RAYMOND JAMES FINANCIAL, INC. 
INDEX
PAGE
Factors affecting "forward-looking statements" 48 Introduction 48 Executive overview 48
Reconciliation of non-GAAP financial measures to GAAP financial measures
51 Segments 53 Net interest analysis 54 Results of OperationsPrivate Client Group 59 Capital Markets 63 Asset Management 64Raymond James Bank 67 Other 68 Certain statistical disclosures by bank holding companies
69
Statement of financial condition analysis
70
Liquidity and capital resources
70
Regulatory
75
Critical accounting estimates
76
Recent accounting developments 77
Risk management 77
47--------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
FACTORS AFFECTING "FORWARD-LOOKING STATEMENTS"
Certain statements made in this Quarterly Report on Form 10-Q may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning future strategic objectives, business prospects, anticipated savings, financial results (including expenses, earnings, liquidity, cash flow and capital expenditures), industry or market conditions, demand for and pricing of our products, acquisitions (including our announced acquisitions of TriState Capital andSumRidge Partners ), divestitures, anticipated results of litigation, regulatory developments, and general economic conditions. In addition, words such as "believes," "expects," "anticipates," "plans," "estimates," "projects," and future or conditional verbs such as "will," "may," "could," "should," and "would," as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our filings with theSEC from time to time, including our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which are available at www.raymondjames.com and theSEC's website at www.sec.gov. We expressly disclaim any obligation to update any forward-looking statement in the event it later turns out to be inaccurate, whether as a result of new information, future events or otherwise.
INTRODUCTION
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help the reader understand the
results of our operations and financial condition. This MD&A is provided as a
supplement to, and should be read in conjunction with, our condensed
consolidated financial statements and accompanying notes to condensed
consolidated financial statements. Where "NM" is used in various percentage
change computations, the computed percentage change has been determined to be
not meaningful.
We operate as a financial holding company and bank holding company. Results in
the businesses in which we operate are highly correlated to general economic
conditions and, more specifically, to the direction of the U.S. equity and fixed
income markets, changes in interest rates, market volatility, corporate and
mortgage lending markets and commercial and residential credit trends. Overall
market conditions, economic, political and regulatory trends, and industry
competition are among the factors which could affect us and which are
unpredictable and beyond our control. These factors affect the financial
decisions made by market participants, including investors, borrowers, and
competitors, impacting their level of participation in the financial markets.
These factors also impact the level of investment banking activity and asset
valuations, which ultimately affect our business results.
EXECUTIVE OVERVIEW
Quarter ended
For our fiscal second quarter of 2022, we generated net revenues of$2.67 billion , an increase of 13% compared with the prior-year quarter, while pre-tax income of$433 million decreased 3%. The decrease in pre-tax income was primarily due to a provision for loan losses in the current-year quarter compared with a benefit in the prior-year quarter. Our net income of$323 million decreased 9%, and our earnings per diluted share were$1.52 , reflecting a 10% decrease. Our annualized return on equity ("ROE") for the quarter was 15.0%, compared with 19.0% for the prior-year quarter, and our annualized return on tangible common equity ("ROTCE") was 16.8%(1), compared with 21.2%(1) for the prior-year quarter. Excluding acquisition-related expenses of$11 million , our adjusted net income was$331 million (1) and our adjusted earnings per diluted share were$1.55 (1). Adjusted annualized ROE for the quarter was 15.4%(1) and adjusted annualized ROTCE was 17.2%(1). (1) ROTCE, adjusted net income, adjusted earnings per diluted share, adjusted annualized ROE, and adjusted annualized ROTCE are non-GAAP financial measures. Please see the "Reconciliation of non-GAAP financial measures to GAAP financial measures" in this MD&A for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure, and for other important disclosures. 48 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis The increase in net revenues compared with the prior-year quarter was driven by significantly higher asset management and related administrative fees, largely attributable to strong growth in PCG assets in fee-based accounts compared with the prior-year quarter and, to a lesser extent, incremental revenues resulting from our acquisition ofCharles Stanley which was completed onJanuary 21, 2022 . Net interest income also increased, primarily due to strong asset growth and a higher net interest margin atRaymond James Bank . Compensation, commissions and benefits expense increased 12%, primarily resulting from higher revenues compared with the prior-year quarter and, to a lesser extent, incremental compensation expense due to the Charles Stanley acquisition and an increase in compensation costs to support our growth. Our compensation ratio, or the ratio of compensation, commissions and benefits expense to net revenues, was 69.3%, compared with 69.5% for the prior-year quarter. Non-compensation expenses increased 40%, primarily due to a$53 million increase in the bank loan provision for credit losses, resulting from a provision of$21 million for the current-year quarter compared with a benefit of$32 million for the prior-year quarter. Communications and information processing expenses increased as a result of incremental expense ofCharles Stanley , as well as continued investments in technology to support our growth. Business development expenses also increased from the very low prior-year quarter level, primarily due to an increase in travel and event-related expenses. Our effective income tax rate was 25.4% for our fiscal second quarter of 2022, an increase compared with a 20.6% effective income tax rate for the prior-year quarter, primarily due to the unfavorable impact of nondeductible valuation losses associated with our corporate-owned life insurance portfolio during the current quarter compared with nontaxable valuation gains in the prior-year quarter. As ofMarch 31, 2022 , our total capital ratio of 25.0% and tier 1 leverage ratio of 11.1% were both more than double the regulatory requirement to be considered well-capitalized. We also continue to have substantial liquidity with$2.2 billion (1) of cash at the parent as ofMarch 31, 2022 , which includes cash loaned to RJ&A. We expect to continue to be opportunistic in deploying our capital in fiscal 2022, through a combination of organic growth and acquisitions, as evidenced by our acquisition ofCharles Stanley completed onJanuary 21, 2022 , as well as our announced acquisitions of TriState Capital andSumRidge Partners , which we currently expect to close in our fiscal third and fourth quarters of 2022, respectively. Although our Board of Directors authorized share repurchases of up to$1 billion inDecember 2021 , we do not expect to repurchase our common shares until after the TriState Capital acquisition is completed. As a result, as of the date this report was filed,$1 billion remained available under the share repurchase authorization. We remain well-positioned entering our fiscal third quarter, with client assets under administration of$1.26 trillion as ofMarch 31, 2022 , as well as strong financial advisor recruiting activity and solid retention of existing advisors. In addition, we expect our fiscal third quarter results to be positively impacted by a full quarter's impact of the 25-basis point increase in the Fed's short-term benchmark interest rate enacted inMarch 2022 , as well as a partial quarter's impact of the 50-basis point increase enacted inMay 2022 . With clients' domestic cash sweep balances of$76.5 billion as ofMarch 31, 2022 and our high concentration of floating rate assets, we also believe we are well-positioned for further increases in short-term interest rates, which we expect to positively impact our net interest income and our RJBDP fees from third-party banks. However, we also expect to continue to face geopolitical and 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 robust investment banking pipelines. Our fiscal third quarter asset management and related administrative fee revenues will be negatively impacted by the decrease in fee-based asset balances (excluding the impact ofCharles Stanley ) and financial assets under management as ofMarch 31, 2022 . Net loan growth should result in additional provisions for credit losses in future periods and/or future market deterioration could result in increased bank loan provisions in future periods. In addition, although we have been focused on the management of expenses, we expect that expenses will continue to increase in fiscal 2022, as business and event-related travel should continue to increase and as we continue to make investments in our people and technology to support our growth.
(1) For additional information, please see the "Liquidity and capital resources - Sources of liquidity" section in this MD&A.
49
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Six months ended
For the six months endedMarch 31, 2022 , we generated net revenues of$5.45 billion , an increase of 19% compared with the prior-year period, and pre-tax income of$991 million , an increase of 17%. Our net income of$769 million was 15% higher than the prior-year period and our earnings per diluted share were$3.61 , reflecting a 14% increase. Our annualized ROE was 18.1%, unchanged from the prior-year period, and our annualized ROTCE was 20.2%(1), compared with 20.1%(1) for the prior-year period. Excluding acquisition-related expenses of$17 million , our adjusted net income was$782 million (1) and our adjusted earnings per diluted share were$3.67 (1). Adjusted annualized ROE for the year-to-date period was 18.4%(1) and adjusted annualized ROTCE was 20.6%(1). The significant increase in net revenues compared with the prior-year period was primarily driven by higher asset management and related administrative fees, primarily attributable to higher PCG client assets in fee-based accounts and incremental revenues from ourCharles Stanley acquisition which was completed inJanuary 2022 , as well as strong investment banking revenues, particularly in our fiscal first quarter.
Compensation, commissions and benefits expense increased 19%, primarily attributable to the growth in revenues and pre-tax income compared with the prior-year period. Our compensation ratio was 68.5%, unchanged from the prior-year period.
Non-compensation expenses increased 21%, primarily due to increases in communications and information processing and business development expenses, as well as higher investment sub-advisory fees. The bank loan provision for credit losses increased$28 million to a provision of$10 million for the current-year period, compared with a benefit of$18 million for the prior-year period. Our effective income tax rate was 22.4% for the six months endedMarch 31, 2022 , an increase from 21.2% for the prior-year period. The increase in the effective tax rate from the prior-year period was primarily due to the negative impact of nondeductible valuation losses associated with our corporate-owned life insurance portfolio during the current-year period compared with nontaxable valuation gains for the prior-year period, partially offset by a larger tax benefit recognized during the current-year period related to share-based compensation that vested during the period.
In
(1) ROTCE, adjusted net income, adjusted earnings per diluted share, adjusted
annualized ROE, and adjusted annualized ROTCE are non-GAAP financial measures.
Please see the "Reconciliation of non-GAAP financial measures to GAAP financial
measures" in this MD&A for a reconciliation of these non-GAAP financial measures
to the most directly comparable GAAP measure, and for other important
disclosures.
50
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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.
These non-GAAP financial measures include adjusted net income, adjusted earnings
per diluted share, adjusted ROE, ROTCE, and adjusted ROTCE. 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. 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.
Three months Six months ended March
ended March 31, 31,
$ in millions, except per share amounts 2022 2022 2021
Net income $ 323 $ 769 $ 667
Non-GAAP adjustments:
Acquisition-related expenses 11 17 2
Pre-tax impact of non-GAAP adjustments 11 17 2
Tax effect of non-GAAP adjustments (3) (4) -
Total non-GAAP adjustments, net of tax 8 13 2
Adjusted net income $ 331 $ 782 $ 669
Earnings per common share - diluted $ 1.52 $ 3.61 $ 3.16 Non-GAAP adjustments:
Acquisition-related expenses 0.05 0.08 0.01 Pre-tax impact of non-GAAP adjustments 0.05 0.08 0.01 Tax effect of non-GAAP adjustments (0.02) (0.02) - Total non-GAAP adjustments, net of tax 0.03 0.06 0.01 Adjusted earnings per common share - diluted $ 1.55$ 3.67 $ 3.17 51 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Three months ended March 31, Six months ended March 31, $ in millions 2022 2021 2022 2021 Annualized return on equity Average equity$ 8,601 $ 7,478 $ 8,482 $ 7,356 Impact on average equity of non-GAAP adjustments: Acquisition-related expenses 6 NA 8 1 Pre-tax impact of non-GAAP adjustments 6 NA 8 1 Tax effect of non-GAAP adjustments (2) NA (2) - Total non-GAAP adjustments, net of tax 4 NA 6 1 Adjusted average equity$ 8,605 NA$ 8,488 $ 7,357 Average equity$ 8,601 $ 7,478 $ 8,482 $ 7,356 Less: Average goodwill and identifiable intangible assets, net 992 851 955 767 Average deferred tax liabilities, net (77) (56) (72) (49) Average tangible common equity$ 7,686 $ 6,683 $ 7,599 $ 6,638 Impact on average tangible common equity of non-GAAP adjustments: Acquisition-related expenses 6 NA 8 1 Pre-tax impact of non-GAAP adjustments 6 NA 8 1 Tax effect of non-GAAP adjustments (2) NA (2) - Total non-GAAP adjustments, net of tax 4 NA 6 1 Adjusted average tangible common equity$ 7,690 NA$ 7,605 $ 6,639 Return on equity 15.0 % 19.0 % 18.1 % 18.1 % Adjusted annualized return on equity 15.4 % NA 18.4 % 18.2 % Return on tangible common equity 16.8 % 21.2 % 20.2 % 20.1 % Adjusted annualized return on tangible common equity 17.2 % NA 20.6 % 20.2 % Average equity for the quarter-to-date period is computed by adding the total equity attributable to RJF as of the date indicated to the prior quarter-end total, and dividing by two, or in the case of average tangible common equity, computed by adding tangible common equity as of the date indicated to the prior quarter-end total, and dividing by two. Average equity for the year-to-date period is computed by adding the total equity attributable to RJF as of each quarter-end date during the indicated year-to-date period to the beginning of the year total, and dividing by three, or in the case of average tangible common equity, computed by adding tangible common equity as of each quarter-end date during the indicated year-to-date period to the beginning of the year total, and dividing by three. Adjusted average equity is computed by adjusting for the impact on average equity of the non-GAAP adjustments, as applicable for each respective period. Adjusted average tangible common equity is computed by adjusting for the impact on average tangible common equity of the non-GAAP adjustments, as applicable for each respective period. ROE is computed by dividing annualized net income for the period indicated by average equity for each respective period or, in the case of ROTCE, computed by dividing annualized net income by average tangible common equity for each respective period. Adjusted return on equity is computed by dividing annualized adjusted net income by adjusted average equity for each respective period, or in the case of adjusted return on tangible common equity, computed by dividing annualized adjusted net income by adjusted average tangible common equity for each respective period. 52 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis SEGMENTS
We currently operate through the following five segments: PCG; Capital Markets;
Asset Management;
The following table presents our consolidated and segment net revenues and pre-tax income/(loss) for the periods indicated.
Three months ended March 31, Six months ended March 31,
$ in millions 2022 2021 % change 2022 2021 % change
Total company
Net revenues $ 2,673 $ 2,372 13 % $ 5,454 $ 4,594 19 %
Pre-tax income $ 433 $ 447 (3) % $ 991 $ 846 17 %
Private Client Group
Net revenues $ 1,922 $ 1,647 17 % $ 3,761 $ 3,114 21 %
Pre-tax income $ 213 $ 192 11 % $ 408 $ 332 23 %
Capital Markets
Net revenues $ 413 $ 433 (5) % $ 1,027 $ 885 16 %
Pre-tax income $ 87 $ 105 (17) % $ 288 $ 234 23 %
Asset Management
Net revenues $ 234 $ 209 12 % $ 470 $ 404 16 %
Pre-tax income $ 103 $ 87 18 % $ 210 $ 170 24 %
Raymond James Bank
Net revenues $ 197 $ 160 23 % $ 380 $ 327 16 %
Pre-tax income $ 83 $ 111 (25) % $ 185 $ 182 2 %
Other
Net revenues $ (18) $ (12) (50) % $ (33) $ (8) (313) %
Pre-tax loss $ (53) $ (48) (10) % $ (100) $ (72) (39) %
Intersegment eliminations
Net revenues $ (75) $ (65) (15) % $ (151) $ (128) (18) %
53--------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis NET INTEREST ANALYSIS InMarch 2020 , in response to macroeconomic concerns resulting from the COVID-19 pandemic, the Fed decreased its benchmark short-term interest rate to a range of 0-0.25%. These near-zero short-term interest rates negatively impacted our net interest income over the past two years, 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. In response to inflationary pressures and given the improved economic and employment conditions since the beginning of the COVID-19 pandemic, the Fed increased its benchmark short-term interest rate by 25 basis points inMarch 2022 and an additional 50 basis points inMay 2022 and has indicated that it intends to further increase short-term interest rates through the remainder of our fiscal 2022. Given the relationship between our interest-sensitive assets and liabilities (primarily held in our PCG,Raymond James Bank and Other segments) and the nature of fees we earn from third-party banks on the RJBDP, 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. As a result, we believe we are well-positioned for our net interest earnings to be favorably impacted by any additional increase in short-term rates that may arise. Based on our high concentration of floating-rate assets that are funded from clients' domestic cash sweep balances, we estimate (based on static balances as ofMarch 31, 2022 ) that an instantaneous 100-basis point increase in short-term interest rates would result in incremental pre-tax income of nearly$600 million annually, with approximately 65% reflected as net interest income and approximately 35% as account and service fees. The realization of such amounts is dependent upon a number of key assumptions and actual results may differ materially from our estimates. Notably, of this 100-basis point instantaneous increase assumption, 75 basis points has already occurred with the recent interest rate actions by the Fed in March and May of 2022. These assumptions do not incorporate any impact from our announced acquisition of TriState Capital, currently anticipated to close by the end of our fiscal third quarter, which we would expect to further increase our incremental net interest income based on their relatively high concentration of floating-rate interest-earning assets. Refer to the discussion of our net interest income within the "Management's Discussion and Analysis - Results of Operations" of our PCG,Raymond James 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. 54 --------------------------------------------------------------------------------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 yields and rates.
Quarter ended
Three months ended March 31,
2022 2021
Average Annualized Average Annualized
daily average daily average
$ in millions balance Interest rate balance Interest rate
Interest-earning assets:
Cash and cash equivalents $ 5,919 $ 3 0.20 % $ 5,284 $ 2 0.20 %
Assets segregated for regulatory purposes and
restricted cash 19,522 7 0.15 % 10,087 5 0.18 %
Available-for-sale securities 8,869 25 1.16 % 7,997 21 1.08 %
Brokerage client receivables 2,558 21 3.29 % 2,222 19 3.36 %
Bank loans, net of unearned income and deferred
expenses:
Loans held for investment:
C&I loans 8,783 54 2.49 % 7,540 48 2.56 %
CRE loans 3,150 20 2.56 % 2,665 17 2.54 %
REIT loans 1,324 9 2.48 % 1,309 8 2.50 %
Tax-exempt loans 1,289 9 3.18 % 1,227 8 3.35 %
Residential mortgage loans 5,770 38 2.69 % 5,005 34 2.72 %
SBL and other 6,753 39 2.31 % 4,638 26 2.23 %
Loans held for sale 268 2 2.94 % 177 1 1.89 %
Total bank loans, net 27,337 171 2.53 % 22,561 142 2.56 %
All other interest-earning assets 2,192 15 2.64 % 2,201 11 1.87 %
Total interest-earning assets $ 66,397 $ 242 1.48 % $ 50,352 $ 200 1.61 %
Interest-bearing liabilities:
Bank deposits:
Savings, money market and NOW accounts $ 33,097 $ 2 0.02 % $ 27,662 $ 2 0.02 %
Certificates of deposit 733 3 1.83 % 898 4 1.88 %
Total bank deposits 33,830 5 0.06 % 28,560 6 0.08 %
Brokerage client payables 21,405 - 0.01 % 11,485 1 0.02 %
Other borrowings 856 4 2.15 % 862 5 2.18 %
Senior notes payable 2,037 23 4.44 % 2,045 24 4.74 %
All other interest-bearing liabilities 707 6 1.93 % 600 1 0.88 %
Total interest-bearing liabilities $ 58,835 $ 38 0.26 % $ 43,552 $ 37 0.34 %
Net interest income $ 204 $ 163
Firmwide net interest margin (net yield on
interest-earning assets) 1.25 % 1.32 %
Raymond James Bank net interest margin 2.01 % 1.94 %
Nonaccrual loans are included in the average loan balances in the preceding table. Any payments received for corporate nonaccrual loans are applied entirely to principal. Interest income on residential mortgage nonaccrual loans is recognized on a cash basis.
The yield on tax-exempt loans in the preceding table is presented on a
taxable-equivalent basis utilizing the applicable federal statutory rates for
each of the three months ended
55
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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 yield/cost. Similarly, the
effect of rate changes is calculated by multiplying the change in average
yield/cost by the previous period's volume. Changes attributable to both volume
and rate have been allocated proportionately.
Three months ended March 31,
2022 compared to 2021
Increase/(decrease) due to$ in millions Volume Rate Total Interest income: Interest-earning assets: Cash and cash equivalents $ 1 $ -$ 1 Assets segregated for regulatory purposes and restricted cash 3 (1) 2 Available-for-sale securities 2 2 4 Brokerage client receivables 2 - 2 Bank loans, net of unearned income and deferred expenses: Loans held for investment: C&I loans 8 (2) 6 CRE loans 3 - 3 REIT loans 1 - 1 Tax-exempt loans 2 (1) 1 Residential mortgage loans 5 (1) 4 SBL and other 11 2 13 Loans held for sale - 1 1 Total bank loans, net 30 (1) 29 All other interest-earning assets (1) 5 4 Total interest-earning assets$ 37 $ 5 $ 42 Interest expense: Interest-bearing liabilities: Bank deposits: Savings, money market and NOW accounts $ - $ - $ - Certificates of deposit (1) - (1) Total bank deposits (1) - (1) Brokerage client payables - (1) (1) Other borrowings - (1) (1) Senior notes payable - (1) (1) All other interest-bearing liabilities 1 4 5 Total interest-bearing liabilities $ -$ 1 $ 1 Change in net interest income$ 37 $ 4 $ 41 56
--------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Six months endedMarch 31, 2022 compared with the six months endedMarch 31, 2021 Six months ended March 31, 2022 2021 Average Annualized Average Annualized daily average daily average $ in millions balance Interest rate balance Interest rate Interest-earning assets: Cash and cash equivalents$ 5,954 $ 6 0.19 %$ 5,500 $ 6 0.23 % Assets segregated for regulatory purposes and restricted cash 15,844 11 0.14 % 7,954 8 0.19 % Available-for-sale securities 8,688 47 1.09 % 7,735 44 1.14 % Brokerage client receivables 2,521 42 3.32 % 2,152 37 3.42 % Bank loans, net of unearned income and deferred expenses: Loans held for investment: C&I loans 8,681 109 2.49 % 7,537 99 2.60 % CRE loans 3,044 40 2.61 % 2,623 34 2.56 % REIT loans 1,227 16 2.51 % 1,272 16 2.47 % Tax-exempt loans 1,293 17 3.19 % 1,232 16 3.35 % Residential mortgage loans 5,609 75 2.68 % 5,003 69 2.75 % SBL and other 6,519 74 2.26 % 4,460 51 2.26 % Loans held for sale 254 4 2.94 % 159 2 2.36 % Total bank loans, net 26,627 335 2.53 % 22,286 287 2.59 % All other interest-earning assets 2,279 26 2.26 % 2,247 21 1.93 % Total interest-earning assets$ 61,913 $ 467 1.51 %$ 47,874 $ 403 1.69 % Interest-bearing liabilities: Bank deposits: Savings, money market and NOW accounts$ 32,489 $ 4 0.02 %$ 27,144 $ 3 0.02 % Certificates of deposit 789 7 1.85 % 925 9 1.90 % Total bank deposits 33,278 11 0.06 % 28,069 12 0.08 % Brokerage client payables 17,275 1 0.01 % 9,403 2 0.04 % Other borrowings 856 9 2.17 % 864 10 2.21 % Senior notes payable 2,037 46 4.44 % 2,045 48 4.74 % All other interest-bearing liabilities 680 8 1.65 % 587 3 1.01 % Total interest-bearing liabilities$ 54,126 $ 75 0.28 %$ 40,968 $ 75 0.36 % Net interest income$ 392 $ 328 Firmwide net interest margin (net yield on interest-earning assets) 1.27 % 1.38 % Raymond James Bank net interest margin 1.97 % 1.98 %
Nonaccrual loans are included in the average loan balances in the preceding table. Any payments received for corporate nonaccrual loans are applied entirely to principal. Interest income on residential mortgage nonaccrual loans is recognized on a cash basis.
The yield on tax-exempt loans in the preceding table is presented on a
tax-equivalent basis utilizing the applicable federal statutory rates for each
of the six months ended
57
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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 yield/cost. Similarly, the
effect of rate changes is calculated by multiplying the change in average
yield/cost by the previous period's volume. Changes attributable to both volume
and rate have been allocated proportionately.
Six months ended March 31,
2022 compared to 2021
Increase/(decrease) due to$ in millions Volume Rate Total Interest income: Interest-earning assets: Cash and cash equivalents$ 1 $ (1) $ - Assets segregated for regulatory purposes and restricted cash 7 (4) 3 Available-for-sale securities 5 (2) 3 Brokerage client receivables 6 (1) 5 Bank loans, net of unearned income and deferred expenses: Loans held for investment: C&I loans 15 (5) 10 CRE loans 5 1 6 REIT loans - - - Tax-exempt loans 2 (1) 1 Residential mortgage loans 8 (2) 6 SBL and other 23 - 23 Loans held for sale 1 1 2 Total bank loans, net 54 (6) 48 All other interest-earning assets 1 4 5 Total interest-earning assets$ 74 $ (10) $ 64 Interest expense: Interest-bearing liabilities: Bank deposits: Savings, money market and NOW accounts$ 1 $ -$ 1 Certificates of deposit (2) - (2) Total bank deposits (1) - (1) Brokerage client payables 1 (2) (1) Other borrowings - (1) (1) Senior notes payable - (2) (2) All other interest-bearing liabilities 1 4 5 Total interest-bearing liabilities$ 1 $ (1) $ - Change in net interest income$ 73 $ (9) $ 64 58
--------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
RESULTS OF OPERATIONS - PRIVATE CLIENT GROUP
For an overview of our PCG segment operations, as well as a description of the
key factors impacting our PCG results of operations, refer to the information
presented in "Item 1 - Business" and "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations" of our 2021 Form
10-K.
Operating results
Three months ended March 31, Six months ended March 31,
$ in millions 2022 2021 % change 2022 2021 % change
Revenues:
Asset management and related administrative
fees $ 1,245 $ 979 27 % $ 2,407 $ 1,864 29 %
Brokerage revenues:
Mutual and other fund products 166 183 (9) % 337 331 2 %
Insurance and annuity products 110 109 1 % 221 207 7 %
Equities, ETFs and fixed income products 121 121 - % 236 228 4 %
Total brokerage revenues 397 413 (4) % 794 766 4 %
Account and service fees:
Mutual fund and annuity service fees 109 99 10 % 223 193 16 %
RJBDP fees:
Third-party banks 20 19 5 % 37 40 (8) %
Raymond James Bank 49 44 11 % 99 87 14 %
Client account and other fees 53 42 26 % 102 74 38 %
Total account and service fees 231 204 13 % 461 394 17 %
Investment banking 9 16 (44) % 22 22 - %
Interest income 37 30 23 % 70 60 17 %
All other 6 8 (25) % 13 13 - %
Total revenues 1,925 1,650 17 % 3,767 3,119 21 %
Interest expense (3) (3) - % (6) (5) 20 %
Net revenues 1,922 1,647 17 % 3,761 3,114 21 %
Non-interest expenses:
Financial advisor compensation and benefits 1,231 1,040 18 % 2,418 1,971 23 %
Administrative compensation and benefits 289 260 11 % 572 509 12 %
Total compensation, commissions and
benefits 1,520 1,300 17 % 2,990 2,480 21 %
Non-compensation expenses:
Communications and information processing 84 69 22 % 155 131 18 %
Occupancy and equipment 50 45 11 % 96 88 9 %
Business development 25 15 67 % 52 31 68 %
Professional fees 13 10 30 % 22 23 (4) %
All other 17 16 6 % 38 29 31 %
Total non-compensation expenses 189 155 22 % 363 302 20 %
Total non-interest expenses 1,709 1,455 17 % 3,353 2,782 21 %
Pre-tax income $ 213 $ 192 11 % $ 408 $ 332 23 %
59--------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Selected key metrics PCG client asset balances As of March 31, December 31, September 30, March 31, December 31, September 30, $ in billions 2022 2021 2021 2021 2020 2020 Assets under administration ("AUA") (1)$ 1,198.3 $ 1,199.8 $ 1,115.4 $ 1,028.1 $ 974.2 $ 883.3 Assets in fee-based accounts (1) (2)$ 678.0 $ 677.8 $ 627.1 $ 567.6 $ 532.7 $ 475.3 Percent of AUA in fee-based accounts 56.6 % 56.5 % 56.2 % 55.2 % 54.7 % 53.8 % (1)These metrics include the impact from the acquisition ofCharles Stanley , which was completed onJanuary 21, 2022 . As ofMarch 31, 2022 , the impact on AUA was$33 billion and the impact on Assets in fee-based accounts was$21 billion . (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." 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 Condensed Consolidated Statements of Income and Comprehensive Income. Fees received from such accounts are based on the value of client assets in fee-based accounts and vary based on the specific account types in which the client invests and the level of assets in the client relationship. As fees for substantially all of such accounts are billed based on balances as of the beginning of the quarter, revenues from fee-based accounts may not be immediately affected by changes in asset values, but rather the impacts are seen in the following quarter. PCG AUA was essentially flat compared withDecember 31, 2021 as the positive impacts of strong net inflows of client assets during our fiscal second quarter and the Charles Stanley acquisition were offset by a decline in equity markets. Excluding the impact of the Charles Stanley acquisition, PCG AUA and assets in fee-based accounts each declined approximately 3% compared withDecember 31, 2021 , which will negatively impact our asset management and related administrative fees for our fiscal third quarter of 2022. 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. Financial advisors March 31, December 31, September 30, March 31, 2022 2021 2021 2021 Employees 3,601 3,447 3,461 3,375 Independent contractors 5,129 5,017 5,021 4,952 Total advisors (1) 8,730 8,464 8,482 8,327
(1)This metric includes the impact from the acquisition of
The number of financial advisors as ofMarch 31, 2022 increased compared toDecember 31, 2021 andSeptember 30, 2021 , as a result of the Charles Stanley acquisition, strong recruiting and strong retention of existing advisors. The recruiting pipeline remains robust across our affiliation options despite a competitive recruiting environment. Advisors in ourRegistered Investment Advisor & Custody Services division are not included in our financial advisor metric although their client assets, which were$99.2 billion as ofMarch 31, 2022 , are included in PCG AUA. 60 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Clients' domestic cash sweep balances
As of
March 31, December 31, September 30, March 31,
$ in millions 2022 2021 2021 2021
RJBDP:
Raymond James Bank $ 33,570 $ 33,097 $ 31,410 $ 28,174
Third-party banks 25,887 24,316 24,496 25,110
Subtotal RJBDP 59,457 57,413 55,906 53,284
Client Interest Program ("CIP") 17,013 16,065 10,762 9,517
Total clients' domestic cash sweep balances $ 76,470 $ 73,478 $ 66,668 $ 62,801
Three months ended March 31, Six months ended March 31,
2022 2021 2022 2021
Average yield on RJBDP - third-party banks 0.32 % 0.30 % 0.30 % 0.31 %
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 Raymond James Bank and various
third-party banks. We earn servicing fees for the administrative services we
provide related to our clients' deposits that are swept to such banks as part of
the RJBDP. The amounts from third-party banks are variable in nature and
fluctuate based on client cash balances in the program, as well as the level of
short-term interest rates and the interest paid to clients by the third-party
banks on balances in the RJBDP. The "Average yield on RJBDP - third party banks"
in the preceding table is computed by dividing annualized RJBDP fees from
third-party banks, which are net of 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 only slightly from the
prior-year quarter, as the 25-basis point increase in short-term interest rates
in March 2022 occurred late in the current quarter. Although the Fed has
indicated that it intends to continue to increase its benchmark short-term
interest rate throughout the remainder of our fiscal 2022, as evidenced by the
50-basis point increase in May 2022 , the amount of this increase that we will
realize is impacted by other factors, including the timing and magnitude of the
amount of such rate increases paid to clients as well as the demand for our
deposit sweep balances from third-party banks that participate in the RJBDP. The
PCG segment also earns RJBDP servicing fees from the Raymond James Bank segment,
which are based on the number of accounts that are swept to Raymond James Bank .
The fees from the Raymond James Bank segment are eliminated in consolidation.
PCG segment results can be impacted by changes in the allocation of client cash
balances between RJBDP balances with Raymond James Bank , RJBDP balances with
third-party banks and our CIP, as the PCG segment typically earns different
amounts from each of the three client cash destinations, depending on multiple
factors.
Client cash balances continued to increase as of March 31, 2022 . The growing
cash balances combined with limited capacity at third-party banks that
participate in the RJBDP has resulted in a significant increase in cash balances
held in our CIP, also resulting in a significant increase in our assets
segregated for regulatory purposes balance presented on our Condensed
Consolidated Statements of Financial Condition.
61
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Quarter ended
Net revenues of
Asset management and related administrative fees increased$266 million , or 27%, primarily due to higher assets in fee-based accounts at the beginning of the current quarter, as well as incremental revenues related toCharles Stanley since theJanuary 2022 acquisition date.
Brokerage revenues decreased
Account and service fees increased$27 million , or 13%, primarily due to an increase in mutual fund service fees resulting from higher average mutual fund assets, as well as incremental client account and other fees resulting from our acquisition ofCharles Stanley and higher RJBDP fees fromRaymond James Bank due to an increase in the number of accounts swept toRaymond James Bank as part of the RJBDP.
Compensation-related expenses increased
Non-compensation expenses increased
Six months ended
Net revenues of
Asset management and related administrative fees increased$543 million , or 29%, primarily due to higher assets in fee-based accounts at the beginning of each of the current-year quarterly billing periods compared with the prior-year quarterly billing periods and, to a lesser extent, the acquisition ofCharles Stanley .
Brokerage revenues increased
Account and service fees increased$67 million , or 17%, primarily due to an increase in mutual fund service fees resulting from higher average mutual fund assets, as well as incremental client account and other fees resulting from our acquisitions ofNWPS Holdings, Inc. at the end of our fiscal first quarter of 2021 andCharles Stanley in our fiscal second quarter of 2022. RJBDP fees fromRaymond James Bank also increased due to an increase in the number of accounts swept toRaymond James Bank as part of the RJBDP. Compensation-related expenses increased$510 million , or 21%, primarily due to higher revenues, incremental expenses resulting from our acquisition ofCharles Stanley , and an increase in compensation costs to support our growth. Non-compensation expenses increased$61 million , or 20%, due to 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 incremental expenses resulting from our acquisition ofCharles Stanley . 62 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
RESULTS OF OPERATIONS - CAPITAL MARKETS
For an overview of our Capital Markets segment operations, as well as a
description of the key factors impacting our Capital Markets results of
operations, refer to the information presented in "Item 1 - Business" and "Item
7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our 2021 Form 10-K.
Operating results
Three months ended March 31, Six months ended March 31,
$ in millions 2022 2021 % change 2022 2021 % change
Revenues:
Brokerage revenues:
Fixed income $ 125 $ 142 (12) % $ 245 $ 273 (10) %
Equity 41 34 21 % 80 76 5 %
Total brokerage revenues 166 176 (6) % 325 349 (7) %
Investment banking:
Merger & acquisition and advisory 139 122 14 % 410 271 51 %
Equity underwriting 52 67 (22) % 149 127 17 %
Debt underwriting 35 37 (5) % 79 83 (5) %
Total investment banking 226 226 - % 638 481 33 %
Interest income 5 5 - % 10 8 25 %
Tax credit fund revenues 15 24 (38) % 50 40 25 %
All other 4 4 - % 9 11 (18) %
Total revenues 416 435 (4) % 1,032 889 16 %
Interest expense (3) (2) 50 % (5) (4) 25 %
Net revenues 413 433 (5) % 1,027 885 16 %
Non-interest expenses:
Compensation, commissions and benefits 253 259 (2) % 584 511 14 %
Non-compensation expenses:
Communications and information processing 22 20 10 % 44 39 13 %
Occupancy and equipment 10 9 11 % 19 18 6 %
Business development 9 6 50 % 17 15 13 %
Professional fees 7 13 (46) % 21 26 (19) %
Acquisition-related expenses - - - % 4 - NM
All other 25 21 19 % 50 42 19 %
Total non-compensation expenses 73 69 6 % 155 140 11 %
Total non-interest expenses 326 328 (1) % 739 651 14 %
Pre-tax income $ 87 $ 105 (17) % $ 288 $ 234 23 %
Quarter ended
Net revenues of
Brokerage revenues decreased$10 million , or 6%, due to a decrease in fixed income brokerage revenues resulting from a more challenging trading environment compared with a strong prior-year quarter. We expect fixed income brokerage revenues to be volatile over the next few quarters given high levels of interest rate uncertainty. However, we expect our fixed income brokerage revenues to benefit from our announced acquisition ofSumRidge Partners , which we expect to close in the fiscal fourth quarter of 2022. Investment banking revenues were flat compared with the prior-year quarter. Merger & acquisition and advisory revenues increased compared with the prior-year quarter. This increase was offset by a decrease in equity underwriting revenues, primarily due to a decline in market activity during the current quarter as a result of market uncertainty and geopolitical concerns. Our investment banking pipeline remains strong and, in part, reflects the investments we have made over the past several years, including our fiscal 2021 acquisitions ofFinanco and Cebile; however, continued market uncertainty could delay, or ultimately prevent, the closing of transactions, which could negatively impact our results for the remainder of fiscal 2022. 63 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Compensation-related expenses decreased
Non-compensation expenses increased
Six months ended
Net revenues of
Investment banking revenues increased$157 million , or 33%, due to a significant increase in merger & acquisition and advisory revenues and, to a lesser extent, equity underwriting revenues. The significant increase in merger & acquisition and advisory revenues reflected higher levels of client activity, especially in the fiscal first quarter of 2022. The increase in equity underwriting was primarily due to higher revenues from private placements, partially offset by a decline in public offerings. Brokerage revenues decreased$24 million , or 7%, primarily due to a decrease in fixed income brokerage revenues, which remained solid but were lower than the prior-year period as a result of challenging trading conditions compared with a strong prior-year period, due to a more volatile interest rate environment in fiscal 2022.
Compensation-related expenses increased
Non-compensation expenses increased$15 million , or 11%, and included$4 million of acquisition-related expenses, comprised of the amortization of intangible assets with short useful lives which arose from theFinanco and Cebile acquisitions.
RESULTS OF OPERATIONS - ASSET MANAGEMENT
For an overview of our Asset Management segment operations as well as a
description of the key factors impacting our Asset Management results of
operations, refer to the information presented in "Item 1 - Business" and "Item
7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our 2021 Form 10-K.
Operating results
Three months ended March 31, Six months ended March 31,
$ in millions 2022 2021 % change 2022 2021 % change
Revenues:
Asset management and related administrative
fees:
Managed programs $ 149 $ 137 9 % $ 300 $ 266 13 %
Administration and other 77 64 20 % 153 123 24 %
Total asset management and related
administrative fees 226 201 12 % 453 389 16 %
Account and service fees 6 5 20 % 12 9 33 %
All other 2 3 (33) % 5 6 (17) %
Net revenues 234 209 12 % 470 404 16 %
Non-interest expenses:
Compensation, commissions and benefits 47 50 (6) % 93 95 (2) %
Non-compensation expenses:
Communications and information processing 14 12 17 % 26 23 13 %
Investment sub-advisory fees 39 30 30 % 76 58 31 %
All other 31 30 3 % 65 58 12 %
Total non-compensation expenses 84 72 17 % 167 139 20 %
Total non-interest expenses 131 122 7 % 260 234 11 %
Pre-tax income $ 103 $ 87 18 % $ 210 $ 170 24 %
64--------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Selected key metrics Managed programs Management fees recorded in our Asset Management segment are generally calculated as a percentage of the value of our fee-billable financial assets under management ("AUM"). These AUM include the portion of fee-based AUA in our PCG segment that is invested in programs overseen by our Asset Management segment (included in the "AMS" line of the following table), as well as retail accounts managed on behalf of third-party institutions, institutional accounts and proprietary mutual funds that we manage (collectively included in the "Carillon Tower Advisers" line of the following table). Revenues related to fee-based AUA in our PCG segment are shared by the PCG and Asset Management segments, the amount of which depends on whether 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 byCarillon Tower Advisers for retail accounts managed on behalf of third-party institutions, institutional accounts and our proprietary mutual funds are recorded entirely in the Asset Management segment. Our AUM inCarillon Tower Advisers are impacted by market and investment performance and net inflows or outflows of assets.
Fees for our managed programs are generally collected quarterly. Approximately 70% of these fees are based on balances as of the beginning of the quarter, approximately 10% are based on balances as of the end of the quarter, and approximately 20% are based on average daily balances throughout the quarter.
Financial assets under management
March 31, December 31, September 30, March 31, December 31, September 30,
$ in billions 2022 2021 2021 2021 2020 2020
AMS (1) $ 140.1 $ 145.0 $ 134.4 $ 121.2 $ 113.9 $ 102.2
Carillon Tower Advisers 64.0 68.9 67.8 66.6 64.9 59.5
Subtotal financial assets
under management 204.1 213.9 202.2 187.8 178.8 161.7
Less: Assets managed for
affiliated entities (10.4) (10.7) (10.3) (9.6) (9.2) (8.6)
Total financial assets under
management $ 193.7 $ 203.2 $ 191.9 $ 178.2 $ 169.6 $ 153.1 (1)Represents the portion of our PCG segment fee-based AUA (as disclosed in
"Assets in fee-based accounts" in the "Selected key metrics - PCG client asset
balances" section of our "Management's Discussion and Analysis - Results of
Operations -
Activity (including activity in assets managed for affiliated entities)
Three months ended March 31, Six months ended March 31,
$ in billions 2022 2021 2022 2021
Financial assets under management at beginning of
period $ 213.9
(0.8) 1.4 (1.2) 1.1
AMS - net inflows 3.5 3.6 7.0 5.3
Net market appreciation/(depreciation) in asset
values (12.5) 4.0 (3.9) 19.7
Financial assets under management at end of period
$ 187.8 $ 204.1 $ 187.8 AMS
See "Management's Discussion and Analysis - Results of Operations -
65
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Assets managed byCarillon Tower Advisers include assets managed by its subsidiaries and affiliates:Eagle Asset Management , Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management and Cougar Global Investments. The following table presentsCarillon Tower Advisers' AUM by objective, excluding assets for which it does not exercise discretion, as well as the approximate average client fee rate earned on such assets. $ in billions March 31, 2022 Average fee rate Equity $ 27.1 0.56 % Fixed income 29.2 0.18 % Balanced 7.7 0.33 % Total financial assets under management $ 64.0
0.36 %
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 "). March 31, December 31, September 30, March 31, December 31, September 30, $ in billions 2022 2021 2021 2021 2020 2020 Total assets$ 379.7 $ 392.4 $ 365.3 $ 334.2 $ 313.5 $ 280.6 The decrease in assets as ofMarch 31, 2022 compared toDecember 31, 2021 was largely due to a decline in equity markets during the quarter. Administrative fees associated with these programs are predominantly based on balances at the beginning of the quarter. RJ Trust
The following table includes assets held in asset-based programs in
March 31, December 31, September 30, March 31, December 31, September 30,
$ in billions 2022 2021 2021 2021 2020 2020
Total assets $ 8.4 $ 8.8 $ 8.1 $ 7.8 $ 7.6 $ 7.1
Quarter ended
Net revenues of
Asset management and related administrative fees increased$25 million , or 12%, driven by higher average financial assets under management and a higher beginning balance of assets in non-discretionary asset-based programs. The increase in average financial assets under management resulted from both equity market appreciation since the prior-year quarter and net inflows at AMS, partially offset by net outflows atCarillon Tower Advisers , which continued to be negatively impacted by the industry shift from actively managed investment strategies to passive investment strategies. We expect the declines in financial assets under management and assets in non-discretionary asset-based programs compared withDecember 31, 2021 to negatively affect our fiscal third quarter net 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 decreased$3 million , or 6%, and non-compensation expenses increased$12 million , or 17%. The increase in non-compensation expenses was primarily due to higher investment sub-advisory fees, which resulted from the increase in AUM in sub-advised programs.
Six months ended
Net revenues of
Asset management and related administrative fees increased$64 million , or 16%, driven by higher average financial assets under management and higher assets in non-discretionary asset-based programs at the beginning of each of the current-year quarterly billing periods compared with the prior-year quarterly billing periods. 66 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Compensation expenses decreased$2 million , or 2%. Non-compensation expenses increased$28 million , or 20%, largely due to higher investment sub-advisory fees, resulting from the increase in AUM in sub-advised programs.
RESULTS OF OPERATIONS - RAYMOND JAMES BANK
For an overview of ourRaymond James Bank segment operations, as well as a description of the key factors impacting ourRaymond James Bank segment results of operations, refer to the information presented in "Item 1 - Business" and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 Form 10-K. Operating results Three months ended March 31, Six months ended March 31, $ in millions 2022 2021 % change 2022 2021 % change Revenues: Interest income$ 199 $ 165 21 % $ 386$ 333 16 % Interest expense (10) (10) - % (20) (21) (5) % Net interest income 189 155 22 % 366 312 17 % All other 8 5 60 % 14 15 (7) % Net revenues 197 160 23 % 380 327 16 % Non-interest expenses: Compensation and benefits 14 13 8 % 27 25 8 % Non-compensation expenses: Bank loan provision/(benefit) for credit losses 21 (32) NM 10 (18) NM RJBDP fees to PCG 49 44 11 % 99 87 14 % All other 30 24 25 % 59 51 16 % Total non-compensation expenses 100 36 178 % 168 120 40 % Total non-interest expenses 114 49 133 % 195 145 34 % Pre-tax income$ 83 $ 111 (25) % $ 185$ 182 2 %
Quarter ended
Net revenues of
Net interest income increased$34 million , or 22%, largely due to higher average interest-earning assets. The increase in average interest-earning assets was primarily driven by growth in securities-based loans and residential mortgage loans to PCG clients, as well as increases in average corporate loans and available-for-sale securities. The net interest margin increased to 2.01% from 1.94% for the prior-year quarter, primarily due to growth in higher-yielding assets. We anticipate that the net interest margin for our fiscal third quarter of 2022 will be positively impacted by the Fed's short-term interest rate increases enacted in both March and May of 2022. In addition, given that a significant portion of our interest-earning assets are sensitive to changes in market interest rates, we expect our net interest earnings to also be favorably impacted by any additional increases in short-term interest rates that may occur over the remainder of our fiscal 2022.
The bank loan provision for credit losses was
RJBDP fees to PCG increased
67
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Six months ended
Net revenues of
Net interest income increased$54 million , or 17%, due to higher average interest-earning assets. The increase in average interest-earning assets was primarily driven by significant growth in securities-based loans and residential mortgage loans to PCG clients, as well as higher average corporate loans and available-for-sale securities. The net interest margin decreased to 1.97% from 1.98% for the prior-year period, primarily due to lower average short-term interest rates, as well as higher balances of agency-backed available-for-sale securities, which on average have a lower yield than loans. The bank loan provision for credit losses was$10 million for the current-year period, compared with a benefit for credit losses of$18 million for the prior-year period. The current-year period provision primarily reflected the impact of loan growth. The prior year benefit was largely attributable to favorable changes in inputs to our model, reflecting improvements in certain forecasted macroeconomic inputs.
RJBDP fees to PCG increased
RESULTS OF OPERATIONS - OTHER
This segment includes our private equity investments, interest income on certain
corporate cash balances, certain acquisition-related expenses, and certain
corporate overhead costs of RJF that are not allocated to other segments,
including the interest costs on our public debt. For an overview of our Other
segment operations, refer to the information presented in "Item 1 - Business"
and "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations" of our 2021 Form 10-K.
Operating results
Three months ended March 31, Six months ended March 31,
$ in millions 2022 2021 % change 2022 2021 % change
Revenues:
Interest income $ 3 $ 3 - % $ 4 $ 6 (33) %
Gains/(losses) on private equity
investments (2) 8 NM 3 32 (91) %
All other 5 2 150 % 7 3 133 %
Total revenues 6 13 (54) % 14 41 (66) %
Interest expense (24) (25) (4) % (47) (49) (4) %
Net revenues (18) (12) (50) % (33) (8) (313) %
Non-interest expenses:
Compensation and all other 24 36 (33) % 54 62 (13) %
Acquisition-related expenses 11 - NM 13 2 550 %
Total non-interest expenses 35 36 (3) % 67 64 5 %
Pre-tax loss $ (53) $ (48) (10) % $ (100) $ (72) (39) %
Quarter ended
The pre-tax loss of
Net revenues decreased
Non-interest expenses decreased$1 million , primarily due to a decrease in compensation expense and lower amounts attributable to noncontrolling interests due to private equity losses in the current quarter compared with gains in the prior-year quarter. Offsetting these declines were$11 million of acquisition-related expenses in the current quarter, which primarily included professional expenses and other costs incurred to effect our acquisition ofCharles Stanley , which was completed inJanuary 2022 , and our announced acquisitions of TriState Capital andSumRidge Partners . 68 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Six months ended
The pre-tax loss of
Net revenues decreased$25 million , primarily due to lower private equity gains compared with the prior-year period. The current-year period included$3 million of private equity valuation gains, of which an insignificant amount was attributable to noncontrolling interests, compared with$32 million of private equity valuation gains for the prior-year period, of which$10 million were attributable to noncontrolling interests and were offset within other expenses. Non-interest expenses increased$3 million , or 5%, primarily due to an increase in acquisition-related expenses, partially offset by lower private equity gains attributable to noncontrolling interests. The$13 million of acquisition-related expenses in the current-year period primarily included the aforementioned expenses associated with our acquisition ofCharles Stanley , as well as our announced acquisitions of TriState Capital andSumRidge Partners .
CERTAIN STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES
We are required to provide certain statistical disclosures as a bank holding company under theSEC's Industry Guide 3. The following table provides certain of those disclosures. Three months ended March 31, Six months ended March 31, 2022 2021 2022 2021 Return on assets 1.8% 2.6% 2.3% 2.5% Return on equity 15.0% 19.0% 18.1% 18.1% Average equity to average assets 12.2% 13.6% 12.5% 14.0% Dividend payout ratio 22.4% 15.5% 18.8% 16.5% Return on assets is computed by dividing annualized net income for the period indicated by average assets for each respective period. Average assets for the quarter is computed by adding total assets as of the date indicated to the prior quarter-end total and dividing by two. Average assets for the year-to-date period is computed by adding total assets as of each quarter-end date during the year-to-date period to the beginning of the year total and dividing by three. Return on equity is computed by dividing annualized net income for the period indicated by average equity for each respective period. Average equity for the quarter is computed by adding total equity attributable to RJF as of the date indicated to the prior quarter-end total and dividing by two. Average equity for the year-to-date period is computed by adding total equity attributable to RJF as of each quarter-end date during the year-to-date period to the beginning of the year total and dividing by three.
Average equity to average assets is computed by dividing average equity by average assets, as calculated in accordance with the previous explanations.
Dividend payout ratio is computed by dividing dividends declared per common share during the period by earnings per diluted common share for the period.
Refer to the "Net interest analysis" and "Risk management - Credit risk" sections of this MD&A and to the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for the other required disclosures.
69
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
STATEMENT OF FINANCIAL CONDITION ANALYSIS
The assets on our Condensed Consolidated Statements of Financial 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, and other assets. A significant portion of our assets were liquid in nature, providing us with flexibility in financing our business. Total assets of$73.10 billion as ofMarch 31, 2022 were$11.21 billion , or 18%, greater than our total assets as ofSeptember 30, 2021 . The increase in assets was primarily due to an$8.18 billion increase in assets segregated for regulatory purposes and restricted cash, primarily due to a significant increase in client cash balances and the addition of$2.34 billion of segregated cash balances resulting from the Charles Stanley acquisition. The acquisition ofCharles Stanley also contributed to the$338 million increase in brokerage client receivables and drove the$228 million increase in goodwill and identifiable intangible assets compared withSeptember 30, 2021 (see Note 3 for further information). Bank loans, net increased by$2.89 billion , primarily due to an increase in securities-based loans and residential mortgage loans to PCG clients, as well as an increase in corporate loans. Available-for-sale securities increased$500 million . Partially offsetting these increases was a decrease in cash and cash equivalents of$1.49 billion . As ofMarch 31, 2022 , our total liabilities of$64.49 billion were$10.90 billion , or 20%, greater than our total liabilities as ofSeptember 30, 2021 . The increase in total liabilities was primarily related to the significant increase in client cash balances as ofMarch 31, 2022 , which resulted in a$8.71 billion increase in brokerage client payables, primarily due to an increase in client cash held in our CIP, and a$2.19 billion increase in bank deposits resulting from higher RJBDP balances held atRaymond James Bank . The increase in brokerage client payables also reflected an incremental$2.60 billion of client payables resulting from the Charles Stanley acquisition.
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 70 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis 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 stressed scenarios.
Cash flows
Cash and cash equivalents (excluding amounts segregated for regulatory purposes and restricted cash) decreased$1.49 billion to$5.72 billion during the six months endedMarch 31, 2022 , primarily due to the purchase ofU.S. Treasuries, which were largely segregated for regulatory purposes as ofMarch 31, 2022 , as well as investments in bank loans and available-for-sale securities. In addition, onJanuary 21, 2022 , we completed our acquisition ofCharles Stanley for £277 million ($376 million as ofJanuary 21, 2022 ). Offsetting these cash outflows was the impact of positive net income during the period, as well as a significant increase in client cash balances which increased our brokerage client payables and bank deposits.
Sources of liquidity
Approximately$2.23 billion of our totalMarch 31, 2022 cash and cash equivalents included cash held at the parent company, which included cash loaned to RJ&A. These amounts include the impact of significant dividends from RJ&A during the three months endedMarch 31, 2022 , as well as dividends from RJF's other subsidiaries. As ofMarch 31, 2022 , RJF had loaned$1.67 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
March 31, 2022
RJF $ 579
RJ&A 2,507
Raymond James Bank 869
Raymond James Ltd. ("RJ Ltd.") 974
Charles Stanley Group Limited 130
Raymond James Financial Services, Inc. 118
Carillon Tower Advisers 71
Other subsidiaries 467
Total cash and cash equivalents $ 5,715
RJF maintained depository accounts at Raymond James Bank with a balance of $255
million as of March 31, 2022 . The portion of this total that was available on
demand without restrictions, which amounted to $178 million as of March 31,
2022 , is reflected in the RJF cash balance and excluded from the Raymond James
Bank cash balance in the preceding table.
A large portion of the RJ Ltd. cash and cash equivalents balance as of March 31,
2022 was held to meet regulatory requirements and was not available for use by
the parent.
In addition to the cash balances described, we have various other potential sources of cash available to the parent from subsidiaries, as described in the following section.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Liquidity available from subsidiaries
Liquidity is principally available to RJF, the parent company, 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. AtMarch 31, 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 our fiscal second quarter of 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 ofRaymond James Bank's current calendar year and the previous two calendar years' retained net income, andRaymond James Bank maintains its targeted regulatory capital ratios. Dividends fromRaymond James Bank may be limited to the extent that capital is needed to support its balance sheet growth.
Although we have liquidity available to us from our other subsidiaries, the available amounts are not as significant as those previously described and, in certain instances, may be subject to regulatory requirements.
Borrowings and financing arrangements
Committed financing arrangements
Our ability to borrow is dependent upon compliance with the conditions in our various loan agreements and, in the case of secured borrowings, collateral eligibility requirements. Our committed financing arrangements 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 committed financing arrangements with third-party lenders, which we generally utilize to finance a portion of our fixed income trading instruments, and the outstanding balances related thereto. March 31, 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 ofMarch 31, 2022 from 0.175% per annum as ofSeptember 30, 2021 , as a result ofMoody's Investor Services ("Moody's") upgrade of our credit ratings inFebruary 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 our 2021 Form 10-K. 72 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Uncommitted financing arrangements
Our uncommitted financing arrangements are in the form of secured lines of credit, secured bilateral or tri-party repurchase agreements, or unsecured lines of credit. Our arrangements with third-party lenders are generally utilized to finance a portion of our fixed income securities or for cash management purposes. Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed 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 ofMarch 31, 2022 , we had outstanding borrowings under two 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, all of which were in the form of repurchase agreements in RJ&A and were included in "Collateralized financings" on our Condensed Consolidated Statements of Financial Condition.
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