |
| | |
|
Nonperforming loans: | | |
| | |
|
C&I loans | | $ | 4,843 |
| | $ | 5,221 |
|
Residential mortgage loans: | | | | |
Residential first mortgage | | 32,364 |
| | 33,718 |
|
Home equity loans/lines | | 126 |
| | 31 |
|
Total nonperforming loans | | 37,333 |
| | 38,970 |
|
Other real estate owned: | | |
| | |
|
Residential first mortgage | | 4,299 |
| | 4,729 |
|
Total other real estate owned | | 4,299 |
| | 4,729 |
|
Total nonperforming assets | | $ | 41,632 |
| | $ | 43,699 |
|
Total nonperforming assets as a % of RJ Bank total assets | | 0.19 | % | | 0.21 | % |
Total loans: | | | | |
Loans held for sale, net | | $ | 189,862 |
| | $ | 70,316 |
|
Loans held for investment: | | | | |
|
C&I loans | | 7,490,219 |
| | 7,385,910 |
|
CRE construction loans | | 164,847 |
| | 112,681 |
|
CRE loans | | 3,136,101 |
| | 3,106,290 |
|
Tax-exempt loans | | 1,136,468 |
| | 1,017,791 |
|
Residential mortgage loans | | 3,270,780 |
| | 3,148,730 |
|
SBL | | 2,530,521 |
| | 2,386,697 |
|
Net unearned income and deferred expenses | | (30,231 | ) | | (31,178 | ) |
Total loans held for investment | | 17,698,705 |
| | 17,126,921 |
|
Total loans | | $ | 17,888,567 |
| | $ | 17,197,237 |
|
Total loans in the above table are net of unearned income and deferred expenses. Total loans held for investment included $1.77 billion and $1.61 billion of loans to borrowers domiciled in Canada at December 31, 2017 and September 30, 2017, respectively. At December 31, 2017 and September 30, 2017, there were $1.09 billion and $1.00 billion, respectively, in Canadian dollar-denominated loans held for investment.
The following table presents RJ Bank’s allowance for loan losses, by loan category:
|
| | | | | | | | | | | | | | |
| | December 31, 2017 | | September 30, 2017 |
$ in thousands | | Allowance | | Loan category as a % of total loans receivable | | Allowance | | Loan category as a % of total loans receivable |
Loans held for sale | | $ | — |
| | 1 | % | | $ | — |
| | — |
|
C&I loans | | 121,569 |
| | 42 | % | | 119,901 |
| | 43 | % |
CRE construction loans | | 2,107 |
| | 1 | % | | 1,421 |
| | 1 | % |
CRE loans | | 40,616 |
| | 18 | % | | 41,749 |
| | 18 | % |
Tax-exempt loans | | 6,918 |
| | 6 | % | | 6,381 |
| | 6 | % |
Residential mortgage loans | | 15,501 |
| | 18 | % | | 16,691 |
| | 18 | % |
SBL | | 4,558 |
| | 14 | % | | 4,299 |
| | 14 | % |
Total | | $ | 191,269 |
| | 100 | % | | $ | 190,442 |
| | 100 | % |
Three months ended December 31, 2017 compared with the three months ended December 31, 2016
Net revenues of $165 million increased $27$239 million, or 20%303%, primarily reflectingdue to an increase in net interest income. Pre-tax incomeRJBDP fees paid to PCG and incremental expenses of $114 millionTriState Capital Bank. RJBDP fees to PCG increased $10$218 million, or 10%.
Net interest income increased $29 million, or 21%436%, due to a $3.51 billionan increase in average interest-earning banking assetsthe market-based servicing fee incurred by the Bank segment for the administrative services provided by the PCG segment for such deposit balances, as well as an increase in net interest margin. The increaseclient cash balances swept to our Bank segment as part of the RJBDP. As described in average interest-earning banking assets was driven by a $1.80 billion increase in average loans, a $1.30 billion increase in our average available-for-sale securities portfolio and a $449 million increase in average cash. The increase in average loans was comprised of increases in average residential mortgage loans, corporate loans, tax-exempt loans,
Management's“Management’s Discussion and Analysis
and SBL. The net interest margin increased to 3.08% from 3.06% due to an increase in asset yields partially offset by an increase in 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 million primarily due to the prior year reflecting a net benefit, a result of the resolution of certain corporate criticized loans. Additionally, the current period loan loss provision increased due to loan growth, partially offset by lower reserve rates on pass-rated loans as a result of improved credit characteristics.
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 - Private Client Group”, our Bank segment incurs servicing fee expense, reflected as revenues in our PCG segment, for the administrative services provided related to our clients’ deposits that are swept to our Bank segment as part of the RJBDP. These servicing fees are variable in 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 on balances in the RJBDP. As the yield from third-party banks in the RJBDP program continues to rise, the rate the Bank segment incurs on RJBDP deposits will also increase as it reflects a market rate for such deposits. These Bank segment fees and the revenues earned by the PCG segment are eliminated in consolidation.
RESULTS OF OPERATIONS – OtherOTHER
This segment includes our private equity investments, interest income on certain corporate cash balances, certain costs incurred in acquisition activities, as well asand certain corporate overhead costs of RJF that are not allocated to other segments, including the interest costcosts on our public debt, and the acquisition and integration costs associated with certain acquisitions.debt. For an overview of our Other segment operations, refer to the information presented in “Item 1 - Business” of our 2017 Form 10-K.
Operating results
|
| | | | | | | | | | | |
| | Three months ended December 31, |
$ in thousands | | 2017 | | 2016 | | % change |
Revenues: | | | | | | |
Interest income | | $ | 8,289 |
| | $ | 4,688 |
| | 77 | % |
Investment advisory fees | | 397 |
| | 484 |
| | (18 | )% |
Other | | 7,697 |
| | 10,287 |
| | (25 | )% |
Total revenues | | 16,383 |
| | 15,459 |
| | 6 | % |
Interest expense | | (19,303 | ) | | (25,102 | ) | | (23 | )% |
Net revenues | | (2,920 | ) | | (9,643 | ) | | 70 | % |
| | | | | |
|
|
Non-interest expenses: | | | | | |
|
|
Compensation and other | | 13,055 |
| | 10,109 |
| | 29 | % |
Acquisition-related expenses | | 3,927 |
| | 12,666 |
| | (69 | )% |
Total non-interest expenses | | 16,982 |
| | 22,775 |
| | (25 | )% |
Loss before taxes and including noncontrolling interests | | (19,902 | ) | | (32,418 | ) | | 39 | % |
Noncontrolling interests | | 279 |
| | 2,035 |
| | 86 | % |
Pre-tax loss excluding noncontrolling interests | | $ | (20,181 | ) | | $ | (34,453 | ) | | 41 | % |
Three months ended December 31, 2017 compared with the three months ended December 31, 2016
The pre-tax loss generated by this segment of $20 million decreased by $14 million, or 41%.
Net revenues in this segment increased $7 million, or 70%, due to an increase in our net interest income of $9 million resulting from both a decrease in interest expense and to a lesser extent, an increase in interest income. The decrease in interest expense was due to a decline in the average outstanding balance and average yield of our senior notes. Interest income increased as a result of the increase in interest rates and higher corporate cash balances. Other revenues decreased $3 million, due to lower net gains (both realized and unrealized) arising from our private equity portfolio.
The acquisition-related expenses for the three months ended December 31, 2017 related to incremental expenses incurred in connection with our acquisition of the Scout Group which closed in November 2017. Prior year acquisition-related expenses primarily related to our acquisitions of Alex. Brown and 3Macs late in our 2016 fiscal year. See Note 3 of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q for further information.
Management's Discussion and Analysis
Certain statistical disclosures by bank holding companies
We are required to provide certain statistical disclosures required for bank holding companies pursuant to the SEC’s Industry Guide 3. The following table provides certain of those disclosures.
|
| | | | |
| | 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 is computed by adding total assets as of the date indicated to the beginning of the year total and dividing by two.
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 is computed by adding the total equity attributable to RJF as of the date indicated to the beginning of the year total and dividing by two.
Average equity to average assets is computed by dividing average equity by average assets as calculated in the above explanations.
Dividend payout ratio is computed by dividing dividends declared per common share during the period by diluted earnings per common share.
Refer to the RJ Bank section of this“Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations” of our 2022 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, | | |
$ in millions | | 2022 | | 2021 | | % change | | | | | | |
Revenues: | | | | | | | | | | | | |
Interest income | | $ | 30 | | | $ | 1 | | | 2,900 | % | | | | | | |
Net gains on private equity investments | | 2 | | | 5 | | | (60) | % | | | | | | |
All other | | 1 | | | 2 | | | (50) | % | | | | | | |
Total revenues | | 33 | | | 8 | | | 313 | % | | | | | | |
Interest expense | | (24) | | | (23) | | | 4 | % | | | | | | |
Net revenues | | 9 | | | (15) | | | NM | | | | | | |
Non-interest expenses: | | | | | | | | | | | | |
Compensation and other | | 23 | | | 32 | | | (28) | % | | | | | | |
Insurance settlement received | | (32) | | | — | | | NM | | | | | | |
| | | | | | | | | | | | |
Total non-interest expenses | | (9) | | | 32 | | | NM | | | | | | |
Pre-tax income/(loss) | | $ | 18 | | | $ | (47) | | | NM | | | | | | |
Quarter ended December 31, 2022 compared with the quarter ended December 31, 2021
Pre-tax income was $18 million compared with a pre-tax loss of $47 million for the prior-year quarter.
Net revenues increased $24 million primarily due to an increase in interest income earned as a result of higher short-term interest rates applicable to our corporate cash balances.
Non-interest expenses decreased $41 million, primarily due to a $32 million insurance settlement received during the quarter related to a previously settled litigation matter, which was reflected as an offset to Other expenses, and the Notes to a lesser extent a decrease in compensation and other expenses.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
STATEMENT OF FINANCIAL CONDITION ANALYSIS
The assets on our Condensed Consolidated Statements of Financial Statements in this Form 10-QCondition consisted primarily of cash and cash equivalents, assets segregated for regulatory purposes and restricted cash (primarily segregated for the benefit of clients), receivables including bank loans, financial instruments held either for trading purposes or as investments, goodwill and identifiable intangible assets, and other required disclosures.assets. A significant portion of our assets were liquid in nature, providing us with flexibility in financing our business.
Total assets of $77.05 billion as of December 31, 2022 were $3.90 billion, or 5%, less than our total assets as of September 30, 2022. Assets segregated for regulatory purposes and restricted cash decreased $3.37 billion, primarily due to a decrease in client cash balances, which resulted in a decline in client cash held in our CIP and a corresponding decline in segregated assets. Collateralized agreements, other receivables, and brokerage client receivables also decreased compared with September 30, 2022. Partially offsetting these decreases was an increase in bank loans, net of $827 million, primarily related to increases in corporate and residential mortgage loans, partially offset by a decline in securities-based loans.
As of December 31, 2022, our total liabilities of $67.22 billion were $4.30 billion, or 6%, less than our total liabilities as of September 30, 2022. Brokerage client payables decreased $3.72 billion, related to the aforementioned decrease in client cash balances as of December 31, 2022. Accrued compensation, commissions, and benefits decreased $506 million due to the payment of prior-year bonuses and collateralized financings decreased $272 million. These decreases were partially offset by an increase in bank deposits of $622 million.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital resources
Liquidity isare essential to our business. The primary goal of our liquidity management activities is to ensure adequate funding to conduct our business over a range of economic and market environments. We seek to manage capital levels to support execution of our business strategy, provide financial strength to our subsidiaries, and maintain sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and conservative internal management targets.
Liquidity and capital resources are provided primarily through our business operations and financing activities. Financing activities could include bank borrowings, collateralized financing arrangements or additional capital raising activities under our “universal” shelf registration statement. We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and available from committed and uncommitted financing facilities, provide adequate funds for continuing operations at current levels of activity in the short-term. We also believe that we will be able to continue to meet our long-term cash requirements due to our strong financial position and ability to access capital from financial markets.
Liquidity and capital management
Senior management establishes our liquidity and capital management framework. Thisframeworks. Our liquidity and capital management frameworks are overseen by the RJF Asset and Liability Committee, a senior management committee that develops and executes strategies and policies to manage our liquidity risk and interest rate risk, as well as provides oversight over the firm’s investments. The liquidity management framework includes senior management’s review of short- and long-term cash flow forecasts, review of monthly capital expenditures, monitoring of the availability of alternative sources of financing, and daily monitoring of liquidity in our significant subsidiaries. Our decisions on the allocation of capitalresources to our business units consider, among other factors, projected profitability, and cash flow, risk, and impact on future liquidity needs. Our treasury department assists in evaluating, monitoring and controlling the impact that our business activities have on our financial condition and liquidity, and capital structure andalso maintains our relationships with various lenders. The objectivesobjective of these policies areour liquidity management framework is to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity.
Liquidity is provided primarily through our business operations and financing activities. Financing activities could include bank borrowings, repurchase agreement transactions or additional capital raising activities under our “universal” shelf registration statement.
Cash provided by operating activities during the three months ended December 31, 2017 was $326 million. In addition to operating cash flows related to net income, other increases in cash from operations included:
An increase of $467 million in brokerage client payables and other accounts payable, mostly due to increased client cash balances in brokerage accounts.
A decrease in 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'sManagement’s Discussion and Analysis
Our capital planning and capital risk management processes are governed by the Capital Planning Committee (“CPC”), a senior management committee that provides oversight on our capital planning and ensures that our strategic planning and risk management processes are integrated into the capital planning process. The CPC meets at least quarterly to review key metrics related to the firm’s capital, such as debt structure and capital ratios; to analyze potential and emerging risks to capital; to oversee our annual firmwide capital stress test; and to propose capital actions to the Board of Directors, such as declaring dividends, repurchasing securities, and raising capital. To ensure that we have sufficient capital to absorb unanticipated losses, the firm adheres to capital risk appetite statements and tolerances set in excess of regulatory minimums, which are established by the CPC and approved by the Board of Directors. We conduct enterprise-wide capital stress testing to ensure that we maintain adequate capital to adhere to our established tolerances under multiple scenarios, including a stressed scenario.
Purchases
Capital structure
Common equity (i.e., common stock, additional paid-in capital, and originationsretained earnings) is the primary component of loans heldour capital structure. Common equity allows for sale, netthe absorption of proceeds from saleslosses on an ongoing basis and for the conservation of securitizationsresources during stress periods, as it provides us with discretion on the amount and loans held for sale used $108 million.
An increasetiming of $97 million in assets segregated pursuant to regulationsdividends and other capital actions. Information about our common equity is included in the Condensed Consolidated Statements of Financial Condition, the Condensed Consolidated Statements of Changes in Shareholders’ Equity, and Note 16 of this Form 10-Q.
Under regulatory capital rules applicable to us as a bank holding company, we are required to maintain minimum leverage ratios (defined as tier 1 capital divided by adjusted average assets), as well as minimum ratios of tier 1 capital, CET1, and total capital to risk-weighted assets. These capital ratios incorporate quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under the regulatory capital rules and are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. We calculate these ratios in order to assess compliance with both regulatory requirements and internal capital policies. In order to maintain our ability to take certain capital actions, including dividends and common equity repurchases, and to make bonus payments, we must hold a capital conservation buffer above our minimum risk-based capital requirements. See Note 20 for further information about our regulatory capital and related capital ratios.
The following table presents the components of RJF’s regulatory capital used to calculate the aforementioned regulatory capital ratios.
| | | | | | | | | | | | | | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
Common equity tier 1 capital/Tier 1 capital | | | | |
Common stock and related additional paid-in capital | | $ | 2,977 | | | $ | 2,989 | |
Retained earnings | | 9,254 | | | 8,843 | |
Treasury stock | | (1,604) | | | (1,512) | |
Accumulated other comprehensive loss | | (891) | | | (982) | |
Less: Goodwill and identifiable intangible assets, net of related deferred tax liabilities | | (1,809) | | | (1,805) | |
Other adjustments | | 801 | | | 847 | |
Common equity tier 1 capital | | 8,728 | | | 8,380 | |
Additional tier 1 capital (preferred equity of $120, net of $4 of other items) | | 116 | | | 100 | |
Tier 1 capital | | 8,844 | | | 8,480 | |
Tier 2 capital | | | | |
Tier 2 capital instruments plus related surplus | | 100 | | | 100 | |
Qualifying allowances for credit losses | | 463 | | | 451 | |
Tier 2 capital | | 563 | | | 551 | |
Total capital | | $ | 9,407 | | | $ | 9,031 | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following table presents RJF’s risk-weighted assets by exposure type used to calculate the aforementioned regulatory capital ratios.
| | | | | | | | | | | | | | |
$ in millions | | December 31, 2022 | | September 30, 2022 |
On-balance sheet assets: | | | | |
Corporate exposures | | $ | 20,549 | | | $ | 20,147 | |
Exposures to sovereign and government-sponsored entities (1) | | 1,977 | | | 2,002 | |
Exposures to depository institutions, foreign banks, and credit unions | | 2,389 | | | 3,003 | |
Exposures to public-sector entities | | 749 | | | 696 | |
Residential mortgage exposures | | 3,948 | | | 3,732 | |
Statutory multifamily mortgage exposures | | 70 | | | 71 | |
High volatility commercial real estate exposures | | 119 | | | 128 | |
Past due loans | | 87 | | | 110 | |
Equity exposures | | 514 | | | 445 | |
Securitization exposures | | 150 | | | 129 | |
Other assets | | 7,125 | | | 7,325 | |
Off-balance sheet: | | | | |
Standby letters of credit | | 65 | | | 62 | |
Commitments with original maturity of one year or less | | 85 | | | 98 | |
Commitments with original maturity greater than one year | | 2,547 | | | 2,437 | |
Over-the-counter derivatives | | 234 | | | 305 | |
| | | | |
Other off-balance sheet items | | 221 | | | 423 | |
Market risk-weighted assets | | 2,799 | | | 3,063 | |
Total standardized risk-weighted assets | | $ | 43,628 | | | $ | 44,176 | |
(1)RJF’s exposure is predominantly to the U.S. government and its agencies.
Cash flows
Cash and cash equivalents (excluding amounts segregated assets, primarily resultingfor regulatory purposes and restricted cash) was $6.18 billion at December 31, 2022, essentially unchanged from September 30, 2022, as investments in bank loans, the increasespayment of prior-year bonuses, repayments of certain FHLB borrowings and common stock repurchases during the quarter were offset by the impacts of positive net income, a decline in receivables, and an increase in bank deposits due to an increase 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 net increase in RJ Bank loans used $624 million.
Purchases of available-for-sale securities held at RJ Bank, net of proceeds from maturations, repayments and redemptions within the portfolio, used $225 million.
We used $159 million, net of cash acquired, for our acquisition of the Scout Group.
We used $36 million to fund property investments, primarily software and computer equipment.
Financing activities provided $979 million of cash during the three months ended December 31, 2017.
Increases in cash from financing activities resulted from:
An increase in RJ Bank deposit balances of $993 million.
Net proceeds of $300 million from borrowings on the RJF Credit Facility.
Offsetting these, decreases in cash from financing activities resulted from:
Net repayments of $280 million of other lines of credit.
Payment of dividendsswept to our shareholders of $32 million.Bank segment through the RJBDP.
We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and committed and uncommitted financing facilities provide adequate funds for continuing operations at current levels of activity.
Sources of liquidity
Approximately $1.44$2.01 billion of our total December 31, 20172022 cash and cash equivalents (a portion ofincluded cash held at the parent company, which resides in depository accounts atincluded cash loaned to 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&A. 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.
2022, RJF had loaned $1.14$1.36 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 | | December 31, 2022 |
RJF | | $ | 672 | |
RJ&A | | 2,076 | |
TriState Capital Bank | | 975 | |
Raymond James Bank | | 783 | |
Raymond James Ltd. (“RJ Ltd.”) | | 690 | |
Raymond James Capital Services, LLC | | 226 | |
Raymond James Financial Services, Inc. | | 137 | |
Charles Stanley Group Limited | | 122 | |
Raymond James Trust Company of New Hampshire | | 93 | |
Raymond James Investment Management | | 89 | |
Other subsidiaries | | 314 | |
Total cash and cash equivalents | | $ | 6,177 | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
RJF maintained depository accounts at Raymond James Bank and TriState Capital Bank totaling $272 million as of December 31, 2022. The portion of this total that was available on demand without restrictions, which amounted to $232 million as of December 31, 2022, is reflected in the RJF cash balance and excluded from Raymond James Bank’s cash balance in the preceding table.
A large portion of the cash and cash equivalents balances at our non-U.S. subsidiaries, including RJ Ltd., as of December 31, 2022 was held to meet regulatory requirements and was not available for use by the parent.
In addition to the cash balances described, above, we have various other various potential sources of cash available to the parent company from subsidiaries, which areas described in the following section.
Liquidity available from subsidiaries
Liquidity is principally available to the parent companyRJF 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.balances. 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, 2017,2022, RJ&A significantly exceeded both the minimum regulatory requirements, and the covenants in its financing arrangements pertaining to net capital. At that date,capital, as well as its internally-targeted net capital tolerances. FINRA may impose certain restrictions, such as restricting withdrawals of equity capital, if a member firm were to fall below a certain threshold or fail to meet minimum net capital requirements which may result in RJ&A had excess net capital of $640 million, of which $284 million was available for dividend while still maintaining the internally targeted net capital ratio of 15% of aggregate debit items. There are also limitations onlimiting dividends it would otherwise remit to RJF. We evaluate regulatory requirements, loan covenants and certain internal tolerances when determining the amount of dividends that may be declared by a broker-dealer without 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 RJ Bank’sits current calendar year and the previous two calendar years’ retained net income, and RJ Bankit maintains its targeted regulatory capital ratios. At December 31, 2017, RJ Bank had $139 million ofDividends may be limited to the extent that capital in excess of the amount it would need at December 31, 2017is needed to maintain its targeted total capital to risk-weighted assets ratio of 12.5%, and could pay a dividend of such amount without requiring prior approval of its regulator.support balance sheet growth.
Although we have liquidity available to us from our other subsidiaries, the available amounts aremay not be as significant as the amountsthose previously described above and, in certain instances, may be subject to regulatory requirements.
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 formprimarily consist of eithera tri-party repurchase agreement (i.e., securities sold under agreements or,to repurchase) and, in the case of the RJF Credit Facility,our $500 million revolving credit facility agreement (the “Credit Facility”), an unsecured line of credit. The required market value of the collateral associated with the committed secured facilitiestri-party repurchase agreement ranges from 102%105% to 125% of the amount financed.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following table presents our most significant committed financing arrangements with third-party lenders, which we generally utilize to finance a portion of our fixed income trading instruments held by RJ&A, and the outstanding balances related thereto:thereto.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
$ 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 | | $ | — | | | | | $ | — | | | $ | — | | | |
|
| | | | | | | | | | | | | | | |
| | 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 16 of the Notes to Consolidated Financial Statements of our 2022 Form 10-K.
Uncommitted financing arrangements
Our uncommitted financing arrangements are in the form of secured lines of credit, secured bilateral or tri-party repurchase agreements, or unsecured lines of credit. Our arrangements with third-party lenders are generally utilized to finance a portion of our fixed income securities held by RJ&A or for cash management purposes. Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed.borrowed and are generally collateralized by RJ&A-owned securities or by securities that we have received as collateral under reverse repurchase agreements (i.e., securities purchased under agreements to resell). As of December 31, 2017,2022, we had three outstanding borrowings under one uncommitted secured borrowing arrangements with lendersarrangement out of a total of 1512 uncommitted financing arrangements (nine(eight uncommitted secured and sixfour uncommitted unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities.
Management's Discussion and Analysis
The following table presents our borrowings on uncommitted financing arrangements, 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 | | | | | | | | December 31, 2022 |
Outstanding borrowing amount: | | | | | | | | |
Uncommitted secured | | | | | | | | $ | 150 | |
Uncommitted unsecured | | | | | | | | — | |
Total outstanding borrowing amount | | | | | | | | $ | 150 | |
The average daily balance outstanding during the five most recent quarters, the maximum month-end balance outstanding during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements are detailed in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Repurchase transactions | | Reverse repurchase transactions |
For the quarter ended: ($ in millions) | | Average daily balance outstanding | | Maximum month-end balance outstanding during the quarter | | End of period balance outstanding | | Average daily balance outstanding | | Maximum month-end balance outstanding during the quarter | | End of period balance outstanding |
December 31, 2022 | | $ | 245 | | | $ | 257 | | | $ | 150 | | | $ | 288 | | | $ | 306 | | | $ | 156 | |
September 30, 2022 | | $ | 196 | | | $ | 294 | | | $ | 294 | | | $ | 249 | | | $ | 367 | | | $ | 367 | |
June 30, 2022 | | $ | 203 | | | $ | 276 | | | $ | 100 | | | $ | 238 | | | $ | 300 | | | $ | 168 | |
March 31, 2022 | | $ | 271 | | | $ | 334 | | | $ | 140 | | | $ | 211 | | | $ | 304 | | | $ | 221 | |
December 31, 2021 | | $ | 247 | | | $ | 258 | | | $ | 203 | | | $ | 306 | | | $ | 305 | | | $ | 204 | |
|
| | | | |
$ in thousands | | As of December 31, 2017 |
Outstanding borrowing amount: | | |
Uncommitted secured | | $ | 339,036 |
|
Uncommitted unsecured | | 150,000 |
|
Total outstanding borrowing amount | | $ | 489,036 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Other borrowings and collateralized financings
RJ BankWe had $875 million$1.05 billion in FHLB borrowings outstanding at December 31, 2017,2022, comprised of floating-rate advances totaling $850 million and a $25 million fixed-rate advance, all of which are secured by a blanket lien on RJ Bank’s residential mortgage loan portfolio (seeadvances. See Note 1213 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for additional information regarding the maturities and interest rates on our FHLB borrowings. The interest rates on our floating-rate advances are generally based on a secured overnight financing rate (“SOFR”). We use interest rate swaps to manage the risk of increases in interest rates associated with our floating-rate FHLB advances by converting the balances subject to variable interest rates to a fixed interest rate. At December 31, 2022, we had pledged $8.36 billion of bank loans, net with the FHLB as security for the repayment of these borrowings). RJ Bankborrowings and had an additional $1.49$5.17 billion in immediate credit available from the FHLB asbased on collateral pledged. As of December 31, 2017 and,2022, with the pledge of additional collateral, we had additional credit availability from certain FHLB member banks. See Notes 6 and 13 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information regarding bank loans, net pledged with the FHLB total available creditand these borrowings.
A portion of 30%our fixed income transactions are cleared and executed through a third-party clearing organization, which provides financing for the purchase of total assets.trading instruments to support such transactions. The amount of financing is based on the amount of trading inventory financed, as well as any deposits held at the clearing organization. Amounts outstanding under this financing arrangement are collateralized by a portion of our trading inventory and accrue interest based on market rates. While we had borrowings outstanding as of December 31, 2022, the clearing organization is under no contractual obligation to lend to us under this arrangement.
RJ Bank isWe are eligible to participate in the Fed’s discount-windowFederal Reserve’s discount window program; however, we do not view borrowings from the FedFederal Reserve as a primary source of funding. The credit available in this program is subject to periodic review, may be terminated or reduced at the discretion of the Fed,Federal Reserve, and would beis secured by certain pledged C&I loans. See Note 6 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information regarding bank loans, net pledged with the FRB.
From timeAs part of the acquisition of TriState Capital, we assumed, as of the closing date, TriState Capital’s subordinated notes due 2030, with an aggregate principal amount of $98 million. See Note 13 of the Notes to timeCondensed Consolidated Financial Statements of this Form 10-Q and Note 16 of our 2022 Form 10-K for additional information regarding these borrowings.
We may act as an intermediary between broker-dealers and other financial institutions whereby we enter into repurchase agreementsborrow securities from one broker-dealer and reverse repurchase agreements.then lend them to another. Where permitted, we have also loaned, to broker-dealers and other financial institutions, securities owned by clients or the firm. We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balances onbalance of $44 million as of December 31, 2022 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 6 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q in the amountand Note 2 of $229 million as of December 31, 2017 (which are reflected in the table of financing arrangements above). Such financings are generallyour 2022 Form 10-K for more information on our collateralized by non-customer, RJ&A owned securities or by securities that we have received as collateral under reverse repurchase agreements.
The average daily balance outstanding during the five most recent successive quarters, the maximum month-end balance outstanding during the quarter and the period end balances for repurchase agreements and reverse repurchase agreements were as follows: financings.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Repurchase transactions | | Reverse repurchase transactions |
For the quarter ended: ($ 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 |
|
Senior notes payable
At December 31, 2017, in addition to the financing arrangements described above,2022, we had $28 millionaggregate outstanding on a mortgage loan for our St. Petersburg, Florida home-office complex, that is included in “Other borrowings” in our Condensed Consolidated Statements of Financial Condition included in this Form 10-Q.
At December 31, 2017, we had senior notes payable of $1.55 billion. Our senior notes payable,$2.04 billion which, exclusive of any unaccreted premiums or discounts and debt issuance costs, iswas comprised of $250$500 million par 5.625%4.65% senior notes due 2024, $500 million par 3.625% senior notes due 2026, and2030, $800 million par 4.95% senior notes due 2046.2046, and $750 million par 3.75% senior notes due 2051. See Note 1517 of the Notes to the Consolidated Financial Statements of our 20172022 Form 10-K for additional information.information on senior notes payable.
Credit ratings
Our issuer, senior long-term debt, and preferred stock credit ratings as of the most current report are:
are detailed in the following table. |
| | | | | | | | | | | | | | | | | | | |
Rating Agency | | Credit Rating | | Outlook |
Rating Agency | | Fitch Ratings, Inc. | | Moody’s | | Standard & Poor’s Ratings Services | | BBB+ | | Stable |
Moody’s Investors ServicesIssuer and senior long term debt | | Baa1A- | | A3 | | BBB+ |
Preferred stock | | BB+ | | Baa3 (hyb) | | Not rated |
Outlook | | Stable | | Stable | | Positive |
Management's Discussion and Analysis
Our current long-term debtcredit ratings depend upon a number of factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trends and volatility, balance sheet composition, liquidity and liquidity
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
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 COLIOf the company-owned life insurance policies thatwhich fund these plans, certain policies could be used as a source of liquidity for the firm. Those policies against which we could readily borrow against havehad a cash surrender value of approximately $460$811 million as of December 31, 2017,2022, comprised of $254$513 million related to employee-directed plans and $206$298 million related to company-directed plans, and we were able to borrow up to 90%, or $414$730 million, of the December 31, 20172022 total without restriction. To effect any such borrowing, the underlying investments would be converted to money market investments, therefore requiring us to take market risk related to the employee-directed plans. There arewere no borrowings outstanding against any of these policies as of December 31, 2017.2022.
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.
See the “Contractual obligations” section below for information regardingAs part of our ongoing operations, we also enter into contractual obligations.
Statementarrangements that may require future cash payments, including certificates of financial condition analysis
The assets on our condensed consolidated statement of financial condition consist primarily of cash and cash equivalents (a large portion of which is segregated for the benefit of clients), receivables including bank loans, financial instruments held for either trading purposes or as investments,deposit, lease obligations and other assets. A significant portion of our assets were liquid in nature, providing us with flexibility in financing our business.
Total assets of $36.08 billion at December 31, 2017 were $1.20 billion, or 3% greater than our total assetscontractual arrangements, such as of September 30, 2017. Our cashfor software and cash equivalents balances increased $228 million; refer to the discussion of the components of this increase in the “Liquidityvarious services. See Notes 11 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. Goodwill and identifiable intangible assets increased $158 million due to the Scout Group acquisition. Offsetting these increases was a net decrease in deferred income taxes of $114 million, primarily due to the remeasurement of U.S. deferred tax assets at a lower enacted corporate tax rate as a result of the Tax Act, which was enacted during the quarter. Brokerage client receivables, net decreased $101 million primarily due to decreased margin lending at December 31, 2017.
As of December 31, 2017, our total liabilities of $30.28 billion were $1.09 billion, or 4% greater than our total liabilities as of September 30, 2017. Bank deposit liabilities increased $993 million as RJ Bank retained a higher portion of RJBDP balances 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 balances in our client interest program. Offsetting these increases, accrued compensation, commissions and benefits decreased $266 million as a result of annual payments of certain incentive compensation paid during the quarter.
Contractual obligations
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 1412 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for additional information regarding certainour lease obligations and certificates of deposit, respectively. We have entered into investment commitments, aslending commitments and other commitments to extend credit for which we are unable to reasonably predict the timing of December 31, 2017.future payments. See Note 15 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information.
RegulatoryREGULATORY
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 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory” in our 20172022 Form 10-K.
RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As of December 31, 2017,2022, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. In addition, RJF, Raymond James Bank, and RJTriState Capital Bank were categorized as “well capitalized”“well-capitalized” as of December 31, 2017.
2022. The maintenance of certain risk-based and other regulatory capital levels could impactinfluence various capital allocation decisions impacting one or more of our businesses. However, due to the strongcurrent capital position of RJF and its regulated subsidiaries, we do not anticipate these capital requirements will have a negative impact on our future business activities.
See Note 1820 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
Critical accounting estimatesManagement’s Discussion and Analysis
CRITICAL ACCOUNTING ESTIMATES
The condensed consolidated financial statements are prepared in accordance with GAAP, which require us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during anyfor the reporting period in our condensed consolidated financial statements.period. Management has established detailed policies and control procedures intended to ensure the appropriateness of such estimates and assumptions and their consistent application from period to period. For a description of our significant accounting policies, see Note 2 of the Notes to the Consolidated Financial Statements inof our 20172022 Form 10-K.
We believe that of our accounting estimates and assumptions, those described below involve a high degree of judgment and complexity. Due to their nature, estimates involve judgment based upon available information. Actual results or amounts could differ from estimates and the difference could have a material impact on the consolidated financial statements. Therefore, understanding these critical accounting estimates is important in understanding theour reported results of our operations and our financial position.
Valuation of financial instruments
The use of fair value to measure financial instruments, with related gains or losses recognized in our Condensed Consolidated Statements of Income and Comprehensive Income, is fundamental to our financial statements and our risk management processes. See Note 2 We believe that of our 2017 Form 10-K foraccounting estimates and assumptions, those described in the following sections involve a discussionhigh degree of our fair value accounting policies regarding financial instruments ownedjudgment and financial instruments sold but not yet purchased.complexity.
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.
See Notes 4, 5 and 6 of the Notes to the Condensed Consolidated Financial Statements in 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 20172022 Form 10-K. In addition, refer to Note 1415 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for information regarding legal and regulatory mattermatters contingencies as of December 31, 2017.2022.
Loss provisions arising from operationsAllowance for credit losses
We evaluate certain of our Broker-Dealers
The recorded amounts of loss provisions associated with brokerage client receivables andfinancial assets, including bank loans, to estimate an allowance for credit losses based on expected credit losses over a financial advisorsasset’s lifetime. The remaining life of our financial assets is determined by considering contractual terms and certain key revenue producers are subject to significant management judgment. For a descriptionexpected prepayments, among other factors. We use multiple methodologies in estimating an allowance for credit losses and our approaches differ by type of the significant estimates and judgments associated with establishing these broker-dealer related loss provisionsfinancial asset and the related allowances for doubtful accounts, see the “Brokerage client receivables, net” and “Loans torisk characteristics within each financial advisors, net” sections of Note 2asset type. Our estimates are based on ongoing evaluations of our 2017 Form 10-Kfinancial assets, the related credit risk characteristics, and Note 2 in this Form 10-Qthe overall economic and environmental conditions affecting the financial assets. Our process for information regardingdetermining the allowance for doubtful accounts associated with loans to financial advisors as of December 31, 2017.
Loan loss provisions arising from operations of RJ Bank
RJ Bank provides an allowance for loan losses which reflects our continuing evaluation of the probable losses inherent in the loan portfolio. See the discussion regarding RJ Bank’s methodology in estimating its 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.capital.
We generally estimate the allowance for credit losses on bank loans using credit risk models which incorporate relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable economic forecasts. After testing the reasonableness of a variety of economic forecast scenarios, each model is run using a single forecast scenario selected for each model. Our forecasts incorporate assumptions related to macroeconomic indicators including, but not limited to, U.S. gross domestic product, equity market indices, unemployment rates, and commercial real estate and residential home price indices. Recent accounting developments
For information regardingTo demonstrate the sensitivity of credit loss estimates on our recent accounting developments, see Note 2bank loan portfolio to macroeconomic forecasts, we compared our modeled estimates under the base case economic scenario used to estimate the allowance for credit losses as of December 31, 2022, to what our estimate would have been under a downside case scenario and an upside scenario, without considering any offsetting effects in the qualitative component of our allowance for credit losses as of December 31, 2022. As of December 31, 2022, use of the Notesdownside case scenario would have resulted in an increase of approximately $170 million in the quantitative portion of our allowance for credit losses on bank loans, while the use of the upside case would have resulted in a reduction of approximately $35 million in the quantitative portion of our allowance for credit losses on bank loans at December 31, 2022. These hypothetical outcomes reflect the relative sensitivity of the modeled portion of our allowance estimate to macroeconomic forecasted scenarios but do not consider any potential impact qualitative adjustments could have on the Condensed Consolidated Financial Statementsallowance for credit losses in such environments. Qualitative adjustments could either increase or decrease modeled loss estimates calculated using an alternative economic scenario assumption. Further, such sensitivity calculations do not necessarily reflect the nature and extent of future changes in the related allowance for a number of reasons including: (1) management’s predictions of future economic trends and relationships among the scenarios may differ from actual events; and (2) management’s application of subjective measures to modeled results through the qualitative portion of the allowance for credit losses when appropriate. The
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
downside case scenario utilized in this Form 10-Q.hypothetical sensitivity analysis assumes a moderate recession. To the extent macroeconomic conditions worsen beyond those assumed in this downside case scenario, we could incur provisions for credit losses significantly in excess of those estimated in this analysis.
Off-Balance sheet arrangements
For information regarding our off-balance sheet arrangements, seeSee Note 222 of the Notes to Consolidated Financial Statements inof our 20172022 Form 10-K for information regarding our methodologies and assumptions used in estimating the allowance for credit losses. See Note 147 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q.10-Q for information regarding our allowance for credit losses related to bank loans as of December 31, 2022.
RECENT ACCOUNTING DEVELOPMENTS Management's DiscussionIn March 2022, the Financial Accounting Standards Board issued new guidance related to troubled debt restructurings and Analysisdisclosures regarding write-offs of financing receivables (ASU 2022-02), amending guidance related to the measurement of credit losses on financial instruments (ASU 2016-13). The amendment eliminates the accounting guidance for troubled debt restructurings for creditors, but requires enhanced disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty, and requires disclosure of current-period gross write-offs by year of origination for financing receivables. This new guidance is effective for our fiscal year beginning on October 1, 2023 and will be applied on a prospective basis. Although permitted, we do not plan to early adopt. We do not expect the adoption of this new guidance to have a material impact on our financial position and results of operations.
Effects of inflationRISK 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, including its Audit and legal.Risk Committee, oversees the firm’s management and mitigation of risk, reinforcing a culture that encourages ethical conduct and risk management throughout the firm. Senior management communicates and reinforces this culture through three lines of risk management and a number of senior-level management committees. Our first line of risk management, which includes all of our businesses, owns its risks and is responsible for identifying, mitigating, and escalating risks arising from its day-to-day activities. The second line of risk management, which includes Compliance and Risk Management, advises our client-facing businesses and other first-line functions in identifying, assessing, and mitigating risk. The second line of risk management tests and monitors the effectiveness of controls, as deemed necessary, and escalates risks when appropriate to senior management and the Board of Directors. The third line of risk management, Internal Audit, independently reviews activities conducted by the previous lines of risk management to assess their management and mitigation of risk, providing additional assurance to the Board of Directors and senior management, with a view toward enhancing our oversight, management, and mitigation of risk. Our legal department provides legal advice and guidance to each of these three lines of risk management.
Market risk
Market risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory, derivativederivatives, and investment positions. We have exposure to market risk primarily through our broker-dealer trading operations and to a lesser extent, through our banking operations. Through our broker-dealer subsidiaries, we trade debt obligations and equity securities and maintain trading inventories to ensure availability of securities to facilitate client transactions. Inventory levels may fluctuate daily as a result of client demand. We also hold investments within our available-for-sale securities portfolio, and from time-to-time may hold SBA loan securitizations not yet transferred. Our primary market risks relate to interest rates, equity prices, and foreign exchange rates. Interest rate risk results from changes in levels of interest rates, the volatility of interest rates, mortgage prepayment speeds, and credit spreads. Equity risk results from changes in prices of equity securities. Foreign exchange risk results from changes in spot prices, forward prices, and volatility of foreign exchange rates. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Market Risk” in our 2017 Form 10-K for a discussion of our market risk including how we manage such risk. See Notes 4, 5 and 6Note 2 of the Notes to the Condensed Consolidated Financial Statements inof our 2022 Form 10-K and Notes 3, 4, and 5 of the Notes to Condensed Consolidated
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Financial Statements of this Form 10-Q for fair value and other information regarding our trading inventories, available-for-sale securities, and derivative instruments.
We regularly enter into underwriting commitments and, as a result, we may be subject to market risk on any unsold shares issued in the offerings to which we are committed. Risk exposure is controlled by limiting our participation, the transaction size, or through the syndication process.
The Market Risk Management department is responsible for measuring, monitoring, and reporting market risks associated with the firm’s trading and derivative portfolios. While Market Risk Management maintains ongoing communication with the revenue-generating business units, it is independent of such units.
Interest rate risk
Trading activities
We are exposed to interest rate risk as a result of our trading inventoriesinventory (primarily comprised of fixed income instruments) in our Capital Markets segment. Changes in value of our trading inventory may result from fluctuations in interest rates, credit spreads, equity prices, macroeconomic factors, investor expectations or risk appetites, liquidity, as well as dynamic relationships among these factors. We actively manage the interest rate risk arising from our fixed income trading securitiesinventory through the use of hedging strategies that involveutilizing U.S. Treasury securities,Treasuries, futures contracts, liquid spread products, and derivatives.
Our primary method for controlling risks within trading inventories is through the use of dollar-based and exposure-based limits. A hierarchy of limits exists at multiple levels, including firm, business unit, desk (e.g., for equities, corporate bonds, municipal bonds), product sub-type (e.g., below-investment-grade positions) and, at times, at the individual position. For derivative positions, which are primarily comprised of interest rate swaps, we have established limits based on a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis, and volatility risk. Trading positions and derivatives are monitored against these limits through daily reports that are distributed to senior management.During volatile markets, we may temporarily reduce limits and/or choose to pare our trading inventories to reduce risk.
We monitor daily, the Value-at-Risk (“VaR”) for all of our trading portfolios. VaR is an appropriate statistical techniqueportfolios on a daily basis for estimating potential losses in trading portfolios due to typical adverse market movements overrisk management purposes and as a specified time horizon with a suitable confidence level. We applyresult of applying the Fed’s Market Risk Rule (“MRR”) for the purpose of calculating our capital ratios. The MRR, also known as the “Risk-Based Capital Guidelines: Market Risk” rule released by the Fed, OCCthe Office of the Comptroller of the Currency and the FDIC, requires us to calculate VaR numbers for all of our trading portfolios, including fixed income, equity, derivatives, and foreign exchange instruments. VaR is an appropriate statistical technique for estimating potential losses in trading portfolios due to typical adverse market movements over a specified time horizon with a suitable confidence level. However, there are inherent limitations of utilizing VaR including: historical movements in markets may not accurately predict future market movements; VaR does not take into account the liquidity of individual positions; VaR does not estimate losses over longer time horizons; and derivative instruments.extended periods of one-directional markets potentially distort risks within the portfolio. In addition, should markets become more volatile, actual trading losses may exceed VaR results presented on a single day and might accumulate over a longer time horizon. As a result, management complements VaR with sensitivity analysis and stress testing and employs additional controls such as a daily review of trading results, review of aged inventory, independent review of pricing, monitoring of concentrations, and review of issuer ratings.
To calculate VaR, we use models which incorporate historical simulation. This approach assumes that historical changes in market conditions, such as in interest rates and equity prices, are representative of future changes. Simulation is based on daily market data for the previous twelve months. VaR is reported at a 99% confidence level for a one-day time horizon. Assuming that future market conditions change as they have in the past twelve months, we would expect to incur losses greater than those predicted by our one-day VaR estimates about once every 100 trading days, or about three times per year on average. For regulatory capital calculation purposes, we also report VaR and Stressed VaR numbers for a ten-day time horizon. The VaR model is independently reviewed by our Model Risk Management function. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Model risk” of our 2022 Form 10-K for further information.
The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations that management believes to be reasonable. However, there is no uniform industry methodology for estimating VaR, and different assumptions or approximations could produce materially different VaR estimates. As a result, VaR results are more reliable when used as indicators of risk levels and trends within a firm than as a basis for inferring differences in risk-taking across firms.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following table sets forth the high, low, period-end and average daily one-day VaR for all of our trading portfolios, including fixed income and equity instruments, and for our derivatives for the periods and dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, 2022 | | Period-end VaR | | | | Three months ended December 31, | | |
$ in millions | | High | | Low | | December 31, 2022 | | September 30, 2022 | | $ in millions | | 2022 | | 2021 | | | | |
Daily VaR | | $ | 3 | | | $ | 2 | | | $ | 3 | | | $ | 3 | | | Average daily VaR | | $ | 2 | | | $ | 1 | | | | | |
Average daily VaR was higher during the three months ended December 31, 2022 compared with the three months ended December 31, 2021 due to the impact increased market volatility in December 2022, as well as the addition of the SumRidge Partners trading inventory.
The Fed’s MRR requires us to perform daily back testingback-testing procedures offor our VaR model, whereby we compare each day’s projected VaR to its regulatory-defined daily trading losses, which exclude fees, commissions, reserves, net interest income, and intraday trading. Regulatory-defined daily trading losses are used to evaluate the performance of our VaR model and are not comparable to our actual daily net revenues. Based on these daily “ex ante” versus “ex post”post” comparisons, we determine whether the number of times that regulatory-defined daily trading losses exceed VaR is consistent with our expectations at a 99% confidence level. During the three months ended December 31, 2017,2022, 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 and daily average VaR for all of our trading portfolios, including fixed income, equity, and derivative instruments, for the period and dates indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended December 31, 2017 | | Period end VaR | | Daily average VaR |
$ in thousands | | High | | Low | | December 31, 2017 | | September 30, 2017 | | December 31, 2017 | | September 30, 2017 | | December 31, 2016 |
Daily VaR | | $ | 2,256 |
| | $ | 848 |
| | $ | 848 |
| | $ | 1,427 |
| | $ | 1,601 |
| | $ | 1,827 |
| | $ | 1,670 |
|
The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations. While management believes that its assumptions and approximations are reasonable, there is no uniform industry methodology for estimating VaR, and different assumptions or approximations could produce materially different VaR estimates. As a result, VaR statistics are more reliable when used as indicators of risk levels and trends within a firm than as a basis for inferring differences in risk-taking across firms.
Separately, RJF provides additional market risk disclosures to comply with the MRR. The results of the application of this market risk capital ruleMRR, including 10-day VaR and 10-day Stressed VaR, which are available on our website under at https://www.raymondjames.com/investor-relations/financial-report under “Market Risk Rule Disclosure.financial-information/filings-and-reports within “Other Reports and Information.”
Should markets suddenly become more volatile, actual trading losses may exceed VaR results presented on a single day and might accumulate over a longer time horizon, such as a number of consecutive trading days. Accordingly, management applies additional controls including position limits, a daily review of trading results, review of the status of aged inventory, independent controls on pricing, monitoring of concentration risk, review of issuer ratings and stress testing. We utilize stress testing to complement our VaR analysis so as to measure risk under historical and hypothetical adverse scenarios. During volatile markets we may choose to pare our trading inventories to reduce risk.
As a part of our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMA MBS which are issued on behalf of various state and local housing finance agencies. These activities result in exposure to interest rate risk. In order to hedge the interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into 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
RJOur Bank segment maintains an earninginterest-earning asset portfolio that is comprised of cash, SBL, C&I loans, tax-exempt loans, SBL, and commercial and residential real estate loans, REIT loans, and tax-exempt loans, as well as MBS and CMOs (both of which aresecurities held in the available-for-sale securities portfolio), Small Business Administration loan securitizations and a trading portfolio of corporate loans. Those earningportfolio. These interest-earning assets are primarily funded by client deposits. Based on itsthe current earning asset portfolio, RJ Bank isour banking operations are subject to interest rate risk. During the current period, RJ Bank has focused its interest rate risk analysis on the risk of market interest rates rising given the Federal Reserve Bank’s increases in short-term interest rates. RJ Bank analyzesWe analyze interest rate risk based on forecasted net interest income, which is the net amount of interest received and interest paid, and the net portfolio valuation, both inacross a range of interest rate scenarios.
One of the objectives of RJ Bank’sthe Asset and Liability Management Committee is to manage the sensitivity of net interest income to changes in market interest rates. The methods usedThis committee uses several measures to measure this sensitivity are describedmonitor and limit interest rate risk in Item 7, “Management’s Discussionour banking operations, including scenario analysis and Analysiseconomic value of Financial Condition and Results of Operations - Risk Management - Market Risk” of our 2017 Form 10-K.
equity. We utilize a hedging strategy using interest rate swaps in our banking operations as a result of RJ Bank’sour 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 20172022 Form 10-K and in Note 6Notes 12 and 13 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q.
To ensure that we remain within the tolerances established for net interest income, a sensitivity analysis of net interest income to interest rate conditions is estimated under a variety of scenarios. We use simulation models and estimation techniques to assess the sensitivity of net interest income to movements in interest rates. The model estimates the sensitivity by calculating interest income and interest expense in a dynamic balance sheet environment using current repricing, prepayment, and reinvestment of cash flow assumptions over a 12-month time horizon. Assumptions used in the model include interest rate movement, the slope of the yield curve, and balance sheet composition and growth.The model also considers interest rate-related risks such as pricing spreads, pricing of client cash accounts, and prepayments. Various interest rate scenarios are modeled in order to determine the effect those scenarios may have on net interest income.
Management'sManagement’s Discussion and Analysis
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 $1.52 billion and $1.51 billion at December 31, 2022 and September 30, 2022, respectively, when converted to the U.S. dollar. A majority of such loans are held in a Canadian subsidiary of Raymond James Bank, which is discussed in the following sections.
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
Comprehensive Income. See Note 65 of the Notes to Condensed Consolidated Financial Statements inof this Form 10-Q for information regarding our derivative contracts.derivatives.
Credit risk 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 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 20172022 Form 10-K.
The level of charge-off activity is a factor that is considered in evaluating the potential for severity of future credit losses. The activity duringfollowing table presents net loan (charge-offs)/recoveries and the current period resulted in an insignificantannualized percentage of net charge-off, whileloan (charge-offs)/recoveries to the prior period reflected net recoveries primarily resulting from the favorable resolution of a CRE criticized loan.average outstanding loan balances by loan portfolio segment.