RAYMOND JAMES FINANCIAL, INC.
INDEX
PAGE
Introduction 39
Executive overview 39Reconciliation of non-GAAP financial measures to GAAP financial measures
41 Net interest analysis 44 Results of OperationsPrivate Client Group 47 Capital Markets 51 Asset Management 53 Bank 56 Other 57 Statement of financial condition analysis
58
Liquidity and capital resources
59
Regulatory
65
Critical accounting estimates
65
Recent accounting developments 67
Risk management 67
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
INTRODUCTION
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help the reader understand the
results of our operations and financial condition. This MD&A is provided as a
supplement to, and should be read in conjunction with, our consolidated
financial statements and accompanying notes to consolidated financial
statements. Where "NM" is used in various percentage change computations, the
computed percentage change has been determined to be not meaningful.
We operate as a financial holding company and bank holding company. Results in
the businesses in which we operate are highly correlated to general economic
conditions and, more specifically, to the direction of the U.S. equity and fixed
income markets, changes in interest rates, market volatility, corporate and
mortgage lending markets and commercial and residential credit trends. Overall
market conditions, 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
Year ended
For the year endedSeptember 30, 2022 , we generated net revenues of$11.00 billion and pre-tax income of$2.02 billion , both 13% higher compared with the prior year. Our net income available to common shareholders of$1.51 billion was 7% higher than the prior year and our earnings per diluted share of$6.98 reflected a 5% increase. Our return on common equity ("ROCE") was 17.0%, compared with 18.4% for the prior year. In fiscal 2022, we completed the acquisitions ofCharles Stanley Group PLC ("Charles Stanley"),TriState Capital , andSumRidge Partners , which resulted in incremental revenues and expenses during the year. During the year we also incurred acquisition-related expenses, such as compensation largely related to retention awards, initial provisions for credit losses on acquired loans and unfunded lending commitments, amortization of identifiable intangible assets, and other costs incurred to effect our acquisitions, such as legal expenses and other professional fees. These expenses totaled$147 million this fiscal year, an increase of$65 million over the prior year. Excluding these acquisition-related expenses, our adjusted net income available to common shareholders was$1.62 billion (1), an increase of 5% compared with the prior year, and our adjusted earnings per diluted share were$7.49 (1), an increase of 3%. Adjusted ROCE for the year was 18.2%(1), compared with 20.0%(1) in the prior year, and adjusted return on tangible common equity ("ROTCE") was 21.1%(1), compared with 22.2%(1) in the prior year. The increase in net revenues compared with the prior year was driven by the impact of higher PCG client assets in fee-based accounts for most of the current fiscal year, which positively impacted our asset management and related administrative fees, the benefit of higher short-term interest rates on both net interest income and RJBDP fees from third-party banks, and incremental revenues from our acquisitions ofTriState Capital , Charles Stanley, andSumRidge Partners . Brokerage revenues and investment banking revenues each declined compared with a strong prior year, primarily as a result of market uncertainty during the current year. Compensation, commissions and benefits expense increased 11%, primarily attributable to the growth in revenues and pre-tax income compared with the prior year, as well as the aforementioned acquisitions. Our compensation ratio was 66.6%, compared with 67.5% for the prior year. Excluding acquisition-related compensation expenses, our adjusted compensation ratio was 66.1%(1), compared with 67.0%(1) for the prior year. The decline in the compensation ratio primarily resulted from changes in our revenue mix due to higher net interest income and RJBDP fees from third-party banks, which have little associated direct compensation. (1) Adjusted net income available to common shareholders, adjusted earnings per diluted share, adjusted ROCE, adjusted ROTCE, and adjusted compensation ratio are non-GAAP financial measures. In fiscal 2022, certain non-GAAP financial measures were adjusted for additional expenses directly related to our acquisitions that we believe are not indicative of our core operating results, such as those related to amortization of identifiable intangible assets arising from acquisitions and acquisition-related retention. Prior periods have been conformed to the current presentation. Please see the "Reconciliation of non-GAAP financial measures to GAAP financial measures" in this MD&A for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, and for other important disclosures. 39
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Non-compensation expenses increased 19%, due to incremental expenses from the aforementioned acquisitions, as well as increases in the bank loan provision for credit losses, business development expenses and communications and information processing expenses. The bank loan provision for credit losses increased$132 million to a provision of$100 million in the current year, compared with a benefit of$32 million for the prior year; however,$26 million of this increase related solely to the initial provision recorded on loans acquired as part of theTriState Capital acquisition. Partially offsetting these increases, we incurred$98 million of losses on extinguishment of debt from the early-redemption of certain of our senior notes during the prior year, which did not recur in the current year. Our effective income tax rate was 25.4% for fiscal 2022, an increase from 21.7% for the prior year. The increase in the effective tax rate from the prior year was primarily due to the negative impact of nondeductible valuation losses associated with our company-owned life insurance portfolio during the current year compared with nontaxable valuation gains for the prior year. As ofSeptember 30, 2022 , our tier 1 leverage ratio of 10.3% and total capital ratio of 20.4% were both well above the regulatory requirement to be considered well-capitalized. We also continued to have substantial liquidity with$1.91 billion (1) of cash at the parent company as ofSeptember 30, 2022 , which includes parent cash loaned to RJ&A. We believe our funding and capital position provide us the opportunity to continue to grow our balance sheet prudently and we expect to continue to be opportunistic in deploying our capital. Subsequent to the closing ofTriState Capital , for the periodJune 1, 2022 throughSeptember 30, 2022 , we repurchased 1.74 million shares and subsequent to that date repurchased an additional 354 thousand shares, for a cumulative repurchase throughNovember 17, 2022 of approximately 2.1 million shares of our common stock for$200 million or approximately$96 per share. After the effect of those repurchases,$800 million remained under our Board of Directors' share repurchase authorization. We currently expect to continue to repurchase our common stock in fiscal 2023 to offset the impact of shares issued with the acquisition ofTriState Capital as well as to offset dilution from share-based compensation; however, we will continue to monitor market conditions and other capital needs as we consider these repurchases. OnAugust 16, 2022 , theU.S. enacted the Inflation Reduction Act of 2022, which, among other things, establishes a 1% excise tax on net repurchases of shares by domestic corporations whose stock is traded on an established securities market. The excise tax will be imposed on repurchases that occur afterDecember 31, 2022 and will be recorded directly to equity as part of the repurchase transaction, rather than as a component of our provision for income taxes. The act also introduces a corporate alternative minimum tax which we do not expect to have an impact on our results of operations or cash flows in the future. We believe we remain well-positioned entering fiscal 2023. We expect fiscal 2023 results to be further positively impacted by a full year's impact of the combined 300-basis point increase in the Fed's short-term benchmark interest rate during our fiscal 2022, as well as the 75-basis point increase inNovember 2022 . With clients' domestic cash sweep balances of$67.1 billion as ofSeptember 30, 2022 and our high concentration of floating-rate assets, we also believe we are well-positioned for any further increases in short-term interest rates, which we expect to positively impact our net interest income and our RJBDP fees from third-party banks, although we expect further declines in client cash balances in fiscal 2023 as we expect clients to continue to shift their cash to higher-yielding investment products. We also expect to continue to face macroeconomic uncertainties which may continue to have a negative impact on equity and fixed income markets. As a result, we may experience volatility in asset management fees and brokerage revenues, as well as investment banking revenues, despite our strong investment banking pipelines. In addition, asset management and related administrative fees will be negatively impacted in our fiscal first quarter of 2023 by the 3% sequential decrease in PCG fee-based assets as ofSeptember 30, 2022 and lower financial assets under management; however, our recruiting pipelines remain strong and we continue to see solid retention of existing advisors. Net loan growth should result in additional provisions for credit losses and future economic deterioration could result in increased bank loan provisions for credit losses in future periods. In addition, although we remain focused on the management of expenses, we expect that expenses will continue to increase in part as a result of inflationary pressures on our costs, as business and event-related travel occur throughout the entire fiscal year 2023, and as we continue to make investments in our people and technology to support our growth.
Year ended
Refer to "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 Form 10-K for a discussion of our fiscal 2021 results compared to fiscal 2020.
(1) For additional information, please see the "Liquidity and capital resources - Sources of liquidity" section in this MD&A.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO 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. We believe certain of these non-GAAP financial measures provide useful information to management and investors by excluding certain material items that may not be indicative of our core operating results. We utilize these non-GAAP financial measures in assessing the financial performance of the business, as they facilitate a meaningful comparison of current- and prior-period results. In fiscal 2022, certain of our non-GAAP financial measures were adjusted for additional expenses directly related to our acquisitions that we believe are not indicative of our core operating results, including acquisition-related retention, amortization of identifiable intangible assets arising from acquisitions, and the initial provision for credit losses on loans acquired and lending commitments assumed as a result of theTriState Capital acquisition. Prior periods, where applicable, have been conformed to the current period presentation. We believe that ROTCE is meaningful to investors as this measure facilitates comparison of our results to the results of other companies. In the following tables, the tax effect of non-GAAP adjustments reflects the statutory rate associated with each non-GAAP item. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures of other companies. The following tables provide a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures for the periods indicated. Year ended September 30, $ in millions 2022 2021 Net income available to common shareholders$ 1,505 $ 1,403 Non-GAAP adjustments: Expenses directly related to acquisitions included in the following financial statement line items: Compensation, commissions and benefits: Acquisition-related retention 58 48 Other acquisition-related compensation 2 1 Total "Compensation, commissions and benefits" expense 60 49 Professional fees 12 10
Bank loan provision/(benefit) for credit losses - Initial provision for credit losses on acquired loans
26 -
Other:
Amortization of identifiable intangible assets 33 21
Initial provision for credit losses on acquired lending commitments
5 -
All other acquisition-related expenses 11 2
Total "Other" expense 49 23
Total expenses related to acquisitions 147 82
Losses on extinguishment of debt - 98
Pre-tax impact of non-GAAP adjustments 147 180
Tax effect of non-GAAP adjustments (37) (43)
Total non-GAAP adjustments, net of tax 110 137
Adjusted net income available to common shareholders Compensation, commissions and benefits expense
60 49
Adjusted "Compensation, commissions and benefits" expense $ 7,269 $ 6,535
Total compensation ratio 66.6 % 67.5 %Less the impact of non-GAAP adjustments on compensation ratio: Acquisition-related retention
0.5 % 0.5 %
Other acquisition-related compensation - % - %
Total "Compensation, commissions and benefits" expenses related to acquisitions
0.5 % 0.5 %
Adjusted total compensation ratio 66.1 % 67.0 %
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Year ended September 30, 2022 2021 Diluted earnings per common share$ 6.98 $ 6.63 Impact of non-GAAP adjustments on diluted earnings per common share: Compensation, commissions and benefits: Acquisition-related retention 0.27 0.23 Other acquisition-related compensation 0.01 - Total "Compensation, commissions and benefits" expense 0.28 0.23 Professional fees 0.06 0.05
Bank loan provision/(benefit) for credit losses - Initial provision for credit losses on acquired loans
0.12 -
Other:
Amortization of identifiable intangible assets 0.15 0.10
Initial provision for credit losses on acquired lending commitments
0.02 -
All other acquisition-related expenses 0.05 0.01
Total "Other" expense 0.22 0.11
Total expenses related to acquisitions 0.68 0.39
Losses on extinguishment of debt - 0.46
Tax effect of non-GAAP adjustments (0.17) (0.20)
Total non-GAAP adjustments, net of tax 0.51 0.65
Adjusted diluted earnings per common share $ 7.49 $ 7.28
As of
September 30, September 30,
$ in millions 2022 2021
Total common equity attributable to
9,338 $ 8,245
Less non-GAAP adjustments:
Goodwill and identifiable intangible assets, net 1,931 882
Deferred tax liabilities related to goodwill and identifiable intangible assets, net
(126) (64)
Tangible common equity attributable to Raymond James Financial,
Inc. $ 7,533 $ 7,427
Year ended September 30,
$ in millions 2022 2021
Average common equity $ 8,836 $ 7,635
Impact of non-GAAP adjustments on average common equity:
Compensation, commissions and benefits:
Acquisition-related retention 27 23
Other acquisition-related compensation 1 -
Total "Compensation, commissions and benefits" expense 28 23
Professional fees 6 4
Bank loan provision/(benefit) for credit losses - Initial provision for credit losses on acquired loans
10 -
Other:
Amortization of identifiable intangible assets 16 9
Initial provision for credit losses on acquired lending commitments
2 -
All other acquisition-related expenses 6 1
Total "Other" expense 24 10
Total expenses related to acquisitions 68 37
Losses on extinguishment of debt - 39
Tax effect of non-GAAP adjustments (17) (18)
Total non-GAAP adjustments, net of tax 51 58
Adjusted average common equity $ 8,887 $ 7,693
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Year ended September 30, $ in millions 2022 2021 Average common equity$ 8,836 $ 7,635 Less: Average goodwill and identifiable intangible assets, net 1,322 809
Deferred tax liabilities related to goodwill and identifiable intangible assets, net
(94) (53)
Average tangible common equity $ 7,608 $ 6,879 Impact of non-GAAP adjustments on average tangible common equity: Compensation, commissions and benefits: Acquisition-related retention
27 23
Other acquisition-related compensation 1 -
Total "Compensation, commissions and benefits" expense 28 23
Professional fees 6 4
Bank loan provision/(benefit) for credit losses - Initial provision for credit losses on acquired loans
10 -
Other:
Amortization of identifiable intangible assets 16 9
Initial provision for credit losses on acquired lending commitments
2 -
All other acquisition-related expenses 6 1
Total "Other" expense 24 10
Total expenses related to acquisitions 68 37
Losses on extinguishment of debt - 39
Tax effect of non-GAAP adjustments (17) (18)
Total non-GAAP adjustments, net of tax 51 58
Adjusted average tangible common equity $ 7,659 $ 6,937
Return on common equity 17.0 % 18.4 %
Adjusted return on common equity 18.2 % 20.0 %
Return on tangible common equity 19.8 % 20.4 %
Adjusted return on tangible common equity 21.1 % 22.2 %
Total compensation ratio is computed by dividing compensation, commissions and
benefits expense by net revenues for each respective period. Adjusted total
compensation ratio is computed by dividing adjusted compensation, commissions
and benefits expense by net revenues for each respective period.
Tangible common equity is computed by subtracting goodwill and identifiable
intangible assets, net, along with the associated deferred tax liabilities, from
total common equity attributable to RJF. Average common equity is computed by
adding the total common equity attributable to RJF as of each quarter-end date
during the indicated fiscal year to the beginning of the year total, and
dividing by five, or in the case of average tangible common equity, computed by
adding tangible common equity as of each quarter-end date during the indicated
fiscal year to the beginning of the year total, and dividing by five. Adjusted
average common equity is computed by adjusting for the impact on average common
equity of the non-GAAP adjustments, as applicable for each respective period.
Adjusted average tangible common equity is computed by adjusting for the impact
on average tangible common equity of the non-GAAP adjustments, as applicable for
each respective period.
ROCE is computed by dividing net income available to common shareholders by
average common equity for each respective period or, in the case of ROTCE,
computed by dividing net income available to common shareholders by average
tangible common equity for each respective period. Adjusted ROCE is computed by
dividing adjusted net income available to common shareholders by adjusted
average common equity for each respective period, or in the case of adjusted
ROTCE, computed by dividing adjusted net income available to common shareholders
by adjusted average tangible common equity for each respective period.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
NET INTEREST ANALYSIS
Largely in response to inflationary pressures, the Fed has rapidly increased its benchmark short-term interest rates, from the near-zero interest rates that existed starting in fiscal 2020 and continuing throughout fiscal 2021 throughFebruary 2022 , to gradual increases commencing inMarch 2022 , ending at a range of 3.00% to 3.25% as ofSeptember 30, 2022 .The Fed indicated that it intends to closely monitor short-term interest rates into our fiscal 2023, and in fact, enacted an additional 75-basis point increase inNovember 2022 . The following table details the Fed's short-term interest rate activity since fiscal 2020. Date of interest rate Increase/(decrease) in interest RJF fiscal quarter ended action rates (in basis points) Fed funds target rate March 31, 2020 March 16, 2020 (100) 0.00% - 0.25% March 31, 2022 March 17, 2022 25 0.25% - 0.50% June 30, 2022 May 5, 2022 50 0.75% - 1.00% June 30, 2022 June 16, 2022 75 1.50% - 1.75% September 30, 2022 July 28, 2022 75 2.25% - 2.50% September 30, 2022 September 22, 2022 75 3.00% - 3.25%
Rate changes subsequent to
December 31, 2022 November 3, 2022 75 3.75% - 4.00%
Increases in short-term interest rates positively impacted our net interest income during our fiscal 2022, as well as the fee income we earn from third-party banks on client cash balances swept to such banks as part of the RJBDP (included in account and service fees), which are also sensitive to changes in interest rates.
Given the relationship between our interest-sensitive assets and liabilities (primarily held in our PCG, Bank, and Other segments) and the nature of fees we earn from third-party banks in the RJBDP, increases in short-term interest rates generally result in an increase in our net earnings, although the magnitude of the impact to our net interest margin depends on the yields on interest-earning assets relative to the cost of interest-bearing liabilities, including deposit rates paid to clients on their cash balances. Changes to the regulatory landscape governing the fees the firm earns on client assets, including cash sweep balances, could negatively impact our earnings. In addition, our pace of loan growth may fluctuate over time in response to changes in interest rates. As a result of our diverse funding sources, strong loan growth and high concentration of floating-rate assets, we benefited from the increases in short-term interest rates in fiscal 2022 and believe we are well-positioned for our net interest earnings and RJBDP fees to continue to be favorably impacted by the fiscal year 2022, as well as any fiscal 2023, increases in short-term rates. However, we also expect the benefit to our RJBDP fees to be partially offset by a decline in domestic client sweep balances as a portion of this cash gets invested in higher-yielding investments. Refer to the discussion of our net interest income within the "Management's Discussion and Analysis - Results of Operations" of our PCG, Bank, and Other segments, where applicable. Also refer to "Management's Discussion and Analysis - Results of Operations -Private Client Group - Clients' domestic cash sweep balances" for further information on the RJBDP. 44
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis The following table presents our consolidated average interest-earning asset and interest-bearing liability balances, interest income and expense and the related rates. Year ended September 30, 2022 2021 2020 Average Average Average $ in millions balance Interest Average rate balance Interest Average rate balance Interest Average rate Interest-earning assets: Bank segment: Cash and cash equivalents$ 1,884 $ 18 0.98 %$ 1,612 $ 2 0.14 %$ 1,981 $ 11 0.55 % Available-for-sale securities 9,651 136 1.40 % 7,950 85 1.07 % 4,250 83 1.94 % Loans held for sale and investment: (1) (2) Loans held for investment: SBL 9,561 324 3.34 % 4,989 112 2.22 % 3,559 112 3.10 % C&I loans 9,493 313 3.25 % 7,828 201 2.54 % 7,860 274 3.43 % CRE loans 4,205 158 3.70 % 2,703 70 2.56 % 2,589 88 3.34 % REIT loans 1,339 44 3.28 % 1,273 32 2.48 % 1,333 42 3.09 % Residential mortgage loans 6,170 170 2.76 % 5,110 140 2.72 % 4,874 148 3.04 % Tax-exempt loans (3) 1,355 35 3.15 % 1,270 34 3.31 % 1,246 33 3.35 % Loans held for sale 229 7 3.24 % 163 4 2.55 % 130 5 3.70 % Total loans held for sale and investment 32,352 1,051 3.24 % 23,336 593 2.55 % 21,591 702 3.25 % All other interest-earning assets 124 4 3.29 % 182 4 1.50 % 223 4 2.04 % Interest-earning assets - Bank segment$ 44,011 $ 1,209 2.74 %$ 33,080 $ 684 2.07 %$ 28,045 $ 800 2.85 % All other segments: Cash and cash equivalents$ 4,114 $ 30 0.73 %$ 3,949 $ 10 0.25 %$ 3,192 $ 30 0.94 % Assets segregated for regulatory purposes and restricted cash 14,826 96 0.65 % 8,735 15 0.17 % 3,042 28 0.94 % Trading assets - debt securities 621 27 4.38 % 475 13 2.67 % 493 18 3.56 % Brokerage client receivables 2,529 100 3.94 % 2,280 77 3.37 % 2,232 84 3.77 % All other interest-earning assets 1,944 46 2.33 % 1,594 24 1.54 % 1,573 40 2.54 % Interest-earning assets - all other segments$ 24,034 $ 299 1.24 %$ 17,033 $ 139 0.82 %$ 10,532 $ 200 1.90 % Total interest-earning assets$ 68,045 $ 1,508 2.22 %$ 50,113 $ 823 1.64 %$ 38,577 $ 1,000 2.59 % Interest-bearing liabilities: Bank segment: Bank deposits: Money market and savings accounts$ 36,693 $ 81 0.22 %$ 28,389 $ 3 0.01 %$ 23,714 $ 20 0.09 % Interest-bearing checking accounts 2,061 39 1.88 % 162 3 1.86 % 92 2 1.86 % Certificates of deposit 870 15 1.68 % 904 17 1.90 % 1,006 20 2.03 % Total bank deposits (4) 39,624 135 0.34 % 29,455 23 0.08 % 24,812 42 0.17 % FHLB advances and all other interest-bearing liabilities 1,001 21 2.15 % 864 19 2.12 % 889 20 2.21 % Interest-bearing liabilities - Bank segment$ 40,625 $ 156 0.38 %$ 30,319 $ 42 0.14 %$ 25,701 $ 62 0.24 % All other segments: Trading liabilities - debt securities$ 325 $ 12 3.64 %$ 150 $ 2 1.39 %$ 165 $ 3 1.83 % Brokerage client payables 15,530 24 0.15 % 10,180 3 0.03 % 4,179 11 0.28 % Senior notes payable 2,037 93 4.44 % 2,078 96 4.58 % 1,800 85 4.72 % All other interest-bearing liabilities 257 20 2.76 % 241 7 1.14 % 456 17 2.24 % Interest-bearing liabilities - all other segments$ 18,149 $ 149 0.82 %$ 12,649 $ 108 0.85 %$ 6,600 $ 116 1.76 % Total interest-bearing liabilities$ 58,774 $ 305 0.52 %$ 42,968 $ 150 0.34 %$ 32,301 $ 178 0.54 % Firmwide net interest income$ 1,203 $ 673 $ 822 Net interest margin (net yield on interest-earning assets) Bank segment 2.39 % 1.95 % 2.63 % Firmwide 1.77 % 1.35 % 2.14 % (1) Loans are presented net of unamortized discounts, unearned income, and deferred loan fees and costs. (2) Nonaccrual loans are included in the average loan balances. 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. (3) The yield on tax-exempt loans in the preceding table is presented on a taxable-equivalent basis utilizing the applicable federal statutory rates for each of the years presented. (4) The average balance, interest expense, and average rate for "Total bank deposits" included amounts associated with affiliate deposits. Such amounts are eliminated in consolidation and are offset in "All other interest-bearing liabilities" under "All other segments". 45
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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 rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period's volume. Changes attributable to both volume and rate have been allocated proportionately. Year ended September 30, 2022 compared to 2021 2021 compared to 2020 Increase/(decrease) due to Increase/(decrease) due to $ in millions Volume Rate Total Volume Rate Total Interest-earning assets: Interest income Bank segment: Cash and cash equivalents $ -$ 16 $ 16 $ (2) $ (7) $ (9) Available-for-sale securities 21 30 51 71 (69) 2 Loans held for sale and investment: Loans held for investment: SBL 137 75 212 45 (45) - C&I loans 48 64 112 (1) (72) (73) CRE loans 49 39 88 4 (22) (18) REIT loans 2 10 12 (2) (8) (10) Residential mortgage loans 28 2 30 8 (16) (8) Tax-exempt loans 3 (2) 1 2 (1) 1 Loans held for sale 2 1 3 1 (2) (1) Total loans held for sale and investment 269 189 458 57 (166)
(109)
All other interest-earning assets (2) 2 - - -
-
Interest-earning assets - Bank segment$ 288 $ 237 $ 525 $ 126 $ (242) $ (116) All other segments: Cash and cash equivalents $ -$ 20 $ 20 $ 5 $ (25) $ (20) Assets segregated for regulatory purposes and restricted cash 16 65 81 54 (67)
(13)
Trading assets - debt securities 5 9 14 (1) (4) (5) Brokerage client receivables 9 14 23 2 (9) (7) All other interest-earning assets 6 16 22 - (16)
(16)
Interest-earning assets - all other segments$ 36 $ 124 $ 160 $ 60 $ (121) $ (61) Total interest-earning assets$ 324 $ 361 $ 685 $ 186 $ (363)
Interest-bearing liabilities: Interest expense Bank segment: Bank deposits: Money market and savings accounts$ 1 $ 77 $ 78 $ 3 $ (20) $ (17) Interest-bearing checking accounts 36 - 36 1 - 1 Certificates of deposit (1) (1) (2) (2) (1) (3) Total bank deposits 36 76 112 2 (21) (19) FHLB advances and all other interest-bearing liabilities 2 - 2 - (1)
(1)
Interest-bearing liabilities - Bank segment$ 38 $ 76 $ 114 $ 2 $ (22) $ (20) All other segments: Trading liabilities - debt securities 5 5 10 - (1) (1) Brokerage client payables 3 18 21 17 (25) (8) Senior notes payable (1) (2) (3) 13 (2) 11 All other interest-bearing liabilities 1 12 13 (10) -
(10)
Interest-bearing liabilities - all other segments$ 8 $ 33 $ 41 $ 20 $ (28) $ (8) Total interest-bearing liabilities$ 46 $ 109 $ 155 $ 22 $ (50) $ (28) Change in firmwide net interest income$ 278 $ 252 $ 530 $ 164 $ (313) $ (149) 46
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
RESULTS OF OPERATIONS - PRIVATE CLIENT GROUP
Through our PCG segment, we provide financial planning, investment advisory and securities transaction services for which we generally charge either asset-based fees (presented in "Asset management and related administrative fees") or sales commissions (presented in "Brokerage revenues"). We also earn revenues for distribution and related support services performed primarily related to mutual funds, fixed and variable annuities and insurance products. Asset management and related administrative fees and brokerage revenues in this segment are typically correlated with the level of PCG client AUA, including those in fee-based accounts, as well as the overallU.S. equity markets. In periods where equity markets improve, AUA and client activity generally increase, thereby having a favorable impact on net revenues. We also earn servicing fees, such as omnibus and education and marketing support fees, from mutual fund and annuity companies whose products we distribute. Servicing fees earned from mutual fund and annuity companies are based on the level of assets, a flat fee or number of positions in such programs. Our PCG segment also earns fees from banks to which we sweep clients' cash in the RJBDP, including both third-party banks and our Bank segment. Such fees, which generally fluctuate based on average balances in the program and short-term interest rates, are included in "Account and service fees." See "Clients' domestic cash sweep balances" in the "Selected key metrics" section for further information about fees earned from the RJBDP. Net interest income in the PCG segment is primarily generated by interest earnings on assets segregated for regulatory purposes and on margin loans provided to clients, less interest paid on client cash balances in the CIP. Amounts are impacted by client cash balances in the CIP and short-term interest rates. Higher client cash balances generally lead to increased net interest income, depending on interest rate spreads realized in the CIP (i.e., between interest received on assets segregated for regulatory purposes and interest paid on CIP balances). For more information on client cash balances, see "Clients' domestic cash sweep balances" in the "Selected key metrics" section.
For an overview of our PCG segment operations, refer to the information presented in "Item 1 - Business" of this Form 10-K.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Operating results Year ended September 30, % change $ in millions 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Revenues:
Asset management and related administrative fees
$ 4,056 $ 3,162 16 % 28 % Brokerage revenues: Mutual and other fund products 620 670 567 (7) % 18 % Insurance and annuity products 438 438 397 - % 10 % Equities, ETFs and fixed income products 458 438 419 5 % 5 % Total brokerage revenues 1,516 1,546 1,383 (2) % 12 % Account and service fees: Mutual fund and annuity service fees 428 408 348 5 % 17 % RJBDP fees: Bank segment 357 183 180 95 % 2 % Third-party banks 202 76 150 166 % (49) % Client account and other fees 220 157 129 40 % 22 % Total account and service fees 1,207 824 807 46 % 2 % Investment banking 38 47 41 (19) % 15 % Interest income 249 123 155 102 % (21) % All other 32 25 27 28 % (7) % Total revenues 7,752 6,621 5,575 17 % 19 % Interest expense (42) (10) (23) 320 % (57) % Net revenues 7,710 6,611 5,552 17 % 19 % Non-interest expenses: Financial advisor compensation and benefits 4,696 4,204 3,428 12 % 23 % Administrative compensation and benefits 1,199 1,015 971 18 % 5 % Total compensation, commissions and benefits 5,895 5,219 4,399 13 % 19 % Non-compensation expenses: Communications and information processing 332 275 251 21 % 10 % Occupancy and equipment 198 179 175 11 % 2 % Business development 126 71 79 77 % (10) % Professional fees 56 46 33 22 % 39 % All other 73 72 76 1 % (5) % Total non-compensation expenses 785 643 614 22 % 5 % Total non-interest expenses 6,680 5,862 5,013 14 % 17 % Pre-tax income$ 1,030 $ 749 $ 539 38 % 39 % 48
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Selected key metrics PCG client asset balances As of September 30, $ in billions 2022 2021 2020 AUA (1)$ 1,039.0 $ 1,115.4 $ 883.3
Assets in fee-based accounts (1) (2)
56.4 % 56.2 % 53.8 %
(1)These metrics include the impact from the acquisition of Charles Stanley, which was completed onJanuary 21, 2022 . (2)A portion of our "Assets in fee-based accounts" is invested in "managed programs" overseen by our Asset Management segment, specifically our Asset Management Services division of RJ&A ("AMS"). These assets are included in our financial assets under management as disclosed in the "Selected key metrics" section of our "Management's Discussion and Analysis - Results of Operations - Asset Management." PCG AUA and PCG assets in fee-based accounts each decreased 7% compared with the prior year, as the positive impacts of strong net inflows of client assets and the Charles Stanley acquisition were more than offset by a decline in market values. PCG assets in fee-based accounts continued to be a significant percentage of overall PCG AUA due to many clients' preference for fee-based alternatives versus transaction-based accounts and, as a result, a significant portion of our PCG revenues is more directly impacted by market movements. Fee-based accounts within our PCG segment are comprised of a wide array of products and programs that we offer our clients. The majority of assets in fee-based accounts within our PCG segment are invested in programs for which our financial advisors provide investment advisory services, either on a discretionary or non-discretionary basis. Administrative services for such accounts (e.g., record-keeping) are generally performed by our Asset Management segment and, as a result, a portion of the related revenue is shared with the Asset Management segment. We also offer our clients fee-based accounts that are invested in "managed programs" overseen by AMS, which is part of our Asset Management segment. Fee-billable assets invested in managed programs are included in both "Assets in fee-based accounts" in the preceding table and "Financial assets under management" in the Asset Management segment. Revenues related to managed programs are shared by our PCG and Asset Management segments.The Asset Management segment receives a higher portion of the revenues related to accounts invested in managed programs, as compared to the portion received for non-managed programs, as it is performing portfolio management services in addition to administrative services. The vast majority of the revenues we earn from fee-based accounts is recorded in "Asset management and related administrative fees" on our Consolidated Statements of Income and Comprehensive Income. Fees received from such accounts are based on the value of client assets in fee-based accounts and vary based on the specific account types in which the client invests and the level of assets in the client relationship. As fees for the majority of such accounts are billed based on balances as of the beginning of the quarter, revenues from fee-based accounts may not be immediately affected by changes in asset values, but rather the impacts are seen in the following quarter. Assets in fee-based accounts in this segment decreased 3% as ofSeptember 30, 2022 compared withJune 30, 2022 , which we expect will have an unfavorable impact on our related revenues in our fiscal first quarter of 2023. PCG AUA included assets associated with firms affiliated with us through our RCS division of$108.5 billion as ofSeptember 30, 2022 ,$92.7 billion as ofSeptember 30, 2021 , and$59.7 billion as ofSeptember 30, 2020 , of which$89.9 billion ,$77.2 billion , and$47.4 billion as ofSeptember 30, 2022 , 2021, and 2020, respectively, were fee-based assets. Based on the nature of the services provided to such firms, revenues related to these assets are included in "Account and services fees." Financial advisors As of September 30, 2022 2021 2020 Employees 3,638 3,461 3,404 Independent contractors 5,043 5,021 4,835 Total advisors 8,681 8,482 8,239 49
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis The number of financial advisors as ofSeptember 30, 2022 increased compared to the prior year due to strong recruiting and retention of existing advisors and the addition of nearly 200 financial advisors with the Charles Stanley acquisition inJanuary 2022 , partially offset by the transfer of 222 advisors previously affiliated primarily as independent contractors to our RCS division (including one firm with 166 financial advisors). We expect to continue to experience transfers of financial advisors to our RCS division in fiscal 2023; however, consistent with our experience in fiscal 2022, we do not expect these financial advisor transfers to significantly impact our results of operations. Advisors in our RCS division are not included in our financial advisor count metric although their client assets are included in PCG AUA. The recruiting pipeline remains robust across our affiliation options; however, the timing of financial advisors joining the firm may be impacted by market uncertainty.
Clients' domestic cash sweep balances
As of September 30,
$ in millions 2022 2021 2020
RJBDP:
Bank segment $ 38,705 $ 31,410 $ 25,599
Third-party banks 21,964 24,496 25,998
Subtotal RJBDP 60,669 55,906 51,597
CIP 6,445 10,762 3,999
Total clients' domestic cash sweep balances
$ 55,596 Year ended September 30, 2022 2021 2020 Average yield on RJBDP - third-party banks 0.82 % 0.30 % 0.77 % A significant portion of our domestic clients' cash is included in the RJBDP, a multi-bank sweep program in which clients' cash deposits in their accounts are swept into interest-bearing deposit accounts at eitherRaymond James Bank orTriState Capital Bank , which are included in our Bank segment, or various third-party banks. Our PCG segment earns servicing fees for the administrative services we provide related to our clients' deposits that are swept to such banks as part of the RJBDP. These servicing fees are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates and the interest paid to clients on balances in the RJBDP. Under our current intersegment policies, the PCG segment receives the greater of a base servicing fee or a net yield equivalent to the average yield that the firm would otherwise receive from third-party banks in the RJBDP. This is a different intersegment policy than that which was in place in prior years, during the last interest rate cycle. The result of this change is that the PCG segment revenues will reflect increased fee revenues as the yield from third-party banks in the program continues to rise and the Bank segment RJBDP servicing costs reflect the market rate. The fees that the PCG segment earns from the Bank segment, as well as the servicing costs incurred on the deposits in the Bank segment, are eliminated in the computation of our consolidated results. The "Average yield on RJBDP - third-party banks" in the preceding table is computed by dividing RJBDP fees from third-party banks, which are net of the interest expense paid to clients by the third-party banks, by the average daily RJBDP balance at third-party banks. The average yield on RJBDP - third-party banks increased from the prior year as a result of the combined 300-basis point increase in the Fed's short-term benchmark interest rate during our fiscal 2022, as compared to the prior year, which reflected a full year of near-zero short-term interest rates. We expect our fiscal 2023 results will benefit from a full-year's impact of the Fed's short-term rate increases enacted toward the end of fiscal 2022, as well as the rate increase inNovember 2022 , with our average yield on RJBDP - third-party banks expected to approximate 2.5% for our fiscal first quarter of 2023. Although client cash balances remained elevated for the majority of fiscal 2022, cash balances declined at the end of the year, resulting in only a 1% increase as ofSeptember 30, 2022 compared withSeptember 30, 2021 . We expect this recent trend to continue into fiscal 2023, as clients continue to move cash from lower-yielding bank deposits to higher-yielding investment products. PCG segment results can be impacted not only by changes in the level of client cash balances, but also by the allocation of client cash balances between RJBDP and our CIP, as the PCG segment may earn different amounts from each of these client cash destinations, depending on multiple factors.
Year ended
Net revenues of
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Asset management and related administrative fees increased$654 million , or 16%, primarily due to higher assets in fee-based accounts at the beginning of most of the current-year quarterly billing periods compared with the prior-year quarterly billing periods and, to a lesser extent, incremental revenues arising from our acquisition of Charles Stanley.
Brokerage revenues decreased
Account and service fees increased$383 million , or 46%, primarily due to an increase in RJBDP fees from both third-party banks and our Bank segment due to the increase in short-term rates during the current year, as well as higher client cash balances in the RJBDP. Client account and other fees also increased, resulting from incremental revenues from our acquisitions ofNWPS Holdings Inc. at the end of our fiscal first quarter of 2021 and Charles Stanley in our fiscal second quarter of 2022, as well as higher account maintenance fees resulting from an increase in the fee per account effective during the current fiscal year. Mutual fund service fees increased due to higher average mutual fund assets. Net interest income increased$94 million , or 83%, due to both the increase in short-term interest rates and higher average balances of interest-earning assets such as assets segregated for regulatory purposes, which benefited from higher average CIP balances during the current year. Although client cash balances remained elevated for the majority of fiscal 2022, cash balances declined at the end of the year. We expect this recent trend to continue into fiscal 2023, as clients continue to move cash to higher-yielding investments. Compensation-related expenses increased$676 million , or 13%, primarily due to higher asset management fee revenues, as well as incremental expenses resulting from our acquisition of Charles Stanley and an increase in compensation costs to support our growth. Non-compensation expenses increased$142 million , or 22%, driven by incremental expenses resulting from our acquisition of Charles Stanley, increases in travel and event-related expenses compared with the low levels incurred in the prior year, higher communications and information processing expenses primarily due to ongoing enhancements of our technology platforms, and increasing real estate rent costs.
Year ended
Refer to "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 Form 10-K for a discussion of our fiscal 2021 results compared to fiscal 2020.
RESULTS OF OPERATIONS - CAPITAL MARKETS
Our
We provide various investment banking services, including merger & acquisition advisory, and other advisory services, underwriting or advisory services on public and private equity and debt financing for corporate clients, and public financing activities. Revenues from investment banking activities are driven principally by our role in the transaction and the number and sizes of the transactions with which we are involved. We earn brokerage revenues for the sale of both equity and fixed income products to institutional clients, as well as from our market-making activities in fixed income debt securities. Client activity is influenced by a combination of general market activity and our Capital Markets group's ability to find attractive investment opportunities for clients. In certain cases, we transact on a principal basis, which involves the purchase of securities from, and the sale of securities to, our clients as well as other dealers who may be purchasing or selling securities for their own account or acting on behalf of their clients. Profits and losses related to this activity are primarily derived from the spreads between bid and ask prices, as well as market trends for the individual securities during the period we hold them. To facilitate such transactions, we carry inventories of financial instruments. In our fixed income businesses, we also enter into interest rate swaps and futures contracts to facilitate client transactions or to actively manage risk exposures.
For an overview of our Capital Markets segment operations, refer to the information presented in "Item 1 - Business" of this Form 10-K.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Operating results Year ended September 30, % change $ in millions 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Revenues: Brokerage revenues: Fixed income$ 448 $ 515 $ 421 (13) % 22 % Equity 142 145 150 (2) % (3) % Total brokerage revenues 590 660 571 (11) % 16 % Investment banking: Merger & acquisition and advisory 709 639 290 11 % 120 % Equity underwriting 210 285 185 (26) % 54 % Debt underwriting 143 172 133 (17) % 29 % Total investment banking 1,062 1,096 608 (3) % 80 % Interest income 36 16 25 125 % (36) % Affordable housing investments business revenues 127 105 83 21 % 27 % All other 21 18 20 17 % (10) % Total revenues 1,836 1,895 1,307 (3) % 45 % Interest expense (27) (10) (16) 170 % (38) % Net revenues 1,809 1,885 1,291 (4) % 46 % Non-interest expenses: Compensation, commissions and benefits 1,065 1,055 774 1 % 36 % Non-compensation expenses: Communications and information processing 89 83 77 7 % 8 % Occupancy and equipment 38 37 36 3 % 3 % Business development 45 34 47 32 % (28) % Professional fees 47 54 48 (13) % 13 % All other 110 90 84 22 % 7 % Total non-compensation expenses 329 298 292 10 % 2 % Total non-interest expenses 1,394 1,353 1,066 3 % 27 % Pre-tax income$ 415 $ 532 $ 225 (22) % 136 %
Year ended
Net revenues of
Investment banking revenues decreased$34 million , or 3%, due to a significant decline in both equity and debt underwriting activity, resulting from the impact of market uncertainty during the current year. Merger & acquisition and advisory revenues increased, reflecting high levels of client activity, as well as a full year of revenues related to our fiscal 2021 acquisitions ofFinanco and Cebile. Our investment banking pipeline remains strong, reflecting the investments we have made over the past several years, however, continued market uncertainty could delay, or ultimately prevent, the closing of transactions, which could negatively impact our results in fiscal 2023. Brokerage revenues decreased$70 million , or 11%, due to a significant decrease in fixed income brokerage revenues, which remained solid but were lower than the prior year as a result of a challenging and uncertain interest rate environment compared with the prior year, partially offset by incremental revenues fromSumRidge Partners , which was acquired onJuly 1, 2022 . We expect fixed income brokerage revenues to continue to be negatively impacted by market uncertainty and a decline in cash balances at our depository institution clients during fiscal 2023; however, we expect some amount of offsetting benefit to our results from a full year of revenues fromSumRidge Partners . Affordable housing investment business revenues increased$22 million , or 21%, primarily reflecting continued strong business activity levels as well as gains on the sales of certain properties during the current year. Compensation-related expenses increased$10 million , or 1%, due to higher share-based compensation amortization and salaries, primarily due to our acquisition ofSumRidge Partners and a full year of our prior year acquisitions ofFinanco and Cebile, inflationary and market compensation pressures, and to support our growth, partially offset by a decrease resulting from lower compensable revenues. 52
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Non-compensation expenses increased$31 million , or 10%, primarily due to increased travel and event-related expenses, as well as an increase in expenses associated with our acquisition ofSumRidge Partners and to support our growth, partially offset by lower investment banking deal expenses due to lower underwriting revenues compared with the prior year.
Year ended
Refer to "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 Form 10-K for a discussion of our fiscal 2021 results compared to fiscal 2020.
RESULTS OF OPERATIONS - ASSET MANAGEMENT
Our Asset Management segment earns asset management and related administrative fees for providing asset management, portfolio management and related administrative services to retail and institutional clients. This segment oversees the portion of our fee-based AUA invested in "managed programs" for our PCG clients through AMS and throughRJ Trust . This segment also provides asset management services throughRaymond James Investment Management for certain retail accounts managed on behalf of third-party institutions, institutional accounts, and proprietary mutual funds that we manage, generally utilizing active portfolio management strategies. Asset management fees are based on fee-billable assets under management, which are impacted by market fluctuations and net inflows or outflows of assets. Rising equity markets have historically had a positive impact on revenues as existing accounts increase in value. Conversely, declining markets typically have a negative impact on revenue levels. Our Asset Management segment also earns administrative fees on certain fee-based assets within PCG that are not overseen by our Asset Management segment, but for which the segment provides administrative support (e.g., record-keeping). These administrative fees are based on asset balances, which are impacted by market fluctuations and net inflows or outflows of assets. For an overview of our Asset Management segment operations, refer to the information presented in "Item 1 - Business" of this Form 10-K. Operating results Year ended September 30, % change 2021 vs. $ in millions 2022 2021 2020 2022 vs. 2021 2020 Revenues: Asset management and related administrative fees: Managed programs$ 585 $ 570 $ 481 3 % 19 % Administration and other 297 267 207 11 % 29 % Total asset management and related administrative fees 882 837 688 5 % 22 % Account and service fees 22 18 16 22 % 13 % All other 10 12 11 (17) % 9 % Net revenues 914 867 715 5 % 21 % Non-interest expenses: Compensation, commissions and benefits 194 182 177 7 % 3 % Non-compensation expenses: Communications and information processing 53 47 45 13 % 4 % Investment sub-advisory fees 149 127 99 17 % 28 % All other 132 122 110 8 % 11 % Total non-compensation expenses 334 296 254 13 % 17 % Total non-interest expenses 528 478 431 10 % 11 % Pre-tax income$ 386 $ 389 $ 284 (1) % 37 % 53
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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 AUM. These AUM include the portion of fee-based AUA in our PCG segment that is invested in programs overseen by our Asset Management segment (included in the "AMS" line of the following table), as well as retail accounts managed on behalf of third-party institutions, institutional accounts and proprietary mutual funds that we manage (collectively included in the "Raymond James Investment Management " line of the following table). Revenues related to fee-based AUA in our PCG segment are shared by the PCG and Asset Management segments, the amount of which depends on whether or not clients are invested in assets that are in managed programs overseen by our Asset Management segment and the administrative services provided (see our "Management's Discussion and Analysis - Results of Operations -Private Client Group " for more information). Our AUM in AMS are impacted by market fluctuations and net inflows or outflows of assets, including transfers between fee-based accounts and transaction-based accounts within our PCG segment. Revenues earned byRaymond James Investment Management 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 inRaymond James Investment Management are impacted by market and investment performance and net inflows or outflows of assets, including the impact of acquisitions. 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 (primarily in AMS), approximately 15% are based on balances as of the end of the quarter, and approximately 20% are based on average daily balances throughout the quarter.
Financial assets under management
As of September 30,
$ in billions 2022 2021 2020
AMS (1) $ 119.8 $ 134.4 $ 102.2
Raymond James Investment Management 64.2 67.8 59.5
Subtotal financial assets under management 184.0 202.2
161.7
Less: Assets managed for affiliated entities (10.2) (10.3)
(8.6)
Total financial assets under management$ 173.8 $ 191.9
(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 -
Activity (including activity in assets managed for affiliated entities)
Year ended September 30,
$ in billions 2022 2021 2020
Financial assets under management at beginning of year $ 202.2 $ 161.7 $ 150.3
Raymond James Investment Management :
Acquisition of Chartwell Investment Partners (1) 9.8 - -
Other - net outflows (1.5) (0.5) (5.4)
AMS - net inflows 9.7 13.5 6.1
Net market appreciation/(depreciation) in asset values (36.2) 27.5 10.7
Financial assets under management at end of year $ 184.0 $ 202.2 $ 161.7 (1)Represents
AMS
See "Management's Discussion and Analysis - Results of Operations -
54
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Assets managed byRaymond James Investment Management include assets managed by our subsidiaries:Eagle Asset Management , Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management, Cougar Global Investments, andChartwell Investment Partners ("Chartwell"), which was acquired onJune 1, 2022 in connection with our acquisition ofTriState Capital . The following table presentsRaymond James Investment Management's AUM by objective, excluding assets for which it does not exercise discretion, as well as the approximate average client fee rate earned on such assets. As of September 30, 2022 $ in billions AUM Average fee rate Equity $ 23.1 0.56 % Fixed income 33.5 0.20 % Balanced 7.6 0.33 % Total financial assets under management $ 64.2 0.35 %
Non-discretionary asset-based programs
The following table includes assets held in certain non-discretionary asset-based programs for which the Asset Management segment does not exercise discretion but provides administrative support (including for affiliated entities). The vast majority of these assets are also included in our PCG segment fee-based AUA (as disclosed in "Assets in fee-based accounts" in the "Selected key metrics - PCG client asset balances" section of our "Management's Discussion and Analysis - Results of Operations -Private Client Group "). Year ended September 30, $ in billions 2022 2021 2020 Total assets$ 329.2 $ 365.3 $ 280.6 The decrease in assets compared to the prior year was largely due to a decline in market values during the year. Administrative fees associated with these programs are predominantly based on balances at the beginning of each quarterly billing period. RJ Trust
The following table includes assets held in asset-based programs in
Year ended September 30,
$ in billions 2022 2021 2020
Total assets $ 7.3 $ 8.1 $ 7.1 Year ended
Net revenues of
Asset management and related administrative fees increased$45 million , or 5%, driven by higher financial assets under management and higher assets in non-discretionary asset-based programs at the beginning of most of our current-year quarterly billing periods compared with the prior-year quarterly billing periods. We expect the declines in financial assets under management and assets in non-discretionary asset-based programs during our fiscal fourth quarter of 2022, which occurred due to the decline in market values, to negatively affect our fiscal first quarter of 2023 revenues, as the majority of our asset management and related administrative fees are billed based on balances as of the beginning of the quarter. Compensation expenses increased$12 million , or 7%, due to an increase in salaries due to labor market pressures and to support our growth, as well as incremental compensation expenses related to Chartwell. Non-compensation expenses increased$38 million , or 13%, largely due to higher investment sub-advisory fees, resulting from higher assets under management in sub-advised programs for most of the current fiscal year, as well as incremental expenses due to the acquisition of Chartwell.
Year ended
Refer to "Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations" of our 2021 Form 10-K for a discussion of our fiscal
2021 results compared to fiscal 2020.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
RESULTS OF OPERATIONS - BANK
The Bank segment provides various types of loans, including SBL, corporate loans, residential mortgage loans, and tax-exempt loans. Our Bank segment is active in corporate loan syndications and participations and lending directly to clients. We also provideFDIC -insured deposit accounts, including to clients of our broker-dealer subsidiaries, as well as other deposit and liquidity management products and services. Our Bank segment generates net interest income principally through the interest income earned on loans and an investment portfolio of available-for-sale securities, which is offset by the interest expense it pays on client deposits and on its borrowings. Our Bank segment's net interest income is affected by the levels of interest rates, interest-earning assets and interest-bearing liabilities. Higher interest-earning asset balances and higher interest rates generally lead to increased net interest income, depending upon spreads realized on interest-bearing liabilities. For more information on average interest-earning asset and interest-bearing liability balances and the related interest income and expense, see the following discussion in this MD&A. For an overview of our Bank segment operations, refer to the information presented in "Item 1 - Business" of this Form 10-K. Our Bank segment results include the results ofTriState Capital Bank since the acquisition date ofJune 1, 2022 . See Note 3 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding this acquisition. Operating results Year ended September 30, % change $ in millions 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Revenues: Interest income$ 1,209 $ 684 $ 800 77 % (15) % Interest expense (156) (42) (62) 271 % (32) % Net interest income 1,053 642 738 64 % (13) % All other 31 30 27 3 % 11 % Net revenues 1,084 672 765 61 % (12) % Non-interest expenses: Compensation and benefits 84 51 51 65 % - % Non-compensation expenses: Bank loan provision/(benefit) for credit losses 100 (32) 233 NM NM RJBDP fees to PCG 357 183 180 95 % 2 % All other 161 103 105 56 % (2) % Total non-compensation expenses 618 254 518 143 % (51) % Total non-interest expenses 702 305 569 130 % (46) % Pre-tax income$ 382 $ 367 $ 196 4 % 87 %
Year ended
Net revenues of
Net interest income increased$411 million , or 64%, due to the increase in short-term interest rates, higher average interest-earning assets, as well as incremental net interest income from the acquisition ofTriState Capital Bank onJune 1, 2022 . The increase in average interest-earning assets was primarily driven by significant growth in SBL and residential mortgage loans, as well as higher average corporate loans and available-for-sale securities. The Bank segment net interest margin increased to 2.39% from 1.95% for the prior year. As part of our acquisition ofTriState Capital , we recorded fair value adjustments of$145 million related to loans and$118 million related to available-for-sale securities, which will generally accrete into net interest income over 4 years and 7 years, respectively, exclusive of the impact of prepayments. We anticipate the Bank segment's net interest income in our fiscal 2023 will benefit from a full year's impact ofTriState Capital Bank's results and the Fed's short-term interest rate increases enacted toward the end of fiscal 2022 and inNovember 2022 , and expect the Bank segment net interest margin to approximate 3.15% for the fiscal first quarter of 2023. In addition, given that a significant portion of our interest-earning assets are sensitive to changes in short-term interest rates, we expect our net interest income to also be favorably impacted by any additional increases in short-term interest rates that may occur. The bank loan provision for credit losses was$100 million for the current year, compared with a benefit for credit losses of$32 million for the prior year. The current-year provision included the impacts of loan growth atRaymond James Bank and a weaker macroeconomic outlook, as well as an initial provision for credit losses of$26 million recorded on loans acquired as part of theTriState Capital acquisition. The prior year benefit largely reflected improved economic forecasts used in our 56
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis current expected credit losses ("CECL") model at that time, as well as improved credit ratings within our corporate loan portfolio, partially offset by the impact of loan growth. We expect to continue to grow our bank loan portfolio. Net loan growth should result in additional provisions for credit losses and future economic deterioration could result in elevated bank loan provisions for credit losses in future periods.
Compensation expenses increased
Non-compensation expenses, excluding the bank loan provision/(benefit) for credit losses, increased$232 million , or 81%, primarily due to an increase in RJBDP and other fees paid to PCG, incremental expenses associated withTriState Capital Bank (including a$5 million initial provision for credit losses onTriState Capital Bank's unfunded lending commitments and amortization of intangible assets), and a provision for credit losses on unfunded lending commitments unrelated to the acquisition compared with a benefit for the prior year. RJBDP fees to PCG increased$174 million , or 95%, due to an increase in short-term interest rates as well as an increase in client cash swept toRaymond James Bank as part of the RJBDP. As described in "Management's Discussion and Analysis - Results of Operations -Private Client Group ", our Bank segment pays servicing fees to our PCG segment for the administrative services provided related to our clients' deposits that are swept to our Bank segment as part of the RJBDP. These servicing fees are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates and the interest paid to clients on balances in the RJBDP. As the yield from third-party banks in the program continues to rise, the RJBDP servicing costs paid by our Bank segment to our PCG segment will also increase to reflect the market rate. These fees to PCG are eliminated in the computation of our consolidated results.
Year ended
Refer to "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 Form 10-K for a discussion of our fiscal 2021 results compared to fiscal 2020.
RESULTS OF OPERATIONS - OTHER
This segment includes our private equity investments, which predominantly
consist of investments in third-party funds, interest income on certain
corporate cash balances, certain acquisition-related expenses, primarily
comprised of professional fees, and certain corporate overhead costs of RJF that
are not allocated to other segments, including the interest costs on our public
debt and any losses on extinguishment of such debt. The Other segment also
includes the reduction in workforce expenses that occurred in fiscal 2020 in
response to the economic environment at that time. For an overview of our Other
segment operations, refer to the information presented in "Item 1 - Business" of
this Form 10-K.
Operating results
Year ended September 30, % change
$ in millions 2022 2021 2020 2022 vs. 2021 2021 vs. 2020
Revenues:
Interest income $ 25 $ 8 $ 30 213 % (73) %
Gains/(losses) on private equity investments 9 74 (28) (88) % NM
All other 9 6 4 50 % 50 %
Total revenues 43 88 6 (51) % 1,367 %
Interest expense (93) (96) (88) (3) % 9 %
Net revenues (50) (8) (82) (525) % 90 %
Non-interest expenses:
Compensation and all other 141 140 64 1 % 119 %
Losses on extinguishment of debt - 98 - (100) % NM
Reduction in workforce expenses - - 46 - % (100) %
Total non-interest expenses 141 238 110 (41) % 116 %
Pre-tax loss $ (191) $ (246) $ (192) 22 % (28) %
Year ended
The pre-tax loss of
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Net revenues decreased$42 million , primarily due to lower private equity gains compared with the prior year. Private equity gains in fiscal 2022 totaled$9 million , of which an insignificant amount was attributable to noncontrolling interests. The prior year included$74 million of private equity valuation gains, of which$25 million were attributable to noncontrolling interests and were offset within other expenses. Offsetting the negative impact of the lower private equity gains, interest income increased compared with the prior year, largely due to the increase in short-term interest rates, and interest expense decreased due to lower interest expense on senior notes payable compared with the prior year, as a result of refinancing such notes at a lower interest rate. Non-interest expenses decreased$97 million , or 41%, primarily due to losses on extinguishment of debt in the prior year related to the early-redemption our$250 million of 5.625% senior notes due 2024 and our$500 million of 3.625% senior notes due 2026, as well as the aforementioned decrease in amounts attributable to noncontrolling interests. These decreases were partially offset by an increase in professional fees associated with acquisition activities, primarily associated with our current-year acquisitions of Charles Stanley,TriState Capital , andSumRidge Partners , as well as higher executive compensation expenses due to the increase in earnings.
Year ended
Refer to "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 Form 10-K for a discussion of our fiscal 2021 results compared to fiscal 2020.
STATEMENT OF FINANCIAL CONDITION ANALYSIS
The assets on our Consolidated Statements of Financial Condition consisted primarily of cash and cash equivalents, assets segregated for regulatory purposes and restricted cash (primarily segregated for the benefit of clients), receivables including bank loans, financial instruments held either for trading purposes or as investments, goodwill and identifiable intangible assets, and other assets. A significant portion of our assets were liquid in nature, providing us with flexibility in financing our business. Total assets of$80.95 billion as ofSeptember 30, 2022 were$19.06 billion , or 31%, greater than our total assets as ofSeptember 30, 2021 . Our acquisition ofTriState Capital during fiscal year 2022 brought significant amounts of assets and liabilities onto our balance sheet, including, as ofSeptember 30, 2022 ,$12.13 billion of bank loans, net,$1.55 billion of available-for-sale securities, and$721 million in goodwill and identifiable intangible assets, net. Bank loans, net also increased due to$6.12 billion in loan growth unrelated to the acquisition ofTriState Capital , consisting of increases in corporate, residential, and securities-based loans. The acquisition of Charles Stanley during fiscal year 2022 contributed, as ofSeptember 30, 2022 ,$2.14 billion in assets segregated for regulatory purposes, as well as$201 million in goodwill and identifiable intangible assets, net. Our acquisition ofSumRidge Partners contributed, as ofSeptember 30, 2022 ,$715 million in trading assets,$277 million in other receivables, net, and$152 million in goodwill and identifiable intangible assets, net. Deferred tax assets, net increased$325 million as a result of the decline in fair value of our available-for-sale securities portfolio primarily due to market conditions. Offsetting these increases were decreases in assets segregated for regulatory purposes and restricted cash, primarily due to a shift in client cash balances from our CIP, which is held at RJ&A and impacts our segregated assets, to our Bank segment through the RJBDP. Cash and cash equivalents decreased$1.02 billion primarily due to acquisition, dividend, and share repurchase activities. See Note 3 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information on our acquisitions. As ofSeptember 30, 2022 , our total liabilities of$71.52 billion were$17.93 billion , or 33%, greater than our total liabilities as ofSeptember 30, 2021 . The increase in total liabilities was primarily due to an increase in bank deposits of$18.86 billion , which includes$13.17 billion as a result of our acquisition ofTriState Capital , as well as an increase in bank deposits unrelated to the acquisition of$5.69 billion , largely due to growth in RJBDP cash balances swept toRaymond James Bank . Trading liabilities increased$660 million , primarily due to our acquisition ofSumRidge Partners . Other borrowings increased$433 million , primarily reflecting the additional FHLB borrowings and subordinated note ofTriState Capital . Offsetting these increases was a decrease in brokerage client payables related to the aforementioned shift in client cash balances from our CIP (included in brokerage client payables) to our Bank segment through the RJBDP (included in bank deposits), partially offset by an increase in brokerage client payables of$2.30 billion as a result of our acquisition of Charles Stanley. 58
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital are essential to our business. The primary goal of our liquidity management activities is to ensure adequate funding to conduct our business over a range of economic and market environments. We seek to manage capital levels to support execution of our business strategy, provide financial strength to our subsidiaries, and maintain sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and conservative internal management targets. Liquidity and capital resources are provided primarily through our business operations and financing activities. Financing activities could include bank borrowings, collateralized financing arrangements or additional capital raising activities under our "universal" shelf registration statement. We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and available from committed and uncommitted financing facilities, provide adequate funds for continuing operations at current levels of activity in the short-term. We also believe that we will be able to continue to meet our long-term cash requirements due to our strong financial position and ability to access capital from financial markets.
Liquidity and capital management
Senior management establishes our liquidity and capital management frameworks. Our liquidity and capital management frameworks are overseen by theRJF Asset and Liability Committee , a senior management committee that develops and executes strategies and policies to manage our liquidity risk and interest rate risk, as well as provides oversight over the firm's investments. The liquidity management framework includes senior management's review of short- and long-term cash flow forecasts, review of capital expenditures, monitoring of the availability of alternative sources of financing, and daily monitoring of liquidity in our significant subsidiaries. Our decisions on the allocation of resources to our business units consider, among other factors, projected profitability, cash flow, risk, and future liquidity needs. Our treasury department assists in evaluating, monitoring and controlling the impact that our business activities have on our financial condition and liquidity, and also maintains our relationships with various lenders. The objective of our liquidity management framework is to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity. Our capital planning and capital risk management processes are governed by the Capital Planning Committee ("CPC"), a senior management committee that provides oversight on our capital planning and ensures that our strategic planning and risk management processes are integrated into the capital planning process. The CPC meets at least quarterly to review key metrics related to the firm's capital, such as debt structure and capital ratios; to analyze potential and emerging risks to capital; to oversee our annual firmwide capital stress test; and to propose capital actions to the Board of Directors, such as declaring dividends, repurchasing securities, and raising capital. To ensure that we have sufficient capital to absorb unanticipated losses, the firm adheres to capital risk appetite statements and tolerances set in excess of regulatory minimums, which are established by the CPC and approved by the Board of Directors. We conduct enterprise-wide capital stress testing to ensure that we maintain adequate capital to adhere to our established tolerances under multiple scenarios, including a stressed scenario.
Capital structure
Common equity (i.e., common stock, additional paid-in capital, and retained
earnings) is the primary component of our capital structure. Common equity
allows for the absorption of losses on an ongoing basis and for the conservation
of resources during stress periods, as it provides RJF with discretion on the
amount and timing of dividends and other capital actions. Information about our
common equity is included in the Consolidated Statements of Financial Condition,
the Consolidated Statements of Changes in Shareholders' Equity, and Note 20 of
this Form 10-K.
Under regulatory capital rules applicable to us as a bank holding company, we
are required to maintain minimum leverage ratios (defined as tier 1 capital
divided by adjusted average assets), as well as minimum ratios of tier 1
capital, common equity tier 1 ("CET1"), and total capital to risk-weighted
assets. These capital ratios incorporate quantitative measures of our assets,
liabilities, and certain off-balance sheet items as calculated under the
regulatory capital rules and are subject to qualitative judgments by the
regulators about components, risk-weightings, and other factors. We calculate
these ratios in order to assess compliance with both regulatory requirements and
internal capital policies. In order to maintain our ability to take certain
capital actions, including dividends and common equity repurchases, and to make
bonus payments, we must hold a capital conservation buffer above our minimum
risk-based capital requirements. See Note 24 for further information about our
regulatory capital and related capital ratios.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
The following table presents the components of RJF's regulatory capital used to calculate the aforementioned regulatory capital ratios. $ in millions
September 30, 2022
Common equity tier 1 capital/Tier 1 capital
Common stock and related additional paid-in capital $ 2,989
Retained earnings 8,843
Treasury stock (1,512)
Accumulated other comprehensive loss (982)
Less:
(1,805)
liabilities
Other adjustments 847
Common equity tier 1 capital 8,380
Additional tier 1 capital (preferred equity of
100
items)
Tier 1 capital 8,480
Tier 2 capital
Tier 2 capital instruments plus related surplus 100
Qualifying allowances for credit losses 451
Tier 2 capital 551
Total capital $ 9,031
The following table presents RJF's risk-weighted assets by exposure type used to
calculate the aforementioned regulatory capital ratios.
$ in millions September 30, 2022
On-balance sheet assets:
Corporate exposures $ 20,147
Exposures to sovereign and government-sponsored entities (1) 2,002
Exposures to depository institutions, foreign banks, and credit unions
3,003
Exposures to public-sector entities 696
Residential mortgage exposures 3,732
Statutory multifamily mortgage exposures 71
High volatility commercial real estate exposures 128
Past due loans 110
Equity exposures 445
Securitization exposures 129
Other assets 7,325
Off-balance sheet:
Standby letters of credit 62
Commitments with original maturity of 1 year or less 98
Commitments with original maturity greater than 1 year 2,437
Over-the-counter derivatives 305
Other off-balance sheet items 423
Market risk-weighted assets 3,063
Total standardized risk-weighted assets $ 44,176
(1)RJF's exposure is predominantly to the
Cash flows
Cash and cash equivalents (excluding amounts segregated for regulatory purposes and restricted cash) decreased$1.02 billion to$6.18 billion during the year endedSeptember 30, 2022 , primarily due to investments in bank loans and available-for-sale securities. In addition, we completed our acquisitions of Charles Stanley,TriState Capital , andSumRidge Partners for total cash consideration of$1.17 billion (including a$125 million note issued toTriState Capital prior to the acquisition) during the year endedSeptember 30, 2022 . Offsetting these cash outflows were the impacts of an increase in bank deposits, cash received from the sale ofU.S. Treasury securities ("U.S. Treasuries") previously segregated for regulatory purposes, as well as positive net income during the period. 60
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Sources of liquidity
Approximately$1.91 billion of our totalSeptember 30, 2022 cash and cash equivalents included cash held at RJF, the parent company, which included cash loaned to RJ&A. These amounts include the impact of significant dividends from RJ&A during the year endedSeptember 30, 2022 , as well as dividends from other RJF subsidiaries. As ofSeptember 30, 2022 , RJF had loaned$1.30 billion to RJ&A (such amount is included in the RJ&A cash balance in the following table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business activities. The following table presents our holdings of cash and cash equivalents. $ in millions September 30, 2022 RJF $ 629 RJ&A 2,151 Raymond James Bank 1,205 RJ Ltd. 714 TriState Capital Bank 532 Raymond James Capital Services, LLC 243 RJFS 151 Charles Stanley Group Limited 104 Raymond James Investment Management 87 Other subsidiaries 362 Total cash and cash equivalents $ 6,178 RJF maintained depository accounts atRaymond James Bank with a balance of$260 million as ofSeptember 30, 2022 . The portion of this total that was available on demand without restrictions, which amounted to$230 million as ofSeptember 30, 2022 , is reflected in the RJF cash balance and excluded fromRaymond James Bank's cash balance in the preceding table.
A large portion of the cash and cash equivalents balances at our non-
In addition to the cash balances described, we have various other potential sources of cash available to the parent company from subsidiaries, as described in the following section.
Liquidity available from subsidiaries
Liquidity is principally available to RJF from
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 ofFINRA , RJ&A is subject toFINRA'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 balances. In addition, covenants in RJ&A's committed financing facilities require its net capital to be a minimum of 10% of aggregate debit items. AtSeptember 30, 2022 , RJ&A significantly exceeded the minimum regulatory requirements, the covenants in its financing arrangements pertaining to net capital, as well as its internally-targeted net capital tolerances, despite significant dividends to RJF during the year endedSeptember 30, 2022 .FINRA may impose certain restrictions, such as restricting withdrawals of equity capital, if a member firm were to fall below a certain threshold or fail to meet minimum net capital requirements which may result in RJ&A limiting 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.Raymond James Bank may pay dividends to RJF without prior approval of its regulator as long as the dividends do not exceed the sum of its current calendar year and the previous two calendar years' retained net income, and it maintains its targeted regulatory capital ratios. Dividends may be limited to the extent that capital is needed to support balance sheet growth.
Although we have liquidity available to us from our other subsidiaries, the available amounts may not be as significant as those previously described and, in certain instances, may be subject to regulatory requirements.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Borrowings and financing arrangements
Committed financing arrangements
Our ability to borrow is dependent upon compliance with the conditions in our various loan agreements and, in the case of secured borrowings, collateral eligibility requirements. Our committed financing arrangements primarily consist of a tri-party repurchase agreement (i.e., securities sold under agreements to repurchase) and, in the case of our$500 million revolving credit facility agreement (the "Credit Facility"), an unsecured line of credit. The required market value of the collateral associated with the tri-party repurchase agreement ranges from 105% to 125% of the amount financed.
The following table presents our most significant committed financing arrangements with third-party lenders, which we generally utilize to finance a portion of our fixed income trading instruments held by RJ&A, and the outstanding balances related thereto.
September 30, 2022
Total number of
$ in millions RJ&A RJF Total 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 $ - $ - $ -
Our committed unsecured financing arrangement in the preceding table represents
our Credit Facility, which provides for maximum borrowings of up to $500
million , with a sublimit of $300 million for RJF. RJ&A may borrow up to $500
million under the Credit Facility, depending on the amount of outstanding
borrowings by RJF. The variable rate facility fee on our Credit Facility, which
is applied to the committed amount, decreased to 0.150% per annum as of
September 30, 2022 from 0.175% per annum as of September 30, 2021 , as a result
of Moody's Investor Services ("Moody's") upgrade of our credit ratings in
February 2022 . For additional details on our issuer and senior long-term debt
ratings see our credit ratings table within this section below. For additional
details on our committed unsecured financing arrangement, see our discussion of
the Credit Facility in Note 16 of the Notes to Consolidated Financial Statements
of this Form 10-K.
Uncommitted financing arrangements
Our uncommitted financing arrangements are in the form of secured lines of credit, secured bilateral or tri-party repurchase agreements, or unsecured lines of credit. Our arrangements with third-party lenders are generally utilized to finance a portion of our fixed income securities held by RJ&A or for cash management purposes. Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed and are generally collateralized by RJ&A-owned securities or by securities that we have received as collateral under reverse repurchase agreements (i.e., securities purchased under agreements to resell). As ofSeptember 30, 2022 , we had outstanding borrowings under four uncommitted secured borrowing arrangements out of a total of 12 uncommitted financing arrangements (eight uncommitted secured and four uncommitted unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities. The following table presents our borrowings on uncommitted financing arrangements, which were in the form of repurchase agreements in RJ&A and were included in "Collateralized financings" on our Consolidated Statements of Financial Condition. $ in millions September 30, 2022 Outstanding borrowing amount: Uncommitted secured $ 294 Uncommitted unsecured - Total outstanding borrowing amount $ 294 62
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
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
Maximum Maximum
month-end month-end
balance balance
Average daily outstanding End of period Average daily outstanding End of period
For the quarter ended: balance during the balance balance during the balance
($ in millions) outstanding quarter outstanding outstanding quarter outstanding
September 30, 2022 $ 196 $ 294 $ 294 $ 249 $ 367 $ 367
June 30, 2022 $ 203 $ 276 $ 100 $ 238 $ 300 $ 168
March 31, 2022 $ 271 $ 334 $ 140 $ 211 $ 304 $ 221
December 31, 2021 $ 247 $ 258 $ 203 $ 306 $ 305 $ 204
September 30, 2021 $ 220 $ 234 $ 205 $ 269 $ 286 $ 279
Other borrowings and collateralized financings
We had$1.19 billion in FHLB borrowings outstanding atSeptember 30, 2022 , comprised of floating-rate and fixed-rate advances. We use interest rate swaps to manage the risk of increases in interest rates associated with the majority of these advances. See Note 16 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding these borrowings. AtSeptember 30, 2022 , we had pledged$6.58 billion of residential mortgage loans and$1.43 billion of CRE loans with the FHLB as security for the repayment of these borrowings and had an additional$5.22 billion in immediate credit available based on collateral pledged. As ofSeptember 30, 2022 , with a pledge of additional collateral, we would have additional credit available from certain FHLB member banks. A portion of our fixed income transactions are cleared and executed through a third-party clearing organization, which provides financing for the purchase of trading instruments to support such transactions. The amount of financing is based on the amount of trading inventory financed, as well as any deposits held at the clearing organization. Amounts outstanding under this financing arrangement, which are collateralized by a portion of our trading inventory and accrue interest based on market rates, are included in "Other payables" in our Consolidated Statements of Financial Condition. While we had borrowings outstanding as ofSeptember 30, 2022 , the clearing organization is under no contractual obligation to lend to us under this arrangement. We are eligible to participate in theFederal Reserve's discount window program; however, we do not view borrowings from theFederal 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 theFederal Reserve , and is secured by certain pledged C&I loans. As part of the acquisition ofTriState Capital , we assumed, as of the closing date,TriState Capital's subordinated notes due 2030, with an aggregate principal amount of$98 million . The subordinated notes incur interest at a fixed rate of 5.75% untilMay 2025 and thereafter at a variable interest rate based on LIBOR, or an appropriate alternative reference rate at the time that LIBOR ceases to be published. We may redeem these subordinated notes beginning inAugust 2025 at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest thereon to the redemption date. See Note 16 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding these borrowings. We may act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from one broker-dealer and then lend them to another. Where permitted, we have also loaned, to broker-dealers and other financial institutions, securities owned by clients or the firm. We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balance of$172 million as ofSeptember 30, 2022 related to the securities loaned included in "Collateralized financings" on our Consolidated Statements of Financial Condition of this Form 10-K. See Notes 2 and 7 of the Notes to Consolidated Financial Statements of this Form 10-K for more information on our collateralized agreements and financings.
Senior notes payable
AtSeptember 30, 2022 , we had aggregate outstanding senior notes payable of$2.04 billion , which, exclusive of any unaccreted premiums or discounts and debt issuance costs, was comprised of$500 million par 4.65% senior notes due 2030,$800 million par 4.95% senior notes due 2046, and$750 million par 3.75% senior notes due 2051. AtSeptember 30, 2022 , estimated future contractual interest payments on our senior notes were approximately$2 billion , of which$91 million is payable in fiscal 2023, 63
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
with the remainder extending through 2051.
Credit ratings
Our issuer, senior long-term debt, and preferred stock credit ratings as of the most current report are detailed in the following table.
Credit Rating
Standard & Poor's
Rating Agency Fitch Ratings, Inc. Moody's Ratings Services
Issuer and senior long term debt A- A3 BBB+
Preferred Stock BB+ Baa3 (hyb) Not rated
Outlook Stable Stable Positive
Our current credit 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. Deterioration 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. 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 investors' 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 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. Of the company-owned life insurance policies which fund these plans, certain policies could be used as a source of liquidity for the firm. Those policies against which we could readily borrow had a cash surrender value of$733 million as ofSeptember 30, 2022 , comprised of$467 million related to employee-directed plans and$266 million related to company-directed plans, and we were able to borrow up to 90%, or$660 million , of theSeptember 30, 2022 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 ofSeptember 30, 2022 . OnMay 12, 2021 , we filed a "universal" shelf registration statement with theSEC 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 throughMay 12, 2024 . As part of our ongoing operations, we also enter into contractual arrangements that may require future cash payments, including certificates of deposit, lease obligations and other contractual arrangements, such as for software and various services. See Notes 14 and 15 of the Notes to the Consolidated Financial Statements of this Form 10-K for information regarding our lease obligations and certificates of deposit, respectively. We have entered into investment commitments, lending commitments and other commitments to extend credit for which we are unable to reasonably predict the timing of future payments. See Note 19 of the Notes to Consolidated Financial Statements of this Form 10-K for further information. 64
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
REGULATORY
Refer to the discussion of the regulatory environment in which we operate and the impact on our operations of certain rules and regulations in "Item 1 - Business - Regulation" of this Form 10-K.
RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As ofSeptember 30, 2022 , all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. In addition, RJF,Raymond James Bank , andTriState Capital Bank were categorized as "well-capitalized" as ofSeptember 30, 2022 . 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 24 of the Notes to Consolidated Financial Statements of this Form 10-K for further information on regulatory capital requirements.
CRITICAL ACCOUNTING ESTIMATES
The consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during any reporting period in our consolidated financial statements. Management has established detailed policies and control procedures intended to ensure the appropriateness of such estimates and assumptions and their consistent application from period to period. For a description of our significant accounting policies, see Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K.
Due to their nature, estimates involve judgment based upon available information. Actual results or amounts could differ from estimates and the difference could have a material impact on the consolidated financial statements. Therefore, understanding these critical accounting estimates is important in understanding our reported results of operations and financial position. We believe that of our accounting estimates and assumptions, those described in the following sections involve a high degree of judgment and complexity.
Loss provisions
Loss provisions for legal and regulatory matters
The recorded amount of liabilities related to legal and regulatory matters is subject to significant management judgment. For a description of the significant estimates and judgments associated with establishing such accruals, see the "Contingent liabilities" section of Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K. In addition, refer to Note 19 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding legal and regulatory matter contingencies as ofSeptember 30, 2022 .
Allowance for credit losses
We evaluate certain of our financial assets, including bank loans, to estimate an allowance for credit losses 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 use 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 our financial assets, the related credit risk characteristics, and the overall economic and environmental conditions affecting the financial assets. Our process for determining the allowance for credit losses includes a complex analysis of several quantitative and qualitative factors requiring significant management judgment due to matters that are inherently uncertain. This uncertainty can produce volatility in our allowance for credit losses. In addition, the allowance for credit losses could be insufficient to cover actual losses. In such an event, any losses in excess of our allowance would result in a decrease in our net income, as well as a decrease in the level of regulatory capital. We generally estimate the allowance for credit losses on bank loans using credit risk models which incorporate relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable economic forecasts. After testing the reasonableness of a variety of economic forecast scenarios, each model is run using a single forecast scenario selected for each model. Our forecasts incorporate assumptions related to macroeconomic indicators including, but not limited to,U.S. gross domestic product, equity market indices, unemployment rates, and commercial real estate and residential home price indices. 65
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis To demonstrate the sensitivity of credit loss estimates on our bank loan portfolio to macroeconomic forecasts, we compared our modeled estimates under the base case economic scenario used to estimate the allowance for credit losses as ofSeptember 30, 2022 , to what our estimate would have been under a downside case scenario and an upside scenario, without considering any offsetting effects in the qualitative component of our allowance for credit losses as ofSeptember 30, 2022 . As ofSeptember 30, 2022 , use of the downside case scenario would have resulted in an increase of approximately$135 million in the quantitative portion of our allowance for credit losses on bank loans, while the use of the upside case would have resulted in a reduction of approximately$25 million in the quantitative portion of our allowance for credit losses on bank loans atSeptember 30, 2022 . These hypothetical outcomes reflect the relative sensitivity of the modeled portion of our allowance estimate to macroeconomic forecasted scenarios but do not consider any potential impact qualitative adjustments could have on the allowance for credit losses in such environments. Qualitative adjustments could either increase or decrease modeled loss estimates calculated using an alternative economic scenario assumption. Further, such sensitivity calculations do not necessarily reflect the nature and extent of future changes in the related allowance for a number of reasons including: (1) management's predictions of future economic trends and relationships among the scenarios may differ from actual events; and (2) management's application of subjective measures to modeled results through the qualitative portion of the allowance for credit losses when appropriate. The downside case scenario utilized in this hypothetical sensitivity analysis assumes a moderate recession. To the extent macroeconomic conditions worsen beyond those assumed in this downside case scenario, we could incur provisions for credit losses significantly in excess of those estimated in this analysis. See Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding our allowance for credit losses related to bank loans as ofSeptember 30, 2022 . Business combinations We generally account for our acquisitions as business combinations under GAAP, using the acquisition method of accounting, whereby the assets acquired, including separately identifiable intangible assets, and liabilities assumed are recorded at their acquisition-date estimated fair values. Any excess purchase consideration over the acquisition-date fair values of the net assets acquired is recorded as goodwill. The acquisition method requires us to make significant estimates and assumptions in determining the fair value of assets acquired and liabilities assumed. Significant judgment is also required in estimating the fair value of identifiable intangible assets and in assigning the useful lives of the definite-lived identifiable intangible assets, which impact the periods over which amortization of those assets is recognized. Accordingly, we typically obtain the assistance of third-party valuation specialists. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain as they pertain to forward-looking views of our businesses, client behavior, and market conditions. We consider the income, market and cost approaches and place reliance on the approach or approaches deemed most appropriate to estimate the fair value of intangible assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability) and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions. During the year endedSeptember 30, 2022 , our acquisitions of Charles Stanley,TriState Capital , andSumRidge Partners required us to make estimates and assumptions in determining the fair values of assets acquired and liabilities assumed, the most significant being related to the valuation of bank loans and the core deposit intangible asset in theTriState Capital acquisition and the customer relationship asset in the Charles Stanley acquisition. In determining the estimated fair value of bank loans acquired as part of theTriState Capital acquisition, management used a discounted cash flow methodology that considered loan type and related collateral, credit loss expectations, classification status, market interest rates and other market factors from the perspective of a market participant. Loans were segregated into specific pools according to similar characteristics, including risk, interest rate type (i.e., fixed or floating), underlying benchmark rate, and payment type and were treated in the aggregate when determining the fair value of each pool. The discount rates were derived using a build-up method inclusive of the weighted average cost of funding, estimated servicing costs and an adjustment for liquidity and then compared to current origination rates and other relevant market data. The fair value of the core deposit intangible asset was estimated using a discounted cash flow approach, specifically the favorable source of funds method, that considered the servicing and interest costs of the acquired deposit base, an estimate of the cost associated with alternative funding sources, expected client attrition rates, deposit growth rates, and a discount rate. The fair values of customer relationships were estimated using a multi-period excess earnings approach that considered future period post-tax earnings, as well as a discount rate. 66
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Refer to Note 3 of the Notes to Consolidated Financial Statements of this Form 10-K for more information on our valuation methods and the results of applying the acquisition method of accounting, including the estimated fair values of the assets acquired and liabilities assumed and, where relevant, the estimated remaining useful lives.
RECENT ACCOUNTING DEVELOPMENTS
InMarch 2022 , theFinancial Accounting Standards Board issued new guidance related to troubled debt restructurings and disclosures regarding write-offs of financing receivables (ASU 2022-02), amending guidance related to the measurement of credit losses on financial instruments (ASU 2016-13). The amendment eliminates the accounting guidance for troubled debt restructurings for creditors, but requires enhanced disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty, and requires disclosure of current-period gross write-offs by year of origination for financing receivables. This new guidance is effective for our fiscal year beginning onOctober 1, 2023 and will be applied on a prospective basis. Although permitted, we do not plan to early adopt. We do not expect the adoption of this new guidance to have a material impact on our financial position and results of operations.
RISK MANAGEMENT
Risks are an inherent part of our business and activities. Management of risk is
critical to our fiscal soundness and profitability. Our risk management
processes are multi-faceted and require communication, judgment and knowledge of
financial products and markets. We have a formal Enterprise Risk Management
("ERM") program to assess and review aggregate risks across the firm. Our
management takes an active role in the ERM process, which requires specific
administrative and business functions to participate in the identification,
assessment, monitoring and control of various risks.
The principal risks related to our business activities are market, credit, liquidity, operational, model, and compliance.
Governance
Our Board of Directors, including itsAudit and Risk Committee , oversees the firm's management and mitigation of risk, reinforcing a culture that encourages ethical conduct and risk management throughout the firm. Senior management communicates and reinforces this culture through three lines of risk management and a number of senior-level management committees. Our first line of risk management, which includes all of our businesses, owns its risks and is responsible for identifying, mitigating, and escalating risks arising from its day-to-day activities. The second line of risk management, which includes Compliance and Risk Management, advises our client-facing businesses and other first-line functions in identifying, assessing, and mitigating risk. The second line of risk management tests and monitors the effectiveness of controls, as deemed necessary, and escalates risks when appropriate to senior management and the Board of Directors. The third line of risk management, Internal Audit, independently reviews activities conducted by the previous lines of risk management to assess their management and mitigation of risk, providing additional assurance to the Board of Directors and senior management, with a view toward enhancing our oversight, management, and mitigation of risk. Our legal department provides legal advice and guidance to each of these three lines of risk management. Market risk Market risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory, derivatives, and investment positions. We have exposure to market risk primarily through our broker-dealer trading operations and our banking operations. Through our broker-dealer subsidiaries we trade debt obligations and equity securities and maintain trading inventories to ensure availability of securities and to facilitate client transactions. Inventory levels may fluctuate daily as a result of client demand. We also hold investments within our available-for-sale securities portfolio, and from time-to-time may hold SBA loan securitizations not yet transferred. Our primary market risks relate to interest rates, equity prices, and foreign exchange rates. Interest rate risk results from changes in levels of interest rates, the volatility of interest rates, mortgage prepayment speeds and credit spreads. Equity risk results from changes in prices of equity securities. Foreign exchange risk results from changes in spot prices, forward prices and volatility of foreign exchange rates. See Notes 2, 4, 5 and 6 of the Notes to Consolidated Financial Statements of this Form 10-K for fair value and other information regarding our trading inventories, available-for-sale securities, and derivative instruments. We regularly enter into underwriting commitments and, as a result, we may be subject to market risk on any unsold shares issued in the offerings to which we are committed. Risk exposure is controlled by limiting our participation, the transaction size, or through the syndication process. 67
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis The Market Risk Management department is responsible for measuring, monitoring, and reporting market risks associated with the firm's trading and derivative portfolios. While Market Risk Management maintains ongoing communication with the revenue-generating business units, it is independent of such units.
Interest rate risk
Trading activities
We are exposed to interest rate risk as a result of our trading inventory (primarily comprised of fixed income instruments) in our Capital Markets segment. Changes in value of our trading inventory may result from fluctuations in interest rates, credit spreads, equity prices, macroeconomic factors, investor expectations or risk appetites, liquidity, as well as dynamic relationships among these factors. We actively manage interest rate risk arising from our fixed income trading inventory through the use of hedging strategies utilizingU.S. Treasuries, futures contracts, liquid spread products and derivatives. Our primary method for controlling risks within trading inventories is through the use of dollar-based and exposure-based limits. A hierarchy of limits exists at multiple levels, including firm, business unit, desk (e.g., for equities, corporate bonds, municipal bonds), product sub-type (e.g., below-investment-grade positions) and, at times, at the individual position. For derivative positions, which are primarily comprised of interest rate swaps, we have established limits based on a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis, and volatility risk. Trading positions and derivatives are monitored against these limits through daily reports that are distributed to senior management. During volatile markets, we may temporarily reduce limits and/or choose to pare our trading inventories to reduce risk. We monitor Value-at-Risk ("VaR") for all of our trading portfolios on a daily basis for risk management purposes and as a result of applying the Fed's Market Risk Rule ("MRR") for the purpose of calculating our capital ratios. The MRR, also known as the "Risk-Based Capital Guidelines: Market Risk" rule released by the Fed, the OCC and theFDIC , requires us to calculate VaR for all of our trading portfolios, including fixed income, equity, derivatives, and foreign exchange instruments. VaR is an appropriate statistical technique for estimating potential losses in trading portfolios due to typical adverse market movements over a specified time horizon with a suitable confidence level. However, there are inherent limitations of utilizing VaR including: historical movements in markets may not accurately predict future market movements; VaR does not take into account the liquidity of individual positions; VaR does not estimate losses over longer time horizons; and extended periods of one-directional markets potentially distort risks within the portfolio. In addition, should markets become more volatile, actual trading losses may exceed VaR results presented on a single day and might accumulate over a longer time horizon. As a result, management complements VaR with sensitivity analysis and stress testing and employs additional controls such as a daily review of trading results, review of aged inventory, independent review of pricing, monitoring of concentrations and review of issuer ratings. To calculate VaR, we use models which incorporate historical simulation. This approach assumes that historical changes in market conditions, such as in interest rates and equity prices, are representative of future changes. Simulation is based on daily market data for the previous twelve months. VaR is reported at a 99% confidence level for a one-day time horizon. Assuming that future market conditions change as they have in the past twelve months, we would expect to incur losses greater than those predicted by our one-day VaR estimates about once every 100 trading days, or about three times per year on average. For regulatory capital calculation purposes, we also report VaR and Stressed VaR numbers for a ten-day time horizon. The VaR model is independently reviewed by our Model Risk Management function. See the "Model risk" section that follows for further information. The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations that management believes to be reasonable. However, there is no uniform industry methodology for estimating VaR, and different assumptions or approximations could produce materially different VaR estimates. As a result, VaR results are more reliable when used as indicators of risk levels and trends within a firm than as a basis for inferring differences in risk-taking across firms. 68
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
The following table sets forth the high, low, period-end and average daily one-day VaR for all of our trading portfolios, including fixed income and equity instruments, and for our derivatives for the periods and dates indicated.
Year ended September 30, 2022 Period-end VaR
For the year ended
September 30, September 30,
$ in millions High Low 2022 2021 $ in millions 2022 2021
Daily VaR $ 3 $ 1 $ 3 $ 1 Average daily VaR $ 1 $ 4
Average daily VaR was lower during the year ended September 30, 2022 compared
with the year ended September 30, 2021 due to the impact of scenarios of
elevated volatility as a result of the COVID-19 pandemic (which commenced in
March 2020 ) on our VaR model during the prior year. Period-end VaR increased as
of September 30, 2022 as a result of increased market volatility in September
2022 , as well as the addition of the SumRidge Partners trading inventory.
The Fed's MRR requires us to perform daily back-testing procedures for our VaR
model, whereby we compare each day's projected VaR to its regulatory-defined
daily trading losses, which exclude fees, commissions, reserves, net interest
income and intraday trading. Regulatory-defined daily trading losses are used to
evaluate the performance of our VaR model and are not comparable to our actual
daily net revenues. Based on these daily "ex ante" versus "ex post" comparisons,
we determine whether the number of times that regulatory-defined daily trading
losses exceed VaR is consistent with our expectations at a 99% confidence level.
During the year ended September 30, 2022 , our regulatory-defined daily losses in
our trading portfolios exceeded our predicted VaR on ten occasions primarily due
to the volatility and market uncertainty related to the Fed's short-term
interest rate increases.
Separately, RJF provides additional market risk disclosures to comply with the
MRR, including 10-day VaR and 10-day Stressed VaR, which are available on our
website at
https://www.raymondjames.com/investor-relations/financial-information/filings-and-reports
within "Other Reports and Information."
Banking operations
Our Bank segment maintains an interest-earning asset portfolio that is comprised of cash, SBL, C&I loans, commercial and residential real estate loans, REIT loans, and tax-exempt loans, as well as securities held in the available-for-sale securities portfolio. These interest-earning assets are primarily funded by client deposits. Based on the current asset portfolio, our banking operations are subject to interest rate risk. We analyze interest rate risk based on forecasted net interest income, which is the net amount of interest received and interest paid, and the net portfolio valuation, both across a range of interest rate scenarios. One of the objectives of theAsset and Liability Committee is to manage the sensitivity of net interest income to changes in market interest rates. This committee uses several measures to monitor and limit interest rate risk in our banking operations, including scenario analysis and economic value of equity. We utilize a hedging strategy using interest rate swaps in our banking operations as a result of our asset and liability management process. For further information regarding this hedging strategy, see Notes 2 and 16 of the Notes to Consolidated Financial Statements of this Form 10-K. To ensure that we remain within the tolerances established for net interest income, a sensitivity analysis of net interest income to interest rate conditions is estimated under a variety of scenarios. We use simulation models and estimation techniques to assess the sensitivity of net interest income to movements in interest rates. The model estimates the sensitivity by calculating interest income and interest expense in a dynamic balance sheet environment using current repricing, prepayment, and reinvestment of cash flow assumptions over a 12-month time horizon. Assumptions used in the model include interest rate movement, the slope of the yield curve, and balance sheet composition and growth. The model also considers interest rate-related risks such as pricing spreads, pricing of client cash accounts, and prepayments. Various interest rate scenarios are modeled in order to determine the effect those scenarios may have on net interest income. 69
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis The following table is an analysis of our banking operations' estimated net interest income over a 12-month period based on instantaneous shifts in interest rates (expressed in basis points) using our previously described asset/liability model, which assumes a dynamic balance sheet and that interest rates do not decline below zero. While not presented, additional rate scenarios are performed, including interest rate ramps and yield curve shifts that may more realistically mimic the speed of potential interest rate movements. We also perform simulations on time horizons of up to five years to assess longer-term impacts to various interest rate scenarios. On a quarterly basis, we test expected model results to actual performance. Additionally, any changes made to key assumptions in the model are documented and approved by theAsset and Liability Committee . Net interest income
Projected change in
Instantaneous changes in rate (1) ($ in millions) net interest income
+200 $1,904 1%
+100 $1,891 -%
0 $1,882 -%
-100 $1,754 (7)%
-200 $1,618 (14)%
(1) Our 0-basis point scenario was based on interest rates as of
Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Net interest analysis" of this Form 10-K for a discussion of the impact changes in short-term interest rates could have on the consolidated firm's operations.
The following table shows the maturities of our bank loan portfolio atSeptember 30, 2022 , including contractual principal repayments. Maturities are generally determined based upon contractual terms; however, rollovers or extensions that are included for the purposes of measuring the allowance for credit losses are reflected in maturities in the following table. This table does not include any estimates of prepayments, which could shorten the average loan lives and cause the actual timing of the loan repayments to differ significantly from those shown in the table. Due in > One year - One year or five > Five years - $ in millions less years fifteen years > Fifteen years Total SBL$ 15,025 $ 184 $ 87 $ 1$ 15,297 C&I loans 905 7,108 3,122 38 11,173 CRE loans 772 3,966 1,788 23 6,549 REIT loans 92 1,419 81 - 1,592 Residential mortgage loans 17 27 220 7,122 7,386 Tax-exempt loans 1 245 1,255 - 1,501 Total loans held for investment 16,812 12,949 6,553 7,184 43,498 Held for sale loans - - 37 100 137 Total loans held for sale and investment$ 16,812 $ 12,949 $ 6,590 $ 7,284$ 43,635
The following table shows the distribution of the recorded investment of those
bank loans that mature in more than one year between fixed and adjustable
interest rate loans at
Interest rate type
$ in millions Fixed Adjustable Total
SBL $ 1 $ 271 $ 272
C&I loans 700 9,568 10,268
CRE loans 320 5,457 5,777
REIT loans - 1,500 1,500
Residential mortgage loans 232 7,137 7,369
Tax-exempt loans 1,500 - 1,500
Total loans held for investment 2,753 23,933 26,686
Held for sale loans 2 135
137
Total loans held for sale and investment
Contractual loan terms for SBL, C&I loans, CRE loans, REIT loans, and
residential mortgage loans may include an interest rate floor, cap and/or fixed
interest rates for a certain period of time, which would impact the timing of
the interest rate reset for the
70
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis respective loan. See the discussion within the "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk - Risk monitoring process" section of this Form 10-K for additional information regarding our interest-only residential mortgage loan portfolio. In our available-for-sale securities portfolio, we hold primarily fixed-rate agency-backed MBS and agency-backed CMOs which are carried at fair value on our Consolidated Statements of Financial Condition, with changes in the fair value of the portfolio recorded through OCI on our Consolidated Statements of Income and Comprehensive Income. AtSeptember 30, 2022 , our available-for-sale securities portfolio had a fair value of$9.89 billion with a weighted-average yield of 1.84%. The effective duration of our available-for-sale securities portfolio as ofSeptember 30, 2022 was approximately 3.86, where duration is defined as the approximate percentage change in price for a 100-basis point change in rates. See Note 5 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information on our available-for-sale securities portfolio. Equity price risk We are exposed to equity price risk as a result of our capital markets activities. Our broker-dealer activities are generally client-driven, and we carry equity securities as part of our trading inventory to facilitate such activities, although the amounts 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 each day and establishing position limits. Equity securities held in our trading inventory are generally included in VaR. In addition, we have a private equity portfolio, included in "Other investments" on our Consolidated Statements of Financial Condition, which is primarily comprised of investments in third-party funds. See Note 4 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information on this portfolio. Foreign exchange risk We are subject to foreign exchange risk due to our investments in foreign subsidiaries as well as transactions and resulting balances denominated in a currency other than theU.S. dollar. For example, our bank loan portfolio includes loans which are denominated in Canadian dollars, totaling$1.51 billion and$1.29 billion atSeptember 30, 2022 and 2021, respectively, when converted to theU.S. dollar. A majority of such loans are held in a Canadian subsidiary ofRaymond James Bank , which is discussed in the following sections.
Investments in foreign subsidiaries
Raymond James Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate its foreign exchange risk,Raymond James Bank utilizes short-term, forward foreign exchange contracts. These derivatives are primarily accounted for as net investment hedges in the consolidated financial statements. See Notes 2 and 6 of the Notes to Consolidated Financial Statements of this Form 10-K for further information regarding these derivatives. AtSeptember 30, 2022 , we had foreign exchange risk in our investment inRJ Ltd. ofCAD 381 million and in our investment in Charles Stanley of £272 million, which were not hedged. All of our other investments in subsidiaries located inEurope are not hedged and we do not believe we had material foreign exchange risk either individually, or in the aggregate, pertaining to these subsidiaries as ofSeptember 30, 2022 . Foreign exchange gains/losses related to our foreign investments are primarily reflected in OCI on our Consolidated Statements of Income and Comprehensive Income. See Note 20 of the Notes to Consolidated Financial Statements of this Form 10-K for further information regarding our components of OCI.
Transactions and resulting balances denominated in a currency other than the
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 theU.S. dollar. Any currency-related gains/losses arising from these foreign currency denominated balances are reflected in "Other" revenues in our Consolidated Statements of Income and Comprehensive Income. The foreign exchange risk associated with a portion of such transactions and balances denominated in foreign currency are mitigated utilizing short-term, forward foreign exchange contracts. Such derivatives are not designated hedges and therefore, the related gains/losses are included in "Other" revenues in our Consolidated Statements of Income and Comprehensive Income. See Note 6 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding our derivatives. 71
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Credit risk
Credit risk is the risk of loss due to adverse changes in a borrower's, issuer's or counterparty's ability to meet its financial obligations under contractual or agreed-upon terms. The nature and amount of credit risk depends on the type of transaction, the structure and duration of that transaction, and the parties involved. Credit risk is an integral component of the profit assessment of lending and other financing activities.
Brokerage activities
We are engaged in various trading and brokerage activities in which our
counterparties primarily include broker-dealers, banks, exchanges, clearing
organizations, and other financial institutions. We are exposed to risk that
these counterparties may not fulfill their obligations. In addition, certain
commitments, including underwritings, may create exposure to individual issuers
and businesses. The risk of default depends on the creditworthiness of the
counterparty and/or the issuer of the instrument. In addition, we may be subject
to concentration risk if we hold large positions in or have large commitments to
a single counterparty, borrower, or group of similar counterparties or borrowers
(e.g., in the same industry). We seek to mitigate these risks by imposing and
monitoring individual and aggregate position limits within each business segment
for each counterparty, conducting regular credit reviews of financial
counterparties, reviewing security, derivative and loan concentrations, holding
and calculating the fair value of collateral on certain transactions and
conducting business through clearing organizations, which may guarantee
performance. See Notes 2, 6, and 7 of the Notes to Consolidated Financial
Statements of this Form 10-K for further information about our credit risk
mitigation related to derivatives and collateralized agreements.
Our client activities involve the execution, settlement, and financing of
various transactions on behalf of our clients. Client activities are transacted
on either a cash or margin basis. Credit exposure results from client margin
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. See Note 2 of the Notes to
Consolidated Financial Statements of this Form 10K for further information
about our determination of the allowance for credit losses associated with
certain of our brokerage lending activities.
We offer loans to financial advisors for recruiting and retention purposes. We
have credit risk and may incur a loss primarily in the event that such borrower
is no longer affiliated with us. See Notes 2 and 9 of the Notes to Consolidated
Financial Statements of this Form 10-K for further information about our loans
to financial advisors.
Banking activities
Our Bank segment has a substantial loan portfolio. Our strategy for credit risk
management related to bank loans includes well-defined credit policies, uniform
underwriting criteria, and ongoing risk monitoring and review processes for all
credit exposures. The strategy also includes diversification across loan types,
geographic location, industry and client level, regular credit examinations and
management reviews of all corporate and tax-exempt loans as well as individual
delinquent residential loans. The credit risk management process also includes
annual independent reviews of the credit risk monitoring process that performs
assessments of compliance with credit policies, risk ratings, and other critical
credit information. We seek to identify potential problem loans early, record
any necessary risk rating changes and charge-offs promptly, and maintain
appropriate reserve levels for expected losses. We utilize a thorough credit
risk rating system to measure the credit quality of individual corporate and
tax-exempt loans and related unfunded lending commitments. For our residential
mortgage loans and substantially all of our SBL, we utilize the credit risk
rating system used by bank regulators in measuring the credit quality of each
homogeneous class of loans. In evaluating credit risk, we consider trends in
loan performance, historical experience through various economic cycles,
industry or client concentrations, the loan portfolio composition and
macroeconomic factors (both current and forecasted). These factors have a
potentially negative impact on loan performance and net charge-offs.
While our bank loan portfolio is diversified, a significant downturn in the
overall economy, deterioration in real estate values or a significant issue
within any sector or sectors where we have a concentration will generally result
in large provisions for credit losses and/or charge-offs. We determine the
allowance required for specific loan pools based on relative risk
characteristics of the loan portfolio. On an ongoing basis, we evaluate our
methods for determining the allowance for each class of loans and make
enhancements we consider appropriate. Our allowance for credit losses
methodology is described in Note 2 of the Notes to Consolidated Financial
Statements of this Form 10-K. As our bank loan portfolio is segregated into six
portfolio segments,
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
likewise, the allowance for credit losses is segregated by these same segments. The risk characteristics relevant to each portfolio segment are as follows.
SBL: Loans in this segment are primarily collateralized by the borrower's
marketable securities at advance rates consistent with industry standards and,
to a lesser extent, the cash surrender value of life insurance policies issued
by an investment-grade insurance company. Substantially all SBL are monitored
daily for adherence to loan-to-value ("LTV") guidelines and when a loan exceeds
the required LTV, a collateral call is issued. Past due loans are minimal as any
past due amounts result in a notice to the client for payment or the potential
sale of the collateral which will bring the loan to a current status. The vast
majority of our SBL qualify for the practical expedient allowed under the CECL
guidance whereby we estimate zero credit losses to the extent the fair value of
the collateral securing the loan equals or exceeds the related carrying value of
the loan. SBL also generally qualify for lower capital requirements under
regulatory capital rules.
C&I: Loans in this segment are made to businesses and are generally secured by
all assets of the business. Repayment is expected from the cash flows of the
respective business. Unfavorable economic and political conditions, including
the resultant decrease in consumer or business spending, may have an adverse
effect on the credit quality of loans in this segment.
CRE: Loans in this segment are primarily secured by income-producing
properties. For owner-occupied properties, the cash flows are derived from the
operations of the business, and the underlying cash flows may be adversely
affected by the deterioration in the financial condition of the operating
business. The underlying cash flows generated by non-owner-occupied properties
may be adversely affected by increased vacancy and rental rates, which are
monitored on an ongoing basis. This portfolio segment includes CRE construction
loans which involve risks such as project budget overruns, performance variables
related to the contractor and subcontractors, or the inability to sell the
project or secure permanent financing once the project is completed. With
respect to commercial construction of residential developments, there is also
the risk that the builder has a geographical concentration of developments.
Adverse information arising from any of these factors 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.
Residential mortgage (includes home equity loans/lines): All of our residential
mortgage loans adhere to stringent underwriting parameters pertaining to credit
score and credit history, debt-to-income ratio of the borrower, LTV, and
combined LTV (including second mortgage/home equity loans). We do not originate
or purchase adjustable rate mortgage ("ARM") loans with negative amortization,
reverse mortgages, or loans to subprime borrowers. Loans with deeply discounted
teaser rates are also not originated or purchased. All loans in this segment
are collateralized by residential real estate and repayment is primarily
dependent on the credit quality of the individual borrower. A decline in the
strength of the economy, particularly unemployment rates and housing prices,
among other factors, could have a significant effect on the credit quality of
loans in this segment.
Tax-exempt: Loans in this segment are made to governmental and nonprofit
entities and are generally secured by a pledge of revenue and, in some cases, by
a security interest in or a mortgage on the asset being financed. For loans to
governmental entities, repayment is expected from a pledge of certain revenues
or taxes. For nonprofit entities, repayment is expected from revenues which may
include fundraising proceeds. These loans are subject to demographic risk,
therefore much of the credit assessment of tax-exempt loans is driven by the
entity's revenue base and the general economic environment. Adverse developments
in either of these areas may have a negative effect on the credit quality of
loans in this segment.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis The level of charge-off activity is a factor that is considered in evaluating the potential severity of future credit losses. The following table presents net loan (charge-offs)/recoveries and the percentage of net loan (charge-offs)/recoveries to the average outstanding loan balances by loan portfolio segment. Year ended September 30, 2022 2021 2020 Net loan % of avg. Net loan % of avg. Net loan % of avg. (charge-off)/recovery outstanding (charge-off)/recovery outstanding (charge-off)/recovery outstanding $ in millions amount (1) loans amount (1) loans amount (1) loans C&I loans $ (28) 0.29 % $ (4) 0.05 % $ (96) 1.22 % CRE loans 1 0.02 % (10) 0.37 % (2) 0.08 % REIT loans - - % - - % (2) 0.15 % Residential mortgage loans 1 0.02 % 1 0.02 % 2 0.04 % Total loans held for sale and investment $ (26) 0.08 % $ (13) 0.06 % $ (98) 0.45 %
(1) Charge-offs related to loan sales amounted to
The level of nonperforming assets is another indicator of potential future
credit losses. Nonperforming assets are comprised of both nonperforming loans
and other real estate owned. Nonperforming loans include those loans which have
been placed on nonaccrual status and certain accruing loans which are 90 days or
more past due and in the process of collection. The following table presents the
balance of nonperforming loans, nonperforming assets, and related key credit
ratios.
September 30,
$ in millions 2022 2021
Nonperforming loans (1) $ 74 $ 74
Nonperforming assets $ 74 $ 74 Nonperforming loans as a % of total loans held for sale and investment
0.17 % 0.29 %
Allowance for credit losses as a % of nonperforming loans 535 % 432 %
Nonperforming assets as a % of Bank segment total assets 0.13 % 0.20 %
(1) Nonperforming loans at September 30, 2022 and September 30, 2021 included
$63 million and $61 million of loans, respectively, which were current pursuant
to their contractual terms.
The nonperforming loan balances in the preceding table excluded $7 million and
$8 million as of September 30, 2022 and 2021, respectively, of residential
troubled debt restructurings which were returned to accrual status in accordance
with our policy.
Although our nonperforming assets as a percentage of our Bank segment's assets
remained low as of September 30, 2022 , any prolonged period of market
deterioration could result in an increase in our nonperforming assets, an
increase in our allowance for credit losses and/or an increase in net
charge-offs in future periods, although the extent would depend on future
developments that are highly uncertain.
See further explanation of our bank loan portfolio segments, allowance for
credit losses, and the credit loss provision in Notes 2 and 8 of the Notes to
Consolidated Financial Statements of this Form 10-K and "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations - Bank" of this Form 10-K.
Loan underwriting policies
A component of our Bank segment's credit risk management strategy is conservative, well-defined policies and procedures. Our Bank segment's underwriting policies for the major types of loans are described in the following sections.
SBL and residential mortgage loan portfolios
Our residential mortgage loan portfolio largely consists of first mortgage loans originated by us via referrals from our PCG financial advisors and the general public, as well as first mortgage loans purchased by us. Substantially all of our residential mortgage loans adhere to strict underwriting parameters pertaining to credit score and credit history, debt-to-income ratio of the borrower, LTV and combined LTV (including second mortgage/home equity loans). As ofSeptember 30, 2022 , approximately 95% of the residential mortgage loan portfolio consisted of owner-occupant borrowers (approximately 75% for their primary residences and 20% for second home residences). Approximately 35% of the first lien residential mortgage loans were ARM 74
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
loans, which receive interest-only payments based on a fixed rate for an initial period of the loan and then become fully amortizing, subject to annual and lifetime interest rate caps. A significant portion of our originated 15 or 30-year fixed-rate residential mortgage loans are sold in the secondary market.
Our SBL portfolio is primarily comprised of loans fully collateralized by client's marketable securities and represented 35% of our total loans held for sale and investment as ofSeptember 30, 2022 . The underwriting policy for the SBL portfolio primarily includes a review of collateral, including LTV, and a review of repayment history.
Corporate and tax-exempt loan portfolios
Raymond James Bank :Raymond James Bank's corporate and tax-exempt loan portfolios were comprised of approximately 500 borrowers, the majority of which are underwritten, managed, and reviewed at ourRaymond James Bank corporate headquarters location, which facilitates close monitoring of the portfolio by credit risk personnel, relationship officers and senior bank executives. Approximately half ofRaymond James Bank's corporate borrowers are public companies. A large portion ofRaymond James Bank's corporate loan portfolio is diversified among a number of industries in theU.S andCanada and a large portion of these loans are to borrowers in industries in which we have expertise through coverage provided by our Capital Markets research analysts.Raymond James Bank's corporate loan portfolio is comprised of project finance real estate loans, commercial lines of credit, and term loans, the majority of which are participations in Shared National Credit ("SNC") or other large syndicated loans.Raymond James Bank is typically either involved in the syndication loans at inception or purchases loans in secondary trading markets. The remainder of the corporate loan portfolio is comprised of smaller participations and direct loans. There are no subordinated loans or mezzanine financings in the corporate loan portfolio.Raymond James Bank's tax-exempt loans are long-term loans to governmental and non-profit entities. These loans generally have lower overall credit risk, but are subject to other risks that are not usually present with corporate clients, including the risk associated with the constituency served by a local government and the risk in ensuring an obligation has appropriate tax treatment.TriState Capital Bank :TriState Capital Bank's corporate loan portfolio was comprised of 900 borrowers, all of which are underwritten, managed, and reviewed by credit risk personnel, relationship officers, and senior bank executives. All corporate loans are approved by a committee of senior executives.TriState Capital Bank primarily targets middle-market businesses with revenues between$5 million and$300 million located within the primary markets ofPennsylvania ,Ohio ,New Jersey , andNew York . Each representative office is led by an experienced regional president to understand the unique borrowing needs of the middle-market businesses in the area. They are supported by highly experienced relationship managers who target middle-market business customers and maintain strong credit quality within their loan portfolios.TriState Capital Bank's loan portfolio is diversified by geography, loan type, and industry and is primarily comprised of project finance real estate loans, commercial lines of credit, and term loans, the majority of which are direct originations. Regardless of the source, all corporate and tax-exempt loans are independently underwritten to our credit policies, are subject to approval by a loan committee, and credit quality is monitored on an ongoing basis by our lending staff. Our credit policies include criteria related to LTV limits based upon property type, single borrower loan limits, loan term and structure parameters (including guidance on leverage, debt service coverage ratios and debt repayment ability), industry concentration limits, secondary sources of repayment, municipality demographics, and other criteria. Our corporate loans are generally secured by all assets of the borrower and in some instances are secured by mortgages on specific real estate. Tax-exempt loans are generally secured by a pledge of revenue. In a limited number of transactions, loans in the portfolio are extended on an unsecured basis. In addition, corporate and tax-exempt loans are subject to regulatory review.
Risk monitoring process
Another component of credit risk strategy for our bank loan portfolio is the ongoing risk monitoring and review processes, including our internal loan review process, as well as our rigorous processes to manage and limit credit losses arising from loan delinquencies. There are various other factors included in these processes, depending on the loan portfolio.
SBL and residential mortgage loan portfolios
Substantially all collateral securing our SBL portfolio is monitored on a daily basis. Collateral adjustments, as triggered by our monitoring procedures, are made by the borrower as necessary to ensure our loans are adequately secured, resulting in minimizing our credit risk. Collateral calls have been minimal relative to our SBL portfolio with no losses incurred to date.
We track and review many factors to monitor credit risk in our 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
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
documentation, loan purpose, geographic concentrations, average loan size, risk rating, and LTV ratios. See Note 8 in the Notes to Consolidated Financial Statements of this Form 10-K for additional information.
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.
Delinquent residential mortgage loans as a percentage of
Amount of delinquent residential mortgage loans outstanding residential mortgage loan balances
$ in millions 30-89 days 90 days or more Total 30-89 days 90 days or more Total
September 30, 2022 $ 6 $ 6 $ 12 0.08 % 0.08 % 0.16 %
September 30, 2021 $ 4 $ 6 $ 10 0.08 % 0.11 % 0.19 %
Our
To manage and limit credit losses, we maintain a rigorous process to manage our loan delinquencies. Substantially all of our residential first mortgages are serviced by a third party whereby the primary collection effort resides with the servicer. Our personnel direct and actively monitor the servicers' efforts through extensive communications regarding individual loan status changes and through requirements of timely and appropriate collection of property management actions and reporting, including management of third parties used in the collection process (e.g., appraisers, attorneys, etc.). Residential mortgage loans over 60 days past due are generally reviewed by our personnel monthly and documented in a written report detailing delinquency information, balances, collection status, appraised value, and other data points. Our senior management meets quarterly to discuss the status, collection strategy and charge-off recommendations on substantially all residential mortgage loan over 60 days past due. Updated collateral valuations are generally obtained for loans over 90 days past due and charge-offs are typically taken on individual loans based on these valuations. Credit risk is also managed by diversifying the residential mortgage portfolio. Most of the loans in our residential loan portfolio are to PCG clients across theU.S. The following table details the geographic concentrations (top five states) of our one-to-four family residential mortgage loans.September 30 ,
2022
Loans outstanding as a % of Loans outstanding as a % of
total residential mortgage loans total loans held for sale and
held for sale and investment investment
CA 26% 4%
FL 17% 3%
TX 8% 1%
NY 8% 1%
CO 4% 1%
The occurrence of a natural disaster or severe weather event in any of these
states, for example wildfires in California and hurricanes in Florida , could
result in additional credit loss provisions and/or charge-offs on our loans in
such states and therefore negatively impact our net income and regulatory
capital in any given period.
Loans where borrowers may be subject to payment increases include ARM loans with
terms that initially require payment of interest only. Payments may increase
significantly when the interest-only period ends and the loan principal begins
to amortize. At September 30, 2022 and 2021, these loans totaled $2.55 billion
and $1.97 billion , respectively, or approximately 35% and 37% of the residential
mortgage portfolio, respectively. The weighted-average number of years before
the remainder of the loans, which were still in their interest-only period at
September 30, 2022 , begins amortizing is 6.6 years.
Corporate and tax-exempt loans
Credit risk in our corporate and tax-exempt loan portfolios is monitored on an
individual loan basis for trends in borrower operating performance, payment
history, credit ratings, collateral performance, loan covenant compliance,
semi-annual SNC exam results, where applicable, municipality demographics and
other factors including industry performance and concentrations. As part of the
credit review process, the loan rating is reviewed on an ongoing basis to
confirm the appropriate risk rating for each credit. The individual loan ratings
resulting from the SNC exams are incorporated in our internal loan ratings when
the ratings are received. If the SNC rating is lower on an individual loan than
our internal rating, the loan is downgraded. While we consider historical SNC
exam results in our loan ratings methodology, differences between the SNC exam
and internal ratings on individual loans typically arise due to subjectivity of
the loan classification process. Downgrades
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis resulting from these differences may result in additional provisions for credit losses in periods when SNC exam results are received. The majority of our tax-exempt loan portfolio is comprised of loans to investment-grade borrowers. See Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information on our allowance for credit losses policies. Credit risk is managed by diversifying the corporate bank loan portfolio. Our corporate bank loan portfolio does not contain a significant concentration in any single industry. The following table details the industry concentrations (top five categories) of our corporate bank loans. September
30, 2022
Loans outstanding as a % of Loans outstanding as a % of
total corporate bank loans held for total loans held for sale and
sale and investment investmentMulti-family 10% 5% Industrial warehouse 8% 4% Office real estate 7% 3% Loan fund 6% 3% Consumer products and services 5% 2% Certain sectors continue to be impacted by supply chain disruptions and changes in consumer behavior. In addition, macroeconomic uncertainty and theUkraine conflict have further exacerbated supply chain stresses and inflation concerns. In addition, the Fed's measures to control inflation, including through increases in short-term interest rates, have had an impact on consumer behavior and are likely to continue to do so in the near-term. These and related factors could negatively impact our borrowers, particularly those in consumer-facing or supply-dependent industries. In addition, we continue to monitor our exposure to office real estate where trends have changed as a result of the COVID-19 pandemic.
Liquidity risk
See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and capital resources" of this Form 10-K for information regarding our liquidity and how we manage liquidity risk.
Operational risk
Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes including cybersecurity incidents (see "Item 1A - Risk Factors" of this Form 10-K for a discussion of certain cybersecurity risks). These risks are less direct than credit and market risk, but managing them is critical, particularly in a rapidly changing environment with increasing transaction volumes and complexity. We operate different businesses in diverse markets and are reliant on the ability of our employees and systems to process a large number of transactions. In the event of a breakdown or improper operation of systems or improper action by employees, we could suffer financial loss, regulatory sanctions and damage to our reputation. In order to mitigate and control operational risk, we have developed and continue to enhance specific policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization and within such departments as Finance, Operations, Information Technology, Legal, Compliance, Risk Management and Internal Audit. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our various businesses are operating within established corporate policies and limits. In addition, we have created business continuity plans for critical systems, and redundancies are built into the systems as deemed appropriate. We have an Operational Risk Management Committee comprised of members of senior management, which reviews and addresses operational risks across our businesses. The committee establishes risk appetite levels for major operational risks, monitors operating unit performance for adherence to defined risk tolerances, and establishes policies for risk management at the enterprise level. Periods of severe market volatility can result in a significantly higher level of transactions on specific days, which may present operational challenges from time to time that may result in losses. These losses can result from, but are not limited to, trade errors, failed transaction settlements, late collateral calls to borrowers and counterparties, or interruptions to our system processing. We did not incur any significant losses related to such operational challenges during the year endedSeptember 30, 2022 . 77
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis As more fully described in the discussion of our business technology risks included in various risk factors presented in "Item 1A - Risk Factors" of this Form 10-K, despite our implementation of protective measures and endeavoring to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to human error, natural disasters, power loss, cyber-attacks and other information security breaches, and other events that could have an impact on the security and stability of our operations.
Model risk
Model risk refers to the possibility of unintended business outcomes arising from the design, implementation or use of models. Models are used throughout the firm for a variety of purposes such as the valuation of financial instruments, the calculation of our allowance for credit losses, assessing risk, stress testing, and to assist in making certain business decisions. Model risk includes the potential risk that management makes incorrect decisions based upon either incorrect model results or incorrect understanding and use of model results. Model risk may also occur when model outputs differ from the expected result. Model errors or misuse could result in significant financial loss, inaccurate financial or regulatory reporting, misaligned business strategies or damage to our reputation. Model Risk Management is a separate department within our Risk Management department and is independent of model owners, users, and developers. Our model risk management framework consists primarily of model governance, maintaining the firmwide model inventory, validating and approving models used across the firm, and ongoing monitoring. Results of validations and issues identified are reported to the Enterprise Risk Management Committee and theAudit and Risk Committee of the Board of Directors. Model Risk Management assumes responsibility for the independent and effective challenge of model completeness, integrity and design based on intended use.
Compliance risk
Compliance risk is the risk of legal or regulatory sanctions, financial loss, or reputational damage that the firm may suffer from a failure to comply with applicable laws, external standards, or internal requirements.
We have established a framework to oversee, manage, and mitigate compliance risk throughout the firm, both within and across businesses, functions, legal entities, and jurisdictions. The framework includes roles and responsibilities for the Board of Directors, senior management, and all three lines of risk management. This framework also includes programs and processes through which the firm identifies, assesses, controls, measures, monitors, and reports on compliance risk and provides compliance-related training throughout the firm. The Compliance department plays a key leadership role in the oversight, management, and mitigation of compliance risk throughout the firm. It does this by conducting an annual compliance risk assessment, carrying out compliance monitoring and testing activities, implementing compliance policies, training associates on compliance-related topics, and reporting compliance risk-related issues and metrics to the Board of Directors and senior management, among other activities.
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