0000720005 us-gaap:AccumulatedTranslationAdjustmentMember 2020-03-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
|
| | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
| THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20202021
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| | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
| THE SECURITIES EXCHANGE ACT OF 1934 |
|
| | | | | | | | | | |
For the transition period from | | to | |
Commission File Number: 1-9109
RAYMOND JAMES FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
|
| | | | | | | |
Florida | | 59-1517485 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
880 Carillon Parkway,, St. Petersburg,, Florida33716
(Address of principal executive offices) (Zip Code)
(727) (727) 567-1000
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
|
| | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value | RJF | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| | | | | | | | | | |
Large accelerated filer | x | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
137,030,516137,418,106 shares of common stock as of May 5, 20204, 2021
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| | | | | | | | | | |
INDEX |
| | | PAGE |
PART I | | | |
Item 1. | | | |
| | Condensed Consolidated Statements of Financial Condition as of March 31, 2020 and September 30, 2019 (Unaudited) | |
| | Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended March 31, 2020 and March 31, 2019 (Unaudited) | |
| | Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended March 31, 2020 and March 31, 2019 (Unaudited) | |
| | Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2020 and March 31, 2019 (Unaudited) | |
| | | |
| | Note 1 - Organization and basis of presentation | |
| | Note 2 - Update of significant accounting policies | |
| | Note 3 - Fair valueAcquisitions | |
| | Note 4 - Fair value | |
| | Note 5 - Available-for-sale securities | |
| | Note 56 - Derivative assets and derivative liabilities | |
| | Note 67 - Collateralized agreements and financings | |
| | Note 78 - Bank loans, net | |
| | Note 89 - Loans to financial advisors, net | |
| | Note 10 - Variable interest entities | |
| | Note 911 - Goodwill and identifiable intangible assets, net | |
| | Note 1012 - Leases | |
| | Note 1113 - Bank deposits | |
| | Note 12 - Other borrowings | |
| | Note 1314 - Senior notes payable | |
| | Note 1415 - Income taxes | |
| | Note 1516 - Commitments, contingencies and guarantees | |
| | Note 1617 - Accumulated other comprehensive income/(loss) | |
| | Note 1718 - Revenues | |
| | Note 1819 - Interest income and interest expense | |
| | Note 1920 - Share-based compensation | |
| | Note 2021 - Regulatory capital requirements | |
| | Note 2122 - Earnings per share | |
| | Note 2223 - Segment information | |
Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
PART II | | | |
Item 1. | | | |
Item 1A. | | | |
Item 2. | | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | | | |
Item 4. | | Mine Safety Disclosures | |
Item 5. | | | |
Item 6. | | | |
| | | |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
| | | | | | | | | | | | | | |
$ in millions, except per share amounts | | March 31, 2021 | | September 30, 2020 |
Assets: | | | | |
Cash and cash equivalents | | $ | 5,851 | | | $ | 5,390 | |
Assets segregated pursuant to regulations ($5,250 and $0, at fair value) | | 9,674 | | | 4,244 | |
Collateralized agreements | | 451 | | | 422 | |
Financial instruments, at fair value: | | | | |
Trading assets ($363 and $265 pledged as collateral) | | 567 | | | 513 | |
Available-for-sale securities ($21 and $23 pledged as collateral) | | 8,158 | | | 7,650 | |
Derivative assets | | 304 | | | 438 | |
Other investments ($40 and $37 pledged as collateral) | | 370 | | | 334 | |
Brokerage client receivables, net | | 2,513 | | | 2,435 | |
Other receivables, net | | 1,007 | | | 927 | |
Bank loans, net | | 22,879 | | | 21,195 | |
Loans to financial advisors, net | | 988 | | | 1,012 | |
Property and equipment, net | | 543 | | | 535 | |
Deferred income taxes, net | | 277 | | | 262 | |
Goodwill and identifiable intangible assets, net | | 868 | | | 600 | |
Other assets | | 1,616 | | | 1,525 | |
Total assets | | $ | 56,066 | | | $ | 47,482 | |
| | | | |
Liabilities and shareholders’ equity: | | | | |
Bank deposits | | $ | 29,254 | | | $ | 26,801 | |
Collateralized financings | | 278 | | | 250 | |
Financial instrument liabilities, at fair value: | | | | |
Trading liabilities | | 212 | | | 240 | |
Derivative liabilities | | 324 | | | 393 | |
Brokerage client payables | | 12,475 | | | 6,792 | |
Accrued compensation, commissions and benefits | | 1,372 | | | 1,384 | |
Other payables | | 1,608 | | | 1,513 | |
Other borrowings | | 861 | | | 888 | |
Senior notes payable | | 2,045 | | | 2,045 | |
Total liabilities | | 48,429 | | | 40,306 | |
Commitments and contingencies (see Note 16) | | 0 | | 0 |
Shareholders’ equity | | | | |
Preferred stock; $.10 par value; 10,000,000 shares authorized; -0- shares issued and outstanding | | 0 | | | 0 | |
Common stock; $.01 par value; 350,000,000 shares authorized; 159,231,968 and 159,007,158 shares issued as of March 31, 2021 and September 30, 2020, respectively, and 137,155,669 and 136,556,559 shares outstanding as of March 31, 2021 and September 30, 2020, respectively | | 2 | | | 2 | |
Additional paid-in capital | | 2,028 | | | 2,007 | |
Retained earnings | | 7,004 | | | 6,484 | |
Treasury stock, at cost; 22,076,299 and 22,450,599 common shares as of March 31, 2021 and September 30, 2020, respectively | | (1,404) | | | (1,390) | |
Accumulated other comprehensive income/(loss) | | (38) | | | 11 | |
Total equity attributable to Raymond James Financial, Inc. | | 7,592 | | | 7,114 | |
Noncontrolling interests | | 45 | | | 62 | |
Total shareholders’ equity | | 7,637 | | | 7,176 | |
Total liabilities and shareholders’ equity | | $ | 56,066 | | | $ | 47,482 | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
3
|
| | | | | | | | |
$ in millions, except per share amounts | | March 31, 2020 | | September 30, 2019 |
Assets: | |
| |
|
Cash and cash equivalents | | $ | 10,648 |
| | $ | 3,957 |
|
Cash and cash equivalents segregated pursuant to regulations | | 4,045 |
| | 2,014 |
|
Securities purchased under agreements to resell | | 130 |
| | 343 |
|
Securities borrowed | | 250 |
| | 248 |
|
Financial instruments, at fair value: | | | | |
Trading instruments ($236 and $535 pledged as collateral) | | 445 |
| | 708 |
|
Available-for-sale securities ($28 and $24 pledged as collateral) | | 4,265 |
| | 3,093 |
|
Derivative assets | | 447 |
| | 338 |
|
Other investments ($40 and $32 pledged as collateral) | | 316 |
| | 365 |
|
Brokerage client receivables, net | | 2,491 |
| | 2,671 |
|
Receivables from brokers, dealers and clearing organizations | | 445 |
| | 281 |
|
Other receivables | | 846 |
| | 549 |
|
Bank loans, net | | 21,788 |
| | 20,891 |
|
Loans to financial advisors, net | | 982 |
| | 983 |
|
Property and equipment, net | | 543 |
| | 527 |
|
Deferred income taxes, net | | 224 |
| | 231 |
|
Goodwill and identifiable intangible assets, net | | 603 |
| | 611 |
|
Other assets | | 1,341 |
| | 1,020 |
|
Total assets | | $ | 49,809 |
| | $ | 38,830 |
|
| | | | |
Liabilities and shareholders’ equity: | | | | |
Bank deposits | | $ | 30,023 |
| | $ | 22,281 |
|
Securities sold under agreements to repurchase | | 215 |
| | 150 |
|
Securities loaned | | 28 |
| | 323 |
|
Financial instruments sold but not yet purchased, at fair value: | | | | |
Trading instruments | | 24 |
| | 296 |
|
Derivative liabilities | | 427 |
| | 313 |
|
Brokerage client payables | | 7,076 |
| | 4,361 |
|
Payables to brokers, dealers and clearing organizations | | 284 |
| | 229 |
|
Accrued compensation, commissions and benefits | | 929 |
| | 1,272 |
|
Other payables | | 1,034 |
| | 518 |
|
Other borrowings | | 891 |
| | 894 |
|
Senior notes payable | | 2,044 |
| | 1,550 |
|
Total liabilities | | 42,975 |
|
| 32,187 |
|
Commitments and contingencies (see Note 15) | |
|
| |
|
|
Shareholders’ equity | | | | |
Preferred stock; $.10 par value; 10,000,000 shares authorized; -0- shares issued and outstanding | | — |
| | — |
|
Common stock; $.01 par value; 350,000,000 shares authorized; 158,731,812 and 158,435,030 shares issued as of March 31, 2020 and September 30, 2019, respectively, and 136,787,387 and 137,841,952 shares outstanding as of March 31, 2020 and September 30, 2019, respectively | | 2 |
| | 2 |
|
Additional paid-in capital | | 1,953 |
| | 1,938 |
|
Retained earnings | | 6,205 |
| | 5,874 |
|
Treasury stock, at cost; 21,944,425 and 20,593,078 common shares as of March 31, 2020 and September 30, 2019, respectively | | (1,351 | ) | | (1,210 | ) |
Accumulated other comprehensive loss | | (11 | ) | | (23 | ) |
Total equity attributable to Raymond James Financial, Inc. | | 6,798 |
| | 6,581 |
|
Noncontrolling interests | | 36 |
| | 62 |
|
Total shareholders’ equity | | 6,834 |
| | 6,643 |
|
Total liabilities and shareholders’ equity | | $ | 49,809 |
| | $ | 38,830 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
in millions, except per share amounts | | 2021 | | 2020 | | 2021 | | 2020 |
Revenues: | | | | | | | | |
Asset management and related administrative fees | | $ | 1,173 | | | $ | 1,006 | | | $ | 2,240 | | | $ | 1,961 | |
Brokerage revenues: | | | | | | | | |
Securities commissions | | 443 | | | 410 | | | 824 | | | 773 | |
Principal transactions | | 148 | | | 105 | | | 295 | | | 202 | |
Total brokerage revenues | | 591 | | | 515 | | | 1,119 | | | 975 | |
Account and service fees | | 159 | | | 172 | | | 304 | | | 350 | |
Investment banking | | 242 | | | 148 | | | 503 | | | 289 | |
Interest income | | 200 | | | 285 | | | 403 | | | 582 | |
Other | | 44 | | | (15) | | | 100 | | | 14 | |
Total revenues | | 2,409 | | | 2,111 | | | 4,669 | | | 4,171 | |
Interest expense | | (37) | | | (43) | | | (75) | | | (94) | |
Net revenues | | 2,372 | | | 2,068 | | | 4,594 | | | 4,077 | |
Non-interest expenses: | | | | | | | | |
Compensation, commissions and benefits | | 1,648 | | | 1,422 | | | 3,148 | | | 2,773 | |
Non-compensation expenses: | | | | | | | | |
Communications and information processing | | 107 | | | 99 | | | 206 | | | 193 | |
Occupancy and equipment | | 57 | | | 56 | | | 114 | | | 113 | |
Business development | | 21 | | | 41 | | | 44 | | | 85 | |
Investment sub-advisory fees | | 31 | | | 26 | | | 59 | | | 52 | |
Professional fees | | 24 | | | 23 | | | 54 | | | 44 | |
Bank loan provision/(benefit) for credit losses | | (32) | | | 109 | | | (18) | | | 107 | |
Acquisition-related expenses | | 0 | | | 0 | | | 2 | | | 0 | |
| | | | | | | | |
Other | | 69 | | | 53 | | | 139 | | | 112 | |
Total non-compensation expenses | | 277 | | | 407 | | | 600 | | | 706 | |
Total non-interest expenses | | 1,925 | | | 1,829 | | | 3,748 | | | 3,479 | |
Pre-tax income | | 447 | | | 239 | | | 846 | | | 598 | |
Provision for income taxes | | 92 | | | 70 | | | 179 | | | 161 | |
Net income | | $ | 355 | | | $ | 169 | | | $ | 667 | | | $ | 437 | |
| | | | | | | | |
Earnings per common share – basic | | $ | 2.58 | | | $ | 1.22 | | | $ | 4.85 | | | $ | 3.15 | |
Earnings per common share – diluted | | $ | 2.51 | | | $ | 1.20 | | | $ | 4.74 | | | $ | 3.09 | |
Weighted-average common shares outstanding – basic | | 137.8 | | | 138.4 | | 137.3 | | 138.4 |
Weighted-average common and common equivalent shares outstanding – diluted | | 141.2 | | 141.1 | | 140.4 | | 141.3 |
| | | | | | | | |
Net income | | $ | 355 | | | $ | 169 | | | $ | 667 | | | $ | 437 | |
Other comprehensive income/(loss), net of tax: | | | | | | | | |
Available-for-sale securities | | (76) | | | 63 | | | (93) | | | 62 | |
Currency translations, net of the impact of net investment hedges | | 2 | | | (26) | | | 20 | | | (17) | |
Cash flow hedges | | 19 | | | (43) | | | 24 | | | (33) | |
Total other comprehensive income/(loss), net of tax | | (55) | | | (6) | | | (49) | | | 12 | |
Total comprehensive income | | $ | 300 | | | $ | 163 | | | $ | 618 | | | $ | 449 | |
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
in millions, except per share amounts | | 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | | |
Asset management and related administrative fees | | $ | 1,006 |
| | $ | 783 |
| | $ | 1,961 |
| | $ | 1,648 |
|
Brokerage revenues: | | | | | | | | |
Securities commissions | | 410 |
| | 349 |
| | 773 |
| | 737 |
|
Principal transactions | | 105 |
| | 93 |
| | 202 |
| | 169 |
|
Total brokerage revenues | | 515 |
| | 442 |
| | 975 |
| | 906 |
|
Account and service fees | | 172 |
| | 191 |
| | 350 |
| | 376 |
|
Investment banking | | 148 |
| | 163 |
| | 289 |
| | 300 |
|
Interest income | | 285 |
| | 324 |
| | 582 |
| | 640 |
|
Other | | (15 | ) | | 31 |
| | 14 |
| | 68 |
|
Total revenues | | 2,111 |
| | 1,934 |
|
| 4,171 |
|
| 3,938 |
|
Interest expense | | (43 | ) | | (75 | ) | | (94 | ) | | (148 | ) |
Net revenues | | 2,068 |
| | 1,859 |
|
| 4,077 |
|
| 3,790 |
|
Non-interest expenses: | | |
| | |
| | | | |
Compensation, commissions and benefits | | 1,422 |
| | 1,225 |
| | 2,773 |
| | 2,490 |
|
Non-compensation expenses: | | | | | | | | |
Communications and information processing | | 99 |
| | 94 |
| | 193 |
| | 186 |
|
Occupancy and equipment | | 56 |
| | 53 |
| | 113 |
| | 104 |
|
Business development | | 41 |
| | 41 |
| | 85 |
| | 84 |
|
Investment sub-advisory fees | | 26 |
| | 22 |
| | 52 |
| | 46 |
|
Professional fees | | 23 |
| | 17 |
| | 44 |
| | 39 |
|
Bank loan loss provision | | 109 |
| | 5 |
| | 107 |
| | 21 |
|
Acquisition and disposition-related expenses | | — |
| | — |
| | — |
| | 15 |
|
Other | | 53 |
| | 55 |
| | 112 |
| | 126 |
|
Total non-compensation expenses | | 407 |
| | 287 |
| | 706 |
| | 621 |
|
Total non-interest expenses | | 1,829 |
| | 1,512 |
|
| 3,479 |
|
| 3,111 |
|
Pre-tax income | | 239 |
| | 347 |
|
| 598 |
|
| 679 |
|
Provision for income taxes | | 70 |
| | 86 |
| | 161 |
| | 169 |
|
Net income | | $ | 169 |
| | $ | 261 |
|
| 437 |
|
| 510 |
|
| | | | | | | | |
Earnings per common share – basic | | $ | 1.22 |
| | $ | 1.85 |
| | $ | 3.15 |
| | $ | 3.58 |
|
Earnings per common share – diluted | | $ | 1.20 |
| | $ | 1.81 |
| | $ | 3.09 |
| | $ | 3.51 |
|
Weighted-average common shares outstanding – basic | | 138.4 |
| | 140.8 |
| | 138.4 |
| | 142.5 |
|
Weighted-average common and common equivalent shares outstanding – diluted | | 141.1 |
| | 143.9 |
| | 141.3 |
| | 145.4 |
|
| | | | | | | | |
Net income | | $ | 169 |
|
| $ | 261 |
|
| $ | 437 |
|
| $ | 510 |
|
Other comprehensive income/(loss), net of tax: | | |
| | |
| | | | |
Available-for-sale securities | | 63 |
| | 19 |
| | 62 |
| | 41 |
|
Currency translations, net of the impact of net investment hedges | | (26 | ) | | 8 |
| | (17 | ) | | (5 | ) |
Cash flow hedges | | (43 | ) | | (13 | ) | | (33 | ) | | (30 | ) |
Total other comprehensive income/(loss), net of tax | | (6 | ) |
| 14 |
|
| 12 |
|
| 6 |
|
Total comprehensive income | | $ | 163 |
| | $ | 275 |
|
| $ | 449 |
|
| $ | 516 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
4
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions, except per share amounts | | 2021 | | 2020 | | 2021 | | 2020 |
Common stock, par value $.01 per share: | | | | | | | | |
Balance beginning of period | | $ | 2 | | | $ | 2 | | | $ | 2 | | | $ | 2 | |
Share issuances | | 0 | |
| 0 | | | 0 | | | 0 | |
Balance end of period | | 2 | | | 2 | | | 2 | | | 2 | |
| | | | | | | | |
Additional paid-in capital: | | | | | | | | |
Balance beginning of period | | 1,996 | |
| 1,922 | | | 2,007 | | | 1,938 | |
Employee stock purchases | | 9 | |
| 11 | | | 15 | | | 17 | |
Exercise of stock options and vesting of restricted stock units, net of forfeitures | | (7) | |
| (8) | | | (66) | | | (71) | |
Restricted stock, stock option and restricted stock unit expense | | 30 | |
| 28 | | | 72 | | | 69 | |
| | | | | | | | |
Balance end of period | | 2,028 | | | 1,953 | | | 2,028 | | | 1,953 | |
| | | | | | | | |
Retained earnings: | | | | | | | | |
Balance beginning of period | | 6,702 | |
| 6,086 | | | 6,484 | | | 5,874 | |
Cumulative adjustments for changes in accounting principles | | 0 | | | 0 | | | (35) | | | 0 | |
Net income attributable to Raymond James Financial, Inc. | | 355 | |
| 169 | | | 667 | | | 437 | |
Cash dividends declared (see Note 22) | | (53) | | | (50) | | | (112) | | | (106) | |
Balance end of period | | 7,004 | | | 6,205 | | | 7,004 | | | 6,205 | |
| | | | | | | | |
Treasury stock: | | | | | | | | |
Balance beginning of period | | (1,354) | | | (1,163) | | | (1,390) | | | (1,210) | |
Purchases/surrenders | | (61) | | | (203) | | | (79) | | | (222) | |
Exercise of stock options and vesting of restricted stock units, net of forfeitures | | 11 | | | 15 | | | 65 | | | 81 | |
Balance end of period | | (1,404) | | | (1,351) | | | (1,404) | | | (1,351) | |
| | | | | | | | |
Accumulated other comprehensive income/(loss): | | | | | | | | |
Balance beginning of period | | 17 | | | (5) | | | 11 | | | (23) | |
Other comprehensive income, net of tax | | (55) | | | (6) | | | (49) | | | 12 | |
| | | | | | | | |
Balance end of period | | (38) | | | (11) | | | (38) | | | (11) | |
Total equity attributable to Raymond James Financial, Inc. | | $ | 7,592 | | | $ | 6,798 | | | $ | 7,592 | | | $ | 6,798 | |
| | | | | | | | |
Noncontrolling interests: | | | | | | | | |
Balance beginning of period | | $ | 75 | | | $ | 61 | | | $ | 62 | | | $ | 62 | |
Net income/(loss) attributable to noncontrolling interests | | (1) | | | (23) | | | 12 | | | (24) | |
| | | | | | | | |
Other | | (29) | | | (2) | | | (29) | | | (2) | |
| | | | | | | | |
| | | | | | | | |
Balance end of period | | 45 | | | 36 | | | 45 | | | 36 | |
Total shareholders’ equity | | $ | 7,637 | | | $ | 6,834 | | | $ | 7,637 | | | $ | 6,834 | |
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions, except per share amounts | | 2020 | | 2019 | | 2020 | | 2019 |
Common stock, par value $.01 per share: | | | | | | | | |
Balance beginning of period | | $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | 2 |
|
Share issuances | | — |
| | — |
| | — |
| | — |
|
Balance end of period | | 2 |
| | 2 |
|
| 2 |
|
| 2 |
|
| | | | | | | | |
Additional paid-in capital: | | |
| | |
| | | | |
Balance beginning of period | | 1,922 |
| | 1,871 |
| | 1,938 |
| | 1,808 |
|
Employee stock purchases | | 11 |
| | 12 |
| | 17 |
| | 20 |
|
Exercise of stock options and vesting of restricted stock units, net of forfeitures | | (8 | ) | | 9 |
| | (71 | ) | | 25 |
|
Restricted stock, stock option and restricted stock unit expense | | 28 |
| | 25 |
| | 69 |
| | 64 |
|
Balance end of period | | 1,953 |
| | 1,917 |
|
| 1,953 |
|
| 1,917 |
|
| | | | | | | | |
Retained earnings: | | |
| | |
| | | | |
Balance beginning of period | | 6,086 |
| | 5,236 |
| | 5,874 |
| | 5,032 |
|
Net income attributable to Raymond James Financial, Inc. | | 169 |
| | 261 |
| | 437 |
| | 510 |
|
Cash dividends declared (see Note 21) | | (50 | ) | | (49 | ) | | (106 | ) | | (99 | ) |
Other | | — |
| | — |
| | — |
| | 5 |
|
Balance end of period | | 6,205 |
| | 5,448 |
| | 6,205 |
| | 5,448 |
|
| | | | | | | | |
Treasury stock: | | |
| | |
| | | | |
Balance beginning of period | | (1,163 | ) | | (927 | ) | | (1,210 | ) | | (447 | ) |
Purchases/surrenders | | (203 | ) | | (48 | ) | | (222 | ) | | (512 | ) |
Exercise of stock options and vesting of restricted stock units, net of forfeitures | | 15 |
| | (1 | ) | | 81 |
| | (17 | ) |
Balance end of period | | (1,351 | ) | | (976 | ) | | (1,351 | ) | | (976 | ) |
| | | | | | | | |
Accumulated other comprehensive loss: | | |
| | |
| | | | |
Balance beginning of period | | (5 | ) | | (39 | ) | | (23 | ) | | (27 | ) |
Other comprehensive income/(loss), net of tax | | (6 | ) | | 14 |
| | 12 |
| | 6 |
|
Other | | — |
| | — |
| | — |
| | (4 | ) |
Balance end of period | | (11 | ) | | (25 | ) | | (11 | ) | | (25 | ) |
Total equity attributable to Raymond James Financial, Inc. | | $ | 6,798 |
|
| $ | 6,366 |
| | $ | 6,798 |
| | $ | 6,366 |
|
| | | | | | | | |
Noncontrolling interests: | | |
| | |
| | | | |
Balance beginning of period | | $ | 61 |
| | $ | 82 |
| | $ | 62 |
| | $ | 84 |
|
Net loss attributable to noncontrolling interests | | (23 | ) | | (12 | ) | | (24 | ) | | (14 | ) |
Capital contributions | | — |
| | — |
| | — |
| | 2 |
|
Distributions and other | | (2 | ) | | (1 | ) | | (2 | ) | | (3 | ) |
Balance end of period | | 36 |
| | 69 |
| | 36 |
| | 69 |
|
Total shareholders’ equity | | $ | 6,834 |
| | $ | 6,435 |
| | $ | 6,834 |
| | $ | 6,435 |
|
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
5
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
| | | | | | | | |
| | Six months ended March 31, |
$ in millions | | 2020 | | 2019 |
Cash flows from operating activities: | | | | |
Net income | | $ | 437 |
| | $ | 510 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | | 58 |
| | 53 |
|
Deferred income taxes | | (14 | ) | | (1 | ) |
Premium and discount amortization on available-for-sale securities and loss on other investments | | 43 |
| | 7 |
|
Provisions for loan losses, legal and regulatory proceedings and bad debts | | 124 |
| | 38 |
|
Share-based compensation expense | | 74 |
| | 65 |
|
Unrealized (gain)/loss on company-owned life insurance policies, net of expenses | | 76 |
| | 8 |
|
Other | | (4 | ) | | 27 |
|
Net change in: | | |
| | |
|
Securities purchased under agreements to resell, net of securities sold under agreements to repurchase | | 273 |
| | (53 | ) |
Securities loaned, net of securities borrowed | | (297 | ) | | 319 |
|
Loans provided to financial advisors, net of repayments | | (11 | ) | | 1 |
|
Brokerage client receivables and other accounts receivable, net | | (203 | ) | | 587 |
|
Trading instruments, net | | — |
| | (36 | ) |
Derivative instruments, net | | (25 | ) | | (93 | ) |
Other assets | | (176 | ) | | (118 | ) |
Brokerage client payables and other accounts payable | | 2,937 |
| | (1,088 | ) |
Accrued compensation, commissions and benefits | | (340 | ) | | (229 | ) |
Proceeds from sales of securitizations and loans held for sale, net of purchases and originations of loans held for sale | | (9 | ) | | 23 |
|
Net cash provided by operating activities | | 2,943 |
| | 20 |
|
| | | | |
Cash flows from investing activities: | | |
| | |
|
Additions to property and equipment | | (71 | ) | | (59 | ) |
Increase in bank loans, net | | (1,066 | ) | | (779 | ) |
Proceeds from sales of loans held for investment | | 25 |
| | 184 |
|
Purchases of available-for-sale securities | | (1,403 | ) | | (509 | ) |
Available-for-sale securities maturations, repayments and redemptions | | 435 |
| | 295 |
|
Other investing activities, net | | (10 | ) | | (42 | ) |
Net cash used in investing activities | | (2,090 | ) | | (910 | ) |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
| | | | | | | | |
| | Six months ended March 31, |
$ in millions | | 2020 | | 2019 |
Cash flows from financing activities: | | | | |
Proceeds from borrowings on the RJF Credit Facility | | — |
| | 300 |
|
Repayments of borrowings on the RJF Credit Facility | | — |
| | (300 | ) |
Proceeds from Federal Home Loan Bank advances | | 850 |
| | — |
|
Repayments of Federal Home Loan Bank advances and other borrowed funds | | (853 | ) | | (3 | ) |
Proceeds from senior notes issuances, net of debt issuance costs paid | | 495 |
| | — |
|
Exercise of stock options and employee stock purchases | | 43 |
| | 43 |
|
Increase in bank deposits | | 7,742 |
| | 1,676 |
|
Purchases of treasury stock | | (222 | ) | | (521 | ) |
Dividends on common stock | | (103 | ) | | (95 | ) |
Distributions to noncontrolling interests, net | | (1 | ) | | (1 | ) |
Net cash provided by financing activities | | 7,951 |
| | 1,099 |
|
| | | | |
Currency adjustment: | | |
| | |
|
Effect of exchange rate changes on cash | | (82 | ) | | (31 | ) |
Net increase in cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations | | 8,722 |
| | 178 |
|
Cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations at beginning of year | | 5,971 |
| | 5,941 |
|
Cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations at end of period | | $ | 14,693 |
| | $ | 6,119 |
|
| | | | |
Cash and cash equivalents | | $ | 10,648 |
| | $ | 3,831 |
|
Cash and cash equivalents segregated pursuant to regulations | | 4,045 |
| | 2,288 |
|
Total cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations at end of period | | $ | 14,693 |
| | $ | 6,119 |
|
| | | | |
Supplemental disclosures of cash flow information: | | |
| | |
|
Cash paid for interest | | $ | 92 |
| | $ | 147 |
|
Cash paid for income taxes, net | | $ | 176 |
| | $ | 188 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | |
| | Six months ended March 31, |
$ in millions | | 2021 | | 2020 |
Cash flows from operating activities: | | | | |
Net income | | $ | 667 | | | $ | 437 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 64 | | | 58 | |
Deferred income taxes | | 27 | | | (14) | |
Premium and discount amortization on available-for-sale securities and loss on other investments | | 14 | | | 43 | |
Provisions/(benefits) for credit losses and legal and regulatory proceedings | | (14) | | | 124 | |
Share-based compensation expense | | 74 | | | 74 | |
Unrealized (gain)/loss on company-owned life insurance policies, net of expenses | | (117) | | | 76 | |
Other | | 31 | | | (4) | |
Net change in: | | | | |
Assets segregated pursuant to regulations excluding cash and cash equivalents | | (5,250) | | | 0 | |
Collateralized agreements, net of collateralized financings | | 1 | | | (24) | |
Loans provided to financial advisors, net of repayments | | (11) | | | (11) | |
Brokerage client receivables and other accounts receivable, net | | (123) | | | (203) | |
Trading instruments, net | | (90) | | | 0 | |
Derivative instruments, net | | 91 | | | (25) | |
Other assets | | (23) | | | (176) | |
Brokerage client payables and other accounts payable | | 5,471 | | | 2,937 | |
Accrued compensation, commissions and benefits | | (29) | | | (340) | |
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale | | (67) | | | (9) | |
Net cash provided by operating activities | | 716 | | | 2,943 | |
| | | | |
Cash flows from investing activities: | | | | |
Additions to property and equipment | | (62) | | | (71) | |
Increase in bank loans, net | | (1,522) | | | (1,066) | |
Proceeds from sales of loans held for investment | | 90 | | | 25 | |
| | | | |
Purchases of available-for-sale securities | | (2,273) | | | (1,403) | |
Available-for-sale securities maturations, repayments and redemptions | | 1,067 | | | 435 | |
Proceeds from sales of available-for-sale securities | | 519 | | | 0 | |
Business acquisitions, net of cash acquired | | (245) | | | 0 | |
Other investing activities, net | | (11) | | | (10) | |
Net cash used in investing activities | | (2,437) | | | (2,090) | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
6
| | | | | | | | | | | | | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
| | Six months ended March 31, |
$ in millions | | 2021 | | 2020 |
Cash flows from financing activities: | | | | |
| | | | |
| | | | |
| | | | |
Proceeds from Federal Home Loan Bank advances | | 0 | | | 850 | |
Repayments of Federal Home Loan Bank advances and other borrowed funds | | (28) | | | (853) | |
Proceeds from senior notes issuances, net of debt issuance costs paid | | 0 | | | 495 | |
Exercise of stock options and employee stock purchases | | 32 | | | 43 | |
Increase in bank deposits | | 2,453 | | | 7,742 | |
Purchases of treasury stock | | (79) | | | (222) | |
Dividends on common stock | | (109) | | | (103) | |
Acquisitions of and distributions to noncontrolling interests, net | | 0 | | | (1) | |
Net cash provided by financing activities | | 2,269 | | | 7,951 | |
| | | | |
Currency adjustment: | | | | |
Effect of exchange rate changes on cash | | 93 | | | (82) | |
Net increase in cash and cash equivalents, including those segregated pursuant to regulations | | 641 | | | 8,722 | |
Cash and cash equivalents, including those segregated pursuant to regulations at beginning of year | | 9,634 | | | 5,971 | |
Cash and cash equivalents, including those segregated pursuant to regulations at end of period | | $ | 10,275 | | | $ | 14,693 | |
| | | | |
Cash and cash equivalents | | $ | 5,851 | | | $ | 10,648 | |
Cash and cash equivalents segregated pursuant to regulations | | 4,424 | | | 4,045 | |
Total cash and cash equivalents, including those segregated pursuant to regulations at end of period | | $ | 10,275 | | | $ | 14,693 | |
| | | | |
Supplemental disclosures of cash flow information: | | | | |
Cash paid for interest | | $ | 76 | | | $ | 92 | |
Cash paid for income taxes, net | | $ | 248 | | | $ | 176 | |
Cash outflows for lease liabilities | | $ | 56 | | | $ | 47 | |
Non-cash right-of-use (“ROU”) assets recorded for new and modified leases | | $ | 81 | | | $ | 39 | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
7
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 20202021
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Organization
Raymond James Financial, Inc. (“RJF,” the “firm” or the “Company”) is a financial holding company which, together with its subsidiaries, is engaged in various financial services activities, including providing investment management services forto retail and institutional clients, the underwriting, distribution, trading and brokerage of equity and debt securities, and the sale of mutual funds and other investment products. The firm also provides corporate and retail banking services, and trust services. For further information about our business segments, see Note 2223 of this Form 10-Q. As used herein, the terms “our,” “we,” or “us” refer to RJF and/or one or more of its subsidiaries.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of RJF and its consolidated subsidiaries that are generally controlled through a majority voting interest. We consolidate all of our 100% owned subsidiaries. In addition, we consolidate any variable interest entity (“VIE”) in which we are the primary beneficiary. Additional information on these VIEs is provided in Note 2 of our Annual Report on Form 10-K (“20192020 Form 10-K”) for the year ended September 30, 2019,2020, as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) and in Note 810 of this Form 10-Q. When we do not have a controlling interest in an entity, but we exert significant influence over the entity, we apply the equity method of accounting. All material intercompany balances and transactions have been eliminated in consolidation.
Accounting estimates and assumptions
Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) but is not required for interim reporting purposes has been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of our consolidated financial position and results of operations for the periods presented.
The nature of our business is such that the results of any interim period are not necessarily indicative of results for a full year. These unaudited condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto included in our 20192020 Form 10-K. To prepare condensed consolidated financial statements in accordance with GAAP, we must make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates and could have a material impact on the condensed consolidated financial statements.
Reclassifications
Certain prior periodprior-period amounts have been reclassified to conform to the current period’s presentation.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 2 – UPDATE OF SIGNIFICANT ACCOUNTING POLICIES
A summary of our significant accounting policies is included in Note 2 of our 20192020 Form 10-K. During the six months ended March 31, 2020,2021, there were no significant changes to our significant accounting policies other than the accounting policies adopted or modified as part of our implementation of new or amended accounting guidance, as noted in the following sections.
Recent accounting developments
Accounting guidance recently adopted
in fiscal 2021
Lease accounting -
Credit losses
In FebruaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the accounting for leases (ASU 2016-02). The new guidance and subsequent amendments requires the recognition of assets and liabilities on the balance sheet related to the rights and obligations created by lease agreements with terms greater than twelve months, regardless
Notes to Condensed Consolidated Financial Statements (Unaudited)
of whether they are classified as finance or operating leases. We adopted this guidance as of October 1, 2019 using the alternative modified retrospective approach, with no adjustments to prior periods presented. In addition, we elected the practical expedients permitted under the transition guidance which, among other things, allowed us to carry forward historical lease classification determinations. On the adoption date, we recognized right-of-use assets (“ROU assets”) and lease liabilities of $333 million and $357 million, respectively, in “Other assets” and “Other payables” on our Condensed Consolidated Statements of Financial Condition. The ROU assets and lease liabilities were primarily related to operating leases. The adoption had no effect on our results of operations or cash flows. The impact of the adoption on our regulatory capital measures was insignificant. See Note 10 for further information.
Derivatives and hedging (interest rate) - In October 2018, the FASB issued guidance amending Derivatives and Hedging (Topic 815) to add the overnight index swap rate based on the Secured Overnight Financing Rate (“SOFR”) to the list of U.S. benchmark interest rates that are eligible during the early stages of the market transition from the London Interbank Offered Rate (“LIBOR”) to SOFR (ASU 2018-16). The amendments to this guidance will provide adequate lead time for entities to prepare for changes to interest rate hedging strategies. We adopted the guidance October 1, 2019 and will apply the guidance prospectively for qualifying new or re-designated hedging relationships. The adoption did not impact our financial position or results of operations.
Reference rate reform - In March 2020, the FASB issued guidance to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR (ASU 2020-04). The guidance simplifies the accounting for modifying contracts (including those in hedging relationships) that refer to LIBOR and other interbank offered rates. In addition, the guidance allows for changes to the critical terms of a hedging relationship affected by reference rate reform without having to dedesignate the relationship. The guidance was effective upon issuance and generally can be applied through December 31, 2022. We have elected certain expedients for cash flow hedges to assert that the hedged forecasted transaction remains probable, regardless of any expected modification in terms related to reference rate reform. The expedient elected did not impact our financial position or results of operations.
Accounting guidance not yet adopted as of March 31, 2020
Credit losses - In June 2016, the FASB issued new guidance related to the measurement of credit losses on financial instruments (ASU 2016-13)., which replaces the incurred credit loss and other models with the Current Expected Credit Losses (“CECL”) model. The amended guidance involves several aspects of the accounting for credit losses related to certain financial instruments, including assets measured at amortized cost, available-for-sale debt securities and certain off-balance sheet commitments. The new guidance, and subsequent updates, broadens the information that an entity must consider in developing its estimated credit losses expected to occur over the remaining life of assets measured either collectively or individually to includein-scope financial assets. The measurement of expected credit losses includes historical experience, current conditions and reasonable and supportable forecasts, replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses (“CECL”) model. The new guidance expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating credit losses and requires new disclosures of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. economic forecasts.
This new guidance is firstwas effective for our fiscal year beginning on October 1, 2020 and will bewas adopted under a modified retrospective approach. Although permitted, we do not plan to early adopt. Our cross-functional team has continued our implementation efforts. We are in the processThe impact of validating our credit loss models, as well as establishing formal policies and procedures, including control documentation related to this new guidance. In addition we are developing the new disclosures required by this new guidance. We continue to evaluate the impact the adoption of this new guidance willstandard resulted in an increase in our allowance for credit losses of $42 million (including $25 million related to loans to financial advisors, $9 million related to funded bank loans and $8 million related to unfunded lending commitments) and a corresponding reduction in the beginning balance of retained earnings of approximately $35 million, net of tax. Prior-period amounts were calculated under the incurred loss model and have on ournot been restated. See Notes 8 and 9 for further information related to bank loans and loans to financial positionadvisors and results of operations. the related allowances for credit losses.
The impact will ultimately depend on, among other things,following sections highlight changes to our methodologies, management judgments, current and expected macroeconomic conditions, and the nature and characteristicsaccounting policies as a result of financial assetsthis adoption.
Available-for-sale securities
Available-for-sale securities are generally held by us onRaymond James Bank, N.A. (“RJ Bank, N.A.”) and are classified at the date of adoption.
Internal use software (cloud computing) - In August 2018, the FASB issued guidance on the accounting for implementation costs incurred by customers in cloud computing arrangements (ASU 2018-15). This guidance requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancelable termpurchase. They are comprised primarily of the cloud computing arrangements plus any optional renewal periods (1) thatagency mortgage-backed securities (“MBS”) and agency collateralized mortgage obligations (“CMOs”), which are reasonably certain to be exercisedguaranteed by the customerU.S. government or (2) for which exerciseits agencies. Available-for-sale securities owned by RJ Bank, N.A. are used as part of the renewal option is controlled by the cloud service provider. This amended guidance is first effective for our fiscal year beginning on October 1, 2020 with early adoption permitted, although we do not plan to early adopt. The guidanceits interest rate risk and liquidity management strategies and may be adopted either using the prospectivesold in response to changes in interest rates, changes in prepayment risks, or retrospective approach. We are currently evaluating the impactother factors. As a result of this new guidance on our financial position and results of operations.
Consolidation (decision making fees) - In October 2018, the FASB issued guidance on how all entities evaluate decision-making fees under the VIE guidance (ASU 2018-17). Under the new guidance, to determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis, rather than in their entirety. This guidance is first effective for our fiscal year beginning on October 1, 2020. Although permitted, we do not plan to early adopt. We are evaluating the impact the adoption of the new CECL guidance, credit losses on available-for-sale securities are limited to the difference between the security’s amortized cost basis and its fair value and should be recognized through an allowance for credit losses rather than as a direct reduction in amortized cost basis. Given that our available-for-sale securities portfolio is comprised of government agency securities for which payments of both principal and interest are guaranteed, and based on the lack of historical credit losses, we expect zero credit losses on this new guidance willportfolio and the related accrued interest receivable. On a quarterly basis, we reassess our expectation of zero credit losses to consider changes in the available-for-sale securities portfolio.
Other receivables, net
Other receivables primarily include receivables from brokers, dealers and clearing organizations, accrued interest receivables and accrued fees from product sponsors. Receivables from brokers, dealers and clearing organizations primarily consist of deposits placed with clearing organizations, which includes initial margin and receivables related to sales of securities which have traded, but not yet settled including amounts receivable for securities failed to deliver. We present “Other receivables, net” on our financial positionCondensed Consolidated Statements of Financial Condition, net of any allowance for credit losses. However, these receivables generally have minimal credit risk due to the low probability of clearing organization default and resultsthe short-term nature of operations.receivables related to securities settlements and therefore, the allowance for credit losses on such receivables is not significant. Any allowance for credit losses for other receivables is estimated using assumptions based on historical experience, current facts and other factors. We update these estimates through periodic evaluations against actual trends experienced.
As permitted under the CECL guidance, we include accrued interest receivables related to our financial assets in “Other receivables, net” on the Condensed Consolidated Statements of Financial Condition instead of with the related financial instrument. We reverse any uncollectible accrued interest into interest income generally when the related financial asset is
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
moved to nonaccrual status. As we write off uncollectible amounts in a timely manner, we do not recognize an allowance for credit losses against accrued interest receivable.
Loans to financial advisors, net
We offer loans to financial advisors for recruiting and retention purposes. The decision to extend credit to a financial advisor or other key revenue producer is generally based on their ability to generate future revenues. Loans offered are generally repaid over a five to 10 year period, with interest recognized as earned, and are contingent upon affiliation with us. These loans are not assignable by the financial advisor and may only be assigned by us to a successor in interest. There is no fee income associated with these loans. In the event that the financial advisor is no longer affiliated with us, any unpaid balance of such loan becomes immediately due and payable to us. Based upon the nature of these financing receivables, affiliation status is the primary credit risk factor within this portfolio.
We present the outstanding balance of loans to financial advisors on our Condensed Consolidated Statements of Financial Condition, net of the allowance for credit losses. Refer to the allowance for credit losses section that follows for further information related to our allowance for credit losses on our loans to financial advisors. See Note 9 for additional information on our loans to financial advisors.
Loans to financial advisors are considered past due once they are 30 days or more delinquent as to the payment of contractual interest or principal. Loans are placed on nonaccrual status when we determine that full payment of contractual principal and interest is in doubt, or the loan is past due 180 days or more as to contractual interest or principal. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is written-off against interest income. Interest is recognized on a cash basis until the loan qualifies for return to accrual status. Loans are returned to an accrual status when the loans have been brought contractually current with the original terms and have been maintained on a current basis for a reasonable period, generally six months.
When we determine that it is likely a loan will not be collected in full, the loan is evaluated for a potential write down of the carrying value. After consideration of the borrower’s ability to restructure the loan, sources of repayment, and other factors affecting the borrower’s ability to repay the debt, the portion of the loan deemed a confirmed loss, if any, is charged-off. A charge-off is taken against the allowance for credit losses for the difference between the amortized cost and the amount we estimate will ultimately be collected. Additional charge-offs are taken if there is an adverse change in the expected cash flows.
Allowance for credit losses
We evaluate our held for investment bank loans, unfunded lending commitments, loans to financial advisors and certain other financial assets to estimate an allowance for credit losses over the remaining life of the financial instrument. The remaining life of our financial assets is determined by considering contractual terms and expected prepayments, among other factors.
We employ multiple methodologies in estimating an allowance for credit losses and our approaches differ by type of financial asset and the risk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of the portfolio, the related credit risk characteristics, and the overall economic and environmental conditions affecting the financial assets. For certain of our financial assets with collateral maintenance provisions (e.g., collateralized agreements, margin loans and securities-based loans), we apply the practical expedient allowed under the CECL model in estimating an allowance for credit losses. We reasonably expect that borrowers (or counterparties, as applicable) will replenish the collateral as required. As a result, we estimate zero credit losses to the extent that the fair value equals or exceeds the related carrying value of the financial asset. When the fair value of the collateral securing the financial asset is less than the carrying value, qualitative factors such as historical experience (adjusted for current risk characteristics and economic conditions) as well as reasonable and supportable forecasts are considered in estimating the allowance for credit losses on the unsecured portion of the financial asset.
Credit losses are charged-off against the allowance when we believe the uncollectibility of the financial asset is confirmed. Subsequent recoveries, if any, are credited to the allowance once received. A credit loss expense, or benefit, is recorded in earnings in an amount necessary to adjust the allowance for credit losses to our estimate as of the end of each reporting period. Our provision or benefit for credit losses for outstanding bank loans is included in “Bank loan provision/(benefit) for credit losses” on our Condensed Consolidated Statements of Income and Comprehensive Income and our provision or benefit for credit losses for all other financing receivables and unfunded lending commitments is included in “Other” expense.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Loans
We generally estimate the allowance for credit losses on our loan portfolios using credit risk models which incorporate relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable economic forecasts. After testing the reasonableness of a variety of economic forecast scenarios, we select a single forecast scenario for use in our models. 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. At the conclusion of our reasonable and supportable forecast period, which currently ranges from two to three years depending on the model and macroeconomic variables, we use a straight-line reversion approach over a one-year period to revert to historical loss information for commercial and industrial (“C&I”), real estate investment trust (“REIT”) and tax-exempt loans. For commercial real estate (“CRE”) and residential mortgage loans, we incorporate a reasonable and supportable forecast of various macroeconomic variables over the remaining life of the assets. The development of the forecast used for CRE and residential mortgage loans incorporates an assumption that each macroeconomic variable will revert to a long-term expectation starting in years two to three of the forecast and largely completing within the first five years of the forecast. We assess the length of the reasonable and supportable forecast period and the reversion period, our reversion approach, our economic forecasts and our methodology for estimating the historical loss information on a quarterly basis.
The allowance for credit losses on loans is generally evaluated and measured on a collective basis, typically by loan portfolio segment, due to similar risk characteristics. When a loan does not share similar risk characteristics with other loans, the loan is evaluated for credit losses on an individual basis. Various risk characteristics are considered when determining whether the loan should be collectively evaluated including, but not limited to, financial asset type, internal risk ratings, collateral type, industry of the borrower, and historical or expected credit loss patterns.
The allowance for credit losses on collectively evaluated loans is comprised of two components: (a) a quantitative allowance; and (b) a qualitative allowance, which is based on an analysis of model limitations and other factors not considered by the quantitative models. There are several factors considered in estimating the quantitative allowance for credit losses on collectively evaluated loans which generally include, but are not limited to, the internal risk rating, historical loss experience (including adjustments due to current risk characteristics and economic conditions), prepayments, borrower-controlled extensions, and expected recoveries. We use third-party data for historical information on collectively evaluated corporate loans (C&I, CRE and REIT loans) and residential mortgage loans.
The qualitative portion of our allowance for credit losses includes certain factors that are not incorporated into the quantitative estimate and would generally require adjustments to the allowance for credit losses. These qualitative factors are intended to address developing trends related to each portfolio segment and would generally include, but are not limited to: changes in lending policies and procedures, including changes in underwriting standards and collection; our loan review process; volume and severity of delinquent loans; changes in the nature, volume and terms of loans; credit concentrations; changes in the value of underlying collateral; changes in legal and regulatory environments; and local, regional, national and international economic conditions.
Held for investment bank loans
The allowance for credit losses for the C&I, CRE (primarily loans that are secured by income-producing properties and commercial real estate construction loans), REIT (loans made to businesses that own or finance income-producing real estate), tax-exempt and residential mortgage portfolio segments is estimated using credit risk models that project a probability of default (“PD”), which is then multiplied by the loss given default (“LGD”) and the estimated exposure at default (“EAD”) at the loan-level for every period remaining in the loan’s expected life, including the maturity period. Historical data, combined with macroeconomic variables, are used in estimating the PD, LGD and EAD. Our credit risk models consider several factors when estimating the expected credit losses which may include, but are not limited to, financial performance and position, estimated prepayments, geographic location, industry or sector type, debt type, loan size, capital structure, initial risk levels and the economic outlook. Additional factors considered by the residential mortgage model include Fair Isaac Corporation (“FICO”) scores and loan-to-value (“LTV”) ratios.
We generally use one of two methods to measure the allowance for credit losses on individually evaluated loans. A discounted cash flow approach is used to estimate the allowance for credit losses on certain nonaccrual corporate loans and all troubled debt restructurings (“TDRs”) that are not collateral-dependent. For collateral-dependent loans and for instances where foreclosure is probable, we use an approach that considers the fair value of the collateral less selling costs when measuring the allowance for credit losses. A loan is collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
See Note 8 for further information about our bank loans, including credit quality indicators considered in developing the allowance for credit losses.
Unfunded lending commitments
We estimate credit losses on unfunded lending commitments using a methodology consistent with that used in the corresponding bank loan portfolio segment and also based on the expected funding probabilities for fully binding commitments. As a result, the allowance for credit losses for unfunded lending commitments will vary depending upon the mix of lending commitments and future funding expectations. All classes of individually evaluated unfunded lending commitments are analyzed in conjunction with the specific allowance process previously described.
The allowance for credit losses related to unfunded lending commitments is included in “Other payables” on our Condensed Consolidated Statements of Financial Condition.
Loans to financial advisors
The allowance for credit losses on loans to financial advisors is estimated using credit risk models that incorporate average annual loan-level loss rates and estimated prepayments based on historical data. The qualitative component of our estimate considers internal and external factors that are not incorporated into the quantitative estimate such as the reasonable and supportable forecast period. In estimating an allowance for credit losses on our individually-evaluated loans to financial advisors, we generally take into account the affiliation status of the financial advisor (i.e., whether the advisor is actively affiliated with us or has terminated affiliation with us), the borrower’s ability to restructure the loan, sources of repayment, and other factors affecting the borrower’s ability to repay the debt.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 3 – ACQUISITIONS
Acquisitions announced and completed during the six months ended March 31, 2021
In December 2020, we announced and completed our acquisition of all of the outstanding shares of NWPS Holdings, Inc. and its wholly-owned subsidiaries (collectively “NWPS”), doing business as NWPS and Northwest Plan Services. As an independent provider of retirement plan administration, consulting, actuarial and administration services, the addition of NWPS allows us to expand our retirement services offerings, including retirement plan administration services, to advisors and clients. For purposes of certain acquisition-related financial reporting requirements, the NWPS acquisition was not considered a material acquisition. NWPS has been integrated into our Private Client Group (“PCG”) segment and its results of operations have been included in our results prospectively from the closing date of December 24, 2020.
The NWPS acquisition resulted in the addition of $139 million of goodwill and $96 million of identifiable intangible assets during the six months ended March 31, 2021. The goodwill associated with this acquisition primarily represents synergies from combining NWPS with our existing businesses. The identifiable intangible assets primarily relate to client relationships and have a weighted-average useful life of 24.8 years.
In March 2021, we completed our acquisition of all of the outstanding ownership interests of Financo, LLC and its subsidiaries (collectively “Financo”), an investment bank focused on the consumer sector. The addition of Financo allows us to further grow our investment banking capabilities in the consumer and retail space, both domestically and internationally. For purposes of certain acquisition-related financial reporting requirements, the Financo acquisition was not considered a material acquisition. Financo has been integrated into our Capital Markets segment and its results of operations have been included in our results prospectively from the closing date of March 30, 2021.
The Financo acquisition resulted in the addition of $30 million of goodwill and $9 million of identifiable intangible assets during the six months ended March 31, 2021. The goodwill associated with this acquisition primarily represents synergies from combining Financo with our existing businesses. The goodwill associated with Financo is generally deductible for tax purposes over 15 years. The identifiable intangible assets primarily relate to client relationships and have a weighted-average useful life of 9 months. Due to the timing of the close of this acquisition, certain information is not yet available and the amounts of goodwill and intangible assets are considered provisional. We believe the information currently available provides a reasonable basis for estimating the fair value of these assets. However, these provisional estimates may be adjusted upon the availability of new information regarding facts and circumstances which existed at the acquisition date. We expect to finalize this valuation by the end of our 2021 fiscal year.
See Notes 2 and 10 of our 2020 Form 10-K and Note 11 of this Form 10-Q for additional information about our goodwill and identifiable intangible assets, including the related accounting policies.
Acquisition-related expenses
Certain acquisition and integration costs associated with these acquisitions were included in “Acquisition and disposition-related expenses” during fiscal 2021 on our Condensed Consolidated Statements of Income and Comprehensive Income. Such costs primarily included legal and other professional fees.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 4 – FAIR VALUE
Our “Financial instruments owned”instruments” and “Financial instruments sold but not yet purchased”instrument liabilities” on our Condensed Consolidated Statements of Financial Condition are recorded at fair value under GAAP. For further information about such instruments and our significant accounting policies related to fair value, see NoteNotes 2 and Note 43 of our 20192020 Form 10-K. The following tables present assets and liabilities measured at fair value on a recurring basis. Netting adjustments represent the impact of counterparty and collateral netting on our derivative balances included on our Condensed Consolidated Statements of Financial Condition. See Note 56 for additional information.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Level 1 | | Level 2 | | Level 3 | | Netting adjustments | | Balance as of March 31, 2021 |
Assets at fair value on a recurring basis: | | | | | | | | | | |
Assets segregated pursuant to regulations | | $ | 5,250 | | | $ | 0 | | | $ | 0 | | | $ | — | | | $ | 5,250 | |
Trading assets | | | | | | | | | | |
Municipal and provincial obligations | | 1 | | | 159 | | | 0 | | | — | | | 160 | |
Corporate obligations | | 9 | | | 31 | | | 0 | | | — | | | 40 | |
Government and agency obligations | | 13 | | | 94 | | | 0 | | | — | | | 107 | |
Agency MBS and agency CMOs | | 0 | | | 193 | | | 0 | | | — | | | 193 | |
Non-agency CMOs and asset-backed securities (“ABS”) | | 0 | | | 6 | | | 0 | | | — | | | 6 | |
Total debt securities | | 23 | | | 483 | | | 0 | | | — | | | 506 | |
Equity securities | | 13 | | | 1 | | | 0 | | | — | | | 14 | |
Brokered certificates of deposit | | 0 | | | 42 | | | 0 | | | — | | | 42 | |
Other | | 0 | | | 0 | | | 5 | | | — | | | 5 | |
Total trading assets | | 36 | | | 526 | | | 5 | | | — | | | 567 | |
Available-for-sale securities (1) | | 15 | | | 8,143 | | | 0 | | | — | | | 8,158 | |
Derivative assets | | | | | | | | | | |
Interest rate - matched book | | 0 | | | 201 | | | 0 | | | — | | | 201 | |
Interest rate - other | | 70 | | | 143 | | | 0 | | | (111) | | | 102 | |
Foreign exchange | | 0 | | | 1 | | | 0 | | | — | | | 1 | |
Total derivative assets | | 70 | | | 345 | | | 0 | | | (111) | | | 304 | |
Other investments - private equity - not measured at net asset value (“NAV”) | | — | | | — | | | 52 | | | — | | | 52 | |
All other investments: | | | | | | | | | | |
Government and agency obligations (2) | | 105 | | | 0 | | | 0 | | | — | | | 105 | |
Other | | 100 | | | 2 | | | 23 | | | — | | | 125 | |
Total all other investments | | 205 | | | 2 | | | 23 | | | — | | | 230 | |
Subtotal | | 5,576 | | | 9,016 | | | 80 | | | (111) | | | 14,561 | |
Other investments - private equity - measured at NAV | | | | | | | | | | 88 | |
Total assets at fair value on a recurring basis | | $ | 5,576 | | | $ | 9,016 | | | $ | 80 | | | $ | (111) | | | $ | 14,649 | |
| | | | | | | | | | |
Liabilities at fair value on a recurring basis: | | | | | | | | | | |
Trading liabilities | | | | | | | | | | |
Municipal and provincial obligations | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | — | | | $ | 1 | |
Corporate obligations | | 0 | | | 22 | | | 0 | | | — | | | 22 | |
Government and agency obligations | | 122 | | | 0 | | | 0 | | | — | | | 122 | |
Agency MBS and agency CMOs | | 0 | | | 22 | | | 0 | | | — | | | 22 | |
| | | | | | | | | | |
Total debt securities | | 123 | | | 44 | | | 0 | | | — | | | 167 | |
Equity securities | | 44 | | | 0 | | | 0 | | | — | | | 44 | |
Other | | 0 | | | 0 | | | 1 | | | — | | | 1 | |
Total trading liabilities | | 167 | | | 44 | | | 1 | | | — | | | 212 | |
Derivative liabilities | | | | | | | | | | |
Interest rate - matched book | | 0 | | | 201 | | | 0 | | | — | | | 201 | |
Interest rate - other | | 64 | | | 121 | | | 0 | | | (69) | | | 116 | |
Foreign exchange | | 0 | | | 3 | | | 0 | | | — | | | 3 | |
Other | | 0 | | | 0 | | | 4 | | | — | | | 4 | |
Total derivative liabilities | | 64 | | | 325 | | | 4 | | | (69) | | | 324 | |
Total liabilities at fair value on a recurring basis | | $ | 231 | | | $ | 369 | | | $ | 5 | | | $ | (69) | | | $ | 536 | |
|
| | | | | | | | | | | | | | | | | | | | |
$ in millions | | Level 1 | | Level 2 | | Level 3 | | Netting adjustments | | Balance as of March 31, 2020 |
Assets at fair value on a recurring basis: | | | | | | | | | | |
Trading instruments | | | | | | | | | | |
Municipal and provincial obligations | | $ | — |
| | $ | 14 |
| | $ | — |
| | $ | — |
| | $ | 14 |
|
Corporate obligations | | 12 |
| | 9 |
| | — |
| | — |
| | 21 |
|
Government and agency obligations | | 30 |
| | 28 |
| | — |
| | — |
| | 58 |
|
Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”) | | — |
| | 281 |
| | — |
| | — |
| | 281 |
|
Non-agency CMOs and asset-backed securities (“ABS”) | | — |
| | 17 |
| | — |
| | — |
| | 17 |
|
Total debt securities | | 42 |
|
| 349 |
| | — |
| | — |
| | 391 |
|
Equity securities | | 9 |
| | — |
| | — |
| | — |
| | 9 |
|
Brokered certificates of deposit | | — |
| | 24 |
| | — |
| | — |
| | 24 |
|
Other | | — |
| | — |
| | 21 |
| | — |
| | 21 |
|
Total trading instruments | | 51 |
| | 373 |
| | 21 |
| | — |
| | 445 |
|
Available-for-sale securities (1) | | 16 |
| | 4,249 |
| | — |
| | — |
| | 4,265 |
|
Derivative assets | | | | | | | | | | |
Interest rate - matched book | | — |
| | 351 |
| | — |
| | — |
| | 351 |
|
Interest rate - other | | 93 |
| | 266 |
| | — |
| | (263 | ) | | 96 |
|
Total derivative assets | | 93 |
| | 617 |
| | — |
| | (263 | ) | | 447 |
|
Other investments - private equity - not measured at net asset value (“NAV”) | | — |
| | — |
| | 30 |
| | — |
| | 30 |
|
All other investments | | 192 |
| | 1 |
| | 22 |
| | — |
| | 215 |
|
Subtotal | | 352 |
| | 5,240 |
| | 73 |
| | (263 | ) | | 5,402 |
|
Other investments - private equity - measured at NAV | | | | | | | | | | 71 |
|
Total assets at fair value on a recurring basis | | $ | 352 |
|
| $ | 5,240 |
|
| $ | 73 |
|
| $ | (263 | ) |
| $ | 5,473 |
|
| | | | | | | | | | |
Liabilities at fair value on a recurring basis: | | | | | | | | | | |
Trading instruments sold but not yet purchased | | | | | | | | | | |
Municipal and provincial obligations | | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1 |
|
Corporate obligations | | 1 |
| | 7 |
| | — |
| | — |
| | 8 |
|
Government and agency obligations | | 6 |
| | — |
| | — |
| | — |
| | 6 |
|
Non-agency CMOs and ABS | | — |
| | 6 |
| | — |
| | — |
| | 6 |
|
Total debt securities | | 8 |
| | 13 |
| | — |
| | — |
| | 21 |
|
Equity securities | | 3 |
| | — |
| | — |
| | — |
| | 3 |
|
Other | | — |
| | — |
| | — |
| | — |
| | — |
|
Total trading instruments sold but not yet purchased | | 11 |
| | 13 |
| | — |
| | — |
| | 24 |
|
Derivative liabilities | | | | | | | | | | |
Interest rate - matched book | | — |
| | 351 |
| | — |
| | — |
| | 351 |
|
Interest rate - other | | 102 |
| | 185 |
| | — |
| | (218 | ) | | 69 |
|
Foreign exchange | | — |
| | 6 |
| | — |
| | — |
| | 6 |
|
Equity | | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Total derivative liabilities | | 102 |
| | 543 |
| | — |
| | (218 | ) | | 427 |
|
Total liabilities at fair value on a recurring basis | | $ | 113 |
| | $ | 556 |
| | $ | — |
| | $ | (218 | ) | | $ | 451 |
|
| |
(1) | Substantially all of our available-for-sale securities consist of agency MBS and CMOs. See Note 4 for further information. |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
$ in millions | | Level 1 | | Level 2 | | Level 3 | | Netting adjustments | | Balance as of September 30, 2019 |
Assets at fair value on a recurring basis: | | | | | | | | | | |
Trading instruments | | | | | | | | | | |
Municipal and provincial obligations | | $ | — |
| | $ | 267 |
| | $ | — |
| | $ | — |
| | $ | 267 |
|
Corporate obligations | | 8 |
| | 95 |
| | — |
| | — |
| | 103 |
|
Government and agency obligations | | 12 |
| | 67 |
| | — |
| | — |
| | 79 |
|
Agency MBS and CMOs | | — |
| | 147 |
| | — |
| | — |
| | 147 |
|
Non-agency CMOs and ABS | | — |
| | 51 |
| | — |
| | — |
| | 51 |
|
Total debt securities | | 20 |
| | 627 |
| | — |
| | — |
| | 647 |
|
Equity securities | | 12 |
| | 1 |
| | — |
| | — |
| | 13 |
|
Brokered certificates of deposit | | — |
| | 45 |
| | — |
| | — |
| | 45 |
|
Other | | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
Total trading instruments | | 32 |
| | 673 |
| | 3 |
| | — |
| | 708 |
|
Available-for-sale securities (1) | | 10 |
| | 3,083 |
| | — |
| | — |
| | 3,093 |
|
Derivative assets | | | | | | | | | | |
Interest rate - matched book | | — |
| | 280 |
| | — |
| | — |
| | 280 |
|
Interest rate - other | | 3 |
| | 182 |
| | — |
| | (127 | ) | | 58 |
|
Total derivative assets | | 3 |
|
| 462 |
|
| — |
|
| (127 | ) |
| 338 |
|
Other investments - private equity - not measured at NAV | | — |
| | — |
| | 63 |
| | — |
| | 63 |
|
All other investments | | 194 |
| | 1 |
| | 24 |
| | — |
| | 219 |
|
Subtotal | | 239 |
| | 4,219 |
| | 90 |
| | (127 | ) | | 4,421 |
|
Other investments - private equity - measured at NAV | | | | | | | | | | 83 |
|
Total assets at fair value on a recurring basis | | $ | 239 |
| | $ | 4,219 |
| | $ | 90 |
| | $ | (127 | ) | | $ | 4,504 |
|
| | | | | | | | | | |
Liabilities at fair value on a recurring basis: | | | | | | | | | | |
Trading instruments sold but not yet purchased | | | | | | | | | | |
Corporate obligations | | $ | 2 |
| | $ | 20 |
| | $ | — |
| | $ | — |
| | $ | 22 |
|
Government and agency obligations | | 269 |
| | — |
| | — |
| | — |
| | 269 |
|
Total debt securities | | 271 |
| | 20 |
| | — |
| | — |
| | 291 |
|
Equity securities | | 4 |
| | — |
| | — |
| | — |
| | 4 |
|
Other | | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Total trading instruments sold but not yet purchased | | 275 |
| | 20 |
| | 1 |
| | — |
| | 296 |
|
Derivative liabilities | | | | | | | | | | |
Interest rate - matched book | | — |
| | 280 |
| | — |
| | — |
| | 280 |
|
Interest rate - other | | 4 |
| | 142 |
| | — |
| | (121 | ) | | 25 |
|
Foreign exchange | | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
Equity | | — |
| | 6 |
| | — |
| | — |
| | 6 |
|
Total derivative liabilities | | 4 |
| | 430 |
| | — |
| | (121 | ) | | 313 |
|
Total liabilities at fair value on a recurring basis | | $ | 279 |
| | $ | 450 |
| | $ | 1 |
| | $ | (121 | ) | | $ | 609 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Level 1 | | Level 2 | | Level 3 | | Netting adjustments | | Balance as of September 30, 2020 |
Assets at fair value on a recurring basis: | | | | | | | | | | |
| | | | | | | | | | |
Trading assets | | | | | | | | | | |
Municipal and provincial obligations | | $ | 5 | | | $ | 120 | | | $ | 0 | | | $ | — | | | $ | 125 | |
Corporate obligations | | 11 | | | 45 | | | 0 | | | — | | | 56 | |
Government and agency obligations | | 13 | | | 131 | | | 0 | | | — | | | 144 | |
Agency MBS and agency CMOs | | 0 | | | 130 | | | 0 | | | — | | | 130 | |
Non-agency CMOs and ABS | | 0 | | | 13 | | | 0 | | | — | | | 13 | |
Total debt securities | | 29 | | | 439 | | | 0 | | | — | | | 468 | |
Equity securities | | 11 | | | 5 | | | 0 | | | — | | | 16 | |
Brokered certificates of deposit | | 0 | | | 17 | | | 0 | | | — | | | 17 | |
Other | | 0 | | | 0 | | | 12 | | | — | | | 12 | |
Total trading assets | | 40 | | | 461 | | | 12 | | | — | | | 513 | |
Available-for-sale securities (1) | | 16 | | | 7,634 | | | 0 | | | — | | | 7,650 | |
Derivative assets | | | | | | | | | | |
Interest rate - matched book | | 0 | | | 333 | | | 0 | |
| — | | | 333 | |
Interest rate - other | | 16 | | | 224 | | | 0 | | | (135) | | | 105 | |
| | | | | | | | | | |
Total derivative assets | | 16 | | | 557 | | | 0 | | | (135) | | | 438 | |
Other investments - private equity - not measured at NAV | | — | | | — | | | 37 | | | — | | | 37 | |
All other investments: | | | | | | | | | | |
Government and agency obligations (2) | | 103 | | | 0 | | | 0 | | | — | | | 103 | |
Other | | 92 | | | 1 | | | 22 | | | — | | | 115 | |
Total all other investments | | 195 | | | 1 | | | 22 | | | — | | | 218 | |
Subtotal | | 267 | | | 8,653 | | | 71 | | | (135) | | | 8,856 | |
Other investments - private equity - measured at NAV | | | | | | | | | | 79 | |
Total assets at fair value on a recurring basis | | $ | 267 | | | $ | 8,653 | | | $ | 71 | | | $ | (135) | | | $ | 8,935 | |
| | | | | | | | | | |
Liabilities at fair value on a recurring basis: | | | | | | | | | | |
Trading liabilities | | | | | | | | | | |
Municipal and provincial obligations | | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | — | | | $ | 1 | |
Corporate obligations | | 0 | | | 5 | | | 0 | | | — | | | 5 | |
Government and agency obligations | | 136 | | | 0 | | | 0 | | | — | | | 136 | |
Non-agency CMOs and ABS | | 0 | | | 2 | | | 0 | | | — | | | 2 | |
Total debt securities | | 137 | | | 7 | | | 0 | | | — | | | 144 | |
Equity securities | | 96 | | | 0 | | | 0 | | | — | | | 96 | |
| | | | | | | | | | |
Total trading liabilities | | 233 | | | 7 | | | 0 | | | — | | | 240 | |
Derivative liabilities | | | | | | | | | | |
Interest rate - matched book | | 0 | | | 333 | | | 0 | | | — | | | 333 | |
Interest rate - other | | 16 | | | 145 | | | 0 | | | (112) | | | 49 | |
Foreign exchange | | 0 | | | 5 | | | 0 | | | — | | | 5 | |
Other | | 0 | | | 1 | | | 5 | | | — | | | 6 | |
Total derivative liabilities | | 16 | | | 484 | | | 5 | | | (112) | | | 393 | |
Total liabilities at fair value on a recurring basis | | $ | 249 | | | $ | 491 | | | $ | 5 | | | $ | (112) | | | $ | 633 | |
| |
(1) | Substantially all of our available-for-sale securities consist of agency MBS and CMOs. See Note 4 for further information. |
(1) Substantially all of our available-for-sale securities consist of agency MBS and agency CMOs. See Note 5 for further information.
(2) These assets are comprised of U.S. Treasuries purchased to meet certain deposit requirements with clearing organizations.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Level 3 recurring fair value measurements
The following tables present the changes in fair value for Level 3 assets and liabilities measured at fair value on a recurring basis. The realized and unrealized gains and losses in the tables may include changes in fair value that were attributable to both observable and unobservable inputs. In the following tables, gains/(losses) on trading instruments are reported in “Principal transactions” and gains/(losses) on other investments are reported in “Other” revenues.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2021 Level 3 instruments at fair value |
| | Financial assets | | Financial liabilities |
| | Trading assets | | Other investments | | Trading liabilities | | Derivative liabilities |
$ in millions | | Other | | Private equity investments | | All other | | Other | | Other |
Fair value beginning of period | | $ | 3 | | | $ | 52 | | | $ | 22 | | | $ | 0 | | | $ | (1) | |
Total gains/(losses) included in earnings | | (2) | | | 0 | | | 1 | | | (1) | | | (3) | |
Purchases and contributions | | 10 | | | 0 | | | 0 | | | 0 | | | 0 | |
Sales and distributions | | (6) | | | 0 | | | 0 | | | 0 | | | 0 | |
Transfers: | | | | | | | | | | |
Into Level 3 | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Out of Level 3 | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Fair value end of period | | $ | 5 | | | $ | 52 | | | $ | 23 | | | $ | (1) | | | $ | (4) | |
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period | | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | (1) | | | $ | (3) | |
| | Three months ended March 31, 2020 Level 3 instruments at fair value | |
Six months ended March 31, 2021 Level 3 instruments at fair value | | Six months ended March 31, 2021 Level 3 instruments at fair value | |
| | Financial assets | | Financial liabilities | | Financial assets | | Financial liabilities |
| | Trading instruments | | Other investments | | Trading instruments | | Trading assets | | Other investments | | Trading liabilities | | Derivative liabilities |
$ in millions | | Other | | Private equity investments | | All other | | Other | $ in millions | | Other | | Private equity investments | | All other | | Other | | Other |
Fair value beginning of period | | $ | 19 |
| | $ | 62 |
| | $ | 24 |
| | $ | (1 | ) | Fair value beginning of period | | $ | 12 | | | $ | 37 | | | $ | 22 | | | $ | 0 | | | $ | (5) | |
Total gains/(losses) included in earnings | | 3 |
| | (32 | ) | | (2 | ) | | — |
| Total gains/(losses) included in earnings | | 0 | | | 15 | | | 1 | | | (1) | | | 1 | |
Purchases and contributions | | 22 |
| | — |
| | — |
| | 1 |
| Purchases and contributions | | 16 | | | 0 | | | 0 | | | 0 | | | 0 | |
Sales and distributions | | (23 | ) | | — |
| | — |
| | — |
| Sales and distributions | | (23) | | | 0 | | | 0 | | | 0 | | | 0 | |
Transfers: | | |
| | |
| | |
| | |
| Transfers: | | | | | |
Into Level 3 | | — |
| | — |
| | — |
| | — |
| Into Level 3 | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Out of Level 3 | | — |
| | — |
| | — |
| | — |
| Out of Level 3 | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Fair value end of period | | $ | 21 |
| | $ | 30 |
| | $ | 22 |
| | $ | — |
| Fair value end of period | | $ | 5 | | | $ | 52 | | | $ | 23 | | | $ | (1) | | | $ | (4) | |
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period | | $ | 5 |
| | $ | (32 | ) | | $ | (2 | ) | | $ | — |
| Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period | | $ | 0 | | | $ | 15 | | | $ | 1 | | | $ | (1) | | | $ | 1 | |
|
| | | | | | | | | | | | | | | | |
Six months ended March 31, 2020 Level 3 instruments at fair value |
| | Financial assets | | Financial liabilities |
| | Trading instruments | | Other investments | | Trading instruments |
$ in millions | | Other | | Private equity investments | | All other | | Other |
Fair value beginning of period | | $ | 3 |
| | $ | 63 |
| | $ | 24 |
| | $ | (1 | ) |
Total gains/(losses) included in earnings | | 3 |
| | (32 | ) | | (2 | ) | | — |
|
Purchases and contributions | | 53 |
| | — |
| | — |
| | 2 |
|
Sales and distributions | | (38 | ) | | (1 | ) | | — |
| | (1 | ) |
Transfers: | | |
| | |
| | |
| | |
|
Into Level 3 | | — |
| | — |
| | — |
| | — |
|
Out of Level 3 | | — |
| | — |
| | — |
| | — |
|
Fair value end of period | | $ | 21 |
| | $ | 30 |
| | $ | 22 |
| | $ | — |
|
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period | | $ | 5 |
| | $ | (32 | ) | | $ | (2 | ) | | $ | — |
|
|
| | | | | | | | | | | | | | | | |
Three months ended March 31, 2019 Level 3 instruments at fair value |
| | Financial assets | | Financial liabilities |
| | Trading instruments | | Other investments | | Trading instruments |
$ in millions | | Other | | Private equity investments | | All other | | Other |
Fair value beginning of period | | $ | 3 |
| | $ | 59 |
| | $ | 67 |
| | $ | (4 | ) |
Total gains/(losses) included in earnings | | (1 | ) | | — |
| | — |
| | — |
|
Purchases and contributions | | 22 |
| | — |
| | — |
| | 4 |
|
Sales and distributions | | (22 | ) | | — |
| | — |
| | (7 | ) |
Transfers: | | | | | | | | |
Into Level 3 | | — |
| | — |
| | — |
| | — |
|
Out of Level 3 | | — |
| | — |
| | — |
| | — |
|
Fair value end of period | | $ | 2 |
| | $ | 59 |
| | $ | 67 |
| | $ | (7 | ) |
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period | | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2020 Level 3 instruments at fair value |
| | Financial assets | | Financial liabilities |
| | Trading assets | | Other investments | | Trading liabilities |
$ in millions | | Other | | Private equity investments | | All other | | Other |
Fair value beginning of period | | $ | 19 | | | $ | 62 | | | $ | 24 | | | $ | (1) | |
Total gains/(losses) included in earnings | | 3 | | | (32) | | | (2) | | | 0 | |
Purchases and contributions | | 22 | | | 0 | | | 0 | | | 1 | |
Sales and distributions | | (23) | | | 0 | | | 0 | | | 0 | |
Transfers: | | | | | | | | |
Into Level 3 | | 0 | | | 0 | | | 0 | | | 0 | |
Out of Level 3 | | 0 | | | 0 | | | 0 | | | 0 | |
Fair value end of period | | $ | 21 | | | $ | 30 | | | $ | 22 | | | $ | 0 | |
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period | | $ | 5 | | | $ | (32) | | | $ | (2) | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Six months ended March 31, 2020 Level 3 instruments at fair value |
| | Financial assets | | Financial liabilities |
| | Trading assets | | Other investments | | Trading liabilities |
$ in millions | | Other | | Private equity investments | | All other | | Other |
Fair value beginning of period | | $ | 3 | | | $ | 63 | | | $ | 24 | | | $ | (1) | |
Total gains/(losses) included in earnings | | 3 | | | (32) | | | (2) | | | 0 | |
Purchases and contributions | | 53 | | | 0 | | | 0 | | | 2 | |
Sales and distributions | | (38) | | | (1) | | | 0 | | | (1) | |
Transfers: | | | | | | | | |
Into Level 3 | | 0 | | | 0 | | | 0 | | | 0 | |
Out of Level 3 | | 0 | | | 0 | | | 0 | | | 0 | |
Fair value end of period | | $ | 21 | | | $ | 30 | | | $ | 22 | | | $ | 0 | |
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period | | $ | 5 | | | $ | (32) | | | $ | (2) | | | $ | 0 | |
|
| | | | | | | | | | | | | | | | |
Six months ended March 31, 2019 Level 3 instruments at fair value |
| | Financial assets | | Financial liabilities |
| | Trading instruments | | Other investments | | Trading instruments |
$ in millions | | Other | | Private equity investments | | All other | | Other |
Fair value beginning of period | | $ | 1 |
| | $ | 56 |
| | $ | 67 |
| | $ | (7 | ) |
Total gains/(losses) included in earnings | | — |
| | — |
| | — |
| | 2 |
|
Purchases and contributions | | 60 |
| | 3 |
| | — |
| | 9 |
|
Sales and distributions | | (59 | ) | | — |
| | — |
| | (11 | ) |
Transfers: | | | | | | | | |
Into Level 3 | | — |
| | — |
| | — |
| | — |
|
Out of Level 3 | | — |
| | — |
| | — |
| | — |
|
Fair value end of period | | $ | 2 |
| | $ | 59 |
| | $ | 67 |
| | $ | (7 | ) |
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
The net unrealized losses on our Level 3 private equity investments for the three and six months ended March 31, 2020 were primarily driven by the then anticipated negative impact of the coronavirus (“COVID-19”) pandemic on certain of our investments. Of these losses, approximately $20 million for both the three and six months ended March 31, 2020 were attributable to noncontrolling interests, which are reflected as an offset in “Other” expenses on our Condensed Consolidated Statements of Income and Comprehensive Income.
As of March 31, 2020, 11%2021, 26% of our assets and 1% of our liabilities were measured at fair value on a recurring basis. In comparison, as of September 30, 2019, 12%2020, 19% of our assets and 2% of our liabilities were measured at fair value on a recurring basis. As of March 31, 2020 and September 30, 2019, instrumentsThe increase in assets measured at fair value on a recurring basis categorized as a percentage of total assets was primarily due to a significant increase in assets segregated pursuant to regulations at fair value during fiscal 2021, driven by a significant increase in client cash balances. As of both March 31, 2021 and September 30, 2020, Level 3 assets represented less than 1% and 2%, respectively, of our assets measured at fair value.value on a recurring basis.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Quantitative information about level 3 fair value measurements
The following tables presenttable presents the valuation techniques and significant unobservable inputs used in the valuation of certain of our private equity investments classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument. Certain investments are valued initially at transaction price and updated as other investment-specific events take place which indicate that a change in the carrying values of these investments is appropriate. Other investment-specific events include such events as our periodic review, significant transactions occur or new developments become known.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Recurring measurements $ in millions | | Fair value at March 31, 2021 | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
Other investments - private equity investments (not measured at NAV) | | $ | 52 | | | Discounted cash flow, transaction price or other investment-specific events | | Discount rate | | 25% |
| | | | | | Terminal earnings before interest, tax, depreciation and amortization (“EBITDA”) multiple | | 9.0x |
| | | | | | Terminal year | | 2021 - 2034 (2022) |
| | Fair value at September 30, 2020 | | | | | | |
Other investments - private equity investments (not measured at NAV) | | $ | 37 | | | Discounted cash flow, transaction price or other investment-specific events | | Discount rate | | 25% |
| | | | | | Terminal EBITDA multiple | | 9.0x |
| | | | | | Terminal year | | 2021 - 2042 (2023) |
|
| | | | | | | | | | | |
Recurring measurements | | Fair value at March 31, 2020 | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
$ in millions | | | | | | | | |
Other investments - private equity investments (not measured at NAV) | | $ | 30 |
| | Discounted cash flow, transaction price or other investment-specific events | | Discount rate | | 25 | % |
| | | | | | Terminal earnings before interest, tax, depreciation and amortization (“EBITDA”) multiple | | 9.0x |
|
| | | | | | Terminal year | | 2021 - 2042 (2024) |
|
| | Fair value at September 30, 2019 | | | | | | |
Other investments - private equity investments (not measured at NAV) | | $ | 63 |
| | Discounted cash flow, transaction price or other investment-specific events | | Discount rate | | 25 | % |
| | | | | | Terminal EBITDA multiple | | 12.5x |
|
| | | | | | Terminal year | | 2021 - 2042 (2022) |
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
Qualitative information about unobservable inputs
For our recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs are described in the following section.
Private equity investments
The significant unobservable inputs used in the fair value measurement of private equity investments generally relate to the financial performance of the investment entity and the market’s required return on investments from entities in industries in which we hold investments. Increases in the discount rate would have resulted in a lower fair value measurement. Increases in the terminal EBITDA multiple would have resulted in a higher fair value measurement. Increases in the terminal year are dependent upon each investment’s strategy, but generally result in a lower fair value measurement.
Investments in private equity measured at net asset value per share
As more fully described in Note 2 of our 20192020 Form 10-K, as a practical expedient, we utilize NAV or its equivalent to determine the recorded value of a portion of our private equity investments portfolio. We utilize NAV when the fund investment does not have a readily determinable fair value and the NAV of the fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the investments at fair value.
Our private equity portfolio as of March 31, 2021 includes various direct investments, as well as investments in third-party private equity funds and various legacy private equity funds which we sponsor. The portfolio is primarily invested in a broad range of industriesstrategies including leveraged buyouts, growth capital, distressed capital, venture capital and mezzanine capital. Due to the closed-end nature of certain of our fund investments, such investments cannot be redeemed directly with the funds. Our investment is monetized by distributions received through the liquidation of the underlying assets of those funds, the timing of which is uncertain.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the recorded value and unfunded commitments related to our private equity investments portfolio.
| | | | | | | | | | | | | | |
$ in millions | | Recorded value | | Unfunded commitment |
March 31, 2021 | | | | |
Private equity investments measured at NAV | | $ | 88 | | | $ | 9 | |
Private equity investments not measured at NAV | | 52 | | | |
Total private equity investments | | $ | 140 | | | |
| | | | |
September 30, 2020 | | | | |
Private equity investments measured at NAV | | $ | 79 | | | $ | 9 | |
Private equity investments not measured at NAV | | 37 | | | |
Total private equity investments | | $ | 116 | | | |
|
| | | | | | | | |
$ in millions | | Recorded value | | Unfunded commitment |
March 31, 2020 | | | | |
Private equity investments measured at NAV | | $ | 71 |
| | $ | 12 |
|
Private equity investments not measured at NAV | | 30 |
| | |
Total private equity investments | | $ | 101 |
| | |
| | | | |
September 30, 2019 | | | | |
Private equity investments measured at NAV | | $ | 83 |
| | $ | 15 |
|
Private equity investments not measured at NAV | | 63 |
| | |
Total private equity investments | | $ | 146 |
| | |
Of the total private equity investments, the portions we owned were $79$105 million and $99$90 million as of March 31, 20202021 and September 30, 2019,2020, respectively. The portions of the private equity investments we did not own were $22$35 million and $47$26 million as of March 31, 20202021 and September 30, 2019,2020, respectively, and were included as a component of noncontrolling interests on our Condensed Consolidated Statements of Financial Condition.
ManyAs a financial holding company, we are subject to holding period limitations for our merchant banking activities. As a result, we will be required to exit certain of theseour private equity investments by February 2022. Additionally, many of our private equity fund investments meet the definition of prohibited covered funds as defined by the Volcker Rule enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. We have received approval from the Board of Governors of the Federal Reserve System (the “Fed”(“Fed”) to continue to hold the majority of our covered fund investments until July 2022. However, our current focus is on the divestiture of this portfolio.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Financial instruments measured at fair value on a nonrecurring basis
The following table presents assets measured at fair value on a nonrecurring basis along with the valuation techniques and significant unobservable inputs used in the valuation of the assets classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | | | Level 2 | | Level 3 | | Total fair value | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
March 31, 2021 | | | | | | | | | | | | | | |
Bank loans: | | | | | | | | | | | | | | |
Residential mortgage loans | | | | $ | 4 | | | $ | 11 | | | $ | 15 | | | Collateral or discounted cash flow (1) | | Prepayment rate | | 7 yrs. - 12 yrs. (10.5 yrs.) |
Corporate loans | | | | $ | 0 | | | $ | 13 | | | $ | 13 | | | Collateral or discounted cash flow (1) | | Not meaningful (1) | | Not meaningful (1) |
Loans held for sale | | | | $ | 151 | | | $ | 0 | | | $ | 151 | | | N/A | | N/A | | N/A |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
September 30, 2020 | | | | | | | | | | | | | | |
Bank loans: | | | | | | | | | | | | | | |
Residential mortgage loans | | | | $ | 4 | | | $ | 13 | | | $ | 17 | | | Collateral or discounted cash flow (1) | | Prepayment rate | | 7 yrs. - 12 yrs. (10.6 yrs.) |
Corporate loans | | | | $ | 0 | | | $ | 15 | | | $ | 15 | | | Collateral or discounted cash flow (1) | | Not meaningful (1) | | Not meaningful (1) |
Loans held for sale | | | | $ | 38 | | | $ | 0 | | | $ | 38 | | | N/A | | N/A | | N/A |
Other assets: other real estate owned | | | | $ | 1 | | | $ | 0 | | | $ | 1 | | | N/A | | N/A | | N/A |
(1) The valuation techniques used to estimate the fair values are based on collateral value less selling costs for the collateral-dependent loans and discounted cash flows for loans that are not collateral-dependent.
|
| | | | | | | | | | | | | | | | | | |
$ in millions | | Level 2 | | Level 3 | | Total fair value | | Valuation technique(s) | | Unobservable input | | Range (weighted-average) |
March 31, 2020 | | | | | | | | | | | | |
Bank loans, net: | | | | | | | | | | | | |
Impaired loans: residential | | $ | 4 |
| | $ | 14 |
| | $ | 18 |
| | Discounted cash flow | | Prepayment rate | | 7 yrs. - 12 yrs. (10.4 yrs.) |
Impaired loans: corporate | | $ | — |
| | $ | 10 |
| | $ | 10 |
| | Collateral or discounted cash flow (1) | | Not meaningful (1) | | Not meaningful (1) |
Loan held for sale | | $ | 67 |
| | $ | — |
| | $ | 67 |
| | N/A | | N/A | | N/A |
Other assets: other real estate owned | | $ | 2 |
| | $ | — |
| | $ | 2 |
| | N/A | | N/A | | N/A |
| | | | | |
| | | | | | |
September 30, 2019 | | | | | | | | | | | | |
Bank loans, net: | | | | | | | | | | | | |
Impaired loans: residential | | $ | 7 |
| | $ | 14 |
| | $ | 21 |
| | Discounted cash flow | | Prepayment rate | | 7 yrs. - 12 yrs. (10.4 yrs.) |
Impaired loans: corporate | | $ | — |
| | $ | 21 |
| | $ | 21 |
| | Collateral or discounted cash flow (1) | | Not meaningful (1) | | Not meaningful (1) |
Loan held for sale | | $ | 66 |
| | $ | — |
| | $ | 66 |
| | N/A | | N/A | | N/A |
Other assets: other real estate owned | | $ | 1 |
| | $ | — |
| | $ | 1 |
| | N/A | | N/A | | N/A |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| |
(1) | The valuation techniques used for the corporate loans are based on collateral value less selling costs for the collateral dependent loans and discounted cash flows for impaired loans that are not collateral dependent. |
Financial instruments not recorded at fair value
Many, but not all, of the financial instruments we hold were recorded at fair value on the Condensed Consolidated Statements of Financial Condition. The following table presents the estimated fair value and fair value hierarchy of financial assets and liabilities that are not recorded at fair value in accordance with GAAP on the Condensed Consolidated Statements of Financial Condition at March 31, 20202021 and September 30, 2019.2020. This table excludes financial instruments that are carried at amounts which approximate fair value. Refer to Note 43 of our 20192020 Form 10-K for a discussion of the fair value hierarchy classificationclassifications of our financial instruments that are not recorded at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | | | Level 2 | | Level 3 | | Total estimated fair value | | Carrying amount |
March 31, 2021 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Bank loans, net | | | | $ | 52 | | | $ | 22,518 | | | $ | 22,570 | | | $ | 22,700 | |
Financial liabilities: | | | | | | | | | | |
Bank deposits - certificates of deposit | | | | $ | 0 | | | $ | 917 | | | $ | 917 | | | $ | 889 | |
Senior notes payable (1) | | | | $ | 2,400 | | | $ | 0 | | | $ | 2,400 | | | $ | 2,045 | |
| | | | | | | | | | |
September 30, 2020 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Bank loans, net | | | | $ | 72 | | | $ | 21,119 | | | $ | 21,191 | | | $ | 21,125 | |
Financial liabilities: | | | | | | | | | | |
Bank deposits - certificates of deposit | | | | $ | 0 | | | $ | 1,056 | | | $ | 1,056 | | | $ | 1,017 | |
Senior notes payable | | | | $ | 2,504 | | | $ | 0 | | | $ | 2,504 | | | $ | 2,045 | |
|
| | | | | | | | | | | | | | | | |
$ in millions | | Level 2 | | Level 3 | | Total estimated fair value | | Carrying amount |
March 31, 2020 | | | | | | | | |
Financial assets: | | | | | | | | |
Bank loans, net | | $ | 56 |
| | $ | 21,823 |
| | $ | 21,879 |
| | $ | 21,693 |
|
Financial liabilities: | | | | | | |
| | |
Bank deposits - certificates of deposit | | $ | — |
| | $ | 1,191 |
| | $ | 1,191 |
| | $ | 1,150 |
|
Senior notes payable | | $ | 2,208 |
| | $ | — |
| | $ | 2,208 |
| | $ | 2,044 |
|
| | | | | | | | |
September 30, 2019 | | | | | | | | |
Financial assets: | | | | | | | | |
Bank loans, net | | $ | 75 |
| | $ | 20,710 |
| | $ | 20,785 |
| | $ | 20,783 |
|
Financial liabilities: | | | | | | |
| | |
Bank deposits - certificates of deposit | | $ | — |
| | $ | 617 |
| | $ | 617 |
| | $ | 605 |
|
Senior notes payable | | $ | 1,760 |
| | $ | — |
| | $ | 1,760 |
| | $ | 1,550 |
|
(1) In April and May 2021, we repurchased or redeemed, as applicable, a portion of our Senior notes payable. See Note 14 for further information.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 45 – AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are primarily comprised of agency MBS and agency CMOs owned by Raymond James Bank (“RJ Bank”).Bank. As of October 1, 2020, we adopted new accounting guidance related to the measurement of credit losses on financial instruments, including available-for-sale securities. Refer to theNote 2 for further information about this guidance and a discussion of our available-for-sale securities accounting policies, including the fair value determination process, in Note 2 of our 2019 Form 10-K.securities.
The following table details the amortized costcosts and fair values of our available-for-sale securities.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Cost basis | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
March 31, 2021 | | | | | | | | |
Agency residential MBS | | $ | 4,762 | | | $ | 53 | | | $ | (31) | | | $ | 4,784 | |
Agency commercial MBS | | 1,194 | | | 10 | | | (36) | | | 1,168 | |
Agency CMOs | | 2,193 | | | 15 | | | (17) | | | 2,191 | |
Other securities | | 15 | | | 0 | | | 0 | | | 15 | |
Total available-for-sale securities | | $ | 8,164 | | | $ | 78 | | | $ | (84) | | | $ | 8,158 | |
| | | | | | | | |
September 30, 2020 | | | | | | | | |
Agency residential MBS | | $ | 4,064 | | | $ | 74 | | | $ | (3) | | | $ | 4,135 | |
Agency commercial MBS | | 948 | | | 22 | | | (1) | | | 969 | |
Agency CMOs | | 2,504 | | | 27 | | | (1) | | | 2,530 | |
Other securities | | 15 | | | 1 | | | 0 | | | 16 | |
Total available-for-sale securities | | $ | 7,531 | | | $ | 124 | | | $ | (5) | | | $ | 7,650 | |
|
| | | | | | | | | | | | | | | | |
$ in millions | | Cost basis | | Gross unrealized gains | | Gross unrealized losses | | Fair value |
March 31, 2020 | | | | | | | | |
Agency residential MBS | | $ | 1,929 |
| | $ | 56 |
| | $ | — |
| | $ | 1,985 |
|
Agency commercial MBS | | 533 |
| | 16 |
| | — |
| | 549 |
|
Agency CMOs | | 1,677 |
| | 39 |
| | (1 | ) | | 1,715 |
|
Other securities | | 15 |
| | 1 |
| | — |
| | 16 |
|
Total available-for-sale securities | | $ | 4,154 |
| | $ | 112 |
| | $ | (1 | ) | | $ | 4,265 |
|
| | | | | | | | |
September 30, 2019 | | |
| | |
| | |
| | |
|
Agency residential MBS | | $ | 1,555 |
| | $ | 20 |
| | $ | (1 | ) | | $ | 1,574 |
|
Agency commercial MBS | | 305 |
| | 5 |
| | — |
| | 310 |
|
Agency CMOs | | 1,195 |
| | 7 |
| | (3 | ) | | 1,199 |
|
Other securities | | 10 |
| | — |
| | — |
| | 10 |
|
Total available-for-sale securities | | $ | 3,065 |
| | $ | 32 |
| | $ | (4 | ) | | $ | 3,093 |
|
The amortized costs and fair values in the preceding table exclude $14 million and $15 million of accrued interest on available-for-sale securities as of March 31, 2021 and September 30, 2020, respectively, which was included in “Other receivables, net” on our Condensed Consolidated Statements of Financial Condition.
See Note 34 for additional information regarding the fair value of available-for-sale securities.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table details the contractual maturities, amortized costs, carrying values and current yields for our available-for-sale securities. Since our MBS and CMO available-for-sale securities are backed by mortgages, actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. As a result, as of March 31, 2020,2021, the durationweighted-average life of our available-for-sale securities portfolio was approximately three4 years.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 |
$ in millions | | Within one year | | After one but within five years | | After five but within ten years | | After ten years | | Total |
Agency residential MBS | | | | | | | | | | |
Amortized cost | | $ | 0 | | | $ | 45 | | | $ | 1,811 | | | $ | 2,906 | | | $ | 4,762 | |
Carrying value | | $ | 0 | | | $ | 47 | | | $ | 1,834 | | | $ | 2,903 | | | $ | 4,784 | |
Agency commercial MBS | | | | | | | | | | |
Amortized cost | | $ | 42 | | | $ | 191 | | | $ | 856 | | | $ | 105 | | | $ | 1,194 | |
Carrying value | | $ | 42 | | | $ | 195 | | | $ | 827 | | | $ | 104 | | | $ | 1,168 | |
Agency CMOs | | | | | | | | | | |
Amortized cost | | $ | 0 | | | $ | 1 | | | $ | 55 | | | $ | 2,137 | | | $ | 2,193 | |
Carrying value | | $ | 0 | | | $ | 1 | | | $ | 56 | | | $ | 2,134 | | | $ | 2,191 | |
Other securities | | | | | | | | | | |
Amortized cost | | $ | 0 | | | $ | 7 | | | $ | 8 | | | $ | 0 | | | $ | 15 | |
Carrying value | | $ | 0 | | | $ | 7 | | | $ | 8 | | | $ | 0 | | | $ | 15 | |
Total available-for-sale securities | | | | | | | | | | |
Amortized cost | | $ | 42 | | | $ | 244 | | | $ | 2,730 | | | $ | 5,148 | | | $ | 8,164 | |
Carrying value | | $ | 42 | | | $ | 250 | | | $ | 2,725 | | | $ | 5,141 | | | $ | 8,158 | |
Weighted-average yield | | 2.10 | % | | 2.14 | % | | 1.27 | % | | 1.03 | % | | 1.15 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 |
$ in millions | | Within one year | | After one but within five years | | After five but within ten years | | After ten years | | Total |
Agency residential MBS | | | | | | | | | | |
|
Amortized cost | | $ | — |
| | $ | 32 |
| | $ | 791 |
| | $ | 1,106 |
| | $ | 1,929 |
|
Carrying value | | $ | — |
| | $ | 33 |
| | $ | 818 |
| | $ | 1,134 |
| | $ | 1,985 |
|
Agency commercial MBS | | | | | | | | | | |
Amortized cost | | $ | — |
| | $ | 189 |
| | $ | 265 |
| | $ | 79 |
| | $ | 533 |
|
Carrying value | | $ | — |
| | $ | 193 |
| | $ | 276 |
| | $ | 80 |
| | $ | 549 |
|
Agency CMOs | | | | | | | | | | |
Amortized cost | | $ | — |
| | $ | 2 |
| | $ | 79 |
| | $ | 1,596 |
| | $ | 1,677 |
|
Carrying value | | $ | — |
| | $ | 2 |
| | $ | 81 |
| | $ | 1,632 |
| | $ | 1,715 |
|
Other securities | | | | | | | | | | |
Amortized cost | | $ | — |
| | $ | 3 |
| | $ | 12 |
| | $ | — |
| | $ | 15 |
|
Carrying value | | $ | — |
| | $ | 4 |
| | $ | 12 |
| | $ | — |
| | $ | 16 |
|
Total available-for-sale securities | | | | | | | | | | |
Amortized cost | | $ | — |
| | $ | 226 |
| | $ | 1,147 |
| | $ | 2,781 |
| | $ | 4,154 |
|
Carrying value | | $ | — |
| | $ | 232 |
| | $ | 1,187 |
| | $ | 2,846 |
| | $ | 4,265 |
|
Weighted-average yield | | — | % | | 2.28 | % | | 2.34 | % | | 2.25 | % | | 2.27 | % |
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table details the gross unrealized losses and fair 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
$ in millions | | Estimated fair value | | Unrealized losses | | Estimated fair value | | Unrealized losses | | Estimated fair value | | Unrealized losses |
March 31, 2021 | | | | | | | | | | | | |
Agency residential MBS | | $ | 2,772 | | | $ | (31) | | | $ | 0 | | | $ | 0 | | | $ | 2,772 | | | $ | (31) | |
Agency commercial MBS | | 756 | | | (36) | | | 0 | | | 0 | | | 756 | | | (36) | |
Agency CMOs | | 1,210 | | | (17) | | | 25 | | | 0 | | | 1,235 | | | (17) | |
Other securities | | 3 | | | 0 | | | 0 | | | 0 | | | 3 | | | 0 | |
Total | | $ | 4,741 | | | $ | (84) | | | $ | 25 | | | $ | 0 | | | $ | 4,766 | | | $ | (84) | |
September 30, 2020 | | | | | | | | | | | | |
Agency residential MBS | | $ | 966 | | | $ | (3) | | | $ | 0 | | | $ | 0 | | | $ | 966 | | | $ | (3) | |
Agency commercial MBS | | 177 | | | (1) | | | 0 | | | 0 | | | 177 | | | (1) | |
Agency CMOs | | 410 | | | (1) | | | 0 | | | 0 | | | 410 | | | (1) | |
| | | | | | | | | | | | |
Total | | $ | 1,553 | | | $ | (5) | | | $ | 0 | | | $ | 0 | | | $ | 1,553 | | | $ | (5) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or more | | Total |
$ in millions | | Estimated fair value | | Unrealized losses | | Estimated fair value | | Unrealized losses | | Estimated fair value | | Unrealized losses |
March 31, 2020 | | | | | | | | | | | | |
Agency residential MBS | | $ | 7 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 7 |
| | $ | — |
|
Agency commercial MBS | | 14 |
| | — |
| | 22 |
| | — |
| | 36 |
| | — |
|
Agency CMOs | | 63 |
| | (1 | ) | | 18 |
| | — |
| | 81 |
| | (1 | ) |
Total | | $ | 84 |
| | $ | (1 | ) | | $ | 40 |
| | $ | — |
| | $ | 124 |
| | $ | (1 | ) |
| | | | | | | | | | | | |
September 30, 2019 | | | | | | | | | | | | |
Agency residential MBS | | $ | 166 |
| | $ | — |
| | $ | 114 |
| | $ | (1 | ) | | $ | 280 |
| | $ | (1 | ) |
Agency commercial MBS | | — |
| | — |
| | 44 |
| | — |
| | 44 |
| | — |
|
Agency CMOs | | 145 |
| | (1 | ) | | 351 |
| | (2 | ) | | 496 |
| | (3 | ) |
Other securities | | 2 |
| | — |
| | — |
| | — |
| | 2 |
| | — |
|
Total | | $ | 313 |
| | $ | (1 | ) | | $ | 509 |
| | $ | (3 | ) | | $ | 822 |
| | $ | (4 | ) |
The contractual cash flows of our available-for-sale securities are guaranteed by the U.S. government or its agencies. At March 31, 2020,2021, of the 20242 available-for-sale securities in an unrealized loss position, 14241 were in a continuous unrealized loss position for less than 12 months and 6 were1 security was in a continuous unrealized loss position for greater than 12 months or more.months. We do not consider unrealized losses associated with these securities to be credit losses due to the guarantee of the full payment of principal and interest, and the fact that we have the ability and intent to hold these securities. In addition, unrealized losses related to these available-for-sale securities are generally due to changes in market interest rates. At March 31, 2020,2021, based on our assessment of this portfolio, we did not recognize an allowance for credit losses on our available-for-sale securities. At March 31, 2021, debt securities we held in excess of ten percent of our equity included those issued by the Federal National Home Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) which had anwith amortized costcosts of $2.67$5.04 billion and $1.22$2.81 billion, respectively, which also approximated the fair values of the securities.
During the three months ended March 31, 2021, there were no sales of available-for-sale securities. During the six months ended March 31, 2021, we received proceeds of $519 million, resulting in an insignificant gain, from sales of agency MBS and a fair valueagency CMO available-for-sale securities. The gain that resulted from the sales was included in “Other” revenues on our
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of $2.74 billionIncome and $1.25 billion, respectively.
Comprehensive Income. During the three and six months ended March 31, 2020, and 2019, there were no0 sales of available-for-sale securities.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 56 – DERIVATIVE ASSETS AND DERIVATIVE LIABILITIES
Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative liabilities” on our Condensed Consolidated Statements of Financial Condition. Cash flows related to our derivatives are included within operating activities on the Condensed Consolidated Statements of Cash Flows. The significant accounting policies governing our derivatives, including our methodologies for determining fair value, are described in Note 2 of our 20192020 Form 10-K.
Derivative balances included on our financial statements
The following table presents the gross fair valuevalues and notional amountamounts of derivatives by product type, the amounts of counterparty and cash collateral netting on our Condensed Consolidated Statements of Financial Condition, as well as collateral posted and received under credit support agreements that do not meet the criteria for netting under GAAP.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | September 30, 2020 |
$ in millions | | Derivative assets | | Derivative liabilities | | Notional amount | | Derivative assets | | Derivative liabilities | | Notional amount |
Derivatives not designated as hedging instruments | | | | | | | | | | | | |
Interest rate - matched book | | $ | 201 | | | $ | 201 | | | $ | 1,935 | | | $ | 333 | | | $ | 333 | | | $ | 2,174 | |
Interest rate - other (1) | | 213 | | | 185 | | | 18,459 | | | 240 | | | 161 | | | 19,206 | |
Foreign exchange | | 1 | | | 1 | | | 744 | | | 0 | | | 2 | | | 605 | |
Other | | 0 | | | 4 | | | 566 | | | 0 | | | 6 | | | 608 | |
Subtotal | | 415 | | | 391 | | | 21,704 | | | 573 | | | 502 | | | 22,593 | |
Derivatives designated as hedging instruments | | | | | | | | | | | | |
Interest rate | | 0 | | | 0 | | | 850 | | | 0 | | | 0 | | | 850 | |
Foreign exchange | | 0 | | | 2 | | | 901 | | | 0 | | | 3 | | | 866 | |
Subtotal | | 0 | | | 2 | | | 1,751 | | | 0 | | | 3 | | | 1,716 | |
Total gross fair value/notional amount | | 415 | | | 393 | | | $ | 23,455 | | | 573 | | | 505 | | | $ | 24,309 | |
Offset on the Condensed Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Counterparty netting | | (66) | | | (66) | | | | | (40) | | | (40) | | | |
Cash collateral netting | | (45) | | | (3) | | | | | (95) | | | (72) | | | |
Total amounts offset | | (111) | | | (69) | | | | | (135) | | | (112) | | | |
Net amounts presented on the Condensed Consolidated Statements of Financial Condition | | 304 | | | 324 | | | | | 438 | | | 393 | | | |
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Financial instruments (2) | | (212) | | | (201) | | | | | (349) | | | (333) | | | |
Total | | $ | 92 | | | $ | 123 | | | | | $ | 89 | | | $ | 60 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 | | September 30, 2019 |
$ in millions | | Derivative assets | | Derivative liabilities | | Notional amount | | Derivative assets | | Derivative liabilities | | Notional amount |
Derivatives not designated as hedging instruments | | | | | | | | | | | | |
Interest rate - matched book | | $ | 351 |
| | $ | 351 |
| | $ | 2,265 |
| | $ | 280 |
| | $ | 280 |
| | $ | 2,296 |
|
Interest rate - other (1) | | 359 |
| | 286 |
| | 16,686 |
| | 184 |
| | 146 |
| | 10,690 |
|
Foreign exchange | | — |
| | 3 |
| | 576 |
| | — |
| | 1 |
| | 573 |
|
Equity | | — |
| | 1 |
| | 1 |
| | — |
| | 6 |
| | 6 |
|
Subtotal | | 710 |
|
| 641 |
|
| 19,528 |
|
| 464 |
|
| 433 |
|
| 13,565 |
|
Derivatives designated as hedging instruments | | | | | | | | | | | | |
Interest rate | | — |
| | 1 |
| | 850 |
| | 1 |
| | — |
| | 850 |
|
Foreign exchange | | — |
| | 3 |
| | 816 |
| | — |
| | 1 |
| | 856 |
|
Subtotal | | — |
|
| 4 |
|
| 1,666 |
|
| 1 |
|
| 1 |
|
| 1,706 |
|
Total gross fair value/notional amount | | 710 |
|
| 645 |
|
| $ | 21,194 |
|
| 465 |
|
| 434 |
|
| $ | 15,271 |
|
Offset on the Condensed Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Counterparty netting | | (93 | ) | | (93 | ) | | | | (24 | ) | | (24 | ) | | |
Cash collateral netting | | (170 | ) | | (125 | ) | | | | (103 | ) | | (97 | ) | | |
Total amounts offset | | (263 | ) | | (218 | ) | | | | (127 | ) | | (121 | ) | | |
Net amounts presented on the Condensed Consolidated Statements of Financial Condition | | 447 |
|
| 427 |
| | | | 338 |
| | 313 |
| | |
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | | | | | | | | | | | |
Financial instruments (2) | | (372 | ) | | (351 | ) | | | | (297 | ) | | (280 | ) | | |
Total | | $ | 75 |
| | $ | 76 |
| | | | $ | 41 |
| | $ | 33 |
| | |
(1) Substantially all relates to interest rate derivatives entered into as part of our fixed income business operations, including to-be-announced (“TBA”) security contracts that are accounted for as derivatives.
| |
(1) | Substantially all relates to interest rate derivatives entered into as part of our fixed income business operations, including to be announced (“TBA”) security contracts that are accounted for as derivatives. |
(2) Although the matched book derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the agreement with the third-party intermediary includes terms that are similar to a master netting agreement. As a result, we present the matched book amounts net in the preceding table.
| |
(2) | Although the matched book derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the agreement with the third-party intermediary includes terms that are similar to a master netting agreement. As a result, we present the matched book amounts net in the preceding table. |
The following table details the gains/(losses) included in accumulated other comprehensive income (“AOCI”), net of income taxes, on derivatives designated as hedging instruments. These gains/(losses) included any amounts reclassified from AOCI to net income during the period. See Note 1617 for additional information.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Interest rate (cash flow hedges) | | $ | 19 | | | $ | (43) | | | $ | 24 | | | $ | (33) | |
Foreign exchange (net investment hedges) | | (10) | | | 52 | | | (39) | | | 39 | |
Total gains/(losses) in AOCI, net of taxes | | $ | 9 | | | $ | 9 | | | $ | (15) | | | $ | 6 | |
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
Interest rate (cash flow hedges) | | $ | (43 | ) | | $ | (13 | ) | | $ | (33 | ) | | $ | (30 | ) |
Foreign exchange (net investment hedges) | | 52 |
| | (11 | ) | | 39 |
| | 26 |
|
Total gains/(losses) in AOCI, net of taxes | | $ | 9 |
| | $ | (24 | ) | | $ | 6 |
| | $ | (4 | ) |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
There were 0 components of derivative gains or losses excluded from the assessment of hedge effectiveness for each of the three and six months ended March 31, 20202021 and 2019.2020. We expect to reclassify $12$15 million of interest expense out of AOCI and into earnings within the next 12 months. The maximum length of time over which forecasted transactions are or will be hedged is 87 years.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | | | Three months ended March 31, | | Six months ended March 31, |
| Location of gain/(loss) | | 2021 | | 2020 | | 2021 | | 2020 |
Interest rate | | Principal transactions/other revenues | | $ | 6 | | | $ | 0 | | | $ | 10 | | | $ | 5 | |
Foreign exchange | | Other revenues | | $ | (4) | | | $ | 43 | | | $ | (30) | | | $ | 32 | |
Other | | Principal transactions | | $ | (2) | | | $ | 0 | | | $ | 2 | | | $ | 0 | |
Other | | Compensation, commissions and benefits expense | | $ | 0 | | | $ | (1) | | | $ | 0 | | | $ | (1) | |
|
| | | | | | | | | | | | | | | | | | |
$ in millions | | | | Three months ended March 31, | | Six months ended March 31, |
| Location of gain/(loss) | | 2020 | | 2019 | | 2020 | | 2019 |
Interest rate | | Principal transactions/other revenues | | $ | — |
| | $ | — |
| | $ | 5 |
| | $ | 2 |
|
Foreign exchange | | Other revenues | | $ | 43 |
| | $ | (4 | ) | | $ | 32 |
| | $ | 22 |
|
Equity | | Compensation, commissions and benefits expense | | $ | (1 | ) | | $ | — |
| | $ | (1 | ) | | $ | 5 |
|
Risks associated with our derivatives and related risk mitigation
Credit risk
We are exposed to credit losses in the event of nonperformance by the counterparties to forward foreign exchange derivative agreements and interest rate derivatives that are not cleared through a clearing organization. Where we are subject to credit exposure, we perform a credit evaluation of counterparties prior to entering into derivative transactions and we monitor their credit standings. We may require initial margin or collateral from counterparties in the form of cash deposits or other marketable securities to support certain of these obligations as established by the credit threshold specified by the agreement and/or as a result of monitoring the credit standing of the counterparties.
Our only exposure to credit risk in theon matched book derivatives operations is related to our uncollected derivative transaction fee revenues, which were insignificant as of both March 31, 20202021 and September 30, 2019.2020. We are not exposed to market risk on these derivatives due to the pass-through transaction structure described in Note 2 of our 20192020 Form 10-K.
Interest rate and foreign exchange risk
We are exposed to interest rate risk related to certain of our interest rate derivatives. We are also exposed to foreign exchange risk related to our forward foreign exchange derivatives. On a daily basis, we monitor our risk exposure on our derivatives based on established limits with respect to a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis and volatility risks, both for the total portfolio and by maturity period.
Derivatives with credit-risk-related contingent features
Certain of our derivative contracts contain provisions that require our debt to maintain an investment-grade rating from 1 or more of the major credit rating agencies. If our debt were to fall below investment-grade, the counterparties to the derivative instruments could terminate and request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position was insignificant as of both March 31, 2020 and September 30, 2019.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 67 – 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 20192020 Form 10-K.
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.
|
| | | | | | | | | | | | | | | | |
| | Assets | | Liabilities |
$ in millions | | Reverse repurchase agreements | | Securities borrowed | | Repurchase agreements | | Securities loaned |
March 31, 2020 | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 130 |
| | $ | 250 |
| | $ | 215 |
| | $ | 28 |
|
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition | | — |
| | — |
| | — |
| | — |
|
Net amounts presented on the Condensed Consolidated Statements of Financial Condition | | 130 |
|
| 250 |
|
| 215 |
|
| 28 |
|
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | (130 | ) | | (240 | ) | | (215 | ) | | (24 | ) |
Net amounts | | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | 4 |
|
| | | | | | | | |
September 30, 2019 | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 343 |
| | $ | 248 |
| | $ | 150 |
| | $ | 323 |
|
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition | | — |
| | — |
| | — |
| | — |
|
Net amounts presented on the Condensed Consolidated Statements of Financial Condition | | 343 |
|
| 248 |
|
| 150 |
|
| 323 |
|
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | (343 | ) | | (243 | ) | | (150 | ) | | (311 | ) |
Net amounts | | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 12 |
|
23
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Collateralized agreements | | Collateralized financings |
$ in millions | | Reverse repurchase agreements | | Securities borrowed | | Total | | Repurchase agreements | | Securities loaned | | Total |
March 31, 2021 | | | | | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 224 | | | $ | 227 | | | $ | 451 | | | $ | 222 | | | $ | 56 | | | $ | 278 | |
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Net amounts presented on the Condensed Consolidated Statements of Financial Condition | | 224 | | | 227 | | | 451 | | | 222 | | | 56 | | | 278 | |
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | (224) | | | (222) | | | (446) | | | (222) | | | (55) | | | (277) | |
Net amounts | | $ | 0 | | | $ | 5 | | | $ | 5 | | | $ | 0 | | | $ | 1 | | | $ | 1 | |
September 30, 2020 | | | | | | | | | | | | |
Gross amounts of recognized assets/liabilities | | $ | 207 | | | $ | 215 | | | $ | 422 | | | $ | 165 | | | $ | 85 | | | $ | 250 | |
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Net amounts presented on the Condensed Consolidated Statements of Financial Condition | | 207 | | | 215 | | | 422 | | | 165 | | | 85 | | | 250 | |
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition | | (207) | | | (209) | | | (416) | | | (165) | | | (79) | | | (244) | |
Net amounts | | $ | 0 | | | $ | 6 | | | $ | 6 | | | $ | 0 | | | $ | 6 | | | $ | 6 | |
TotalThe total amount of collateral received under reverse repurchase agreements and the total amount of collateral posted under repurchase agreements exceeds the carrying value of these agreements on our Condensed Consolidated Statements of Financial Condition.
Collateral received and pledged
We receive cash and securities as collateral, primarily in connection with reverse repurchase agreements, securities borrowed, derivative transactions and client margin loans. The collateral we receive reduces our credit exposure to individual counterparties.
In many cases, we are permitted to deliver or repledge financial instruments we have received as collateral to satisfy our collateral requirements under our repurchase agreements, securities lending agreements or other secured borrowings, to satisfy deposit requirements with clearing organizations, or to otherwise meet either our or our clients’ settlement requirements.
The following table presents financial instruments at fair value that we received as collateral, were not included on our 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 previously described.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
Collateral we received that was available to be delivered or repledged | | $ | 3,225 | | | $ | 2,869 | |
Collateral that we delivered or repledged | | $ | 886 | | | $ | 788 | |
|
| | | | | | | | |
$ in millions | | March 31, 2020 | | September 30, 2019 |
Collateral we received that was available to be delivered or repledged | | $ | 2,503 |
| | $ | 2,931 |
|
Collateral that we delivered or repledged | | $ | 763 |
| | $ | 897 |
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
Encumbered assets
We pledge certain of our assets to collateralize either repurchase agreements or other secured borrowings, maintain lines of credit, or to satisfy our collateral or settlement requirements with counterparties or clearing organizations who may or may not have the right to deliver or repledge such instruments. The following table presents information about our assets that have been pledged for one of the purposes previously described.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
Had the right to deliver or repledge | | $ | 424 | | | $ | 325 | |
Did not have the right to deliver or repledge | | $ | 65 | | | $ | 65 | |
Bank loans, net pledged at the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank of Atlanta | | $ | 5,501 | | | $ | 5,367 | |
|
| | | | | | | | |
$ in millions | | March 31, 2020 | | September 30, 2019 |
Had the right to deliver or repledge | | $ | 304 |
| | $ | 591 |
|
Did not have the right to deliver or repledge | | $ | 65 |
| | $ | 65 |
|
Bank loans, net pledged at Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank | | $ | 5,157 |
| | $ | 4,653 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Repurchase agreements, repurchase-to-maturity transactions and securities loaned accounted for as secured borrowings
The following table presents the remaining contractual maturity of repurchase agreements and securities lending transactions accounted for as secured borrowings.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Overnight and continuous | | Up to 30 days | | 30-90 days | | Greater than 90 days | | Total |
March 31, 2021 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 121 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 121 | |
Agency MBS and agency CMOs | | 101 | | | — | | | 0 | | | 0 | | | 101 | |
Total repurchase agreements | | 222 | | | 0 | | | 0 | | | 0 | | | 222 | |
Securities loaned: | | | | | | | | | | |
Equity securities | | 56 | | | 0 | | | 0 | | | 0 | | | 56 | |
Total collateralized financings | | $ | 278 | |
| $ | 0 | |
| $ | 0 | |
| $ | 0 | |
| $ | 278 | |
September 30, 2020 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 87 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 87 | |
Agency MBS and agency CMOs | | 78 | | | 0 | | | 0 | | | 0 | | | 78 | |
Total repurchase agreements | | 165 | | | 0 | | | 0 | | | 0 | | | 165 | |
Securities loaned: | | | | | | | | | | |
Equity securities | | 85 | | | 0 | | | 0 | | | 0 | | | 85 | |
Total collateralized financings | | $ | 250 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 250 | |
|
| | | | | | | | | | | | | | | | | | | | |
$ in millions | | Overnight and continuous | | Up to 30 days | | 30-90 days | | Greater than 90 days | | Total |
March 31, 2020 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 45 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 45 |
|
Agency MBS and CMOs | | 170 |
| | — |
| | — |
| | — |
| | 170 |
|
Total repurchase agreements | | 215 |
|
| — |
|
| — |
|
| — |
|
| 215 |
|
Securities loaned: | | | | | | | | | | |
Equity securities | | 28 |
| | — |
| | — |
| | — |
| | 28 |
|
Total | | $ | 243 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 243 |
|
| | | | | | | | | | |
September 30, 2019 | | | | | | | | | | |
Repurchase agreements: | | | | | | | | | | |
Government and agency obligations | | $ | 70 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 70 |
|
Agency MBS and CMOs | | 80 |
| | — |
| | — |
| | — |
| | 80 |
|
Total repurchase agreements | | 150 |
|
| — |
|
| — |
|
| — |
|
| 150 |
|
Securities loaned: | | | | | | | | | | |
Equity securities | | 323 |
| | — |
| | — |
| | — |
| | 323 |
|
Total | | $ | 473 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 473 |
|
As of both March 31, 20202021 and September 30, 2019,2020, we did 0tnot have any “repurchase-to-maturity” agreements, which are repurchase agreements where a security is transferred under an agreement to repurchase and the maturity date of the repurchase agreement matches the maturity date of the underlying security.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 78 – BANK LOANS, NET
Bank client receivables are comprised of loans originated or purchased by RJ Bank, N.A. and include commercial and industrial (“C&I”)&I loans, REIT loans, tax-exempt loans, commercial and residential real estate loans, securities-based loans (“SBL”)and SBL and other loans. These receivables are collateralized by first and, to a lesser extent, second mortgages on residential or other real property, other assets of the borrower, a pledge of revenue, securities or are unsecured. See Note 2 of our 20192020 Form 10-K for a discussion of accounting policies related to bank loansloans.
As of October 1, 2020, we adopted new accounting guidance related to the measurement of credit losses on financial instruments. See Note 2 for further information about this guidance and allowancesa discussion of our accounting policies related to our allowance for credit losses.
We segregate our loan portfolio into 6 loan portfolio segments: C&I, commercial real estate (“CRE”), CRE, construction,REIT, tax-exempt, residential mortgage, and SBL and other. TheseUpon adoption, we redefined certain of our portfolio segments also serve asto align with the new methodology applied in determining the allowance for credit losses. Prior-period loan portfolio loan classes for purposessegment balances have been revised to conform to the current presentation. Loan balances in the following tables are presented at amortized cost (outstanding principal balance net of credit analysis,unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs), except for residential mortgagecertain held for sale loans whichrecorded at fair value. Bank loans are further disaggregated into residential first mortgage and residential home equity classes.
Notes topresented on our Condensed Consolidated Statements of Financial Statements (Unaudited)Condition at amortized cost (or fair value where applicable) less the allowance for credit losses.
The following table presents the balances for both the held for sale and held for investment loan portfolios, as well as the associated percentage of each portfolio segment in RJ Bank’s total loan portfolio. “Loans held
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | September 30, 2020 |
$ in millions | | Balance | | % | | Balance | | % |
C&I loans | | $ | 7,816 | | | 34 | % | | $ | 7,421 | | | 34 | % |
CRE loans | | 2,710 | | | 12 | % | | 2,489 | | | 12 | % |
REIT loans | | 1,380 | | | 6 | % | | 1,210 | | | 5 | % |
Tax-exempt loans | | 1,223 | | | 5 | % | | 1,259 | | | 6 | % |
Residential mortgage loans | | 5,001 | | | 21 | % | | 4,973 | | | 23 | % |
SBL and other | | 4,891 | | | 21 | % | | 4,087 | | | 19 | % |
Total loans held for investment | | 23,021 | | | 99 | % | | 21,439 | | | 99 | % |
Held for sale loans | | 203 | | | 1 | % | | 110 | | | 1 | % |
Total loans held for sale and investment | | 23,224 | | | 100 | % | | 21,549 | | | 100 | % |
Allowance for credit losses | | (345) | | | | | (354) | | | |
Bank loans, net | | $ | 22,879 | | | | | $ | 21,195 | | | |
Accrued interest receivable on bank loans | | $ | 46 | | | | | $ | 45 | | | |
The allowance for sale, net”credit losses as of March 31, 2021 was determined using the new methodology under CECL, which was adopted on October 1, 2020. Prior periods have not been restated and “Total loans held for investment, net”were calculated under the incurred loss methodology.
Accrued interest receivables presented in the followingpreceding table are presented netreported in “Other receivables, net” on our Condensed Consolidated Statements of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs.Financial Condition.
|
| | | | | | | | | | | | | | |
| | March 31, 2020 | | September 30, 2019 |
$ in millions | | Balance | | % | | Balance | | % |
Loans held for investment: | | |
| | |
| | |
| | |
|
C&I loans | | $ | 8,316 |
| | 38 | % | | $ | 8,098 |
| | 38 | % |
CRE construction loans | | 180 |
| | 1 | % | | 185 |
| | 1 | % |
CRE loans | | 3,830 |
| | 17 | % | | 3,652 |
| | 17 | % |
Tax-exempt loans | | 1,266 |
| | 5 | % | | 1,241 |
| | 6 | % |
Residential mortgage loans | | 4,864 |
| | 22 | % | | 4,454 |
| | 21 | % |
SBL and other | | 3,546 |
| | 16 | % | | 3,349 |
| | 16 | % |
Total loans held for investment | | 22,002 |
| | |
| | 20,979 |
| | |
|
Net unearned income and deferred expenses | | (13 | ) | | |
| | (12 | ) | | |
|
Total loans held for investment, net | | 21,989 |
| | |
| | 20,967 |
| | |
|
Loans held for sale, net | | 123 |
| | 1 | % | | 142 |
| | 1 | % |
Total loans held for sale and investment | | 22,112 |
| | 100 | % | | 21,109 |
| | 100 | % |
Allowance for loan losses | | (324 | ) | | |
| | (218 | ) | | |
|
Bank loans, net | | $ | 21,788 |
| | |
| | $ | 20,891 |
| | |
|
At March 31, 2020,2021, the FHLB had a blanket lien on RJ Bank’s residential mortgage loan portfolio as security for the repayment of certain borrowings. See Note 1214 of our 2020 Form 10-K for more information regarding borrowings from the FHLB.
Loans heldHeld for sale loans
RJ Bank originated or purchased $443$528 million and $1.15$1.11 billion of loans held for sale during the three and six months ended March 31, 2020,2021, respectively, and $475$443 million and $1.27$1.15 billion during the three and six months ended March 31, 2019,2020, respectively. Proceeds from the sale of these held for sale loans amounted to $207 million and $395 million during the three and six months ended March 31, 2021, respectively, and $220 million and $434 million during the three and six months ended March 31, 2020, respectively, and $100 million and $357 million during the three and six months ended March 31, 2019, respectively. Net gains resulting from such sales were insignificant in all periods during the three and six months ended March 31, 20202021 and 2019.2020.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Purchases and sales of loans held for investment
The following table presents purchases and sales of any loans held for investment by portfolio segment.
| | $ in millions | | C&I loans | | CRE loans | | Residential mortgage loans | | Total | $ in millions | | C&I loans | | CRE loans | | Residential mortgage loans | | Total |
Three months ended March 31, 2021 | | Three months ended March 31, 2021 | | | | | | | | |
Purchases | | Purchases | | $ | 538 | | | $ | 0 | | | $ | 114 | | | $ | 652 | |
Sales | | Sales | | $ | 95 | | | $ | 0 | | | $ | 0 | | | $ | 95 | |
Six months ended March 31, 2021 | | Six months ended March 31, 2021 | |
Purchases | | Purchases | | $ | 660 | | | $ | 0 | | | $ | 160 | | | $ | 820 | |
Sales | | Sales | | $ | 100 | | | $ | 0 | | | $ | 0 | | | $ | 100 | |
Three months ended March 31, 2020 | | | | | | | | | Three months ended March 31, 2020 | |
Purchases | | $ | 296 |
| | $ | 5 |
| | $ | 100 |
| | $ | 401 |
| Purchases | | $ | 296 | | | $ | 5 | | | $ | 100 | | | $ | 401 | |
Sales | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Sales | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
Six months ended March 31, 2020 | | | | | | | | | Six months ended March 31, 2020 | |
Purchases | | $ | 363 |
| | $ | 5 |
| | $ | 258 |
| | $ | 626 |
| Purchases | | $ | 396 | | | $ | 5 | | | $ | 258 | | | $ | 659 | |
Sales | | $ | 20 |
| | $ | — |
| | $ | — |
| | $ | 20 |
| Sales | | $ | 20 | | | $ | 0 | | | $ | 0 | | | $ | 20 | |
Three months ended March 31, 2019 | | | | | | | | | |
Purchases | | $ | 428 |
| | $ | 25 |
| | $ | 46 |
| | $ | 499 |
| |
Sales | | $ | 24 |
| | $ | — |
| | $ | — |
| | $ | 24 |
| |
Six months ended March 31, 2019 | | | | | | | | | |
Purchases | | $ | 690 |
| | $ | 25 |
| | $ | 122 |
| | $ | 837 |
| |
Sales | | $ | 93 |
| | $ | — |
| | $ | — |
| | $ | 93 |
| |
Sales in the preceding table represent the recorded investment (i.e., net of charge-offs and discounts or premiums) of loans held for investment that were transferred to loans held for sale and subsequently sold to a third party during the respective period. As more fully described in Note 2 of our 20192020 Form 10-K, corporate loan (C&I, CRE and CRE construction) sales generally occur as part of our credit management activities.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Aging analysis of loans held for investment
The following table presents an analysisinformation on delinquency status of the payment status ofour loans held for investment. Amounts in the table exclude any net unearned income and deferred expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | 30-89 days and accruing | | 90 days or more and accruing | | Total past due and accruing | | Nonaccrual with allowance | | Nonaccrual with no allowance | | Current and accruing | | Total loans held for investment |
March 31, 2021 | | | | | | | | | | | | | | |
C&I loans | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 7,816 | | | $ | 7,816 | |
CRE loans | | 0 | | | 0 | | | 0 | | | 0 | | | 13 | | | 2,697 | | | 2,710 | |
REIT loans | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,380 | | | 1,380 | |
Tax-exempt loans | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,223 | | | 1,223 | |
Residential mortgage loans | | 1 | | | 0 | | | 1 | | | 14 | | | 4 | | | 4,982 | | | 5,001 | |
SBL and other | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 4,891 | | | 4,891 | |
Total loans held for investment | | $ | 1 | | | $ | 0 | | | $ | 1 | | | $ | 14 | | | $ | 17 | | | $ | 22,989 | | | $ | 23,021 | |
| | | | | | | | | | | | | | |
September 30, 2020 | | | | | | | | | | | | | | |
C&I loans | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 2 | | | $ | 0 | | | $ | 7,419 | | | $ | 7,421 | |
CRE loans | | 0 | | | 0 | | | 0 | | | 0 | | | 14 | | | 2,475 | | | 2,489 | |
REIT loans | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,210 | | | 1,210 | |
Tax-exempt loans | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,259 | | | 1,259 | |
Residential mortgage loans | | 0 | | | 0 | | | 0 | | | 3 | | | 11 | | | 4,959 | | | 4,973 | |
SBL and other | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 4,087 | | | 4,087 | |
Total loans held for investment | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 5 | | | $ | 25 | | | $ | 21,409 | | | $ | 21,439 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | 30-89 days and accruing | | 90 days or more and accruing | | Total past due and accruing | | Nonaccrual | | Current and accruing | | Total loans held for investment |
March 31, 2020 | | | | | | | | | | | | |
C&I loans | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | 8,312 |
| | $ | 8,316 |
|
CRE construction loans | | — |
| | — |
| | — |
| | — |
| | 180 |
| | 180 |
|
CRE loans | | — |
| | — |
| | — |
| | 6 |
| | 3,824 |
| | 3,830 |
|
Tax-exempt loans | | — |
| | — |
| | — |
| | — |
| | 1,266 |
| | 1,266 |
|
Residential mortgage loans: | | | | | |
|
| | | | | |
|
|
First mortgage loans | | 1 |
| | — |
| | 1 |
| | 14 |
| | 4,824 |
| | 4,839 |
|
Home equity loans/lines | | — |
| | — |
| | — |
| | — |
| | 25 |
| | 25 |
|
SBL and other | | — |
| | — |
| | — |
| | — |
| | 3,546 |
| | 3,546 |
|
Total loans held for investment | | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 24 |
| | $ | 21,977 |
| | $ | 22,002 |
|
| | | | | | | | | | | | |
September 30, 2019 | | | | | | | | | | | | |
C&I loans | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 19 |
| | $ | 8,079 |
| | $ | 8,098 |
|
CRE construction loans | | — |
| | — |
| | — |
| | — |
| | 185 |
| | 185 |
|
CRE loans | | — |
| | — |
| | — |
| | 8 |
| | 3,644 |
| | 3,652 |
|
Tax-exempt loans | | — |
| | — |
| | — |
| | — |
| | 1,241 |
| | 1,241 |
|
Residential mortgage loans: | | | | | | | | | | | |
|
First mortgage loans | | 2 |
| | — |
| | 2 |
| | 16 |
| | 4,409 |
| | 4,427 |
|
Home equity loans/lines | | — |
| | — |
| | — |
| | — |
| | 27 |
| | 27 |
|
SBL and other | | — |
| | — |
| | — |
| | — |
| | 3,349 |
| | 3,349 |
|
Total loans held for investment | | $ | 2 |
| | $ | — |
| | $ | 2 |
| | $ | 43 |
| | $ | 20,934 |
| | $ | 20,979 |
|
The preceding table includes $9 million and $32$15 million at both March 31, 20202021 and September 30, 2019, respectively,2020 of nonaccrual loans which were current pursuant to their contractual terms. The table also includes CRE and residential first mortgage loan TDRs of $13 million and $14 million, respectively, at March 31, 2021 and $6 million and $15 million, respectively, at September 30, 2020.
Other real estate owned, included in “Other assets” on our Condensed Consolidated Statements of Financial Condition, was $3 millioninsignificant at both March 31, 20202021 and September 30, 2019.2020.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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. At March 31, 2021, we had $13 million of collateral-dependent CRE loans, which were fully collateralized by retail and industrial real estate, and $6 million of collateral-dependent residential loans, which were fully collateralized by single family homes. Collateral-dependent loans do not include loans to borrowers who have been granted forbearance as result of the COVID-19 pandemic or loans for which the borrower had requested a loan modification, where the request had been initiated but had not been approved or completed as of the end of the quarter. Such loans may be considered collateral-dependent after the forbearance period expires. The recorded investment in mortgage loans secured by one-to-four family residential properties for which formal foreclosure proceedings were in process was $7$6 million at both March 31, 20202021 and September 30, 2019.
Impaired loans and troubled debt restructurings
2020.
The following table provides a summary of RJ Bank’s impaired loans. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 | | September 30, 2019 |
$ in millions | | Gross recorded investment | | Unpaid principal balance | | Allowance for losses | | Gross recorded investment | | Unpaid principal balance | | Allowance for losses |
Impaired loans with allowance for loan losses: | | | | | | | | | | | | |
C&I loans | | $ | 4 |
| | $ | 4 |
| | $ | 1 |
| | $ | 19 |
| | $ | 20 |
| | $ | 6 |
|
Residential - first mortgage loans | | 8 |
| | 10 |
| | 1 |
| | 11 |
| | 13 |
| | 1 |
|
Total | | 12 |
| | 14 |
| | 2 |
| | 30 |
| | 33 |
| | 7 |
|
Impaired loans without allowance for loan losses: | | | | |
| | |
| | |
| | |
| | |
|
CRE loans | | 7 |
| | 12 |
| | — |
| | 8 |
| | 13 |
| | — |
|
Residential - first mortgage loans | | 11 |
| | 17 |
| | — |
| | 11 |
| | 17 |
| | — |
|
Total | | 18 |
| | 29 |
| | — |
| | 19 |
| | 30 |
| | — |
|
Total impaired loans | | $ | 30 |
| | $ | 43 |
| | $ | 2 |
| | $ | 49 |
| | $ | 63 |
| | $ | 7 |
|
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.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The preceding table includes CRE and residential first mortgage loans troubled debt restructurings (“TDRs”) of $7 million and $17 million, respectively, at March 31, 2020 and C&I, CRE and residential first mortgage loans TDRs of $19 million, $8 million and $18 million, respectively, at September 30, 2019.
The average balance of the total impaired loans was as follows.
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
C&I loans | | $ | 9 |
| | $ | 27 |
| | $ | 13 |
| | $ | 16 |
|
CRE loans | | 7 |
| | 3 |
| | 7 |
| | 2 |
|
Residential - first mortgage loans | | 20 |
| | 25 |
| | 21 |
| | 26 |
|
Total average impaired loan balance | | $ | 36 |
| | $ | 55 |
| | $ | 41 |
| | $ | 44 |
|
Credit quality indicators
The credit quality of RJ Bank’s 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 in a timely manner.
Special Mention – Loans which have potential weaknesses that deserve management’s close attention. These loans are not adversely classified and do not expose RJ Bank to sufficient risk to warrant an adverse classification.
Substandard – Loans which are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans with this classification are characterized by the distinct possibility that RJ Bank will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans which have all the weaknesses inherent in loans classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently-known facts, conditions and values.
Loss – Loans which are considered by management to be uncollectible and of such little value that their continuance on ourRJ Bank’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. We doRJ Bank does not have any bank loan balances within this classification because, in accordance with our accounting policy, loans, or a portion thereof considered to be uncollectible are charged-off prior to the assignment of this classification.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the credit quality oftables present RJ Bank’s held for investment loan portfolio.portfolio by year of origination and credit quality indicator as of March 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving loans | | | | Total |
C&I loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 312 | | $ | 1,259 | | $ | 1,206 | | $ | 1,404 | | $ | 1,043 | | $ | 1,590 | | $ | 649 | | | | $ | 7,463 |
Special mention | | 0 | | 0 | | 43 | | 103 | | 0 | | 54 | | 2 | | | | 202 |
Substandard | | 0 | | 0 | | 39 | | 84 | | 0 | | 28 | | 0 | | | | 151 |
Doubtful | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | | 0 |
Total C&I loans | | $ | 312 | | $ | 1,259 | | $ | 1,288 | | $ | 1,591 | | $ | 1,043 | | $ | 1,672 | | $ | 651 | | | | $ | 7,816 |
|
| | | | | | | | | | | | | | | | | | | | |
$ in millions | | Pass | | Special mention | | Substandard | | Doubtful | | Total |
March 31, 2020 | | | | | | | | | | |
C&I loans | | $ | 8,045 |
| | $ | 142 |
| | $ | 129 |
| | $ | — |
| | $ | 8,316 |
|
CRE construction loans | | 180 |
| | — |
| | — |
| | — |
| | 180 |
|
CRE loans | | 3,745 |
| | 36 |
| | 49 |
| | — |
| | 3,830 |
|
Tax-exempt loans | | 1,266 |
| | — |
| | — |
| | — |
| | 1,266 |
|
Residential mortgage loans: | | | | | | | | | | |
First mortgage loans | | 4,808 |
| | 8 |
| | 23 |
| | — |
| | 4,839 |
|
Home equity loans/lines | | 25 |
| | — |
| | — |
| | — |
| | 25 |
|
SBL and other | | 3,546 |
| | — |
| | — |
| | — |
| | 3,546 |
|
Total loans held for investment | | $ | 21,615 |
| | $ | 186 |
| | $ | 201 |
| | $ | — |
| | $ | 22,002 |
|
| | | | | | | | | | |
September 30, 2019 | | | | | | | | | |
C&I loans | | $ | 7,870 |
| | $ | 152 |
| | $ | 76 |
| | $ | — |
| | $ | 8,098 |
|
CRE construction loans | | 185 |
| | — |
| | — |
| | — |
| | 185 |
|
CRE loans | | 3,630 |
| | — |
| | 22 |
| | — |
| | 3,652 |
|
Tax-exempt loans | | 1,241 |
| | — |
| | — |
| | — |
| | 1,241 |
|
Residential mortgage loans: | | | | | | | | | | |
First mortgage loans | | 4,392 |
| | 10 |
| | 25 |
| | — |
| | 4,427 |
|
Home equity loans/lines | | 27 |
| | — |
| | — |
| | — |
| | 27 |
|
SBL and other | | 3,349 |
| | — |
| | — |
| | — |
| | 3,349 |
|
Total loans held for investment | | $ | 20,694 |
| | $ | 162 |
| | $ | 123 |
| | $ | — |
| | $ | 20,979 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
CRE loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 194 | | $ | 435 | | $ | 572 | | $ | 645 | | $ | 226 | | $ | 209 | | $ | 61 | | | | $ | 2,342 |
Special mention | | 0 | | 45 | | 86 | | 49 | | 0 | | 0 | | 0 | | | | 180 |
Substandard | | 0 | | 0 | | 32 | | 86 | | 8 | | 62 | | 0 | | | | 188 |
Doubtful | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | | 0 |
Total CRE loans | | $ | 194 | | $ | 480 | | $ | 690 | | $ | 780 | | $ | 234 | | $ | 271 | | $ | 61 | | | | $ | 2,710 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
REIT loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 171 | | $ | 123 | | $ | 115 | | $ | 87 | | $ | 50 | | $ | 220 | | $ | 364 | | | | $ | 1,130 |
Special mention | | 0 | | 0 | | 28 | | 11 | | 39 | | 124 | | 21 | | | | 223 |
Substandard | | 0 | | 0 | | 21 | | 0 | | 4 | | 0 | | 2 | | | | 27 |
Doubtful | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | | 0 |
Total REIT loans | | $ | 171 | | $ | 123 | | $ | 164 | | $ | 98 | | $ | 93 | | $ | 344 | | $ | 387 | | | | $ | 1,380 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Tax-exempt loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 9 | | $ | 59 | | $ | 123 | | $ | 209 | | $ | 276 | | $ | 547 | | $ | 0 | | | | $ | 1,223 |
Special mention | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | | 0 |
Substandard | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | | 0 |
Doubtful | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | | 0 |
Total tax-exempt loans | | $ | 9 | | $ | 59 | | $ | 123 | | $ | 209 | | $ | 276 | | $ | 547 | | $ | 0 | | | | $ | 1,223 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Residential mortgage loans | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 836 | | $ | 1,459 | | $ | 788 | | $ | 499 | | $ | 556 | | $ | 815 | | $ | 18 | | | | $ | 4,971 |
Special mention | | 0 | | 0 | | 0 | | 0 | | 0 | | 5 | | 0 | | | | 5 |
Substandard | | 0 | | 0 | | 0 | | 1 | | 2 | | 22 | | 0 | | | | 25 |
Doubtful | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | | 0 |
Total residential mortgage loans | | $ | 836 | | $ | 1,459 | | $ | 788 | | $ | 500 | | $ | 558 | | $ | 842 | | $ | 18 | | | | $ | 5,001 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
SBL and other | | | | | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | | | | | |
Pass | | $ | 6 | | $ | 45 | | $ | 12 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 4,828 | | | | $ | 4,891 |
Special mention | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | | 0 |
Substandard | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | | 0 |
Doubtful | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | | 0 |
Total SBL and other | | $ | 6 | | $ | 45 | | $ | 12 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 4,828 | | | | $ | 4,891 |
Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
RJ Bank also monitors the credit quality of the residential mortgage loan portfolio utilizing FICO scores and LTV ratios. A FICO score measures a borrower’s creditworthiness by considering factors such as payment and credit history. LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan.
The following table presents the held for investment residential mortgage loan portfolio by FICO score and by LTV ratio at origination.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
FICO score: | | | | |
Below 600 | | $ | 67 | | | $ | 67 | |
600 - 699 | | 398 | | | 363 | |
700 - 799 | | 3,496 | | | 3,463 | |
800 + | | 1,035 | | | 1,076 | |
FICO score not available | | 5 | | | 4 | |
Total | | $ | 5,001 | | | $ | 4,973 | |
| | | | |
LTV ratio: | | | | |
Below 80% | | $ | 3,901 | | | $ | 3,852 | |
80%+ | | 1,100 | | | 1,121 | |
Total | | $ | 5,001 | | | $ | 4,973 | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Allowance for loancredit losses and reserve for unfunded lending commitments
The following table presents changes in the allowance for loancredit losses of RJ Bankon held for investment bank loans by portfolio segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | C&I loans | | CRE loans | | REIT loans | | Tax-exempt loans | | Residential mortgage loans | | SBL and other | | Total |
Three months ended March 31, 2021 | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 198 | | | $ | 112 | | | $ | 30 | | | $ | 2 | | | $ | 33 | | | $ | 3 | | | $ | 378 | |
| | | | | | | | | | | | | | |
Provision/(benefit) for credit losses | | 7 | | | (39) | | | 6 | | | 0 | | | (7) | | | 1 | | | (32) | |
Net (charge-offs)/recoveries: | | | | | | | | | | | | | | |
Charge-offs | | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | |
Recoveries | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Net (charge-offs)/recoveries | | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | |
Foreign exchange translation adjustment | | 0 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | |
Balance at end of period | | $ | 203 | | | $ | 74 | | | $ | 36 | | | $ | 2 | | | $ | 26 | | | $ | 4 | | | $ | 345 | |
| | | | | | | | | | | | | | |
Six months ended March 31, 2021 | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 200 | | | $ | 81 | | | $ | 36 | | | $ | 14 | | | $ | 18 | | | $ | 5 | | | $ | 354 | |
Impact of CECL adoption | | 19 | | | (11) | | | (9) | | | (12) | | | 24 | | | (2) | | | 9 | |
Provision/(benefit) for credit losses | | (15) | | | 3 | | | 9 | | | 0 | | | (16) | | | 1 | | | (18) | |
Net (charge-offs)/recoveries: | | | | | | | | | | | | | | |
Charge-offs | | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | |
Recoveries | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Net (charge-offs)/recoveries | | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | |
Foreign exchange translation adjustment | | 1 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2 | |
Balance at end of period | | $ | 203 | | | $ | 74 | | | $ | 36 | | | $ | 2 | | | $ | 26 | | | $ | 4 | | | $ | 345 | |
| | | | | | | | | | | | | | |
Three months ended March 31, 2020 | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 139 | | | $ | 36 | | | $ | 12 | | | $ | 8 | | | $ | 17 | | | $ | 4 | | | $ | 216 | |
Provision/(benefit) for credit losses | | 58 | | | 18 | | | 26 | | | 3 | | | 1 | | | 3 | | | 109 | |
Net (charge-offs)/recoveries: | | | | | | | | | | | | | | |
Charge-offs | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Recoveries | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Net (charge-offs)/recoveries | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Foreign exchange translation adjustment | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | |
Balance at end of period | | $ | 196 | | | $ | 54 | | | $ | 38 | | | $ | 11 | | | $ | 18 | | | $ | 7 | | | $ | 324 | |
| | | | | | | | | | | | | | |
Six months ended March 31, 2020 | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 139 | | | $ | 34 | | | $ | 15 | | | $ | 9 | | | $ | 16 | | | $ | 5 | | | $ | 218 | |
Provision/(benefit) for credit losses | | 58 | | | 20 | | | 23 | | | 2 | | | 2 | | | 2 | | | $ | 107 | |
Net (charge-offs)/recoveries: | | | | | | | | | | | | | | |
Charge-offs | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | $ | 0 | |
Recoveries | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | $ | 0 | |
Net (charge-offs)/recoveries | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Foreign exchange translation adjustment | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | |
Balance at end of period | | $ | 196 | | | $ | 54 | | | $ | 38 | | | $ | 11 | | | $ | 18 | | | $ | 7 | | | $ | 324 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Loans held for investment |
$ in millions | | C&I loans | | CRE construction loans | | CRE loans | | Tax-exempt loans | | Residential mortgage loans | | SBL and other | | Total |
Three months ended March 31, 2020 | | | | |
| | |
| | | | |
| | |
| | |
|
Balance at beginning of period | | $ | 139 |
| | $ | 2 |
| | $ | 46 |
| | $ | 8 |
| | $ | 17 |
| | $ | 4 |
| | $ | 216 |
|
Provision for loan losses | | 59 |
| | 1 |
| | 42 |
| | 3 |
| | 1 |
| | 3 |
| | 109 |
|
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | |
| | | | |
|
Charge-offs | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Recoveries | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net (charge-offs)/recoveries | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Foreign exchange translation adjustment | | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Balance at end of period | | $ | 197 |
| | $ | 3 |
| | $ | 88 |
| | $ | 11 |
| | $ | 18 |
| | $ | 7 |
| | $ | 324 |
|
| | | | | | | | | | | | | | |
Six months ended March 31, 2020 | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 139 |
| | $ | 3 |
| | $ | 46 |
| | $ | 9 |
| | $ | 16 |
| | $ | 5 |
| | $ | 218 |
|
Provision for loan losses | | 59 |
| | — |
| | 42 |
| | 2 |
| | 2 |
| | 2 |
| | 107 |
|
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | |
| | |
| | |
Charge-offs | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Recoveries | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net (charge-offs)/recoveries | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Foreign exchange translation adjustment | | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Balance at end of period | | $ | 197 |
| | $ | 3 |
| | $ | 88 |
| | $ | 11 |
| | $ | 18 |
| | $ | 7 |
| | $ | 324 |
|
| | | | | | | | | | | | | | |
Three months ended March 31, 2019 | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 137 |
| | $ | 3 |
| | $ | 46 |
| | $ | 9 |
| | $ | 19 |
| | $ | 5 |
| | $ | 219 |
|
Provision/(benefit) for loan losses | | 6 |
| | — |
| | 2 |
| | (1 | ) | | (2 | ) | | — |
| | 5 |
|
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | | | | | |
Charge-offs | | (3 | ) | | — |
| | (3 | ) | | — |
| | — |
| | — |
| | (6 | ) |
Recoveries | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net (charge-offs)/recoveries | | (3 | ) | | — |
| | (3 | ) | | — |
| | — |
| | — |
| | (6 | ) |
Foreign exchange translation adjustment | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Balance at end of period | | $ | 140 |
| | $ | 3 |
| | $ | 45 |
| | $ | 8 |
| | $ | 17 |
| | $ | 5 |
| | $ | 218 |
|
| | | | | | | | | | | | | | |
Six months ended March 31, 2019 | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | 123 |
| | $ | 3 |
| | $ | 47 |
| | $ | 9 |
| | $ | 17 |
| | $ | 4 |
| | $ | 203 |
|
Provision/(benefit) for loan losses | | 21 |
| | — |
| | 1 |
| | (1 | ) | | (1 | ) | | 1 |
| | 21 |
|
Net (charge-offs)/recoveries: | | |
| | |
| | |
| | | | | | | | |
Charge-offs | | (3 | ) | | — |
| | (3 | ) | | — |
| | — |
| | — |
| | (6 | ) |
Recoveries | | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Net (charge-offs)/recoveries | | (3 | ) | | — |
| | (3 | ) | | — |
| | 1 |
| | — |
| | (5 | ) |
Foreign exchange translation adjustment | | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Balance at end of period | | $ | 140 |
| | $ | 3 |
| | $ | 45 |
| | $ | 8 |
| | $ | 17 |
| | $ | 5 |
| | $ | 218 |
|
The allowance for credit losses on held for investment bank loans decreased $33 million to $345 million during the three months ended March 31, 2021, primarily due to changes in macroeconomic inputs to our CECL model during the quarter, including an improved outlook for the commercial real estate and residential mortgage bank loan portfolios, partially offset by the impact of weakened equity market forecasts on the C&I and REIT loan portfolios and an increase in criticized loans. The allowance for credit losses decreased $18 million to $345 million since the adoption of CECL on October 1, 2020, largely attributable to changes in inputs to our CECL model since our October 1, 2020 adoption date, reflecting improvements in certain forecasted macroeconomic inputs, including unemployment and gross domestic product, partially offset by forecasted declines in commercial real estate values since our CECL adoption date, as well as an increase in criticized loans.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents, by loan portfolio segment, RJ Bank’s recorded investment (excluding any net unearned income and deferred expenses) and the related allowance for loan losses.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Loans held for investment |
| | Allowance for loan losses | | Recorded investment |
$ in millions | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total | | Individually evaluated for impairment | | Collectively evaluated for impairment | | Total |
March 31, 2020 | | | | | | | | | | | | |
C&I loans | | $ | 1 |
| | $ | 196 |
| | $ | 197 |
| | $ | 4 |
| | $ | 8,312 |
| | $ | 8,316 |
|
CRE construction loans | | — |
| | 3 |
| | 3 |
| | — |
| | 180 |
| | 180 |
|
CRE loans | | — |
| | 88 |
| | 88 |
| | 6 |
| | 3,824 |
| | 3,830 |
|
Tax-exempt loans | | — |
| | 11 |
| | 11 |
| | — |
| | 1,266 |
| | 1,266 |
|
Residential mortgage loans | | 1 |
| | 17 |
| | 18 |
| | 25 |
| | 4,839 |
| | 4,864 |
|
SBL and other | | — |
| | 7 |
| | 7 |
| | — |
| | 3,546 |
| | 3,546 |
|
Total | | $ | 2 |
| | $ | 322 |
| | $ | 324 |
| | $ | 35 |
| | $ | 21,967 |
| | $ | 22,002 |
|
| | | | | | | | | | | | |
September 30, 2019 | | | | | | | | | | | | |
C&I loans | | $ | 6 |
| | $ | 133 |
| | $ | 139 |
| | $ | 19 |
| | $ | 8,079 |
| | $ | 8,098 |
|
CRE construction loans | | — |
| | 3 |
| | 3 |
| | — |
| | 185 |
| | 185 |
|
CRE loans | | — |
| | 46 |
| | 46 |
| | 8 |
| | 3,644 |
| | 3,652 |
|
Tax-exempt loans | | — |
| | 9 |
| | 9 |
| | — |
| | 1,241 |
| | 1,241 |
|
Residential mortgage loans | | 1 |
| | 15 |
| | 16 |
| | 28 |
| | 4,426 |
| | 4,454 |
|
SBL and other | | — |
| | 5 |
| | 5 |
| | — |
| | 3,349 |
| | 3,349 |
|
Total | | $ | 7 |
| | $ | 211 |
| | $ | 218 |
| | $ | 55 |
| | $ | 20,924 |
| | $ | 20,979 |
|
The reserve forcredit losses on unfunded lending commitments, which is included in “Other payables” on our Condensed Consolidated Statements of Financial Condition, was $9$17 million, $20 million and $12 million at both March 31, 2021, December 31, 2020 and September 30, 2019.
2020, respectively. The decrease in the allowance for credit losses on unfunded lending
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
commitments during the three months ended March 31, 2021 was primarily due to an improved outlook for commercial real estate compared with December 31, 2020. The increase in the allowance for credit losses on unfunded lending commitments as of March 31, 2021 compared with September 30, 2020 was predominantly due to the adoption impact of CECL.
See Note 2 for further information about the adoption of CECL and the impact to the allowance for credit losses.
NOTE 89 – LOANS TO FINANCIAL ADVISORS, NET
Loans to financial advisors are primarily comprised of loans originated as a part of our recruiting activities. See Note 2 for a discussion of our accounting policies related to loans to financial advisors and the related allowance for credit losses. The following table presents the balances for our loans to financial advisors and the related accrued interest receivable.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
Currently affiliated with the firm (1) | | $ | 1,006 | | | $ | 1,001 | |
No longer affiliated with the firm (2) | | 10 | | | 15 | |
Total loans to financial advisors | | 1,016 | | | 1,016 | |
Allowance for credit losses | | (28) | | | (4) | |
Loans to financial advisors, net | | $ | 988 | | | $ | 1,012 | |
Accrued interest receivable on loans to financial advisors | | $ | 4 | | | $ | 4 | |
(1) These loans were predominately current.
(2) These loans were predominately past due for a period of 180 days or more and on nonaccrual status.
The allowance for credit losses as of March 31, 2021 was determined using the CECL methodology, which we adopted on October 1, 2020. Prior periods calculated under the incurred loss methodology have not been restated. The increase in the allowance from September 30, 2020 to March 31, 2021 was primarily due to the October 1, 2020 CECL adoption, which resulted in an increase in our allowance for credit losses of $25 million. See Note 2 for further information on the CECL adoption.
Accrued interest receivables presented in the preceding table are reported in “Other receivables, net” on the Condensed Consolidated Statements of Financial Condition.
NOTE 10 – VARIABLE INTEREST ENTITIES
A VIE requires consolidation by the entity’s primary beneficiary. We evaluate all of the entities in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. Refer to Note 2 of our 20192020 Form 10-K for a discussion of our principal involvement with VIEs and the accounting policies regarding determination of whether we are deemed to be the primary beneficiary of VIEs.
VIEs where we are the primary beneficiary
Of the VIEs in which we hold an interest, we have determined that certain limited partnerships which are part of our private equity portfolio (“Private Equity Interests”), certain Low-Income Housing Tax Credit (“LIHTC”) funds and the trust we utilize in connection with restricted stock unit (“RSU”) awards granted to certain employees of one of our Canadian subsidiaries (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 following table. Aggregate assets and aggregate liabilities may differ from the consolidated carrying value of assets and liabilities due to the elimination of intercompany assets and liabilities held by the consolidated VIE.
|
| | | | | | | | |
$ in millions | | Aggregate assets | | Aggregate liabilities |
March 31, 2020 | | | | |
Private Equity Interests | | $ | 34 |
| | $ | 4 |
|
LIHTC funds | | 75 |
| | 5 |
|
Restricted Stock Trust Fund | | 19 |
| | 19 |
|
Total | | $ | 128 |
| | $ | 28 |
|
| | | | |
September 30, 2019 | | |
| | |
|
Private Equity Interests | | $ | 65 |
| | $ | 4 |
|
LIHTC funds | | 80 |
| | 5 |
|
Restricted Stock Trust Fund | | 14 |
| | 14 |
|
Total | | $ | 159 |
| | $ | 23 |
|
32
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | |
$ in millions | | Aggregate assets | | Aggregate liabilities |
March 31, 2021 | | | | |
Private Equity Interests | | $ | 48 | | | $ | 4 | |
LIHTC funds | | 68 | | | 6 | |
Restricted Stock Trust Fund | | 21 | | | 21 | |
Total | | $ | 137 | | | $ | 31 | |
| | | | |
September 30, 2020 | | | | |
Private Equity Interests | | $ | 39 | | | $ | 4 | |
LIHTC funds | | 168 | | | 76 | |
Restricted Stock Trust Fund | | 14 | | | 14 | |
Total | | $ | 221 | | | $ | 94 | |
The following table presents information about the carrying value of the assets and liabilities of the VIEs which we consolidate and which are included on our Condensed Consolidated Statements of Financial Condition. Intercompany balances are eliminated in consolidation and not reflected in the following table.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
Assets: | | | | |
Cash and cash equivalents and assets segregated pursuant to regulations | | $ | 11 | | | $ | 9 | |
Other investments | | 46 | | | 37 | |
| | | | |
Other assets | | 59 | | | 164 | |
Total assets | | $ | 116 | | | $ | 210 | |
Liabilities: | | | | |
Other payables | | $ | 3 | | | $ | 76 | |
Total liabilities | | $ | 3 | | | $ | 76 | |
Noncontrolling interests | | $ | 42 | | | $ | 62 | |
|
| | | | | | | | |
$ in millions | | March 31, 2020 | | September 30, 2019 |
Assets: | | | | |
Cash, cash equivalents and cash segregated pursuant to regulations | | $ | 6 |
| | $ | 7 |
|
Other investments | | 33 |
| | 63 |
|
Other assets | | 70 |
| | 75 |
|
Total assets | | $ | 109 |
| | $ | 145 |
|
Liabilities: | | |
| | |
|
Other payables | | $ | 4 |
| | $ | 4 |
|
Total liabilities | | $ | 4 |
| | $ | 4 |
|
Noncontrolling interests | | $ | 35 |
| | $ | 60 |
|
VIEs where we hold a variable interest but are not the primary beneficiary
As discussed in Note 2 of our 20192020 Form 10-K, we have concluded that for certain VIEs we are not the primary beneficiary and therefore do not consolidate these VIEs. Such VIEs include certain Private Equity Interests, certain LIHTC funds, 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.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Aggregate assets, liabilities and risk of loss
The aggregate assets, liabilities, and our exposure to loss from those VIEs in which we hold a variable interest, but as to which we have concluded we are not the primary beneficiary, are provided in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | September 30, 2020 |
$ in millions | | Aggregate assets | | Aggregate liabilities | | Our risk of loss | | Aggregate assets | | Aggregate liabilities | | Our risk of loss |
Private Equity Interests | | $ | 7,416 | | | $ | 167 | | | $ | 77 | | | $ | 7,738 | | | $ | 96 | | | $ | 67 | |
LIHTC funds | | 7,151 | | | 2,178 | | | 28 | | | 6,516 | | | 1,993 | | | 66 | |
Other | | 357 | | | 146 | | | 9 | | | 227 | | | 136 | | | 6 | |
Total | | $ | 14,924 | | | $ | 2,491 | | | $ | 114 | | | $ | 14,481 | | | $ | 2,225 | | | $ | 139 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2020 | | September 30, 2019 |
$ in millions | | Aggregate assets | | Aggregate liabilities | | Our risk of loss | | Aggregate assets | | Aggregate liabilities | | Our risk of loss |
Private Equity Interests | | $ | 5,175 |
| | $ | 128 |
| | $ | 59 |
| | $ | 6,317 |
| | $ | 117 |
| | $ | 63 |
|
LIHTC funds | | 6,500 |
| | 2,041 |
| | 40 |
| | 6,001 |
| | 2,221 |
| | 64 |
|
Other | | 220 |
| | 129 |
| | 4 |
| | 205 |
| | 115 |
| | 4 |
|
Total | | $ | 11,895 |
|
| $ | 2,298 |
|
| $ | 103 |
|
| $ | 12,523 |
|
| $ | 2,453 |
|
| $ | 131 |
|
NOTE 911 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET
Our goodwill and identifiedidentifiable intangible assets result from various acquisitions. During the six months ended March 31, 2021, we acquired NWPS and Financo which resulted in goodwill and identifiable intangible assets. See Note 3 for additional information on these acquisitions and the related goodwill and identifiable intangible assets. See Notes 2 and 1110 of our 20192020 Form 10-K for additional information about our goodwill and intangible assets, including the related accounting policies.
We perform goodwill and indefinite-lived intangible asset impairment testing on an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value or indicate that the asset is impaired. We performed our latest annual impairment testing for our goodwill and indefinite-lived
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
intangible asset as of our January 1, 20202021, our annual evaluation date, evaluating balances as of December 31, 2019. We2020. In this annual evaluation, we performed a qualitative impairment assessment for each of our reporting units that had goodwill, as well as for our indefinite-lived intangible asset. Based upon the outcome of our qualitative assessments, 0 impairment was identified.
Our qualitative assessments consider macroeconomic indicators, such as trends in equity and fixed income markets, gross domestic product, unemployment rates, interest rates, and housing markets and trade policy.markets. We also consider regulatory changes, reporting unit specific results, and changes in key personnel and strategy. Changes in these indicators, and our ability to respond to such changes, may trigger the need for impairment testing at a point other than our annual assessment date. Based upon the outcome of these qualitative assessments, 0 impairment was identified. No events have occurred since such assessments that would cause us to update this impairment testing.
Subsequent
NOTE 12 – LEASES
The following table presents the balances related to our annual impairment testing, as a result of a deterioration in market conditions due to the COVID-19 pandemic, we performed an evaluation to determine whether the economic impacts resulting from the pandemic were indicators requiring us to perform an impairment test as of March 31, 2020. Multiple factors, including performance, macroeconomic, and fair value indicators, were assessed with respect to each of our reporting units to determine whether it was more likely than not that the estimated fair value of any of these reporting units was less than its estimated carrying value. As a result of our review, we concluded that the fair value of our reporting units had not more likely than not been reduced below their respective carrying values and that the impact of the COVID-19 pandemic through the end of our second fiscal quarter of 2020 was not a triggering event to perform a quantitative test. We will continue to monitor the effects of the COVID-19 pandemic, including continued market declines, unfavorable economic conditions, declining financial performance, and other factors that could increase the risk of impairment of our goodwill and indefinite-lived intangible asset in future periods.
NOTE 10 – LEASES
We have operating leases for the premises we occupy in many of our U.S. and foreign locations, including our employee-based branch office operations. We also lease certain office and technology equipment. At inception, we determine if an arrangement to utilize a building or piece of equipment is a lease and, if so, the appropriate lease classification. If the arrangement is determined to be a lease, we recognize a ROU asset and a corresponding lease liability on our balance sheet. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We have elected the practical expedient, where leases with an initial term of 12 months or less are not recorded as an ROU asset or lease liability. Our lease terms include any noncancelable periods and may reflect periods covered by options to extend or terminate when it is reasonably certain that we will exercise those options. As of March 31, 2020, the weighted average remaining lease term for our operating leases was five years.
We record our operating lease ROU assets at the amount of the lease liability plus any prepaid rent and initial direct costs, less any lease incentives and accrued rent. We record lease liabilities at commencement date based on the present value of lease payments over the lease term, which is discounted using our commencement date incremental borrowing rate. Our incremental borrowing rate considers the weighted average yields on our senior notes payable, adjusted for collateralization and tenor. As of March 31, 2020, the weighted-
Notes to Condensed Consolidated Financial Statements (Unaudited)
average discount rate for our operating leases was 3.86%. Payments that vary because of changes in facts or circumstances occurring after the commencement date are considered variable and are expensed in the period incurred. For our real estate leases, we elected the practical expedient to account for the lease and non-lease components as a single lease. We have not elected the practical expedient for our equipment leases and account for lease and non-lease components separately. As of March 31, 2020, ROU assets of $327 million and lease liabilities of $351 million were included as components of “Other assets” and “Other payables,” respectively, on our Condensed Consolidated Statements of Financial Condition. The weighted-average remaining lease term and discount-rate for our leases was 5.7 years and 3.80%, respectively, as of March 31, 2021. See Note 2 of our 2020 Form 10-K for a discussion of our accounting policies related to leases.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
ROU assets (included in Other assets) | | $ | 348 | | | $ | 321 | |
Lease liabilities (included in Other payables) | | $ | 376 | | | $ | 345 | |
Lease expense
The following table details the components of lease expense, which is included in “Occupancy and equipment” expense on our Condensed Consolidated Statements of Income and Comprehensive Income. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term if the ROU asset has not been impaired or abandoned.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Lease costs | | $ | 27 | | | 23 | | | $ | 54 | | | 46 | |
Variable lease costs | | $ | 7 | | | 4 | | | $ | 13 | | | 12 | |
The components of lease expense were as follows.
|
| | | | | | | | |
$ in million | | Three months ended March 31, 2020 | | Six months ended March 31, 2020 |
Operating lease costs | | $ | 23 |
| | $ | 46 |
|
Variable lease costs | | $ | 4 |
| | $ | 12 |
|
Variable lease costs in the preceding table includesinclude payments for common area maintenance charges and other variable costs that are not reflected in the measurement of ROU assets and lease liabilities.
Finance leases and sublease income were immaterial for all periods presented. Short-term lease expenses for the three and six months ended March 31, 2020 were immaterial.
Lease liabilities
MaturitiesThe maturities by fiscal year of our lease liabilities as of March 31, 2020 were as follows.2021 are presented in the following table.
| | | | | | | | |
| | $ in millions |
Remainder of 2021 | | $ | 47 | |
2022 | | 96 | |
2023 | | 77 | |
2024 | | 58 | |
2025 | | 43 | |
Thereafter | | 102 | |
Gross lease payments | | 423 | |
Less: interest | | (47) | |
Present value of lease liabilities | | $ | 376 | |
|
| | | | |
Maturity of lease liabilities for fiscal year ended September 30, | | $ in millions |
Remainder of 2020 | | $ | 43 |
|
2021 | | 95 |
|
2022 | | 72 |
|
2023 | | 58 |
|
2024 | | 44 |
|
After 2024 | | 79 |
|
Total lease payments | | 391 |
|
Less: interest | | 40 |
|
Present value of lease liabilities | | $ | 351 |
|
Operating leaseLease payments in the preceding table exclude $93$123 million of legally binding minimum lease payments for leases signed but not yet commenced. These leases are estimated to commence between fiscal year 20202021 and 20212022 with lease terms ranging from two yearsone year to ten11 years.
Statement of cash flows supplemental information
|
| | | | | | | | |
$ in millions | | Three months ended March 31, 2020 | | Six months ended March 31, 2020 |
Cash outflows - lease liabilities | | $ | 24 |
| | $ | 47 |
|
Non-cash - ROU assets recorded for new and modified leases | | $ | 27 |
| | $ | 39 |
|
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Minimum future lease commitments (under previous GAAP)
As of the date of adoption, our undiscounted minimum annual rental commitments under operating leases were materially unchanged from the disclosure in Note 17 of our 2019 Form 10-K, which is included in the following table.
|
| | | | |
Fiscal year ended September 30, | | $ in millions |
2020 | | $ | 103 |
|
2021 | | 95 |
|
2022 | | 79 |
|
2023 | | 66 |
|
2024 | | 49 |
|
Thereafter | | 127 |
|
Total | | $ | 519 |
|
NOTE 1113 – BANK DEPOSITS
Bank deposits include savings and money market accounts, certificates of deposit with RJ Bank, N.A., Negotiable Order of Withdrawal (“NOW”) accounts and demand deposits. The following table presents a summary of bank deposits, includingas well as the weighted-average rate, theinterest rates on such deposits. The calculation of which wasthe weighted-average rates were based on the actual deposit balances and rates at each respective period.period end.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | September 30, 2020 |
$ in millions | | Balance | | Weighted-average rate | | Balance | | Weighted-average rate |
Savings and money market accounts | | $ | 28,180 | | | 0.01 | % | | $ | 25,604 | | | 0.01 | % |
Certificates of deposit | | 889 | | | 1.91 | % | | 1,017 | | | 1.94 | % |
NOW accounts | | 163 | | | 1.84 | % | | 156 | | | 1.92 | % |
Demand deposits (non-interest-bearing) | | 22 | | | 0 | | | 24 | | | 0 | |
Total bank deposits | | $ | 29,254 | | | 0.08 | % | | $ | 26,801 | | | 0.09 | % |
|
| | | | | | | | | | | | | | |
| | March 31, 2020 | | September 30, 2019 |
$ in millions | | Balance | | Weighted-average rate | | Balance | | Weighted-average rate |
Savings and money market accounts | | $ | 28,715 |
| | 0.01 | % | | $ | 21,654 |
| | 0.25 | % |
Certificates of deposit | | 1,150 |
| | 1.99 | % | | 605 |
| | 2.33 | % |
NOW accounts | | 136 |
| | 1.92 | % | | 6 |
| | 0.01 | % |
Demand deposits (non-interest-bearing) | | 22 |
| | — |
| | 16 |
| | — |
|
Total | | $ | 30,023 |
| | 0.09 | % | | $ | 22,281 |
| | 0.31 | % |
Total bank deposits in the preceding table exclude affiliate deposits of $179$185 million at both March 31, 20202021 and $163 million at September 30, 2019,2020, all of which were held in a deposit account at RJ Bank, N.A. on behalf of RJF.
Savings and money market accounts in the preceding table consist primarily of deposits that are cash balances swept to RJ Bank, N.A. from the client investment accounts maintained at Raymond James & Associates, Inc. (“RJ&A”) to RJ Bank.. These balances are held in Federal Deposit Insurance Corporation (“FDIC”)-insured bank accounts through the Raymond James Bank Deposit Program (“RJBDP”). The aggregate amount of individual time deposit account balances that exceeded the FDIC insurance limit at March 31, 20202021 was approximately $65$23 million.
The following table sets forth the scheduled maturities of certificates of deposit.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | September 30, 2020 |
$ in millions | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 |
Three months or less | | $ | 31 | | | $ | 14 | | | $ | 59 | | | $ | 76 | |
Over three through six months | | 12 | | | 21 | | | 26 | | | 18 | |
Over six through twelve months | | 25 | | | 159 | | | 19 | | | 26 | |
Over one through two years | | 58 | | | 161 | | | 43 | | | 206 | |
Over two through three years | | 67 | | | 171 | | | 67 | | | 170 | |
Over three through four years | | 7 | | | 150 | | | 37 | | | 165 | |
Over four through five years | | 9 | | | 4 | | | 7 | | | 98 | |
Total certificates of deposit | | $ | 209 | | | $ | 680 | | | $ | 258 | | | $ | 759 | |
|
| | | | | | | | | | | | | | | | |
| | March 31, 2020 | | September 30, 2019 |
$ in millions | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 | | Denominations greater than or equal to $100,000 | | Denominations less than $100,000 |
Three months or less | | $ | 84 |
| | $ | 20 |
| | $ | 24 |
| | $ | 19 |
|
Over three through six months | | 57 |
| | 26 |
| | 26 |
| | 21 |
|
Over six through twelve months | | 67 |
| | 85 |
| | 75 |
| | 37 |
|
Over one through two years | | 26 |
| | 175 |
| | 32 |
| | 36 |
|
Over two through three years | | 54 |
| | 160 |
| | 40 |
| | 93 |
|
Over three through four years | | 68 |
| | 171 |
| | 66 |
| | 47 |
|
Over four through five years | | 7 |
| | 150 |
| | 38 |
| | 51 |
|
Total certificates of deposit | | $ | 363 |
| | $ | 787 |
| | $ | 301 |
| | $ | 304 |
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
Interest expense on deposits, excluding interest expense related to affiliate deposits, is summarized in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Savings, money market, and NOW accounts | | $ | 2 | | | $ | 6 | | | $ | 3 | | | $ | 18 | |
Certificates of deposit | | 4 | | | 6 | | | 9 | | | 10 | |
Total interest expense on deposits | | $ | 6 | | | $ | 12 | | | $ | 12 | | | $ | 28 | |
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
Savings, money market, and NOW accounts | | $ | 6 |
| | $ | 34 |
| | $ | 18 |
| | $ | 67 |
|
Certificates of deposit | | 6 |
| | 3 |
| | 10 |
| | 5 |
|
Total interest expense on deposits | | $ | 12 |
| | $ | 37 |
| | $ | 28 |
| | $ | 72 |
|
NOTE 12 – OTHER BORROWINGS
The following table details the components of other borrowings.
|
| | | | | | | | |
$ in millions | | March 31, 2020 | | September 30, 2019 |
FHLB advances | | $ | 875 |
| | $ | 875 |
|
Mortgage notes payable and other | | 16 |
| | 19 |
|
Total other borrowings | | $ | 891 |
| | $ | 894 |
|
FHLB advances
Borrowings from the FHLB as of March 31, 2020 and September 30, 2019, were comprised of both floating and fixed-rate advances. As of March 31, 2020 and September 30, 2019, the floating-rate advances totaled $850 million. The interest rates on the floating-rate advances, which mature in December 2022, reset quarterly and are generally based on LIBOR. We use interest rate swaps to manage the risk of increases in interest rates associated with these floating-rate advances by converting the balances subject to variable interest rates to a fixed interest rate. Refer to Note 2 of our 2019 Form 10-K for information regarding these interest rate swaps, which are accounted for as hedging instruments. As of both March 31, 2020 and September 30, 2019, the fixed-rate advance totaled $25 million and bears interest at a fixed rate of 3.4%. This advance matures in October 2020. All of the advances were secured by a blanket lien granted to the FHLB on our residential mortgage loan portfolio. The weighted average interest rate on these FHLB advances as of March 31, 2020 and September 30, 2019 was 1.42% and 2.17%, respectively.
Secured and unsecured financing arrangements
On February 19, 2019, RJF and RJ&A entered into an unsecured revolving credit facility agreement (the “Credit Facility”). The Credit Facility has a maturity date of February 2024 and the lenders include a number of financial institutions. This committed unsecured borrowing facility provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF. RJ&A may borrow up to $500 million under the Credit Facility, depending on the amount of outstanding borrowings of RJF. The interest rates on borrowings under the Credit Facility are variable and based on LIBOR, as adjusted for RJF’s credit rating. There were 0 borrowings outstanding on the Credit Facility as of March 31, 2020. There is a facility fee associated with the Credit Facility, which also varies with RJF’s credit rating. Based upon RJF’s credit rating as of March 31, 2020, the variable rate facility fee, which is applied to the committed amount, was 0.175% per annum.
In addition to the Credit Facility, we maintain various secured and unsecured lines of credit, which are generally utilized to finance certain fixed income securities or for cash management purposes. Borrowings during the period were generally day-to-day and there were no borrowings outstanding on these arrangements as of March 31, 2020. The interest rates for these arrangements are variable and are based on the Fed Funds rate, LIBOR, a lenders prime rate, or the Canadian prime rate, as applicable.
We also have other collateralized financings included in “Securities sold under agreements to repurchase” and “Securities loaned” on our Condensed Consolidated Statements of Financial Condition. See Note 6 for information regarding our other collateralized financing arrangements.
Mortgage notes payable and other
Mortgage notes payable pertain to mortgage loans on certain of our corporate headquarters offices located in St. Petersburg, Florida. These mortgage loans are secured by land, buildings, and improvements. These mortgage loans bear a fixed interest rate of 5.7% with repayment terms of monthly interest and principal debt service and have a January 2023 maturity.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1314 – SENIOR NOTES PAYABLE
The following table summarizes our senior notes payable.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
5.625% senior notes, due 2024 | | $ | 250 | | | $ | 250 | |
3.625% senior notes, due 2026 | | 500 | | | 500 | |
4.65% senior notes, due 2030 | | 500 | | | 500 | |
4.95% senior notes, due 2046 | | 800 | | | 800 | |
Total principal amount | | 2,050 | | | 2,050 | |
Unaccreted premium/(discount) | | 9 | | | 10 | |
Unamortized debt issuance costs | | (14) | | | (15) | |
Total senior notes payable | | $ | 2,045 | | | $ | 2,045 | |
|
| | | | | | | | |
$ in millions | | March 31, 2020 | | September 30, 2019 |
5.625% senior notes, due 2024 | | $ | 250 |
| | $ | 250 |
|
3.625% senior notes, due 2026 | | 500 |
| | 500 |
|
4.65% senior notes, due 2030 | | 500 |
| | — |
|
4.95% senior notes, due 2046 | | 800 |
| | 800 |
|
Total principal amount | | 2,050 |
| | 1,550 |
|
Unaccreted premium/(discount) | | 10 |
| | 11 |
|
Unamortized debt issuance costs | | (16 | ) | | (11 | ) |
Total senior notes payable | | $ | 2,044 |
| | $ | 1,550 |
|
In March 2012, we sold in a registered underwritten public offering $250 million in aggregate principal amount of 5.625% senior notes due April 2024. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 50 basis points, plus accrued and unpaid interest thereon to the redemption date.
In July 2016, we sold in a registered underwritten public offering $500 million in aggregate principal amount of 3.625% senior notes due September 2026. Interest on these senior notes iswas payable semi-annually. We may redeem someIn April and May 2021, we repurchased or redeemed, as applicable, all of thesethe outstanding 5.625% senior notes at any time prior to their maturity, at a redemption price equal todue April 2024 and 3.625% senior notes due September 2026. See the greater of (i) 100%discussion of the principal amounttender offers and redemptions of thesuch senior notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 35 basis points, plus accrued and unpaid interest thereon to the redemption date.described below.
In March 2020, we sold in a registered underwritten public offering $500 million in aggregate principal amount of 4.65% senior notes due April 2030. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to January 1, 2030, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 50 basis points; and on or after January 1, 2030, at 100% of the principal amount of the notes redeemed; plus, in each case, accrued and unpaid interest thereon to the redemption date.
In July 2016, we sold in a registered underwritten public offering $300 million in aggregate principal amount of 4.95% senior notes due July 2046. In May 2017, we reopened the offering and sold, in a registered underwritten public offering, an additional $500 million in aggregate principal amount of 4.95% senior notes due July 2046. These additional senior notes were consolidated, formed into a single series, and are fully fungible with the $300 million in aggregate principal amount of 4.95% senior notes issued in July 2016. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 45 basis points, plus accrued and unpaid interest thereon to the redemption date.
Senior notes offering
In April 2021, we sold in a registered underwritten public offering $750 million in aggregate principal amount of 3.75% senior notes due April 2051. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to October 1, 2050, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 20 basis points; and on or after October 1, 2050, at 100% of the principal amount of the notes redeemed; plus, in each case, accrued and unpaid interest thereon to the redemption date. These senior notes will be reflected on our Condensed Consolidated Statement of Financial Condition beginning in our third fiscal quarter of 2021.
Tender offers and redemptions of certain senior notes
Concurrently with the launch of our offering of $750 million in aggregate principal amount of 3.75% senior notes due April 2051, we commenced cash tender offers (the “Tender Offers”) for any and all of our outstanding 5.625% senior notes due 2024 and 3.625% senior notes due 2026 (the “Existing Notes”), pursuant to which we repurchased an aggregate of $332 million outstanding Existing Notes for an aggregate purchase price of $373 million. The Tender Offers expired on April 14, 2021.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
In addition, on April 1, 2021, we issued notices of redemption to holders of the Existing Notes pursuant to the indentures governing such notes, to redeem any Existing Notes that remained outstanding following the closing of the Tender Offers. On May 3, 2021, we redeemed the remaining outstanding balance of the Existing Notes of $418 million for an aggregate redemption price of $473 million.
These repurchases and redemptions were funded with the net proceeds from our offering of 3.75% senior notes due April 2051 and cash on hand and will result in a charge of approximately $97 million as a loss on extinguishment of debt, comprised of make-whole premiums and unamortized debt issuance costs, which will be included on our Condensed Consolidated Statement of Income and Comprehensive Income in our third fiscal quarter of 2021.
NOTE 1415 – 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. For discussion of income tax accounting policies and other income tax related information, see Notes 2 and 16 of our 20192020 Form 10-K.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Effective tax rate
Our effective income tax rate was 26.9%21.2% for the six months ended March 31, 2020, 2021, which was higherlower than the 24.8%22.2% effective tax rate for fiscal year 2019.2020. The increasedecrease in the effective income tax rate was primarily due to the unfavorable impactan increase in the current period of non-deductible valuation lossesgains associated with our company-owned life insurance policies.policies which are not subject to tax.
Uncertain tax positions
We anticipateAlthough management cannot predict with any degree of certainty the timing of ultimate resolution of matters under review by various taxing jurisdictions, it is reasonably possible that the Company’s uncertain tax position liability balance will not change significantly overmay decrease within the next twelve months.12 months by up to $8 million as a result of the expiration of statutes of limitations and the completion of tax authorities’ examinations.
NOTE 1516 – COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments and contingencies
Loan and underwritingUnderwriting commitments
In the normal course of business, we enter into commitments for fixed incomedebt and equity underwritings. As of March 31, 2020,2021, we had 45 such open underwriting commitments, which were subsequently settled in open market transactions and none of which resulteddid not result in a significant loss.losses.
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 2019 Form 10-K for a discussion of our accounting policies governing these transactions). These offers are contingent upon certain events occurring, including the individuals joining us and meeting certain conditions outlined in their offer. Our unfunded loanLending commitments related to such offers were insignificant as of March 31, 2020.
Commitments to extend credit and other credit-related financial instruments
RJ Bank has outstanding, at any time, a significant number of commitments to extend credit and other credit-related off-balance sheet financial instruments, such as standby letters of credit and loan purchases, which then extend over varying periods of time. These arrangements are subject to strict underwriting assessments and each customer’s credit worthiness is evaluated on a case-by-case basis. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and our exposure is limited to the replacement value of those commitments.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents RJ Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
Open-end consumer lines of credit (primarily SBL) | | $ | 14,300 | | | $ | 12,148 | |
Commercial lines of credit | | $ | 1,740 | | | $ | 1,482 | |
Unfunded loan commitments | | $ | 532 | | | $ | 532 | |
Standby letters of credit | | $ | 27 | | | $ | 33 | |
|
| | | | | | | | |
$ in millions | | March 31, 2020 | | September 30, 2019 |
Open-end consumer lines of credit (primarily SBL) | | $ | 10,758 |
| | $ | 9,328 |
|
Commercial lines of credit | | $ | 1,153 |
| | $ | 1,527 |
|
Unfunded loan commitments | | $ | 676 |
| | $ | 599 |
|
Standby letters of credit | | $ | 40 |
| | $ | 40 |
|
Open-end consumer lines of credit primarily represent the unfunded amounts of RJ Bank loans to consumers that are secured by marketable securities at advance rates consistent with industry standards. The proceeds from repayment or, if necessary, the liquidation of collateral, which is monitored daily, are expected to satisfy the amounts drawn against these existing lines of credit. These lines of credit are primarily uncommitted, as we reserve the right to not make any advances or may terminate these lines at any time.
Because many of ourRJ Bank’s lending commitments expire without being funded in whole or in part, the contractual amounts are not estimates of our actual future credit exposure or future liquidity requirements. We maintain a reserve to provideThe allowance for credit losses calculated under CECL provides for potential losses related to the unfunded lending commitments. See Note 7Notes 2 and 8 for further discussion of this reserveallowance for credit losses related to unfunded lending commitments.
RJ&A enters into margin lending arrangements which allow customers to borrow against the value of qualifying securities. Margin loans are collateralized by the securities held in the customer’s account at RJ&A. Collateral levels and established credit terms are monitored daily and we require customers to deposit additional collateral or reduce balances as necessary.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIESWe offer loans to prospective financial advisors for recruiting and retention purposes (see Notes 2 and 9 for further discussion of our loans to financial advisors). These offers are contingent upon certain events occurring, including the individuals joining us and meeting certain conditions outlined in their offer.Notes to Condensed Consolidated Financial Statements (Unaudited)
Investment commitments
We had unfunded commitments to various investments, including private equity investments and certain RJ Bank investments, of $41$38 million as of March 31, 2020.2021.
Other commitments
Raymond James Tax Credit Funds, Inc. (“RJTCF”) sells investments in project partnerships to various LIHTC funds, which have third-party investors, and for which RJTCF serves as the managing member or general partner. RJTCF typically sells investments in project partnerships to LIHTC funds within 90 days of their acquisition. Until such investments are sold to LIHTC funds, RJTCF is responsible for funding investment commitments to such partnerships. As of March 31, 2020,2021, RJTCF had committed approximately $204$178 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 equity funding events arise over future periods, the contractual commitments are not expected to materially impact our future liquidity requirements. RJTCF may also make short-term loans or advances to project partnerships and LIHTC funds.
As a part of our fixed income public finance operations, we enter into forward commitments to purchase agency MBS (see the discussion of these activities withinMBS. See Note 2 of our 20192020 Form 10-K).10-K for further discussion of these activities. At March 31, 2020,2021, we had $331$263 million of principal amount of outstanding forward MBS purchase commitments, which were expected to be purchased within 90 days following commitment. In order to hedge the market interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into TBA security contracts with investors for generic MBS at specific rates and prices to be delivered on settlement dates in the future. We may be subject to loss if the timing of, or the actual amount of, the MBS differs significantly from the term and notional amount of the TBA security contract to which we entered. These TBA securities and related purchase commitments are accounted for at fair value. As of March 31, 2020,2021, the fair value of the TBA securities and the estimated fair value of the purchase commitments were insignificant.
For information regarding our lease commitments, including the maturities of our lease liabilities, see Note 12.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Guarantees
Our U.S. broker-dealer subsidiaries are required by federal law to be members of the Securities Investors Protection Corporation (“SIPC”). The SIPC fund provides protection up to $500 thousand per client for securities and cash held in client accounts, including a limitation of $250 thousand on claims for cash balances. We have purchased excess SIPC coverage through various syndicates of Lloyd’s of London. For RJ&A, our clearing broker-dealer, the additional protection currently provided has an aggregate firm limit of $750 million for cash and securities, including a sub-limit of $1.9 million per client for cash above basic SIPC. Account protection applies when a SIPC member fails financially and is unable to meet its obligations to clients. This coverage does not protect against market fluctuations. RJF has provided an indemnity to Lloyd’s of London against any and all losses they may incur associated with the excess SIPC policies.
We guarantee the debt of one of our private equity investments. The amount of such debt, including the undrawn portion of a revolving credit facility, was $13 million as of March 31, 2020.2021. The debt, which matures in 2021,2022, is secured by substantially all of the assets of the borrower.
Legal and regulatory matter contingencies
In addition to any matters that may be specifically described in the following sections, in the normal course of our business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities as a diversified financial services institution.
RJF and certain of its subsidiaries are subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. Reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censures to fines and, in serious cases, temporary or permanent suspension from conducting business, or limitations on certain business activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time, among other things, into industry practices, which can also result in the imposition of such sanctions.
We may contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased significantly in the financial services industry.industry continues to be significant. There can be no assurance that material losses will not be incurred from claims that have not yet been asserted or are not yet determined to be material.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For many legal and regulatory matters, we are unable to estimate a range of reasonably possible loss as we cannot predict if, how or when such proceedings or investigations will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be. A large number of factors may contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental proceedings, potential fines and penalties); the matters present significant legal uncertainties; we have not engaged in settlement discussions; discovery is not complete; there are significant facts in dispute; and numerous parties are named as defendants (including where it is uncertain how liability might be shared among defendants). Subject to the foregoing, after consultation with counsel, we believe that the outcome of such litigation and regulatory proceedings will not have a material adverse effect on our consolidated financial condition. However, the outcome of such litigation and regulatory proceedings could be material to our operating results and cash flows for a particular future period, depending on, among other things, our revenues or income for such period.
There are certain matters for which we are unable to estimate the upper end of the range of reasonably possible loss. With respect to legal and regulatory matters for which management has been able to estimate a range of reasonably possible loss as of March 31, 2020,2021, we estimated the upper end of the range of reasonably possible aggregate loss to be approximately $80$180 million in excess of the aggregate accruals for such matters. Refer to Note 2 of our 20192020 Form 10-K for a discussion of our criteria for recognizing liabilities for contingencies.
We may from time to time include in any descriptions of individual matters herein certain quantitative information about the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings. Although this information may provide insight into the potential magnitude of a matter, it does not represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual related thereto.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1617 – ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
All of the components of other comprehensive income (“OCI”), net of tax, were attributable to RJF. The following table presents the net change in AOCI as well as the changes, and the related tax effects, of each component of AOCI.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Net investment hedges | | Currency translations | | Subtotal: net investment hedges and currency translations | | Available- for-sale securities | | Cash flow hedges | | Total |
Three months ended March 31, 2021 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 86 | | | $ | (93) | | | $ | (7) | | | $ | 72 | | | $ | (48) | | | $ | 17 | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | (13) | | | 12 | | | (1) | | | (102) | | | 22 | | | (81) | |
Amounts reclassified from AOCI, before tax | | 0 | | | 0 | | | 0 | | | 0 | | | 4 | | | 4 | |
Pre-tax net OCI | | (13) | | | 12 | | | (1) | | | (102) | | | 26 | | | (77) | |
Income tax effect | | 3 | | | 0 | | | 3 | | | 26 | | | (7) | | | 22 | |
OCI for the period, net of tax | | (10) | | | 12 | | | 2 | | | (76) | | | 19 | | | (55) | |
AOCI as of end of period | | $ | 76 | | | $ | (81) | | | $ | (5) | | | $ | (4) | | | $ | (29) | | | $ | (38) | |
| | | | | | | | | | | | |
Six months ended March 31, 2021 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 115 | | | $ | (140) | | | $ | (25) | | | $ | 89 | | | $ | (53) | | | $ | 11 | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | (51) | | | 57 | | | 6 | | | (120) | | | 25 | | | (89) | |
Amounts reclassified from AOCI, before tax | | 0 | | | 2 | | | 2 | | | (5) | | | 8 | | | 5 | |
Pre-tax net OCI | | (51) | | | 59 | | | 8 | | | (125) | | | 33 | | | (84) | |
Income tax effect | | 12 | | | 0 | | | 12 | | | 32 | | | (9) | | | 35 | |
OCI for the period, net of tax | | (39) | | | 59 | | | 20 | | | (93) | | | 24 | | | (49) | |
AOCI as of end of period | | $ | 76 | | | $ | (81) | | | $ | (5) | | | $ | (4) | | | $ | (29) | | | $ | (38) | |
| | | | | | | | | | | | |
Three months ended March 31, 2020 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 97 | | | $ | (113) | | | $ | (16) | | | $ | 20 | | | $ | (9) | | | $ | (5) | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | 69 | | | (78) | | | (9) | | | 85 | | | (58) | | | 18 | |
Amounts reclassified from AOCI, before tax | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Pre-tax net OCI | | 69 | | | (78) | | | (9) | | | 85 | | | (58) | | | 18 | |
Income tax effect | | (17) | | | 0 | | | (17) | | | (22) | | | 15 | | | (24) | |
OCI for the period, net of tax | | 52 | | | (78) | | | (26) | | | 63 | | | (43) | | | (6) | |
AOCI as of end of period | | $ | 149 | | | $ | (191) | | | $ | (42) | | | $ | 83 | | | $ | (52) | | | $ | (11) | |
| | | | | | | | | | | | |
Six months ended March 31, 2020 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 110 | | | $ | (135) | | | $ | (25) | | | $ | 21 | | | $ | (19) | | | $ | (23) | |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | 52 | | | (56) | | | (4) | | | 83 | | | (44) | | | 35 | |
Amounts reclassified from AOCI, before tax | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Pre-tax net OCI | | 52 | | | (56) | | | (4) | | | 83 | | | (44) | | | 35 | |
Income tax effect | | (13) | | | 0 | | | (13) | | | (21) | | | 11 | | | (23) | |
OCI for the period, net of tax | | 39 | | | (56) | | | (17) | | | 62 | | | (33) | | | 12 | |
AOCI as of end of period | | $ | 149 | | | $ | (191) | | | $ | (42) | | | $ | 83 | | | $ | (52) | | | $ | (11) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | Net investment hedges | | Currency translations | | Subtotal: net investment hedges and currency translations | | Available- for-sale securities | | Cash flow hedges | | Total |
Three months ended March 31, 2020 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 97 |
| | $ | (113 | ) | | $ | (16 | ) | | $ | 20 |
| | $ | (9 | ) | | $ | (5 | ) |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | 69 |
| | (78 | ) | | (9 | ) | | 85 |
| | (58 | ) | | 18 |
|
Amounts reclassified from AOCI, before tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Pre-tax net OCI | | 69 |
| | (78 | ) | | (9 | ) | | 85 |
| | (58 | ) | | 18 |
|
Income tax effect | | (17 | ) | | — |
| | (17 | ) | | (22 | ) | | 15 |
| | (24 | ) |
OCI for the period, net of tax | | 52 |
| | (78 | ) | | (26 | ) | | 63 |
| | (43 | ) | | (6 | ) |
AOCI as of end of period | | $ | 149 |
| | $ | (191 | ) | | $ | (42 | ) | | $ | 83 |
| | $ | (52 | ) | | $ | (11 | ) |
| | | | | | | | | | | | |
Six months ended March 31, 2020 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 110 |
| | $ | (135 | ) | | $ | (25 | ) | | $ | 21 |
| | $ | (19 | ) | | $ | (23 | ) |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | 52 |
| | (56 | ) | | (4 | ) | | 83 |
| | (44 | ) | | 35 |
|
Amounts reclassified from AOCI, before tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Pre-tax net OCI | | 52 |
| | (56 | ) | | (4 | ) | | 83 |
| | (44 | ) | | 35 |
|
Income tax effect | | (13 | ) | | — |
| | (13 | ) | | (21 | ) | | 11 |
| | (23 | ) |
OCI for the period, net of tax | | 39 |
| | (56 | ) | | (17 | ) | | 62 |
| | (33 | ) | | 12 |
|
AOCI as of end of period | | $ | 149 |
| | $ | (191 | ) | | $ | (42 | ) | | $ | 83 |
| | $ | (52 | ) | | $ | (11 | ) |
| | | | | | | | | | | | |
Three months ended March 31, 2019 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 125 |
| | $ | (161 | ) | | $ | (36 | ) | | $ | (28 | ) | | $ | 25 |
| | $ | (39 | ) |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | (15 | ) | | 19 |
| | 4 |
| | 26 |
| | (16 | ) | | 14 |
|
Amounts reclassified from AOCI, before tax | | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Pre-tax net OCI | | (15 | ) | | 19 |
| | 4 |
| | 26 |
| | (18 | ) | | 12 |
|
Income tax effect | | 4 |
| | — |
| | 4 |
| | (7 | ) | | 5 |
| | 2 |
|
OCI for the period, net of tax | | (11 | ) | | 19 |
| | 8 |
| | 19 |
| | (13 | ) | | 14 |
|
AOCI as of end of period | | $ | 114 |
| | $ | (142 | ) | | $ | (28 | ) | | $ | (9 | ) | | $ | 12 |
| | $ | (25 | ) |
| | | | | | | | | | | | |
Six months ended March 31, 2019 | | | | | | | | | | | | |
AOCI as of beginning of period | | $ | 88 |
| | $ | (111 | ) | | $ | (23 | ) | | $ | (46 | ) | | $ | 42 |
| | $ | (27 | ) |
Cumulative effect of adoption of ASU 2018-02 | | — |
| | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
OCI: | | | | | | | | | | | | |
OCI before reclassifications and taxes | | 34 |
| | (31 | ) | | 3 |
| | 58 |
| | (40 | ) | | 21 |
|
Amounts reclassified from AOCI, before tax | | — |
| | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) |
Pre-tax net OCI | | 34 |
| | (31 | ) | | 3 |
| | 58 |
| | (43 | ) | | 18 |
|
Income tax effect | | (8 | ) | | — |
| | (8 | ) | | (17 | ) | | 13 |
| | (12 | ) |
OCI for the period, net of tax | | 26 |
| | (31 | ) | | (5 | ) | | 41 |
| | (30 | ) | | 6 |
|
AOCI as of end of period | | $ | 114 |
| | $ | (142 | ) | | $ | (28 | ) | | $ | (9 | ) | | $ | 12 |
| | $ | (25 | ) |
As of October 1, 2018, we adopted accounting guidance (ASU 2016-01) that generally requires changes in the fair value of equity securities to be recorded in net income. Accordingly, as of the date of adoption, we reclassified a cumulative unrealized gain on such securities, net of tax, from AOCI to retained earnings.
Reclassifications from AOCI to net income, excluding taxes, for the three and six months ended March 31, 20192021 were primarily recorded in “Other” revenue and “Interest expense” on the Condensed Consolidated Statements of Income and Comprehensive Income.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Our net investment hedges and cash flow hedges relate to our derivatives associated with RJ Bank’s business operations. See Note 2 of our 20192020 Form 10-K and Note 56 for additional information on these derivatives.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1718 – REVENUES
The following tables present our sources of revenues by segment. For further information about our significant accounting policies related to revenue recognition, see Note 2 of our 20192020 Form 10-K. See Note 2223 of this Form 10-Q for additional information on our segment results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2021 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | RJ Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 979 | | | $ | 0 | | | $ | 201 | | | $ | 0 | | | $ | (7) | | | $ | 1,173 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 183 | | | 1 | | | 3 | | | 0 | | | (1) | | | 186 | |
Insurance and annuity products | | 109 | | | 0 | | | 0 | | | 0 | | | 0 | | | 109 | |
Equities, exchange-traded funds (“ETFs”) and fixed income products | | 108 | | | 40 | | | 0 | | | 0 | | | 0 | | | 148 | |
Subtotal securities commissions | | 400 | | | 41 | | | 3 | | | 0 | | | (1) | | | 443 | |
Principal transactions (1) | | 13 | | | 135 | | | 0 | | | 0 | | | 0 | | | 148 | |
Total brokerage revenues | | 413 | | | 176 | | | 3 | | | 0 | | | (1) | | | 591 | |
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 99 | | | 0 | | | 0 | | | 0 | | | 0 | | | 99 | |
RJBDP fees | | 63 | | | 1 | | | 0 | | | 0 | | | (45) | | | 19 | |
Client account and other fees | | 42 | | | 2 | | | 5 | | | 0 | | | (8) | | | 41 | |
Total account and service fees | | 204 | | | 3 | | | 5 | | | 0 | | | (53) | | | 159 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | 0 | | | 122 | | | 0 | | | 0 | | | 0 | | | 122 | |
Equity underwriting | | 16 | | | 67 | | | 0 | | | 0 | | | 0 | | | 83 | |
Debt underwriting | | 0 | | | 37 | | | 0 | | | 0 | | | 0 | | | 37 | |
Total investment banking | | 16 | | | 226 | | | 0 | | | 0 | | | 0 | | | 242 | |
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | 0 | | | 24 | | | 0 | | | 0 | | | 0 | | | 24 | |
All other (1) | | 8 | | | 1 | | | 0 | | | 5 | | | 6 | | | 20 | |
Total other | | 8 | | | 25 | | | 0 | | | 5 | | | 6 | | | 44 | |
Total non-interest revenues | | 1,620 | | | 430 | | | 209 | | | 5 | | | (55) | | | 2,209 | |
Interest income (1) | | 30 | | | 5 | | | 0 | | | 165 | | | 0 | | | 200 | |
Total revenues | | 1,650 | | | 435 | | | 209 | | | 170 | | | (55) | | | 2,409 | |
Interest expense | | (3) | | | (2) | | | 0 | | | (10) | | | (22) | | | (37) | |
Net revenues | | $ | 1,647 | | | $ | 433 | | | $ | 209 | | | $ | 160 | | | $ | (77) | | | $ | 2,372 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2020 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | RJ Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 833 |
| | $ | 1 |
| | $ | 177 |
| | $ | — |
| | $ | (5 | ) | | $ | 1,006 |
|
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 163 |
| | 1 |
| | 2 |
| | — |
| | — |
| | 166 |
|
Insurance and annuity products | | 99 |
| | — |
| | — |
| | — |
| | — |
| | 99 |
|
Equities, ETFs and fixed income products | | 105 |
| | 40 |
| | — |
| | — |
| | — |
| | 145 |
|
Subtotal securities commissions | | 367 |
|
| 41 |
|
| 2 |
|
| — |
|
| — |
|
| 410 |
|
Principal transactions (1) | | 17 |
| | 89 |
| | — |
| | — |
| | (1 | ) | | 105 |
|
Total brokerage revenues | | 384 |
|
| 130 |
|
| 2 |
|
| — |
|
| (1 | ) |
| 515 |
|
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 88 |
| | — |
| | — |
| | — |
| | — |
| | 88 |
|
RJBDP fees | | 99 |
| | — |
| | — |
| | — |
| | (48 | ) | | 51 |
|
Client account and other fees | | 35 |
| | 2 |
| | 4 |
| | — |
| | (8 | ) | | 33 |
|
Total account and service fees | | 222 |
|
| 2 |
|
| 4 |
|
| — |
|
| (56 | ) |
| 172 |
|
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | — |
| | 72 |
| | — |
| | — |
| | — |
| | 72 |
|
Equity underwriting | | 11 |
| | 43 |
| | — |
| | — |
| | — |
| | 54 |
|
Debt underwriting | | — |
| | 22 |
| | — |
| | — |
| | — |
| | 22 |
|
Total investment banking | | 11 |
|
| 137 |
|
| — |
|
| — |
|
| — |
|
| 148 |
|
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | — |
| | 12 |
| | — |
| | — |
| | — |
| | 12 |
|
All other (1) | | 7 |
| | 4 |
| | 1 |
| | 5 |
| | (44 | ) | | (27 | ) |
Total other | | 7 |
|
| 16 |
|
| 1 |
|
| 5 |
|
| (44 | ) |
| (15 | ) |
Total non-interest revenues | | 1,457 |
|
| 286 |
|
| 184 |
|
| 5 |
|
| (106 | ) |
| 1,826 |
|
Interest income (1) | | 45 |
| | 10 |
| | — |
| | 223 |
| | 7 |
| | 285 |
|
Total revenues | | 1,502 |
| | 296 |
| | 184 |
| | 228 |
| | (99 | ) | | 2,111 |
|
Interest expense | | (7 | ) | | (6 | ) | | — |
| | (18 | ) | | (12 | ) | | (43 | ) |
Net revenues | | $ | 1,495 |
| | $ | 290 |
| | $ | 184 |
| | $ | 210 |
| | $ | (111 | ) | | $ | 2,068 |
|
| |
(1) | (1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers. |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2020 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | RJ Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 833 | | | $ | 1 | | | $ | 177 | | | $ | 0 | | | $ | (5) | | | $ | 1,006 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 163 | | | 1 | | | 2 | | | 0 | | | 0 | | | 166 | |
Insurance and annuity products | | 99 | | | 0 | | | 0 | | | 0 | | | 0 | | | 99 | |
Equities, ETFs and fixed income products | | 105 | | | 40 | | | 0 | | | 0 | | | 0 | | | 145 | |
Subtotal securities commissions | | 367 | | | 41 | | | 2 | | | 0 | | | 0 | | | 410 | |
Principal transactions (1) | | 17 | | | 89 | | | 0 | | | 0 | | | (1) | | | 105 | |
Total brokerage revenues | | 384 | | | 130 | | | 2 | | | 0 | | | (1) | | | 515 | |
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 88 | | | 0 | | | 0 | | | 0 | | | 0 | | | 88 | |
RJBDP fees | | 99 | | | 0 | | | 0 | | | 0 | | | (48) | | | 51 | |
Client account and other fees | | 35 | | | 2 | | | 4 | | | 0 | | | (8) | | | 33 | |
Total account and service fees | | 222 | | | 2 | | | 4 | | | 0 | | | (56) | | | 172 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | 0 | | | 72 | | | 0 | | | 0 | | | 0 | | | 72 | |
Equity underwriting | | 11 | | | 43 | | | 0 | | | 0 | | | 0 | | | 54 | |
Debt underwriting | | 0 | | | 22 | | | 0 | | | 0 | | | 0 | | | 22 | |
Total investment banking | | 11 | | | 137 | | | 0 | | | 0 | | | 0 | | | 148 | |
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | 0 | | | 12 | | | 0 | | | 0 | | | 0 | | | 12 | |
All other (1) | | 7 | | | 4 | | | 1 | | | 5 | | | (44) | | | (27) | |
Total other | | 7 | | | 16 | | | 1 | | | 5 | | | (44) | | | (15) | |
Total non-interest revenues | | 1,457 | | | 286 | | | 184 | | | 5 | | | (106) | | | 1,826 | |
Interest income (1) | | 45 | | | 10 | | | 0 | | | 223 | | | 7 | | | 285 | |
Total revenues | | 1,502 | | | 296 | | | 184 | | | 228 | | | (99) | | | 2,111 | |
Interest expense | | (7) | | | (6) | | | 0 | | | (18) | | | (12) | | | (43) | |
Net revenues | | $ | 1,495 | | | $ | 290 | | | $ | 184 | | | $ | 210 | | | $ | (111) | | | $ | 2,068 | |
(1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, 2019 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | RJ Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 638 |
| | $ | 1 |
| | $ | 149 |
| | $ | — |
| | $ | (5 | ) | | $ | 783 |
|
Brokerage revenues: | | | | | | | | | | | |
|
Securities commissions: | | | | | | | | | | | |
|
Mutual and other fund products | | 145 |
| | 1 |
| | 2 |
| | — |
| | — |
| | 148 |
|
Insurance and annuity products | | 99 |
| | — |
| | — |
| | — |
| | — |
| | 99 |
|
Equities, ETFs and fixed income products | | 74 |
| | 30 |
| | — |
| | — |
| | (2 | ) | | 102 |
|
Subtotal securities commissions | | 318 |
| | 31 |
| | 2 |
| | — |
| | (2 | ) | | 349 |
|
Principal transactions (1) | | 20 |
| | 72 |
| | — |
| | — |
| | 1 |
| | 93 |
|
Total brokerage revenues | | 338 |
|
| 103 |
|
| 2 |
|
| — |
|
| (1 | ) |
| 442 |
|
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 82 |
| | — |
| | 1 |
| | — |
| | (5 | ) | | 78 |
|
RJBDP fees | | 122 |
| | — |
| | 1 |
| | — |
| | (44 | ) | | 79 |
|
Client account and other fees | | 27 |
| | 2 |
| | 8 |
| | — |
| | (3 | ) | | 34 |
|
Total account and service fees | | 231 |
|
| 2 |
|
| 10 |
|
| — |
|
| (52 | ) |
| 191 |
|
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | — |
| | 121 |
| | — |
| | — |
| | — |
| | 121 |
|
Equity underwriting | | 8 |
| | 18 |
| | — |
| | — |
| | (1 | ) | | 25 |
|
Debt underwriting | | — |
| | 17 |
| | — |
| | — |
| | — |
| | 17 |
|
Total investment banking | | 8 |
|
| 156 |
|
| — |
|
| — |
|
| (1 | ) |
| 163 |
|
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | — |
| | 14 |
| | — |
| | — |
| | — |
| | 14 |
|
All other (1) | | 9 |
| | — |
| | — |
| | 7 |
| | 1 |
| | 17 |
|
Total other | | 9 |
|
| 14 |
|
| — |
|
| 7 |
|
| 1 |
|
| 31 |
|
Total non-interest revenues | | 1,224 |
|
| 276 |
|
| 161 |
|
| 7 |
|
| (58 | ) |
| 1,610 |
|
Interest income (1) | | 58 |
| | 9 |
| | 1 |
| | 247 |
| | 9 |
| | 324 |
|
Total revenues | | 1,282 |
|
| 285 |
|
| 162 |
|
| 254 |
|
| (49 | ) |
| 1,934 |
|
Interest expense | | (11 | ) | | (8 | ) | | — |
| | (42 | ) | | (14 | ) | | (75 | ) |
Net revenues | | $ | 1,271 |
|
| $ | 277 |
|
| $ | 162 |
|
| $ | 212 |
|
| $ | (63 | ) |
| $ | 1,859 |
|
| |
(1) | These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers. |
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended March 31, 2021 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | RJ Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 1,864 | | | $ | 2 | | | $ | 389 | | | $ | 0 | | | $ | (15) | | | $ | 2,240 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 331 | | | 3 | | | 5 | | | 0 | | | (2) | | | 337 | |
Insurance and annuity products | | 207 | | | 0 | | | 0 | | | 0 | | | 0 | | | 207 | |
Equities, ETFs and fixed income products | | 203 | | | 77 | | | 0 | | | 0 | | | 0 | | | 280 | |
Subtotal securities commissions | | 741 | | | 80 | | | 5 | | | 0 | | | (2) | | | 824 | |
Principal transactions (1) | | 25 | | | 269 | | | 0 | | | 1 | | | 0 | | | 295 | |
Total brokerage revenues | | 766 | | | 349 | | | 5 | | | 1 | | | (2) | | | 1,119 | |
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 193 | | | 0 | | | 0 | | | 0 | | | 0 | | | 193 | |
RJBDP fees | | 127 | | | 1 | | | 0 | | | 0 | | | (88) | | | 40 | |
Client account and other fees | | 74 | | | 4 | | | 9 | | | 0 | | | (16) | | | 71 | |
Total account and service fees | | 394 | | | 5 | | | 9 | | | 0 | | | (104) | | | 304 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | 0 | | | 271 | | | 0 | | | 0 | | | 0 | | | 271 | |
Equity underwriting | | 22 | | | 127 | | | 0 | | | 0 | | | 0 | | | 149 | |
Debt underwriting | | 0 | | | 83 | | | 0 | | | 0 | | | 0 | | | 83 | |
Total investment banking | | 22 | | | 481 | | | 0 | | | 0 | | | 0 | | | 503 | |
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | 0 | | | 40 | | | 0 | | | 0 | | | 0 | | | 40 | |
All other (1) | | 13 | | | 4 | | | 1 | | | 14 | | | 28 | | | 60 | |
Total other | | 13 | | | 44 | | | 1 | | | 14 | | | 28 | | | 100 | |
Total non-interest revenues | | 3,059 | | | 881 | | | 404 | | | 15 | | | (93) | | | 4,266 | |
Interest income (1) | | 60 | | | 8 | | | 0 | | | 333 | | | 2 | | | 403 | |
Total revenues | | 3,119 | | | 889 | | | 404 | | | 348 | | | (91) | | | 4,669 | |
Interest expense | | (5) | | | (4) | | | 0 | | | (21) | | | (45) | | | (75) | |
Net revenues | | $ | 3,114 | | | $ | 885 | | | $ | 404 | | | $ | 327 | | | $ | (136) | | | 4,594 | |
(1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended March 31, 2020 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | RJ Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 1,615 |
| | $ | 3 |
| | $ | 353 |
| | $ | — |
| | $ | (10 | ) | | $ | 1,961 |
|
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 307 |
| | 4 |
| | 4 |
| | — |
| | (1 | ) | | 314 |
|
Insurance and annuity products | | 200 |
| | — |
| | — |
| | — |
| | — |
| | 200 |
|
Equities, ETFs and fixed income products | | 190 |
| | 70 |
| | — |
| | — |
| | (1 | ) | | 259 |
|
Subtotal securities commissions | | 697 |
|
| 74 |
|
| 4 |
|
| — |
|
| (2 | ) |
| 773 |
|
Principal transactions (1) | | 34 |
| | 171 |
| | — |
| | — |
| | (3 | ) | | 202 |
|
Total brokerage revenues | | 731 |
|
| 245 |
|
| 4 |
|
| — |
|
| (5 | ) |
| 975 |
|
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 178 |
| | — |
| | 1 |
| | — |
| | (1 | ) | | 178 |
|
RJBDP fees | | 204 |
| | — |
| | — |
| | — |
| | (95 | ) | | 109 |
|
Client account and other fees | | 64 |
| | 3 |
| | 8 |
| | — |
| | (12 | ) | | 63 |
|
Total account and service fees | | 446 |
|
| 3 |
|
| 9 |
|
| — |
|
| (108 | ) |
| 350 |
|
Investment banking: | | | | | | | | | | | |
|
Merger & acquisition and advisory | | — |
| | 132 |
| | — |
| | — |
| | — |
| | 132 |
|
Equity underwriting | | 22 |
| | 82 |
| | — |
| | — |
| | — |
| | 104 |
|
Debt underwriting | | — |
| | 53 |
| | — |
| | — |
| | — |
| | 53 |
|
Total investment banking | | 22 |
|
| 267 |
|
| — |
|
| — |
|
| — |
|
| 289 |
|
Other: | | | | | | | | | | | |
|
Tax credit fund revenues | | — |
| | 30 |
| | — |
| | — |
| | — |
| | 30 |
|
All other (1) | | 16 |
| | 4 |
| | 1 |
| | 11 |
| | (48 | ) | | (16 | ) |
Total other | | 16 |
|
| 34 |
|
| 1 |
|
| 11 |
|
| (48 | ) |
| 14 |
|
Total non-interest revenues | | 2,830 |
|
| 552 |
|
| 367 |
|
| 11 |
|
| (171 | ) |
| 3,589 |
|
Interest income (1) | | 94 |
| | 18 |
| | 1 |
| | 454 |
| | 15 |
| | 582 |
|
Total revenues | | 2,924 |
|
| 570 |
|
| 368 |
|
| 465 |
|
| (156 | ) |
| 4,171 |
|
Interest expense | | (15 | ) | | (12 | ) | | — |
| | (39 | ) | | (28 | ) | | (94 | ) |
Net revenues | | $ | 2,909 |
|
| $ | 558 |
|
| $ | 368 |
|
| $ | 426 |
|
| $ | (184 | ) |
| $ | 4,077 |
|
| |
(1) | These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers. |
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended March 31, 2020 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | RJ Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 1,615 | | | $ | 3 | | | $ | 353 | | | $ | 0 | | | $ | (10) | | | $ | 1,961 | |
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 307 | | | 4 | | | 4 | | | 0 | | | (1) | | | 314 | |
Insurance and annuity products | | 200 | | | 0 | | | 0 | | | 0 | | | 0 | | | 200 | |
Equities, ETFs and fixed income products | | 190 | | | 70 | | | 0 | | | 0 | | | (1) | | | 259 | |
Subtotal securities commissions | | 697 | | | 74 | | | 4 | | | 0 | | | (2) | | | 773 | |
Principal transactions (1) | | 34 | | | 171 | | | 0 | | | 0 | | | (3) | | | 202 | |
Total brokerage revenues | | 731 | | | 245 | | | 4 | | | 0 | | | (5) | | | 975 | |
Account and services fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 178 | | | 0 | | | 1 | | | 0 | | | (1) | | | 178 | |
RJBDP fees | | 204 | | | 0 | | | 0 | | | 0 | | | (95) | | | 109 | |
Client account and other fees | | 64 | | | 3 | | | 8 | | | 0 | | | (12) | | | 63 | |
Total account and service fees | | 446 | | | 3 | | | 9 | | | 0 | | | (108) | | | 350 | |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | 0 | | | 132 | | | 0 | | | 0 | | | 0 | | | 132 | |
Equity underwriting | | 22 | | | 82 | | | 0 | | | 0 | | | 0 | | | 104 | |
Debt underwriting | | 0 | | | 53 | | | 0 | | | 0 | | | 0 | | | 53 | |
Total investment banking | | 22 | | | 267 | | | 0 | | | 0 | | | 0 | | | 289 | |
Other: | | | | | | | | | | | | |
Tax credit fund revenues | | 0 | | | 30 | | | 0 | | | 0 | | | 0 | | | 30 | |
All other (1) | | 16 | | | 4 | | | 1 | | | 11 | | | (48) | | | (16) | |
Total other | | 16 | | | 34 | | | 1 | | | 11 | | | (48) | | | 14 | |
Total non-interest revenues | | 2,830 | | | 552 | | | 367 | | | 11 | | | (171) | | | 3,589 | |
Interest income (1) | | 94 | | | 18 | | | 1 | | | 454 | | | 15 | | | 582 | |
Total revenues | | 2,924 | | | 570 | | | 368 | | | 465 | | | (156) | | | 4,171 | |
Interest expense | | (15) | | | (12) | | | 0 | | | (39) | | | (28) | | | (94) | |
Net revenues | | $ | 2,909 | | | $ | 558 | | | $ | 368 | | | $ | 426 | | | $ | (184) | | | $ | 4,077 | |
(1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended March 31, 2019 |
$ in millions | | Private Client Group | | Capital Markets | | Asset Management | | RJ Bank | | Other and intersegment eliminations | | Total |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 1,345 |
| | $ | 3 |
| | $ | 310 |
| | $ | — |
| | $ | (10 | ) | | $ | 1,648 |
|
Brokerage revenues: | | | | | | | | | | | | |
Securities commissions: | | | | | | | | | | | | |
Mutual and other fund products | | 302 |
| | 3 |
| | 5 |
| | — |
| | (2 | ) | | 308 |
|
Insurance and annuity products | | 203 |
| | — |
| | — |
| | — |
| | — |
| | 203 |
|
Equities, ETFs and fixed income products | | 158 |
| | 70 |
| | — |
| | — |
| | (2 | ) | | 226 |
|
Subtotal securities commissions | | 663 |
| | 73 |
| | 5 |
| | — |
| | (4 | ) | | 737 |
|
Principal transactions (1) | | 39 |
| | 129 |
| | — |
| | 1 |
| | — |
| | 169 |
|
Total brokerage revenues | | 702 |
| | 202 |
| | 5 |
| | 1 |
| | (4 | ) | | 906 |
|
Account and services fees: | | | | | | | | | | | |
|
Mutual fund and annuity service fees | | 165 |
| | — |
| | 2 |
| | — |
| | (8 | ) | | 159 |
|
RJBDP fees | | 231 |
| | — |
| | 2 |
| | — |
| | (85 | ) | | 148 |
|
Client account and other fees | | 60 |
| | 2 |
| | 15 |
| | — |
| | (8 | ) | | 69 |
|
Total account and service fees | | 456 |
| | 2 |
| | 19 |
| | — |
| | (101 | ) | | 376 |
|
Investment banking: | | | | | | | | | | | |
|
Merger & acquisition and advisory | | — |
| | 206 |
| | — |
| | — |
| | — |
| | 206 |
|
Equity underwriting | | 15 |
| | 45 |
| | — |
| | — |
| | — |
| | 60 |
|
Debt underwriting | | — |
| | 34 |
| | — |
| | — |
| | — |
| | 34 |
|
Total investment banking | | 15 |
| | 285 |
| | — |
| | — |
| | — |
| | 300 |
|
Other: | | | | | | | | | | | |
|
Tax credit fund revenues | | — |
| | 33 |
| | — |
| | — |
| | — |
| | 33 |
|
All other (1) | | 16 |
| | 2 |
| | — |
| | 12 |
| | 5 |
| | 35 |
|
Total other | | 16 |
| | 35 |
| | — |
| | 12 |
| | 5 |
| | 68 |
|
Total non-interest revenues | | 2,534 |
| | 527 |
| | 334 |
| | 13 |
| | (110 | ) | | 3,298 |
|
Interest income (1) | | 114 |
| | 19 |
| | 2 |
| | 486 |
| | 19 |
| | 640 |
|
Total revenues | | 2,648 |
| | 546 |
| | 336 |
| | 499 |
| | (91 | ) | | 3,938 |
|
Interest expense | | (21 | ) | | (16 | ) | | — |
| | (84 | ) | | (27 | ) | | (148 | ) |
Net revenues | | $ | 2,627 |
| | $ | 530 |
| | $ | 336 |
| | $ | 415 |
| | $ | (118 | ) | | $ | 3,790 |
|
| |
(1) | These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers. |
At March 31, 20202021 and September 30, 2019,2020, net receivables related to contracts with customers were $319$357 million and $347$342 million, respectively.
We record deferred revenue from contracts with customers when payment is received prior to the performance of our obligation to the customer. Deferred revenue balances were not material as of March 31, 2020 and September 30, 2019.
We have elected the practical expedient allowable by the accounting guidance to not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1819 – INTEREST INCOME AND INTEREST EXPENSE
The following table details the components of interest income and interest expense.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Interest income: | | | | | | | | |
Cash and cash equivalents | | $ | 2 | | | $ | 16 | | | $ | 6 | | | $ | 33 | |
Assets segregated pursuant to regulations | | 5 | | | 11 | | | 8 | | | 22 | |
Available-for-sale securities | | 21 | | | 19 | | | 44 | | | 37 | |
Brokerage client receivables | | 19 | | | 21 | | | 37 | | | 48 | |
Bank loans, net of unearned income and deferred expenses | | 142 | | | 198 | | | 287 | | | 404 | |
All other | | 11 | | | 20 | | | 21 | | | 38 | |
Total interest income | | $ | 200 | | | $ | 285 | | | $ | 403 | | | $ | 582 | |
Interest expense: | | | | | | | | |
Bank deposits | | $ | 6 | | | $ | 12 | | | $ | 12 | | | $ | 28 | |
Brokerage client payables | | 1 | | | 3 | | | 2 | | | 6 | |
Other borrowings | | 5 | | | 5 | | | 10 | | | 10 | |
Senior notes payable | | 24 | | | 19 | | | 48 | | | 37 | |
All other | | 1 | | | 4 | | | 3 | | | 13 | |
Total interest expense | | 37 | | | 43 | | | 75 | | | 94 | |
Net interest income | | 163 | | | 242 | | | 328 | | | 488 | |
Bank loan (provision)/benefit for credit losses | | 32 | | | (109) | | | 18 | | | (107) | |
Net interest income after bank loan (provision)/benefit for credit losses | | $ | 195 | | | $ | 133 | | | $ | 346 | | | $ | 381 | |
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
Interest income: | | | | | | | | |
Assets segregated pursuant to regulations | | $ | 11 |
| | $ | 17 |
| | $ | 22 |
| | $ | 32 |
|
Trading instruments | | 7 |
| | 6 |
| | 13 |
| | 13 |
|
Available-for-sale securities | | 19 |
| | 17 |
| | 37 |
| | 33 |
|
Margin loans | | 21 |
| | 31 |
| | 48 |
| | 63 |
|
Bank loans, net of unearned income and deferred expenses | | 198 |
| | 220 |
| | 404 |
| | 434 |
|
Loans to financial advisors | | 5 |
| | 5 |
| | 10 |
| | 9 |
|
Corporate cash and all other | | 24 |
| | 28 |
| | 48 |
| | 56 |
|
Total interest income | | $ | 285 |
|
| $ | 324 |
|
| $ | 582 |
|
| $ | 640 |
|
Interest expense: | | |
| | |
| | | | |
Bank deposits | | $ | 12 |
| | $ | 37 |
| | $ | 28 |
| | $ | 72 |
|
Trading instruments sold but not yet purchased | | 1 |
| | 2 |
| | 2 |
| | 4 |
|
Brokerage client payables | | 3 |
| | 5 |
| | 6 |
| | 11 |
|
Other borrowings | | 5 |
| | 5 |
| | 10 |
| | 11 |
|
Senior notes payable | | 19 |
| | 18 |
| | 37 |
| | 36 |
|
Other | | 3 |
| | 8 |
| | 11 |
| | 14 |
|
Total interest expense | | 43 |
|
| 75 |
|
| 94 |
|
| 148 |
|
Net interest income | | 242 |
| | 249 |
| | 488 |
| | 492 |
|
Bank loan loss provision | | (109 | ) | | (5 | ) | | (107 | ) | | (21 | ) |
Net interest income after bank loan loss provision | | $ | 133 |
| | $ | 244 |
| | $ | 381 |
| | $ | 471 |
|
Interest expense related to bank deposits in the preceding table excludes interest expense associated with affiliate deposits, which has been eliminated in consolidation.
NOTE 1920 – SHARE-BASED COMPENSATION
We have 1 share-based compensation plan for our employees, Board of Directors and non-employees (independentindependent contractor financial advisors).advisors. Generally, we reissue our treasury shares under The Amended and Restated 2012 Stock Incentive Plan; however, we are also permitted to issue new shares. Annual share-based compensation awards are primarily issued during the fiscal first fiscal quarter of each year. Our share-based compensation accounting policies are described in Note 2 of our 20192020 Form 10-K. Other information related to our share-based awards is presented in Note 21 of our 20192020 Form 10-K.
During the three and six months ended March 31, 2020,2021, we granted approximately 100150 thousand and 1.61.5 million RSUs, respectively, to employees and outside members of our Board of Directors with a weighted-average grant-date fair value of $79.73$116.73 and $88.53,$93.63, respectively. For the three and six months ended March 31, 2020,2021, total compensation expense for RSUs granted to our employees and members of our Board of Directors was $30 million and $71 million, respectively, compared with $27 million and $67 million respectively, compared with $23 million and $61 million, respectively, for the three and six months ended March 31, 2019.2020, respectively.
As of March 31, 2020,2021, there were $216$231 million of total pre-tax compensation costs not yet recognized (net of estimated forfeitures) related to RSUs granted to employees and members of our Board of Directors, including those granted during the six months ended March 31, 2020.2021. These costs are expected to be recognized over a weighted-average period of 3.43.2 years.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 2021 – REGULATORY CAPITAL REQUIREMENTS
RJF, as a bank holding company and financial holding company, RJ Bank, our broker-dealer subsidiaries andN.A., Raymond James Trust, N.A. (“RJ Trust”) and our broker-dealer subsidiaries are subject to capital requirements by various regulatory authorities. Capital levels of each entity are monitored to ensure compliance with our various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial results.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As a bank holding company, RJF is subject to the risk-based capital requirements of the Fed. These risk-based capital requirements are expressed as capital ratios that compare measures of regulatory capital to risk-weighted assets, which involveincorporates quantitative measures of our assets, liabilities, and certain off-balance-sheetoff-balance sheet items as calculated under the applicable regulatory guidelines. RJF’s and RJ Bank’sBank, N.A.’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.
RJF and RJ Bank, N.A. are required to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), Tier 1 capital to average assets (as defined), and under rules defined under the Basel III capital framework, Common equity Tier 1 capital (“CET1”) to risk-weighted assets. RJF and RJ Bank, N.A. each calculate these ratios under the Basel III standardized approach in order to assess compliance with both regulatory requirements and their internal capital policies. In order to maintain our ability to take certain capital actions, including dividends and common equity repurchases, and to make bonus payments, we must hold a capital conservation buffer above our minimum risk-based capital requirements. As of March 31, 2020,2021, both RJF’s and RJ Bank’sBank, N.A.’s capital levels exceeded the capital conservation buffer requirement and were each categorized as “well-capitalized.”
For further discussion of regulatory capital requirements applicable to certain of our businesses and subsidiaries, see Note 22 of our 20192020 Form 10-K.
To meet requirements for capital adequacy purposes or to be categorized as “well-capitalized,” RJF must maintain minimum CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well-capitalized under regulatory provisions |
$ in millions | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
RJF as of March 31, 2021: | | | | | | | | | | | | |
CET1 | | $ | 6,787 | | | 23.6 | % | | $ | 1,296 | | | 4.5 | % | | $ | 1,872 | | | 6.5 | % |
Tier 1 capital | | $ | 6,787 | | | 23.6 | % | | $ | 1,728 | | | 6.0 | % | | $ | 2,304 | | | 8.0 | % |
Total capital | | $ | 7,120 | | | 24.7 | % | | $ | 2,304 | | | 8.0 | % | | $ | 2,880 | | | 10.0 | % |
Tier 1 leverage | | $ | 6,787 | | | 12.2 | % | | $ | 2,218 | | | 4.0 | % | | $ | 2,773 | | | 5.0 | % |
| | | | | | | | | | | | |
RJF as of September 30, 2020: | | | | | | | | | | | | |
CET1 | | $ | 6,490 | | | 24.2 | % | | $ | 1,208 | | | 4.5 | % | | $ | 1,744 | | | 6.5 | % |
Tier 1 capital | | $ | 6,490 | | | 24.2 | % | | $ | 1,610 | | | 6.0 | % | | $ | 2,147 | | | 8.0 | % |
Total capital | | $ | 6,804 | | | 25.4 | % | | $ | 2,147 | | | 8.0 | % | | $ | 2,684 | | | 10.0 | % |
Tier 1 leverage | | $ | 6,490 | | | 14.2 | % | | $ | 1,824 | | | 4.0 | % | | $ | 2,280 | | | 5.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well-capitalized under regulatory provisions |
$ in millions | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
RJF as of March 31, 2020: | | | | | | | | | | | | |
CET1 | | $ | 6,183 |
| | 24.1 | % | | $ | 1,156 |
| | 4.5 | % | | $ | 1,669 |
| | 6.5 | % |
Tier 1 capital | | $ | 6,183 |
| | 24.1 | % | | $ | 1,541 |
| | 6.0 | % | | $ | 2,054 |
| | 8.0 | % |
Total capital | | $ | 6,490 |
| | 25.3 | % | | $ | 2,054 |
| | 8.0 | % | | $ | 2,568 |
| | 10.0 | % |
Tier 1 leverage | | $ | 6,183 |
| | 14.2 | % | | $ | 1,745 |
| | 4.0 | % | | $ | 2,181 |
| | 5.0 | % |
| | | | | | | | | | | | |
RJF as of September 30, 2019: | | | | | | | | | | | | |
CET1 | | $ | 5,971 |
| | 24.8 | % | | $ | 1,085 |
| | 4.5 | % | | $ | 1,567 |
| | 6.5 | % |
Tier 1 capital | | $ | 5,971 |
| | 24.8 | % | | $ | 1,446 |
| | 6.0 | % | | $ | 1,928 |
| | 8.0 | % |
Total capital | | $ | 6,207 |
| | 25.8 | % | | $ | 1,928 |
| | 8.0 | % | | $ | 2,410 |
| | 10.0 | % |
Tier 1 leverage | | $ | 5,971 |
| | 15.7 | % | | $ | 1,525 |
| | 4.0 | % | | $ | 1,906 |
| | 5.0 | % |
As of March 31, 2021 RJF’s Tier 1 capital and Total capital ratios at March 31, 2020 decreaseddeclined compared to September 30, 2019, due to the impact of increases to cash segregated pursuant to regulations and growth of bank2020, primarily resulting from an increase in risk-weighted assets, primarily bank loans, partially offset by the impact of higheran increase in equity due to positive earnings, net of dividends and share repurchasesrepurchases. The increase in risk-weighted assets was primarily driven by increases in our loan portfolio and dividends.market risk-equivalent assets. RJF’s Tier 1 leverage ratio at March 31, 20202021 decreased compared to September 30, 20192020 due to the growth ofincreased average assets, primarily related to cash, cash and cash equivalentsdriven by higher assets segregated pursuant to regulations due to an increase in client cash in the Client Interest Program (“CIP”), as well as growth in available-for-sale securities and bank loans, partially offsetloans. Our regulatory capital ratios as of March 31, 2021 were also negatively impacted by the aforementioned changeincrease in equity.goodwill and intangible assets arising from our acquisitions of NWPS and Financo. See Note 3 for additional information on our fiscal 2021 acquisitions.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
To meet the requirements for capital adequacy or to be categorized as “well-capitalized,” RJ Bank, N.A. must maintain CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well-capitalized under regulatory provisions |
$ in millions | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
RJ Bank, N.A. as of March 31, 2021: | | | | | | | | | | | | |
CET1 | | $ | 2,442 | | | 13.1 | % | | $ | 838 | | | 4.5 | % | | $ | 1,210 | | | 6.5 | % |
Tier 1 capital | | $ | 2,442 | | | 13.1 | % | | $ | 1,117 | | | 6.0 | % | | $ | 1,489 | | | 8.0 | % |
Total capital | | $ | 2,676 | | | 14.4 | % | | $ | 1,489 | | | 8.0 | % | | $ | 1,862 | | | 10.0 | % |
Tier 1 leverage | | $ | 2,442 | | | 7.5 | % | | $ | 1,296 | | | 4.0 | % | | $ | 1,620 | | | 5.0 | % |
| | | | | | | | | | | | |
RJ Bank, N.A. as of September 30, 2020: | | | | | | | | | | | | |
CET1 | | $ | 2,279 | | | 13.0 | % | | $ | 788 | | | 4.5 | % | | $ | 1,138 | | | 6.5 | % |
Tier 1 capital | | $ | 2,279 | | | 13.0 | % | | $ | 1,051 | | | 6.0 | % | | $ | 1,401 | | | 8.0 | % |
Total capital | | $ | 2,500 | | | 14.3 | % | | $ | 1,401 | | | 8.0 | % | | $ | 1,751 | | | 10.0 | % |
Tier 1 leverage | | $ | 2,279 | | | 7.7 | % | | $ | 1,183 | | | 4.0 | % | | $ | 1,479 | | | 5.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Requirement for capital adequacy purposes | | To be well-capitalized under regulatory provisions |
$ in millions | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
RJ Bank as of March 31, 2020: | | | | | | | | | | | | |
CET1 | | $ | 2,232 |
| | 12.7 | % | | $ | 792 |
| | 4.5 | % | | $ | 1,144 |
| | 6.5 | % |
Tier 1 capital | | $ | 2,232 |
| | 12.7 | % | | $ | 1,056 |
| | 6.0 | % | | $ | 1,408 |
| | 8.0 | % |
Total capital | | $ | 2,454 |
| | 13.9 | % | | $ | 1,408 |
| | 8.0 | % | | $ | 1,760 |
| | 10.0 | % |
Tier 1 leverage | | $ | 2,232 |
| | 8.1 | % | | $ | 1,102 |
| | 4.0 | % | | $ | 1,377 |
| | 5.0 | % |
| | | | | | | | | | | | |
RJ Bank as of September 30, 2019: | | |
| | |
| | |
| | |
| | |
| | |
|
CET1 | | $ | 2,246 |
| | 13.2 | % | | $ | 764 |
| | 4.5 | % | | $ | 1,103 |
| | 6.5 | % |
Tier 1 capital | | $ | 2,246 |
| | 13.2 | % | | $ | 1,018 |
| | 6.0 | % | | $ | 1,358 |
| | 8.0 | % |
Total capital | | $ | 2,458 |
| | 14.5 | % | | $ | 1,358 |
| | 8.0 | % | | $ | 1,697 |
| | 10.0 | % |
Tier 1 leverage | | $ | 2,246 |
| | 8.8 | % | | $ | 1,021 |
| | 4.0 | % | | $ | 1,276 |
| | 5.0 | % |
RJ Bank’sBank, N.A.’s Tier 1 capital and Total capital ratios at March 31, 2020 decreased2021 increased compared to September 30, 20192020, due to dividends paid during the period exceedingpositive earnings, andpartially offset by growth in assets, primarily bank loans.loans and available-for-sale securities. RJ Bank’sBank, N.A.’s Tier 1 leverage ratio at March 31, 20202021 decreased compared to September 30, 20192020, due to increased average assets, driven by the growth in average assets, primarily related to cashavailable-for-sale securities and bank loans, as well as the aforementioned change in equity.loans.
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.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
Raymond James & Associates, Inc.: | | | | |
(Alternative Method elected) | | | | |
Net capital as a percent of aggregate debit items | | 61.5 | % | | 48.0 | % |
Net capital | | $ | 1,644 | | | $ | 1,245 | |
Less: required net capital | | (53) | | | (52) | |
Excess net capital | | $ | 1,591 | | | $ | 1,193 | |
|
| | | | | | | | |
$ in millions | | March 31, 2020 | | September 30, 2019 |
Raymond James & Associates, Inc.: | | | | |
(Alternative Method elected) | | | | |
Net capital as a percent of aggregate debit items | | 41.5 | % | | 39.7 | % |
Net capital | | $ | 1,122 |
| | $ | 1,056 |
|
Less: required net capital | | (54 | ) | | (53 | ) |
Excess net capital | | $ | 1,068 |
| | $ | 1,003 |
|
As of March 31, 2020, RJFS, 2021, Raymond James Financial Services, Inc. (“RJFS”), Raymond James Ltd. (“RJ Ltd.”), RJ Trust and all of our other active regulated domestic and international subsidiaries were in compliance with and exceeded all applicable capital requirements.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 2122 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per common share.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
in millions, except per share amounts | | 2021 | | 2020 | | 2021 | | 2020 |
Income for basic earnings per common share: | | | | | | | | |
Net income | | $ | 355 | | | $ | 169 | | | $ | 667 | | | $ | 437 | |
Less allocation of earnings and dividends to participating securities | | 0 | | | 0 | | | (1) | | | (1) | |
Net income attributable to RJF common shareholders | | $ | 355 | | | $ | 169 | | | $ | 666 | | | $ | 436 | |
Income for diluted earnings per common share: | | | | | | | | |
Net income | | $ | 355 | | | $ | 169 | | | $ | 667 | | | $ | 437 | |
Less allocation of earnings and dividends to participating securities | | 0 | | | 0 | | | (1) | | | (1) | |
Net income attributable to RJF common shareholders | | $ | 355 | | | $ | 169 | | | $ | 666 | | | $ | 436 | |
Common shares: | | | | | | | | |
Average common shares in basic computation | | 137.8 | | | 138.4 | | | 137.3 | | | 138.4 | |
Dilutive effect of outstanding stock options and certain RSUs | | 3.4 | | | 2.7 | | | 3.1 | | | 2.9 | |
Average common shares used in diluted computation | | 141.2 | | | 141.1 | | | 140.4 | | | 141.3 | |
Earnings per common share: | | | | | | | | |
Basic | | $ | 2.58 | | | $ | 1.22 | | | $ | 4.85 | | | $ | 3.15 | |
Diluted | | $ | 2.51 | | | $ | 1.20 | | | $ | 4.74 | | | $ | 3.09 | |
Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive | | 0.1 | | | 0.7 | | | 0.2 | | | 0.6 | |
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
in millions, except per share amounts | | 2020 | | 2019 | | 2020 | | 2019 |
Income for basic earnings per common share: | | | | | | | | |
Net income | | $ | 169 |
| | $ | 261 |
| | $ | 437 |
| | $ | 510 |
|
Less allocation of earnings and dividends to participating securities | | — |
| | — |
| | (1 | ) | | — |
|
Net income attributable to RJF common shareholders | | $ | 169 |
| | $ | 261 |
| | $ | 436 |
| | $ | 510 |
|
Income for diluted earnings per common share: | | |
| | |
| | | | |
Net income | | $ | 169 |
| | $ | 261 |
| | $ | 437 |
| | $ | 510 |
|
Less allocation of earnings and dividends to participating securities | | — |
| | — |
| | (1 | ) | | — |
|
Net income attributable to RJF common shareholders | | $ | 169 |
| | $ | 261 |
| | $ | 436 |
| | $ | 510 |
|
Common shares: | | |
| | |
| | | | |
Average common shares in basic computation | | 138.4 |
| | 140.8 |
| | 138.4 |
| | 142.5 |
|
Dilutive effect of outstanding stock options and certain RSUs | | 2.7 |
| | 3.1 |
| | 2.9 |
| | 2.9 |
|
Average common shares used in diluted computation | | 141.1 |
| | 143.9 |
| | 141.3 |
| | 145.4 |
|
Earnings per common share: | | |
| | |
| | | | |
Basic | | $ | 1.22 |
| | $ | 1.85 |
| | $ | 3.15 |
| | $ | 3.58 |
|
Diluted | | $ | 1.20 |
| | $ | 1.81 |
| | $ | 3.09 |
| | $ | 3.51 |
|
Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive | | 0.7 |
| | 0.5 |
| | 0.6 |
| | 1.6 |
|
The allocation of earnings and dividends to participating securities in the preceding table represents dividends paid during the period to participating securities, consisting of certain RSUs, plus an allocation of undistributed earnings to such participating securities. Participating securities represent unvested restricted stock and certain RSUs. Participating securities and related dividends paid on these participating securities were insignificant for the three and six months ended March 31, 20202021 and 2019.2020. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.
Dividends per common share declared and paid are detailed in the following table for each respective period.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Six months ended March 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Dividends per common share - declared | $ | 0.39 | | | $ | 0.37 | | | $ | 0.78 | | | $ | 0.74 | |
Dividends per common share - paid | $ | 0.39 | | | $ | 0.37 | | | $ | 0.76 | | | $ | 0.71 | |
|
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | Six months ended March 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
Dividends per common share - declared | $ | 0.37 |
| | $ | 0.34 |
| | $ | 0.74 |
| | $ | 0.68 |
|
Dividends per common share - paid | $ | 0.37 |
| | $ | 0.34 |
| | $ | 0.71 |
| | $ | 0.64 |
|
NOTE 2223 – SEGMENT INFORMATION
We currently operate through the following 5 segments: Private Client Group (“PCG”);PCG; Capital Markets; Asset Management; RJ Bank; and Other.
The segments are determined based upon factors such as the services provided and the distribution channels served and are consistent with how we assess performance and determine how to allocate our resources throughout our subsidiaries.resources. For a further discussion of our segments, see Note 24 of our 20192020 Form 10-K.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following tables presenttable presents information concerning operations in these segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Net revenues: | | | | | | | | |
Private Client Group | | $ | 1,647 | | | $ | 1,495 | | | $ | 3,114 | | | $ | 2,909 | |
Capital Markets | | 433 | | | 290 | | | 885 | | | 558 | |
Asset Management | | 209 | | | 184 | | | 404 | | | 368 | |
RJ Bank | | 160 | | | 210 | | | 327 | | | 426 | |
Other | | (12) | | | (44) | | | (8) | | | (52) | |
Intersegment eliminations | | (65) | | | (67) | | | (128) | | | (132) | |
Total net revenues | | $ | 2,372 | | | $ | 2,068 | | | $ | 4,594 | | | $ | 4,077 | |
Pre-tax income/(loss): | | | | | | | | |
Private Client Group | | $ | 192 | | | $ | 170 | | | $ | 332 | | | $ | 323 | |
Capital Markets | | 105 | | | 28 | | | 234 | | | 57 | |
Asset Management | | 87 | | | 73 | | | 170 | | | 146 | |
RJ Bank | | 111 | | | 14 | | | 182 | | | 149 | |
Other | | (48) | | | (46) | | | (72) | | | (77) | |
Total pre-tax income | | $ | 447 | | | $ | 239 | | | $ | 846 | | | $ | 598 | |
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
Net revenues: | | | | | | | | |
Private Client Group | | $ | 1,495 |
| | $ | 1,271 |
| | $ | 2,909 |
| | $ | 2,627 |
|
Capital Markets | | 290 |
| | 277 |
| | 558 |
| | 530 |
|
Asset Management | | 184 |
| | 162 |
| | 368 |
| | 336 |
|
RJ Bank | | 210 |
| | 212 |
| | 426 |
| | 415 |
|
Other | | (44 | ) | | — |
| | (52 | ) | | 2 |
|
Intersegment eliminations | | (67 | ) | | (63 | ) | | (132 | ) | | (120 | ) |
Total net revenues | | $ | 2,068 |
| | $ | 1,859 |
| | $ | 4,077 |
| | $ | 3,790 |
|
Pre-tax income/(loss): | | | | | | | | |
Private Client Group | | $ | 170 |
| | $ | 132 |
| | $ | 323 |
| | $ | 296 |
|
Capital Markets | | 28 |
| | 41 |
| | 57 |
| | 53 |
|
Asset Management | | 73 |
| | 55 |
| | 146 |
| | 119 |
|
RJ Bank | | 14 |
| | 136 |
| | 149 |
| | 246 |
|
Other | | (46 | ) | | (17 | ) | | (77 | ) | | (35 | ) |
Total pre-tax income | | $ | 239 |
| | $ | 347 |
| | $ | 598 |
| | $ | 679 |
|
No individual client accounted for more than ten percent of revenues in any of the periods presented.
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
Net interest income/(expense): | | | | | | | | |
Private Client Group | | $ | 38 |
| | $ | 47 |
| | $ | 79 |
| | $ | 93 |
|
Capital Markets | | 4 |
| | 1 |
| | 6 |
| | 3 |
|
Asset Management | | — |
| | 1 |
| | 1 |
| | 2 |
|
RJ Bank | | 205 |
| | 205 |
| | 415 |
| | 402 |
|
Other and intersegment eliminations | | (5 | ) | | (5 | ) | | (13 | ) | | (8 | ) |
Net interest income | | $ | 242 |
| | $ | 249 |
| | $ | 488 |
| | $ | 492 |
|
The following table presents our net interest income on a segment basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Net interest income/(expense): | | | | | | | | |
Private Client Group | | $ | 27 | | | $ | 38 | | | $ | 55 | | | $ | 79 | |
Capital Markets | | 3 | | | 4 | | | 4 | | | 6 | |
Asset Management | | 0 | | | 0 | | | 0 | | | 1 | |
RJ Bank | | 155 | | | 205 | | | 312 | | | 415 | |
Other | | (22) | | | (5) | | | (43) | | | (13) | |
Net interest income | | $ | 163 | | | $ | 242 | | | $ | 328 | | | $ | 488 | |
The following table presents our total assets on a segment basis.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
Total assets: | | | | |
Private Client Group | | $ | 18,338 | | | $ | 12,574 | |
Capital Markets | | 2,334 | | | 2,336 | |
Asset Management | | 369 | | | 380 | |
RJ Bank | | 33,010 | | | 30,356 | |
Other | | 2,015 | | | 1,836 | |
Total | | $ | 56,066 | | | $ | 47,482 | |
|
| | | | | | | | |
$ in millions | | March 31, 2020 | | September 30, 2019 |
Total assets: | | | | |
Private Client Group | | $ | 12,531 |
| | $ | 9,042 |
|
Capital Markets | | 2,118 |
| | 2,287 |
|
Asset Management | | 348 |
| | 401 |
|
RJ Bank | | 33,434 |
| | 25,516 |
|
Other | | 1,378 |
| | 1,584 |
|
Total | | $ | 49,809 |
| | $ | 38,830 |
|
The following table presents goodwill, which was included in our total assets, on a segment basis.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
Goodwill: | | | | |
Private Client Group (1) | | $ | 417 | | | $ | 277 | |
Capital Markets (2) | | 150 | | | 120 | |
Asset Management | | 69 | | | 69 | |
Total | | $ | 636 | | | $ | 466 | |
|
| | | | | | | | |
$ in millions | | March 31, 2020 | | September 30, 2019 |
Goodwill: | | | | |
Private Client Group | | $ | 274 |
| | $ | 275 |
|
Capital Markets | | 120 |
| | 120 |
|
Asset Management | | 69 |
| | 69 |
|
Total | | $ | 463 |
| | $ | 464 |
|
(1) The balance includes $139 million of goodwill arising from our acquisition of NWPS in December 2020.
(2) The balance includes a provisional estimate of $30 million of goodwill arising from our acquisition of Financo in March 2021.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
We have operations in the U.S., Canada and Europe. Substantially all long-lived assets are located in the U.S. The following table presents our net revenues and pre-tax income classified by major geographic area in which they were earned.
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
Net revenues: | | | | | | | | |
U.S. | | $ | 1,920 |
| | $ | 1,729 |
| | $ | 3,795 |
| | $ | 3,525 |
|
Canada | | 112 |
| | 90 |
| | 207 |
| | 189 |
|
Europe | | 36 |
| | 40 |
| | 75 |
| | 76 |
|
Total | | $ | 2,068 |
| | $ | 1,859 |
| | $ | 4,077 |
| | $ | 3,790 |
|
Pre-tax income/(loss): | | | | |
| | | | |
U.S. | | $ | 227 |
| | $ | 334 |
| | $ | 579 |
| | $ | 664 |
|
Canada | | 13 |
| | 7 |
| | 21 |
| | 23 |
|
Europe (1) | | (1 | ) | | 6 |
| | (2 | ) | | (8 | ) |
Total | | $ | 239 |
| | $ | 347 |
| | $ | 598 |
| | $ | 679 |
|
| |
(1) | The pre-tax loss in Europe for the six months ended March 31, 2019 reflects a $15 million loss on the sale of our operations related to research, sales and trading of European equities incurred during the first fiscal quarter of 2019. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Net revenues: | | | | | | | | |
U.S. | | $ | 2,194 | | | $ | 1,920 | | | $ | 4,273 | | | $ | 3,795 | |
Canada | | 130 | | | 112 | | | 235 | | | 207 | |
Europe | | 48 | | | 36 | | | 86 | | | 75 | |
Total | | $ | 2,372 | | | $ | 2,068 | | | $ | 4,594 | | | $ | 4,077 | |
Pre-tax income/(loss): | | | | | | | | |
U.S. | | $ | 415 | | | $ | 227 | | | $ | 812 | | | $ | 579 | |
Canada | | 25 | | | 13 | | | 26 | | | 21 | |
Europe | | 7 | | | (1) | | | 8 | | | (2) | |
Total | | $ | 447 | | | $ | 239 | | | $ | 846 | | | $ | 598 | |
The following table presents our total assets by major geographic area in which they were held.
| | $ in millions | | March 31, 2020 | | September 30, 2019 | $ in millions | | March 31, 2021 | | September 30, 2020 |
Total assets: | | | | | Total assets: | | | | |
U.S. | | $ | 46,507 |
| | $ | 35,978 |
| U.S. | | $ | 52,349 | | | $ | 44,090 | |
Canada | | 3,189 |
| | 2,754 |
| Canada | | 3,581 | | | 3,260 | |
Europe | | 113 |
| | 98 |
| Europe | | 136 | | | 132 | |
Total | | $ | 49,809 |
| | $ | 38,830 |
| Total | | $ | 56,066 | | | $ | 47,482 | |
The following table presents goodwill, which was included in our total assets, classified by major geographic area in which it was held.
| | | | | | | | | | | | | | |
$ in millions | | March 31, 2021 | | September 30, 2020 |
Goodwill: | | | | |
U.S. (1) | | $ | 602 | | | $ | 433 | |
Canada | | 25 | | | 24 | |
Europe | | 9 | | | 9 | |
Total | | $ | 636 | | | $ | 466 | |
|
| | | | | | | | |
$ in millions | | March 31, 2020 | | September 30, 2019 |
Goodwill: | | | | |
U.S. | | $ | 433 |
| | $ | 433 |
|
Canada | | 22 |
| | 23 |
|
Europe | | 8 |
| | 8 |
|
Total | | $ | 463 |
| | $ | 464 |
|
(1) The balance includes $139 million of goodwill arising from our acquisition of NWPS in December 2020 and a provisional estimate of $30 million of goodwill arising from our acquisition of Financo in March 2021.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| | | | | |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|
INDEX | |
INDEX | PAGE |
| PAGE |
Factors affecting “forward-looking statements” | |
Introduction | |
Executive overview | |
SegmentsReconciliation of non-GAAP financial measures to GAAP financial measures | |
Reconciliation of GAAP measures to non-GAAP financial measuresSegments | |
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 | |
Statement of financial condition analysis | |
Contractual obligationsRegulatory | |
RegulatoryCritical accounting estimates | |
CriticalRecent accounting estimatesdevelopments | |
Recent accounting developmentsRisk management | |
Off-balance sheet arrangements | |
Effects of inflation | |
Risk management | |
Management’s Discussion and Analysis
FACTORS AFFECTING “FORWARD-LOOKING STATEMENTS”
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, our effective tax rate, regulatory developments, effects of accounting pronouncements, and general economic conditions. In addition, words such as “believes,” “expects,” “anticipates,” “plans,“estimates,” “estimates,“projects,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our filings with the SEC from time to time, including our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, which are available at www.raymondjames.com and the SEC’s website at www.sec.gov. We expressly disclaim any obligation to update any forward-looking statement in the event it later turns out to be inaccurate, whether as a result of new information, future events or otherwise.
Introduction
INTRODUCTION
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of our operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our 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 bank holding company. Results in the businesses in which we operate are highly correlated to general economic conditions and, more specifically, to the direction of the U.S. equity and fixed income markets, changes in interest rates, market volatility, corporate and mortgage lending markets and commercial and residential credit trends. Overall market conditions, economic, political and regulatory trends, and industry competition are among the factors which could affect us and which are unpredictable and beyond our control. These factors affect the financial decisions made by market participants, including investors, borrowers, and competitors, impacting their level of participation in the financial markets. These factors also impact the level of investment banking activity and asset valuations, which ultimately affect our business results.
Executive overview
EXECUTIVE OVERVIEW
Quarter ended March 31, 20202021 compared with the quarter ended March 31, 2019
On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency due to the impact of the pandemic. As a result of the spread of COVID-19, governments and other authorities around the world have imposed measures intended to control the spread of the disease, including restrictions on travel and the conduct of business, such as stay-at-home orders, quarantines, travel bans, border closings, business closures and other similar measures. In response, we activated our business continuity plan endeavoring to safeguard our employees, with nearly all of our employees now working remotely, while still maintaining our standard of client service. Our systems and infrastructure have continued to support the increased volumes of activity, without any significant operational or technology disruptions.
The worldwide COVID-19 pandemic had a negative impact on our business during our quarter ended March 31, 2020, as the spread of the disease and measures intended to prevent its spread have caused significant volatility and disruption in the financial markets both globally and in the U.S. We expect the COVID-19 pandemic and the measures taken to prevent its spread to have a more significant impact on the remainder of fiscal 2020 than it did during the quarter ended March 31, 2020, although the extent of such effects will depend on future developments that are highly uncertain and cannot be predicted.
Management’s Discussion and Analysis
During the quarter ended March 31, 2020, net
Net revenues of $2.07$2.37 billion increased $209$304 million, or 11%, compared with the prior-year quarter.15%. Pre-tax income of $239$447 million decreased $108increased $208 million, or 31%87%, and our net income of $169$355 million decreased $92increased $186 million, or 35%, both primarily due to a significant increase in the bank loan loss provision in response to the rapid and widespread economic deterioration caused by the COVID-19 pandemic.110%. Our earnings per diluted share were $1.20,$2.51, reflecting a 34% decrease.109% increase. Our annualized return on equity (“ROE”) forduring the quarter was 9.9%19.0%, compared with 16.7%9.9% in the prior-year quarter, and our annualized return on tangible common equity (“ROTCE”)(1) was 10.8%21.2% (1), compared with 18.5%10.8% (1) for the prior-year quarter. Client assets under administration increased to $1.09 trillion as of March 31, 2021.
The $209$304 million increase in net revenues compared with the prior-year quarter was primarily reflecteddriven by higher asset management and related administrative fees, largely attributable to higher PCG assets in fee-based accounts, at the beginning of the quarter,as well as strong investment banking and brokerage revenues, which were 31% higher than fee-based assets as of the beginning ofalso increased compared with the prior-year quarter. Brokerage revenuesRevenues in the current-year quarter also increased during the quarter as the significant market volatility in March drove an increase in client activity. Offsetting these increases, other revenues were negatively impacted by valuation losses onincluded $8 million of private equity investments, a portionvaluation gains, compared with losses in the prior-year quarter of $39 million of which was$22 million were attributable to noncontrolling interests which was reflected as anand were offset in other expenses. RJBDP fees and net interest income were negatively impacted byOffsetting these increases was the negative impact of lower short-term interest rates.
Compensation, commissions and benefits expense increased $197 million, or 16%, due to an increase in compensable net revenues, which primarily include asset management and related administrative fees, brokerage revenues, and investment banking revenues, as well as increased staffing levels required to supportrates on our continued growth and regulatory compliance requirements.
Non-compensation expenses increased $120 million, or 42%, primarily due to the aforementioned bank loan loss provision of $109 million.
Pursuant to our Board of Directors’ share repurchase authorization, we repurchased approximately 2.5 million shares of common stock during the quarter for $202 million at an average price of approximately $79 per share. Due to the heightened market uncertainty as a result of the COVID-19 crisis, share buybacks have been suspended since mid-March and, as of March 31, 2020, we had $537 million of availability remaining under this authorization.
The firm ended the quarter with capital ratios well in excess of regulatory requirements and substantial liquidity, with nearly $2 billion(2) of cash at the parent company, which included the proceeds of a $500 million 10-year senior notes issuance in March.
Certain of the impacts of the COVID-19 pandemic will affect our results in future quarters to a greater extent than in the second fiscal quarter. Equity market declines toward the end of the quarter drove a 14% decline in fee-based assets and a 15% decline in financial assets under management as of March 31, 2020, which will negatively impact asset management and related administrative fees in our PCG and Asset Management segments in our third fiscal quarter of 2020. Our net interest income and RJBDP fees from third-party banks will be negatively affected by the full impact of the 150 basis point reduction in March by the Federal Reserve in its benchmark short-term interest rate. In Capital Markets, while our investment banking pipeline remains healthy, it is likely that we will experience a near-term slowdown in mergers & acquisitions and underwriting activity due to market uncertainty. In addition, if market volatility declines, it is likely that brokerage revenues will decline compared with the second fiscal quarter of 2020. While our results during the second quarter were negatively impacted by the bank loan loss provision and private equity valuation losses, further market deterioration could result in additional provisions and losses in future quarters.banks.
A summary of our financial results by segment as compared to the prior-year quarter is as follows:
Our PCG segment net revenues of $1.50 billion increased 18%, while pre-tax income of $170 million increased 29%. The increase in net revenues was primarily attributable to an increase in asset management and related administrative fees due to higher assets in fee-based accounts at the beginning of the quarter, as well as an increase in brokerage revenues due to strong client activity driven by market volatility toward the end of the quarter. Non-interest expenses increased $186 million, or 16%, primarily resulting from an increase in compensation expenses due to the growth in compensable net revenues and higher staffing levels to support our continued growth and regulatory compliance requirements.
Capital Markets net revenues of $290 million increased 5% and pre-tax income of $28 million decreased 32%. The increase in net revenues was primarily due to an increase in brokerage revenues due to higher client activity as a result of market volatility, as well as an increase in equity underwriting revenues. These increases were partially offset by a decline in merger
(1) “ROTCE” is a non-GAAP financial measure. Please see the “Reconciliation of GAAPnon-GAAP financial measures to non-GAAPGAAP financial measures” in this MD&A for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure, and for other important disclosures.
| |
(2) | For additional information, please see the “Liquidity and capital resources - Sources of liquidity” section in this MD&A. |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
& acquisition revenues compared with a strong prior-year quarter. Non-interest expensesCompensation, commissions and benefits expense increased $26$226 million, or 11%16%, primarily resulting from an increasethe growth in revenues and pre-tax earnings compared with the prior-year quarter. Our compensation ratio, or the ratio of compensation, commissions and benefits expense to net revenues, increased to 69.5%, compared with 68.8% for the prior-year quarter, primarily due to a change in the mixcomposition of revenues.
Our Asset Management segment net revenues of $184 millioncompared with the prior-year quarter, as revenues that are directly compensable (i.e., asset management and related administrative fees, brokerage revenues and investment banking revenues) increased, 14%while revenues that are not directly compensable (i.e., net interest income and pre-tax income of $73 million increased 33%. The increase in net revenues was driven by higher average financial assets under management, as well as higher beginning assets in programs for which the segment provides administrative support.RJBDP fees from third-party banks) declined.
RJ Bank net revenues of $210 millionNon-compensation expenses decreased 1% and pre-tax income of $14 million decreased 90%. Net revenues were essentially flat as higher interest-earning banking assets offset the negative impact from lower short-term interest rates. Non-interest expenses increased $120$130 million, or 158%32%, as RJ Bank recordedprimarily due to a $141 million decrease in the bank loan lossprovision for credit losses, which was a benefit of $32 million in the current-year quarter computed under the CECL methodology compared with a provision of $109 million compared to $5 million in the prior-year quarter in responsecomputed under the incurred loss methodology. Business development expenses also decreased, primarily due to lower travel and event-related expenses as a result of the COVID-19 pandemic. Other expenses increased, primarily due to the impact of COVID-19.
Our Other segment reflected a pre-tax loss that was $29 million larger compared to the prior-year quarter, primarily the result ofaforementioned private equity valuation losses in the current-yearprior-year quarter compared with gains of in the prior-year quarter.
Six months ended March 31, 2020 compared with the six months ended March 31, 2019
Net revenues of $4.08 billion increased $287 million, or 8%. Pre-tax income of $598 million decreased $81 million, or 12%. Our net income of $437 million decreased $73 million, or 14%, and our earnings per diluted sharethat were $3.09, reflecting a 12% decrease. Our annualized ROE during the six months ended March 31, 2020 was 13.0%, compared with 16.2% for the prior-year period, and annualized ROTCE (1) was 14.2%, compared with 17.9% for the prior-year period.
The $287 million increase in net revenues compared with the prior-year period reflects higher asset management and related administrative fees, primarily attributable to higher PCG assets in fee-based accounts at the beginning of the current-year periods. Brokerage revenues also increased, primarily due to higher market volatility in our second fiscal quarter. Offsetting these increases, other revenues were negatively impacted by valuation losses on private equity investments, a portion of which was attributable to noncontrolling interests which was reflected as anand were offset inwithin other expenses. RJBDP fees and net interest income were negatively impacted due to lower short-term interest rates.
Compensation, commissions and benefits expense increased $283 million, or 11%, due to an increase in compensable net revenues, as well as increased staffing levels required to support our continued growth and regulatory compliance requirements.
Non-compensation expenses increased $85 million, or 14%, primarily due to a $107 million bank loan loss provision compared with a $21 million bank loan loss provision for the prior-year period, partially offset by the $15 million loss on the sale of our operations related to research, sales and trading of European equities that occurred in the prior-year period.
Our effective income tax rate was 26.9%20.6% for the six months ended March 31, 2020, an increaseour fiscal second quarter of 2021, a decrease compared with the 24.8%29.3% effective income tax rate for fiscal year 2019,the prior-year quarter, primarily due to the unfavorable impact in the current-year period of non-deductible valuation lossesgains associated with our company-owned life insurance policies.policies which are not subject to tax, compared with valuation losses on such policies in the prior-year quarter.
The firm ended our fiscal second quarter of 2021 with capital ratios well in excess of regulatory requirements and substantial liquidity, with approximately $1.7 billion (1) of cash at the parent company. Pursuant to our Board of Directors’ share repurchase authorization, we repurchased approximately 2.7 million500,000 shares of common stock during the six months ended March 31, 2020our fiscal second quarter for $213$60 million at an average price of approximately $80$120 per share.share, leaving $680 million of availability remaining under the authorization as of March 31, 2021. We expect to continue share repurchases during the second half of fiscal 2021, for total repurchases throughout the fiscal year of at least $200 million to offset share-based compensation dilution. We also expect to continue to be opportunistic in deploying our capital in future quarters, through a combination of organic growth, additional share repurchases and acquisitions, such as the NWPS and Financo acquisitions announced and completed during fiscal 2021.
During the quarter, we announced a $750 million 30-year senior notes offering at 3.75%, which closed at the beginning of our fiscal third quarter of 2021. We utilized the proceeds from the offering and cash on hand to early-redeem our existing $250 million of 5.625% senior notes due 2024 and our $500 million of 3.625% senior notes due 2026, which were outstanding as of March 31, 2021. We expect to record a loss on the early-extinguishment of the existing notes approximating $97 million during our fiscal third quarter of 2021.
Our results for our fiscal second quarter of 2021 were strong and we remain well-positioned entering our fiscal third quarter, with strong capital ratios, over $1 trillion of client assets under administration, a 7% increase in PCG fee-based accounts as of March 31, 2021 compared with December 31, 2021, which provides a tailwind for our fiscal third quarter asset management and related administrative fees, and a strong investment banking backlog. However, we expect to continue to face headwinds from lower short-term interest rates due to the impact of the 150 basis point reduction by the Federal Reserve of its benchmark short-term interest rate in March 2020. In addition, there is still economic uncertainty resulting from the COVID-19 pandemic, as well as a new federal government administration. As a result, we may experience volatility of brokerage revenues and investment banking revenues, which may negatively impact our ability to sustain the current quarter revenue levels in future periods. Although our results during the quarter were positively impacted by a benefit for credit losses related to our bank loan portfolio, net loan growth and/or future market deterioration could result in increased provisions in future quarters. In addition, we expect that business development expenses will increase over the next several quarters, as COVID-19 vaccination rates increase and business and event-related travel resumes.
A summary of our financial results by segment as compared to the prior-year periodquarter is as follows:
•PCG segment net revenues of $2.91$1.65 billion increased 11%, while10% and pre-tax income of $323$192 million increased 9%13%. The $152 million increase in net revenues was primarily attributable to an increase in asset management and related administrative fees due to higher assets in fee-based accounts at the beginning of the current-year periods, as well as an increase inquarter and higher brokerage revenues, due to strong client activity drivenpartially offset by market volatility in our second fiscal quarter. Offsetting these increases were decreases in RJBDP fees from third-party banks and net interest income due to lower short-term interest rates. Non-interest expenses increased $255$130 million, or 11%10%, primarily resulting from an increase in compensation expenses largely due to the growth in compensable net revenuesrevenues.
(1) For additional information, please see the “Liquidity and higher staffing levels to support our continued growthcapital resources - Sources of liquidity” section in this MD&A.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and regulatory compliance requirements.Analysis
•Capital Markets net revenues of $558$433 million increased 5%49% and pre-tax income of $57$105 million increased 8%275%. The $143 million increase in net revenues was primarily due to an increase in investment banking revenues from both mergers & acquisition activity and underwriting activity, as well as growth in fixed income brokerage revenues,revenues. Non-interest expenses increased $66 million, or 25%, due to higher client activity driven by market volatility, as well as ancompensation expenses, primarily attributable to the increase in equity and debt underwriting revenues. These increases wererevenues, partially offset by a declinedecrease in merger & acquisitionbusiness development expenses.
•Asset Management segment net revenues of $209 million increased 14% and advisory revenues.pre-tax income of $87 million increased 19%. The $25 million increase in net revenues was primarily driven by net inflows into fee-based programs offered to PCG clients and by equity market appreciation. Non-interest expenses increased 5%$11 million, or 10%, primarily due to higher compensation expenses and higher investment sub-advisory fees.
•RJ Bank net revenues of $160 million decreased 24%, while pre-tax income of $111 million increased 693%. The $50 million decrease in net revenues reflected the negative impact of lower short-term interest rates, which more than offset the growth in interest-earning assets. Non-interest expenses decreased $147 million, or 75%, primarily due to a $141 million decrease in the bank loan provision for credit losses.
•Our Other segment reflected a pre-tax loss that was $2 million larger than the loss in the prior-year quarter, due to lower interest income on corporate cash balances resulting from lower short-term interest rates, and increased interest expense due to the issuance of $500 million of senior notes in March 2020, partially offset by the impact of private equity gains in the current-quarter period compared with losses in the prior-year quarter.
Six months ended March 31, 2021 compared with the six months ended March 31, 2020
Net revenues of $4.59 billion increased $517 million, or 13%. Pre-tax income of $846 million increased $248 million, or 41%, and our net income of $667 million increased $230 million, or 53%. Our earnings per diluted share were $4.74, reflecting a 53% increase. Our annualized ROE for the six months ended March 31, 2021 was 18.1%, compared with 13.0% for the prior-year period, and annualized ROTCE was 20.1% (1), compared with 14.2% (1) for the prior-year period.
The $517 million increase in net revenues compared with the prior-year period was primarily driven by higher asset management and related administrative fees, largely attributable to higher PCG assets in fee-based accounts, as well as strong investment banking and brokerage revenues, which also increased compared with the prior-year period. Revenues in the current year also included private equity valuation gains of $32 million ($10 million attributable to noncontrolling interests), compared with $41 million of losses in the prior-year period ($23 million attributable to noncontrolling interests). Offsetting these increases was the negative impact of lower short-term interest rates on our net interest income and RJBDP fees from third-party banks.
Compensation, commissions and benefits expense increased $375 million, or 14%, primarily resulting from the growth in revenues and pre-tax earnings compared with the prior-year period. Our compensation ratio, or the ratio of compensation, commissions, and benefits expense to net revenues, increased to 68.5%, compared with 68.0% for the prior-year period, primarily due to a change in the composition of net revenues compared with the prior-year period, as revenues that are directly compensable (i.e. asset management and related administrative fees, brokerage revenues and investment banking revenues) increased, while revenues that are not directly compensable (i.e., net interest income and RJBDP fees from third-party banks) declined.
Non-compensation expenses decreased $106 million, or 15%, primarily due to a $125 million decrease in the bank loan provision for credit losses, which was a benefit of $18 million in the current year computed under the CECL methodology compared with a provision of $107 million in the prior-year period computed under the incurred loss methodology. Business development expenses also declined, primarily due to lower travel and event-related expenses as a result of the COVID-19 pandemic. Offsetting these decreases, other expenses increased, primarily due to the change in private equity valuations attributable to noncontrolling interests compared with the prior-year period.
Our effective income tax rate was 21.2% for the six months ended March 31, 2021, a decrease from 26.9% for the prior-year period, primarily due to valuation gains associated with our company-owned life insurance policies which are not subject to tax, compared with valuation losses on such policies in the prior-year period.
(1) “ROTCE” is a non-GAAP financial measure. Please see the “Reconciliation of GAAPnon-GAAP financial measures to non-GAAPGAAP financial measures” in this MD&A for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure and for other important disclosures.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Pursuant to the Board of Directors’ repurchase authorization, we repurchased 607,750 shares of common stock during the six months ended March 31, 2021 for approximately $70 million at an average price of approximately $115 per share.
A summary of our financial results by segment as compared to the prior-year period is as follows:
•PCG segment net revenues of $3.11 billion increased 7% and pre-tax income of $332 million increased 3%. The $205 million increase in net revenues was primarily attributable to an increase in asset management fees due to higher assets in fee-based accounts at the beginning of each quarterly billing period within the current-year period and higher brokerage revenues, partially offset by decreases in RJBDP fees from third-party banks and net interest income due to lower short-term interest rates. Non-interest expenses increased $196 million, or 8%, primarily resulting from an increase in compensation expenses largely due to the growth in compensable net revenues.
•Capital Markets net revenues of $885 million increased 59% and pre-tax income of $234 million increased 311%. The $327 million increase in net revenues was primarily due to an increase in investment banking revenues, particularly merger & acquisition revenues, as a result ofwell as growth in fixed income brokerage revenues. Non-interest expenses increased $150 million, or 30%, due to higher compensation expenses, primarily attributable to the increase in net revenues, and higher business development expenses, professional fees and other expenses. These increases were partially offset by the aforementioned $15 million loss on the sale of our operations related to research, sales and trading of European equitiesa decrease in the prior-year period.business development expenses.
Our •Asset Management segment net revenues of $368$404 million increased 10% and pre-tax income of $146$170 million increased 23%16%. The increase in net revenues was primarily driven by net inflows into fee-based programs offered to PCG clients and by equity market appreciation. Non-interest expenses increased $12 million, or 5%, due to higher average financial assets under management, as well as higher assets at the beginning of each of the current-year quartersinvestment sub-advisory fees and an increase in programs for which the segment provides administrative support.compensation expenses.
•RJ Bank net revenues of $426$327 million increased 3% anddecreased 23%, while pre-tax income of $149$182 million decreased 39%increased 22%. The increase$99 million decrease in net revenues reflected higher netthe negative impact of lower short-term interest income due to growth in interest-earning assets,rates, which more than offset the lower net interest margin caused by lower short-term interest rates.growth in interest-earning assets. Non-interest expenses increased $108decreased $132 million, or 64%48%, primarily due to an $86a $125 million increasedecrease in the bank loan loss provision as well as an increase in fees for RJBDP paid to PCG.credit losses.
•Our Other segment reflected a pre-tax loss that was $42$5 million larger compared toless than the loss in the prior-year period, primarily due to the aforementioned private equity valuation losses, asgains compared to gainswith losses in the prior-year period, andpartially offset by lower interest income on corporate cash balances due to lower short-term interest rates.
Segments
We currently operate through five segments. Our business segments are PCG, Capital Markets, Asset Managementrates, and RJ Bank. Our Other segment includes our private equity investments,increased interest income on certain corporate cash balances, and certain corporate overhead costsexpense due to the issuance of RJF, including the interest costs on our public debt.
$500 million of senior notes in March 2020.
The following table presents our consolidated and segment net revenues and pre-tax income/(loss) for the periods indicated.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | % change | | 2020 | | 2019 | | % change |
Total company | | | | | | | | | | | | |
Net revenues | | $ | 2,068 |
| | $ | 1,859 |
| | 11 | % | | $ | 4,077 |
| | $ | 3,790 |
| | 8 | % |
Pre-tax income | | $ | 239 |
| | $ | 347 |
| | (31 | )% | | $ | 598 |
| | $ | 679 |
| | (12 | )% |
| | | | | | | | | | | | |
Private Client Group | | |
| | |
| | | | | | | | |
Net revenues | | $ | 1,495 |
| | $ | 1,271 |
| | 18 | % | | $ | 2,909 |
| | $ | 2,627 |
| | 11 | % |
Pre-tax income | | $ | 170 |
| | $ | 132 |
| | 29 | % | | $ | 323 |
| | $ | 296 |
| | 9 | % |
| | | | | |
| | | | | | |
Capital Markets | | |
| | |
| |
| | | | | | |
Net revenues | | $ | 290 |
| | $ | 277 |
| | 5 | % | | $ | 558 |
| | $ | 530 |
| | 5 | % |
Pre-tax income | | $ | 28 |
| | $ | 41 |
| | (32 | )% | | $ | 57 |
| | $ | 53 |
| | 8 | % |
| | | | | |
| | | | | | |
Asset Management | | |
| | |
| |
| | | | | | |
Net revenues | | $ | 184 |
| | $ | 162 |
| | 14 | % | | $ | 368 |
| | $ | 336 |
| | 10 | % |
Pre-tax income | | $ | 73 |
| | $ | 55 |
| | 33 | % | | $ | 146 |
| | $ | 119 |
| | 23 | % |
| | | | | |
| | | | | | |
RJ Bank | | |
| | |
| |
| | | | | | |
Net revenues | | $ | 210 |
| | $ | 212 |
| | (1 | )% | | $ | 426 |
| | $ | 415 |
| | 3 | % |
Pre-tax income | | $ | 14 |
| | $ | 136 |
| | (90 | )% | | $ | 149 |
| | $ | 246 |
| | (39 | )% |
| | | | | |
| | | | | | |
Other | | |
| | |
| |
| | | | | | |
Net revenues | | $ | (44 | ) | | $ | — |
| | NM |
| | $ | (52 | ) | | $ | 2 |
| | NM |
|
Pre-tax loss | | $ | (46 | ) | | $ | (17 | ) | | (171 | )% | | $ | (77 | ) | | $ | (35 | ) | | (120 | )% |
| | | | | | | | | | | | |
Intersegment eliminations | | |
| | |
| | | | | | | | |
Net revenues | | $ | (67 | ) | | $ | (63 | ) | | NM |
| | $ | (132 | ) | | $ | (120 | ) | | NM |
|
Management’s Discussion and Analysis
Reconciliation of GAAP measures to non-GAAP financial measures
We utilize certain non-GAAP financial measures as additional measures to aid in, and enhance, the understanding of our financial results and related measures. These non-GAAP financial measures have been separately identified in this document. We believe that annualized return on tangible common equityROTCE is meaningful to investors as this measure facilitates comparison of our results to the results of other companies. This non-GAAP financial measure should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP. In addition, this non-GAAP financial measure may not be comparable to similarly titled non-GAAP financial measures of other companies. The following table provides a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Average equity | | $ | 7,478 | | | $ | 6,820 | | | $ | 7,356 | | | $ | 6,740 | |
Less: | | | | | | | | |
Average goodwill and identifiable intangible assets, net | | 851 | | | 606 | | | 767 | | | 608 | |
Average deferred tax liabilities, net | | (56) | | | (31) | | | (49) | | | (30) | |
Average tangible common equity | | $ | 6,683 | | | $ | 6,245 | | | $ | 6,638 | | | $ | 6,162 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Return on equity | | 19.0 | % | | 9.9 | % | | 18.1 | % | | 13.0 | % |
| | | | | | | | |
Return on tangible common equity | | 21.2 | % | | 10.8 | % | | 20.1 | % | | 14.2 | % |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
Average equity | | $ | 6,820 |
| | $ | 6,255 |
| | $ | 6,740 |
| | $ | 6,292 |
|
Less: | | | | | | | | |
Average goodwill and identifiable intangible assets, net | | 606 |
| | 632 |
| | 608 |
| | 634 |
|
Average deferred tax liabilities, net | | (31 | ) | | (35 | ) | | (30 | ) | | (34 | ) |
Average tangible common equity | | $ | 6,245 |
| | $ | 5,658 |
| | $ | 6,162 |
| | $ | 5,692 |
|
| | | | | | | | |
Return on equity | | 9.9 | % | | 16.7 | % | | 13.0 | % | | 16.2 | % |
Return on tangible common equity | | 10.8 | % | | 18.5 | % | | 14.2 | % | | 17.9 | % |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Return on equity is computed by dividing annualized net income for the period indicated by average equity for each respective period or, in the case of return on tangible common equity, computed by dividing annualized net income by average tangible common equity for each respective period.
Average equity for the quarter-to-date period is computed by adding the total equity attributable to Raymond James Financial, Inc.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. Average equity for the year-to-date period is computed by adding the total equity attributable to Raymond James Financial, Inc.RJF as of each quarter-end date during the indicated year-to-date period to the beginning of the year total, and dividing by three, or in the case of average tangible common equity, computed by adding tangible common equity as of each quarter-end date during the indicated year-to-date period to the beginning of the year total, and dividing by three.
ROE is computed by dividing annualized net income for the period indicated by average equity for each respective period or, in the case of ROTCE, computed by dividing annualized net income by average tangible common equity for each respective period. Net
SEGMENTS
We currently operate through five segments. Our business segments are PCG, Capital Markets, Asset Management and RJ Bank. Our Other segment includes our private equity investments, interest analysisincome on certain corporate cash balances, and certain corporate overhead costs of RJF, including the interest costs on our public debt.
The following table presents our consolidated and segment net revenues and pre-tax income/(loss) for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Total company | | | | | | | | | | | | |
Net revenues | | $ | 2,372 | | | $ | 2,068 | | | 15 | % | | $ | 4,594 | | | $ | 4,077 | | | 13 | % |
Pre-tax income | | $ | 447 | | | $ | 239 | | | 87 | % | | $ | 846 | | | $ | 598 | | | 41 | % |
| | | | | | | | | | | | |
Private Client Group | | | | | | | | | | | | |
Net revenues | | $ | 1,647 | | | $ | 1,495 | | | 10 | % | | $ | 3,114 | | | $ | 2,909 | | | 7 | % |
Pre-tax income | | $ | 192 | | | $ | 170 | | | 13 | % | | $ | 332 | | | $ | 323 | | | 3 | % |
| | | | | | | | | | | | |
Capital Markets | | | | | | | | | | | | |
Net revenues | | $ | 433 | | | $ | 290 | | | 49 | % | | $ | 885 | | | $ | 558 | | | 59 | % |
Pre-tax income | | $ | 105 | | | $ | 28 | | | 275 | % | | $ | 234 | | | $ | 57 | | | 311 | % |
| | | | | | | | | | | | |
Asset Management | | | | | | | | | | | | |
Net revenues | | $ | 209 | | | $ | 184 | | | 14 | % | | $ | 404 | | | $ | 368 | | | 10 | % |
Pre-tax income | | $ | 87 | | | $ | 73 | | | 19 | % | | $ | 170 | | | $ | 146 | | | 16 | % |
| | | | | | | | | | | | |
RJ Bank | | | | | | | | | | | | |
Net revenues | | $ | 160 | | | $ | 210 | | | (24) | % | | $ | 327 | | | $ | 426 | | | (23) | % |
Pre-tax income | | $ | 111 | | | $ | 14 | | | 693 | % | | $ | 182 | | | $ | 149 | | | 22 | % |
| | | | | | | | | | | | |
Other | | | | | | | | | | | | |
Net revenues | | $ | (12) | | | $ | (44) | | | 73 | % | | $ | (8) | | | $ | (52) | | | 85 | % |
Pre-tax loss | | $ | (48) | | | $ | (46) | | | (4) | % | | $ | (72) | | | $ | (77) | | | 6 | % |
| | | | | | | | | | | | |
Intersegment eliminations | | | | | | | | | | | | |
Net revenues | | $ | (65) | | | $ | (67) | | | NM | | $ | (128) | | | $ | (132) | | | NM |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
NET INTEREST ANALYSIS
The following table presents the high, low and end of period target federal funds rates for the periods presented.
| | | | | | | | | | | | | | | | | | | | |
| | Target federal funds rate |
| | Low | | High | | End of period |
Three months ended | | | | | | |
March 31, 2021 | | 0.00% | | 0.25% | | 0% - 0.25% |
March 31, 2020 | | 0.00% | | 1.75% | | 0% - 0.25% |
Six months ended | | | | | | |
March 31, 2021 | | 0.00% | | 0.25% | | 0% - 0.25% |
March 31, 2020 | | 0.00% | | 2.00% | | 0% - 0.25% |
In response to macroeconomic concerns resulting from the COVID-19 pandemic, Thethe Federal Reserve decreased its benchmark short-term interest rate twice toward the end of our second fiscal quarterin March 2020 to a range of 0-0.25%, for a total decreasereduction of 150 basis points during the quarter.points. These decreases, in short-termaddition to other interest rates, as well as the three rate cuts implemented induring calendar 2019 (225 basis points in total), have had a negative impact onnegatively impacted our fiscal year 2020 results,net interest income, as we have certain assets and liabilities, primarily held in our PCG, RJ Bank and Other segments, which are sensitive to changes in interest rates. Feeswell as the fees we earn from third-party banks on client cash balances swept to such banks as part of the RJBDP which are also sensitive to changes in interest rates. AsThe negative impact of the decline in short-term interest rates has outweighed the growth in interest-earning assets and RJBDP balances swept to third-party banks compared with the prior-year periods. We expect the current near-zero interest rate decreases during our second fiscal quarter occurred in March, we expect that these decreases will have a more significant negative impact on our resultsenvironment to continue for the remainder of fiscal 2020. In addition, during the second fiscal quarter of 2020 we issued $500 million in aggregate principal amount of 4.65% senior notes. While this issuance strengthened our liquidity position, it will also increase our interest expense in future periods.2021.
Given the relationship between our interest-sensitive assets and liabilities (primarily held in each of these segmentsour PCG, RJ Bank and Other segments) and the nature of fees we earn from third-party banks on the RJBDP, decreases in short-term interest rates generally result in an overall decrease in our net earnings, although the magnitude of the impact to our net interest margin depends on the yields on interest-earning assets relative to the cost of interest-bearing liabilities, including deposit rates paid to clients on their cash balances. Conversely, any increases in short-term interest rates and/or decreases in the deposit rates paid to clients generally have a positive impact on our earnings.
Refer to the discussion of the specific components of our net interest income within the “Management’s Discussion and Analysis - Results of Operations” of our PCG, RJ Bank, and Other segments. Also refer to “Management’s Discussion and Analysis - Results of Operations - Private Client Group - Clients’ domestic cash sweep balances” for further information on the RJBDP.
Management’s Discussion and Analysis
The following tables present our consolidated average interest-earning asset and interest-bearing liability balances, interest income and expense and the related yieldsrates.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and rates. Average balances are calculated on a daily basis, with the exception of Loans to financial advisors, net and Corporate cash and all other, which are calculated based on the average of the end-of-month balances for each month within the period.Analysis
Quarter ended March 31, 20202021 compared with the quarter ended March 31, 20192020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2021 | | 2020 |
$ in millions | | Average daily balance | | Interest | | Annualized average rate | | Average daily balance | | Interest | | Annualized average rate |
Interest-earning assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 5,284 | | | $ | 2 | | | 0.20 | % | | $ | 4,601 | | | $ | 16 | | | 1.40 | % |
Assets segregated pursuant to regulations | | 10,087 | | | 5 | | | 0.18 | % | | 2,820 | | | 11 | | | 1.64 | % |
Available-for-sale securities | | 7,997 | | 21 | | | 1.08 | % | | 3,443 | | | 19 | | | 2.28 | % |
Brokerage client receivables | | 2,222 | | 19 | | | 3.36 | % | | 2,366 | | | 21 | | | 3.57 | % |
Bank loans, net of unearned income and deferred expenses: | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | 7,540 | | | 48 | | | 2.56 | % | | 8,017 | | | 81 | | | 3.99 | % |
CRE loans | | 2,665 | | | 17 | | | 2.54 | % | | 2,620 | | | 26 | | | 3.93 | % |
REIT loans | | 1,309 | | | 8 | | | 2.50 | % | | 1,322 | | | 12 | | | 3.69 | % |
Tax-exempt loans | | 1,227 | | | 8 | | | 3.35 | % | | 1,212 | | | 8 | | | 3.36 | % |
Residential mortgage loans | | 5,005 | | | 34 | | | 2.72 | % | | 4,847 | | | 38 | | | 3.13 | % |
SBL and other | | 4,638 | | | 26 | | | 2.23 | % | | 3,469 | | | 31 | | | 3.60 | % |
Loans held for sale | | 177 | | | 1 | | | 1.89 | % | | 142 | | | 2 | | | 3.85 | % |
Total bank loans, net | | 22,561 | | | 142 | | | 2.56 | % | | 21,629 | | | 198 | | | 3.67 | % |
All other interest-earning assets | | 2,201 | | | 11 | | | 1.87 | % | | 2,487 | | | 20 | | | 2.96 | % |
Total interest-earning assets | | $ | 50,352 | | | $ | 200 | | | 1.61 | % | | $ | 37,346 | | | $ | 285 | | | 3.06 | % |
Interest-bearing liabilities: | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | |
Savings, money market and NOW accounts | | $ | 27,662 | | | $ | 2 | | | 0.02 | % | | $ | 22,877 | | | $ | 6 | | | 0.12 | % |
Certificates of deposit | | 898 | | | 4 | | | 1.88 | % | | 1,094 | | | 6 | | | 2.03 | % |
Total bank deposits | | 28,560 | | | 6 | | | 0.08 | % | | 23,971 | | | 12 | | | 0.24 | % |
Brokerage client payables | | 11,485 | | | 1 | | | 0.02 | % | | 3,827 | | | 3 | | | 0.35 | % |
Other borrowings | | 862 | | | 5 | | | 2.18 | % | | 895 | | | 5 | | | 2.23 | % |
Senior notes payable | | 2,045 | | | 24 | | | 4.74 | % | | 1,556 | | | 19 | | | 4.71 | % |
All other interest-bearing liabilities | | 600 | | | 1 | | | 0.88 | % | | 911 | | | 4 | | | 1.82 | % |
Total interest-bearing liabilities | | $ | 43,552 | | | $ | 37 | | | 0.34 | % | | $ | 31,160 | | | $ | 43 | | | 0.56 | % |
Net interest income | | | | $ | 163 | | | | | | | $ | 242 | | | |
Firmwide net interest margin (net yield on interest-earning assets) | | | | | | 1.32 | % | | | | | | 2.60 | % |
RJ Bank net interest margin | | | | | | 1.94 | % | | | | | | 3.02 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2020 | | 2019 |
$ in millions | | Average balance | | Interest inc./exp. | | Average yield/cost | | Average balance | | Interest inc./exp. | | Average yield/cost |
Interest-earning assets: | | | | | | | | | | | | |
Assets segregated pursuant to regulations | | $ | 2,820 |
| | $ | 11 |
| | 1.58 | % | | $ | 2,711 |
| | $ | 17 |
| | 2.47 | % |
Trading instruments | | 708 |
| | 7 |
| | 4.21 | % | | 687 |
| | 6 |
| | 3.59 | % |
Available-for-sale securities | | 3,443 |
| | 19 |
| | 2.28 | % | | 2,876 |
| | 17 |
| | 2.43 | % |
Margin loans | | 2,367 |
| | 21 |
| | 3.55 | % | | 2,599 |
| | 31 |
| | 4.76 | % |
Bank loans, net of unearned income and deferred expenses: | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | 8,043 |
| | 81 |
| | 3.99 | % | | 8,160 |
| | 97 |
| | 4.76 | % |
CRE construction loans | | 181 |
| | 2 |
| | 4.58 | % | | 197 |
| | 3 |
| | 5.70 | % |
CRE loans | | 3,735 |
| | 36 |
| | 3.81 | % | | 3,379 |
| | 40 |
| | 4.73 | % |
Tax-exempt loans | | 1,212 |
| | 8 |
| | 3.36 | % | | 1,280 |
| | 8 |
| | 3.34 | % |
Residential mortgage loans | | 4,847 |
| | 38 |
| | 3.13 | % | | 3,979 |
| | 34 |
| | 3.33 | % |
SBL and other | | 3,469 |
| | 31 |
| | 3.60 | % | | 3,066 |
| | 37 |
| | 4.71 | % |
Loans held for sale | | 142 |
| | 2 |
| | 3.85 | % | | 144 |
| | 1 |
| | 4.26 | % |
Total bank loans, net | | 21,629 |
| | 198 |
| | 3.67 | % | | 20,205 |
| | 220 |
| | 4.38 | % |
Loans to financial advisors, net | | 979 |
| | 5 |
| | 2.08 | % | | 901 |
| | 5 |
| | 2.01 | % |
Corporate cash and all other | | 6,321 |
| | 24 |
| | 1.40 | % | | 4,897 |
| | 28 |
| | 2.38 | % |
Total interest-earning assets | | $ | 38,267 |
|
| $ | 285 |
| | 2.97 | % | | $ | 34,876 |
|
| $ | 324 |
| | 3.72 | % |
| | | | | | | | | | | | |
Interest-bearing liabilities: | | | | |
| | |
| | |
| | |
| | |
|
Bank deposits: | | | | | | | | | | | | |
Savings, money market and NOW accounts | | $ | 22,877 |
| | $ | 6 |
| | 0.12 | % | | $ | 20,751 |
| | $ | 34 |
| | 0.64 | % |
Certificates of deposit | | 1,094 |
| | 6 |
| | 2.03 | % | | 560 |
| | 3 |
| | 2.26 | % |
Trading instruments sold but not yet purchased | | 222 |
| | 1 |
| | 1.93 | % | | 286 |
| | 2 |
| | 2.67 | % |
Brokerage client payables | | 3,838 |
| | 3 |
| | 0.26 | % | | 3,582 |
| | 5 |
| | 0.58 | % |
Other borrowings | | 892 |
| | 5 |
| | 2.26 | % | | 967 |
| | 5 |
| | 2.35 | % |
Senior notes payable | | 1,556 |
| | 19 |
| | 4.71 | % | | 1,550 |
| | 18 |
| | 4.70 | % |
Other | | 483 |
| | 3 |
| | 3.84 | % | | 762 |
| | 8 |
| | 3.62 | % |
Total interest-bearing liabilities | | $ | 30,962 |
| | $ | 43 |
| | 0.57 | % | | $ | 28,458 |
| | $ | 75 |
| | 1.04 | % |
Net interest income | | | | $ | 242 |
| | | | | | $ | 249 |
| | |
Management’s Discussion and Analysis
Six months ended March 31, 2020 compared with the six months ended March 31, 2019
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended March 31, |
| | 2020 | | 2019 |
$ in millions | | Average balance | | Interest inc./exp. | | Average yield/cost | | Average balance | | Interest inc./exp. | | Average yield/cost |
Interest-earning assets: | | | | | | | | | | | | |
Assets segregated pursuant to regulations | | $ | 2,578 |
| | $ | 22 |
| | 1.70 | % | | $ | 2,572 |
| | $ | 32 |
| | 2.45 | % |
Trading instruments | | 738 |
| | 13 |
| | 3.60 | % | | 705 |
| | 13 |
| | 3.73 | % |
Available-for-sale securities | | 3,265 |
| | 37 |
| | 2.29 | % | | 2,796 |
| | 33 |
| | 2.38 | % |
Margin loans | | 2,402 |
| | 48 |
| | 4.04 | % | | 2,665 |
| | 63 |
| | 4.71 | % |
Bank loans, net of unearned income and deferred expenses: | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | 8,061 |
| | 167 |
| | 4.07 | % | | 7,959 |
| | 188 |
| | 4.67 | % |
CRE construction loans | | 207 |
| | 5 |
| | 4.75 | % | | 184 |
| | 5 |
| | 5.66 | % |
CRE loans | | 3,673 |
| | 73 |
| | 3.91 | % | | 3,469 |
| | 81 |
| | 4.64 | % |
Tax-exempt loans | | 1,218 |
| | 16 |
| | 3.36 | % | | 1,282 |
| | 17 |
| | 3.34 | % |
Residential mortgage loans | | 4,743 |
| | 75 |
| | 3.16 | % | | 3,934 |
| | 66 |
| | 3.32 | % |
SBL and other | | 3,403 |
| | 65 |
| | 3.78 | % | | 3,085 |
| | 73 |
| | 4.65 | % |
Loans held for sale | | 151 |
| | 3 |
| | 3.97 | % | | 165 |
| | 4 |
| | 4.90 | % |
Total bank loans, net | | 21,456 |
| | 404 |
| | 3.76 | % | | 20,078 |
| | 434 |
| | 4.32 | % |
Loans to financial advisors, net | | 977 |
| | 10 |
| | 2.09 | % | | 908 |
| | 9 |
| | 1.97 | % |
Corporate cash and all other | | 5,663 |
| | 48 |
| | 1.63 | % | | 4,850 |
| | 56 |
| | 2.36 | % |
Total interest-earning assets | | $ | 37,079 |
| | $ | 582 |
| | 3.14 | % | | $ | 34,574 |
| | $ | 640 |
| | 3.70 | % |
| | | | | | | | | | | | |
Interest-bearing liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
Bank deposits: | | | | | | | | | | | | |
Savings, money market and NOW accounts | | $ | 22,260 |
| | $ | 18 |
| | 0.16 | % | | $ | 20,612 |
| | $ | 67 |
| | 0.64 | % |
Certificates of deposit | | 937 |
| | 10 |
| | 2.10 | % | | 510 |
| | 5 |
| | 2.13 | % |
Trading instruments sold but not yet purchased | | 254 |
| | 2 |
| | 1.94 | % | | 291 |
| | 4 |
| | 2.77 | % |
Brokerage client payables | | 3,513 |
| | 6 |
| | 0.31 | % | | 3,563 |
| | 11 |
| | 0.63 | % |
Other borrowings | | 893 |
| | 10 |
| | 2.23 | % | | 956 |
| | 11 |
| | 2.39 | % |
Senior notes payable | | 1,553 |
| | 37 |
| | 4.71 | % | | 1,550 |
| | 36 |
| | 4.70 | % |
Other | | 573 |
| | 11 |
| | 3.92 | % | | 760 |
| | 14 |
| | 3.41 | % |
Total interest-bearing liabilities | | $ | 29,983 |
| | $ | 94 |
| | 0.62 | % | | $ | 28,242 |
| | $ | 148 |
| | 1.05 | % |
Net interest income | | |
| | $ | 488 |
| | |
| | |
| | $ | 492 |
| | |
|
Nonaccrual loans are included in the average loan balances in the preceding tables.table. Any payments received for corporate nonaccrual loans are applied entirely to principal. Interest income on residential mortgage nonaccrual loans is recognized on a cash basis.
Fee income on bank loans included in interest income was $5 million and $9 million during three and six months ended March 31, 2020, respectively, and $6 million and $11 million during three and six months ended March 31, 2019, respectively.
The yield on tax-exempt loans in the preceding tablestable is presented on a taxable-equivalent basis utilizing the applicable federal statutory rates for each of the years presented.three months ended March 31, 2021 and 2020.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous period’s volume. Changes attributable to both volume and rate have been allocated proportionately.
Results | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | | | | | | |
| | 2021 compared to 2020 | | | |
| | Increase/(decrease) due to | | | |
$ in millions | | Volume | | Rate | | Total | | | | | | | |
Interest income: | | | | | | | | | | | | | |
Interest-earning assets: | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 2 | | | $ | (16) | | | $ | (14) | | | | | | | | |
Assets segregated pursuant to regulations | | 30 | | | (36) | | | (6) | | | | | | | | |
Available-for-sale securities | | 26 | | | (24) | | | 2 | | | | | | | | |
Brokerage client receivables | | (2) | | | — | | | (2) | | | | | | | | |
Bank loans, net of unearned income and deferred expenses: | | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | | |
C&I loans | | (5) | | | (28) | | | (33) | | | | | | | | |
CRE loans | | — | | | (9) | | | (9) | | | | | | | | |
REIT loans | | — | | | (4) | | | (4) | | | | | | | | |
Tax-exempt loans | | — | | | — | | | — | | | | | | | | |
Residential mortgage loans | | 1 | | | (5) | | | (4) | | | | | | | | |
SBL and other | | 9 | | | (14) | | | (5) | | | | | | | | |
Loans held for sale | | 1 | | | (2) | | | (1) | | | | | | | | |
Total bank loans, net | | 6 | | | (62) | | | (56) | | | | | | | | |
All other interest-earning assets | | (4) | | | (5) | | | (9) | | | | | | | | |
Total interest-earning assets | | 58 | | | (143) | | | (85) | | | | | | | | |
Interest expense: | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | | |
Savings, money market and NOW accounts | | 2 | | | (6) | | | (4) | | | | | | | | |
Certificates of deposit | | (1) | | | (1) | | | (2) | | | | | | | | |
Total bank deposits | | 1 | | | (7) | | | (6) | | | | | | | | |
Brokerage client payables | | 7 | | | (9) | | | (2) | | | | | | | | |
Other borrowings | | — | | | — | | | — | | | | | | | | |
Senior notes payable | | 5 | | | — | | | 5 | | | | | | | | |
All other interest-bearing liabilities | | (1) | | | (2) | | | (3) | | | | | | | | |
Total interest-bearing liabilities | | 12 | | | (18) | | | (6) | | | | | | | | |
Change in net interest income | | $ | 46 | | | $ | (125) | | | $ | (79) | | | | | | | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Six months ended March 31, 2021 compared with the six months ended March 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended March 31, |
| | 2021 | | 2020 |
$ in millions | | Average daily balance | | Interest | | Annualized average rate | | Average daily balance | | Interest | | Annualized average rate |
Interest-earning assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 5,500 | | | $ | 6 | | | 0.23 | % | | $ | 4,227 | | | $ | 33 | | | 1.55 | % |
Assets segregated pursuant to regulations | | 7,954 | | | 8 | | | 0.19 | % | | 2,583 | | | 22 | | | 1.75 | % |
Available-for-sale securities | | 7,735 | | | 44 | | | 1.14 | % | | 3,265 | | | 37 | | | 2.29 | % |
Brokerage client receivables | | 2,152 | | | 37 | | | 3.42 | % | | 2,402 | | | 48 | | | 4.04 | % |
Bank loans, net of unearned income and deferred expenses: | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | 7,537 | | | 99 | | | 2.60 | % | | 8,039 | | | 167 | | | 4.07 | % |
CRE loans | | 2,623 | | | 34 | | | 2.56 | % | | 2,572 | | | 53 | | | 4.04 | % |
REIT loans | | 1,272 | | | 16 | | | 2.47 | % | | 1,330 | | | 25 | | | 3.77 | % |
Tax-exempt loans | | 1,232 | | | 16 | | | 3.35 | % | | 1,218 | | | 16 | | | 3.36 | % |
Residential mortgage loans | | 5,003 | | | 69 | | | 2.75 | % | | 4,743 | | | 75 | | | 3.16 | % |
SBL and other | | 4,460 | | | 51 | | | 2.26 | % | | 3,403 | | | 65 | | | 3.78 | % |
Loans held for sale | | 159 | | | 2 | | | 2.36 | % | | 151 | | | 3 | | | 3.97 | % |
Total bank loans, net | | 22,286 | | | 287 | | | 2.59 | % | | 21,456 | | | 404 | | | 3.76 | % |
All other interest-earning assets | | 2,247 | | | 21 | | | 1.93 | % | | 2,511 | | | 38 | | | 2.89 | % |
Total interest-earning assets | | $ | 47,874 | | | $ | 403 | | | 1.69 | % | | $ | 36,444 | | | $ | 582 | | | 3.19 | % |
Interest-bearing liabilities: | | | | | | | | | | | | |
Bank deposits: | | | | | | | | | | | | |
Savings, money market and NOW accounts | | $ | 27,144 | | | $ | 3 | | | 0.02 | % | | $ | 22,260 | | | $ | 18 | | | 0.16 | % |
Certificates of deposit | | 925 | | | 9 | | | 1.90 | % | | 937 | | | 10 | | | 2.10 | % |
Total bank deposits | | 28,069 | | | 12 | | | 0.08 | % | | 23,197 | | | 28 | | | 0.24 | % |
Brokerage client payables | | 9,403 | | | 2 | | | 0.04 | % | | 3,513 | | | 6 | | | 0.40 | % |
Other borrowings | | 864 | | | 10 | | | 2.21 | % | | 894 | | | 10 | | | 2.23 | % |
Senior notes payable | | 2,045 | | | 48 | | | 4.74 | % | | 1,553 | | | 37 | | | 4.71 | % |
All other interest-bearing liabilities | | 587 | | | 3 | | | 1.01 | % | | 1,023 | | | 13 | | | 2.02 | % |
Total interest-bearing liabilities | | $ | 40,968 | | | $ | 75 | | | 0.36 | % | | $ | 30,180 | | | $ | 94 | | | 0.61 | % |
Net interest income | | | | $ | 328 | | | | | | | $ | 488 | | | |
Firmwide net interest margin (net yield on interest-earning assets) | | | | | | 1.38 | % | | | | | | 2.69 | % |
RJ Bank net interest margin | | | | | | 1.98 | % | | | | | | 3.12 | % |
Nonaccrual loans are included in the average loan balances in the preceding table. Any payments received for corporate nonaccrual loans are applied entirely to principal. Interest income on residential mortgage nonaccrual loans is recognized on a cash basis.
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 Operationsthe six months ended March 31, 2021 and 2020.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous period’s volume. Changes attributable to both volume and rate have been allocated proportionately.
| | | | | | | | | | | | | | | | | | | | |
| | Six months ended March 31, |
| | 2021 compared to 2020 |
| | Increase/(decrease) due to |
$ in millions | | Volume | | Rate | | Total |
Interest income: | | | | | | |
Interest-earning assets: | | | | | | |
Cash and cash equivalents | | $ | 9 | | | $ | (36) | | | $ | (27) | |
Assets segregated pursuant to regulations | | 47 | | | (61) | | | (14) | |
Available-for-sale securities | | 52 | | | (45) | | | 7 | |
Brokerage client receivables | | (5) | | | (6) | | | (11) | |
Bank loans, net of unearned income and deferred expenses: | | | | | | |
Loans held for investment: | | | | | | |
C&I loans | | (10) | | | (58) | | | (68) | |
CRE loans | | 1 | | | (20) | | | (19) | |
REIT loans | | (1) | | | (8) | | | (9) | |
Tax-exempt loans | | — | | | — | | | — | |
Residential mortgage loans | | 4 | | | (10) | | | (6) | |
SBL and other | | 20 | | | (34) | | | (14) | |
Loans held for sale | | — | | | (1) | | | (1) | |
Total bank loans, net | | 14 | | | (131) | | | (117) | |
All other interest-earning assets | | (6) | | | (11) | | | (17) | |
Total interest-earning assets | | 111 | | | (290) | | | (179) | |
Interest expense: | | | | | | |
Interest-bearing liabilities: | | | | | | |
Bank deposits: | | | | | | |
Savings, money market and NOW accounts | | 4 | | | (19) | | | (15) | |
Certificates of deposit | | — | | | (1) | | | (1) | |
Total bank deposits | | 4 | | | (20) | | | (16) | |
Brokerage client payables | | 13 | | | (17) | | | (4) | |
Other borrowings | | — | | | — | | | — | |
Senior notes payable | | 11 | | | — | | | 11 | |
All other interest-bearing liabilities | | (7) | | | (3) | | | (10) | |
Total interest-bearing liabilities | | 21 | | | (40) | | | (19) | |
Change in net interest income | | $ | 90 | | | $ | (250) | | | $ | (160) | |
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 a description of the key factors impacting our PCG results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20192020 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 979 | | | $ | 833 | | | 18 | % | | $ | 1,864 | | | $ | 1,615 | | | 15 | % |
Brokerage revenues: | | | | | | | | | | | | |
Mutual and other fund products | | 183 | | | 163 | | | 12 | % | | 331 | | | 307 | | | 8 | % |
Insurance and annuity products | | 109 | | | 99 | | | 10 | % | | 207 | | | 200 | | | 4 | % |
Equities, ETFs and fixed income products | | 121 | | | 122 | | | (1) | % | | 228 | | | 224 | | | 2 | % |
Total brokerage revenues | | 413 | | | 384 | | | 8 | % | | 766 | | | 731 | | | 5 | % |
Account and service fees: | | | | | | | | | | | | |
Mutual fund and annuity service fees | | 99 | | | 88 | | | 13 | % | | 193 | | | 178 | | | 8 | % |
RJBDP fees: | | | | | | | | | | | | |
Third-party banks | | 19 | | | 51 | | | (63) | % | | 40 | | | 109 | | | (63) | % |
RJ Bank | | 44 | | | 48 | | | (8) | % | | 87 | | | 95 | | | (8) | % |
Client account and other fees | | 42 | | | 35 | | | 20 | % | | 74 | | | 64 | | | 16 | % |
Total account and service fees | | 204 | | | 222 | | | (8) | % | | 394 | | | 446 | | | (12) | % |
Investment banking | | 16 | | | 11 | | | 45 | % | | 22 | | | 22 | | | — | |
Interest income | | 30 | | | 45 | | | (33) | % | | 60 | | | 94 | | | (36) | % |
All other | | 8 | | | 7 | | | 14 | % | | 13 | | | 16 | | | (19) | % |
Total revenues | | 1,650 | | | 1,502 | | | 10 | % | | 3,119 | | | 2,924 | | | 7 | % |
Interest expense | | (3) | | | (7) | | | (57) | % | | (5) | | | (15) | | | (67) | % |
Net revenues | | 1,647 | | | 1,495 | | | 10 | % | | 3,114 | | | 2,909 | | | 7 | % |
Non-interest expenses: | | | | | | | | | | | | |
Financial advisor compensation and benefits | | 1,040 | | | 915 | | | 14 | % | | 1,971 | | | 1,772 | | | 11 | % |
Administrative compensation and benefits | | 260 | | | 245 | | | 6 | % | | 509 | | | 492 | | | 3 | % |
Total compensation, commissions and benefits | | 1,300 | | | 1,160 | | | 12 | % | | 2,480 | | | 2,264 | | | 10 | % |
Non-compensation expenses: | | | | | | | | | | | | |
Communications and information processing | | 69 | | | 62 | | | 11 | % | | 131 | | | 121 | | | 8 | % |
Occupancy and equipment | | 45 | | | 44 | | | 2 | % | | 88 | | | 88 | | | — | |
Business development | | 15 | | | 24 | | | (38) | % | | 31 | | | 51 | | | (39) | % |
Professional fees | | 10 | | | 9 | | | 11 | % | | 23 | | | 17 | | | 35 | % |
All other | | 16 | | | 26 | | | (38) | % | | 29 | | | 45 | | | (36) | % |
Total non-compensation expenses | | 155 | | | 165 | | | (6) | % | | 302 | | | 322 | | | (6) | % |
Total non-interest expenses | | 1,455 | | | 1,325 | | | 10 | % | | 2,782 | | | 2,586 | | | 8 | % |
Pre-tax income | | $ | 192 | | | $ | 170 | | | 13 | % | | $ | 332 | | | $ | 323 | | | 3 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | % change | | 2020 | | 2019 | | % change |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees | | $ | 833 |
| | $ | 638 |
| | 31 | % | | $ | 1,615 |
| | $ | 1,345 |
| | 20 | % |
Brokerage revenues: | | | | | |
|
| | | | | |
|
|
Mutual and other fund products | | 163 |
| | 145 |
| | 12 | % | | 307 |
| | 302 |
| | 2 | % |
Insurance and annuity products | | 99 |
| | 99 |
| | — |
| | 200 |
| | 203 |
| | (1 | )% |
Equities, ETFs and fixed income products | | 122 |
| | 94 |
| | 30 | % | | 224 |
| | 197 |
| | 14 | % |
Total brokerage revenues | | 384 |
| | 338 |
| | 14 | % | | 731 |
| | 702 |
| | 4 | % |
Account and service fees: | | | | | |
|
| | | | | |
|
|
Mutual fund and annuity service fees | | 88 |
| | 82 |
| | 7 | % | | 178 |
| | 165 |
| | 8 | % |
RJBDP fees: | | | | | |
|
| | | | | |
|
|
Third-party banks | | 51 |
| | 80 |
| | (36 | )% | | 109 |
| | 148 |
| | (26 | )% |
RJ Bank | | 48 |
| | 42 |
| | 14 | % | | 95 |
| | 83 |
| | 14 | % |
Client account and other fees | | 35 |
| | 27 |
| | 30 | % | | 64 |
| | 60 |
| | 7 | % |
Total account and service fees | | 222 |
| | 231 |
| | (4 | )% | | 446 |
| | 456 |
| | (2 | )% |
Investment banking | | 11 |
| | 8 |
| | 38 | % | | 22 |
| | 15 |
| | 47 | % |
Interest income | | 45 |
| | 58 |
| | (22 | )% | | 94 |
| | 114 |
| | (18 | )% |
All other | | 7 |
| | 9 |
| | (22 | )% | | 16 |
| | 16 |
| | — |
|
Total revenues | | 1,502 |
|
| 1,282 |
|
| 17 | % |
| 2,924 |
|
| 2,648 |
|
| 10 | % |
Interest expense | | (7 | ) | | (11 | ) | | (36 | )% | | (15 | ) | | (21 | ) | | (29 | )% |
Net revenues | | 1,495 |
| | 1,271 |
| | 18 | % | | 2,909 |
| | 2,627 |
| | 11 | % |
Non-interest expenses: | | |
| | |
| |
|
| | |
| | |
| |
|
|
Financial advisor compensation and benefits | | 915 |
| | 750 |
| | 22 | % | | 1,772 |
| | 1,553 |
| | 14 | % |
Administrative compensation and benefits | | 245 |
| | 234 |
| | 5 | % | | 492 |
| | 463 |
| | 6 | % |
Total compensation, commissions and benefits | | 1,160 |
| | 984 |
| | 18 | % | | 2,264 |
| | 2,016 |
| | 12 | % |
Non-compensation expenses: | | | | | |
|
| | | | | |
|
|
Communications and information processing | | 62 |
| | 59 |
| | 5 | % | | 121 |
| | 117 |
| | 3 | % |
Occupancy and equipment | | 44 |
| | 41 |
| | 7 | % | | 88 |
| | 79 |
| | 11 | % |
Business development | | 24 |
| | 26 |
| | (8 | )% | | 51 |
| | 53 |
| | (4 | )% |
Professional fees | | 9 |
| | 7 |
| | 29 | % | | 17 |
| | 16 |
| | 6 | % |
All other | | 26 |
| | 22 |
| | 18 | % | | 45 |
| | 50 |
| | (10 | )% |
Total non-compensation expenses | | 165 |
| | 155 |
| | 6 | % | | 322 |
| | 315 |
| | 2 | % |
Total non-interest expenses | | $ | 1,325 |
| | $ | 1,139 |
| | 16 | % | | $ | 2,586 |
| | $ | 2,331 |
| | 11 | % |
Pre-tax income | | $ | 170 |
| | $ | 132 |
| | 29 | % | | $ | 323 |
| | $ | 296 |
| | 9 | % |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Selected key metrics
PCG client asset balances:balances | | | | As of | | As of |
$ in billions | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | March 31, 2019 | | December 31, 2018 | | September 30, 2018 | $ in billions | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
Assets under administration (“AUA”) | | $ | 734.0 |
| | $ | 855.2 |
| | $ | 798.4 |
| | $ | 760.0 |
| | $ | 690.7 |
| | $ | 755.7 |
| Assets under administration (“AUA”) | | $ | 1,028.1 | | | $ | 974.2 | | | $ | 883.3 | | | | $ | 734.0 | | | $ | 855.2 | | | $ | 798.4 | |
Assets in fee-based accounts (1) | | $ | 383.5 |
| | $ | 444.2 |
| | $ | 409.1 |
| | $ | 378.4 |
| | $ | 338.8 |
| | $ | 366.3 |
| Assets in fee-based accounts (1) | | $ | 567.6 | | | $ | 532.7 | | | $ | 475.3 | | | | $ | 383.5 | | | $ | 444.2 | | | $ | 409.1 | |
Percent of AUA in fee-based accounts | | 52.2 | % | | 51.9 | % | | 51.2 | % | | 49.8 | % | | 49.1 | % | | 48.5 | % | Percent of AUA in fee-based accounts | | 55.2 | % | | 54.7 | % | | 53.8 | % | | | 52.2 | % | | 51.9 | % | | 51.2 | % |
(1)A portion of our “Assets in fee-based accounts” is invested in “managed programs” overseen by our Asset Management segment, specifically our Asset Management Services division of RJ&A (“AMS”). These assets are included in our Financial assets under management as disclosed in the “Selected key metrics” section of our “Management’s Discussion and Analysis - Results of Operations - Asset Management.”
| |
(1) | A portion of our “Assets in fee-based accounts” is invested in “managed programs” overseen by our Asset Management segment, specifically our Asset Management Services division of RJ&A (“AMS”). These assets are included in our Financial assets under management as disclosed in the “Selected key metrics” section of our “Management’s Discussion and Analysis - Results of Operations - Asset Management.” |
Fee-based accounts within our PCG segment are comprised of a wide array of products and programs that we offer our clients. The majority of assets in fee-based accounts within our PCG segment are invested in programs for which our financial advisors provide investment advisory services, either on a discretionary or non-discretionary basis. Administrative services for such accounts (e.g., record-keeping) are generally performed by our Asset Management segment and, as a result, a portion of the related revenues is shared with the Asset Management segment.
We also offer our clients fee-based accounts that are invested in “managed programs” overseen by AMS, which is part of our Asset Management segment. Fee-billable assets invested in managed programs are included in both “Assets in fee-based accounts” in the preceding table and “Financial assets under management” in the Asset Management segment. Revenues related to managed programs are shared by our PCG and Asset Management segments. The Asset Management segment receives a higher portion of the revenues related to accounts invested in managed programs, as compared to the portion received for non-managed programs, as it is performing portfolio management services in addition to administrative services.
The vast majority of the revenues we earn from fee-based accounts are recorded in “Asset management and related administrative fees” on our Condensed Consolidated Statements of Income and Comprehensive Income. Fees received from such accounts are based on the value of client assets in fee-based accounts and vary based on the specific account types in which the client participatesinvests and the level of assets in the client relationship. As fees for substantially all of such accounts are billed based on balances as of the beginning of the quarter, revenues from fee-based accounts may not be immediately affected by changes in asset values, but rather the impacts are seen in the following quarter.
Despite the net addition of financial advisors in the current quarter, PCG assets under administration decreasedincreased during the three months ended March 31, 2021 primarily due to the decline in equity marketsmarket appreciation, as a resultwell as net inflows of the COVID-19 pandemic.client assets. In addition, PCG assets in fee-based accounts continued to increase as a percentage of overall PCG assets under administration due to clients’ increased preference for fee-based alternatives versus transaction-based accounts. As a result of the shift to fee-based accounts over the past several years, a larger portion of our PCG revenues are more directly impacted by market movements. Therefore, further declines in equity markets would negatively affect our PCG revenues.
Financial advisors:advisors
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | | | March 31, 2020 | | |
Employees | | 3,375 | | | 3,387 | | | 3,404 | | | | | 3,376 | | | |
Independent contractors | | 4,952 | | | 4,846 | | | 4,835 | | | | | 4,772 | | | |
Total advisors | | 8,327 | | | 8,233 | | | 8,239 | | | | | 8,148 | | | |
|
| | | | | | | | | | | | |
| | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | March 31, 2019 |
Employees | | 3,376 |
| | 3,331 |
| | 3,301 |
| | 3,192 |
|
Independent contractors | | 4,772 |
| | 4,729 |
| | 4,710 |
| | 4,670 |
|
Total advisors | | 8,148 |
| | 8,060 |
| | 8,011 |
| | 7,862 |
|
The number of financial advisors increased primarilycompared with the prior quarter and September 30, 2020 due to continuedrecruiting of financial advisors and new trainees that were moved into production roles, partially offset by the impact of advisors who left the firm, including planned retirements, where assets are generally retained at the firm. The growth in the number of financial advisors has been impacted by a smaller training class in the current year, as well as the transfer of advisors who were previously affiliated with the firm as independent contractors or employees to our RIA & Custody Services (“RCS”) division. Advisors in RCS are not included in the financial advisor count, although their assets are still included in client assets under administration. While the recruiting and high levels of retention. The impact of COVID-19 on futurepipeline remains active across our affiliation options, the recruiting is uncertain; however, we are likelyenvironment has become increasingly competitive, particularly in the employee channel, which has caused us to see a slowdownincrease the value offered to prospects in our recruiting until travel restrictions and other social distancing measures subside.packages for financial advisors.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Clients’ domestic cash sweep balances:balances
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
$ in millions | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | | | March 31, 2020 | | |
RJBDP | | | | | | | | | | | | |
RJ Bank | | $ | 28,174 | | | $ | 26,697 | | | $ | 25,599 | | | | | $ | 28,711 | | | |
Third-party banks | | 25,110 | | | 26,142 | | | 25,998 | | | | | 20,379 | | | |
Subtotal RJBDP | | 53,284 | | | 52,839 | | | 51,597 | | | | | 49,090 | | | |
CIP | | 9,517 | | | 8,769 | | | 3,999 | | | | | 3,782 | | | |
Total clients’ domestic cash sweep balances | | $ | 62,801 | | | $ | 61,608 | | | $ | 55,596 | | | | | $ | 52,872 | | | |
|
| | | | | | | | | | | | | | | | |
| | As of |
$ in millions | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | March 31, 2019 |
RJBDP | | | | | | | | |
RJ Bank | | $ | 28,711 |
| | $ | 21,891 |
| | $ | 21,649 |
| | $ | 21,023 |
|
Third-party banks | | 20,379 |
| | 15,061 |
| | 14,043 |
| | 14,343 |
|
Subtotal RJBDP | | 49,090 |
| | 36,952 |
| | 35,692 |
| | 35,366 |
|
Money market funds | | — |
| | — |
| | — |
| | 4,001 |
|
Client Interest Program (“CIP”) | | 3,782 |
| | 2,528 |
| | 2,022 |
| | 2,349 |
|
Total clients’ domestic cash sweep balances | | $ | 52,872 |
| | $ | 39,480 |
| | $ | 37,714 |
| | $ | 41,716 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Average yield on RJBDP - third-party banks | | 0.30 | % | | 1.33 | % | | 0.31 | % | | 1.48 | % |
|
| | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Average yield on RJBDP - third-party banks | | 1.33 | % | | 2.00 | % | | 1.48 | % | | 1.87 | % |
A significant portion of our clients’ cash is included in the RJBDP, a multi-bank sweep program in which clients’ cash deposits in their accounts are swept into interest-bearing deposit accounts at RJ Bank and various third-party banks. We earn servicing fees for the administrative services we provide related to our clients’ deposits that are swept to such banks as part of the RJBDP. The amounts from third-party banks are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates and the interest paid to clients by the third-party banks on balances in the RJBDP. The “Average yield on RJBDP - third party banks” in the preceding table is computed by dividing annualized RJBDP fees from third-party banks, which are net of the interest expense paid to clients by the third-party banks, by the average daily RJBDP balance at third-party banks. The PCG segment also earns RJBDP servicing fees from the RJ Bank segment, which are based on the number of accounts that are swept to RJ Bank. The fees from RJ Bank are eliminated in consolidation.
RJBDP fees from third-party banks and the average yield on RJBDP (third-party banks) were negatively impacted by the significant decrease in short-term interest rates. The Federal Reserve decreased its benchmark short-term interest rate twice toward the end of our second fiscal quarter, to a range of 0-0.25%, a total decrease of 150 basis points. These decreases were in addition to the three rate cuts implemented in 2019 (225 basis points in total). As the interest rate decreases during our second fiscal quarter of 2020 occurred in March, we expect that our average yield on RJBDP (third-party banks) will decrease to approximately 0.30% beginning with our third fiscal quarter. Any additional decreases in short-term interest rates, increases in deposit rates paid to clients, and/or a significant decline in our clients’ cash balances will likely have a negative impact on our earnings. Further, PCG segment results are impacted by changes in the allocation of client cash balances in the RJBDP between RJ Bank and third-party banks.
Money market funds were discontinued PCG segment results are also impacted by changes in the allocation of cash balances between RJBDP and CIP, as a sweep option in June 2019. Balances in those funds were convertedthe net yield to the RJBDP or reinvested by the client.
The significant increase in clients’firm on cash balances in CIP (i.e., the spread between amounts earned on assets segregated for regulatory purposes and the interest paid to clients on CIP balances) is lower than the yield to the firm on RJBDP balances, on average.
Client cash balances remained elevated as of March 31, 2020 was2021 compared to prior year balances as a result of a number of factors, including the market volatilitycontinuing economic uncertainty caused by the COVID-19 pandemic, as well as uncertainty related to the nature and timing of policy changes that may be put forth by the steep declinesnew federal government administration. The average yield on RJBDP - third party banks decreased compared with the prior-year periods due to the significant decline in short-term interest rates. We expect the equity markets duringaverage yield on RJBDP balances at third-party banks to remain approximately 0.30% for the secondremainder of our 2021 fiscal quarter of 2020.year; however, this projected yield could decline if demand for deposits from third-party banks does not improve from current levels.
Quarter ended March 31, 20202021 compared with the quarter ended March 31, 20192020
Net revenues of $1.50$1.65 billion increased $224$152 million, or 18%10%, and pre-tax income of $170$192 million increased $38$22 million, or 29%13%.
Asset management and related administrative fees increased $195$146 million, or 31%, due to higher asset balances in fee-based accounts at the beginning of the quarter. As assets in fee-based accounts are billed primarily on balances at the beginning of the quarter, the 14% decline in fee-based assets during the current quarter will negatively impact asset management fees in our third fiscal quarter.
Brokerage revenues increased $46 million, or 14%, primarily due to strong client activity driven by market volatility toward the end of the quarter as a result of the COVID-19 pandemic.
Account and service fees decreased $9 million, or 4%, due to the decline in RJBDP fees from third-party banks, primarily driven by lower short-term interest rates compared with the prior-year quarter. Partially offsetting this decrease was an increase in RJBDP fees from RJ Bank, due to an increase in the number of accounts, and increases in mutual fund service fees and client account and other fees, primarily due to higher average assets and activity during the quarter.
Management’s Discussion and Analysis
Net interest income decreased $9 million, or 19%, driven by a decrease in interest income from client margin loans and assets segregated pursuant to regulations due to a decline in short-term interest rates. Partially offsetting the decrease in interest income, interest expense also decreased due to the impact of lower deposit rates paid on client cash balances in CIP.
Compensation-related expenses increased $176 million, or 18%, due to higher compensable net revenues, as well as increased staffing levels over the prior-year quarter to support our continued growth and regulatory compliance requirements.
Non-compensation expenses increased $10 million, or 6%, primarily due to increased costs to support our growth, as well as higher legal reserves.
Six months ended March 31, 2020 compared with the six months ended March 31, 2019
Net revenues of $2.91 billion increased $282 million, or 11%, and pre-tax income of $323 million increased $27 million, or 9%.
Asset management and related administrative fees increased $270 million, or 20%, primarily due to higher assets in fee-based accounts at the beginning of the current-year periods.quarter. As assets in these accounts are billed primarily on balances as of the beginning of the quarter, the 7% increase in fee-based assets as of March 31, 2021 compared to December 31, 2020, should positively impact asset management fees in our fiscal third quarter of 2021.
Brokerage revenues increased $29 million, or 4%8%, primarily due to strong client activity driven by market volatility toward the end of our second fiscal quarter. Partially offsetting this increase was a decline inhigher trailing revenues from mutual and other fund trails, which were impacted by the conversion of client assets into mutual fund share classes which pay lower rates,products and the continued shift to fee-based accounts.annuity products, as well as higher transactional revenues.
Account and service fees decreased $10$18 million, or 2%8%, driven byprimarily due to a decline in RJBDP fees from third-party banks as a result of lower short-term interest rates. Partially offsetting this decrease was an increase in mutual fund service fees, primarily due to higher assets,as well as incremental client account and higher RJBDPother fees resulting from RJ Bank due to an increase inour acquisition of NWPS at the numberend of accounts at RJ Bank.our fiscal first quarter of 2021.
Net interest income decreased $14$11 million, or 15%29%, driven by a decreasedecline in interest income from assets segregated pursuantdue to regulations, due a decline inlower short-term interest rates applicable to both cash and segregated asset balances, which more than offset the impact of significantly higher segregated asset balances. As reflected in the table above, our CIP balances increased significantly compared with the prior-year quarter resulting in the increase in segregated assets, and a decrease in interest income from client margin loans, duesignificant portion of the increase was related to the decline in lower-yielding segregated
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
short-term interest ratesU.S. Treasury securities and, a decline in average balances.where capacity allowed us, cash deposit accounts at various financial institutions to meet our reserve requirements. Partially offsetting the impact of a decrease in interest income, interest expense also decreased despite the significant increase in client cash balances in our CIP, due to the impact of lower deposit rates paid on client cash balances in CIP.these balances.
Compensation-related expenses increased $248$140 million, or 12%, primarily due to higher compensable net revenues. Compensation-related expenses increased at a higher rate than net revenues as well as increased staffing levels in the current year to support our continued growthRJBDP fees from third-party banks and regulatory compliance requirements.net interest income, which have no associated direct compensation expense, significantly declined.
Non-compensation expenses increased $7decreased $10 million, or 2%6%, primarily due to lower provisions for legal matters, as well as lower travel and event-related expenses as a result of the COVID-19 pandemic. Partially offsetting these decreases was an increase in technology-related expenses reflecting ongoing upgrades to our technology platforms.
Six months ended March 31, 2021 compared with the six months ended March 31, 2020
Net revenues of $3.11 billion increased costs$205 million, or 7%, and pre-tax income of $332 million increased $9 million, or 3%.
Asset management and related administrative fees increased $249 million, or 15%, primarily due to supporthigher assets in fee-based accounts at the beginning of each of the current-year quarterly billing periods compared with the prior-year quarterly billing periods.
Brokerage revenues increased $35 million, or 5%, primarily due to higher trailing revenues from mutual and other fund products and annuity products, as well as higher transactional revenues due to increased client activity.
Account and service fees decreased $52 million, or 12%, primarily due to a decline in RJBDP fees from third-party banks as a result of lower short-term interest rates. Partially offsetting this decrease was an increase in mutual fund service fees, as well as incremental client account and other fees resulting from our growth.acquisition of NWPS at the end of our fiscal first quarter of 2021.
Net interest income decreased $24 million, or 30%, driven by a decline in interest income due to lower short-term interest rates applicable to both cash and segregated asset balances, which more than offset the impact of significantly higher segregated asset balances. As reflected in the table above, our CIP balances increased significantly compared with the prior-year period resulting in the increase in segregated assets, and a significant portion of the increase was related to segregated short-term U.S. Treasury securities and, where capacity allowed us, cash deposit accounts at various financial institutions. Partially offsetting the impact of a decrease in interest income, interest expense also decreased despite the significant increase in client cash balances in our CIP, due to the impact of lower deposit rates paid on these balances.
Compensation-related expenses increased $216 million, or 10%, primarily due to higher compensable net revenues.
Non-compensation expenses decreased $20 million, or 6%, primarily due to decreases in travel and event-related expenses as a result of the COVID-19 pandemic and lower provisions for legal matters, partially offset by higher technology-related expenses, reflecting ongoing upgrades to our technology platforms.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’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 a description of the key factors impacting our Capital Markets results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20192020 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Revenues: | | | | | | | | | | | | |
Brokerage revenues: | | | | | | | | | | | | |
Fixed income | | $ | 142 | | | $ | 90 | | | 58 | % | | $ | 273 | | | $ | 171 | | | 60 | % |
Equity | | 34 | | | 40 | | | (15) | % | | 76 | | | 74 | | | 3 | % |
Total brokerage revenues | | 176 | | | 130 | | | 35 | % | | 349 | | | 245 | | | 42 | % |
Investment banking: | | | | | | | | | | | | |
Merger & acquisition and advisory | | 122 | | | 72 | | | 69 | % | | 271 | | | 132 | | | 105 | % |
Equity underwriting | | 67 | | | 43 | | | 56 | % | | 127 | | | 82 | | | 55 | % |
Debt underwriting | | 37 | | | 22 | | | 68 | % | | 83 | | | 53 | | | 57 | % |
Total investment banking | | 226 | | | 137 | | | 65 | % | | 481 | | | 267 | | | 80 | % |
Interest income | | 5 | | | 10 | | | (50) | % | | 8 | | | 18 | | | (56) | % |
Tax credit fund revenues | | 24 | | | 12 | | | 100 | % | | 40 | | | 30 | | | 33 | % |
All other | | 4 | | | 7 | | | (43) | % | | 11 | | | 10 | | | 10 | % |
Total revenues | | 435 | | | 296 | | | 47 | % | | 889 | | | 570 | | | 56 | % |
Interest expense | | (2) | | | (6) | | | (67) | % | | (4) | | | (12) | | | (67) | % |
Net revenues | | 433 | | | 290 | | | 49 | % | | 885 | | | 558 | | | 59 | % |
Non-interest expenses: | | | | | | | | | | | | |
Compensation, commissions and benefits | | 259 | | | 184 | | | 41 | % | | 511 | | | 350 | | | 46 | % |
Non-compensation expenses: | | | | | | | | | | | | |
Communications and information processing | | 20 | | | 20 | | | — | | | 39 | | | 39 | | | — | |
Occupancy and equipment | | 9 | | | 9 | | | — | | | 18 | | | 18 | | | — | |
Business development | | 6 | | | 15 | | | (60) | % | | 15 | | | 31 | | | (52) | % |
Professional fees | | 13 | | | 13 | | | — | | | 26 | | | 23 | | | 13 | % |
| | | | | | | | | | | | |
All other | | 21 | | | 21 | | | — | | | 42 | | | 40 | | | 5 | % |
Total non-compensation expenses | | 69 | | | 78 | | | (12) | % | | 140 | | | 151 | | | (7) | % |
Total non-interest expenses | | 328 | | | 262 | | | 25 | % | | 651 | | | 501 | | | 30 | % |
Pre-tax income | | $ | 105 | | | $ | 28 | | | 275 | % | | $ | 234 | | | $ | 57 | | | 311 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | % change | | 2020 | | 2019 | | % change |
Revenues: | | | | | | | | | | | | |
Brokerage revenues: | | |
| | |
| | | | | | | | |
Fixed income | | $ | 90 |
| | $ | 71 |
| | 27 | % | | $ | 171 |
| | $ | 128 |
| | 34 | % |
Equity | | 40 |
| | 32 |
| | 25 | % | | 74 |
| | 74 |
| | — |
|
Total brokerage revenues | | 130 |
| | 103 |
| | 26 | % | | 245 |
| | 202 |
| | 21 | % |
Investment banking: | | | | | |
|
| | | | | | |
Merger & acquisition and advisory | | 72 |
| | 121 |
| | (40 | )% | | 132 |
| | 206 |
| | (36 | )% |
Equity underwriting | | 43 |
| | 18 |
| | 139 | % | | 82 |
| | 45 |
| | 82 | % |
Debt underwriting | | 22 |
| | 17 |
| | 29 | % | | 53 |
| | 34 |
| | 56 | % |
Total investment banking | | 137 |
| | 156 |
| | (12 | )% | | 267 |
| | 285 |
| | (6 | )% |
Interest income | | 10 |
| | 9 |
| | 11 | % | | 18 |
| | 19 |
| | (5 | )% |
Tax credit fund revenues | | 12 |
| | 14 |
| | (14 | )% | | 30 |
| | 33 |
| | (9 | )% |
All other | | 7 |
| | 3 |
| | 133 | % | | 10 |
| | 7 |
| | 43 | % |
Total revenues | | 296 |
| | 285 |
| | 4 | % | | 570 |
| | 546 |
| | 4 | % |
Interest expense | | (6 | ) | | (8 | ) | | (25 | )% | | (12 | ) | | (16 | ) | | (25 | )% |
Net revenues | | 290 |
| | 277 |
| | 5 | % | | 558 |
| | 530 |
| | 5 | % |
Non-interest expenses: | | |
| | |
| |
|
| | | | | |
|
|
Compensation, commissions and benefits | | 184 |
| | 168 |
| | 10 | % | | 350 |
| | 326 |
| | 7 | % |
Non-compensation expenses: | | | | | | | | | | | | |
Communications and information processing | | 20 |
| | 19 |
| | 5 | % | | 39 |
| | 38 |
| | 3 | % |
Occupancy and equipment | | 9 |
| | 9 |
| | — |
| | 18 |
| | 18 |
| | — |
|
Business development | | 15 |
| | 13 |
| | 15 | % | | 31 |
| | 25 |
| | 24 | % |
Professional fees | | 13 |
| | 10 |
| | 30 | % | | 23 |
| | 20 |
| | 15 | % |
Acquisition and disposition-related expenses | | — |
| | — |
| | — |
| | — |
| | 15 |
| | (100 | )% |
All other | | 21 |
| | 17 |
| | 24 | % | | 40 |
| | 35 |
| | 14 | % |
Total non-compensation expenses | | 78 |
| | 68 |
| | 15 | % | | 151 |
| | 151 |
| | — |
|
Total non-interest expenses | | 262 |
| | 236 |
| | 11 | % | | 501 |
| | 477 |
| | 5 | % |
Pre-tax income | | $ | 28 |
| | $ | 41 |
| | (32 | )% | | $ | 57 |
| | $ | 53 |
| | 8 | % |
Quarter ended March 31, 20202021 compared with the quarter ended March 31, 20192020
Net revenues of $290$433 million increased $13$143 million, or 5%49%, and pre-tax income of $28$105 million decreased $13increased $77 million, or 32%275%.
Brokerage revenues increased $27$46 million, or 26%, due to an increase in both fixed income and equity brokerage revenues. The increase in brokerage revenues reflected an increase in client activity during the current-year quarter resulting from market volatility, partially offset by losses of approximately $6 million on our trading inventory, both due to the COVID-19 pandemic. We reduced our trading inventory toward the end of the quarter to reduce our risk.
Investment banking revenues decreased $19 million, or 12%, due to a decrease in the number of completed merger & acquisition transactions compared with a strong prior-year quarter. Partially offsetting the decrease in mergers & acquisitions was an increase in equity underwriting revenues primarily due to an increase in activity compared with a difficult prior-year quarter, which was negatively impacted by the U.S. government shutdown during that period. While investment banking results during the second fiscal quarter were solid, merger & acquisition and underwriting activity may be negatively impacted in future quarters if market uncertainty continues.
Compensation-related expenses increased $16 million, or 10%35%, primarily due to the mix of revenues, as revenues with higher payout percentages increased, while revenues with lower payout percentages declined.
Management’s Discussion and Analysis
Non-compensation expenses increased $10 million, or 15%, reflecting increases in professional fees and business development costs, primarily related to the increase in underwriting revenues, as well as an increase in other expenses.
Six months ended March 31, 2020 compared with the six months ended March 31, 2019
Net revenues of $558 million increased $28 million, or 5%, and pre-tax income of $57 million increased $4 million, or 8%.
Brokerage revenues increased $43 million, or 21%, due to ana significant increase in fixed income brokerage revenues. The increase in fixed income brokerage revenues was primarily due to an increase incontinued high levels of client activity during the current-year period, largelycurrent quarter, particularly with depository clients. Based on the current level of interest rates and economic conditions, we expect fixed income brokerage revenues to remain strong in the near-term.
Investment banking revenues increased $89 million, or 65%, due to a resultsignificant increase in merger & acquisition revenues, as well as continued strength in equity and debt underwriting, which also increased significantly compared with the prior-year quarter. The increase in merger & acquisition revenues reflected a higher number of transactions, as well as larger individual transactions. The increase in equity underwriting revenues was primarily due to higher levels of market volatility, particularly towardactivity and the increase in debt underwriting primarily reflected higher revenues from asset-backed and corporate underwritings. In addition to the strong results during the quarter, our investment banking pipelines are also strong and reflect the investments we have made in the business over the past several years, including the acquisition of Financo which closed at the end of our second fiscal quarter. Equity brokerage revenues were challenged earlier insecond
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
quarter of 2021. However, future activity may be negatively impacted by economic uncertainty or factors resulting from the year, butongoing COVID-19 pandemic.
Compensation-related expenses increased during our second fiscal quarter$75 million, or 41%, primarily due to strong client activity driven by market volatilitythe increase in compensable net revenues. Non-compensation expenses decreased $9 million, or 12%, primarily due to lower travel and event-related expenses as a result of the COVID-19 pandemic.
Six months ended March 31, 2021 compared with the six months ended March 31, 2020
Net revenues of $885 million increased $327 million, or 59%, and pre-tax income of $234 million increased $177 million, or 311%.
Brokerage revenues increased $104 million, or 42%, due to a significant increase in fixed income brokerage revenues due to the aforementioned increase in client activity levels during the current-year period, particularly with depository clients.
Investment banking revenues decreased $18increased $214 million, or 6%80%, due to a significant declineincrease in merger & acquisition activity compared with a strong first half of fiscal 2019. Offsetting the decrease wasrevenues, as well as an increase in both equity underwriting and debt underwriting netrevenues. The significant increase in merger & acquisition revenues withreflected an increase in the number of deals,transactions, as well as larger individual transactions. Equity underwriting revenues also increased significantly, primarily due to an increase in market activity. An increase in debt underwriting primarily reflected higher revenues from asset-backed and corporate underwritings.
Compensation-related expenses increased $24$161 million, or 7%46%, primarily due to the increase in compensable net revenues.
Non-compensation expenses were unchanged compared withdecreased $11 million, or 7%, primarily due to lower travel and event-related expenses as a result of the prior-year period, as increases in business development, professional fees and other expenses were offset by a loss in the prior-year period of $15 million associated with the sale of our operations related to research, sales and trading of European equities.COVID-19 pandemic.
Results of Operations
RESULTS OF OPERATIONS – Asset ManagementASSET MANAGEMENT
For an overview of our Asset Management segment operations as well as a description of the key factors impacting our Asset Management results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20192020 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees: | | | | | | | | | | | | |
Managed programs | | $ | 137 | | | $ | 124 | | | 10 | % | | $ | 266 | | | $ | 249 | | | 7 | % |
Administration and other | | 64 | | | 53 | | | 21 | % | | 123 | | | 104 | | | 18 | % |
Total asset management and related administrative fees | | 201 | | | 177 | | | 14 | % | | 389 | | | 353 | | | 10 | % |
Account and service fees | | 5 | | | 4 | | | 25 | % | | 9 | | | 9 | | | — | |
All other | | 3 | | | 3 | | | — | | | 6 | | | 6 | | | — | |
Net revenues | | 209 | | | 184 | | | 14 | % | | 404 | | | 368 | | | 10 | % |
Non-interest expenses: | | | | | | | | | | | | |
Compensation, commissions and benefits | | 50 | | | 45 | | | 11 | % | | 95 | | | 90 | | | 6 | % |
Non-compensation expenses: | | | | | | | | | | | | |
Communications and information processing | | 12 | | | 12 | | | — | | | 23 | | | 23 | | | — | |
Investment sub-advisory fees | | 30 | | | 26 | | | 15 | % | | 58 | | | 51 | | | 14 | % |
All other | | 30 | | | 28 | | | 7 | % | | 58 | | | 58 | | | — | |
Total non-compensation expenses | | 72 | | | 66 | | | 9 | % | | 139 | | | 132 | | | 5 | % |
Total non-interest expenses | | 122 | | | 111 | | | 10 | % | | 234 | | | 222 | | | 5 | % |
Pre-tax income | | $ | 87 | | | $ | 73 | | | 19 | % | | $ | 170 | | | $ | 146 | | | 16 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | % change | | 2020 | | 2019 | | % change |
Revenues: | | | | | | | | | | | | |
Asset management and related administrative fees: | | | | | | | | | | | | |
Managed programs | | $ | 124 |
| | $ | 109 |
| | 14 | % | | $ | 249 |
| | $ | 226 |
| | 10 | % |
Administration and other | | 53 |
| | 40 |
| | 33 | % | | 104 |
| | 84 |
| | 24 | % |
Total asset management and related administrative fees | | 177 |
| | 149 |
| | 19 | % | | 353 |
| | 310 |
| | 14 | % |
Account and service fees | | 4 |
| | 10 |
| | (60 | )% | | 9 |
| | 19 |
| | (53 | )% |
All other | | 3 |
| | 3 |
| | — |
| | 6 |
| | 7 |
| | (14 | )% |
Net revenues | | 184 |
| | 162 |
| | 14 | % | | 368 |
| | 336 |
| | 10 | % |
Non-interest expenses: | | |
| | |
| |
|
| | |
| | |
| |
|
|
Compensation, commissions and benefits | | 45 |
| | 45 |
| | — |
| | 90 |
| | 88 |
| | 2 | % |
Non-compensation expenses: | | | | | | | | | | | | |
Communications and information processing | | 12 |
| | 10 |
| | 20 | % | | 23 |
| | 21 |
| | 10 | % |
Investment sub-advisory fees | | 26 |
| | 21 |
| | 24 | % | | 51 |
| | 45 |
| | 13 | % |
All other | | 28 |
| | 31 |
| | (10 | )% | | 58 |
| | 63 |
| | (8 | )% |
Total non-compensation expenses | | 66 |
| | 62 |
| | 6 | % | | 132 |
| | 129 |
| | 2 | % |
Total non-interest expenses | | 111 |
| | 107 |
| | 4 | % | | 222 |
| | 217 |
| | 2 | % |
Pre-tax income | | $ | 73 |
| | $ | 55 |
| | 33 | % | | $ | 146 |
| | $ | 119 |
| | 23 | % |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Selected key metrics
Managed programs
Management fees recorded in our Asset Management segment are generally calculated as a percentage of the value of our fee-billable 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
Management’s Discussion and Analysis
managed on behalf of third-party institutions, institutional accounts and proprietary mutual funds that we manage (collectively included in the “Carillon Tower Advisers” line of the following table).
Revenues related to fee-based AUA in our PCG segment are shared by the PCG and Asset Management segments, the amount of which depends on whether clients are invested in assets that are in managed programs overseen by our Asset Management segment and the administrative services provided (see our “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for more information). Our AUM in AMS are impacted by market fluctuations and net inflows or outflows of assets, includingas well as transfers between fee-based accounts and transaction-based accounts within our PCG segment.
Revenues earned by Carillon Tower Advisers for retail accounts managed on behalf of third-party institutions, institutional accounts and our proprietary mutual funds are recorded entirely in the Asset Management segment. Our AUM in Carillon Tower Advisers are impacted by market and investment 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 as of the beginning of the quarter, approximately 10% are based on balances as of the end of the quarter, and approximately 25% are based on average daily balances throughout the quarter.
Financial assets under management:management
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
AMS (1) | | $ | 121.2 | | | $ | 113.9 | | | $ | 102.2 | | | $ | 84.0 | | | $ | 98.7 | | | $ | 91.8 | |
Carillon Tower Advisers | | 66.6 | | | 64.9 | | | 59.5 | | | 51.7 | | | 60.6 | | | 58.5 | |
Subtotal financial assets under management | | 187.8 | | | 178.8 | | | 161.7 | | | 135.7 | | | 159.3 | | | 150.3 | |
Less: Assets managed for affiliated entities | | (9.6) | | | (9.2) | | | (8.6) | | | (7.5) | | | (7.6) | | | (7.2) | |
Total financial assets under management | | $ | 178.2 | | | $ | 169.6 | | | $ | 153.1 | | | $ | 128.2 | | | $ | 151.7 | | | $ | 143.1 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ in millions | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | March 31, 2019 | | December 31, 2018 | | September 30, 2018 |
AMS (1) | | $ | 83,971 |
| | $ | 98,648 |
| | $ | 91,802 |
| | $ | 84,906 |
| | $ | 76,235 |
| | $ | 83,289 |
|
Carillon Tower Advisers | | 51,674 |
| | 60,637 |
| | 58,521 |
| | 59,852 |
| | 55,925 |
| | 63,330 |
|
Subtotal financial assets under management | | 135,645 |
| | 159,285 |
| | 150,323 |
| | 144,758 |
| | 132,160 |
| | 146,619 |
|
Less: Assets managed for affiliated entities | | (7,456 | ) | | (7,633 | ) | | (7,221 | ) | | (6,220 | ) | | (5,653 | ) | | (5,702 | ) |
Total financial assets under management | | $ | 128,189 |
| | $ | 151,652 |
| | $ | 143,102 |
| | $ | 138,538 |
| | $ | 126,507 |
| | $ | 140,917 |
|
| |
(1) | (1)Represents the portion of our PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and Analysis - Results of Operations - Private Client Group”) that is invested in managed programs overseen by the Asset Management segment. |
Activity (including activity in assets“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 for affiliated entities):
|
| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
Financial assets under management at beginning of period | | $ | 159,285 |
| | $ | 132,160 |
| | $ | 150,323 |
| | $ | 146,619 |
|
Carillon Tower Advisers - net outflows | | (2,016 | ) | | (1,094 | ) | | (2,388 | ) | | (2,674 | ) |
AMS - net inflows | | 1,189 |
| | 1,869 |
| | 3,272 |
| | 2,387 |
|
Net market appreciation/(depreciation) in asset values | | (22,813 | ) | | 11,823 |
| | (15,562 | ) | | (1,574 | ) |
Financial assets under management at end of period | | $ | 135,645 |
| | $ | 144,758 |
| | $ | 135,645 |
| | $ | 144,758 |
|
AMS division of RJ&A
programs overseen by the Asset Management segment. 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.
Activity (including activity in assets managed for affiliated entities)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in billions | | 2021 | | 2020 | | 2021 | | 2020 |
Financial assets under management at beginning of period | | $ | 178.8 | | | $ | 159.3 | | | $ | 161.7 | | | $ | 150.3 | |
Carillon Tower Advisers - net inflows/(outflows) | | 1.4 | | | (2.0) | | | 1.1 | | | (2.4) | |
AMS - net inflows | | 3.6 | | | 1.2 | | | 5.3 | | | 3.3 | |
Net market appreciation/(depreciation) in asset values | | 4.0 | | | (22.8) | | | 19.7 | | | (15.5) | |
Financial assets under management at end of period | | $ | 187.8 | | | $ | 135.7 | | | $ | 187.8 | | | $ | 135.7 | |
Carillon Tower Advisers
Assets managed by Carillon Tower Advisers include assets managed by its subsidiaries and affiliates: Eagle Asset Management, Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management and Cougar Global Investments and the Scout Group.Investments. The following table presents Carillon Tower Advisers’ AUM by objective, excluding assets for which it does not exercise discretion, as well as the approximate average client fee rate earned on such assets for the most recent fiscal year period.period presented.
|
| | | | | | |
$ in millions | | March 31, 2020 | | Average fee rate |
Equity | | $ | 21,518 |
| | 0.54% |
Fixed income | | 25,641 |
| | 0.18% |
Balanced | | 4,515 |
| | 0.37% |
Total financial assets under management | | $ | 51,674 |
| | 0.35% |
Management’s Discussion and Analysis
| | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | March 31, 2021 | | Average fee rate for the three months ended March 31, 2021 | | | | | | | | |
Equity | | $ | 30.4 | | | 0.52 | % | | | | | | | | |
Fixed income | | 30.5 | | | 0.18 | % | | | | | | | | |
Balanced | | 5.7 | | | 0.35 | % | | | | | | | | |
Total financial assets under management | | $ | 66.6 | | | 0.35 | % | | | | | | | | |
Non-discretionary asset-based programs
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | March 31, 2019 | | December 31, 2018 | | September 30, 2018 |
Total assets | | $ | 217.3 |
| | $ | 251.3 |
| | $ | 229.7 |
| | $ | 207.0 |
| | $ | 184.3 |
| | $ | 200.1 |
|
The precedingfollowing table includes assets held in certain non-discretionary asset-based programs for which the Asset Management segment does not exercise discretion but provides administrative support (including for affiliated entities). The increasevast majority of these assets are also included in assets overour PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the prior-year level was primarily due to clients moving to fee-based accounts from transaction-based accounts and successful financial advisor recruiting. The decrease in assets during our second fiscal quarter was due to the decline in equity markets toward the end“Selected key metrics - PCG client asset balances” section of our second fiscal quarter due to the COVID-19 pandemic. As administrative“Management’s Discussion and Analysis - Results of Operations - Private Client Group”). Administrative fees associated with these programs are predominantly based on balances at the beginning of the quarter, the 14% decline in assets during the quarter will negatively impact our third fiscal quarter revenues.quarter.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
Total assets | | $ | 334.2 | | | $ | 313.5 | | | $ | 280.6 | | | | | $ | 217.3 | | | $ | 251.3 | | | $ | 229.7 | |
RJ Trust
|
| | | | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | March 31, 2019 | | December 31, 2018 | | September 30, 2018 |
Total assets | | $ | 6.4 |
| | $ | 7.2 |
| | $ | 6.6 |
| | $ | 6.2 |
| | $ | 5.7 |
| | $ | 6.1 |
|
The precedingfollowing table includes assets held in asset-based programs in RJ Trust (including those managed for affiliated entities).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ in billions | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
Total assets | | $ | 7.8 | | | $ | 7.6 | | | $ | 7.1 | | | | | $ | 6.4 | | | $ | 7.2 | | | $ | 6.6 | |
Quarter ended March 31, 20202021 compared with the quarter ended March 31, 20192020
Net revenues of $184$209 million increased $22$25 million, or 14%, and pre-tax income of $73$87 million increased $18$14 million, or 33%19%.
Asset management and related administrative fee revenuesfees increased $28$24 million, or 19%14%, driven by higher average financial assets under managementAUM and higher beginning assets in non-discretionary asset-based programs. Although financial assets under management and assets in non-discretionary asset-based programs, atprimarily driven by equity market appreciation and net inflows into fee-based accounts in PCG. Carillon Tower Advisers generated net inflows during the endcurrent-year quarter, despite the structural headwinds for active asset managers resulting from the industry shift from actively managed investment strategies to passive investment strategies.
Compensation expenses increased $5 million, or 11%, and included the impact of higher net revenues. Non-compensation expenses increased $6 million, or 9%, largely due to an increase in investment sub-advisory fees resulting from an increase in AUM in sub-advised programs.
Six months ended March 31, 2021 compared with the quarter were lower than the endsix months ended March 31, 2020
Net revenues of the prior-year quarter, revenues$404 million increased as the majority$36 million, or 10%, and pre-tax income of $170 million increased $24 million, or 16%.
Asset management and related administrative fees increased $36 million, or 10%, driven by higher assets in thesenon-discretionary asset-based programs are billed based on balances as of the beginning of the quarter. The decline in these assets as of March 31, 2020,and higher AUM, primarily due to equity market appreciation and net inflows into fee-based accounts in PCG.
Compensation expenses increased $5 million, or 6%, and included the negative market impact of the COVID-19 pandemic toward the end of the quarter, will negatively affect our third fiscal quarter results.
higher net revenues. Non-compensation expenses increased $4$7 million, or 6%5%, due to an increase in investment sub-advisory fees resulting from an increase in assets under managementAUM in sub-advised programs.
Six months ended March 31, 2020 compared with the six months ended March 31, 2019
Net revenues of $368 million increased $32 million, or 10%, and pre-tax income of $146 million increased $27 million, or 23%.
Asset management and related administrative fees increased $43 million, or 14%, driven by higher average financial assets under management and higher beginning assets in non-discretionary asset-based programs. Although financial assets under management and assets in non-discretionary asset-based programs at the end of the period were lower than the end of the prior-year period, revenues increased as the majority of assets in these programs are billed based on balances as of the beginning of each quarter.
Non-compensation expenses increased $3 million, or 2%, primarily due to an increase in investment sub-advisory fees resulting from an increase in assets under management in sub-advised programs.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Results of Operations
RESULTS OF OPERATIONS – RJ BankBANK
For an overview of our RJ Bank segment operations, as well as a description of the key factors impacting our RJ Bank results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 20192020 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Revenues: | | | | | | | | | | | | |
Interest income | | $ | 165 | | | $ | 223 | | | (26) | % | | $ | 333 | | | $ | 454 | | | (27) | % |
Interest expense | | (10) | | | (18) | | | (44) | % | | (21) | | | (39) | | | (46) | % |
Net interest income | | 155 | | | 205 | | | (24) | % | | 312 | | | 415 | | | (25) | % |
All other | | 5 | | | 5 | | | — | | | 15 | | | 11 | | | 36 | % |
Net revenues | | 160 | | | 210 | | | (24) | % | | 327 | | | 426 | | | (23) | % |
Non-interest expenses: | | | | | | | | | | | | |
Compensation and benefits | | 13 | | | 13 | | | — | | | 25 | | | 25 | | | — | |
Non-compensation expenses: | | | | | | | | | | | | |
Bank loan provision/(benefit) for credit losses | | (32) | | | 109 | | | NM | | (18) | | | 107 | | | NM |
RJBDP fees to PCG | | 44 | | | 48 | | | (8) | % | | 87 | | | 95 | | | (8) | % |
All other | | 24 | | | 26 | | | (8) | % | | 51 | | | 50 | | | 2 | % |
Total non-compensation expenses | | 36 | | | 183 | | | (80) | % | | 120 | | | 252 | | | (52) | % |
Total non-interest expenses | | 49 | | | 196 | | | (75) | % | | 145 | | | 277 | | | (48) | % |
Pre-tax income | | $ | 111 | | | $ | 14 | | | 693 | % | | $ | 182 | | | $ | 149 | | | 22 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | % change | | 2020 | | 2019 | | % change |
Revenues: | | | | | | | | | | | | |
Interest income | | $ | 223 |
| | $ | 247 |
| | (10 | )% | | $ | 454 |
| | $ | 486 |
| | (7 | )% |
Interest expense | | (18 | ) | | (42 | ) | | (57 | )% | | (39 | ) | | (84 | ) | | (54 | )% |
Net interest income | | 205 |
| | 205 |
| | — |
| | 415 |
| | 402 |
| | 3 | % |
All other | | 5 |
| | 7 |
| | (29 | )% | | 11 |
| | 13 |
| | (15 | )% |
Net revenues | | 210 |
| | 212 |
| | (1 | )% | | 426 |
| | 415 |
| | 3 | % |
Non-interest expenses: | | |
| | |
| |
|
| | |
| | |
| |
|
|
Compensation and benefits | | 13 |
| | 12 |
| | 8 | % | | 25 |
| | 23 |
| | 9 | % |
Non-compensation expenses: | | | | | |
|
| | | | | | |
Loan loss provision/(benefit) | | 109 |
| | 5 |
| | 2,080 | % | | 107 |
| | 21 |
| | 410 | % |
RJBDP fees to PCG | | 48 |
| | 42 |
| | 14 | % | | 95 |
| | 83 |
| | 14 | % |
All other | | 26 |
| | 17 |
| | 53 | % | | 50 |
| | 42 |
| | 19 | % |
Total non-compensation expenses | | 183 |
| | 64 |
| | 186 | % | | 252 |
| | 146 |
| | 73 | % |
Total non-interest expenses | | 196 |
| | 76 |
| | 158 | % | | 277 |
| | 169 |
| | 64 | % |
Pre-tax income | | $ | 14 |
| | $ | 136 |
| | (90 | )% | | $ | 149 |
| | $ | 246 |
| | (39 | )% |
Quarter ended March 31, 20202021 compared with the quarter ended March 31, 20192020
Net revenues of $210$160 million decreased $2$50 million, or 1%24%, and pre-tax income of $14$111 million decreased $122increased $97 million, or 90%, primarily due to a higher bank loan loss provision. 693%.
Net interest income was flatdecreased $50 million, or 24%, as the impacts of higher interest-earning banking assets offset the negative impact from lower short-term interest rates.rates more than offset the impact of higher average interest-earning assets. The increase in average interest-earning banking assets was primarily driven by significant growth in averagethe available-for-sale securities portfolio and securities-based loans of $1.42 billion, average cash balances of $661 million, and average available-for-sale portfolio of $567 million.to PCG clients. The net interest margin decreased to 1.94% from 3.02% from 3.35%for the prior-year quarter, primarily due to the significant decline in short-term interest rates. As the most recent rate cuts implemented by the Federal Reserve did not occur until late in our second fiscal quarter, we expect this decline torates, as well as a higher concentration of agency-backed available-for-sale securities, which have a more significant impactlower yield than loans, on our net interest income and net interest margin in the third fiscal quarter. In addition, most of RJ Bank’s assets are priced based on LIBOR.average. Based on current LIBOR rates, as well as the elevated prepayment speeds of higher-yielding securities and mortgages, we expect our net interest margin to further decline to approximately 2.5% over1.9% throughout the next two quarters.remainder of our current fiscal year.
TheWe had a $32 million bank loan loss provisionbenefit for credit losses in the current quarter, which was calculated under the CECL model, compared with a $109 million compared to $5 millionprovision in the prior-year quarter.quarter, which was calculated under the incurred loss model. The current quarter benefit reflected changes in macroeconomic inputs to our CECL model during the quarter, including an improved outlook for the commercial real estate and residential mortgage bank loan portfolios, partially offset by the impact of weakened equity market forecasts on the C&I and REIT loan portfolios and an increase in thecriticized loans. The provision for credit losses in the current-yearprior-year quarter was in response toreflected the rapid and widespread economic deterioration caused by COVID-19. Continued deterioration of macroeconomic conditions may require us to increase our allowance for loan losses in the future or to experience loan losses in excess of current reserves.COVID-19 pandemic.
Compensation and benefits expenses increased $1 million, or 8%, due increased staffing levels to support our continued growth.
Non-compensation expenses (excluding the provision for loan losses) increased $15 million. The increase in non-compensation expenses included a $6 million, or 14%, increase in fees for RJBDP paid to PCG, primarily driven by an increase in the number of accounts, and an increase in FDIC insurance premiums due to the increase in deposit balances. RJBDP fees paid to PCG are eliminated in consolidation.
Management’s Discussion and Analysis
The following table presents average balances, interest income and expense, the related yields and rates, and interest spreads and margins for RJ Bank.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2020 | | 2019 |
$ in millions | | Average balance | | Interest inc./exp. | | Average yield/ cost | | Average balance | | Interest inc./exp. | | Average yield/ cost |
Interest-earning banking assets: | | | | | | | | | | | | |
Cash | | $ | 2,052 |
| | $ | 5 |
| | 0.89 | % | | $ | 1,391 |
| | $ | 9 |
| | 2.40 | % |
Available-for-sale securities | | 3,443 |
| | 19 |
| | 2.28 | % | | 2,876 |
| | 17 |
| | 2.43 | % |
Bank loans, net of unearned income and deferred expenses: | | | | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | 8,043 |
| | 81 |
| | 3.99 | % | | 8,160 |
| | 97 |
| | 4.76 | % |
CRE construction loans | | 181 |
| | 2 |
| | 4.58 | % | | 197 |
| | 3 |
| | 5.70 | % |
CRE loans | | 3,735 |
| | 36 |
| | 3.81 | % | | 3,379 |
| | 40 |
| | 4.73 | % |
Tax-exempt loans | | 1,212 |
| | 8 |
| | 3.36 | % | | 1,280 |
| | 8 |
| | 3.34 | % |
Residential mortgage loans | | 4,847 |
| | 38 |
| | 3.13 | % | | 3,979 |
| | 34 |
| | 3.33 | % |
SBL and other | | 3,469 |
| | 31 |
| | 3.60 | % | | 3,066 |
| | 37 |
| | 4.71 | % |
Loans held for sale | | 142 |
| | 2 |
| | 3.85 | % | | 144 |
| | 1 |
| | 4.26 | % |
Total bank loans, net | | 21,629 |
| | 198 |
| | 3.67 | % | | 20,205 |
| | 220 |
| | 4.38 | % |
FHLB stock, FRB stock and other | | 230 |
| | 1 |
| | 2.48 | % | | 153 |
| | 1 |
| | 4.44 | % |
Total interest-earning banking assets | | 27,354 |
| | $ | 223 |
| | 3.28 | % | | 24,625 |
|
| $ | 247 |
| | 4.04 | % |
Non-interest-earning banking assets: | | |
| | |
| | |
| | |
| | |
| | |
|
Unrealized gain/(loss) on available-for-sale securities | | 53 |
| | |
| | |
| | (33 | ) | | |
| | |
|
Allowance for loan losses | | (217 | ) | | |
| | |
| | (220 | ) | | | | |
Other assets | | 399 |
| | |
| | |
| | 400 |
| | |
| | |
|
Total non-interest-earning banking assets | | 235 |
| | |
| | |
| | 147 |
| | |
| | |
|
Total banking assets | | $ | 27,589 |
| | |
| | |
| | $ | 24,772 |
| | |
| | |
|
Interest-bearing banking liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
Bank deposits: | | |
| | |
| | |
| | |
| | |
| | |
|
Savings, money market and NOW accounts | | $ | 23,045 |
| | $ | 7 |
| | 0.13 | % | | $ | 20,923 |
| | $ | 35 |
| | 0.66 | % |
Certificates of deposit | | 1,094 |
| | 6 |
| | 2.03 | % | | 560 |
| | 3 |
| | 2.26 | % |
FHLB advances and other | | 893 |
| | 5 |
| | 2.24 | % | | 914 |
| | 4 |
| | 2.17 | % |
Total interest-bearing banking liabilities | | 25,032 |
| | $ | 18 |
| | 0.29 | % | | 22,397 |
| | $ | 42 |
| | 0.77 | % |
Non-interest-bearing banking liabilities | | 242 |
| | |
| | |
| | 258 |
| | |
| | |
|
Total banking liabilities | | 25,274 |
| | |
| | |
| | 22,655 |
| | |
| | |
|
Total banking shareholder’s equity | | 2,315 |
| | |
| | |
| | 2,117 |
| | |
| | |
|
Total banking liabilities and shareholder’s equity | | $ | 27,589 |
| | |
| | |
| | $ | 24,772 |
| | |
| | |
|
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income | | $ | 2,322 |
| | $ | 205 |
| | | | $ | 2,228 |
| | $ | 205 |
| | |
Bank net interest: | | |
| | |
| | | | |
| | |
| | |
Spread | | |
| | |
| | 2.99 | % | | |
| | |
| | 3.27 | % |
Margin (net yield on interest-earning banking assets) | | |
| | |
| | 3.02 | % | | |
| | |
| | 3.35 | % |
Ratio of interest-earning banking assets to interest-bearing banking liabilities | | |
| | |
| | 109.28 | % | | |
| | | | 109.95 | % |
Nonaccrual loans are included in the average loan balances in the preceding table. Any payments received for corporate nonaccrual loans are applied entirely to principal. Interest income on residential mortgage nonaccrual loans is recognized on a cash basis.
Fee income on bank loans included in interest income for the three months ended March 31, 2020 and 2019 was $5 million and $6 million, respectively.
The yield on tax-exempt loans in the preceding table is presented on a tax-equivalent basis utilizing the applicable federal statutory tax rates for each of the three months ended March 31, 2020 and 2019.
Management’s Discussion and Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous year’s volume. Changes attributable to both volume and rate have been allocated proportionately.
|
| | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2020 compared to 2019 |
| | Increase/(decrease) due to |
$ in millions | | Volume | | Rate | | Total |
Interest income: | | | | | | |
Interest-earning banking assets: | | | | | | |
Cash | | $ | 4 |
| | $ | (8 | ) | | $ | (4 | ) |
Available-for-sale securities | | 3 |
| | (1 | ) | | 2 |
|
Bank loans, net of unearned income and deferred expenses: | | | | | | |
Loans held for investment: | | | | | | |
|
C&I loans | | (1 | ) | | (15 | ) | | (16 | ) |
CRE construction loans | | — |
| | (1 | ) | | (1 | ) |
CRE loans | | 4 |
| | (8 | ) | | (4 | ) |
Residential mortgage loans | | 6 |
| | (2 | ) | | 4 |
|
SBL and other | | 6 |
| | (12 | ) | | (6 | ) |
Loans held for sale | | 1 |
| | — |
| | 1 |
|
Total bank loans, net | | 16 |
|
| (38 | ) | | (22 | ) |
Total interest-earning banking assets | | 23 |
| | (47 | ) | | (24 | ) |
Interest expense: | | |
| | |
| |
|
|
Interest-bearing banking liabilities: | | |
| | |
| | |
|
Bank deposits: | | |
| | |
| | |
|
Savings, money market, and NOW accounts | | 4 |
| | (32 | ) | | (28 | ) |
Certificates of deposit | | 4 |
| | (1 | ) | | 3 |
|
FHLB advances and other | | (1 | ) | | 2 |
| | 1 |
|
Total interest-bearing banking liabilities | | 7 |
| | (31 | ) | | (24 | ) |
Change in net interest income | | $ | 16 |
| | $ | (16 | ) | | $ | — |
|
Six months ended March 31, 20202021 compared with the six months ended March 31, 20192020
Net revenues of $426$327 million increased $11decreased $99 million, or 3%23%, and pre-tax income of $149$182 million decreased $97increased $33 million, or 39%22%.
Net interest income increased $13decreased $103 million, or 3%25%, as higher interest-earning banking assets offset the negative impact from lower short-term interest rates.rates more than offset the impact of higher average interest-earning assets. The increase in average interest-earning banking assets was primarily driven by significant growth in average loans of $1.38 billion and a $469 million increase in our averagethe available-for-sale securities portfolio.portfolio and securities-based loans to PCG clients. The net interest margin decreased to 1.98% from 3.12% from 3.30%.
The loan loss provision was $107 million, compared to $21 million infor the prior-year period. The increase in the provision in the current-year period, was primarily attributabledue to the economic impactssignificant decline in short-term interest rates, as well as a higher concentration of COVID-19 during the second fiscal quarter.agency-backed available-for-sale securities, which have a lower yield than loans, on average.
Compensation and benefits expenses increased $2 million due increased staffing levels to support our continued growth.
Non-compensation expenses (excluding the provision for loan losses) increased $20 million, including a $12 million, or 14%, increase in fees for RJBDP paid to PCG, primarily driven by an increase in the number of accounts. These fees are eliminated in consolidation.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following table presents average balances, interest income and expense,We had a bank loan benefit for credit losses of $18 million, which was calculated under the related yields and rates, and interest spreads and margins for RJ Bank.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended March 31, |
| | 2020 | | 2019 |
$ in millions | | Average balance | | Interest inc./exp. | | Average yield/ cost | | Average balance | | Interest inc./exp. | | Average yield/ cost |
Interest-earning banking assets: | | | | | | | | | | | | |
Cash | | $ | 1,624 |
| | $ | 10 |
| | 1.17 | % | | $ | 1,347 |
| | $ | 16 |
| | 2.32 | % |
Available-for-sale securities | | 3,265 |
| | 37 |
| | 2.29 | % | | 2,796 |
| | 33 |
| | 2.38 | % |
Bank loans, net of unearned income and deferred expenses: | | |
| | | | | | | | | | |
Loans held for investment: | | | | | | | | | | | | |
C&I loans | | 8,061 |
| | 167 |
| | 4.07 | % | | 7,959 |
| | 188 |
| | 4.67 | % |
CRE construction loans | | 207 |
| | 5 |
| | 4.75 | % | | 184 |
| | 5 |
| | 5.66 | % |
CRE loans | | 3,673 |
| | 73 |
| | 3.91 | % | | 3,469 |
| | 81 |
| | 4.64 | % |
Tax-exempt loans | | 1,218 |
| | 16 |
| | 3.36 | % | | 1,282 |
| | 17 |
| | 3.34 | % |
Residential mortgage loans | | 4,743 |
| | 75 |
| | 3.16 | % | | 3,934 |
| | 66 |
| | 3.32 | % |
SBL and other | | 3,403 |
| | 65 |
| | 3.78 | % | | 3,085 |
| | 73 |
| | 4.65 | % |
Loans held for sale | | 151 |
| | 3 |
| | 3.97 | % | | 165 |
| | 4 |
| | 4.90 | % |
Total bank loans, net | | 21,456 |
| | 404 |
| | 3.76 | % | | 20,078 |
| | 434 |
| | 4.32 | % |
FHLB stock, FRB stock and other | | 222 |
| | 3 |
| | 2.74 | % | | 161 |
| | 3 |
| | 4.19 | % |
Total interest-earning banking assets | | 26,567 |
| | $ | 454 |
| | 3.41 | % | | 24,382 |
| | $ | 486 |
| | 3.99 | % |
Non-interest-earning banking assets: | | |
| | |
| | |
| | |
| | |
| | |
|
Unrealized gain/(loss) on available-for-sale securities | | 41 |
| | |
| | |
| | (52 | ) | | |
| | |
|
Allowance for loan losses | | (218 | ) | | |
| | |
| | (212 | ) | | |
| | |
|
Other assets | | 379 |
| | |
| | |
| | 411 |
| | |
| | |
|
Total non-interest-earning banking assets | | 202 |
| | |
| | |
| | 147 |
| | |
| | |
|
Total banking assets | | $ | 26,769 |
| | |
| | |
| | $ | 24,529 |
| | |
| | |
|
Interest-bearing banking liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
Bank deposits: | | |
| | |
| | |
| | |
| | |
| | |
|
Savings, money market and NOW accounts | | $ | 22,431 |
| | $ | 19 |
| | 0.17 | % | | $ | 20,798 |
| | $ | 69 |
| | 0.66 | % |
Certificates of deposit | | $ | 937 |
| | $ | 10 |
| | 2.10 | % | | $ | 510 |
| | $ | 5 |
| | 2.13 | % |
FHLB advances and other | | 890 |
| | 10 |
| | 2.23 | % | | 931 |
| | 10 |
| | 2.15 | % |
Total interest-bearing banking liabilities | | 24,258 |
| | $ | 39 |
| | 0.32 | % | | 22,239 |
| | $ | 84 |
| | 0.76 | % |
Non-interest-bearing banking liabilities | | 211 |
| | |
| | |
| | 208 |
| | |
| | |
|
Total banking liabilities | | 24,469 |
| | |
| | |
| | 22,447 |
| | |
| | |
|
Total banking shareholder’s equity | | 2,300 |
| | |
| | |
| | 2,082 |
| | |
| | |
|
Total banking liabilities and shareholder’s equity | | $ | 26,769 |
| | |
| | |
| | $ | 24,529 |
| | |
| | |
|
Excess of interest-earning banking assets over interest-bearing banking liabilities/net interest income | | $ | 2,309 |
| | $ | 415 |
| | | | $ | 2,143 |
| | $ | 402 |
| | |
Bank net interest: | | |
| | |
| | | | |
| | |
| | |
Spread | | |
| | |
| | 3.09 | % | | |
| | |
| | 3.23 | % |
Margin (net yield on interest-earning banking assets) | | |
| | |
| | 3.12 | % | | |
| | |
| | 3.30 | % |
Ratio of interest-earning banking assets to interest-bearing banking liabilities | | |
| | |
| | 109.52 | % | | |
| | | | 109.64 | % |
Nonaccrual loans are includedCECL model, compared with a $107 million provision in the average loan balances inprior-year period, which was calculated under the preceding table. Any payments received for corporate nonaccrual loans are applied entirelyincurred loss model. The current period benefit was largely attributable to principal. Interest income on residential mortgage nonaccrual loans is recognized on a cash basis.
Fee income on bank loans included in interest income for the six months ended March 31, 2020 and 2019 was $9 million and $11 million, respectively.
The yield on tax-exempt loans in the preceding table is presented on a taxable-equivalent basis utilizing the applicable federal statutory tax rates for each of the six months ended March 31, 2020 and 2019.
Management’s Discussion and Analysis
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assetsinputs to our CECL model since our October 1, 2020 adoption date, reflecting improvements in certain forecasted macroeconomic inputs, including unemployment and interest-bearing liabilities,gross domestic product, partially offset by forecasted declines in commercial real estate values since our CECL adoption date, as well as changesan increase in average interest rates.criticized loans. The following table showsprovision for credit losses in the effect that these factors had onprior-year period reflected 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 volumerapid economic deterioration caused by the previous period’s average yield/cost. Similarly,COVID-19 pandemic.
RJBDP fees paid to PCG decreased compared with the effectprior-year period due to a decrease in the number of rate changes is calculatedaccounts swept to RJ Bank as part of the RJBDP. The fees paid by multiplying the changeRJ Bank to PCG are eliminated in average yield/cost by the previous year’s volume. Changes attributable to both volume and rate have been allocated proportionately.consolidation.
RESULTS OF OPERATIONS – OTHER
|
| | | | | | | | | | | | |
| | Six months ended March 31, |
| | 2020 compared to 2019 |
| | Increase/(decrease) due to |
$ in millions | | Volume | | Rate | | Total |
Interest income: | | | | | | |
Interest-earning banking assets: | | | | | | |
Cash | | $ | 3 |
| | $ | (9 | ) | | $ | (6 | ) |
Available-for-sale securities | | 5 |
| | (1 | ) | | 4 |
|
Bank loans, net of unearned income and deferred expenses: | | | | | | |
Loans held for investment: | | | | | | |
|
C&I loans | | 2 |
| | (23 | ) | | (21 | ) |
CRE construction loans | | 1 |
| | (1 | ) | | — |
|
CRE loans | | 5 |
| | (13 | ) | | (8 | ) |
Tax-exempt loans | | (1 | ) | | — |
| | (1 | ) |
Residential mortgage loans | | 13 |
| | (4 | ) | | 9 |
|
SBL and other | | 8 |
| | (16 | ) | | (8 | ) |
Loans held for sale | | — |
| | (1 | ) | | (1 | ) |
Total bank loans, net | | 28 |
| | (58 | ) | | (30 | ) |
FHLB stock, FRB stock, and other | | 1 |
| | (1 | ) | | — |
|
Total interest-earning banking assets | | 37 |
| | (69 | ) | | (32 | ) |
Interest expense: | | |
| | |
| | |
|
Interest-bearing banking liabilities: | | |
| | |
| | |
|
Bank deposits: | | |
| | |
| | |
|
Savings, money market, and NOW accounts | | 5 |
| | (55 | ) | | (50 | ) |
Certificates of deposit | | 5 |
| | — |
| | 5 |
|
Total interest-bearing banking liabilities | | 10 |
| | (55 | ) | | (45 | ) |
Change in net interest income | | $ | 27 |
| | $ | (14 | ) | | $ | 13 |
|
Results of Operations – Other
This segment includes our private equity investments, interest income on certain corporate cash balances, and certain corporate overhead costs of RJF that are not allocated to other segments, including the interest costs on our public debt. For an overview of our Other segment operations, refer to the information presented in “Item 1 - Business” of our 20192020 Form 10-K.
Operating results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Revenues: | | | | | | | | | | | | |
Interest income | | $ | 3 | | | $ | 12 | | | (75) | % | | $ | 6 | | | $ | 24 | | | (75) | % |
Gains/(losses) on private equity investments | | 8 | | | (39) | | | NM | | 32 | | | (41) | | | NM |
All other | | 2 | | | — | | | NM | | 3 | | | 2 | | | 50 | % |
Total revenues | | 13 | | | (27) | | | NM | | 41 | | | (15) | | | NM |
Interest expense | | (25) | | | (17) | | | 47 | % | | (49) | | | (37) | | | 32 | % |
Net revenues | | (12) | | | (44) | | | 73 | % | | (8) | | | (52) | | | 85 | % |
Non-interest expenses: | | | | | | | | | | | | |
Compensation and all other | | 36 | | | 2 | | | 1,700 | % | | 62 | | | 25 | | | 148 | % |
Acquisition-related expenses | | — | | | — | | | — | | | 2 | | | — | | | NM |
Total non-interest expenses | | 36 | | | 2 | | | 1,700 | % | | 64 | | | 25 | | | 156 | % |
Pre-tax loss | | $ | (48) | | | $ | (46) | | | (4) | % | | $ | (72) | | | $ | (77) | | | 6 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | 2020 | | 2019 | | % change | | 2020 | | 2019 | | % change |
Revenues: | | | | | | | | | | | | |
Interest income | | $ | 12 |
| | $ | 14 |
| | (14 | )% | | $ | 24 |
| | $ | 30 |
| | (20 | )% |
Gains/(losses) on private equity investments | | (39 | ) | | 2 |
| | NM |
| | (41 | ) | | 6 |
| | NM |
|
All other | | — |
| | 3 |
| | (100 | )% | | 2 |
| | 4 |
| | (50 | )% |
Total revenues | | (27 | ) | | 19 |
| | NM |
| | (15 | ) | | 40 |
| | NM |
|
Interest expense | | (17 | ) | | (19 | ) | | (11 | )% | | (37 | ) | | (38 | ) | | (3 | )% |
Net revenues | | (44 | ) | | — |
| | NM |
| | (52 | ) | | 2 |
| | NM |
|
Total non-interest expenses | | 2 |
| | 17 |
| | (88 | )% | | 25 |
| | 37 |
| | (32 | )% |
Pre-tax loss | | $ | (46 | ) | | $ | (17 | ) | | (171 | )% | | $ | (77 | ) | | $ | (35 | ) | | (120 | )% |
Management’s Discussion and Analysis
Quarter ended March 31, 20202021 compared with the quarter ended March 31, 20192020
The pre-tax loss of $46$48 million was $29$2 million larger than the loss generated in the prior-year quarter.
Net revenues forincreased $32 million, as the current quarter included $8 million of private equity valuation gains, compared with $39 million of private equity valuation losses compared with gains of $2 million in the prior-year quarter. During the current quarter, of which $22 million of the losses on private equity were attributable to noncontrolling interests whichand were reflected as an offset within other expenses. TheseThe current quarter valuation losses weregains primarily reflected the result of the negative impact of the COVID-19 pandemiccontinued improvement in market conditions on certain of our investments. Although netfund investments, while the prior-year losses reflected the impact of challenging market conditions at the onset of the COVID-19 pandemic. Offsetting this increase, interest was flatincome earned on corporate cash balances decreased compared with the prior-year quarter we expect the impact of the decline indue to lower short-term interest rates, implemented toward the endand interest expense increased as a result of the quarter, and the issuance of $500 million of senior notes payable at the end of the quarter to negatively affect our net interest in this segment in future quarters.March 2020.
Non-interest expenses decreased $15increased $34 million, or 88%, primarily due to the aforementioned $22 million offset of private equity valuation losses relatedattributable to noncontrolling interests in other expenses. Increasesthe prior-year quarter and an increase in compensation-related expenses and advertising expenses partially offset the decrease in other expenses.compensation expense.
Six months ended March 31, 20202021 compared with the six months ended March 31, 20192020
The pre-tax loss of $77$72 million was $42$5 million largerless than the loss generated in the prior-year period.
Net revenues decreased $54 million from income of $2 million in the prior-year period to a loss of $52increased $44 million, primarily due to private equity valuation gains in the current period, compared with losses in the prior-year period. The current period included $32 million of private equity valuation gains, of which $10 million were attributable to noncontrolling interests, which are offset within other expenses. These valuation gains were primarily the result of continued improvement in market conditions on certain of our investments. The prior-year period included $41 million of private equity valuation losses, compared with gains of $6 million in the prior-year period. In the current-year period,which $23 million of the losses on private equity investments were attributable to noncontrolling interests whichand were reflected as an offset within other
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
expenses. These valuation losses were primarily the result of the negative impact of the COVID-19 pandemic on certain of our investments. Interest income earned on corporate cash balances also decreased compared with the prior-year period due to lower short-term interest rates, partially offset by the impact of higher average balances.balances, and interest expense increased as a result of the issuance of $500 million of senior notes in March 2020.
Non-interest expenses decreased $12increased $39 million, or 32%156%, primarily due to the aforementioned $23$10 million offset of private equity valuation lossesin gains attributable to noncontrolling interests. Increasesinterests, compared with $23 million in compensation-relatedlosses in the prior-year period. The $2 million of acquisition-related expenses in the current-year period arose from our acquisitions of NWPS and advertising expenses partially offset the decrease in other expenses.Financo during fiscal 2021.
Certain statistical disclosures by bank holding companies
CERTAIN STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES
We are required to provide certain statistical disclosures as a bank holding company under the SEC’s Industry Guide 3. The following table provides certain of those disclosures.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Return on assets | | 2.6% | | 1.5% | | 2.5% | | 2.0% |
Return on equity | | 19.0% | | 9.9% | | 18.1% | | 13.0% |
Average equity to average assets | | 13.6% | | 15.2% | | 14.0% | | 15.7% |
Dividend payout ratio | | 15.5% | | 30.8% | | 16.5% | | 23.9% |
|
| | | | | | | |
| Three months ended March 31, | | Six months ended March 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
Return on assets | 1.5% | | 2.7% | | 2.0% | | 2.7% |
Return on equity | 9.9% | | 16.7% | | 13.0% | | 16.2% |
Average equity to average assets | 15.2% | | 16.3% | | 15.7% | | 16.5% |
Dividend payout ratio | 30.8% | | 18.8% | | 23.9% | | 19.4% |
Return on assets is computed by dividing annualized net income for the period indicated by average assets for each respective period. Average assets for the quarter is computed by adding total assets as of the date indicated to the prior quarter-end total and dividing by two. Average assets for the year-to-date period is computed by adding total assets as of each quarter-end date during the year-to-date period to the beginning of the year total and dividing by three.
Return on equity is computed by dividing annualized net income for the period indicated by average equity for each respective period. Average equity for the quarter is computed by adding total equity attributable to RJF as of the date indicated to the prior quarter-end total and dividing by two. Average equity for the year-to-date period is computed by adding total equity attributable to RJF as of each quarter-end date during the year-to-date period to the beginning of the year total and dividing by three.
Average equity to average assets is computed by dividing average equity by average assets, as calculated in accordance with the previous explanations.
Dividend payout ratio is computed by dividing dividends declared per common share during the period by earnings per diluted common share for the period.
Management’s Discussion and Analysis
Refer to the “Results of Operations - RJ Bank”“Net interest analysis” and “Risk management - Credit risk” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operationsthis MD&A and to the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for the other required disclosures.
Liquidity and capital resources
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is essential to our business. The primary goal of our liquidity management activities is to ensure adequate funding to conduct our business over a range of economic and market environments.
Senior management establishes our liquidity and capital management framework. This framework includes senior management’s review of short- and long-term cash flow forecasts, review of monthly capital expenditures, monitoring of the availability of alternative sources of financing, and daily monitoring of liquidity in our significant subsidiaries. Our decisions on the allocation of capital to our business units consider, among other factors, projected profitability, and cash flow, risk, and impact on future liquidity needs. Our treasury department assists in evaluating, monitoring and controlling the impact that our business activities have on our financial condition, liquidity and capital structure, and maintains our relationships with various lenders. The objective of this framework is to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity.
Liquidity is provided primarily through our business operations and financing activities. Financing activities could include bank borrowings, repurchase agreement transactionscollateralized financing arrangements or additional capital raising activities under our “universal” shelf registration statement.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Cash and cash equivalents increased $6.69 billion to $10.65 billion$461 million during the six months ended March 31, 2020, primarily due2021 to $7.95 billion of$5.85 billion. During the six months ended March 31, 2021, cash provided by financing activities, partiallyour operations, including significant net income, was offset by investing activities, whichcash used $2.09 billion. Cash provided by financing activities mainly related to an increasefund dividend payments and share repurchases, and investments in bank deposits, asfuture growth with our acquisitions of NWPS and Financo. We also had significant increases in client cash balances, which increased significantly dueboth our brokerage client payables and our bank deposits. However, this cash was largely used to increase our assets segregated pursuant to regulations, primarily through the impactpurchase of COVID-19,U.S. Treasuries, as part of our brokerage activities, and proceeds from our senior notes issuance during the current period, partially offset by our open-market share repurchases and dividends on our common stock. Investing activities primarily related to an increase in bank loans and growth of our available-for-sale securities and our bank loan portfolio during the current period.as part of our banking activities.
We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and available from committed and uncommitted financing facilities, provide adequate funds for continuing operations at current levels of activity.
Sources of liquidity
Nearly $2Approximately $1.7 billion of our total March 31, 20202021 cash and cash equivalents included cash on handheld directly at the parent, as well asor parent cash loaned to RJ&A. The following table presents our holdings of cash and cash equivalents.
|
| | | | |
$ in millions | | March 31, 2020 |
RJF | | $ | 445 |
|
RJ&A | | 2,193 |
|
RJ Bank | | 6,992 |
|
RJ Ltd. | | 666 |
|
RJFS | | 155 |
|
Carillon Tower Advisers | | 52 |
|
Other subsidiaries | | 145 |
|
Total cash and cash equivalents | | $ | 10,648 |
|
The significant increase in cash and cash equivalents asAs of March 31, 2020 was primarily due to an increase in client cash balances as a result of the market volatility toward the end of our second fiscal quarter. Subsequent to March 31, 2020, we utilized additional capacity with third-party banks in our RJBDP, which reduced cash and cash equivalents at RJ Bank by approximately $4 billion.
RJF maintained depository accounts at RJ Bank with a balance of $179 million as of March 31, 2020. The portion of this total that was available on demand without restrictions, which amounted to $108 million as of March 31, 2020, is reflected in the RJF total (and is excluded from the RJ Bank cash balance in the preceding table).
2021, RJF had loaned $1.50$1.24 billion to RJ&A as of March 31, 2020 (such amount is included in the RJ&A cash balance in the precedingfollowing table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business activities. On April 1, 2020, we deposited approximately $350 millionThe following table presents our holdings of cash intoand cash equivalents.
| | | | | | | | |
$ in millions | | March 31, 2021 |
RJF | | $ | 480 | |
RJ&A | | 2,560 | |
RJ Bank, N.A. | | 1,491 | |
RJ Ltd. | | 826 | |
RJFS | | 131 | |
Carillon Tower Advisers | | 64 | |
Other subsidiaries | | 299 | |
Total cash and cash equivalents | | $ | 5,851 | |
RJF maintained depository accounts at RJ&A’s segregated reserve accounts Bank, N.A. with a balance of $185 million as a result of our March 31, 2020 reserve calculation.2021. The portion of this total that was available on demand without restrictions, which amounted to $108 million as of March 31, 2021, is reflected in the RJF total (and is excluded from the RJ Bank, N.A. cash balance in the preceding table).
Management’s DiscussionA large portion of the RJ Ltd. cash and Analysiscash equivalents balance as of March 31, 2021 was held to meet regulatory requirements and was not available for use by the parent.
In addition to the cash balances described, we have various other potential sources of cash available to the parent from subsidiaries, as described in the following section.
Liquidity available from subsidiaries
Liquidity is principally available to RJF, the parent company, from RJ&A and RJ Bank.Bank, N.A.
Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities and Exchange Act of 1934. As a member firm of FINRA,the Financial Industry Regulatory Authority (“FINRA”), RJ&A is subject to FINRA’s capital requirements, which are substantially the same as Rule 15c3-1. Rule 15c3-1 provides for an “alternative net capital requirement,” which RJ&A has elected. Regulations require that minimum net capital, as defined, be equal to the greater of $1.5 million or 2% of aggregate debit items arising from client transactions. In addition, covenants in RJ&A’s committed financing facilities require its net capital to be a minimum of 10% of aggregate debit items. At March 31, 2020,2021, RJ&A significantly exceeded the minimum regulatory requirements, the covenants in its financing arrangements pertaining to net capital, as well as its internally-targeted net capital tolerances. 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.
RJ&A, as a nonbank custodian of Individual Retirement Accounts (“IRAs”), must also satisfy certain Internal Revenue Service (“IRS”)IRS regulations in order to accept new IRAIRAs and plan accountsqualified plans and retain the accounts for which it serves as nonbank custodian. To maintain adequate net worth under these regulations,With growth in the value of client assets in such accounts, the capital of RJ&A may haveneed to grow to continue to satisfy this requirement. As a
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
result, RJ&A may limit dividends it would otherwise remit to RJF. We evaluate regulatory requirements, loan covenants and certain internal tolerances when determining the amount of liquidity available to RJF from RJ&A.
RJ Bank, N.A. may pay dividends to RJF without prior approval of its regulator as long as the dividend does not exceed the sum of RJ Bank’sBank, N.A.’s current calendar year and the previous two calendar years’ retained net income, and RJ Bank, N.A. maintains its targeted regulatory capital ratios. At March 31, 2020,Dividends from RJ Bank, had $253 million ofN.A. may be limited to the extent that capital in excess of the amount it would need at that dateis needed to maintainsupport its targeted regulatory capital ratios, and could pay a dividend of such amount without requiring prior approval of its regulator.balance sheet growth.
Although we have liquidity available to us from our other subsidiaries, the available amounts are not as significant as those previously described 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 our various loan agreements and, in the case of secured borrowings, collateral eligibility requirements. Our committed financing arrangements are in the formconsist of eithera tri-party repurchase agreement (i.e., securities sold under agreements or,to repurchase) and, in the case of the Credit Facility,$500 million revolving credit facility agreement (the “Credit Facility”), an unsecured line of credit. The required market value of the collateral associated with the committed secured facilitiestri-party repurchase agreement ranges from 105% to 125% of the amount financed.
The following table presents our committed financing arrangements with third-party lenders, which we generally utilize to finance a portion of our fixed income trading instruments, held, and the outstanding balances related thereto.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 |
$ in millions | | RJ&A | | | | RJF | | Total | | Total number of arrangements |
Financing arrangement: | | | | | | | | | | |
Committed secured | | $ | 100 | | | | | $ | — | | | $ | 100 | | | 1 | |
Committed unsecured | | 200 | | | | | 300 | | | 500 | | | 1 | |
Total committed financing arrangements | | $ | 300 | | | | | $ | 300 | | | $ | 600 | | | 2 | |
| | | | | | | | | | |
Outstanding borrowing amount: | | | | | | | | | | |
Committed secured | | $ | — | | | | | $ | — | | | $ | — | | | |
Committed unsecured | | — | | | | | — | | | — | | | |
Total outstanding borrowing amount | | $ | — | | | | | $ | — | | | $ | — | | | |
|
| | | | | | | | | | | | | | | |
| | March 31, 2020 |
$ in millions | | RJ&A | | RJF | | Total | | Total number of arrangements |
Financing arrangement: | | | | | | | | |
Committed secured | | $ | 100 |
| | $ | — |
| | $ | 100 |
| | 1 |
|
Committed unsecured (1) | | 200 |
| | 300 |
| | 500 |
| | 1 |
|
Total committed financing arrangements | | $ | 300 |
| | $ | 300 |
| | $ | 600 |
| | 2 |
|
| | | | | | | | |
Outstanding borrowing amount: | | | | | | | | |
Committed secured | | $ | — |
| | $ | — |
| | $ | — |
| | |
Committed unsecured | | — |
| | — |
| | — |
| | |
Total outstanding borrowing amount | | $ | — |
| | $ | — |
| | $ | — |
| | |
| |
(1) | The Credit Facility provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF. RJ&A may borrow up to $500 million under the Credit Facility, depending on the amount of outstanding borrowings by RJF. For additional details on our committed unsecured financing arrangement, see our discussion of the Credit Facility in Note 12 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q. |
Our committed unsecured financing arrangement in the preceding table represents our Credit Facility, which provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF. RJ&A may borrow up to $500 million under the Credit Facility, depending on the amount of outstanding borrowings by RJF. For additional details on our committed unsecured financing arrangement, see our discussion of the Credit Facility in Note 14 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K. In April 2021, we amended our Credit Facility, maintaining the $500 million maximum borrowing amount, but extending the term through April 2026 and incorporating a lower cost of borrowing under the facility and certain favorable covenant modifications.
Management’s Discussion and Analysis
Uncommitted financing arrangements
Our uncommitted financing arrangements are in the form of secured lines of credit, secured bilateral or tri-party repurchase agreements, or unsecured lines of credit. Our arrangements with third-party lenders are generally utilized to finance a portion of our fixed income securities or for cash management purposes. Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed.borrowed and are generally collateralized by non-customer, RJ&A-owned securities or by securities that we have received as collateral under reverse repurchase agreements. As of March 31, 2020,2021, we had outstanding borrowings under two uncommitted secured borrowing arrangements with lenders out of a total of 11 uncommitted financing arrangements (six(seven uncommitted secured and fivefour uncommitted unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The following table presents our borrowings on uncommitted financing arrangements, all of which were in 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 | | | | | | | | March 31, 2021 |
Outstanding borrowing amount: | | | | | | | | |
Uncommitted secured | | | | | | | | $ | 222 | |
Uncommitted unsecured | | | | | | | | — | |
Total outstanding borrowing amount | | | | | | | | $ | 222 | |
|
| | | | |
$ in millions | | March 31, 2020 |
Outstanding borrowing amount: | | |
Uncommitted secured | | $ | 215 |
|
Uncommitted unsecured | | — |
|
Total outstanding borrowing amount | | $ | 215 |
|
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 |
March 31, 2021 | | $ | 226 | | | $ | 260 | | | $ | 222 | | | $ | 242 | | | $ | 280 | | | $ | 224 | |
December 31, 2020 | | $ | 211 | | | $ | 236 | | | $ | 233 | | | $ | 204 | | | $ | 259 | | | $ | 162 | |
September 30, 2020 | | $ | 140 | | | $ | 165 | | | $ | 165 | | | $ | 199 | | | $ | 260 | | | $ | 207 | |
June 30, 2020 | | $ | 222 | | | $ | 278 | | | $ | 228 | | | $ | 168 | | | $ | 193 | | | $ | 193 | |
March 31, 2020 | | $ | 218 | | | $ | 238 | | | $ | 215 | | | $ | 283 | | | $ | 388 | | | $ | 130 | |
Other borrowings and collateralized financings
RJ Bank had $875$850 million in FHLB borrowings outstanding at March 31, 2020,2021, comprised of floating-rate advances, totaling $850 million and a $25 million fixed-rate advance, all of which were secured by a blanket lien on RJ Bank’s residential mortgage loan portfolio (see Note 1214 of the Notes to Condensed Consolidated Financial Statements of thisour 2020 Form 10-Q10-K for additional information regarding these borrowings). RJ Bank had an additional $2.82$3.13 billion in immediate credit available from the FHLB as of March 31, 20202021 and, with the pledge of additional eligible collateral to the FHLB, total available credit of 30% of total assets.
RJ Bank is eligible to participate in the FRB’s discount-windowFederal Reserve’s discount window program; however, we do not view borrowings from the FRBFederal Reserve as a primary source of funding. The credit available in this program is subject to periodic review, may be terminated or reduced at the discretion of the FRB,Federal Reserve, and is secured by pledged C&I loans.
We act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from one broker-dealer and then lend them to another. Where permitted, we have also loaned, to broker-dealers and other financial institutions, securities owned by clients or the firm. We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balancesbalance of $56 million as of March 31, 2021 related to the securities loaned included in “Securities loaned”“Collateralized financings” on our Condensed Consolidated Statements of Financial Condition of this Form 10-Q, in the amount of $28 million as of March 31, 2020.10-Q. See Note 67 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for more information on our securities borrowed and securities loaned.
From time to time we enter into repurchase agreements and reverse repurchase agreements. We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balances of the repurchase agreements included in “Securities sold under agreements to repurchase” on our Condensed Consolidated Statements of Financial Condition of this Form 10-Q, in the amount of $215 million as of March 31, 2020. These balances are reflected in the preceding table of uncommitted financing arrangements. Such financings are generally collateralized by non-customer, RJ&A-owned securities or by securities that we have received as collateral under reverse repurchase agreements.financings.
The average daily balance outstanding during the five most recent quarters, the maximum month-end balance outstanding during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements are detailed in the following table.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Repurchase transactions | | Reverse repurchase transactions |
For the quarter ended: ($ 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 |
March 31, 2020 | | $ | 218 |
| | $ | 238 |
| | $ | 215 |
| | $ | 283 |
| | $ | 388 |
| | $ | 130 |
|
December 31, 2019 | | $ | 184 |
| | $ | 200 |
| | $ | 200 |
| | $ | 355 |
| | $ | 351 |
| | $ | 326 |
|
September 30, 2019 | | $ | 170 |
| | $ | 158 |
| | $ | 150 |
| | $ | 334 |
| | $ | 343 |
| | $ | 343 |
|
June 30, 2019 | | $ | 211 |
| | $ | 212 |
| | $ | 165 |
| | $ | 442 |
| | $ | 479 |
| | $ | 411 |
|
March 31, 2019 | | $ | 172 |
| | $ | 210 |
| | $ | 210 |
| | $ | 358 |
| | $ | 447 |
| | $ | 447 |
|
Management’s Discussion and Analysis
At March 31, 2020,2021, in addition to the financing arrangements previously described, we had $16$11 million outstanding on a mortgage loan for our St. Petersburg, Florida home-office complex that is included in “Other borrowings” on our Condensed Consolidated Statements of Financial Condition of this Form 10-Q.
Senior notes payable
At March 31, 2020,2021, we had aggregate outstanding senior notes payable of $2.04$2.05 billion. Our senior notes payable, exclusive of any unaccreted premiums or discounts and debt issuance costs, was comprised of $250 million par 5.625% senior notes due 2024, $500 million par 3.625% senior notes due 2026, $500 million par 4.65% senior notes due 2030, which were issued during our second fiscal quarter of 2020, and $800 million par 4.95% senior notes due 2046.
In April 2021, we sold in a registered underwritten public offering $750 million in aggregate principal amount of 3.75% senior notes due April 2051. We utilized the proceeds from the offering and cash on hand to early-redeem our existing $250 million
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
par 5.625% senior notes due 2024 and our $500 million par 3.625% senior notes due 2026, which were outstanding as of March 31, 2021. See Note 1314 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information.
Credit ratings
Our issuer and senior long-term debt ratings as of the most current report are detailed in the following table.
In April 2021, Fitch Ratings, Inc. assigned its first issuer and senior long-term debt rating for Raymond James Financial, Inc. |
| | | | | | | | | | | | | |
Rating Agency | | Rating | | Outlook |
Fitch Ratings, Inc. | | A- | | Stable |
Moody’s Investors Services | | Baa1 | | Stable |
Standard & Poor’s Ratings Services | | BBB+ | | Stable |
Moody’s Investors Services | | Baa1 | | Stable |
Our current long-term debt ratings depend upon a number of factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trends and volatility, balance sheet composition, liquidity and liquidity management, capital structure, overall risk management, business diversification and market share, and competitive position in the markets in which we operate. DeteriorationsDeterioration in any of these factors could impact our credit ratings. Any rating downgrades could increase our costs in the event we were to obtain additional financing.
Should our credit rating be downgraded prior to a public debt offering, it is probable that we would have to offer a higher rate of interest to bond holders. A downgrade to below investment grade may make a public debt offering difficult to execute on terms we would consider to be favorable. A downgrade below investment grade could result in the termination of certain derivative contracts and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions (see Note 5 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information).positions. A credit downgrade could damage our reputation and result in certain counterparties limiting their business with us, result in negative comments by analysts, potentially negatively impact investorinvestors’ and/or clients’ perception of us, and cause a decline in our stock price. None of our borrowing arrangements contains a condition or event of default related to our credit ratings. However, a credit downgrade would result in the firm incurring a higher facility fee on the $500 million Credit Facility, in addition to triggering a higher interest rate applicable to any borrowings outstanding on that line as of and subsequent to such downgrade. Conversely, an improvement in RJF’s current credit rating could have a favorable impact on the facility fee, as well as the interest rate applicable to any borrowings on such line.
Other sources and uses of liquidity
We have company-owned life insurance policies which are utilized to fund certain non-qualified deferred compensation plans and other employee benefit plans. Certain of our non-qualified deferred compensation plans and other employee benefit plans are employee-directed while others are company-directed. Certain policies which we could readily borrow against had a cash surrender value of $512$789 million as of March 31, 2020,2021, comprised of $298$484 million related to employee-directed plans and $214$305 million related to company-directed plans, and we were able to borrow up to 90%, or $461$710 million, of the March 31, 20202021 total without restriction. To effect any such borrowing, the underlying investments would be converted to money market investments, therefore requiring us to take market risk related to the employee-directed plans. There were no borrowings outstanding against any of these policies as of March 31, 2020.2021.
On May 18, 2018, we filed a “universal” shelf registration statement with the SEC pursuant to which we can issue debt, equity and other capital instruments if and when necessary or perceived by us to be opportune. Subject to certain conditions, this registration statement will be effective through May 18, 2021.
See the Contractual obligations section of this MD&A for information regarding our contractual obligations.
STATEMENT OF FINANCIAL CONDITION ANALYSIS Statement of financial condition analysis
The assets on our Condensed Consolidated Statements of Financial Condition consisted primarily of cash and cash equivalents, (a large portion of which isassets segregated pursuant to regulations (segregated for the benefit of clients), receivables including bank loans, financial instruments held either for trading purposes or as investments, and other assets. A significant portion of our assets wereare liquid in nature, providing us with flexibility in financing our business.
Management’s Discussion and Analysis
Total assets of $49.81$56.07 billion as of March 31, 20202021 were $10.98$8.58 billion, or 28%18%, greater than our total assets as of September 30, 2019.2020. The increase in assets was primarily due to a $8.72$5.43 billion increase in cash and cash and cash equivalents, including cash and cash equivalentsassets segregated pursuant to regulations, primarily due to a significant increase in client cash balancesbalances. Bank loans, net increased by $1.68 billion, primarily due to the market volatility as a result of the COVID-19 pandemic, as well as proceeds from our $500 million senior notes issuancean increase in March 2020.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
SBL and corporate loans. In addition, available-for-sale securities increased $1.17 billion, bank loans,$508 million and cash and cash equivalents increased $461 million. Goodwill and identifiable intangible assets, net increased $897$268 million and other assets increased $321 million, primarily due to ROU assets recorded as a resultthe acquisitions of NWPS and Financo during the adoption of new guidance related to the accounting for leases. Offsetting these increases, securities purchased under agreements to resell and trading instruments decreased $213 million and $263 million, respectively.six months ended March 31, 2021.
As of March 31, 2020,2021, our total liabilities of $42.98$48.43 billion were $10.79$8.12 billion, or 34%20%, greater than our total liabilities as of September 30, 2019.2020. The increase in total liabilities was primarily related to the significant increase in client cash balances and was comprisedas of March 31, 2021, including a $7.74 billion increase in bank deposits, reflecting higher RJBDP balances held at RJ Bank and certificates of deposit issuances during the period, and a $2.72$5.68 billion increase in brokerage client payables, primarily due to an increase in client cash held in our CIP, as of March 31, 2020. In addition, other payables increased $516 million, primarily due to operating lease liabilities recorded asand a result of the adoption of new guidance related to the accounting for leases, and senior notes payable increased $494 million due to the issuance of $500 million of 4.65% senior notes due April 2030. Offsetting these increases was a decrease$2.45 billion increase in accrued compensation, commissions and benefits of $343 million, primarily due to the annual payment of certain incentive compensation during the six months ended March 31, 2020.bank deposits, reflecting higher RJBDP balances held at RJ Bank.
See Notes 2 and 10 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information on our adoption of the new leasing guidance.
Contractual obligations
In March 2020, we sold in a registered underwritten public offering $500 million in aggregate principal amount of 4.65% senior notes due April 2030. Refer to Note 13 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information regarding our senior notes.
Other than the item previously described, there were no other changes to the contractual obligations presented in our 2019 Form 10-K, other than in the ordinary course of business. See Note 15 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information regarding our commitments as of March 31, 2020.
Regulatory
Refer to the discussion of the regulatory environment in which we operate and the impact on our operations of certain rules and regulations in “Item 1 - Business - Regulation” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory” of our 20192020 Form 10-K.
RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As of March 31, 2020,2021, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. In addition, RJF and RJ Bank, N.A. were categorized as “well-capitalized” as of March 31, 2020.2021. The maintenance of certain risk-based and other regulatory capital levels could influence various capital allocation decisions impacting one or more of our businesses. However, due to the current capital position of RJF and its regulated subsidiaries, we do not anticipate these capital requirements will have a negative impact on our future business activities. See Note 21 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information on regulatory capital requirements.
Legislative and regulatory changes in connection with COVID-19
Thethe COVID-19 pandemic has resulted in governments around the world implementing several measures to help control the spread of the virus, including, among others, quarantines, travel restrictions and business curtailments.
In addition governments globally intervened with fiscal policy to mitigate the impact of the pandemic, including the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act enacted in March 2020, the U.S., which aimed to provide economic government enacted the Consolidated Appropriations Act, 2021 in December 2020. This additional stimulus bill provided further emergency COVID-19 relief, to businesses and individuals.
Theas well as extended certain provisions of the CARES Act. Under the CARES Act, includes a broad range of provisions intended to support the U.S. economy. Among its provisions, the act allocates funds for a new Paycheck Protection Program that expands an existing Small Business Administration (“SBA”) loan guarantee program for small businesses to keep their employees on payroll and make other eligible payments. Currently, the firm does not act as a lender under these programs and facilities, and has no plans to do so.
The CARES Act also provides certain temporary regulatory relief for financial institutions including RJF and its subsidiaries. The act permits financial institutionswere permitted to temporarily suspend requirements under GAAP for COVID-19-related loan modifications that
Management’s Discussion and Analysis
would otherwise be classified as TDRs and to suspend any determination of a loan modifiedmodification as a result of the effects of COVID-19 as being a TDR, including impairment for accounting purposes. The Consolidated Appropriations Act, 2021 extended such relief until the earlier of: (1) 60 days after the date on which the national emergency concerning COVID-19 terminates; or (2) January 1, 2022. We elected to apply the extension for relief under the Consolidated Appropriations Act, 2021 to certain loan modifications that primarily relate to short-term payment deferral and have not classified such modifications as TDRs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” for further information on the impact of such loan modifications. The actloans.
RJ Bank, N.A.
On February 2, 2021, RJ Bank, N.A. filed an application with the Florida Office of Financial Regulation (“OFR”) to convert from a national bank primarily supervised by the Office of the Comptroller of the Currency (the “OCC”) to a Florida-chartered state bank. RJ Bank, N.A. also permits financial institutionsfiled an application with the Federal Reserve Bank of Atlanta to temporarily delayretain its membership in the implementation of CECL for estimating allowances for credit losses. Given our later adoption date of October 1, 2020,Federal Reserve System. Upon conversion to a state member bank, RJ Bank, N.A. will cease to be supervised by the OCC and instead become jointly supervised by the OFR and the Fed. As a state member bank, RJ Bank, N.A. will also continue to be supervised by the FDIC and the Consumer Financial Protection Bureau. As a state member bank, we do not anticipate delaying our adoption. In addition, the Federal Reserve, the FDICthat there will be any material changes to RJ Bank, N.A.’s existing business or operations.
Privacy and the OCC issued a joint statement providing banking organizations optional temporary relief by delaying the initial adoption impact of CECL on regulatory capital for two years, followed by a three-year transition period to phase out the aggregate amountdata protection
The legislature of the capital benefit provided during 2020State of Florida recently considered a proposed data privacy law which would have required companies to reveal the data they are gathering, required them to delete that data upon a consumer’s request and 2021 (i.e., a five-year transition period). As we domade them liable for selling this data when instructed not adopt CECL until October 1, 2020, we are currently evaluating whether we intend to avail ourselves of such relief.
The CARES Act grants potential tax reliefto. If adopted, this legislation (as well as additional emerging state and liquidity to businesses, including corporate tax provisions that: temporarily allow for the carryback of net operating lossesinternational privacy laws) could increase compliance risk, client servicing costs, and remove limitations onpotentially result in additional litigation and regulatory fines. Personal data collection associated with the use of loss carryforwards, increase interest expense deduction limitations,artificial intelligence, mobile applications, and allow accelerated depreciation deductionsremote connectivity solutions, generally increases the amount of personal data collected and processed about consumers and contributes to risks associated with unauthorized data disclosure and access.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Discontinuation of LIBOR
The administrator of LIBOR has proposed to extend publication of the most commonly used U.S. dollar LIBOR settings to June 30, 2023 and to cease publishing other LIBOR settings on certain asset improvements. In addition, the CARES Act allows employers to defer the payment, including the deposit, of payroll taxes for the 2020 calendar year from March 27, 2020 until December 31, 2021 for 50 percent of such taxes and December 31, 2022 for the remaining 50 percent.
2021. The CARES Act further provides a number of consumer finance protections. The act also provides a range of forbearance rights with respect to any federally backed residential or multi-family mortgage loan and generally limits the ability of a lender or servicer to institute foreclosure or similar proceedings. The act additionally imposes a moratorium on evictions from dwellings of many tenants. These provisions are consistent with supervisory guidance previously issued by federal banking agencies, which also stated that they would not criticize financial institutions for working with customers affected by the outbreak in a safe and sound manner. We are modifying our processes to ensure full compliance and are working as appropriate to support affected businesses and individuals during this time.
In addition to guidance regarding supporting customers,U.S. federal banking agencies have also takenissued guidance strongly encouraging banking organizations to cease using the U.S. dollar LIBOR as a number of other actions. The Federal Reserve, for example, has taken active steps to inject liquidity into the economy. The Federal Reserve has reduced the benchmark interestreference rate in an attemptnew contracts as soon as practicable and in any event by December 31, 2021. Our enterprise-wide initiative is continuing to stimulate the economy. As previously mentioned, this hasassess and will continueimplement necessary changes to negatively impact our net interest earnings. In addition, the Federal Reserve has established a number of new facilities, including to provide liquidity for issuers of commercial paper, money market funds, new bondcontracts, systems, processes, documentation, and loan issuances, outstanding corporate bonds, primary dealers, and small and medium-sized businesses, and has reduced the interest rates on borrowings under its discount window.models.
The Company’s legislative and regulatory environment is continually changing in response to the outbreak of COVID-19, and new or modified laws, regulations and guidance may be promulgated at very short notice.
See Note 20 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information on regulatory capital requirements.CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates
The condensed consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during any reporting period in our condensed consolidated financial statements. Management has established detailed policies and control procedures intended to ensure the appropriateness of such estimates and assumptions and their consistent application from period to period. For a description of our significant accounting policies, see Note 2 of the Notes to Consolidated Financial Statements of our 20192020 Form 10-K.10-K and Note 2 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.
Due to their nature, estimates involve judgment based upon available information. Actual results or amounts could differ from estimates and the difference could have a material impact on the consolidated financial statements. Therefore, understanding these critical accounting estimates is important in understanding our reported results of operations and financial position. We believe that of our accounting estimates and assumptions, those described in the following sections involve a high degree of judgment and complexity. Recent market disruptionsEconomic uncertainty as a result of the COVID-19 pandemic havehas made it more challenging for us to determine the amount of our allowance for loancredit losses and the fair value of certain of our assets, particularly our private equity investments. The current circumstances havehas required a greater reliance on judgment than in recent periods in determining these amounts as of March 31, 2020.this amount.
Valuation of financial instruments
The use of fair value to measure financial instruments, with related gains or losses recognized inon our Condensed Consolidated Statements of Income and Comprehensive Income, is fundamental to our financial statements and our risk management processes. See Note 2 of
Management’s Discussion and Analysis
the Notes to Consolidated Financial Statements of our 20192020 Form 10-K for a discussion of our fair value accounting policies regarding financial instruments owned and financial instruments sold but not yet purchased.instrument liabilities. See Note 34 of the Notes to Condensed Consolidated Financial Statements of 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” of our 2019 Form 10-K for more information.
Loss provisions for legal and regulatory matters
The recorded amount of liabilities related to legal and regulatory matters is subject to significant management judgment. For a description of the significant estimates and judgments associated with establishing such accruals, see the “Contingent liabilities” section of Note 2 of the Notes to Consolidated Financial Statements of our 20192020 Form 10-K. In addition, refer to Note 1516 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding legal and regulatory matter contingencies as of March 31, 2020.2021.
Loan loss provisions arising from operations of RJ BankAllowance for credit losses
We provideevaluate our held for investment bank loans, unfunded lending commitments, loans to financial advisors and certain other financial assets to estimate an allowance for loan lossescredit losses. Effective October 1, 2020, we adopted the CECL accounting guidance which reflects our continuing evaluation ofchanged the probable losses inherent in RJ Bank’s loan portfolio. See the discussion regarding our methodology in estimatingused to measure the allowance for loancredit losses from an allowance based on incurred losses to an allowance based on expected credit losses over a financial asset’s lifetime. The remaining life of our financial assets is determined by considering contractual terms and expected prepayments, among other factors. We employ multiple methodologies in Note 2estimating an allowance for credit losses and our approaches differ by type of financial asset and the risk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of the Notes to Consolidated Financial Statements of our 2019 Form 10-K. See Note 7 ofportfolio, the Notes to Condensed Consolidated Financial Statements of this Form 10-Qrelated credit risk characteristics, and the overall economic and environmental conditions affecting the financial assets. Our process for additional information on our bank loans.
At March 31, 2020, the amortized cost of all RJ Bank loans was $22.11 billion anddetermining the allowance for loan losses was $324 million, which was 1.47% of the held for investment loan portfolio.
Our process of evaluating probable loancredit losses includes a complex analysis of several quantitative and qualitative factors, requiring significant management judgment. As a result,judgment due to matters that are inherently uncertain. This uncertainty can produce volatility in our allowance for credit losses. In addition, the allowance for loancredit losses could be insufficient to cover actual losses. In such an event, any losses in excess of our allowance would result in a decrease in our net income, as well as a decrease in the level of regulatory capital.
Recent accounting developments
For information See the discussion regarding our recent accounting developments, seemethodology in estimating the allowance for credit losses in Note 2 of the
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Notes to Condensed Consolidated Financial Statements of this Form 10-Q. See Notes 8 and 9 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.10-Q for additional information on our RJ Bank and financial advisor loan portfolios.
Off-balance sheet arrangements
For information regarding our off-balance sheet arrangements, see Note 2Our allowance for credit losses at March 31, 2021 was primarily related to bank loans held by RJ Bank and loans to financial advisors. At March 31, 2021, the amortized cost of all RJ Bank loans was $23.22 billion and the related allowance for credit losses was $345 million, or 1.50% of the Notesheld for investment loan portfolio. At March 31, 2021, the amortized cost of loans to Consolidated Financial Statements of our 2019 Form 10-Kfinancial advisors was $1.02 billion and Note 15the related allowance for credit losses was $28 million, which was 2.76% of the Notesloan portfolio.
RECENT ACCOUNTING DEVELOPMENTS
The FASB has issued certain accounting updates which were assessed and either determined to Condensed Consolidated Financial Statements of this Form 10-Q.
Effects of inflation
Our assets are primarily liquid in nature andbe not applicable or are not significantly affected by inflation. However, the rate of inflation affects our expenses, including employee compensation, communications and information processing, and occupancy costs, which may not be readily recoverable through charges for services we provideexpected to our clients. In addition, to the extent inflation results in rising interest rates and has adverse effects upon the securities markets, it may adversely affecthave a significant impact on our financial position and results of operations.statements.
Risk management
RISK MANAGEMENT
Risks are an inherent part of our business and activities. Management of these risksrisk is critical to our fiscal soundness and profitability. Our risk management processes are multi-faceted and require communication, judgment and knowledge of financial products and markets. We have a formal Enterprise Risk Management (“ERM”) program to assess and review aggregate risks across the firm. Our management takes an active role in the ERM process, which requires specific administrative and business functions to participate in the identification, assessment, monitoring and control of various risks.
The principal risks related to our business activities are market, credit, liquidity, operational, model, and compliance.
Management’s Discussion and Analysis
Governance
Our Board of Directors oversees the firm’s management and mitigation of risk, settingreinforcing a culture that encourages ethical conduct and risk management throughout the firm. Senior management communicates and reinforces this culture through three lines of risk management and a number of senior-level management committees. Our first line of risk management, which includes all of our businesses, owns its risks and is responsible for helping to identify, escalate, and mitigate risks arising from its day-to-day activities. The second line of risk management, which includes the Compliance, Legal, and Risk Management departments, supports and provides guidance advice, and oversight to client-facing businesses and other first-line risk management functions in identifying and mitigating risk. The second line of risk management also tests and monitors the effectiveness of controls, escalates risks when appropriate, and reports on these risks. The third line of risk management, Internal Audit, independently reviews activities conducted by the previous lines of risk management to assess their management and mitigation of risk, providing additional assurance to the Board of Directors and senior management, with a view toward enhancing our oversight, management, and mitigation of risk.
Market risk
Market risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory, derivatives and investment positions. We have exposure to market risk primarily through our broker-dealer trading operations and, to a lesser extent, through our banking operations. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Market risk” of our 20192020 Form 10-K for a discussion of our market risk, including how we manage such risk. See Notes 3, 4, 5 and 56 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for fair value and other information regarding our trading inventories, available-for-sale securities and derivative instruments.
Interest rate risk
Trading activities
We are exposed to interest rate risk as a result of our trading inventory (primarily comprised of fixed income instruments) in our Capital Markets segment. We actively manage the interest rate risk arising from our fixed income trading securities through the use of hedging strategies that involve U.S. Treasury securities, futures contracts, liquid spread products and derivatives. During our second fiscal quarter of 2020, in response to the significant market volatility as a result of the COVID-19 pandemic, we took steps to proactively manage our market risk exposures, including enhanced review
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and monitoring of exposures and risk mitigation efforts. As a result, we reduced our trading inventory during the quarter to reduce risk.Analysis
We monitor the Value-at-Risk (“VaR”) for all of our trading portfolios on a daily basis. VaR is an appropriate statistical technique for estimating potential losses in trading portfolios due to typical adverse market movements over a specified time horizon with a suitable confidence level. We apply the Fed’s Market Risk Rule (“MRR”) for the purpose of calculating our capital ratios. The MRR, also known as the “Risk-Based Capital Guidelines: Market Risk” rule released by the Fed, the Office of the Comptroller of the Currency (“OCC”)OCC and FDIC, requires us to calculate VaR for all of our trading portfolios including(including derivatives), which include fixed income, equity, and foreign exchange and derivatives.instruments.
To calculate VaR, we use historical simulation. This approach assumes that historical changes in market conditions, such as in interest rates and equity prices, are representative of future changes. Simulation is based on daily market data for the previous twelve months. VaR is reported at a 99% confidence level for a one-day time horizon. Assuming that future market conditions change as they have in the past twelve months, we would expect to incur losses greater than those predicted by our one-day VaR estimates about once every 100 trading days, or about three times per year on average. For regulatory capital calculation purposes, we also report VaR numbers for a ten-day time horizon.
The Fed’s MRR requires us to perform daily back-testing procedures of our VaR model, whereby we compare each day’s projected VaR to its regulatory-defined daily trading losses, which exclude fees, commissions, reserves, net interest income and intraday trading. Regulatory-defined daily trading losses are used to evaluate the performance of our VaR model and are not comparable to our actual daily net revenues. Based on these daily “ex ante” versus “ex post” comparisons, we determine whether the number of times that regulatory-defined daily trading losses exceed VaR is consistent with our expectations at a 99% confidence level. During the three and six months ended March 31, 2020,2021, our regulatory-defined daily losslosses in our trading portfolios exceededdid not exceed our predicted VaR on eleven occasions due to higher levels of market volatility as a result of the COVID-19 pandemic.VaR.
Management’s Discussion and Analysis
The following table sets forth the high, low, period-end and daily average VaR for all of our trading portfolios, including fixed income equity and derivativeequity instruments, for the period and dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended March 31, 2021 | | Period-end VaR | | | | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | High | | Low | | March 31, 2021 | | September 30, 2020 | | $ in millions | | 2021 | | 2020 | | 2021 | | 2020 |
Daily VaR | | $ | 11 | | | $ | 3 | | | $ | 5 | | | $ | 8 | | | Average daily VaR | | $ | 6 | | | $ | 1 | | | $ | 6 | | | $ | 1 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended March 31, 2020 | | Period-end VaR | | | | Three months ended March 31, | | Six months ended March 31, |
$ in millions | | High | | Low | | March 31, 2020 | | September 30, 2019 | | $ in millions | | 2020 | | 2019 | | 2020 | | 2019 |
Daily VaR | | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | Daily average VaR | | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
Average daily VaR was higher during the current-year period compared with the prior-year period, as a result of the impact of increased volatility from the COVID-19 pandemic on our VaR model. However, toward the end of the current-year quarter, COVID-19 pandemic related scenarios started to fall outside of the VaR model’s twelve-month historical simulation period, resulting in period-end VaR decreasing to $5 million as of March 31, 2021 from $8 million as of September 30, 2020.
The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations. While management believes that these assumptions and approximations are reasonable, there is no uniform industry methodology for estimating VaR, and different assumptions or approximations could produce materially different VaR estimates. As a result, VaR statistics are more reliable when used as indicators of risk levels and trends within a firm than as a basis for inferring differences in risk-taking across firms.
Separately, RJF provides additional market risk disclosures to comply with the MRR. The results of the application of this market risk capital ruleMRR which are available on the Investor Relations section of our website under https://www.raymondjames.com/investor-relations/financial-information/filings-and-reports within “Other“SEC filings and Other Reports - Other Reports and Information.”
Should markets suddenly become more volatile, as they did in our second fiscal quarter of 2020, actual trading losses may exceed VaR results presented on a single day and might accumulate over a longer time horizon, such as a number of consecutive trading days. Accordingly, management applies additional controls including position limits, a daily review of trading results, review of the status of aged inventory, independent controls on pricing, monitoring of concentration risk, review of issuer ratings and stress testing. We utilize stress testing to complement our VaR analysis so as to measure risk under historical and hypothetical adverse scenarios. During volatile markets, we may choose to pare our trading inventories to reduce risk, as we did during our second fiscal quarter of 2020.risk.
Banking operations
RJ Bank maintains an earninginterest-earning asset portfolio that is comprised of cash, C&I loans, tax-exempt loans, commercial and residential real estate loans, REIT loans, tax-exempt loans and SBL and other loans, as well as agency MBS and agency CMOs (held in the available-for-sale securities portfolio), SBA loan securitizations and a trading portfolio of corporate loans. These earninginterest-earning assets are primarily funded by client deposits. Based on its current earning asset portfolio, RJ Bank is subject to interest rate
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
risk. RJ Bank analyzes interest rate risk based on forecasted net interest income, which is the net amount of interest received and interest paid, and the net portfolio valuation, both inacross a range of interest rate scenarios.
One of the objectives of RJ Bank’s Asset Liability Management Committee is to manage the sensitivity of net interest income to changes in market interest rates. The methods used to measure this sensitivity are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Market risk” of our 20192020 Form 10-K.
We utilize a hedging strategy using interest rate swaps as a result of RJ Bank’s asset and liability management process. For further information regarding this hedging strategy, see Note 2 of the Notes to Consolidated Financial Statements of our 20192020 Form 10-K.
The following table is an analysis of RJ Bank’s estimated net interest income over a 12-month period based on instantaneous shifts in interest rates (expressed in basis points) using RJ Bank’s own asset/liability model.model, which assumes that interest rates do not decline below zero.
| | | | | | | | | | | | | | |
Instantaneous changes in rate | | Net interest income ($ in millions) | | Projected change in net interest income |
+200 | | $907 | | 36.6% |
+100 | | $852 | | 28.3% |
0 | | $664 | | — |
-25 | | $635 | | (4.4)% |
|
| | | | |
Instantaneous changes in rate | | Net interest income ($ in millions) | | Projected change in net interest income |
+200 | | $951 | | 30.27% |
+100 | | $893 | | 22.33% |
0 | | $730 | | — |
-25 | | $683 | | (6.44)% |
Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net interest analysis” of this Form 10-Q for a discussion of the impact changes in short-term interest rates could have on the firm’s operations.
Management’s Discussion and Analysis
The following table shows the contractual maturities of RJ Bank’s loan portfolio at March 31, 2020,2021, including contractual principal repayments. This table does not include any estimates of prepayments, which could shorten the average loan lives and cause the actual timing of the loan repayments to differ significantly from those shown in the table. Loan amounts in the table exclude unearned income and deferred expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Due in |
$ in millions | | One year or less | | > One year – five years | | > Five years | | Total |
C&I loans | | $ | 233 | | | $ | 4,366 | | | $ | 3,217 | | | $ | 7,816 | |
CRE loans | | 823 | | | 1,395 | | | 492 | | | 2,710 | |
REIT loans | | 231 | | | 1,129 | | | 20 | | | 1,380 | |
Tax-exempt loans | | 1 | | | 69 | | | 1,153 | | | 1,223 | |
Residential mortgage loans | | — | | | 4 | | | 4,997 | | | 5,001 | |
SBL and other | | 4,856 | | | 35 | | | — | | | 4,891 | |
Total loans held for investment | | 6,144 | | | 6,998 | | | 9,879 | | | 23,021 | |
Held for sale loans | | — | | | 7 | | | 196 | | | 203 | |
Total loans | | $ | 6,144 | | | $ | 7,005 | | | $ | 10,075 | | | $ | 23,224 | |
|
| | | | | | | | | | | | | | | | |
| | Due in |
$ in millions | | One year or less | | > One year – five years | | > five years | | Total |
Loans held for investment: | | |
| | |
| | | | |
|
C&I loans | | $ | 165 |
| | $ | 4,077 |
| | $ | 4,074 |
| | $ | 8,316 |
|
CRE construction loans | | 10 |
| | 128 |
| | 42 |
| | 180 |
|
CRE loans | | 627 |
| | 2,610 |
| | 593 |
| | 3,830 |
|
Tax-exempt loans | | — |
| | 76 |
| | 1,190 |
| | 1,266 |
|
Residential mortgage loans | | — |
| | 4 |
| | 4,860 |
| | 4,864 |
|
SBL and other | | 3,526 |
| | 20 |
| | — |
| | 3,546 |
|
Total loans held for investment | | 4,328 |
| | 6,915 |
| | 10,759 |
| | 22,002 |
|
Loans held for sale | | — |
| | — |
| | 115 |
| | 115 |
|
Total loans | | $ | 4,328 |
| | $ | 6,915 |
| | $ | 10,874 |
| | $ | 22,117 |
|
The following table shows the distribution of the recorded investment of those RJ Bank loans that mature in more than one year between fixed and adjustable interest rate loans at March 31, 2020. Loan amounts in the table exclude unearned income2021.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and deferred expenses.Analysis
| | | | Interest rate type | | | Interest rate type |
$ in millions | | Fixed | | Adjustable | | Total | $ in millions | | Fixed | | Adjustable | | Total |
Loans held for investment: | | |
| | |
| | |
| |
C&I loans | | $ | 140 |
| | $ | 8,011 |
| | $ | 8,151 |
| C&I loans | | $ | 315 | | | $ | 7,268 | | | $ | 7,583 | |
CRE construction loans | | 2 |
| | 168 |
| | 170 |
| |
CRE loans | | 70 |
| | 3,133 |
| | 3,203 |
| CRE loans | | 90 | | | 1,797 | | | 1,887 | |
REIT loans | | REIT loans | | — | | | 1,149 | | | 1,149 | |
Tax-exempt loans | | 1,266 |
| | — |
| | 1,266 |
| Tax-exempt loans | | 1,222 | | | — | | | 1,222 | |
Residential mortgage loans | | 222 |
| | 4,642 |
|
| 4,864 |
| Residential mortgage loans | | 185 | | | 4,816 | |
| 5,001 | |
SBL and other | | — |
| | 20 |
| | 20 |
| SBL and other | | — | | | 35 | | | 35 | |
Total loans held for investment | | 1,700 |
| | 15,974 |
| | 17,674 |
| Total loans held for investment | | 1,812 | | | 15,065 | | | 16,877 | |
Loans held for sale | | 2 |
| | 113 |
| | 115 |
| |
Held for sale loans | | Held for sale loans | | 8 | | | 195 | | | 203 | |
Total loans | | $ | 1,702 |
| | $ | 16,087 |
| | $ | 17,789 |
| Total loans | | $ | 1,820 | | | $ | 15,260 | | | $ | 17,080 | |
Contractual loan terms for C&I, CRE, CRE constructionREIT and residential mortgage loans may include an interest rate floor, cap and/or fixed interest rates for a certain period of time, which would impact the timing of the interest rate reset for the respective loan. See the discussion within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk - Risk monitoring process” section of this Form 10-Q for additional information regarding RJ Bank’s interest-only residential mortgage loan portfolio.
In our RJ Bank available-for-sale securities portfolio, we hold primarily fixed-rate agency MBS and agency CMOs which wereare carried at fair value on our Condensed Consolidated Statements of Financial Condition, at March 31, 2020, with changes in the fair value of the portfolio recorded through OCI inon our Condensed Consolidated Statements of Income and Comprehensive Income. At March 31, 2020,2021, our RJ Bank available-for-sale securities portfolio had a fair value of $4.27$8.16 billion with a weighted-average yield of 2.27%1.15% and a durationweighted-average life of threeapproximately 4 years. See Note 45 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information.
Equity price risk
We are exposed to equity price risk as a result of our capital markets activities. Our broker-dealer activities are primarilygenerally client-driven, withand we carry equity securities as part of our trading inventory to facilitate such activities, although the objective of meeting clients’ needs while earning revenues to compensate for the risk associated with carryingamounts are not as significant as our fixed income trading inventory. We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions throughout each day and establishing position limits. Equity securities held in our trading inventory are generally included in VaR.
In addition, we have a private equity portfolio, included in “Other investments” on our Condensed Consolidated Statements of Financial Condition, which is comprised of various direct investments, as well as investments in third-party private equity funds and various legacy private equity funds which we sponsor. Of the total private equity investments at March 31, 2021 of $140 million, the portion we owned was $105 million. See Note 4 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on this portfolio. Management’s Discussion and Analysis
Foreign exchange risk
We are subject to foreign exchange risk due to our investments in foreign subsidiaries as well as transactions and resulting balances denominated in a currency other than the U.S. dollar. For example, a portion of our bank loan portfolio includes loans which are denominated in Canadian dollars, totaling $1.11$1.14 billion and $1.10$1.05 billion at March 31, 20202021 and September 30, 2019, respectively.2020, respectively, when converted to the U.S. dollar. A portion of such loans are held by RJ Bank’sBank, N.A.’s Canadian subsidiary, which is discussed in the following sections.
Investments in foreign subsidiaries
RJ Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate its foreign exchange risk, RJ Bank utilizes short-term, forward foreign exchange contracts. These derivatives are primarily accounted for as net investment hedges in the condensed consolidated financial statements. See Note 52 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K and Note 6 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information regarding these derivatives.
We had foreign exchange risk in our investment in RJ Ltd. of CAD 338380 million at March 31, 2020,2021, which was not hedged. Foreign exchange gains/losses related to this investment are primarily reflected in OCI on our Condensed Consolidated
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Statements of Income and Comprehensive Income. See Note 1617 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information regarding our components of OCI.
We also have foreign exchange risk associated with our investments in subsidiaries located in Europe. These investments are not hedged and we do not believe we have material foreign exchange risk either individually, or in the aggregate, pertaining to these subsidiaries.
Transactions and resulting balances denominated in a currency other than the U.S. dollar
We are subject to foreign exchange risk due to our holdings of cash and certain other assets and liabilities resulting from transactions denominated in a currency other than the U.S. dollar. Any currency-related gains/losses arising from these foreign currency denominated balances are reflected in “Other” revenues in our 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 in our Condensed Consolidated Statements of Income and Comprehensive Income. See Note 56 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding our derivatives.
Credit risk
Credit risk is the risk of loss due to adverse changes in a borrower’s, issuer’s or counterparty’s ability to meet its financial obligations under contractual or agreed upon terms. The nature and amount of credit risk depends on the type of transaction, the structure and duration of that transaction, and the parties involved. Credit risk is an integral component of the profit assessment of lending and other financing activities. See further discussion of our credit risk, including how we manage such risk, in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” of our 20192020 Form 10-K.
The sharpinitial decline in economic activity as a result of the COVID-19 haspandemic caused increased credit risk in general and particularly with regard to companies in sectors that have beenwere most significantly impacted by the economic disruption, including oil and gas,energy, airlines, entertainment and leisure, restaurants and gaming. The speed and magnitude in which various sectors have recovered since the onset of the pandemic has been continually evolving. Given the stresses on certain of our clients’ liquidity, we have enhanced our credit monitoring activities, with an increased focus on monitoring our credit exposures and counterparty credit risk. Since the onset of the pandemic, RJ Bank has enacted risk mitigation strategies including, but not limited to, the risk that trades may not settlesale of loans in those sectors with a given counterparty.high likelihood of adverse impact arising from the pandemic. We have also required collateral to be posted across our credit risk exposures in accordance with agreements with our borrowers and counterparties. Although economic conditions have generally improved, we have maintained our increased focus on monitoring our credit exposures and counterparty credit risk.
Brokerage activities
We are engaged in various trading and brokerage activities in which our counterparties primarily include broker-dealers, banks and other financial institutions. We are exposed to risk that these counterparties may not fulfill their obligations. The risk of default depends on the creditworthiness of the counterparty and/or the issuer of the instrument. We manage this risk by imposing and monitoring individual and aggregate position limits within each business segment for each counterparty, conducting regular credit reviews of financial counterparties, reviewing security and loan concentrations, holding and calculating the fair value of collateral on certain transactions and conducting business through clearing organizations, which may guarantee performance.
Our client activities involve the execution, settlement, and financing of various transactions on behalf of our clients. Client activities are transacted on either a cash or margin basis. Credit exposure results from client margin loans, which are monitored daily and are collateralized by the securities in the clients’ accounts. We monitor exposure to industry sectors and individual securities and perform analysis on a daily basis in connection with our margin lending activities. We adjust our margin requirements if we believe our risk exposure is not appropriate based on market conditions. In addition, when clients execute a purchase, we are at some risk that the client will default on their financial obligation associated with the trade. If this occurs, we may have to liquidate the position at a loss.
We offer loans to financial advisors and certain other key revenue producers primarily for recruiting, transitional cost assistance and retention purposes. We have credit risk and may incur a loss primarily in the event that such borrower is no longer
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
affiliated with us. See Notes 2 and 9 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information about our loans to financial advisors.
Banking activities
RJ Bank has a substantial loan portfolio. While RJ Bank’s loan portfolio is diversified, a significant downturn in the overall economy, such as that experienced in our fiscal year 2020 as a result of the downturn during our second fiscal quarter,COVID-19 pandemic, deterioration in real estate values or a significant issue within any sector or sectors where RJ Bank has a concentration will generally result in large provisions for loancredit losses and/or charge-offs. Conversely, should the economy recover at a faster pace than initially forecasted, or the negative impact of the significant downtown event be less than originally projected, the timing and magnitude of any decreases in required reserves for credit losses can be uncertain. RJ Bank determines the allowance required for specific loan grades based on relative risk characteristics of the loan portfolio. On an ongoing basis, RJ Bank evaluates its methods for determining the allowance for each class of loans and makes enhancements it considers appropriate.
RJ Bank’s allowance for credit losses methodology is described in Note 2 of the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q. As RJ Bank’s loan portfolio is segregated into six portfolio segments, likewise, the allowance for credit losses is segregated by these same segments. The risk characteristics relevant to each portfolio segment are as follows.
C&I: Loans in this segment are made to businesses and are generally secured by all assets of the business. Repayment is expected from the cash flows of the respective business. Unfavorable economic and political conditions, including the resultant decrease in consumer or business spending, may have an adverse effect on the credit quality of loans in this segment.
CRE: Loans in this segment are primarily secured by income-producing properties. For owner-occupied properties, the cash flows are derived from the operations of the business, and the underlying cash flows may be adversely affected by the deterioration in the financial condition of the operating business. The underlying cash flows generated by non-owner-occupied properties may be adversely affected by increased vacancy and rental rates, which are monitored on a quarterly basis. This portfolio segment includes CRE construction loans which also look at other risks such as project budget overruns and performance variables related to the contractor and subcontractors. With respect to commercial construction of residential developments, there is also the risk that the builder has a geographical concentration of developments. Adverse developments in any of these areas may have a negative effect on the credit quality of loans in this segment.
REIT: Loans in this segment are made to businesses that own or finance income-producing real estate across various property sectors. This portfolio segment may include extensions of credit to companies that engage in real estate development. Repayment of these loans is dependent on income generated from real estate properties or the sale of real estate. A portion of this segment may consist of loans secured by residential product types (single-family residential, including condominiums and land held for residential development) within a range of markets. Deterioration in the financial condition of the operating business, reductions in the value of real estate, as well as increased vacancy and rental rates may all adversely affect the loans in this segment.
Tax-exempt: Loans in this segment are made to governmental and nonprofit entities and are generally secured by a pledge of revenue and, in some cases, by a security interest in or a mortgage on the asset being financed. For loans to governmental entities, repayment is expected from a pledge of certain revenues or taxes. For nonprofit entities, repayment is expected from revenues which may include fundraising proceeds. These loans are subject to demographic risk, therefore much of the credit assessment of tax-exempt loans is driven by the entity’s revenue base and general economic environment. Adverse developments in either of these areas may have a negative effect on the credit quality of loans in this segment.
Residential mortgage (includes home equity loans/lines): All of RJ Bank’s residential mortgage loans adhere to stringent underwriting parameters pertaining to credit score and credit history, debt-to-income ratio of borrower, LTV, and combined LTV (including second mortgage/home equity loans). RJ Bank does not originate or purchase adjustable rate mortgage (“ARM”) loans with negative amortization, reverse mortgages, or loans to subprime borrowers. Loans with deeply discounted teaser rates are not originated or purchased. All loans in this segment are collateralized by residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. A decline in the strength of the economy, particularly unemployment rates and housing prices, among other factors, could have a significant effect on the credit quality of loans in this segment.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
SBL and other: Loans in this segment are collateralized generally by the borrower’s marketable securities at advance rates consistent with industry standards. These loans are monitored daily for adherence to LTV guidelines and when a loan exceeds the required LTV, a collateral call is issued. Past due loans are minimal as any past due amounts result in a notice to the client for payment or the potential sale of the collateral which will bring the loan to a current status.
In evaluating credit risk, RJ Bank considers trends in loan performance, the level of allowance coverage relative to similar banking institutions, industry or customer concentrations, the loan portfolio composition and macroeconomic factors (both current and forecasted). These factors have a potentially negative impact on loan performance and net charge-offs.
Our allowance for loancredit losses isas of March 31, 2021 was determined under the CECL model due to our October 1, 2020 adoption of the new credit impairment standard. See Notes 2 and 8 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information. Our allowance for credit losses, as well as our methodologies and assumptions used in estimating the allowance, are regularly evaluated to determine if our methods and estimates continue to be appropriate for each class of loans, with adjustments made on a quarterly basis. Several factors were taken into consideration in evaluating the allowance for loancredit losses at March 31, 2020,2021, including loan and borrower characteristics, such as internal risk ratings, delinquency status, collateral type and the risk profileremaining term of the portfolios,loan adjusted for expected prepayments. In addition, the estimate of credit losses considered the relatively small amount of net charge-offs during the period, the level of nonperforming loans delinquency ratios and the impact of the COVID-19 pandemic. RJ Bank also
Management’s Discussion and Analysis
considered the uncertainty related to certain industry sectors, including commercial real estate, and the extent of credit exposure to specific borrowers within the portfolio. Finally, RJ Bank considered current economic conditions that might impact the portfolio. In response to the COVID-19 pandemic, we performed a portfolio-wide assessment on our loan portfolio. As a result, we downgraded loans in certain impacted industries, which gave rise to an increase in the loan loss provision during the current quarter. We will continue to assess the impact of both the COVID-19 pandemic and the economic recovery therefrom, as morenew information becomes available regarding the financial repercussions to our borrowers, the risk ratings for individual loans will be updated and the allowance will be adjusted accordingly.
RJ Bank’s allowance for loancredit losses as a percentage of bank loans outstandingheld for investment was 1.47%1.50%, 1.69% and 1.04%1.65% at March 31, 2021, October 1, 2020 (our CECL adoption date) and September 30, 2019,2020, respectively. During the three and six months ended March 31, 2021, we had a benefit for credit losses on our bank loan portfolio of $32 million and $18 million, respectively, compared to a provision for credit losses of $109 million and $107 million for the three and six months ended March 31, 2020, respectively. See further explanation of the credit loss provision increase in “Management’s Discussion and Analysis - Results of Operations - RJ Bank” of this Form 10-Q and Note 78 in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for detail on the changes in RJ Bank’s allowance for loancredit losses.
The bank loan loss provision for the six months ended March 31, 2020 was $107 million compared to a loan loss provision of $21 million for the prior-year period. See further explanation of the loan loss provision increase in “Management’s Discussion and Analysis - Results of Operations - RJ Bank” of this Form 10-Q.
The level of charge-off activity is a factor that is considered in evaluating the potential for severity of future credit losses. The following table presents net loan (charge-offs)/recoveries and the percentage of net loan (charge-offs)/recoveries to the average outstanding loan balances by loan portfolio segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31 | | Six months ended March 31 |
| | 2021 | | 2020 | | 2021 | | 2020 |
$ in millions | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount (1) | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans |
C&I loans | | $ | (2) | | | 0.11 | % | | $ | — | | | — | % | | $ | (2) | | | 0.05 | % | | $ | — | | | — | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Total | | $ | (2) | | | 0.04 | % | | $ | — | | | — | % | | $ | (2) | | | 0.02 | % | | $ | — | | | — | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
| | 2020 | | 2019 | | 2020 | | 2019 |
$ in millions | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans | | Net loan (charge-off)/recovery amount | | % of avg. outstanding loans |
C&I loans | | $ | — |
| | — |
| | $ | (3 | ) | | 0.06 | % | | $ | — |
| | — |
| | $ | (3 | ) | | 0.06 | % |
CRE loans | | — |
| | — |
| | (3 | ) | | 0.20 | % | | — |
| | — |
| | (3 | ) | | 0.19 | % |
Residential mortgage loans | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 0.04 | % |
Total | | $ | — |
| | — |
| | $ | (6 | ) | | 0.06 | % | | $ | — |
| | — |
| | $ | (5 | ) | | 0.05 | % |
(1) Charge-offs for both the three and six months ended March 31, 2021 related to loan sales during the period.
The level of nonperforming loans is another indicator of potential future credit losses. The following table presents the nonperforming loans balance and total allowance for loancredit losses for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | September 30, 2020 |
$ in millions | | Nonperforming loan balance | | Allowance for credit losses balance | | Nonperforming loan balance | | Allowance for credit losses balance |
C&I loans | | $ | — | | | $ | 203 | | | $ | 2 | | | $ | 200 | |
CRE loans | | 13 | | | 74 | | | 14 | | | 81 | |
REIT loans | | — | | | 36 | | | — | | | 36 | |
Tax-exempt loans | | — | | | 2 | | | — | | | 14 | |
Residential mortgage loans | | 18 | | | 26 | | | 14 | | | 18 | |
SBL and other | | — | | | 4 | | | — | | | 5 | |
Total nonperforming loans held for investment | | $ | 31 | | | $ | 345 | | | $ | 30 | | | $ | 354 | |
Total nonperforming loans as a % of RJ Bank total loans | | 0.13 | % | | | | 0.14 | % | | |
|
| | | | | | | | | | | | | | | | |
| | March 31, 2020 | | September 30, 2019 |
$ in millions | | Nonperforming loan balance | | Allowance for loan losses balance | | Nonperforming loan balance | | Allowance for loan losses balance |
Loans held for investment: | | |
| | |
| | |
| | |
|
C&I loans | | $ | 4 |
| | $ | 197 |
| | $ | 19 |
| | $ | 139 |
|
CRE construction loans | | — |
| | 3 |
| | — |
| | 3 |
|
CRE loans | | 6 |
| | 88 |
| | 8 |
| | 46 |
|
Tax-exempt loans | | — |
| | 11 |
| | — |
| | 9 |
|
Residential mortgage loans | | 14 |
| | 18 |
| | 16 |
| | 16 |
|
SBL and other | | — |
| | 7 |
| | — |
| | 5 |
|
Total | | $ | 24 |
| | $ | 324 |
| | $ | 43 |
| | $ | 218 |
|
Total nonperforming loans as a % of RJ Bank total loans | | 0.11 | % | | | | 0.21 | % | | |
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Included in nonperforming residential mortgage loans as of March 31, 2021 were $7$6 million in loans for which $4$3 million in charge-offs were previously recorded, resulting in less exposure within the remaining balance. See Note 78 in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for loan categories as a percentage of total loans receivable.
The nonperforming loan balances in the preceding table exclude $11$9 million and $12$10 million as of March 31, 20202021 and September 30, 2019,2020, respectively, of residential TDRs which were returned to accrual status in accordance with our policy. Total nonperforming assets, including the nonperforming loans in the preceding table and other real estate acquired in the settlement of residential mortgages, amounted to $27$31 million and $46$32 million at March 31, 20202021 and September 30, 2019,2020, respectively. Total nonperforming assets as a percentage of RJ Bank total assets were 0.08%0.09% and 0.18%0.10% at March 31, 20202021 and September 30, 2019,2020, respectively. Although our nonperforming assets as a percentage of RJ Bank assets remained low as of March 31, 2020, and we had no charge-offs during our second fiscal quarter,2021, prolonged or further market deterioration could result in an increase in our nonperforming assets, an increase in our allowance for loancredit losses and/or an increase
Management’s Discussion and Analysis
in net charge-offs in future periods, although the extent will depend on future developments that are highly uncertain and cannot be predicted.uncertain.
We have received requests from certain clientsborrowers for forbearance, orwhich is generally a short-term deferral of their loan payments, to us,or modification of certain covenant terms, driven or exacerbated by the economic impacts of the COVIDCOVID-19 pandemic. Certain clients have also requested modifications of covenant terms. The CARES Act permits, among other things, financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 and is intended to provide interpretive guidance as to conditions that would constitute a short-term modification that would not meet the definition of a TDR. We have made certain loan modifications that relate to short-term payment deferrals that are not considered TDRs. Based on the outstanding principal balance as of the end of April 2020, we have received payment deferral requests onamortized costs, approximately 3%$52 million and 2%$5 million of our corporate and residential loans, respectively.respectively, were in active forbearance as of March 31, 2021. As certain borrowers exit forbearance we have received requests for loan modifications, including repayment plans. In accordance with the CARES Act and the Consolidated Appropriations Act, 2021, we have elected to not apply TDR classification to any COVID-19 related loan modifications performed between March 1, 2020 and December 31, 2021, to borrowers who were current as of December 31, 2019. As of March 31, 2021, we had residential loans of $31 million for which the borrower had requested a loan modification, where the request had been initiated but not completed or approved. As the delinquency status is not affected for loans that are in active forbearance or for loan modifications that have not yet been approved, the recognition of charge-offs, delinquencies, and nonaccrual status could be delayed for these borrowers who would have otherwise moved into past due or nonaccrual status. Forbearance and modification requests have continued to decline and the majority of the borrowers that have exited forbearance, but have not requested loan modifications, have become current on their principal and interest payments.
Loan underwriting policies
RJ Bank’s underwriting policies for the major types of loans are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” of our 20192020 Form 10-K. There were no material changes in RJ Bank’s underwriting policies during the six months ended March 31, 2020.2021.
Risk monitoring process
Another component of credit risk strategy at RJ Bank is the ongoing risk monitoring and review processes for all residential, SBL, corporate and tax-exempt credit exposures, as well as our rigorous processes to manage and limit credit losses arising from loan delinquencies. There are various other factors included in these processes, depending on the loan portfolio. There were no material changes to those processes and policies during the six months ended March 31, 2020.2021.
Residential mortgage and SBL and other loan portfolios
The collateral securing RJ Bank’s SBL and other portfolio is monitored on a recurring basis, with marketable collateral monitored on a daily basis. Collateral adjustments are made by the borrower as necessary to ensure RJ Bank’s loans are adequately secured, resulting in minimizing its credit risk. Collateral calls have been minimal relative to our SBL and other portfolio with no losses incurred to date.
We track and review many factors to monitor credit risk in RJ Bank’s residential mortgage loan portfolio. The factors include, but are not limited to: loan performance trends, loan product parameters and qualification requirements, borrower credit scores, level of documentation, loan purpose, geographic concentrations, average loan size, risk rating and LTV ratios. These measures, while consideredSee Note 8 in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for additional information.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and reviewed in establishing the allowance for loan losses, have not resulted in any material adjustments to RJ Bank’s historical loss rates.Analysis
The following table presents a summary of delinquent residential mortgage loans, the vast majority of which are first mortgage loans, which are comprised of loans which are two or more payments past due as well as loans in the process of foreclosure. Amounts in the following table do not include residential loans to borrowers who were granted forbearance as a result of the COVID-19 pandemic and whose loans were not considered delinquent prior to the forbearance. Such loans may be considered delinquent after the forbearance period or completion of loss mitigation efforts, depending on their payment status. As a result, the amount of residential loans considered delinquent may increase significantly in the future.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of delinquent residential loans | | Delinquent residential loans as a percentage of outstanding loan balances |
$ in millions | | 30-89 days | | 90 days or more | | Total | | 30-89 days | | 90 days or more | | Total |
March 31, 2021 | | $ | 3 | | | $ | 8 | | | $ | 11 | | | 0.06 | % | | 0.16 | % | | 0.22 | % |
September 30, 2020 | | $ | 3 | | | $ | 7 | | | $ | 10 | | | 0.06 | % | | 0.14 | % | | 0.20 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Amount of delinquent residential loans | | Delinquent residential loans as a percentage of outstanding loan balances |
$ in millions | | 30-89 days | | 90 days or more | | Total | | 30-89 days | | 90 days or more | | Total |
March 31, 2020 | | $ | 2 |
| | $ | 8 |
| | $ | 10 |
| | 0.04 | % | | 0.16 | % | | 0.20 | % |
September 30, 2019 | | $ | 2 |
| | $ | 10 |
| | $ | 12 |
| | 0.04 | % | | 0.22 | % | | 0.26 | % |
Our March 31, 20202021 percentage continues to compare favorably to the national average for over 30 day delinquencies of 2.54%3.12%, as most recently reported by the Fed.
Management’s Discussion and Analysis
Credit risk is also managed by diversifying the residential mortgage portfolio. Most of the loans in our residential loan portfolio are to Private Client GroupPCG clients across the country. The following table details the geographic concentrations (top five states) of RJ Bank’s one-to-four family residential mortgage loans.
|
| | | | |
| | March 31, 2020 |
| | Loans outstanding as a % of RJ Bank total residential mortgage loans | | Loans outstanding as a % of RJ Bank total loans |
CA | | 26.0% | | 5.7% |
FL | | 16.5% | | 3.6% |
TX | | 8.1% | | 1.8% |
NY | | 7.2% | | 1.6% |
CO | | 3.9% | | 0.9% |
| | | | | | | | | | | | | | |
| | March 31, 2021 |
| | Loans outstanding as a % of RJ Bank total residential mortgage loans | | Loans outstanding as a % of RJ Bank total loans |
CA | | 25.2% | | 5.4% |
FL | | 16.8% | | 3.6% |
TX | | 8.9% | | 1.9% |
NY | | 7.3% | | 1.6% |
CO | | 4.3% | | 0.9% |
Loans where borrowers may be subject to payment increases include adjustable rate mortgageARM loans with terms that initially require payment of interest only. Payments may increase significantly when the interest-only period ends and the loan principal begins to amortize. At March 31, 20202021 and September 30, 2019,2020, these loans totaled $1.51$1.82 billion and $1.29$1.67 billion, respectively, or approximately 30%36% and 34% of the residential mortgage portfolio, as of each of these dates.respectively. The weighted averageweighted-average number of years before the remainder of the loans, which were still in their interest-only period at March 31, 2020,2021, begins amortizing is 5.96 years.
A component of credit risk management for the residential portfolio is the LTV ratio and borrower credit score at origination or purchase. The most recent weighted-average LTV ratios and FICO scores at origination of RJ Bank’s residential first mortgage loan portfolio were 64% and 762, respectively.
Corporate and tax-exempt loans
Credit risk in RJ Bank’s corporate and tax-exempt loan portfolios areis monitored on an individual loan basis. The majority of RJ Bank’s tax-exempt loan portfolio is comprised of loans to investment-grade borrowers.
Credit risk is managed by diversifying the corporate loan portfolio. RJ Bank’s corporate loan portfolio does not contain a significant concentration in any single industry. The following table details the industry concentrations (top five categories) of RJ Bank’s corporate loans.
| | | | | | | | | | | | | | |
| | March 31, 2021 |
| | Loans outstanding as a % of RJ Bank total corporate loans | | Loans outstanding as a % of RJ Bank total loans |
Office real estate | | 7.6% | | 3.9% |
Business systems and services | | 6.8% | | 3.5% |
Automotive/transportation | | 6.4% | | 3.3% |
Multi-family | | 6.0% | | 3.1% |
Hospitality | | 5.7% | | 2.9% |
|
| | | | |
| | March 31, 2020 |
| | Loans outstanding as a % of RJ Bank total corporate loans | | Loans outstanding as a % of RJ Bank total loans |
Automotive/transportation | | 7.4% | | 4.1% |
Office real estate | | 7.2% | | 3.9% |
Business systems and services | | 7.1% | | 3.9% |
Hospitality | | 6.9% | | 3.8% |
Multifamily | | 5.3% | | 2.9% |
RJ Bank’sThe COVID-19 pandemic negatively impacted our corporate loan portfolio in fiscal 2020 and could do so again in the future. Although we have reduced our exposure and revised our credit limits related to sectors that we believe to be most vulnerable to the COVID-19 pandemic, such as the energy, airline, entertainment/airlines, entertainment and leisure, restaurant and gaming sectors, those most affected by thewe may experience further losses on our remaining loans to borrowers in these sectors, particularly if economic disruption fromconditions deteriorate. In addition, we continue to monitor our exposure to office real estate, where trends have changed rapidly and possibly permanently as a result of the COVID-19 pandemic, were each less than 2%and may experience additional losses on loans in this sector in the future. We may also experience further losses on corporate loans in other industries as a direct or indirect result of the loan portfolio as of March 31, 2020.pandemic, including on our CRE loans secured by retail and hospitality properties.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Although we saw significant deterioration in oil prices for much of fiscal year 2020 due to the pandemic, oil prices returned to pre-pandemic levels during ourthe second quarter of fiscal quarter,2021. In addition, our energy portfolio primarilyhas minimal direct commodity price exposure since it consists of loans to midstream distribution companies and convenience stores, with no loans to exploration and production enterprises. As a result,However, in the portfolio has minimal direct commodity price exposure. However, if we continue to see aevent of significant deterioration in oil prices in the future, our clients,borrowers, and as a result our loans to such clients,borrowers, could be negatively impacted in the future.impacted.
Liquidity risk
See the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and capital resources” of this Form 10-Q for information regarding our liquidity and how we manage liquidity risk.
Operational risk
Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes, including cybersecurity incidents. See “Item 7 - Management’s Discussion and
Management’s Discussion and Analysis
Analysis of Financial Condition and Results of Operations - Risk management - Operational risk” of our 20192020 Form 10-K for a discussion of our operational risk and certain of our risk mitigation processes.
In response to the COVID-19 pandemic, we activated and successfully executed on our business continuity protocols and continue to monitor the COVID-19 crisispandemic under such protocols. We have endeavored to safeguardprotect our employeesassociates and our clients and to ensure continuity of business operations for our clients. As a result, nearly alla substantial portion of our employeesassociates continue to work remotely. The firm continues to monitor conditions and has developed a phased approach to reopening our offices which complies with all applicable laws, regulations, and Centers for Disease Control guidelines. As of March 31, 2021, we had reopened most of our offices in a limited capacity and have been operating under strict public health and safety protocols in such locations. We are also closely monitoring the rollout of the COVID-19 vaccines as well as monitoring the ongoing infection positivity rates, to provide insight to the nature of our plans and their implementation timing. We are working remotely. Our systemsto develop and infrastructure have continuedfinalize such plans for a post-pandemic return to supporta more normal, pre-pandemic type of operating environment that allows us to be efficient, but is also safe for both our associates and clients.
Periods of severe market volatility, such as those that arose most notably in fiscal 2020 in response to the increased volumesonset of the COVID-19 pandemic, can result in a significantly higher level of transactions on specific days and other activity without any significantwhich may present operational challenges from time to time that may result in losses. These losses can result from, but are not limited to, trade errors, failed transaction settlements, late collateral calls to borrowers and counterparties, or technology disruptions.interruptions to our system processing. We did not incur any materialsignificant losses related to oursuch operational riskschallenges during the six months ended March 31, 2020.2021.
As more fully described in the discussion of our business technology risks included in various risk factors presented in “Item 1A - Risk Factors” of our 2019 Form 10-K and “Part II - Other Information - Item 1A - Risk Factors” of this Form 10-Q, despite our implementation of protective measures and endeavoring to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to human error, natural disasters, power loss, cyber-attacks and other information security breaches, and other events that could have an impact on the security and stability of our operations. To-date, we have not experienced any material losses relating to cyber-attacks or other information security breaches; however, there can be no assurances that we will not suffer such losses in the future.
Model risk
Model risk refers to the possibility of unintended business outcomes arising from the design, implementation or use of models. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Model risk” of our 20192020 Form 10-K for information regarding how we utilize models throughout the firm and how we manage model risk.
Compliance risk
Compliance risk is the risk of legal or regulatory sanctions, financial loss, or reputational damage that the firm may suffer from a failure to comply with applicable laws, external standards, or internal requirements. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Compliance risk” of our 20192020 Form 10-K for information on our compliance risks, including how we manage such risks. There have been no material changes in our compliance risk mitigation processes during the six months ended March 31, 2020.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management” of this Form 10-Q for our quantitative and qualitative disclosures about market risk.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls are procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Securities Exchange Act of 1934 Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarterthree and six months ended March 31, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.None.
ITEM 1A. RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties which could adversely affect our business, financial condition, results of operations, liquidity and the trading price of our common stock. For information regarding these risks and uncertainties, see “Item 1A - Risk Factors” of our 2019 Form 10-K. The following represents material changes to our risk factors disclosed in our 2019 Form 10-K.Not applicable.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
The recent outbreak of COVID-19 has adversely affected, and will likely continue to adversely affect, our business, financial condition, liquidity and results of operations.
The worldwide COVID-19 pandemic has negatively affected our business and the entire financial services industry and is likely to continue to do so. Since the beginning of January 2020, the outbreak has caused significant volatility and disruption in the financial markets both globally and in the U.S., and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The pandemic has led governments and other authorities around the world, including federal, state and local authorities in the U.S., to impose measures intended to control its spread, including restrictions on travel and the conduct of business, such as stay-at-home orders, quarantines, travel bans, border closings, business closures and other similar measures. If COVID-19, or another highly infectious or contagious disease, continues to spread or the response to contain it is unsuccessful, we will likely experience further adverse effects on our business, financial condition, liquidity, and results of operations. A prolonged period of economic deterioration may also result in impairment of goodwill and identifiable intangible assets. The extent of such effects will depend on future developments which are highly uncertain and cannot be predicted, including the geographic spread of the virus, the overall severity of the disease, the duration of the outbreak, the measures taken by various governmental authorities in response to the outbreak and the possible further impacts on the global economy.
The continued spread of COVID-19, or another highly infectious or contagious disease, has caused and could continue to cause severe disruptions in our business. These effects have included restrictions on our employees’ ability to travel, as well as temporary closures of our facilities and the facilities of our customers, suppliers, or other vendors. We often recruit skilled professionals and new clients by visiting their offices or having them visit our offices. Consequently, any travel restrictions or other disruptions that prevent us from meeting with professional prospects or potential new clients may adversely impact our ability to recruit such professional prospects or engage potential new clients. Although we maintain contingency plans for events such as pandemic outbreaks, the further spread of COVID-19 or a similar contagious disease could also impair the availability of our executive officers who are necessary to conduct our business. In addition, any continued spread of COVID-19 or new outbreak could harm the operations of third-party service providers who perform critical services for our business.
The COVID-19 pandemic has caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. As a result of a shift to fee-based accounts over the past several years, a larger portion of our client assets is more directly affected by market movements. The significant decrease in the market value of our clients’ assets has had and will continue to have a negative impact on our financial results due to the fact that asset-based fees are earned on the market value of the underlying client assets, many of which are billed based on assets as of the beginning of a quarter. This market decline will likely have a greater negative affect on revenues and profitability than would have been experienced in prior years due to the increased proportion of our asset-based revenues. Market volatility could also cause clients to move their investments to lower margin products, or withdraw them, which could have an adverse impact on our profitability. We could also experience a material reduction in trading volume and lower securities prices in times of market volatility, which would result in lower brokerage revenues, including losses on firm inventory. The fair values of certain of our investments could also continue to be negatively impacted, resulting in additional unrealized or realized losses on such investments. In addition, the market volatility and uncertainty related to the COVID-19 pandemic may cause our institutional clients to abandon announced transactions and/or cease exploration of potential transactions which could negatively impact our Capital Markets revenues, including those derived from our investment banking business.
Moreover, certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of COVID-19 have had, and will continue to have, a negative effect on our business. The Fed significantly lowered interest rates in response to COVID-19 pandemic concerns in March. These decreases in short-term interest rates, in addition
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
to those in late 2019, have had a negative impact on our results, as we have certain assets and liabilities, primarily held in our PCG, RJ Bank and Other segments, which are sensitive to changes in interest rates. Fees we earn from third-party banks on client cash balances swept to such banks as part of RJBDP are also sensitive to changes in interest rates. These market interest rate declines will continue to negatively impact results in future quarters.
In addition, we are generally exposed to the credit risk that third-parties that owe us money, securities or other assets will fail to meet their obligations to us due to numerous causes, and this risk has been and may further be exacerbated by the macroeconomic effects of COVID-19. We lend to businesses and individuals, including through offering C&I loans, commercial and residential mortgage loans, tax-exempt loans, home equity lines of credit, and other loans generally collateralized by securities. We also incur credit risk through our investments. Our credit risk has increased, and such risk and credit losses may continue to increase to the extent our loans or investments are to borrowers or issuers who as a group may be uniquely or disproportionately affected by declining economic or market conditions as a result of COVID-19 such as those operating in the airline, restaurant, gaming, entertainment/leisure and energy sectors. The deterioration of our credit exposure due to COVID-19 has led to additional loan loss provisions and could lead to further additional loan loss provisions and/or charges-offs, or credit impairment of our investments, and subsequently have a material impact on our net income, regulatory capital and liquidity.
We cannot assure you that conditions in financial markets will not continue to deteriorate as a result of the pandemic, or that our access to capital and other sources of funding will not become constrained, resulting in actions such as restructuring debt or obtaining additional financing on terms that may be onerous or highly dilutive.
Any cyber-attack or other security breach of our technology systems, or those of our clients or other third-party vendors we rely on, could subject us to significant liability and harm our reputation.
Our operations rely heavily on the secure processing, storage and transmission of sensitive and confidential financial, personal and other information in our computer systems and networks. There have been several highly publicized cases involving financial services companies reporting the unauthorized disclosure of client or other confidential information in recent years, as well as cyber-attacks involving the theft, dissemination and destruction of corporate information or other assets, in some cases as a result of failure to follow procedures by employees or contractors or as a result of actions by third parties. Like other financial services firms, we experience malicious cyber activity directed at our computer systems, software, networks and its users on a daily basis. This malicious activity includes attempts at unauthorized access, implantation of computer viruses or malware, and denial-of-service attacks. We also experience large volumes of phishing and other forms of social engineering attempted for the purpose of perpetrating fraud against the firm, our associates, our advisors or our clients. Additionally, like many large enterprises, since mid-March 2020, we have shifted the majority of our associates to remote work arrangements in response to the COVID-19 pandemic. This change in our operating model has enabled us to successfully continue business operations, but also introduces potential new vulnerabilities to cyber threats. We seek to continuously monitor for and nimbly react to any and all such activity, and we develop our systems to protect our technology infrastructure and data from misuse, misappropriation or corruption.
Cyber-attacks can originate from a variety of sources, including third parties affiliated with foreign governments, organized crime or terrorist organizations. Third parties may also attempt to place individuals within our firm or induce employees, clients or other users of our systems to disclose sensitive information or provide access to our data, and these types of risks may be difficult to detect or prevent. Although cybersecurity incidents among financial services firms are on the rise, we have not experienced any material losses relating to cyber-attacks or other information security breaches. However, the techniques used in these attacks are increasingly sophisticated, change frequently and are often not recognized until launched. Although we seek to maintain a robust suite of authentication and layered information security controls, including our cyber threat analytics, data encryption and tokenization technologies, anti-malware defenses and vulnerability management program, any one or combination of these controls could fail to detect, mitigate or remediate these risks in a timely manner. Despite our implementation of protective measures and endeavoring to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to human error, natural disasters, power loss, spam attacks, unauthorized access, distributed denial of service attacks, computer viruses and other malicious code, and other events that could result in significant liability and damage to our reputation, and have an ongoing impact on the security and stability of our operations.
We also rely on numerous third-party service providers to conduct other aspects of our business operations, and we face similar risks relating to them. While we regularly conduct security assessments on these third-party vendors, we cannot be certain that their information security protocols are sufficient to withstand a cyber-attack or other security breach. In addition, in order to access our products and services, our customers may use computers and other devices that are beyond our security control systems.
Notwithstanding the precautions we take, if a cyber-attack or other information security breach were to occur, this could jeopardize the information we confidentially maintain, or otherwise cause interruptions in our operations or those of our clients and counterparties,
exposing us to liability. As attempted attacks continue to evolve in scope and sophistication, we may be required to expend substantial additional resources to modify or enhance our protective measures, to investigate and remediate vulnerabilities or other exposures or to communicate about cyber-attacks to our customers. Though we have insurance against some cyber-risks and attacks, we may be subject to litigation and financial losses that exceed our policy limits or are not covered under any of our current insurance policies. A technological breakdown could also interfere with our ability to comply with financial reporting and other regulatory requirements, exposing us to potential disciplinary action by regulators. Additionally, the SEC issued guidance in February 2018 stating that, as a public company, we are expected to have controls and procedures that relate to cybersecurity disclosure, and are required to disclose information relating to certain cyber-attacks or other information security breaches in disclosures required to be made under the federal securities laws. Further, successful cyber-attacks at other large financial institutions or other market participants, whether or not we are affected, could lead to a general loss of customer confidence in financial institutions that could negatively affect us, including harming the market perception of the effectiveness of our security measures or the financial system in general, which could result in reduced use of our financial products and services.
Further, in light of the high volume of transactions we process, the large number of our clients, partners and counterparties, the increasing sophistication of malicious actors, and the COVID-19 pandemic response, a cyber-attack could occur and persist for an extended period of time without detection. We expect that any investigation of a cyber-attack would take substantial amounts of time, and that there may be extensive delays before we obtain full and reliable information. During such time we would not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, all of which would further increase the costs and consequences of such an attack.
We may also be subject to liability under various data protection laws. In providing services to clients, we manage, utilize and store sensitive or confidential client or employee data, including personal data. As a result, we are subject to numerous laws and regulations designed to protect this information, such as U.S. federal, state and international laws governing the protection of personally identifiable information. These laws and regulations are increasing in complexity and number. If any person, including any of our associates, negligently disregards or intentionally breaches our established controls with respect to client or employee data, or otherwise mismanages or misappropriates such data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution. In addition, unauthorized disclosure of sensitive or confidential client or employee data, whether through system failure, employee negligence, fraud or misappropriation, could damage our reputation and cause us to lose clients and related revenue. Potential liability in the event of a security breach of client data could be significant. Depending on the circumstances giving rise to the breach, this liability may not be subject to a contractual limit or an exclusion of consequential or indirect damages.
See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Operational risk” of our 2019 Form 10-K and Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Operational risk” of this Form 10-Q for additional information regarding our exposure to and approaches for managing operational risks.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not have any sales of unregistered securities for the six months ended March 31, 2020.2021.
We purchase our own stock from time to time in conjunction with a number of activities, each of which is described in the following paragraphs. The following table presents information on our purchases of our own stock, on a monthly basis, for the six months ended March 31, 2020.2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Total number of shares purchased | | Average price per share | | Number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value (in millions) at each month-end, of securities that may yet be purchased under the plans or programs |
October 1, 2020 – October 31, 2020 | 1,204 | | | $ | 80.04 | | | — | | | $487 |
November 1, 2020 – November 30, 2020 | 93,225 | | | $ | 90.50 | | | — | | | $487 |
December 1, 2020 – December 31, 2020 | 116,759 | | | $ | 93.02 | | | 107,750 | | | $740 |
First quarter | 211,188 | | | $ | 91.84 | | | 107,750 | | | |
| | | | | | | |
January 1, 2021 – January 31, 2021 | 2,401 | | | $ | 100.06 | | | — | | | $740 |
February 1, 2021 – February 28, 2021 | 6,941 | | | $ | 99.93 | | | — | | | $740 |
March 1, 2021 – March 31, 2021 | 501,760 | | | $ | 120.05 | | | 500,000 | | | $680 |
Second quarter | 511,102 | | | $ | 119.69 | | | 500,000 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Fiscal year-to-date total | 722,290 | | | $ | 111.54 | | | 607,750 | | | |
|
| | | | | | | | | | | |
| Total number of shares purchased | | Average price per share | | Number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value (in millions) at each month-end, of securities that may yet be purchased under the plans or programs |
| | | | | | | |
October 1, 2019 – October 31, 2019 | 5,582 |
| | $ | 84.80 |
| | — |
| | $750 |
November 1, 2019 – November 30, 2019 | 86,720 |
| | $ | 89.35 |
| | — |
| | $750 |
December 1, 2019 – December 31, 2019 | 132,723 |
| | $ | 89.33 |
| | 125,567 |
| | $739 |
First quarter | 225,025 |
| | $ | 89.23 |
| | 125,567 |
| | |
| | | | | | | |
January 1, 2020 – January 31, 2020 | 40,106 |
| | $ | 89.74 |
| | 32,988 |
| | $736 |
February 1, 2020 – February 29, 2020 | 721,432 |
| | $ | 89.47 |
| | 719,250 |
| | $672 |
March 1, 2020 – March 31, 2020 | 1,800,682 |
| | $ | 74.94 |
| | 1,795,764 |
| | $537 |
Second quarter | 2,562,220 |
| | $ | 79.26 |
| | 2,548,002 |
| |
|
Fiscal year-to-date total | 2,787,245 |
| | $ | 80.06 |
| | 2,673,569 |
| |
|
In December 2020, the Board of Directors authorized repurchase of our common stock in an aggregate amount of up to $750 million, which replaced the previous authorization.
In the preceding table, the total number of shares purchased includes shares purchased pursuant to ourthe Restricted Stock Trust Fund, which was established to acquire our common stock in the open market and used to settle RSUs granted as a retention vehicle for certain employees of our wholly ownedwholly-owned Canadian subsidiaries. For more information on this trust fund, see Note 2 of the Notes to Consolidated Financial Statements of our 20192020 Form 10-K and Note 810 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q. These activities do not utilize the repurchase authorization presented in the preceding table.
The total number of shares purchased also includes shares repurchased as a result of employees surrendering shares as payment for option exercises or withholding taxes. These activities do not utilize the repurchase authorization presented in the preceding table.
In response to the heightened market volatility as a result of the COVID-19 pandemic, we have suspended our share repurchases since mid-March 2020.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.None.
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS
|
| | | | |
Exhibit Number |
| Description |
3.1 |
| |
3.2 |
| |
4.1 |
| SeventhEighth Supplemental Indenture, dated as of March 31, 2020,April 1, 2021, for the 4.650%3.750% Senior Notes due 2030,2051, between Raymond James Financial, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.2 to the Company’sCompany's Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 31, 2020.April 2, 2021. |
10.1 |
| Third Amendment to Credit Agreement, dated as of April 19, 2021, among Raymond James Financial, Inc. Amended, Raymond James & Associates, Inc., the Lenders party thereto and Restated 2012 Stock Incentive Plan (as amended through February 20, 2020)Bank of America, N.A., incorporated by reference to Exhibit 10.1 to the Company’sCompany's Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 24, 2020.April 22, 2021. |
31.1 |
| |
31.2 |
| |
32 |
| |
101.INS |
| XBRL Instance Document (The- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.). |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
| Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | | | | | | | | |
| | | RAYMOND JAMES FINANCIAL, INC. |
| | | (Registrant) |
| | | |
Date: | May 8, 20207, 2021 | | /s/ Paul C. Reilly |
| | | Paul C. Reilly |
| | | Chairman and Chief Executive Officer |
| | | |
Date: | May 8, 20207, 2021 | | /s/ Paul M. Shoukry |
| | | Paul M. Shoukry |
| | | Chief Financial Officer and Treasurer |