RAYMOND JAMES FINANCIAL INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Table of Contents PAGE Report of Independent Registered Public Accounting Firm 80 Consolidated Statements of Financial Condition 82 Consolidated Statements of Income and Comprehensive Income 83 Consolidated Statements of Changes in Shareholders’ Equity 84 Consolidated Statements of Cash Flows 85 Notes to Consolidated Financial Statements Note 1 - Organization and basis of presentation 87 Note 2 - Summary of significant accounting policies 88 Note 3 - Fair value 105 Note 4 - Available-for-sale securities 111 Note 5 - Derivative assets and derivative liabilities 113 Note 6 - Collateralized agreements and financings 115 Note 7 - Bank loans, net 116 Note 8 - Variable interest entities 121 Note 9 - Property and equipment, net 122 Note 10 - Goodwill and identifiable intangible assets, net 123 Note 11 - Other assets 125 Note 12 - Leases 125 Note 13 - Bank deposits 126 Note 14 - Other borrowings 127 Note 15 - Senior notes payable 128 Note 16 - Income taxes 129 Note 17 - Commitments, contingencies and guarantees 131 Note 18 - Accumulated other comprehensive income/(loss) 134 Note 19 - Revenues 135 Note 20 - Interest income and interest expense 138 Note 21 - Share-based and other compensation 138 Note 22 - Regulatory capital requirements 141 Note 23 - Earnings per share 143 Note 24 - Segment information 144 Note 25 - Condensed financial information (parent company only) 146 Supplementary data 150 79 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Raymond James Financial, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial condition of Raymond James Financial, Inc. and subsidiaries (the Company) as of September 30, 2020 and 2019, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three‑year period ended September 30, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended September 30, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated November 24, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Assessment of the allowance for loan losses related to both the commercial and industrial (C&I) and the commercial real estate (CRE) loan portfolios that are collectively evaluated for impairment As discussed in Notes 2 and 7 to the consolidated financial statements, the Company’s allowance for loan losses related to loans collectively evaluated for impairment (ALL) was based on quantitative historical loss rates adjusted by an estimate of the loss emergence period. The Company also adjusted the quantitative historical loss rates by considering qualitative factors that cause the estimated losses to differ from quantitatively calculated amounts. The Company recorded a total allowance for loan losses of $354 million as of September 30, 2020. Of that amount, the ALL for C&I loans was $200 million or 56% of the total allowance, and the ALL for CRE loans was $117 million or 33% of the total allowance. 80 We identified the assessment of the ALL related to the C&I and CRE loan portfolios as a critical audit matter because it required a significant degree of subjective auditor judgment and specialized industry skills and knowledge. There was subjectivity in performing procedures over key factors and assumptions used by the Company, including selection of proxy data used to develop loss rates and the evaluation of loss emergence periods. There were also subjective judgments and specialized skills and knowledge needed to assess loan characteristics, such as loan risk ratings, and to evaluate the development and application of the ALL methodology and the use of qualitative factors. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the measurement of the ALL for the C&I and CRE loan portfolios. This included controls related to the (1) development and approval of the ALL methodology, (2) determination and calculation of key factors and assumptions as well as qualitative factors, and (3) analysis of the ALL results, trends, and ratios. We evaluated the relevance of the historical proxy data used to develop loss rates by comparing the Company’s C&I loan portfolio characteristics to the historical proxy data characteristics. In addition, we tested the CRE loss estimates by comparing them to loss data from independently determined industry peer groups. We evaluated the loss emergence period by testing the loss triggering and confirmation dates for a selection of loans. We assessed how the underlying assumptions used by the Company incorporated accurate metrics and other information and were applied in accordance with the qualitative framework. In addition, we involved credit risk professionals with specialized industry skills and knowledge, who assisted in testing the Company’s process, including: • evaluating the Company’s ALL methodology to determine if it is sufficiently structured, transparent, and repeatable to produce an estimate that is compliant with U.S. generally accepted accounting principles, • performing credit file reviews on a selection of loans to assess loan characteristics, such as loan risk ratings, and • evaluating the conceptual soundness of the qualitative framework to determine if it identified the relevant incremental risks not captured by the quantitative estimate. /s/ KPMG LLP We have served as the Company’s auditor since 2001. Tampa, Florida November 24, 2020 81 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION September 30, $ in millions, except per share amounts 2020 2019 Assets: Cash and cash equivalents $ 5,390 $ 3,957 Cash and cash equivalents segregated pursuant to regulations 4,244 2,014 Collateralized agreements 422 591 Financial instruments, at fair value: Trading instruments ( $ 265 and $ 535 pledged as collateral) 513 708 Available-for-sale securities ( $ 23 and $ 24 pledged as collateral) 7,650 3,093 Derivative assets 438 338 Other investments ( $ 37 and $ 32 pledged as collateral) 334 365 Brokerage client receivables, net 2,435 2,671 Other receivables, net 927 830 Bank loans, net 21,195 20,891 Loans to financial advisors, net 1,012 983 Property and equipment, net 535 527 Deferred income taxes, net 262 231 Goodwill and identifiable intangible assets, net 600 611 Other assets 1,525 1,020 Total assets $ 47,482 $ 38,830 Liabilities and shareholders’ equity: Bank deposits $ 26,801 $ 22,281 Collateralized financings 250 473 Financial instrument liabilities, at fair value: Trading instruments 240 296 Derivative liabilities 393 313 Brokerage client payables 6,792 4,361 Accrued compensation, commissions and benefits 1,384 1,272 Other payables 1,513 747 Other borrowings 888 894 Senior notes payable 2,045 1,550 Total liabilities 40,306 32,187 Commitments and contingencies (see Note 17) Shareholders’ equity Preferred stock; $ .10 par value; 10,000,000 shares authorized; - 0 - shares issued and outstanding — — Common stock; $ .01 par value; 350,000,000 shares authorized; 159,007,158 and 158,435,030 shares issued as of September 30, 2020 and 2019, respectively, and 136,556,559 and 137,841,952 shares outstanding as of September 30, 2020 and 2019, respectively 2 2 Additional paid-in capital 2,007 1,938 Retained earnings 6,484 5,874 Treasury stock, at cost; 22,450,599 and 20,593,078 common shares as of September 30, 2020 and 2019, respectively ( 1,390 ) ( 1,210 ) Accumulated other comprehensive income/(loss) 11 ( 23 ) Total equity attributable to Raymond James Financial, Inc. 7,114 6,581 Noncontrolling interests 62 62 Total shareholders’ equity 7,176 6,643 Total liabilities and shareholders’ equity $ 47,482 $ 38,830 See accompanying Notes to Consolidated Financial Statements. 82 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Year ended September 30, in millions, except per share amounts 2020 2019 2018 Revenues: Asset management and related administrative fees $ 3,834 $ 3,451 $ 3,119 Brokerage revenues: Securities commissions 1,468 1,450 1,626 Principal transactions 488 357 329 Total brokerage revenues 1,956 1,807 1,955 Account and service fees 624 738 713 Investment banking 650 596 501 Interest income 1,000 1,281 1,044 Other 104 150 144 Total revenues 8,168 8,023 7,476 Interest expense ( 178 ) ( 283 ) ( 202 ) Net revenues 7,990 7,740 7,274 Non-interest expenses: Compensation, commissions and benefits 5,465 5,087 4,795 Non-compensation expenses: Communications and information processing 393 373 352 Occupancy and equipment 225 218 202 Business development 134 194 181 Investment sub-advisory fees 101 94 92 Professional fees 91 85 74 Bank loan loss provision 233 22 20 Acquisition and disposition-related expenses 7 15 4 Reduction in workforce expenses 46 — — Other 243 277 243 Total non-compensation expenses 1,473 1,278 1,168 Total non-interest expenses 6,938 6,365 5,963 Pre-tax income 1,052 1,375 1,311 Provision for income taxes 234 341 454 Net income $ 818 $ 1,034 $ 857 Earnings per common share – basic $ 5.94 $ 7.32 $ 5.89 Earnings per common share – diluted $ 5.83 $ 7.17 $ 5.75 Weighted-average common shares outstanding – basic 137.6 141.0 145.3 Weighted-average common and common equivalent shares outstanding – diluted 140.2 144.0 148.8 Net income $ 818 $ 1,034 $ 857 Other comprehensive income/(loss), net of tax: Available-for-sale securities 68 71 ( 42 ) Currency translations, net of the impact of net investment hedges — ( 2 ) ( 3 ) Cash flow hedges ( 34 ) ( 61 ) 33 Total other comprehensive income/(loss), net of tax $ 34 $ 8 $ ( 12 ) Total comprehensive income $ 852 $ 1,042 $ 845 See accompanying Notes to Consolidated Financial Statements. 83 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Year ended September 30, $ in millions, except per share amounts 2020 2019 2018 Common stock, par value $ .01 per share: Balance beginning of year $ 2 $ 2 $ 2 Share issuances — — — Balance end of year 2 2 2 Additional paid-in capital: Balance beginning of year 1,938 1,808 1,645 Employee stock purchases 36 34 31 Exercise of stock options and vesting of restricted stock units, net of forfeitures ( 80 ) 21 32 Restricted stock, stock option and restricted stock unit expense 113 107 98 Acquisition of noncontrolling interest and other — ( 32 ) 2 Balance end of year 2,007 1,938 1,808 Retained earnings: Balance beginning of year 5,874 5,032 4,340 Net income attributable to Raymond James Financial, Inc. 818 1,034 857 Cash dividends declared (see Note 23) ( 208 ) ( 196 ) ( 164 ) Other — 4 ( 1 ) Balance end of year 6,484 5,874 5,032 Treasury stock: Balance beginning of year ( 1,210 ) ( 447 ) ( 390 ) Purchases/surrenders ( 273 ) ( 759 ) ( 45 ) Exercise of stock options and vesting of restricted stock units, net of forfeitures 93 ( 4 ) ( 12 ) Balance end of year ( 1,390 ) ( 1,210 ) ( 447 ) Accumulated other comprehensive income/(loss): Balance beginning of year ( 23 ) ( 27 ) ( 15 ) Other comprehensive income/(loss), net of tax 34 8 ( 12 ) Other — ( 4 ) — Balance end of year 11 ( 23 ) ( 27 ) Total equity attributable to Raymond James Financial, Inc. $ 7,114 $ 6,581 $ 6,368 Noncontrolling interests: Balance beginning of year $ 62 $ 84 $ 112 Net loss attributable to noncontrolling interests ( 26 ) ( 14 ) ( 6 ) Capital contributions 3 2 — Distributions and other 23 ( 10 ) ( 22 ) Balance end of year 62 62 84 Total shareholders’ equity $ 7,176 $ 6,643 $ 6,452 See accompanying Notes to Consolidated Financial Statements. 84 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended September 30, $ in millions 2020 2019 2018 Cash flows from operating activities: Net income $ 818 $ 1,034 $ 857 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 119 112 99 Deferred income taxes ( 39 ) ( 23 ) 117 Premium and discount amortization on available-for-sale securities and loss on other investments 57 14 21 Provisions for loan losses, legal and regulatory proceedings and bad debts 257 59 55 Share-based compensation expense 120 112 99 Unrealized gain on company-owned life insurance policies, net of expenses ( 46 ) ( 10 ) ( 32 ) Goodwill impairment — 19 — Other 92 51 17 Net change in: Collateralized agreements, net of collateralized financings ( 55 ) ( 101 ) ( 83 ) Loans provided to financial advisors, net of repayments ( 49 ) ( 79 ) ( 87 ) Brokerage client receivables and other accounts receivable, net 127 682 ( 491 ) Trading instruments, net 150 41 ( 143 ) Derivative instruments, net ( 51 ) ( 144 ) 73 Other assets ( 13 ) ( 71 ) — Brokerage client payables and other accounts payable 2,486 ( 1,231 ) 346 Accrued compensation, commissions and benefits 70 80 132 Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale 11 32 ( 96 ) Net cash provided by operating activities 4,054 577 884 Cash flows from investing activities: Additions to property and equipment ( 124 ) ( 138 ) ( 134 ) Increase in bank loans, net ( 1,136 ) ( 1,605 ) ( 2,818 ) Proceeds from sales of loans held for investment 634 235 193 Purchases of available-for-sale securities ( 5,710 ) ( 1,027 ) ( 1,124 ) Available-for-sale securities maturations, repayments and redemptions 1,188 644 495 Proceeds from sales of available-for-sale securities 222 — 45 Business acquisitions, net of cash acquired ( 5 ) ( 5 ) ( 159 ) Other investing activities, net ( 54 ) ( 1 ) 26 Net cash used in investing activities ( 4,985 ) ( 1,897 ) ( 3,476 ) See accompanying Notes to Consolidated Financial Statements. 85 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued from previous page) Year ended September 30, $ in millions 2020 2019 2018 Cash flows from financing activities: Proceeds from borrowings on the RJF Credit Facility — 300 300 Repayment of borrowings on the RJF Credit Facility — ( 300 ) ( 300 ) Repayments of short-term borrowings, net — — ( 610 ) Proceeds from Federal Home Loan Bank advances 850 850 850 Repayments of Federal Home Loan Bank advances and other borrowed funds ( 855 ) ( 855 ) ( 855 ) Proceeds from senior notes issuances, net of debt issuance costs paid 494 — — Acquisition-related contingent consideration paid, net — — ( 7 ) Exercise of stock options and employee stock purchases 62 65 63 Increase in bank deposits 4,520 2,339 2,210 Purchases of treasury stock ( 272 ) ( 778 ) ( 62 ) Dividends on common stock ( 205 ) ( 191 ) ( 151 ) Acquisitions of and distributions to noncontrolling interests, net ( 1 ) ( 57 ) ( 18 ) Net cash provided by financing activities 4,593 1,373 1,420 Currency adjustment: Effect of exchange rate changes on cash 1 ( 23 ) ( 33 ) Net increase/(decrease) in cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations 3,663 30 ( 1,205 ) Cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations at beginning of year 5,971 5,941 7,146 Cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations at end of year $ 9,634 $ 5,971 $ 5,941 Cash and cash equivalents $ 5,390 $ 3,957 $ 3,500 Cash and cash equivalents segregated pursuant to regulations 4,244 2,014 2,441 Total cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations at end of year $ 9,634 $ 5,971 $ 5,941 Supplemental disclosures of cash flow information: Cash paid for interest $ 164 $ 283 $ 201 Cash paid for income taxes, net $ 246 $ 390 $ 231 See accompanying Notes to Consolidated Financial Statements. 86 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION Organization Raymond James Financial, Inc. (“RJF,” the “firm” or the “Company”) is a financial holding company which, together with its subsidiaries, is engaged in various financial services activities, including providing investment management services to retail and institutional clients, the underwriting, distribution, trading and brokerage of equity and debt securities, and the sale of mutual funds and other investment products. The firm also provides corporate and retail banking services, and trust services. For further information about our business segments, see Note 24 of this Form 10-K. As used herein, the terms “our,” “we,” or “us” refer to RJF and/or one or more of its subsidiaries. Basis of presentation The accompanying consolidated financial statements include the accounts of RJF and its consolidated subsidiaries that are generally controlled through a majority voting interest. We consolidate all of our 100 % owned subsidiaries. In addition, we consolidate any variable interest entity (“VIE”) in which we are the primary beneficiary. Additional information on these VIEs is provided in Note 2 and in Note 8 of this Form 10-K. When we do not have a controlling interest in an entity, but we exert significant influence over the entity, we apply the equity method of accounting. All material intercompany balances and transactions have been eliminated in consolidation. Effective April 2019, we increased our ownership of ClariVest Asset Management LLC (“ClariVest”) from 45 % to 100 % making ClariVest a wholly-owned subsidiary of Eagle Asset Management. ClariVest has been included in our consolidated financial statements since our initial investment of the 45 % interest as we concluded we were required to consolidate as defined by the accounting guidance. The increase in ownership was accounted for as a shareholders’ equity transaction. Accounting estimates and assumptions The preparation of consolidated financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates and could have a material impact on the consolidated financial statements. Reclassifications Certain prior-period amounts have been reclassified to conform to the current year’s presentation. 87 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Recognition of non-interest revenues Revenue from contracts with customers is recognized when promised goods or services are delivered to our customers in an amount we expect to receive in exchange for those goods or services (i.e., the transaction price). Contracts with customers can include multiple services, which are accounted for as separate “performance obligations” if they are determined to be distinct. Our performance obligations to our customers are generally satisfied when we transfer the promised good or service to our customer, either at a point in time or over time. Revenue from a performance obligation transferred at a point in time is recognized at the time that the customer obtains control over the promised good or service. Revenue from our performance obligations satisfied over time is recognized in a manner that depicts our performance in transferring control of the good or service, which is generally measured based on time elapsed, as our customers receive the benefit of our services as they are provided. Payment for the majority of our services is considered to be variable consideration, as the amount of revenue we expect to receive is subject to factors outside of our control, including market conditions. Variable consideration is only included in revenue when amounts are not subject to significant reversal, which is generally when uncertainty around the amount of revenue to be received is resolved. We record deferred revenue from contracts with customers when payment is received prior to the performance of our obligation to the customer. We involve third parties in providing services to the customer for certain of our contracts with customers. We are generally deemed to control the promised services before they are transferred to the customer. Accordingly, we present the related revenues gross of the related costs. Asset management and related administrative fees We earn asset management and related administrative fees for performing asset management, portfolio management and related administrative services to retail and institutional clients. Such fees are generally calculated as a percentage of the value of client assets in fee-based accounts in our Private Client Group (“PCG”) segment or on the net asset value of assets managed by Carillon Tower Advisers and its affiliates (collectively “Carillon Tower Advisers”) in our Asset Management segment. The value of these assets is impacted by market fluctuations and net inflows or outflows of assets. Fees are generally collected quarterly and are based on balances either at the beginning of the quarter or the end of the quarter, or average balances throughout the quarter. Asset management and related administrative fees are recognized on a monthly basis (i.e., over time) as the services are performed. Revenues related to fee-based accounts under administration in PCG are shared by the PCG and Asset Management segments, the amount of which depends on whether clients are invested in “managed programs” that are overseen by our Asset Management segment (i.e., included in financial assets under management (“AUM”) in the Asset Management segment) and the administrative services provided. Asset management revenues earned by Carillon Tower Advisers for retail accounts managed on behalf of third-party institutions, institutional accounts or proprietary mutual funds that we manage are recorded entirely in the Asset Management segment. Brokerage revenues Securities commissions Mutual and other fund products and insurance and annuity products We earn revenues for distribution and related support services performed related to mutual and other funds, fixed and variable annuities and insurance products. Depending on the product sold, we may receive an upfront fee for our services, a trailing commission, or some combination thereof. Upfront commissions received are generally based on a fixed rate applied, as a percentage, to amounts invested or the value of the contract at the time of sale and are generally recognized at the time of sale. Trailing commissions are generally based on a fixed rate applied, as a percentage, to the net asset value of the fund, or the value of the insurance policy or annuity contract. Trailing commissions are generally received monthly or quarterly while our client holds the investment or holds the contract. As these trailing commissions are based on factors outside of our control, including market movements and client behavior (i.e., how long clients hold their investment, insurance policy or annuity contract), such revenue is recognized when it is probable that a significant reversal will not occur. 88 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Equities, ETFs and fixed income products We earn commissions for executing and clearing transactions for customers, primarily in listed and over-the-counter (“OTC”) equity securities, including exchange-traded funds (“ETFs”), and options. Such revenues primarily arise from transactions for retail clients in our PCG segment, as well as services related to sales and trading activities transacted on an agency basis in our Capital Markets segment. Commissions are recognized on trade date, generally received from the customer on settlement date, and we record a receivable between the trade date and the date collected from the customer. Principal transactions Principal transactions include revenues from customers’ purchases and sales of financial instruments, including fixed income and equity securities and derivatives, in which we transact on a principal basis. To facilitate such transactions, we carry inventories of financial instruments. The gains and losses on such inventories, both realized and unrealized, are reported as principal transactions revenues. Account and service fees Mutual fund and annuity service fees We earn servicing fees for providing sales and marketing support to product partners and for supporting the availability and distribution of their products on our platforms. We also earn servicing fees from such partners for accounting and administrative services provided to such partners. These fees, which are received monthly or quarterly, are generally based on the market value of assets or number of positions in such programs or, in certain cases, are a fixed annual fee, and are recognized over time as the services are performed. RJBDP fees We earn servicing fees from various banks for administrative services we provide related to our clients’ deposits that are swept to such banks as part of the Raymond James Bank Deposit Program (“RJBDP”), our multi-bank sweep program. The amounts received 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 fees are earned over time as the related administrative services are performed and are received monthly. Our PCG segment also earns servicing fees from RJ Bank, which are based on the number of accounts that are swept to RJ Bank. These fees are eliminated in consolidation. Investment banking We earn revenue from investment banking transactions, including public and private equity and debt financing, merger & acquisition advisory services, and other advisory services. Underwriting revenues, which are typically deducted from the proceeds remitted to the issuer, are recognized on trade date if there is no uncertainty or contingency related to the amount to be paid. Fees from merger & acquisition and advisory assignments are generally recognized at the time the services related to the transaction are completed under the terms of the engagement. Fees for merger & acquisition and advisory services are typically received upfront, as non-refundable retainer fees, or as a success fee upon completion of a transaction. Expenses related to investment banking transactions are generally deferred until the related revenue is recognized or the assignment is otherwise concluded. Such expenses are included in “Professional fees” on our Consolidated Statements of Income and Comprehensive Income. We have elected the practical expedient allowed by the accounting guidance to not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. See Note 19 in the accompanying Notes to the Consolidated Financial Statements for additional information on our revenue streams. Cash and cash equivalents Our cash equivalents include money market funds or highly liquid investments with original maturities of 3 months or less, other than those used for trading purposes. 89 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Cash and cash equivalents segregated pursuant to regulations In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Raymond James & Associates, Inc. (“RJ&A”), as a broker-dealer carrying client accounts, is subject to requirements to maintain cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. The amounts included in “Cash and cash equivalents segregated pursuant to regulations” on our Consolidated Statements of Financial Condition represent the amounts of cash and cash equivalents, which includes highly liquid investments with original maturities of 3 months or less, on deposit in our segregated reserve accounts for regulatory purposes as of each respective period-end. From time to time, we may also segregate highly liquid securities, such as U.S. Treasuries, which have original maturities of greater than 3 months. Such securities are carried at fair value on our Consolidated Statements of Financial Condition. In addition, Raymond James Ltd. (“RJ Ltd.”) is required to hold client Registered Retirement Savings Plan funds in trust. Collateralized agreements and financings Securities purchased under agreements to resell and securities sold under agreements to repurchase We purchase securities under short-term agreements to resell (“reverse repurchase agreements”). Additionally, we sell securities under agreements to repurchase (“repurchase agreements”). Both reverse repurchase agreements and repurchase agreements are accounted for as collateralized financings and are carried at contractual amounts plus accrued interest. We receive collateral with a fair value that is typically equal to or in excess of the principal amount loaned under reverse repurchase agreements to mitigate credit exposure. To ensure that the market value of the underlying collateral remains sufficient, collateral values are evaluated on a daily basis, and collateral is obtained from or returned to the counterparty when contractually required. Under repurchase agreements, we are required to post collateral in an amount that typically exceeds the carrying value of these agreements. In the event that the market value of the securities we pledge as collateral declines, we may have to post additional collateral or reduce borrowing amounts. Reverse repurchase agreements and repurchase agreements are included in “Collateralized agreements” and “Collateralized financings,” respectively, on our Consolidated Statements of Financial Condition. See Note 6 for additional information regarding collateralized agreements and financings. Securities borrowed and securities loaned We act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from one broker-dealer and then either lend them to another broker-dealer or use them to cover short positions. Where permitted, we have also loaned, to broker-dealers and other financial institutions, securities owned by the firm, our clients, or others we have received as collateral. Both securities borrowed and securities loaned transactions are accounted for as collateralized financings and are recorded at the amount of cash advanced or received. In securities borrowed transactions, we are required to deposit cash with the lender in an amount which is generally in excess of the market value of securities borrowed. With respect to securities loaned, we generally receive cash in an amount in excess of the market value of securities loaned. We evaluate the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as necessary. Securities borrowed and securities loaned are included in “Collateralized agreements” and “Collateralized financings,” respectively, on our Consolidated Statements of Financial Condition. See Note 6 for additional information regarding collateralized agreements and financings. Financial instruments, financial instrument liabilities, at fair value “Financial instruments” and “Financial instrument liabilities” are recorded at fair value. Fair value is defined by GAAP as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the asset or liability. In determining the fair value of our financial instruments in accordance with GAAP, we use various valuation approaches, including market and/or income approaches. Fair value is a market-based measurement considered from the perspective of a market participant. As such, our fair value measurements reflect assumptions that we believe market participants would use in pricing the asset or liability at the measurement date. GAAP provides for the following three levels to be used to classify our fair value measurements. Level 1 - Financial instruments included in Level 1 are highly liquid instruments valued using unadjusted quoted prices in active markets for identical assets or liabilities. 90 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Level 2 - Financial instruments reported in Level 2 include those that have pricing inputs that are other than unadjusted quoted prices in active markets, but which are either directly or indirectly observable as of the reporting date (i.e., prices for similar instruments). Level 3 - Financial instruments reported in Level 3 have little, if any, market activity and are measured using one or more inputs that are significant to the fair value measurement and unobservable. These valuations require judgment or estimation. These instruments are generally valued using discounted cash flow techniques, market multiples, or investment-specific events. GAAP requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when performing our fair value measurements. The availability of observable inputs can vary from instrument to instrument and, in certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of factors specific to the instrument. Valuation techniques and inputs The fair values for certain of our financial instruments are derived using pricing models and other valuation techniques that involve management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of our financial instruments. Financial instruments which are actively traded will generally have a higher degree of price transparency than financial instruments that are less frequently traded. In accordance with GAAP, the criteria used to determine whether the market for a financial instrument is active or inactive is based on the particular asset or liability. For equity securities, our definition of actively traded is based on average daily trading volume. We have determined the market for certain other types of financial instruments, including private equity investments, to be uncertain or inactive as of both September 30, 2020 and 2019. As a result, the valuation of these financial instruments included management judgment in determining the relevance and reliability of market information available. The level within the fair value hierarchy, specific valuation techniques, and other significant accounting policies pertaining to financial instruments at fair value on our Consolidated Statements of Financial Condition are described as follows. Trading instruments and trading instruments sold but not yet purchased Trading instruments and trading instruments sold but not yet purchased are comprised primarily of the financial instruments held by our broker-dealer subsidiaries and include debt securities, equity securities, brokered certificates of deposit, and other securities. These instruments are recorded at fair value with realized and unrealized gains and losses reflected in current period net income. When available, we use quoted prices in active markets to determine the fair value of our trading instruments. Such instruments are classified within Level 1 of the fair value hierarchy. When trading instruments are traded in secondary markets and quoted market prices for identical instruments do not exist, we utilize valuation techniques, including matrix pricing, to estimate fair value. Matrix pricing generally utilizes spread-based models periodically re-calibrated to observable inputs such as market trades or to dealer price bids in similar securities in order to derive the fair value of the instruments. Valuation techniques may also rely on other observable inputs such as yield curves, interest rates and expected principal repayments and default probabilities. We utilize prices from third-party pricing services to corroborate our estimates of fair value. Depending upon the type of security, the pricing service may provide a listed price, a matrix price or use other methods including broker-dealer price quotations. Securities valued using these techniques are classified within Level 2 of the fair value hierarchy. We offset our long and short positions for identical securities recorded at fair value as part of our trading instruments (long positions) and trading instruments sold but not yet purchased (short positions). Available-for-sale securities Available-for-sale securities are generally held by RJ Bank and classified at the date of purchase. They are comprised primarily of agency mortgage-backed securities (“MBS”) and agency collateralized mortgage obligations (“CMOs”), which are guaranteed by the U.S. government or its agencies. Available-for-sale securities owned by RJ Bank are used as part of its 91 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements interest rate risk and liquidity management strategies and may be sold in response to changes in interest rates, changes in prepayment risks, or other factors. Interest on available-for-sale securities is recognized in interest income on an accrual basis. Discounts are accreted and premiums are amortized as an adjustment to yield over the estimated average life of the security. Realized gains and losses on sales of available-for-sale securities are recognized using the specific identification method and reflected in “Other” revenue in the period sold. Unrealized gains or losses on available-for-sale securities, except for those that are deemed to be other-than-temporarily-impaired, are recorded through other comprehensive income/(loss) (“OCI”) and are thereafter presented in equity as a component of accumulated other comprehensive income (“AOCI”) on our Consolidated Statements of Financial Condition. For any available-for-sale securities in an unrealized loss position at a reporting period end, we make an assessment whether such securities are impaired on an other-than-temporary basis. The following factors are considered in order to determine whether an impairment is other-than-temporary: our intention to sell the security, our assessment of whether it is more likely than not that we will be required to sell the security before the recovery of its amortized cost basis, and whether the evidence indicating that we will recover the amortized cost basis of a security in full outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to period-end, recent events specific to the issuer or industry and forecasted performance of the security. Due to the guarantee of the full payment of principal and interest by the U.S. government or its agencies, as well as our ability and intent to hold these securities, we do not consider our agency available-for-sale securities to be other-than-temporarily-impaired. The fair value of our available-for-sale securities is determined by obtaining prices primarily based on valuation models from third-party pricing services. The third-party pricing services provide comparable price evaluations utilizing observable market data for similar securities, which includes observable data comprised of benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data including market research publications, and loan performance experience. We utilize other third-party pricing services to corroborate the pricing information obtained from the primary pricing service. Securities valued using valuation techniques that rely on observable market data are classified within Level 2 of the fair value hierarchy. Derivative assets and derivative liabilities Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative liabilities” on our Consolidated Statements of Financial Condition. To reduce credit exposure on certain of our derivative transactions, we may enter into a master netting arrangement that allows for net settlement of all derivative transactions with each counterparty. In addition, the credit support annex allows parties to the master netting agreement to mitigate their credit risk by requiring the party which is out of the money to post collateral. We accept collateral in the form of cash or other marketable securities. Where permitted, we elect to net-by-counterparty certain derivatives entered into under a legally enforceable master netting agreement and, therefore, the fair value of those derivatives are netted by counterparty on our Consolidated Statements of Financial Condition. As we elect to net-by-counterparty the fair value of such derivatives, we also net-by-counterparty cash collateral exchanged as part of those derivative agreements. We may also require certain counterparties to make a deposit at the inception of a derivative agreement, referred to as “initial margin.” This initial margin is included in “Other payables” on our Consolidated Statements of Financial Condition. We are also required to maintain deposits with the clearing organizations we utilize to clear certain of our interest rate derivatives, for which we have posted securities as collateral. This initial margin is included as a component of “Other investments” and “Available-for-sale securities” on our Consolidated Statements of Financial Condition. On a daily basis, we also pay cash to, or receive cash from, these clearing organizations due to changes in the fair value of the derivatives which they clear. Such payments are referred to as “variation margin” and are considered to be settlement of the related derivatives. Fixed income business operations We enter into interest rate derivatives in our fixed income business to facilitate client transactions or to actively manage risk exposures that arise from our client activity, including a portion of our trading inventory. The majority of these derivatives are traded in the over-the-counter market and are executed directly with another counterparty or are cleared and settled through a clearing organization. Realized and unrealized gains or losses on our fixed income derivatives are recorded in “Principal transactions” on our Consolidated Statements of Income and Comprehensive Income. The fair values of these interest rate derivatives are obtained from internal pricing models that consider current market trading levels and the contractual prices for the underlying financial instruments, as well as time value, yield curve and other volatility factors underlying the positions. Since our model inputs can be observed in liquid markets and the models do not require significant judgment, such derivatives 92 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements are classified within Level 2 of the fair value hierarchy. We corroborate the output of our internal pricing models by preparing an independent calculation using a third-party model. Our fixed income business also holds to-be-announced (“TBA”) security contracts that are accounted for as derivatives, which are classified within Level 1 of the fair value hierarchy. Matched book We also facilitate matched book derivative transactions in which we enter into interest rate derivatives with clients. For every derivative we enter into with a client, we also enter into an offsetting derivative on terms that mirror the client transaction with a credit support provider, which is a third-party financial institution. Any collateral required to be exchanged under these derivatives is administered directly between the client and the third-party financial institution. Due to this pass-through transaction structure, we have completely mitigated the market and credit risk on these derivatives. As a result, derivatives for which the fair value is in an asset position have an equal and offsetting derivative liability. Fair value is determined using an internal pricing model which includes inputs from independent pricing sources to project future cash flows under each underlying derivative. Since any changes in fair value are completely offset by a change in fair value of the offsetting derivative, there is no net impact on our Consolidated Statements of Income and Comprehensive Income from changes in the fair value of these derivatives. We recognize revenue on these derivatives on the transaction date, computed as the present value of the expected cash flows we expect to receive from the third-party financial institution over the life of the derivative. The difference between the present value of these cash flows at the date of inception and the gross amount potentially received is accreted to revenue over the term of the contract. The revenue from these transactions is included within “Other” revenues on our Consolidated Statements of Income and Comprehensive Income. RJ Bank derivatives Foreign-exchange derivatives We enter into three-month forward foreign exchange contracts primarily to hedge the risks related to RJ Bank’s investment in its Canadian subsidiary, as well as its risk resulting from transactions denominated in currencies other than the U.S. dollar. The majority of these derivatives are designated as net investment hedges. The gain or loss related to RJ Bank’s designated net investment hedges is recorded, net of tax, in shareholders’ equity as part of the cumulative translation adjustment component of AOCI with such balance impacting “Other” revenues in the event the net investment is sold or substantially liquidated. Gains and losses on the undesignated derivative instruments are recorded in earnings on our Consolidated Statements of Income and Comprehensive Income. Hedge effectiveness is assessed at each reporting period using a method that is based on changes in forward rates and measured using the hypothetical derivatives method. As the terms of the hedging instrument and hypothetical derivative generally match at inception, the hedge is expected to be highly effective. The fair value of our forward foreign exchange contracts is determined by obtaining valuations from a third-party pricing service or model. These valuations are based on observable inputs such as spot rates, foreign exchange rates and both U.S. and foreign interest rate curves. We validate the observable inputs utilized in the third-party valuation model by preparing an independent calculation using a secondary third-party valuation model. These forward foreign exchange contracts are classified within Level 2 of the fair value hierarchy. Interest rate derivatives The cash flows associated with certain assets held by RJ Bank provide interest income at fixed interest rates. Therefore, the value of these assets, absent any risk mitigation, is subject to fluctuation based upon changes in market rates of interest over time. RJ Bank enters into floating-rate advances from the Federal Home Loan Bank (“FHLB”) to, in part, fund these assets and then enters into interest rate contracts which swap variable interest payments on this debt for fixed interest payments. These interest rate swaps are designated as cash flow hedges and effectively fix RJ Bank’s cost of funds associated with these assets to mitigate a portion of the market risk. The gain or loss on RJ Bank’s cash flow hedges is recorded, net of tax, in shareholders’ equity as part of the cash flow hedge component of AOCI and subsequently reclassified to earnings when the hedged transaction affects earnings, specifically upon the incurrence of interest expense on the hedged borrowings. Hedge effectiveness is assessed at inception and at each reporting period utilizing regression analysis. As the key terms of the hedging instrument and hedged transaction match at inception, management expects the hedges to be effective while they are outstanding. The fair value of these interest rate swaps is determined by obtaining valuations from a third-party pricing service. These third-party valuations are based on observable inputs such as time value and yield curves. We validate these observable inputs by preparing an independent calculation using a secondary third-party model. Cash flows from hedging activities are included in the same category as the items being hedged. Cash flows from derivative instruments used to manage interest rates are classified as operating activities. We classify these derivatives within Level 2 of the fair value hierarchy. 93 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Other investments Other investments consist primarily of private equity investments, securities pledged as collateral with clearing organizations, and term deposits with Canadian financial institutions. Our securities pledged as collateral with clearing organizations, which primarily include U.S. Treasury securities, and term deposits are categorized within Level 1 of the fair value hierarchy. Private equity investments Private equity investments consist of direct investments, investments in third-party private equity funds and various legacy private equity funds which we sponsor. The private equity funds in which we invest are primarily closed-end funds in which our investments are generally not eligible for redemption. We receive distributions from these funds as the underlying assets are liquidated or distributed. These investments are measured at fair value with any gains or losses recognized in “Other” revenues on our Consolidated Statements of Income and Comprehensive Income. The fair value of private equity investments are determined utilizing either the net asset value (“NAV”) of the fund as a practical expedient or Level 3 valuation techniques. We utilize NAV or its equivalent as a practical expedient to determine the fair value of our private equity investments when: (1) the fund does not have a readily determinable fair value; (2) the NAV of the fund is calculated in a manner consistent with the measurement principles of investment-company accounting, including measurement of the underlying investments at fair value; and (3) it is not probable that we will sell the investment at an amount other than NAV. The NAV is calculated based on our proportionate share of the net assets of the fund as provided by the fund manager. The portion of our private equity investment portfolio that is not valued at NAV is valued initially at the transaction price until significant transactions or developments indicate that a change in the carrying values of these investments is appropriate. The carrying values of these investments are adjusted based on financial performance, investment-specific events, financing and sales transactions with third parties and/or discounted cash flow models incorporating changes in market outlook. Investments valued using these valuation techniques are classified within Level 3 of the fair value hierarchy. The valuation of such investments requires judgment due to the absence of quoted market prices, inherent lack of liquidity and long-term nature of these assets. As a result, these values cannot be determined with precision and the calculated fair value estimates may not be realizable in a current sale. Brokerage client receivables, net Brokerage client receivables include receivables from the clients of our broker-dealer and asset management subsidiaries. The receivables from broker-dealer clients are principally for amounts due on cash and margin transactions and are generally collateralized by securities owned by the clients. The receivables from asset management clients are primarily for accrued asset management fees. Brokerage client receivables are reported at their outstanding principal balance, net of any allowance for doubtful accounts. An allowance is established when collectability is not reasonably assured. When the receivable from a brokerage client is considered to be impaired, the amount of the impairment is generally measured based on the fair value of the securities acting as collateral, which is based on current prices from independent sources such as listed market prices or broker-dealer price quotations. Our allowance for doubtful accounts was insignificant at both September 30, 2020 and 2019. Securities beneficially owned by customers, including those that collateralize margin or other similar transactions, are not reflected on our Consolidated Statements of Financial Condition (see Note 6 for additional information regarding this collateral). Other receivables, net Other receivables primarily include receivables from brokers, dealers and clearing organizations, accrued interest receivables and accrued fees from product sponsors. Receivables from brokers, dealers and clearing organizations primarily consist of cash deposits placed with clearing organizations, including initial margin, receivables related to sales of securities which have traded, but not yet settled, and amounts receivable for securities failed to deliver. We present “Other receivables” on our Consolidated Statements of Financial Condition, net of any allowance. 94 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Bank loans, net Loans held for investment Bank loans are comprised of loans originated or purchased by RJ Bank and include commercial and industrial (“C&I”) loans, tax-exempt loans, commercial and residential real estate loans, securities-based loans (“SBL”) and other loans. The loans which we have the intent and the ability to hold until maturity or payoff are recorded at their unpaid principal balance plus any premium paid in connection with the purchase of the loan, less the allowance for loan losses and any discounts received in connection with the purchase of the loan and net of deferred fees and costs on originated loans. Loan origination fees and direct costs, as well as premiums and discounts on loans that are not revolving, are capitalized and recognized in interest income using the interest method. For revolving loans, the straight-line method is used based on the contractual term. Syndicated loans purchased in the secondary market are recognized as of the trade date. Interest income is recognized on an accrual basis. We segregate our loan portfolio into six loan portfolio segments: C&I, commercial real estate (“CRE”), CRE construction, tax-exempt, residential mortgage, and SBL and other. These portfolio segments also serve as the portfolio loan classes for purposes of credit analysis, except for residential mortgage loans which are further disaggregated into residential first mortgage and residential home equity classes. Loans held for sale Certain residential mortgage loans originated and intended for sale in the secondary market due to their fixed interest rate terms, as well as Small Business Administration (“SBA”) loans purchased and intended for sale in the secondary market but not yet aggregated for securitization into pools, are each carried at the lower of cost or estimated fair value. The fair values of the residential mortgage loans held for sale are estimated using observable prices obtained from counterparties for similar loans. These nonrecurring fair value measurements are classified within Level 2 of the fair value hierarchy. We purchase the guaranteed portions of SBA loans and account for these loans in accordance with the policy for loans held for sale. We then aggregate SBA loans with similar characteristics into pools for securitization and sell these pools in the secondary market. Individual loans may be sold prior to securitization. The determination of the fair value of the SBA loans depends upon their intended disposition. The fair value of the SBA loans to be individually sold are determined based upon their committed sales price. The fair value of the loans to be aggregated into pools for securitization, which are committed to be sold, are determined based upon third-party price quotes. The fair value of all other SBA loans are determined using a third-party pricing service. The prices for the SBA loans, other than those committed to be individually sold, are validated by comparing the third-party price quote or the third-party pricing service prices, as applicable, for a sample of loans to observable market trades obtained from external sources. Once the SBA loans are securitized into a pool, the respective securities are classified as trading instruments and are carried at fair value based on our intention to sell the securitizations within the near term. Any changes in the fair value of the securitized pools as well as any realized gains or losses earned thereon are reflected in “Principal transactions” on our Consolidated Statements of Income and Comprehensive Income. Sales of the securitizations are accounted for as of settlement date, which is the date we have surrendered control over the transferred assets. We do not retain any interest in the securitizations once they are sold. The fair value for SBA loan securitizations is determined by utilizing observable prices obtained from a third-party pricing service, which provides comparable price evaluations utilizing observable market data for similar securities. We substantiate the prices obtained from the third-party pricing service by comparing such prices for a sample of securities to observable market trades obtained from external sources. The instruments valued using these observable inputs are typically classified within Level 2 of the fair value hierarchy. Corporate loans, which include C&I, CRE, CRE construction, and tax-exempt loans are designated as held for investment upon inception and recognized in loans receivable. If we subsequently designate a corporate or tax-exempt loan as held for sale, which generally occurs as part of our credit management activities, we then write down the carrying value of the loan with a partial charge-off, if necessary, to carry it at the lower of cost or estimated fair value. Gains and losses on sales of residential mortgage loans held for sale, SBA loans that are not part of a securitized pool, and corporate loans transferred from the held for investment portfolio, are included as a component of “Other” revenues on our Consolidated Statements of Income and Comprehensive Income, while interest collected on these assets is included in “Interest income.” Net unrealized losses are recognized through a valuation allowance by charges to income as a component of “Other” revenues on our Consolidated Statements of Income and Comprehensive Income. 95 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Off-balance sheet loan commitments We have outstanding at any time a significant number of commitments to extend credit and other credit-related off-balance sheet financial instruments such as revolving lines of credit, standby letters of credit and loan purchases. Our policy is generally to require customers to provide collateral at the time of closing. The amount of collateral obtained, if it is deemed necessary upon extension of credit, is based on our credit evaluation of the borrower. Collateral held varies but may include assets such as marketable securities, accounts receivable, inventory, real estate, and income-producing commercial properties. In the normal course of business, RJ Bank issues or participates in the issuance of standby letters of credit whereby it provides an irrevocable guarantee of payment in the event the letter of credit is drawn down by the beneficiary. These standby letters of credit generally expire in one year or less. In the event that a letter of credit is drawn down, RJ Bank would pursue repayment from the party under the existing borrowing relationship or would liquidate collateral, or both. The proceeds from repayment or liquidation of collateral are expected to satisfy the amounts drawn down under the existing letters of credit. The potential credit loss associated with these off-balance sheet loan commitments is accrued and reflected in “Other payables” on our Consolidated Statements of Financial Condition. Refer to the allowance for loan losses and reserve for unfunded lending commitments section that follows for a discussion of the reserve calculation methodology and Note 17 for further information about these commitments. We recognize the revenue associated with corporate syndicated standby letters of credit, which is generally received quarterly, on a cash basis, the effect of which does not differ significantly from recognizing the revenue in the period the fee is earned. Unused corporate line fees are accounted for on an accrual basis. Nonperforming assets Nonperforming assets are comprised of both nonperforming loans and other real estate owned (“OREO”). Nonperforming loans include those loans which have been placed on nonaccrual status and any accruing loans which are 90 days or more past due and in the process of collection. Loans which have been restructured in a manner that grant a concession to a borrower experiencing financial difficulties we would not otherwise consider are deemed to be a troubled debt restructuring (“TDR”). Loans structured as TDRs which are currently placed on nonaccrual status are considered nonperforming loans. Loans of all classes are placed on nonaccrual status when we determine that full payment of all contractual principal and interest is in doubt or the loan is past due 90 days or more as to contractual interest or principal unless the loan, in our opinion, is well-secured and in the process of collection. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is written-off against interest income and accretion of the net deferred loan origination fees cease. Interest is recognized using the cash method for residential (first mortgage and home equity) loans and SBL and other loans, and the cost recovery method for corporate and tax-exempt loans thereafter until the loan qualifies for return to accrual status. Loans (including first mortgage and home equity residential mortgage TDRs) are returned to an accrual status when the loans have been brought contractually current with the original or amended terms and have been maintained on a current basis for a reasonable period, generally six months . Corporate loan TDRs have generally been partially charged off and therefore, remain on nonaccrual status until the loan is fully resolved. Other real estate acquired in the settlement of loans, including through, or in lieu of, loan foreclosure, is initially recorded at the lower of cost or fair value less estimated selling costs through a charge to the allowance for loan losses, thus establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed and the assets are carried at the lower of the carrying amount or fair value, as determined by a current appraisal or valuation less estimated costs to sell, and are classified as “Other assets” on our Consolidated Statements of Financial Condition. These nonrecurring fair value measurements are classified within Level 2 of the fair value hierarchy. Impaired loans Loans in all classes are considered to be impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal and interest on a loan when due according to the contractual terms of the loan agreement. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. For individual loans identified as impaired, impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate and taking into consideration the factors described in the following section in relation to the evaluation of the allowance for loan losses, except that as a practical expedient, we 96 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements measure impairment based on the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Impaired loans include all corporate nonaccrual loans, all residential mortgage nonaccrual loans for which a charge-off had previously been recorded, and all loans which have been modified in TDRs. Interest income on impaired loans is recognized consistently with the recognition policy of nonaccrual loans. Allowance for loan losses and reserve for unfunded lending commitments We maintain an allowance for loan losses to provide for probable losses inherent in our loan portfolio based on ongoing evaluations of the portfolio, the related risk characteristics, and the overall economic and environmental conditions affecting the loan portfolio. Loan losses are charged against the allowance when we believe the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. We have developed policies and procedures for assessing the adequacy of the allowance for loan losses that reflect the assessment of risk considering all available information. In developing this assessment, we rely on estimates and exercise judgment in evaluating credit risk. The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Depending on changes in circumstances, future assessments of credit risk may yield materially different results from the prior estimates, which may require an increase or a decrease in the allowance for loan losses. Estimates that are particularly susceptible to change that may have an impact on the amount of the allowance include: • the selection of proxy data used to calculate loss factors; • the evaluation of loss emergence and historical loss experience periods; • our evaluation of the risk profile of loan portfolio segments, including internal risk ratings; • the value of underlying collateral, which impacts loss severity and certain cash flow assumptions; and • our selection and evaluation of qualitative factors, which reflect the imprecision that is inherent in the estimation of probable loan losses. The allowance for loan losses is comprised of two components: allowances calculated based on formulas for homogeneous classes of loans collectively evaluated for impairment, which are re-evaluated quarterly and adjusted based on our analysis of certain qualitative factors, and specific allowances assigned to certain classified loans individually evaluated for impairment. These homogeneous classes are a result of management’s disaggregation of the loan portfolio and are comprised of the previously mentioned classes: C&I, CRE, CRE construction, tax-exempt, residential first mortgage, residential home equity, and SBL and other. An annual analysis of the loss emergence period estimate, which is the average length of time between the event that triggers a loss and the confirmation and/or charge-off of that loss, is performed for all loan classes. The analysis is utilized in establishing the allowance for each of the classes of loans through the application of an adjustment to the calculated allowance percentage for the respective loan grade. The loans within the corporate and tax-exempt loan classes are assigned to an internal loan grade based upon the respective loan’s credit characteristics. The loans within the residential first mortgage, residential home equity, and SBL and other classes are assigned loan grades equivalent to the loan classifications utilized by bank regulators, dependent on their respective likelihood of loss. For all loan classes except for CRE loans, we assign each loan grade an allowance percentage based on the estimated incurred loss associated with that grade. The allowance for loan losses for all non-impaired loans within those loan classes is then calculated based on the allowance percentage assigned to the respective loan’s class and grade factoring in the respective loss emergence period. For the CRE loan class, the allowance for loan losses is calculated based on the allowance percentage assigned to each loan. The allowance for loan losses for all impaired loans and those nonaccrual residential first mortgage loans that have been evaluated for a charge-off are based on an individual evaluation of impairment as previously described in the impaired loans section. The quantitative factors taken into consideration when assigning loan grades and allowance percentages to loans within the corporate and tax-exempt loan classes include: estimates of borrower default probabilities and collateral type, past loss history, Shared National Credit (“SNC”) reviews and examination results from bank regulators. Loan grades for individual C&I and tax-exempt loans are derived from analyzing two aspects of the risk profile in a particular loan: the obligor rating and the facility (collateral) rating. The obligor rating relates to a borrower’s probability of default and the facility rating is utilized to estimate the anticipated loss given default. These two ratings, which are based on historical long-term industry loss rates (proxy data) as we have limited loss history, are considered in combination with certain adjustments for the loss emergence period to derive the final C&I and tax-exempt loan grades and allowance percentages. The allowance for loans within the CRE 97 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements and CRE construction loan portfolios is based on loan-level probability of default and loss given default estimates in combination with certain adjustments for a loss emergence period. The quantitative loss rates for corporate and tax-exempt loans are supplemented by considering qualitative factors that may cause estimated losses to differ from quantitatively calculated amounts. These qualitative factors are intended to address developing trends, and include, but are not limited to: trends in delinquencies; loan growth; loan terms; changes in geographic distribution; changes in the value of the underlying collateral for collateral-dependent loans; lending policies; loan review process; local, regional, national and international economic conditions; competition; legal and regulatory requirements; and concentrations of credit risk. Historical loan loss rates, which are based on our historical loss data over a period of time, are utilized when assigning the allowance percentages for residential first mortgage loans and residential home equity loans. We currently utilize a look back period for residential first mortgage and home equity loans reflecting the current housing cycle that includes the last downturn. The SBL portfolio is not yet seasoned enough to exhibit a loss trend. As a result, the allowance is determined judgmentally by management, primarily utilizing peer benchmarking data and qualitative factors. For residential first mortgage loan, residential home equity loan and SBL classes, the qualitative factors considered to supplement the quantitative analysis include, but are not limited to: loan performance trends, loan product parameters and qualification requirements, borrower credit scores at origination, occupancy (i.e., owner occupied, second home or investment property), documentation level, loan purpose, geographic concentrations, average loan size, loan policy exceptions, loan-to-value (“LTV”) ratios, as well as the factors previously noted that are utilized for corporate loans. We reserve for losses inherent in our unfunded lending commitments using a methodology similar to that used for loans in the respective portfolio segment, based upon loan grade and expected funding probabilities for fully binding commitments. This will result in some reserve variability over different periods depending upon the mix of the loan portfolio at the time and funding expectations. All unfunded lending commitments associated with a class of impaired loans are analyzed in conjunction with the impaired allowance process previously described. Loan charge-off policies Corporate and tax-exempt loans are monitored on an individual basis, and loan grades are reviewed at least quarterly to ensure they reflect the loan’s current credit risk. When we determine that it is likely that a corporate or tax-exempt loan will not be collected in full, the loan is evaluated for potential impairment. After consideration of the borrower’s ability to restructure the loan, alternative sources of repayment, and other factors affecting the borrower’s ability to repay the debt, the portion of the loan deemed to be a confirmed loss, if any, is charged-off. For collateral-dependent loans secured by real estate, the amount of the loan considered a confirmed loss and charged-off is generally equal to the difference between the recorded investment in the loan and the collateral’s appraised value less estimated costs to sell. For C&I and tax-exempt loans, we evaluate all sources of repayment to arrive at the amount considered to be a loss and charged-off. Corporate banking and credit risk managers also meet regularly to review criticized loans (loans that are rated special mention or worse as defined by bank regulators, see Note 7 for further discussion). Additional charge-offs are taken when the value of the collateral changes or there is an adverse change in the expected cash flows. The majority of our corporate loan portfolio is comprised of participations in either SNCs or other large syndicated loans in the U.S. and Canada. The SNCs are U.S. loan syndications totaling over $ 100 million that are shared between three or more regulated institutions. The agent bank’s regulator reviews a portion of SNC loans on a semi-annual basis and provides a synopsis of each loan’s regulatory classification, including loans that are designated for nonaccrual status and directed charge-offs. We must be at least as critical with nonaccrual designations, directed charge-offs, and classifications, potentially impacting our allowance for loan losses and charge-offs. Corporate loans are subject to our internal review procedures and regulatory review by the Office of the Comptroller of the Currency (“OCC”) and the Board of Governors of the Federal Reserve System (“the Fed”) as part of the Bank’s regulatory examinations. Every residential mortgage loan over 60 days past due is reviewed to determine loan status, collection strategy and charge-off recommendations. Charge-offs are typically considered on residential mortgage loans once the loans are delinquent 90 days or more and then generally taken before the loan is 120 days past due. A charge-off is taken against the allowance for loan losses for the difference between the loan amount and the amount that we estimate will ultimately be collected, based on the value of the underlying collateral less estimated costs to sell. We predominantly use broker price opinions (“BPO”) for these valuations. If a loan remains in pre-foreclosure status for more than nine months , an updated valuation is obtained to determine if further charge-offs are necessary. 98 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Loans to financial advisors, net We offer loans to financial advisors and certain other key revenue producers, primarily for recruiting, transitional cost assistance, and retention purposes. These loans are generally repaid over a five to nine year period with interest recognized as earned and are contingent upon affiliation with us. These loans are not assignable by the financial advisor and may only be assigned by us to a successor in interest. There is no fee income associated with these loans. In the event that the financial advisor is no longer affiliated with us, any unpaid balance of such loan becomes immediately due and payable to us. In determining the allowance for doubtful accounts related to former employees or independent contractors, management primarily considers our historical collection experience as well as other factors including amounts due at termination, the reasons for the terminated relationship, and the former financial advisor’s overall financial position. When the review of these factors indicates that further collection activity is highly unlikely, the outstanding balance of such loan is written-off and the corresponding allowance is reduced. Further, the aging of this receivable balance is not a determinative factor in computing our allowance for doubtful accounts, as concerns regarding the recoverability of these loans primarily arise in the event that the financial advisor is no longer affiliated with us. We present the outstanding balance of loans to financial advisors on our Consolidated Statements of Financial Condition, net of the allowance for doubtful accounts. Our allowance for doubtful accounts was approximately $ 4 million and $ 9 million at September 30, 2020 and 2019, respectively. Property and equipment, net Property and equipment on our Consolidated Statements of Financial Condition are stated at cost less accumulated depreciation and amortization. Property and equipment primarily consists of software, buildings and leasehold improvements, and furniture. Software includes both purchased software and internally developed software including development in progress. Buildings primarily consists of owned facilities. Leasehold improvements are generally costs associated with interior office space. Equipment primarily consists of communications and technology hardware. Depreciation of assets (other than land) is primarily calculated using the straight-line method over the estimated useful lives of the assets outlined in the following table. Asset type Estimated useful life Buildings, building components and land improvements 10 to 40 years Furniture, fixtures and equipment 3 to 5 years Software 2 to 10 years Leasehold improvements Lesser of useful life or lease term Costs for significant internally developed software projects are capitalized when the costs relate to development of new applications or modification of existing internal-use software that results in additional functionality. Internally developed software project costs related to preliminary-project and post-project activities are expensed as incurred. Additions, improvements and expenditures that extend the useful life of an asset are capitalized. Expenditures for repairs and maintenance, as well as all maintenance costs associated with software applications, are charged to operations in the period incurred. Depreciation expense associated with property and equipment is included in “Occupancy and equipment” expense on our Consolidated Statements of Income and Comprehensive Income. Amortization expense associated with computer software is included in “Communications and information processing” expense on our Consolidated Statements of Income and Comprehensive Income. Gains and losses on disposals of property and equipment are reflected in “Other” revenues on our Consolidated Statements of Income and Comprehensive Income in the period incurred. Intangible assets, net Certain identifiable intangible assets we acquire such as customer relationships, trade names and non-compete agreements, are amortized over their estimated useful lives on a straight-line basis and are evaluated for potential impairment whenever events or changes in circumstances suggest that the carrying value of an asset or asset group may not be fully recoverable. Amortization expense associated with such intangible assets is included in “Other” expenses on our Consolidated Statements of Income and Comprehensive Income. We also hold indefinite-lived intangible assets, which are not amortized under GAAP. Rather, these assets are subject to an evaluation of potential impairment on an annual basis to determine whether the estimated fair value is in excess of its carrying value, or between annual dates, if events or circumstances indicate there may be impairment. In the course of our evaluation of the potential impairment of such indefinite-lived assets, we may elect either a qualitative or a quantitative assessment. If after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value is greater than its carrying amount, we are not required to perform a quantitative impairment analysis. However, if we conclude otherwise, we then perform a quantitative impairment analysis. We have elected January 1 as our annual impairment evaluation date, 99 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements evaluating balances as of December 31. See Note 10 for additional information regarding the outcome of our impairment assessment. Goodwill Goodwill represents the cost of acquired businesses in excess of the fair value of the related net assets acquired. Indefinite-life intangible assets such as goodwill are not amortized, but rather evaluated for impairment at least annually, or between annual dates whenever events or circumstances indicate potential impairment exists. Impairment exists when the carrying value of a reporting unit, which is generally at the level of or one level below our business segments, exceeds its respective fair value. In the course of our evaluation of the potential impairment to goodwill, we may elect either a qualitative or a quantitative assessment. Our qualitative assessments consider macroeconomic indicators including, but not limited to, trends in equity and fixed income markets and other revenue-generating activities, gross domestic product, unemployment rates, and interest rates. We also consider regulatory changes, market capitalization, reporting unit specific results, and changes in key personnel and strategy. We assess these, and other, qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing a quantitative impairment analysis is not required. However, if we conclude otherwise, then we perform a quantitative impairment analysis. If we either elect not to perform a qualitative assessment, or we elect to perform a qualitative assessment but are unable to qualitatively conclude that no impairment has occurred, then we perform a quantitative evaluation. In our quantitative assessment, we estimate the fair value of the reporting unit with which the goodwill is associated and compare it to the carrying value. We estimate the fair value of our reporting units using an income approach based on a discounted cash flow model that includes significant assumptions about future operating results and cash flows, and, if appropriate, a market approach. If the carrying value of a reporting unit is greater than the estimated fair value, an impairment charge is recognized for the excess. We have elected January 1 as our annual goodwill impairment evaluation date, evaluating balances as of December 31. See Note 10 for additional information regarding the outcome of our goodwill impairment assessments. Other assets Other assets is primarily comprised of investments in company-owned life insurance, right-of-use assets (“ROU assets”) associated with leases, prepaid expenses, FHLB stock, FRB stock, and investments in real estate partnerships held by consolidated VIEs. See Note 11 for further information. We maintain investments in company-owned life insurance policies utilized to fund certain non-qualified deferred compensation plans and other employee benefit plans (see Note 21 for information on the non-qualified deferred compensation plans). The life insurance policies are recorded at cash surrender value as determined by the insurer. Ownership of FHLB and FRB stock is a requirement for all banks seeking membership into and access to the services provided by these banking systems. These shares are accounted for at amortized cost. Raymond James Tax Credit Funds, Inc. (“RJTCF”), a wholly-owned subsidiary of RJF, or one of its affiliates, is the managing member or general partner in Low-Income Housing Tax Credit (“LIHTC”) funds, some of which require consolidation. These funds invest in housing project limited partnerships or limited liability companies (“LLCs”) which purchase and develop affordable housing properties qualifying for federal and state low-income housing tax credits. The investments in project partnerships of all of the LIHTC fund VIEs which require consolidation are included in “Other assets” on our Consolidated Statements of Financial Condition. Leases On October 1, 2019, we adopted new accounting guidance related to the accounting for leases. Under the new guidance, we recognize assets and liabilities on the balance sheet related to the rights and obligations created by lease agreements with terms greater than 12 months, regardless of whether they are classified as finance or operating leases. Accordingly, on the date of adoption, we recognized ROU assets and lease liabilities in “Other assets” and “Other payables,” respectively, on our Consolidated Statement of Financial Condition. We have operating leases for the premises we occupy in many of our U.S. and foreign locations, including our employee-based branch office operations. At inception, we determine if an arrangement to utilize a building or piece of equipment is a lease 100 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements and, if so, the appropriate lease classification. Substantially all of our leases are operating leases. If the arrangement is determined to be a lease, we recognize an ROU asset and a corresponding lease liability on our Consolidated Statements of Financial Condition. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We elected the practical expedient, where leases with an initial term of 12 months or less are not recorded as an ROU asset or lease liability. Our lease terms include any noncancelable periods and may reflect periods covered by options to extend or terminate when it is reasonably certain that we will exercise those options. We record our lease ROU assets at the amount of the lease liability plus any prepaid rent and initial direct costs, less any lease incentives and accrued rent. We record lease liabilities at commencement date based on the present value of lease payments over the lease term, which is discounted using our commencement date incremental borrowing rate, or at the imputed rate within the lease, as appropriate. Our incremental borrowing rate considers the weighted-average yields on our senior notes payable, adjusted for collateralization and tenor. Payments that vary because of changes in facts or circumstances occurring after the commencement date, such as operating expense payments under a real estate lease, are considered variable and are expensed in the period incurred. For our real estate leases, we elected the practical expedient to account for the lease and non-lease components as a single lease. Lease expense for our lease payments is recognized on a straight-line basis over the lease term if the ROU asset has not been impaired or abandoned. See Note 12 for additional information on our leases. Contingent liabilities We recognize liabilities for contingencies when there is an exposure that, when fully analyzed, indicates it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Whether a loss is probable, and if so, the estimated range of possible loss, is based upon currently available information and is subject to significant judgment, a variety of assumptions, and uncertainties. When a loss is probable and a range of possible loss can be estimated, we accrue the most likely amount within that range; if the most likely amount of possible loss within that range is not determinable, the minimum amount in the range of loss is accrued. No liability is recognized for those matters which, in management’s judgment, the determination of a reasonable estimate of loss is not possible, or for which a loss is not determined to be probable. We record liabilities related to legal and regulatory proceedings in “Other payables” on our Consolidated Statements of Financial Condition. The determination of these liability amounts requires significant judgment on the part of management. Management considers many factors including, but not limited to: the amount of the claim; the amount of the loss in the client’s account; the basis and validity of the claim; the possibility of wrongdoing on the part of one of our employees or financial advisors; previous results in similar cases; and legal precedents and case law. Each legal proceeding or significant regulatory matter is reviewed in each accounting period and the liability balance is adjusted as deemed appropriate by management. Any change in the liability amount is recorded in our consolidated financial statements and is recognized in net income in that period. The actual costs of resolving legal matters or regulatory proceedings may be substantially higher or lower than the recorded liability amounts for such matters. We expense our cost of defense related to such matters in the period they are incurred. See Note 17 for additional information. Share-based compensation We account for share-based awards through the measurement and recognition of compensation expense for all share-based payment awards made to employees, directors, and independent contractors based on estimated fair values. The compensation cost of our share-based awards, net of estimated forfeitures, is recognized over the requisite service period of the awards and is calculated as the market value of the awards on the date of the grant. See Note 21 for additional information on our share-based compensation plan. Deferred compensation plans We maintain various deferred compensation plans for the benefit of certain employees and independent contractors that provide a return to the participant based upon the performance of various referenced investments. For the Voluntary Deferred Compensation Plan (the “VDCP”), Long Term Incentive Plan (“LTIP”), and certain other plans, we purchase and hold company-owned life insurance policies on the lives of certain current and former participants to earn a competitive rate of return for participants and to provide a source of funds available to satisfy our obligations under the plan. See Note 11 for information regarding the carrying value of such policies. Compensation expense is recognized for all awards made under such plans with future service requirements over the requisite service period using the straight-line method. Changes in the value of the company-owned life insurance policies and other investments, as well as the expenses associated with the related deferred compensation plans, are recorded in “Compensation, commissions and benefits” expense on our Consolidated Statements of Income and Comprehensive Income. See Note 21 for additional information. 101 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Foreign currency translation The statements of financial condition of the foreign subsidiaries we consolidate are translated at exchange rates as of the period-end. The statements of income are translated either at an average exchange rate for the period or, in certain cases, at the exchange rate in effect on the date which transactions occur. The gains or losses resulting from translating foreign currency financial statements into U.S. dollars are included in OCI and are thereafter presented in equity as a component of AOCI. Income taxes The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year. We utilize the asset and liability method to provide for income taxes on all transactions recorded in our consolidated financial statements. This method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference is determined based on the tax rates that we expect to be in effect when the underlying items of income and expense are realized. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns, including the repatriation of undistributed earnings of foreign subsidiaries. Variations in the actual outcome of these future tax consequences could materially impact our financial position, results of operations, or liquidity. See Note 16 for further information on our income taxes. Earnings per share (“EPS”) Basic EPS is calculated by dividing earnings attributable to common shareholders by the weighted-average common shares outstanding. Earnings attributable to common shareholders represents net income reduced by the allocation of earnings and dividends to participating securities. Diluted EPS is similar to basic EPS, but adjusts for the dilutive effect of outstanding stock options and certain restricted stock units (“RSUs”) by application of the treasury stock method. Evaluation of VIEs to determine whether consolidation is required A VIE requires consolidation by the entity’s primary beneficiary. Examples of entities that may be VIEs include certain legal entities structured as corporations, partnerships or limited liability companies. We evaluate all of the entities in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. We hold variable interests primarily in the following VIEs: certain private equity investments, a trust fund established for employee retention purposes (“Restricted Stock Trust Fund”) and certain LIHTC funds. See Note 8 for further information on our VIEs. Determination of the primary beneficiary of a VIE We consolidate VIEs that are subject to assessment when we are deemed to be the primary beneficiary of the VIE. The process for determining whether we are the primary beneficiary of the VIE is to conclude whether we are a party to the VIE holding a variable interest that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Private Equity Interests As part of our private equity investments, we hold interests in a number of limited partnerships (our “Private Equity Interests”). We have concluded that the Private Equity Interests are VIEs, primarily as a result of the treatment of limited partner kick-out and participation rights as a simple majority of the limited partners cannot initiate an action to kick-out the general partner without cause and the limited partners with equity at-risk lack substantive participating rights. In our analysis of the criteria to determine whether we are the primary beneficiary of the Private Equity Interests VIEs, we analyze the power and benefits criteria. In a number of these entities, we are a passive limited partner investor, and thus, we do not have the power to make decisions that most significantly affect the economic performance of such VIEs. Accordingly, in such circumstances, we have determined we are not the primary beneficiary and therefore we do not consolidate the VIE. However, in certain of these entities, we have concluded that we are the primary beneficiary as we meet the power and benefits criteria. In such instances, we consolidate the Private Equity Interests VIE. 102 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Restricted Stock Trust Fund We utilize a trust in connection with certain of our RSU awards. This trust fund was established and funded for the purpose of acquiring our common stock in the open market to be used to settle RSUs granted as a retention vehicle for certain employees of our Canadian subsidiaries. We are deemed to be the primary beneficiary and, accordingly, consolidate this trust fund. LIHTC funds RJTCF is the managing member or general partner in a number of LIHTC funds having one or more investor members or limited partners. These LIHTC funds are organized as LLCs or limited partnerships for the purpose of investing in a number of project partnerships, which are limited partnerships or LLCs that purchase and develop low-income housing properties qualifying for tax credits and/or provide a mechanism for banks and other institutions to meet their Community Reinvestment Act obligations throughout the U.S. Our determination of the primary beneficiary of each tax credit fund in which RJTCF has a variable interest requires judgment and is based on an analysis of all relevant facts and circumstances, including: (1) an assessment of the characteristics of RJTCF’s variable interest and other involvement it has with the tax credit fund, including involvement of related parties and any de facto agents, as well as the involvement of other variable interest holders, namely, limited partners or investor members, and (2) the tax credit funds’ purpose and design, including the risks that the tax credit fund was designed to create and pass through to its variable interest holders. In the design of tax credit fund VIEs, the overriding premise is that the investor members invest solely for tax attributes associated with the portfolio of low-income housing properties held by the fund, while RJTCF, as the managing member or general partner of the fund, is responsible for overseeing the fund’s operations. RJTCF sponsors two general types of tax credit funds that generally do not meet VIE consolidation criteria. The types of funds include single investor funds and multi-investor funds. RJTCF does not typically provide guarantees related to the delivery or funding of tax credits or other tax attributes to the investor members or limited partners of tax credit funds. The investor member(s) or limited partner(s) of the VIEs bear the risk of loss on their investment. Additionally, under the tax credit funds’ designed structure, the investor member(s) or limited partner(s) receive nearly all of the tax credits and tax-deductible loss benefits designed to be delivered by the fund entity, as well as a majority of any proceeds upon a sale of a project partnership held by a tax credit fund (fund level residuals). RJTCF earns fees from the fund for its services in organizing the fund, identifying and acquiring the project partnership investments and ongoing asset management, and receives a share of any residuals arising from sale of project partnerships upon the termination of the fund. In single investor funds, RJTCF has concluded that the one single investor member or limited partner in such funds, in nearly all instances, has significant participating rights over the activities that most significantly impact the economics of the fund. Therefore RJTCF, as managing member or general partner of such funds, is not the one party with power over such activities and resultantly is not deemed to be the primary beneficiary of such single investor funds and, in nearly all cases, these funds are not consolidated. In multi-investor funds, RJTCF has concluded that since the participating rights over the activities that most significantly impact the economics of the fund are not held by one single investor member or limited partner, RJTCF is deemed to have the power over such activities. RJTCF then assesses whether its projected benefits to be received from the multi-investor funds, primarily its share of any residuals upon the termination of the fund, are potentially significant to the fund. As such residuals received upon termination are not expected to be significant to the funds, in nearly all cases, these funds are not consolidated. Direct investments in LIHTC project partnerships RJ Bank is the investor member of a LIHTC fund which we have determined to be a VIE, and in which a subsidiary of RJTCF is the managing member. We have determined that RJ Bank is the primary beneficiary of this VIE and therefore, we consolidate the fund. All LIHTC funds which we consolidate are investor members in certain LIHTC project partnerships. Since unrelated third parties are the managing members of the investee project partnerships, we have determined that consolidation of these project partnerships is not required and the funds account for their project partnership investments under the equity method. The carrying value of the funds’ project partnership investments are included in “Other assets” on our Consolidated Statements of Financial Condition. The federal tax credits that result from these investments reduce our tax expense in the year they are received. 103 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Recent accounting developments Accounting guidance recently adopted Lease accounting - In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the accounting for leases ( ASU 2016-02 ). We adopted this guidance as of October 1, 2019 using the alternative modified retrospective approach, with no adjustments to prior periods presented. In addition, we elected the practical expedients permitted under the transition guidance which, among other things, allowed us to carry forward historical lease classification determinations. On the adoption date, we recognized ROU assets and lease liabilities of $ 333 million and $ 357 million, respectively. The adoption had no effect on our results of operations or cash flows. The impact of the adoption on our regulatory capital measures was insignificant. Refer to the lease section of this footnote and to Note 12 for further information. Reference rate reform - In March 2020, the FASB issued guidance to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR (ASU 2020-04). The guidance simplifies the accounting for modifying contracts (including those in hedging relationships) that refer to LIBOR and other interbank offered rates. In addition, the guidance allows for changes to the critical terms of a hedging relationship affected by reference rate reform without having to dedesignate the relationship. The guidance was effective upon issuance and generally can be applied through December 31, 2022. We have elected certain expedients for cash flow hedges to assert that the hedged forecasted transaction remains probable, regardless of any expected modification in terms related to reference rate reform. The expedients elected did not impact our financial position or results of operations. 104 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 3 – FAIR VALUE Our “Financial instruments owned” and “Financial instrument liabilities” on our Consolidated Statements of Financial Condition are recorded at fair value under GAAP. For further information about such instruments and our significant accounting policies related to fair value, see Note 2. The following tables present assets and liabilities measured at fair value on a recurring basis. Netting adjustments represent the impact of counterparty and collateral netting on our derivative balances included on our Consolidated Statements of Financial Condition. See Note 5 for additional information. $ in millions Level 1 Level 2 Level 3 Netting adjustments Balance as of September 30, 2020 Assets at fair value on a recurring basis: Trading instruments Municipal and provincial obligations $ 5 $ 120 $ — $ — $ 125 Corporate obligations 11 45 — — 56 Government and agency obligations 13 131 — — 144 Agency MBS and agency CMOs — 130 — — 130 Non-agency CMOs and asset-backed securities (“ABS”) — 13 — — 13 Total debt securities 29 439 — — 468 Equity securities 11 5 — — 16 Brokered certificates of deposit — 17 — — 17 Other — — 12 — 12 Total trading instruments 40 461 12 — 513 Available-for-sale securities (1) 16 7,634 — — 7,650 Derivative assets Interest rate - matched book — 333 — — 333 Interest rate - other 16 224 — ( 135 ) 105 Total derivative assets 16 557 — ( 135 ) 438 Other investments - private equity - not measured at NAV — — 37 — 37 All other investments 195 1 22 — 218 Subtotal 267 8,653 71 ( 135 ) 8,856 Other investments - private equity - measured at NAV 79 Total assets at fair value on a recurring basis $ 267 $ 8,653 $ 71 $ ( 135 ) $ 8,935 Liabilities at fair value on a recurring basis: Trading instruments sold but not yet purchased Municipal and provincial obligations $ 1 $ — $ — $ — $ 1 Corporate obligations — 5 — — 5 Government and agency obligations 136 — — — 136 Non-agency CMOs and ABS — 2 — — 2 Total debt securities 137 7 — — 144 Equity securities 96 — — — 96 Total trading instruments sold but not yet purchased 233 7 — — 240 Derivative liabilities Interest rate - matched book — 333 — — 333 Interest rate - other 16 145 — ( 112 ) 49 Foreign exchange — 5 — — 5 Other — 1 5 — 6 Total derivative liabilities 16 484 5 ( 112 ) 393 Total liabilities at fair value on a recurring basis $ 249 $ 491 $ 5 $ ( 112 ) $ 633 (1) Substantially all of our available-for-sale securities consist of agency MBS and agency CMOs. See Note 4 for further information. 105 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements $ in millions Level 1 Level 2 Level 3 Netting adjustments Balance as of September 30, 2019 Assets at fair value on a recurring basis: Trading instruments Municipal and provincial obligations $ — $ 267 $ — $ — $ 267 Corporate obligations 8 95 — — 103 Government and agency obligations 12 67 — — 79 Agency MBS and agency CMOs — 147 — — 147 Non-agency CMOs and ABS — 51 — — 51 Total debt securities 20 627 — — 647 Equity securities 12 1 — — 13 Brokered certificates of deposit — 45 — — 45 Other — — 3 — 3 Total trading instruments 32 673 3 — 708 Available-for-sale securities (1) 10 3,083 — — 3,093 Derivative assets Interest rate - matched book — 280 — — 280 Interest rate - other 3 182 — ( 127 ) 58 Total derivative assets 3 462 — ( 127 ) 338 Other investments - private equity - not measured at NAV — — 63 — 63 All other investments 194 1 24 — 219 Subtotal 239 4,219 90 ( 127 ) 4,421 Other investments - private equity - measured at NAV 83 Total assets at fair value on a recurring basis $ 239 $ 4,219 $ 90 $ ( 127 ) $ 4,504 Liabilities at fair value on a recurring basis: Trading instruments sold but not yet purchased Corporate obligations $ 2 $ 20 $ — $ — $ 22 Government and agency obligations 269 — — — 269 Total debt securities 271 20 — — 291 Equity securities 4 — — — 4 Other — — 1 — 1 Total trading instruments sold but not yet purchased 275 20 1 — 296 Derivative liabilities Interest rate - matched book — 280 — — 280 Interest rate - other 4 142 — ( 121 ) 25 Foreign exchange — 2 — — 2 Other — 6 — — 6 Total derivative liabilities 4 430 — ( 121 ) 313 Total liabilities at fair value on a recurring basis $ 279 $ 450 $ 1 $ ( 121 ) $ 609 (1) Substantially all of our available-for-sale securities consist of agency MBS and agency CMOs. See Note 4 for further information. 106 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Level 3 recurring fair value measurements The following tables present the changes in fair value for Level 3 assets and liabilities measured at fair value on a recurring basis. The realized and unrealized gains and losses in the tables may include changes in fair value that were attributable to both observable and unobservable inputs. In the following tables, gains/(losses) on trading instruments are reported in “Principal transactions” and gains/(losses) on other investments are reported in “Other” revenues. Year ended September 30, 2020 Level 3 instruments at fair value Financial assets Financial liabilities Trading instruments Other investments Trading instruments Derivative liabilities $ in millions Other Private equity investments All other Other Other Fair value beginning of year $ 3 $ 63 $ 24 $ ( 1 ) $ — Total gains/(losses) included in earnings ( 4 ) ( 29 ) ( 2 ) — ( 5 ) Purchases and contributions 70 4 — 2 — Sales and distributions ( 57 ) ( 1 ) — ( 1 ) — Transfers: Into Level 3 — — — — — Out of Level 3 — — — — — Fair value end of year $ 12 $ 37 $ 22 $ — $ ( 5 ) Unrealized gains/(losses) for the year included in earnings for instruments held at the end of the year $ ( 1 ) $ ( 29 ) $ ( 2 ) $ — $ ( 5 ) Year ended September 30, 2019 Level 3 instruments at fair value Financial assets Financial liabilities Trading instruments Other investments Trading instruments $ in millions Other Private equity investments All other Other Fair value beginning of year $ 1 $ 56 $ 67 $ ( 7 ) Total gains/(losses) included in earnings ( 3 ) 4 ( 3 ) 2 Purchases and contributions 109 3 — 19 Sales and distributions ( 104 ) — ( 40 ) ( 15 ) Transfers: Into Level 3 — — — — Out of Level 3 — — — — Fair value end of year $ 3 $ 63 $ 24 $ ( 1 ) Unrealized gains/(losses) for the year included in earnings for instruments held at the end of the year $ — $ 4 $ ( 1 ) $ — The net unrealized losses on our Level 3 private equity investments for the year ended September 30, 2020 were primarily driven by the negative impact of the coronavirus (“COVID-19”) pandemic on the valuation of certain of our investments. Of these losses, approximately $ 20 million were attributable to noncontrolling interests, which are reflected as an offset in “Other” expenses on our Consolidated Statements of Income and Comprehensive Income. As of September 30, 2020, 19 % of our assets and 2 % of our liabilities were measured at fair value on a recurring basis. In comparison, as of September 30, 2019, 12 % of our assets and 2 % of our liabilities were measured at fair value on a recurring basis. The increase in assets measured at fair value on a recurring basis as a percentage of total assets was due to a significant increase in our available-for-sale securities during fiscal 2020. As of September 30, 2020 and 2019, Level 3 assets represented 1 % and 2 %, respectively, of our assets measured at fair value on a recurring basis. 107 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Quantitative information about level 3 fair value measurements The following tables present the valuation techniques and significant unobservable inputs used in the valuation of certain of our private equity investments classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument. Certain investments are valued initially at transaction price and updated as other investment-specific events take place which indicate that a change in the carrying values of these investments is appropriate. Other investment-specific events include such events as our periodic review, significant transactions occur or new developments become known. Recurring measurements $ in millions Fair value at September 30, 2020 Valuation technique(s) Unobservable input Range (weighted-average) Other investments - private equity investments (not measured at NAV) $ 37 Discounted cash flow, transaction price or other investment-specific events Discount rate 25 % Terminal earnings before interest, tax, depreciation and amortization (“EBITDA”) multiple 9.0 x Terminal year 2021 - 2042 (2023) Fair value at September 30, 2019 Other investments - private equity investments (not measured at NAV) $ 63 Discounted cash flow, transaction price or other investment-specific events Discount rate 25 % Terminal EBITDA multiple 12.5 x Terminal year 2021 - 2042 (2022) Qualitative disclosure about unobservable inputs For our recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs are described in the following section. Private equity investments The significant unobservable inputs used in the fair value measurement of private equity investments generally relate to the financial performance of the investment entity and the market’s required return on investments from entities in industries in which we hold investments. Increases in the discount rate would have resulted in a lower fair value measurement. Increases in the terminal EBITDA multiple would have resulted in a higher fair value measurement. Increases in the terminal year are dependent upon each investment’s strategy, but generally result in a lower fair value measurement. Investments in private equity measured at net asset value per share As more fully described in Note 2, as a practical expedient, we utilize NAV or its equivalent to determine the recorded value of a portion of our private equity investments portfolio. We utilize NAV when the fund investment does not have a readily determinable fair value and the NAV of the fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the investments at fair value. Our private equity portfolio as of September 30, 2020 includes various direct investments, as well as investments in third-party private equity funds and various legacy private equity funds which we sponsor. The portfolio is primarily invested in a broad range of strategies including leveraged buyouts, growth capital, distressed capital, venture capital and mezzanine capital. Due to the closed-end nature of certain of our fund investments, such investments cannot be redeemed directly with the funds. Our investment is monetized by distributions received through the liquidation of the underlying assets of those funds, the timing of which is uncertain. 108 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table presents the recorded value and unfunded commitments related to our private equity investments portfolio. $ in millions Recorded value Unfunded commitment September 30, 2020 Private equity investments measured at NAV $ 79 $ 9 Private equity investments not measured at NAV 37 Total private equity investments $ 116 September 30, 2019 Private equity investments measured at NAV $ 83 $ 15 Private equity investments not measured at NAV 63 Total private equity investments $ 146 Of the total private equity investments, the portions we owned were $ 90 million and $ 99 million as of September 30, 2020 and 2019, respectively. The portions of the private equity investments we did not own were $ 26 million and $ 47 million as of September 30, 2020 and 2019, respectively, and were included as a component of noncontrolling interests on our Consolidated Statements of Financial Condition. Many of our proprietary private equity fund investments meet the definition of prohibited covered funds as defined by the Volcker Rule enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). We have received approval from the Fed to continue to hold the majority of our covered fund investments until July 2022. Financial instruments measured at fair value on a nonrecurring basis The following table presents assets measured at fair value on a nonrecurring basis along with the valuation techniques and significant unobservable inputs used in the valuation of the assets classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument. $ in millions Level 2 Level 3 Total fair value Valuation technique(s) Unobservable input Range (weighted-average) September 30, 2020 Bank loans, net: Impaired loans: residential $ 4 $ 13 $ 17 Discounted cash flow Prepayment rate 7 yrs. - 12 yrs. ( 10.6 yrs.) Impaired loans: corporate $ — $ 15 $ 15 Collateral or discounted cash flow (1) Not meaningful (1) Not meaningful (1) Loans held for sale $ 38 $ — $ 38 N/A N/A N/A Other assets: other real estate owned $ 1 $ — $ 1 N/A N/A N/A September 30, 2019 Bank loans, net: Impaired loans: residential $ 7 $ 14 $ 21 Discounted cash flow Prepayment rate 7 yrs. - 12 yrs. ( 10.4 yrs.) Impaired loans: corporate $ — $ 21 $ 21 Collateral or discounted cash flow (1) Not meaningful (1) Not meaningful (1) Loans held for sale $ 66 $ — $ 66 N/A N/A N/A Other assets: other real estate owned $ 1 $ — $ 1 N/A N/A N/A (1) The valuation techniques used for the corporate loans are based on collateral value less selling costs for the collateral dependent loans and discounted cash flows for impaired loans that are not collateral dependent. 109 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Financial instruments not recorded at fair value Many, but not all, of the financial instruments we hold were recorded at fair value on the Consolidated Statements of Financial Condition. The following table presents the estimated fair value and fair value hierarchy of financial assets and liabilities that are not recorded at fair value in accordance with GAAP on the Consolidated Statements of Financial Condition at September 30, 2020 and 2019. This table excludes financial instruments that are carried at amounts which approximate fair value. $ in millions Level 2 Level 3 Total estimated fair value Carrying amount September 30, 2020 Financial assets: Bank loans, net $ 72 $ 21,119 $ 21,191 $ 21,125 Financial liabilities: Bank deposits - certificates of deposit $ — $ 1,056 $ 1,056 $ 1,017 Senior notes payable $ 2,504 $ — $ 2,504 $ 2,045 September 30, 2019 Financial assets: Bank loans, net $ 75 $ 20,710 $ 20,785 $ 20,783 Financial liabilities: Bank deposits - certificates of deposit $ — $ 617 $ 617 $ 605 Senior notes payable $ 1,760 $ — $ 1,760 $ 1,550 Short-term financial instruments: The carrying value of short-term financial instruments, including cash and cash equivalents, cash and cash equivalents segregated pursuant to regulations, and the majority of collateralized agreements and collateralized financings, are recorded at amounts that approximate the fair value of these instruments. These financial instruments generally expose us to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market rates. Under the fair value hierarchy, cash and cash equivalents and cash and cash equivalents segregated pursuant to regulations are classified as Level 1 and collateralized agreements and financings are classified as Level 2. Bank loans, net: These financial instruments are primarily comprised of loans originated or purchased by RJ Bank and include C&I loans, commercial and residential real estate loans, tax-exempt loans, SBL and other loans intended to be held until maturity or payoff. These financial instruments are primarily recorded at amounts that result from the application of the methodologies for loans held for investment summarized in Note 2. Certain bank loans are held for sale, which are carried at the lower of cost or market value. A portion of these loans held for sale, as well as any impaired loans held for investment, are recorded at fair value as nonrecurring fair value measurements and therefore are excluded from the preceding table. The fair values for both variable and fixed-rate loans held for investment are estimated using a discounted cash flow analysis based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality, which includes our estimate of future credit losses expected to be incurred. The majority of these loans are classified as Level 3 under the fair value hierarchy. Refer to Note 2 for information regarding the fair value policies specific to loans held for sale. Receivables and other assets: Brokerage client receivables, other receivables, and certain other assets are recorded at amounts that approximate fair value and are classified as Level 2 and 3 under the fair value hierarchy. As specified under GAAP, the FHLB and FRB stock are recorded at cost, which we have determined to approximate their estimated fair value, and are classified as Level 2 under the fair value hierarchy. Loans to financial advisors, net: These financial instruments are primarily comprised of loans provided to financial advisors and certain key revenue producers, primarily for recruiting, transitional cost assistance, and retention purposes. Loans to financial advisors, net are recorded at amounts that approximate fair value and are classified as Level 2 under the fair value hierarchy. Refer to Note 2 for information regarding loans to financial advisors, net. Bank deposits: The carrying amounts of variable-rate money market and savings accounts approximate their fair values as these are short-term in nature. Due to their short-term nature, variable-rate money market and savings accounts are classified as Level 2 under the fair value hierarchy. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of expected monthly maturities on time deposits. These fixed-rate certificates of deposit are classified as Level 3 under the fair value hierarchy. 110 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Payables: Brokerage client payables and other payables are recorded at amounts that approximate fair value and are classified as Level 2 under the fair value hierarchy. Other borrowings: Other borrowings is primarily comprised of RJ Bank’s borrowings from the FHLB. Substantially all of such borrowings reflect terms that approximate current market rates for similar loans and therefore, their carrying value approximates fair value. Our other borrowings are classified as Level 2 under the fair value hierarchy. Senior notes payable: The fair value of our senior notes payable is calculated based upon recent trades of those debt securities in the market. Our senior notes payable are classified as Level 2 under the fair value hierarchy. NOTE 4 – AVAILABLE-FOR-SALE SECURITIES Available-for-sale securities are primarily comprised of agency MBS and agency CMOs owned by RJ Bank. Refer to Note 2 for a discussion of our available-for-sale securities accounting policies, including the fair value determination process. The following table details the amortized costs and fair values of our available-for-sale securities. $ in millions Cost basis Gross unrealized gains Gross unrealized losses Fair value September 30, 2020 Agency residential MBS $ 4,064 $ 74 $ ( 3 ) $ 4,135 Agency commercial MBS 948 22 ( 1 ) 969 Agency CMOs 2,504 27 ( 1 ) 2,530 Other securities 15 1 — 16 Total available-for-sale securities $ 7,531 $ 124 $ ( 5 ) $ 7,650 September 30, 2019 Agency residential MBS $ 1,555 $ 20 $ ( 1 ) $ 1,574 Agency commercial MBS 305 5 — 310 Agency CMOs 1,195 7 ( 3 ) 1,199 Other securities 10 — — 10 Total available-for-sale securities $ 3,065 $ 32 $ ( 4 ) $ 3,093 See Note 3 for additional information regarding the fair value of available-for-sale securities. 111 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table details the contractual maturities, amortized costs, carrying values and current yields for our available-for-sale securities. Since our MBS and CMO available-for-sale securities are backed by mortgages, actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. As of September 30, 2020, the duration of our available-for-sale securities portfolio was approximately three years . September 30, 2020 $ in millions Within one year After one but within five years After five but within ten years After ten years Total Agency residential MBS Amortized cost $ — $ 34 $ 1,403 $ 2,627 $ 4,064 Carrying value $ — $ 36 $ 1,434 $ 2,665 $ 4,135 Agency commercial MBS Amortized cost $ 32 $ 153 $ 583 $ 180 $ 948 Carrying value $ 33 $ 157 $ 598 $ 181 $ 969 Agency CMOs Amortized cost $ — $ 11 $ 74 $ 2,419 $ 2,504 Carrying value $ — $ 11 $ 75 $ 2,444 $ 2,530 Other securities Amortized cost $ — $ 6 $ 9 $ — $ 15 Carrying value $ — $ 6 $ 10 $ — $ 16 Total available-for-sale securities Amortized cost $ 32 $ 204 $ 2,069 $ 5,226 $ 7,531 Carrying value $ 33 $ 210 $ 2,117 $ 5,290 $ 7,650 Weighted-average yield 2.72 % 2.06 % 1.67 % 1.41 % 1.51 % The following table details the gross unrealized losses and fair values of securities that were in a loss position at the reporting period end, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position. Less than 12 months 12 months or more Total $ in millions Estimated fair value Unrealized losses Estimated fair value Unrealized losses Estimated fair value Unrealized losses September 30, 2020 Agency residential MBS $ 966 $ ( 3 ) $ — $ — $ 966 $ ( 3 ) Agency commercial MBS 177 ( 1 ) — — 177 ( 1 ) Agency CMOs 410 ( 1 ) — — 410 ( 1 ) Total $ 1,553 $ ( 5 ) $ — $ — $ 1,553 $ ( 5 ) September 30, 2019 Agency residential MBS $ 166 $ — $ 114 $ ( 1 ) $ 280 $ ( 1 ) Agency commercial MBS — — 44 — 44 — Agency CMOs 145 ( 1 ) 351 ( 2 ) 496 ( 3 ) Other securities 2 — — — 2 — Total $ 313 $ ( 1 ) $ 509 $ ( 3 ) $ 822 $ ( 4 ) The contractual cash flows of our available-for-sale securities are guaranteed by the U.S. government or its agencies. At September 30, 2020, of the 83 available-for-sale securities in an unrealized loss position, all were in a continuous unrealized loss position for less than 12 months. At September 30, 2020, debt securities we held in excess of ten percent of our equity included Federal National Home Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) which had an amortized cost of $ 4.84 billion and $ 2.40 billion, respectively, and a fair value of $ 4.92 billion and $ 2.43 billion, respectively. For the year ended September 30, 2020, we received proceeds of $ 222 million, resulting in an insignificant gain, from the sales of agency MBS and agency CMO available-for-sale securities. The gain that resulted from the sales was included in “Other” revenues on our Consolidated Statements of Income and Comprehensive Income. There were no sales of agency MBS or CMO available-for-sale securities for the years ended September 30, 2019 and 2018. 112 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 5 – DERIVATIVE ASSETS AND DERIVATIVE LIABILITIES Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative liabilities” on our Consolidated Statements of Financial Condition. Cash flows related to our derivatives are included within operating activities on the Consolidated Statements of Cash Flows. The significant accounting policies governing our derivatives, including our methodologies for determining fair value, are described in Note 2. Derivative balances included on our financial statements The following table presents the gross fair value and notional amount of derivatives by product type, the amounts of counterparty and cash collateral netting on our Consolidated Statements of Financial Condition, as well as collateral posted and received under credit support agreements that do not meet the criteria for netting under GAAP. September 30, 2020 September 30, 2019 $ in millions Derivative assets Derivative liabilities Notional amount Derivative assets Derivative liabilities Notional amount Derivatives not designated as hedging instruments Interest rate - matched book $ 333 $ 333 $ 2,174 $ 280 $ 280 $ 2,296 Interest rate - other (1) 240 161 19,206 184 146 10,690 Foreign exchange — 2 605 — 1 573 Other — 6 608 — 6 272 Subtotal 573 502 22,593 464 433 13,831 Derivatives designated as hedging instruments Interest rate — — 850 1 — 850 Foreign exchange — 3 866 — 1 856 Subtotal — 3 1,716 1 1 1,706 Total gross fair value/notional amount 573 505 $ 24,309 465 434 $ 15,537 Offset on the Consolidated Statements of Financial Condition Counterparty netting ( 40 ) ( 40 ) ( 24 ) ( 24 ) Cash collateral netting ( 95 ) ( 72 ) ( 103 ) ( 97 ) Total amounts offset ( 135 ) ( 112 ) ( 127 ) ( 121 ) Net amounts presented on the Consolidated Statements of Financial Condition 438 393 338 313 Gross amounts not offset on the Consolidated Statements of Financial Condition Financial instruments (2) ( 349 ) ( 333 ) ( 297 ) ( 280 ) Total $ 89 $ 60 $ 41 $ 33 (1) Substantially all relates to interest rate derivatives entered into as part of our fixed income business operations, including TBA security contracts that are accounted for as derivatives. (2) Although the matched book derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the agreement with the third-party intermediary includes terms that are similar to a master netting agreement. As a result, we present the matched book amounts net in the preceding table. The following table details the gains/(losses) included in AOCI, net of income taxes, on derivatives designated as hedging instruments. These gains/(losses) included any amounts reclassified from AOCI to net income during the year. See Note 18 for additional information. Year ended September 30, $ in millions 2020 2019 2018 Interest rate (cash flow hedges) $ ( 34 ) $ ( 61 ) $ 33 Foreign exchange (net investment hedges) 5 22 28 Total gains/(losses) in AOCI, net of taxes $ ( 29 ) $ ( 39 ) $ 61 There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness for any of the years ended September 30, 2020, 2019 or 2018. We expect to reclassify $ 15 million of interest expense out of AOCI and into earnings within the next 12 months. The maximum length of time over which forecasted transactions are or will be hedged is seven years . 113 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table details the gains/(losses) on derivatives not designated as hedging instruments recognized on the Consolidated Statements of Income and Comprehensive Income. Year ended September 30, $ in millions Location of gain/(loss) 2020 2019 2018 Interest rate Principal transactions/other revenues $ 7 $ 7 $ 6 Foreign exchange Other revenues $ — $ 25 $ 18 Other Principal transactions $ ( 5 ) $ — $ — Other Compensation, commissions and benefits expense $ ( 1 ) $ 5 $ 8 Risks associated with our derivatives and related risk mitigation Credit risk We are exposed to credit losses in the event of nonperformance by our counterparties to derivatives that are not cleared through a clearing organization. Where we are subject to credit exposure, we perform a credit evaluation of counterparties prior to entering into derivative transactions and we monitor their credit standings. We may require initial margin or collateral from counterparties in the form of cash deposits or other marketable securities to support certain of these obligations as established by the credit threshold specified by the agreement and/or as a result of monitoring the credit standing of the counterparties. Our only exposure to credit risk in the matched book derivatives operations is related to our uncollected derivative transaction fee revenues, which were insignificant as of both September 30, 2020 and 2019. We are not exposed to market risk on these derivatives due to the pass-through transaction structure previously described in Note 2. Interest rate and foreign exchange risk We are exposed to interest rate risk related to certain of our interest rate derivatives. We are also exposed to foreign exchange risk related to our forward foreign exchange derivatives. On a daily basis, we monitor our risk exposure on our derivatives based on established limits with respect to a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis and volatility risks, both for the total portfolio and by maturity period. Derivatives with credit-risk-related contingent features Certain of our derivative contracts contain provisions that require our debt to maintain an investment-grade rating from one or more of the major credit rating agencies. If our debt were to fall below investment-grade, the counterparties to the derivative instruments could terminate and request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position was insignificant as of both September 30, 2020 and 2019. 114 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 6 – COLLATERALIZED AGREEMENTS AND FINANCINGS Collateralized agreements are comprised of reverse repurchase agreements and securities borrowed. Collateralized financings are comprised of repurchase agreements and securities loaned. We enter into these transactions in order to facilitate client activities, acquire securities to cover short positions and finance certain firm activities. The significant accounting policies governing our collateralized agreements and financings are described in Note 2. For financial statement purposes, we do not offset our reverse repurchase agreements, repurchase agreements, securities borrowing and securities lending transactions because the conditions for netting as specified by GAAP are not met. Our reverse repurchase agreements, repurchase agreements, securities borrowing and securities lending transactions are governed by master agreements that are widely used by counterparties and that may allow for net settlements of payments in the normal course, as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of the parties to the transaction. Although not offset on the Consolidated Statements of Financial Condition, these transactions are included in the following table. Collateralized agreements Collateralized financings $ in millions Reverse repurchase agreements Securities borrowed Total Repurchase agreements Securities loaned Total September 30, 2020 Gross amounts of recognized assets/liabilities $ 207 $ 215 $ 422 $ 165 $ 85 $ 250 Gross amounts offset on the Consolidated Statements of Financial Condition — — — — — — Net amounts presented on the Consolidated Statements of Financial Condition 207 215 422 165 85 250 Gross amounts not offset on the Consolidated Statements of Financial Condition ( 207 ) ( 209 ) ( 416 ) ( 165 ) ( 79 ) ( 244 ) Net amount $ — $ 6 $ 6 $ — $ 6 $ 6 September 30, 2019 Gross amounts of recognized assets/liabilities $ 343 $ 248 $ 591 $ 150 $ 323 $ 473 Gross amounts offset on the Consolidated Statements of Financial Condition — — — — — — Net amounts presented on the Consolidated Statements of Financial Condition 343 248 591 150 323 473 Gross amounts not offset on the Consolidated Statements of Financial Condition ( 343 ) ( 243 ) ( 586 ) ( 150 ) ( 311 ) ( 461 ) Net amount $ — $ 5 $ 5 $ — $ 12 $ 12 The total amount of collateral received under reverse repurchase agreements and the total amount of collateral posted under repurchase agreements exceeds the carrying value of these agreements on our Consolidated Statements of Financial Condition. Collateral received and pledged We receive cash and securities as collateral, primarily in connection with reverse repurchase agreements, securities borrowed, derivative transactions and client margin loans. The collateral we receive reduces our credit exposure to individual counterparties. In many cases, we are permitted to deliver or repledge financial instruments we have received as collateral to satisfy our collateral requirements under our repurchase agreements, securities lending agreements or other secured borrowings, to satisfy deposit requirements with clearing organizations, or to otherwise meet either our or our clients’ settlement requirements. The following table presents financial instruments at fair value that we received as collateral, were not included on our Consolidated Statements of Financial Condition, and that were available to be delivered or repledged, along with the balances of such instruments that were delivered or repledged, to satisfy one of our purposes previously described. September 30, $ in millions 2020 2019 Collateral we received that was available to be delivered or repledged $ 2,869 $ 2,931 Collateral that we delivered or repledged $ 788 $ 897 115 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Encumbered assets We pledge certain of our assets to collateralize either repurchase agreements or other secured borrowings, maintain lines of credit, or to satisfy our collateral or settlement requirements with counterparties or clearing organizations who may or may not have the right to deliver or repledge such instruments. The following table presents information about our assets that have been pledged for one of the purposes previously described. September 30, $ in millions 2020 2019 Had the right to deliver or repledge $ 325 $ 591 Did not have the right to deliver or repledge $ 65 $ 65 Bank loans, net pledged at FHLB and the FRB $ 5,367 $ 4,653 Repurchase agreements, repurchase-to-maturity transactions and securities loaned accounted for as secured borrowings The following table presents the remaining contractual maturity of repurchase agreements and securities lending transactions accounted for as secured borrowings. $ in millions Overnight and continuous Up to 30 days 30-90 days Greater than 90 days Total September 30, 2020 Repurchase agreements: Government and agency obligations $ 87 $ — $ — $ — $ 87 Agency MBS and agency CMOs 78 — — — 78 Total repurchase agreements 165 — — — 165 Securities loaned: Equity securities 85 — — — 85 Total collateralized financings $ 250 $ — $ — $ — $ 250 September 30, 2019 Repurchase agreements: Government and agency obligations $ 70 $ — $ — $ — $ 70 Agency MBS and agency CMOs 80 — — — 80 Total repurchase agreements 150 — — — 150 Securities loaned: Equity securities 323 — — — 323 Total collateralized financings $ 473 $ — $ — $ — $ 473 As of both September 30, 2020 and 2019, we did not have any “repurchase-to-maturity” agreements, which are repurchase agreements where a security is transferred under an agreement to repurchase and the maturity date of the repurchase agreement matches the maturity date of the underlying security. NOTE 7 – BANK LOANS, NET Bank client receivables are comprised of loans originated or purchased by RJ Bank and include C&I loans, tax-exempt loans, commercial and residential real estate loans, SBL and other loans. These receivables are collateralized by first and, to a lesser extent, second mortgages on residential or other real property, other assets of the borrower, a pledge of revenue or are unsecured. See Note 2 for a discussion of accounting policies related to bank loans and allowances for losses. We segregate our loan portfolio into six loan portfolio segments: C&I, CRE, CRE construction, tax-exempt, residential mortgage, and SBL and other. These portfolio segments also serve as the portfolio loan classes for purposes of credit analysis, except for residential mortgage loans which are further disaggregated into residential first mortgage and residential home equity classes. 116 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following tables present the balances for both the held for sale and held for investment loan portfolios, as well as the associated percentage of each portfolio segment in RJ Bank’s total loan portfolio. “Loans held for sale, net” and “Total loans held for investment, net” in the following tables are presented net of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs. September 30, 2020 2019 2018 $ in millions Balance % Balance % Balance % Loans held for investment: C&I loans $ 7,450 34 % $ 8,098 38 % $ 7,786 40 % CRE construction loans 177 1 % 185 1 % 151 1 % CRE loans 3,534 16 % 3,652 17 % 3,624 18 % Tax-exempt loans 1,259 6 % 1,241 6 % 1,227 6 % Residential mortgage loans 4,947 23 % 4,454 21 % 3,757 19 % SBL and other 4,085 19 % 3,349 16 % 3,033 15 % Total loans held for investment 21,452 20,979 19,578 Net unearned income and deferred expenses ( 13 ) ( 12 ) ( 21 ) Total loans held for investment, net 21,439 20,967 19,557 Loans held for sale, net 110 1 % 142 1 % 164 1 % Total loans held for sale and investment 21,549 100 % 21,109 100 % 19,721 100 % Allowance for loan losses ( 354 ) ( 218 ) ( 203 ) Bank loans, net $ 21,195 $ 20,891 $ 19,518 September 30, 2017 2016 $ in millions Balance % Balance % Loans held for investment: C&I loans $ 7,386 43 % $ 7,470 48 % CRE construction loans 113 1 % 123 1 % CRE loans 3,106 18 % 2,554 17 % Tax-exempt loans 1,018 6 % 741 5 % Residential mortgage loans 3,149 18 % 2,442 16 % SBL and other 2,386 14 % 1,905 12 % Total loans held for investment 17,158 15,235 Net unearned income and deferred expenses ( 31 ) ( 41 ) Total loans held for investment, net 17,127 15,194 Loans held for sale, net 70 — 214 1 % Total loans held for sale and investment 17,197 100 % 15,408 100 % Allowance for loan losses ( 190 ) ( 197 ) Bank loans, net $ 17,007 $ 15,211 At September 30, 2020, the FHLB had a blanket lien on RJ Bank’s residential mortgage loan portfolio as security for the repayment of certain borrowings. See Note 14 for more information regarding borrowings from the FHLB. Loans held for sale RJ Bank originated or purchased $ 1.79 billion, $ 2.33 billion and $ 1.69 billion of loans held for sale during the years ended September 30, 2020, 2019 and 2018, respectively. Proceeds from the sale of these held for sale loans amounted to $ 776 million, $ 800 million and $ 606 million for the years ended September 30, 2020, 2019 and 2018, respectively. Net gains resulting from such sales were insignificant in each of the years ended September 30, 2020, 2019 and 2018. 117 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Purchases and sales of loans held for investment The following table presents purchases and sales of any loans held for investment by portfolio segment. $ in millions C&I loans CRE loans Residential mortgage loans Total Year ended September 30, 2020 Purchases $ 589 $ 5 $ 402 $ 996 Sales $ 598 $ 27 $ 2 $ 627 Year ended September 30, 2019 Purchases $ 1,046 $ 42 $ 400 $ 1,488 Sales $ 126 $ — $ — $ 126 Year ended September 30, 2018 Purchases $ 467 $ 145 $ 303 $ 915 Sales $ 213 $ — $ — $ 213 Sales in the preceding table represent the recorded investment (i.e., net of charge-offs and discounts or premiums) of loans held for investment that were transferred to loans held for sale and subsequently sold to a third party during the respective period. As more fully described in Note 2, corporate loan sales generally occur as part of our credit management activities. Aging analysis of loans held for investment The following table presents an analysis of the payment status of loans held for investment. Amounts in the table exclude any net unearned income and deferred expenses. $ in millions 30-89 days and accruing 90 days or more and accruing Total past due and accruing Nonaccrual Current and accruing Total loans held for investment September 30, 2020 C&I loans $ — $ — $ — $ 2 $ 7,448 $ 7,450 CRE construction loans — — — — 177 177 CRE loans — — — 14 3,520 3,534 Tax-exempt loans — — — — 1,259 1,259 Residential mortgage loans: First mortgage loans — — — 14 4,911 4,925 Home equity loans/lines — — — — 22 22 SBL and other — — — — 4,085 4,085 Total loans held for investment $ — $ — $ — $ 30 $ 21,422 $ 21,452 September 30, 2019 C&I loans $ — $ — $ — $ 19 $ 8,079 $ 8,098 CRE construction loans — — — — 185 185 CRE loans — — — 8 3,644 3,652 Tax-exempt loans — — — — 1,241 1,241 Residential mortgage loans: First mortgage loans 2 — 2 16 4,409 4,427 Home equity loans/lines — — — — 27 27 SBL and other — — — — 3,349 3,349 Total loans held for investment $ 2 $ — $ 2 $ 43 $ 20,934 $ 20,979 The preceding table includes $ 15 million and $ 32 million at September 30, 2020 and 2019, respectively, of nonaccrual loans which were current pursuant to their contractual terms. Other real estate owned, included in “Other assets” on our Consolidated Statements of Financial Condition, was $ 2 million and $ 3 million at September 30, 2020 and 2019. The recorded investment in mortgage loans secured by one-to-four family residential properties for which formal foreclosure proceedings were in process was $ 6 million and $ 7 million at September 30, 2020 and 2019, respectively. 118 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Impaired loans and troubled debt restructurings The following table provides a summary of RJ Bank’s impaired loans. September 30, 2020 2019 $ in millions Gross recorded investment Unpaid principal balance Allowance for losses Gross recorded investment Unpaid principal balance Allowance for losses Impaired loans with allowance for loan losses: C&I loans $ 2 $ 2 $ — $ 19 $ 20 $ 6 Residential - first mortgage loans 8 10 1 11 13 1 Total 10 12 1 30 33 7 Impaired loans without allowance for loan losses: CRE loans 13 21 — 8 13 — Residential - first mortgage loans 10 14 — 11 17 — Total 23 35 — 19 30 — Total impaired loans $ 33 $ 47 $ 1 $ 49 $ 63 $ 7 Impaired loan balances with allowances for loan losses have had reserves established based upon management’s analysis. There is no allowance required when the discounted cash flow, collateral value or market value of a loan equals or exceeds the carrying value. These are generally loans in process of foreclosure that have already been adjusted to fair value. The preceding table includes TDRs of $ 6 million and $ 15 million related to CRE and residential first mortgage loans, respectively, at September 30, 2020 and $ 19 million, $ 8 million and $ 18 million related to C&I, CRE and residential first mortgage loans, respectively, at September 30, 2019. The average balance of the total impaired loans was as follows. Year ended September 30, $ in millions 2020 2019 2018 C&I loans $ 8 $ 19 $ 4 CRE loans 7 5 — Residential - first mortgage loans 20 25 33 Total average impaired loan balance $ 35 $ 49 $ 37 Credit quality indicators The credit quality of RJ Bank’s loan portfolio is summarized monthly by management using the standard asset classification system utilized by bank regulators for the SBL and residential mortgage loan portfolios and internal risk ratings, which correspond to the same standard asset classifications for the corporate loan portfolios. These classifications are divided into three groups: Not Classified (Pass), Special Mention, and Classified or Adverse Rating (Substandard, Doubtful and Loss). These terms are defined as follows: Pass – Loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell, of any underlying collateral in a timely manner. Special Mention – Loans which have potential weaknesses that deserve management’s close attention. These loans are not adversely classified and do not expose RJ Bank to sufficient risk to warrant an adverse classification. Substandard – Loans which are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans with this classification are characterized by the distinct possibility that RJ Bank will sustain some loss if the deficiencies are not corrected. Doubtful – Loans which have all the weaknesses inherent in loans classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently-known facts, conditions and values. Loss – Loans which are considered by management to be uncollectible and of such little value that their continuance on our books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. We do not have any 119 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements bank loan balances within this classification because, in accordance with our accounting policy, loans, or a portion thereof considered to be uncollectible, are charged-off prior to the assignment of this classification. The following table presents the credit quality of RJ Bank’s held for investment loan portfolio. $ in millions Pass Special mention Substandard Doubtful Total September 30, 2020 C&I loans $ 6,966 $ 236 $ 248 $ — $ 7,450 CRE construction loans 177 — — — 177 CRE loans 3,113 256 165 — 3,534 Tax-exempt loans 1,259 — — — 1,259 Residential mortgage loans: First mortgage loans 4,897 6 22 — 4,925 Home equity loans/lines 22 — — — 22 SBL and other 4,085 — — — 4,085 Total loans held for investment $ 20,519 $ 498 $ 435 $ — $ 21,452 September 30, 2019 C&I loans $ 7,870 $ 152 $ 76 $ — $ 8,098 CRE construction loans 185 — — — 185 CRE loans 3,630 — 22 — 3,652 Tax-exempt loans 1,241 — — — 1,241 Residential mortgage loans: First mortgage loans 4,392 10 25 — 4,427 Home equity loans/lines 27 — — — 27 SBL and other 3,349 — — — 3,349 Total loans held for investment $ 20,694 $ 162 $ 123 $ — $ 20,979 Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans. Allowance for loan losses and reserve for unfunded lending commitments The following table presents changes in the allowance for loan losses of RJ Bank by portfolio segment. Loans held for investment $ in millions C&I loans CRE construction loans CRE loans Tax-exempt loans Residential mortgage loans SBL and other Total Year ended September 30, 2020 Balance at beginning of year $ 139 $ 3 $ 46 $ 9 $ 16 $ 5 $ 218 Provision for loan losses 157 — 71 5 — — 233 Net (charge-offs)/recoveries: Charge-offs (1) ( 96 ) — ( 4 ) — — — ( 100 ) Recoveries — — — — 2 — 2 Net (charge-offs)/recoveries ( 96 ) — ( 4 ) — 2 — ( 98 ) Foreign exchange translation adjustment — — 1 — — — 1 Balance at end of year $ 200 $ 3 $ 114 $ 14 $ 18 $ 5 $ 354 Year ended September 30, 2019 Balance at beginning of year $ 123 $ 3 $ 47 $ 9 $ 17 $ 4 $ 203 Provision/(benefit) for loan losses 19 — 4 — ( 2 ) 1 22 Net (charge-offs)/recoveries: Charge-offs (1) ( 2 ) — ( 5 ) — ( 1 ) — ( 8 ) Recoveries — — — — 2 — 2 Net (charge-offs)/recoveries ( 2 ) — ( 5 ) — 1 — ( 6 ) Foreign exchange translation adjustment ( 1 ) — — — — — ( 1 ) Balance at end of year $ 139 $ 3 $ 46 $ 9 $ 16 $ 5 $ 218 (1) Charge-offs related to loan sales amounted to $ 87 million and $ 2 million for the years ended September 30, 2020 and 2019, respectively. 120 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table presents, by loan portfolio segment, RJ Bank’s recorded investment (excluding any net unearned income and deferred expenses) and the related allowance for loan losses. Loans held for investment Allowance for loan losses Recorded investment $ in millions Individually evaluated for impairment Collectively evaluated for impairment Total Individually evaluated for impairment Collectively evaluated for impairment Total September 30, 2020 C&I loans $ — $ 200 $ 200 $ 2 $ 7,448 $ 7,450 CRE construction loans — 3 3 — 177 177 CRE loans — 114 114 14 3,520 3,534 Tax-exempt loans — 14 14 — 1,259 1,259 Residential mortgage loans 1 17 18 25 4,922 4,947 SBL and other — 5 5 — 4,085 4,085 Total $ 1 $ 353 $ 354 $ 41 $ 21,411 $ 21,452 September 30, 2019 C&I loans $ 6 $ 133 $ 139 $ 19 $ 8,079 $ 8,098 CRE construction loans — 3 3 — 185 185 CRE loans — 46 46 8 3,644 3,652 Tax-exempt loans — 9 9 — 1,241 1,241 Residential mortgage loans 1 15 16 28 4,426 4,454 SBL and other — 5 5 — 3,349 3,349 Total $ 7 $ 211 $ 218 $ 55 $ 20,924 $ 20,979 The reserve for unfunded lending commitments, which is included in “Other payables” on our Consolidated Statements of Financial Condition, was $ 12 million and $ 9 million at September 30, 2020 and 2019, respectively. NOTE 8 – VARIABLE INTEREST ENTITIES A VIE requires consolidation by the entity’s primary beneficiary. We evaluate all of the entities in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. Refer to Note 2 for a discussion of our principal involvement with VIEs and the accounting policies regarding determination of whether we are deemed to be the primary beneficiary of VIEs. VIEs where we are the primary beneficiary Of the VIEs in which we hold an interest, we have determined that certain Private Equity Interests, certain LIHTC funds and the Restricted Stock Trust Fund require consolidation in our financial statements, as we are deemed the primary beneficiary of such VIEs. The aggregate assets and liabilities of the VIEs we consolidate are provided in the following table. Aggregate assets and aggregate liabilities may differ from the consolidated carrying value of assets and liabilities due to the elimination of intercompany assets and liabilities held by the consolidated VIE. $ in millions Aggregate assets Aggregate liabilities September 30, 2020 Private Equity Interests $ 39 $ 4 LIHTC funds 168 76 Restricted Stock Trust Fund 14 14 Total $ 221 $ 94 September 30, 2019 Private Equity Interests $ 65 $ 4 LIHTC funds 80 5 Restricted Stock Trust Fund 14 14 Total $ 159 $ 23 121 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table presents information about the carrying value of the assets and liabilities of the VIEs which we consolidate and which are included on our Consolidated Statements of Financial Condition. Intercompany balances are eliminated in consolidation and not reflected in the following table. September 30, $ in millions 2020 2019 Assets: Cash, cash equivalents and cash segregated pursuant to regulations $ 9 $ 7 Other investments 37 63 Other assets 164 75 Total assets $ 210 $ 145 Liabilities: Other payables $ 76 $ 4 Total liabilities $ 76 $ 4 Noncontrolling interests $ 62 $ 60 VIEs where we hold a variable interest but are not the primary beneficiary As discussed in Note 2, we have concluded that for certain VIEs we are not the primary beneficiary and therefore do not consolidate these VIEs. Such VIEs include certain Private Equity Interests, certain LIHTC funds, and other limited partnerships. Our risk of loss for these VIEs is limited to our investments in, advances to, and/or receivables due from these VIEs. Aggregate assets, liabilities and risk of loss The aggregate assets, liabilities, and our exposure to loss from those VIEs in which we hold a variable interest, but as to which we have concluded we are not the primary beneficiary, are provided in the following table. September 30, 2020 2019 $ in millions Aggregate assets Aggregate liabilities Our risk of loss Aggregate assets Aggregate liabilities Our risk of loss Private Equity Interests $ 7,738 $ 96 $ 67 $ 6,317 $ 117 $ 63 LIHTC funds 6,516 1,993 66 6,001 2,221 64 Other 227 136 6 205 115 4 Total $ 14,481 $ 2,225 $ 139 $ 12,523 $ 2,453 $ 131 NOTE 9 - PROPERTY AND EQUIPMENT, NET The following table presents the components of our property and equipment, net as of the dates indicated. September 30, $ in millions 2020 2019 Land $ 29 $ 29 Software, including development in progress 565 490 Buildings, building components, leasehold and land improvements 406 391 Furniture, fixtures and equipment 294 278 Total property and equipment 1,294 1,188 Less: Accumulated depreciation and amortization ( 759 ) ( 661 ) Total property and equipment, net $ 535 $ 527 Depreciation expense associated with property and equipment was $ 52 million, $ 48 million, and $ 41 million for the years ended September 30, 2020, 2019, and 2018, respectively, and is included in “Occupancy and equipment” expense on our Consolidated Statements of Income and Comprehensive Income. Amortization expense associated with computer software was $ 54 million, $ 49 million, and $ 44 million for the years ended September 30, 2020, 2019, and 2018, respectively, and is included in “Communications and information processing” expense on our Consolidated Statements of Income and Comprehensive Income. We also incur software licensing fees, which are also included in “Communications and information processing” expense on our Consolidated Statements of Income and Comprehensive Income. 122 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 10 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET Our goodwill and identifiable intangible assets result from various acquisitions. See Note 2 for a discussion of our goodwill and intangible assets accounting policies. The following table presents our goodwill and net identifiable intangible asset balances as of the dates indicated. September 30, $ in millions 2020 2019 Goodwill $ 466 $ 464 Identifiable intangible assets, net 134 147 Total goodwill and identifiable intangible assets, net $ 600 $ 611 Goodwill The following table summarizes our goodwill by segment and the balances and activity for the years indicated. $ in millions Private Client Group Capital Markets Asset Management Total Year ended September 30, 2020 Goodwill as of beginning of year $ 275 $ 120 $ 69 $ 464 Foreign currency translations 2 — — 2 Goodwill as of end of year $ 277 $ 120 $ 69 $ 466 Year ended September 30, 2019 Goodwill as of beginning of year $ 276 $ 133 $ 69 $ 478 Additions — 7 — 7 Foreign currency translations ( 1 ) ( 1 ) — ( 2 ) Impairment — ( 19 ) — ( 19 ) Goodwill as of end of year $ 275 $ 120 $ 69 $ 464 The addition to goodwill during the year ended September 30, 2019 arose from our acquisition of Silver Lane Advisors LLC (“Silver Lane”) and primarily represents synergies from combining this entity with our existing business. The goodwill associated with Silver Lane is deductible for tax purposes over 15 years. The impairment to goodwill during the year ended September 30, 2019 represents a $ 19 million impairment charge related to our Canadian Capital Markets business. Qualitative assessments As described in Note 2, we perform goodwill impairment testing on an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We performed our latest annual goodwill impairment testing as of our January 1, 2020 evaluation date, evaluating balances as of December 31, 2019. In that testing, we performed a qualitative assessment for each of our reporting units that had goodwill. Based upon the outcome of our qualitative assessments, no impairment was identified. Our qualitative assessments consider macroeconomic indicators, such as trends in equity and fixed income markets, gross domestic product, unemployment rates, and interest rates. We also consider regulatory changes, reporting unit results, and changes in key personnel and strategy. Changes in these indicators, and our ability to respond to such changes, may trigger the need for impairment testing at a point other than our annual assessment date. Subsequent to our annual goodwill impairment testing, the COVID-19 pandemic broadly impacted the operating environment and caused deterioration in market conditions, particularly toward the end of our fiscal second quarter. However, the operating environment toward the end of our fiscal year continued to recover and market conditions generally improved. We performed an evaluation to determine whether the economic impacts resulting from the pandemic were indicators requiring us to perform an impairment test as of September 30, 2020. Multiple factors, including performance, macroeconomic, and fair value indicators, were assessed with respect to each of our reporting units to determine whether it was more likely than not that the estimated fair value of any of these reporting units was less than its carrying value. As a result of our review, we concluded that it was more likely than not that the estimated fair values of our reporting units exceeded their respective carrying values and that the impact of the COVID-19 pandemic through the end of our fiscal year 2020 was not a triggering event to perform a quantitative assessment as of a date other than our annual evaluation date. 123 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Identifiable intangible assets, net The following table sets forth our identifiable intangible asset balances by segment, net of accumulated amortization, and activity for the years indicated. $ in millions Private Client Group Capital Markets Asset Management Total Year ended September 30, 2020 Net identifiable intangible assets as of beginning of year $ 35 $ 17 $ 95 $ 147 Amortization expense ( 4 ) ( 4 ) ( 5 ) ( 13 ) Net identifiable intangible assets as of end of year $ 31 $ 13 $ 90 $ 134 Year ended September 30, 2019 Net identifiable intangible assets as of beginning of year $ 41 $ 20 $ 100 $ 161 Additions — 1 — 1 Amortization expense ( 6 ) ( 4 ) ( 5 ) ( 15 ) Net identifiable intangible assets as of end of year $ 35 $ 17 $ 95 $ 147 The addition of intangible assets during the year ended September 30, 2019 was attributable to the acquisition of Silver Lane. The following table summarizes our identifiable intangible assets by type. September 30, 2020 2019 $ in millions Gross carrying value Accumulated amortization Gross carrying value Accumulated amortization Customer relationships $ 134 $ ( 61 ) $ 134 $ ( 50 ) Non-amortizing customer relationships 52 — 52 — Trade name 10 ( 4 ) 12 ( 5 ) Seller relationship agreements 4 ( 2 ) 5 ( 3 ) Other 6 ( 5 ) 6 ( 4 ) Total $ 206 $ ( 72 ) $ 209 $ ( 62 ) The following table sets forth the projected amortization expense by fiscal year associated with our identifiable intangible assets with finite lives. Fiscal year ended September 30, $ in millions 2021 $ 12 2022 11 2023 10 2024 10 2025 8 Thereafter 31 Total $ 82 Qualitative assessments As described in Note 2, we perform impairment testing for our non-amortizing customer relationship intangible asset on an annual basis or when an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. We performed our latest annual impairment test as of our January 1, 2020 evaluation date, evaluating balances as of December 31, 2019. In that testing, we performed a qualitative assessment for our non-amortizing customer relationship intangible asset. Based upon the outcome of our qualitative assessment, no impairment was identified. Subsequent to our annual impairment testing of our non-amortizing customer relationship intangible asset, we performed an evaluation to determine whether the economic impacts resulting from the COVID-19 pandemic were indicators requiring us to perform an impairment test as of September 30, 2020. In performing our assessment, we considered multiple factors, including macroeconomic and market conditions, performance, and relevant entity-specific events, among others, to determine whether it was more likely than not that the estimated fair value of the asset was less than its carrying value. As a result of our review, we concluded that it was more likely than not that the fair value of the non-amortizing customer relationship intangible asset exceeded its carrying value and that the impact of the COVID-19 pandemic through the end of our fiscal year 2020 was not a triggering event to perform a quantitative assessment as of a date other than our annual evaluation date. 124 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 11 - OTHER ASSETS The following table details the components of other assets. See Note 2 for a discussion of the accounting polices related to these components. September 30, $ in millions 2020 2019 Investments in company-owned life insurance policies $ 773 $ 675 Lease ROU assets 321 — Investments in real estate partnerships held by consolidated variable interest entities 164 75 Prepaid expenses 123 123 Investment in FHLB stock 52 52 Investment in FRB stock 25 25 All other 67 70 Total other assets $ 1,525 $ 1,020 As of September 30, 2020, the cumulative face value of our company-owned life insurance policies was $ 1.91 billion. On October 1, 2019, we adopted new accounting guidance related to leases. See Notes 2 and 12 for further information about this guidance and for a discussion of our accounting policies related to leases. NOTE 12 - LEASES On October 1, 2019, we adopted new accounting guidance related to the accounting for leases. See Note 2 for further information about this guidance and for a discussion of our accounting policies related to leases. As of September 30, 2020, our lease commitments resulted in ROU assets of $ 321 million and lease liabilities of $ 345 million, which were included in “Other assets” and “Other payables,” respectively, on our Consolidated Statements of Financial Condition. The weighted-average remaining lease term and discount-rate for our leases was five years and 3.86 %, respectively, as of September 30, 2020. Lease expense Lease expense is recognized on a straight-line basis over the lease term if the ROU asset has not been impaired or abandoned. The following table details the components of lease expense, which is included in “Occupancy and equipment” expense on our Consolidated Statements of Income and Comprehensive Income. $ in millions Year ended September 30, 2020 Lease costs $ 98 Variable lease costs $ 26 Variable lease costs in the preceding table includes payments for common area maintenance charges and other variable costs that are not reflected in the measurement of ROU assets and lease liabilities. 125 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Lease liabilities The maturities of lease liabilities as of September 30, 2020 are presented in the following table. Fiscal year ended September 30, $ in millions 2021 97 2022 83 2023 65 2024 48 2025 34 Thereafter 55 Gross lease payments 382 Less: interest ( 37 ) Present value of lease liabilities $ 345 Lease payments in the preceding table exclude $ 201 million of legally binding minimum lease payments for leases signed but not yet commenced. These leases are estimated to commence between fiscal year 2021 and 2022 with lease terms ranging from five years to 11 years. Statement of cash flows supplemental information $ in millions Year ended September 30, 2020 Cash outflows - lease liabilities $ 101 Non-cash - ROU assets recorded for new and modified leases $ 74 Minimum future lease commitments (under previous GAAP) As of the date of adoption, our undiscounted minimum annual rental commitments were materially unchanged from the disclosure in Note 17 of our 2019 Form 10-K, which is included in the following table. Fiscal year ended September 30, $ in millions 2020 $ 103 2021 95 2022 79 2023 66 2024 49 Thereafter 127 Total $ 519 NOTE 13 – BANK DEPOSITS Bank deposits include savings and money market accounts, certificates of deposit with RJ Bank, Negotiable Order of Withdrawal (“NOW”) accounts and demand deposits. The following table presents a summary of bank deposits, as well as the weighted-average interest rates on such deposits. The calculation of the weighted-average rates were based on the actual deposit balances and rates at each respective period end. September 30, 2020 2019 $ in millions Balance Weighted-average rate Balance Weighted-average rate Savings and money market accounts $ 25,604 0.01 % $ 21,654 0.25 % Certificates of deposit 1,017 1.94 % 605 2.33 % NOW accounts 156 1.92 % 6 0.01 % Demand deposits (non-interest-bearing) 24 — 16 — Total bank deposits $ 26,801 0.09 % $ 22,281 0.31 % 126 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Total bank deposits in the preceding table exclude affiliate deposits of $ 185 million and $ 163 million at September 30, 2020 and 2019, respectively, all of which were held in a deposit account at RJ Bank on behalf of RJF. See Note 25 for additional information. Savings and money market accounts in the preceding table consist primarily of deposits that are cash balances swept to RJ Bank from the client investment accounts maintained at RJ&A. These balances are held in Federal Deposit Insurance Corporation (“FDIC”)-insured bank accounts through the RJBDP. The aggregate amount of individual time deposit account balances that exceeded the FDIC insurance limit at September 30, 2020 was $ 23 million. The following table sets forth the scheduled maturities of certificates of deposit. September 30, 2020 2019 $ in millions Denominations greater than or equal to $100,000 Denominations less than $100,000 Denominations greater than or equal to $100,000 Denominations less than $100,000 Three months or less $ 59 $ 76 $ 24 $ 19 Over three through six months 26 18 26 21 Over six through twelve months 19 26 75 37 Over one through two years 43 206 32 36 Over two through three years 67 170 40 93 Over three through four years 37 165 66 47 Over four through five years 7 98 38 51 Total certificates of deposit $ 258 $ 759 $ 301 $ 304 Interest expense on deposits, excluding interest expense related to affiliate deposits, is summarized in the following table. Year ended September 30, $ in millions 2020 2019 2018 Savings, money market, and NOW accounts $ 21 $ 120 $ 60 Certificates of deposit 20 12 6 Total interest expense on deposits $ 41 $ 132 $ 66 NOTE 14 – OTHER BORROWINGS The following table details the components of other borrowings. September 30, $ in millions 2020 2019 FHLB advances $ 875 $ 875 Mortgage notes payable 13 19 Total other borrowings $ 888 $ 894 FHLB advances Borrowings from the FHLB as of September 30, 2020 and 2019 were comprised of both floating and fixed-rate advances. As of September 30, 2020 and 2019, the floating-rate advances totaled $ 850 million. The interest rates on the floating-rate advances, which mature in December 2022, reset quarterly and are generally based on LIBOR. We use interest rate swaps to manage the risk of increases in interest rates associated with these floating-rate advances by converting the balances subject to variable interest rates to a fixed interest rate. Refer to Note 2 for information regarding these interest rate swaps, which are accounted for as hedging instruments. As of both September 30, 2020 and 2019, the fixed-rate advance totaled $ 25 million and incurred interest at a fixed rate of 3.4 %. This advance matured and was repaid in October 2020. All of the advances were secured by a blanket lien granted to the FHLB on our residential mortgage loan portfolio. The weighted-average interest rate on these FHLB advances as of September 30, 2020 and 2019 was 0.45 % and 2.17 %, respectively. Secured and unsecured financing arrangements On February 19, 2019, RJF and RJ&A entered into an unsecured revolving credit facility agreement (the “Credit Facility”). The Credit Facility has a maturity date of February 2024 and the lenders include a number of financial institutions. This committed unsecured borrowing facility provides for maximum borrowings of up to $ 500 million, with a sublimit of $ 300 127 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements million for RJF. RJ&A may borrow up to $ 500 million under the Credit Facility, depending on the amount of outstanding borrowings of RJF. The interest rates on borrowings under the Credit Facility are variable and based on LIBOR, as adjusted for RJF’s credit rating. There were no borrowings outstanding on the Credit Facility as of September 30, 2020. There is a facility fee associated with the Credit Facility, which also varies with RJF’s credit rating. Based upon RJF’s credit rating as of September 30, 2020, the variable rate facility fee, which is applied to the committed amount, was 0.175 % per annum. In addition to the Credit Facility, we maintain various secured and unsecured lines of credit, which are generally utilized to finance certain fixed income securities or for cash management purposes. Borrowings during the year were generally day-to-day and there were no borrowings outstanding on these arrangements as of September 30, 2020. The interest rates for these arrangements are variable and are based on the Fed Funds rate, LIBOR, a lender’s prime rate, or the Canadian prime rate, as applicable. We also have other collateralized financings included in “Collateralized financings” on our Consolidated Statements of Financial Condition. See Note 6 for information regarding our other collateralized financing arrangements. Mortgage notes payable Mortgage notes payable pertain to mortgage loans on certain of our corporate headquarters offices located in St. Petersburg, Florida. These mortgage loans are secured by land, buildings, and improvements. These mortgage loans bear a fixed interest rate of 5.7 % with repayment terms of monthly interest and principal debt service and have a January 2023 maturity. Maturities Our other borrowings as of September 30, 2020, mature as follows based on their contractual terms. Fiscal year ended September 30, $ in millions 2021 $ 30 2022 6 2023 852 Total $ 888 NOTE 15 – SENIOR NOTES PAYABLE The following table summarizes our senior notes payable. September 30, $ in millions 2020 2019 5.625 % senior notes, due 2024 $ 250 $ 250 3.625 % senior notes, due 2026 500 500 4.65 % senior notes, due 2030 500 — 4.95 % senior notes, due 2046 800 800 Total principal amount 2,050 1,550 Unaccreted premium/(discount) 10 11 Unamortized debt issuance costs ( 15 ) ( 11 ) Total senior notes payable $ 2,045 $ 1,550 In March 2012, we sold in a registered underwritten public offering $ 250 million in aggregate principal amount of 5.625 % senior notes due April 2024. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity, at a redemption price equal to the greater of (i) 100 % of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 50 basis points, plus accrued and unpaid interest thereon to the redemption date. In July 2016, we sold in a registered underwritten public offering $ 500 million in aggregate principal amount of 3.625 % senior notes due September 2026. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity, at a redemption price equal to the greater of (i) 100 % of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, 128 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 35 basis points, plus accrued and unpaid interest thereon to the redemption date. In March 2020, we sold in a registered underwritten public offering $ 500 million in aggregate principal amount of 4.65 % senior notes due April 2030. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to January 1, 2030, at a redemption price equal to the greater of (i) 100 % of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 50 basis points; and on or after January 1, 2030, at 100 % of the principal amount of the notes redeemed; plus, in each case, accrued and unpaid interest thereon to the redemption date. In July 2016, we sold in a registered underwritten public offering $ 300 million in aggregate principal amount of 4.95 % senior notes due July 2046. In May 2017, we reopened the offering and sold, in a registered underwritten public offering, an additional $ 500 million in aggregate principal amount of 4.95 % senior notes due July 2046. These additional senior notes were consolidated, formed into a single series, and are fully fungible with the $ 300 million in aggregate principal amount 4.95 % senior notes issued in July 2016. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity, at a redemption price equal to the greater of (i) 100 % of the principal amount of the notes redeemed, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date at a discount rate equal to a designated U.S. Treasury rate, plus 45 basis points, plus accrued and unpaid interest thereon to the redemption date. NOTE 16 – INCOME TAXES For a discussion of our income tax accounting policies and other income tax-related information see Note 2. Income taxes The following table details the total income tax provision/(benefit) allocation for each respective period. Year ended September 30, $ in millions 2020 2019 2018 Recorded in: Net income (1) $ 234 $ 341 $ 454 Equity, arising from available-for-sale securities recorded through OCI 23 27 ( 19 ) Equity, arising from currency translations, net of the impact of net investment hedges recorded through OCI 2 7 10 Equity, arising from cash flow hedges recorded through OCI ( 12 ) ( 23 ) 15 Total provision for income taxes $ 247 $ 352 $ 460 (1) Our provision for income taxes for the year ended September 30, 2018 included $ 105 million related to the enactment of the Tax Cuts and Jobs Act (“Tax Act”) in December 2017, primarily due to the remeasurement of U.S. deferred tax assets at a lower enacted federal corporate tax rate. The following table details our provision/(benefit) for income taxes included in net income for each respective period. Year ended September 30, $ in millions 2020 2019 2018 Current: Federal $ 215 $ 286 $ 258 State and local 49 63 65 Foreign 9 15 14 Total current 273 364 337 Deferred: Federal ( 36 ) ( 22 ) 121 State and local ( 3 ) ( 1 ) ( 4 ) Total deferred ( 39 ) ( 23 ) 117 Total provision for income taxes $ 234 $ 341 $ 454 129 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is detailed in the following table. Year ended September 30, 2020 2019 2018 Provision calculated at statutory rate 21.0 % 21.0 % 24.5 % Impact of Tax Act — 0.1 % 8.1 % State income tax, net of federal benefit 3.6 % 3.6 % 3.9 % Excess tax benefits related to share-based compensation ( 0.6 ) % ( 0.4 ) % ( 0.9 ) % Gains on company-owned life insurance policies which are not subject to tax ( 1.0 ) % ( 0.1 ) % ( 0.7 ) % Federal tax credits ( 1.1 ) % ( 0.9 ) % ( 0.7 ) % Other, net 0.3 % 1.5 % 0.6 % Total provision for income tax 22.2 % 24.8 % 34.8 % Our U.S. federal statutory tax rate for the year ended September 30, 2018 of 24.5 % reflected a blended federal statutory rate of 35.0 % for our first fiscal quarter and 21.0 % for the remaining three fiscal quarters as a result of the Tax Act. The following table presents our U.S. and foreign components of pre-tax income for each respective period. Year ended September 30, $ in millions 2020 2019 2018 U.S. $ 1,019 $ 1,340 $ 1,268 Foreign 33 35 43 Pre-tax income $ 1,052 $ 1,375 $ 1,311 The cumulative effects of temporary differences that give rise to significant portions of the deferred tax asset/(liability) items are detailed in the following table. September 30, $ in millions 2020 2019 Deferred tax assets: Deferred compensation $ 229 $ 192 Allowances for loan losses and reserves for unfunded commitments 89 56 Unrealized loss associated with foreign currency translations 8 10 Unrealized loss associated with cash flow hedges 18 6 Accrued expenses 34 35 Partnership investments 13 12 Lease liabilities 80 — Other 16 12 Total deferred tax assets 487 323 Deferred tax liabilities: Goodwill and identifiable intangible assets ( 34 ) ( 28 ) Property and equipment ( 81 ) ( 57 ) Lease ROU assets ( 80 ) — Unrealized gain associated with available-for-sale securities ( 30 ) ( 7 ) Total deferred tax liabilities ( 225 ) ( 92 ) Net deferred tax assets $ 262 $ 231 We had a net deferred tax asset at both September 30, 2020 and 2019. We believe that the realization of the net deferred tax asset of $ 262 million is more likely than not based on expectations of future taxable income. As of September 30, 2020, we considered nearly all undistributed earnings of non-U.S. subsidiaries to be permanently reinvested. Therefore, we have not provided for any U.S. deferred income taxes related to such subsidiaries. As of September 30, 2020, we had approximately $ 311 million of cumulative undistributed earnings attributable to foreign subsidiaries, most of which were subject to U.S. tax under the transition tax on foreign earnings under the Tax Act. Because the time and manner of repatriation is uncertain, we cannot determine the impact of local taxes, withholding taxes and foreign tax credits associated with the future repatriation of such earnings, and therefore, cannot quantify the tax liability that would be payable in the event all such foreign earnings are repatriated. 130 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of September 30, 2020, the current tax receivable, which is included in “Other receivables” on our Consolidated Statements of Financial Condition, was $ 17 million, and the current tax payable, which is included in “Other payables,” was $ 82 million. As of September 30, 2019, the current tax receivable was $ 22 million and the current tax payable was $ 49 million. Uncertain tax positions We recognize the accrual of interest and penalties related to income tax matters in interest expense and other expense, respectively. As of September 30, 2020 and 2019, accrued interest and penalties were approximately $ 8 million and $ 6 million, respectively. The following table presents the aggregate changes in the balances for uncertain tax positions. Year ended September 30, $ in millions 2020 2019 2018 Uncertain tax positions beginning of year $ 42 $ 31 $ 20 Increases for tax positions related to the current year 5 11 5 Increases for tax positions related to prior years 3 7 10 Decreases for tax positions related to prior years ( 1 ) — ( 1 ) Decreases due to lapsed statute of limitations ( 4 ) ( 2 ) ( 3 ) Decreases related to settlements — ( 5 ) — Uncertain tax positions end of year $ 45 $ 42 $ 31 The total amount of uncertain tax positions that, if recognized, would impact the effective tax rate (the items included in the preceding table after considering the federal tax benefit associated with any state tax provisions) was $ 40 million, $ 38 million, and $ 27 million at September 30, 2020, 2019 and 2018, respectively. We anticipate that the uncertain tax position liability balance will decrease by approximately $ 8 million over the next 12 months due to the expiration of statutes of limitations on federal and state tax returns and settlements of positions with the IRS. We file U.S. federal income tax returns as well as returns with various state, local and foreign jurisdictions. With few exceptions, we are generally no longer subject to U.S. federal, state and local, or foreign income tax examination by tax authorities for years prior to fiscal year 2017 for federal tax returns, fiscal year 2016 for state and local tax returns and fiscal year 2016 for foreign tax returns. Various foreign and state audits in process are expected to be completed in fiscal year 2021. NOTE 17 – COMMITMENTS, CONTINGENCIES AND GUARANTEES Commitments and contingencies Loan and underwriting commitments In the normal course of business, we enter into commitments for debt and equity underwritings. As of September 30, 2020, we had six such open underwriting commitments, of which all but one were subsequently settled in open market transactions and none of which resulted in a significant loss. We offer loans to prospective financial advisors and certain key revenue producers primarily for recruiting, transitional cost assistance, and retention purposes (see Note 2 for a discussion of our accounting policies governing these transactions). These offers are contingent upon certain events occurring, including the individuals joining us and meeting certain conditions outlined in their offer. Our unfunded loan commitments related to such offers were $ 15 million as of September 30, 2020. Commitments to extend credit and other credit-related financial instruments RJ Bank has outstanding, at any time, a significant number of commitments to extend credit and other credit-related off-balance sheet financial instruments, such as standby letters of credit and loan purchases, which then extend over varying periods of time. These arrangements are subject to strict underwriting assessments and each customer’s credit worthiness is evaluated on a case-by-case basis. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and our exposure is limited to the replacement value of those commitments. 131 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table presents RJ Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding. September 30, $ in millions 2020 2019 Open-end consumer lines of credit (primarily SBL) $ 12,148 $ 9,328 Commercial lines of credit $ 1,482 $ 1,527 Unfunded loan commitments $ 532 $ 599 Standby letters of credit $ 33 $ 40 Open-end consumer lines of credit primarily represent the unfunded amounts of RJ Bank loans to consumers that are secured by marketable securities at advance rates consistent with industry standards. The proceeds from repayment or, if necessary, the liquidation of collateral, which is monitored daily, are expected to satisfy the amounts drawn against these existing lines of credit. These lines of credit are primarily uncommitted, as we reserve the right to not make any advances or may terminate these lines at any time. Because many of our lending commitments expire without being funded in whole or in part, the contractual amounts are not estimates of our actual future credit exposure or future liquidity requirements. We maintain a reserve to provide for potential losses related to the unfunded lending commitments. See Note 7 for further discussion of this reserve for unfunded lending commitments. RJ&A enters into margin lending arrangements which allow customers to borrow against the value of qualifying securities. Margin loans are collateralized by the securities held in the customer’s account at RJ&A. Collateral levels and established credit terms are monitored daily and we require customers to deposit additional collateral or reduce balances as necessary. Investment commitments We had unfunded commitments to various investments, including private equity investments and certain RJ Bank investments, of $ 36 million as of September 30, 2020. Other commitments RJTCF sells investments in project partnerships to various LIHTC funds, which have third-party investors, and for which RJTCF serves as the managing member or general partner. RJTCF typically sells investments in project partnerships to LIHTC funds within 90 days of their acquisition. Until such investments are sold to LIHTC funds, RJTCF is responsible for funding investment commitments to such partnerships. As of September 30, 2020, RJTCF had committed approximately $ 56 million to project partnerships that had not yet been sold to LIHTC funds. Because we expect to sell these project partnerships to LIHTC funds and the equity funding events arise over future periods, the contractual commitments are not expected to materially impact our future liquidity requirements. RJTCF may also make short-term loans or advances to project partnerships and LIHTC funds. As a part of our fixed income public finance operations, we enter into forward commitments to purchase agency MBS. See Note 2 for further discussion of these activities. At September 30, 2020, we had $ 443 million of principal amount of outstanding forward MBS purchase commitments, which were expected to be purchased within 90 days following commitment. In order to hedge the market interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into TBA security contracts with investors for generic MBS at specific rates and prices to be delivered on settlement dates in the future. We may be subject to loss if the timing of, or the actual amount of, the MBS differs significantly from the term and notional amount of the TBA security contract to which we entered. These TBA securities and related purchase commitments are accounted for at fair value. As of September 30, 2020, the fair value of the TBA securities and the estimated fair value of the purchase commitments were insignificant. For information regarding our lease commitments, including the maturities of our lease liabilities, see Note 12. Guarantees Our U.S. broker-dealer subsidiaries are required by federal law to be members of the Securities Investors Protection Corporation (“SIPC”). The SIPC fund provides protection up to $ 500 thousand per client for securities and cash held in client accounts, including a limitation of $ 250 thousand on claims for cash balances. We have purchased excess SIPC coverage through various syndicates of Lloyd’s of London. For RJ&A, our clearing broker-dealer, the additional protection currently 132 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements provided has an aggregate firm limit of $ 750 million for cash and securities, including a sub-limit of $ 1.9 million per client for cash above basic SIPC. Account protection applies when a SIPC member fails financially and is unable to meet its obligations to clients. This coverage does not protect against market fluctuations. RJF has provided an indemnity to Lloyd’s of London against any and all losses they may incur associated with the excess SIPC policies. We guarantee the debt of one of our private equity investments. The amount of such debt, including the undrawn portion of a revolving credit facility, was $ 13 million as of September 30, 2020. The debt, which matures in 2022, is secured by substantially all of the assets of the borrower. Legal and regulatory matter contingencies In addition to any matters that may be specifically described in the following sections, in the normal course of our business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities as a diversified financial services institution. RJF and certain of its subsidiaries are subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. Reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censures to fines and, in serious cases, temporary or permanent suspension from conducting business, or limitations on certain business activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time, among other things, into industry practices, which can also result in the imposition of such sanctions. We may contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies in the financial services industry continues to be significant. There can be no assurance that material losses will not be incurred from claims that have not yet been asserted or are not yet determined to be material. For many legal and regulatory matters, we are unable to estimate a range of reasonably possible loss as we cannot predict if, how or when such proceedings or investigations will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be. A large number of factors may contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental proceedings, potential fines and penalties); the matters present significant legal uncertainties; we have not engaged in settlement discussions; discovery is not complete; there are significant facts in dispute; and numerous parties are named as defendants (including where it is uncertain how liability might be shared among defendants). Subject to the foregoing, after consultation with counsel, we believe that the outcome of such litigation and regulatory proceedings will not have a material adverse effect on our consolidated financial condition. However, the outcome of such litigation and regulatory proceedings could be material to our operating results and cash flows for a particular future period, depending on, among other things, our revenues or income for such period. There are certain matters for which we are unable to estimate the upper end of the range of reasonably possible loss. With respect to legal and regulatory matters for which management has been able to estimate a range of reasonably possible loss as of September 30, 2020, we estimated the upper end of the range of reasonably possible aggregate loss to be approximately $ 120 million in excess of the aggregate accruals for such matters. Refer to Note 2 for a discussion of our criteria for recognizing liabilities for contingencies. We may from time to time include in any descriptions of individual matters herein certain quantitative information about the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings. Although this information may provide insight into the potential magnitude of a matter, it does not represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual related thereto. 133 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 18 – ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) All of the components of OCI, net of tax, were attributable to RJF. The following table presents the net change in AOCI as well as the changes, and the related tax effects, of each component of AOCI. $ in millions Net investment hedges Currency translations Subtotal: net investment hedges and currency translations Available-for-sale securities Cash flow hedges Total Year ended September 30, 2020 AOCI as of beginning of year $ 110 $ ( 135 ) $ ( 25 ) $ 21 $ ( 19 ) $ ( 23 ) OCI: OCI before reclassifications and taxes 7 ( 5 ) 2 94 ( 51 ) 45 Amounts reclassified from AOCI, before tax — — — ( 3 ) 5 2 Pre-tax net OCI 7 ( 5 ) 2 91 ( 46 ) 47 Income tax effect ( 2 ) — ( 2 ) ( 23 ) 12 ( 13 ) OCI for the year, net of tax 5 ( 5 ) — 68 ( 34 ) 34 AOCI as of end of year $ 115 $ ( 140 ) $ ( 25 ) $ 89 $ ( 53 ) $ 11 Year ended September 30, 2019 AOCI as of beginning of year $ 88 $ ( 111 ) $ ( 23 ) $ ( 46 ) $ 42 $ ( 27 ) Cumulative effect of adoption of ASU 2016-01 — — — ( 4 ) — ( 4 ) OCI: OCI before reclassifications and taxes 29 ( 24 ) 5 98 ( 79 ) 24 Amounts reclassified from AOCI, before tax — — — — ( 5 ) ( 5 ) Pre-tax net OCI 29 ( 24 ) 5 98 ( 84 ) 19 Income tax effect ( 7 ) — ( 7 ) ( 27 ) 23 ( 11 ) OCI for the year, net of tax 22 ( 24 ) ( 2 ) 71 ( 61 ) 8 AOCI as of end of year $ 110 $ ( 135 ) $ ( 25 ) $ 21 $ ( 19 ) $ ( 23 ) As of October 1, 2018, we adopted accounting guidance (ASU 2016-01) that generally requires changes in the fair value of equity securities to be recorded in net income. Accordingly, as of the date of adoption, we reclassified a cumulative unrealized gain on such securities, net of tax, from AOCI to retained earnings. Reclassifications from AOCI to net income, excluding taxes, for the year ended September 30, 2020 were recorded in “Other” revenue and “Interest expense” on the Consolidated Statements of Income and Comprehensive Income. Reclassifications from AOCI to net income, excluding taxes, for the year ended September 30, 2019 were recorded in “Interest expense” on the Consolidated Statements of Income and Comprehensive Income. Our net investment hedges and cash flow hedges relate to our derivatives associated with RJ Bank’s business operations. See Notes 2 and 5 for additional information on these derivatives. 134 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 19 - REVENUES The following tables present our sources of revenues by segment. For further information about our significant accounting policies related to revenue recognition, see Note 2. See Note 24 for additional information on our segment results. Year ended September 30, 2020 $ in millions Private Client Group Capital Markets Asset Management RJ Bank Other and intersegment eliminations Total Revenues: Asset management and related administrative fees $ 3,162 $ 7 $ 688 $ — $ ( 23 ) $ 3,834 Brokerage revenues: Securities commissions: Mutual and other fund products 567 7 8 — ( 3 ) 579 Insurance and annuity products 397 — — — — 397 Equities, ETFs and fixed income products 355 137 — — — 492 Subtotal securities commissions 1,319 144 8 — ( 3 ) 1,468 Principal transactions (1) 64 427 — 1 ( 4 ) 488 Total brokerage revenues 1,383 571 8 1 ( 7 ) 1,956 Account and services fees: Mutual fund and annuity service fees 348 — 1 — ( 1 ) 348 RJBDP fees 330 1 — — ( 181 ) 150 Client account and other fees 129 5 15 — ( 23 ) 126 Total account and service fees 807 6 16 — ( 205 ) 624 Investment banking: Merger & acquisition and advisory — 290 — — — 290 Equity underwriting 41 185 — — 1 227 Debt underwriting — 133 — — — 133 Total investment banking 41 608 — — 1 650 Other: Tax credit fund revenues — 83 — — — 83 All other (1) 27 7 2 26 ( 41 ) 21 Total other 27 90 2 26 ( 41 ) 104 Total non-interest revenues 5,420 1,282 714 27 ( 275 ) 7,168 Interest income (1) 155 25 1 800 19 1,000 Total revenues 5,575 1,307 715 827 ( 256 ) 8,168 Interest expense ( 23 ) ( 16 ) — ( 62 ) ( 77 ) ( 178 ) Net revenues $ 5,552 $ 1,291 $ 715 $ 765 $ ( 333 ) $ 7,990 (1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers. 135 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Year ended September 30, 2019 $ in millions Private Client Group Capital Markets Asset Management RJ Bank Other and intersegment eliminations Total Revenues: Asset management and related administrative fees $ 2,820 $ 6 $ 645 $ — $ ( 20 ) $ 3,451 Brokerage revenues: Securities commissions: Mutual and other fund products 599 6 10 — ( 4 ) 611 Insurance and annuity products 412 — — — — 412 Equities, ETFs and fixed income products 304 123 — — — 427 Subtotal securities commissions 1,315 129 10 — ( 4 ) 1,450 Principal transactions (1) 74 285 — — ( 2 ) 357 Total brokerage revenues 1,389 414 10 — ( 6 ) 1,807 Account and services fees: Mutual fund and annuity service fees 334 — 2 — ( 10 ) 326 RJBDP fees 453 — 3 — ( 176 ) 280 Client account and other fees 122 5 26 — ( 21 ) 132 Total account and service fees 909 5 31 — ( 207 ) 738 Investment banking: Merger & acquisition and advisory — 379 — — — 379 Equity underwriting 32 100 — — — 132 Debt underwriting — 85 — — — 85 Total investment banking 32 564 — — — 596 Other: Tax credit fund revenues — 86 — — — 86 All other (1) 26 4 2 26 6 64 Total other 26 90 2 26 6 150 Total non-interest revenues 5,176 1,079 688 26 ( 227 ) 6,742 Interest income (1) 225 38 3 975 40 1,281 Total revenues 5,401 1,117 691 1,001 ( 187 ) 8,023 Interest expense ( 42 ) ( 34 ) — ( 155 ) ( 52 ) ( 283 ) Net revenues $ 5,359 $ 1,083 $ 691 $ 846 $ ( 239 ) $ 7,740 (1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers. 136 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Year ended September 30, 2018 $ in millions Private Client Group Capital Markets Asset Management RJ Bank Other and intersegment eliminations Total Revenues: Asset management and related administrative fees $ 2,517 $ 8 $ 610 $ — $ ( 16 ) $ 3,119 Brokerage revenues: Securities commissions: Mutual and other fund products 703 7 12 — ( 5 ) 717 Insurance and annuity products 414 — — — — 414 Equities, ETFs and fixed income products 352 145 — — ( 2 ) 495 Subtotal securities commissions 1,469 152 12 — ( 7 ) 1,626 Principal transactions (1) 80 249 — 1 ( 1 ) 329 Total brokerage revenues 1,549 401 12 1 ( 8 ) 1,955 Account and services fees: Mutual fund and annuity service fees 332 — 2 — ( 9 ) 325 RJBDP fees 354 — 3 — ( 92 ) 265 Client account and other fees 111 5 23 — ( 16 ) 123 Total account and service fees 797 5 28 — ( 117 ) 713 Investment banking: Merger & acquisition and advisory — 312 — — — 312 Equity underwriting 35 93 — — — 128 Debt underwriting — 61 — — — 61 Total investment banking 35 466 — — — 501 Other: Tax credit fund revenues — 79 — — — 79 All other (1) 30 1 2 22 10 65 Total other 30 80 2 22 10 144 Total non-interest revenues 4,928 960 652 23 ( 131 ) 6,432 Interest income (1) 193 32 2 793 24 1,044 Total revenues 5,121 992 654 816 ( 107 ) 7,476 Interest expense ( 28 ) ( 28 ) — ( 89 ) ( 57 ) ( 202 ) Net revenues $ 5,093 $ 964 $ 654 $ 727 $ ( 164 ) $ 7,274 (1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers. At September 30, 2020 and September 30, 2019, net receivables related to contracts with customers were $ 342 million and $ 347 million, respectively. 137 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 20 – INTEREST INCOME AND INTEREST EXPENSE The following table details the components of interest income and interest expense. Year ended September 30, $ in millions 2020 2019 2018 Interest income: Assets segregated pursuant to regulations $ 28 $ 59 $ 53 Trading instruments 20 26 23 Available-for-sale securities 83 69 52 Margin loans 84 122 107 Bank loans, net of unearned income and deferred expenses 702 871 722 Loans to financial advisors 20 18 15 Corporate cash and all other 63 116 72 Total interest income 1,000 1,281 1,044 Interest expense: Bank deposits 41 132 66 Trading instruments sold but not yet purchased 3 7 7 Brokerage client payables 11 21 15 Other borrowings 20 21 22 Senior notes payable 85 73 73 Other 18 29 19 Total interest expense 178 283 202 Net interest income 822 998 842 Bank loan loss provision ( 233 ) ( 22 ) ( 20 ) Net interest income after bank loan loss provision $ 589 $ 976 $ 822 Interest expense related to bank deposits in the preceding table excludes interest expense associated with affiliate deposits, which has been eliminated in consolidation. NOTE 21 - SHARE-BASED AND OTHER COMPENSATION Share-based compensation plans We have one share-based compensation plan for our employees, Board of Directors and independent contractor financial advisors. The Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”) authorizes us to grant 52.2 million new shares, including the shares available for grant under six predecessor plans. As of September 30, 2020, 15.5 million shares were available under the 2012 Plan. Generally, we reissue our treasury shares under the 2012 Plan; however, we are also permitted to issue new shares. Our share-based compensation accounting policies are described in Note 2. Stock options granted and outstanding to our employees and independent contractors as of September 30, 2020 and the related expense for the years ended September 30, 2020, 2019 and 2018 were insignificant, as we generally ceased issuing stock options in our fiscal third quarter of 2019 and have instead issued RSUs. Cash received from stock option exercises during the year ended September 30, 2020 was $ 28 million. RSU awards We may grant awards under the 2012 Plan in connection with initial employment or under various retention programs for individuals who are responsible for contributing to our management, growth, and/or profitability. Through our Canadian subsidiary, we established the Restricted Stock Trust Fund, which we funded to enable the trust fund to acquire our common stock in the open market to be used to settle RSUs granted as a retention vehicle for certain employees of our Canadian subsidiaries. We may also grant awards to officers and certain other employees in lieu of cash for 10 % to 50 % of annual bonus amounts in excess of $ 250,000 . Under the plan, the awards are generally restricted for a three - to five -year period, during which time the awards are forfeitable in the event of termination other than for death, disability or retirement. We grant RSUs annually to non-employee members of our Board of Directors. The RSUs granted to these Directors vest over a 1 -year period from their grant date or upon retirement from our Board. 138 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table presents the RSU award activity, which includes grants to employees and members of our Board of Directors, for the year ended September 30, 2020. Shares/Units (in millions) Weighted- average grant date fair value (per share) Non-vested as of beginning of year 5.0 $ 74.08 Granted 1.7 $ 87.30 Vested ( 1.3 ) $ 66.48 Forfeited ( 0.1 ) $ 82.08 Non-vested as of end of year 5.3 $ 80.15 The following table presents expense and income tax benefits related to our RSUs granted to our employees and members of our Board of Directors for the periods indicated. Year ended September 30, $ in millions 2020 2019 2018 Total share-based expense $ 110 $ 101 $ 89 Income tax benefits related to share-based expense $ 25 $ 23 $ 23 For the year ended September 30, 2020, we realized $ 27 million of excess tax benefits related to our RSUs, which favorably impacted income tax expense on our Consolidated Statements of Income and Comprehensive Income. See Note 16 for additional information regarding income taxes. As of September 30, 2020, there was $ 176 million of total pre-tax compensation costs not yet recognized (net of estimated forfeitures) related to RSUs granted to employees and members of our Board of Directors. These costs are expected to be recognized over a weighted-average period of approximately three years . The following RSU activity occurred for the periods indicated. Year ended September 30, $ in millions, except per unit award amounts 2020 2019 2018 Weighted-average grant date fair value per unit award $ 87.30 $ 76.72 $ 87.33 Total fair value of shares and unit awards vested $ 83 $ 63 $ 51 Employee stock purchase plan Under the 2003 Employee Stock Purchase Plan, we are authorized to issue up to 7.4 million shares of common stock to our full-time employees, nearly all of whom are eligible to participate. Under the terms of the plan, share purchases in any calendar year are limited to the lesser of 1,000 shares or shares with a fair value of $ 25,000 . The purchase price of the stock is 85 % of the average high and low market price on the day prior to the purchase date. Under the plan, we sold approximately 466 thousand, 424 thousand and 336 thousand shares to employees during the years ended September 30, 2020, 2019 and 2018, respectively. The compensation cost is calculated as the value of the 15 % discount from market value and was $ 5 million for each of the years ended September 30, 2020, 2019 and 2018. Employee other compensation Our profit sharing plan and employee stock ownership plan (“ESOP”) provide certain death, disability or retirement benefits for all employees who meet certain service requirements. The plans are noncontributory. Our contributions, if any, are determined annually by our Board of Directors on a discretionary basis and are recognized as compensation expense throughout the year. Benefits become fully vested after five years of qualified service, at 65, or if a participant separates from service due to death or disability. All shares owned by the ESOP are included in earnings per share calculations. Cash dividends paid to the ESOP are reflected as a reduction of retained earnings. The number of shares of our common stock held by the ESOP at September 30, 2020 and 2019 was 4.7 million and 4.6 million, respectively. The market value of our common stock held by the ESOP at September 30, 2020 was $ 341 million, of which $ 5 million was unearned (not yet vested) by ESOP plan participants. We also offer a plan pursuant to section 401(k) of the Internal Revenue Code, which is a qualified plan that may provide for a discretionary contribution or a matching contribution each year. Matching contributions are 75 % of the first $ 1,000 and 25 % of the next $ 1,000 of eligible compensation deferred by each participant annually. 139 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Our LTIP is a non-qualified deferred compensation plan that provides benefits to employees who meet certain compensation or production requirements. We have purchased and hold life insurance on the lives of certain current and former employee participants to earn a competitive rate of return for participants and to provide the primary source of funds available to satisfy our obligations under this plan. See Note 11 for information regarding the carrying value of these company-owned life insurance policies. Contributions to the qualified plans and the LTIP are approved annually by the Board of Directors or a committee thereof. We have the VDCP, a non-qualified and voluntary opportunity for certain highly compensated employees to defer compensation. Eligible participants may elect to defer a percentage or specific dollar amount of their compensation into the VDCP. Company-owned life insurance is the primary source of funding for this plan. Compensation expense associated with all of the qualified and non-qualified plans previously described totaled $ 149 million, $ 162 million and $ 154 million for the fiscal years ended September 30, 2020, 2019 and 2018, respectively. Non-employee other compensation We offer non-qualified deferred compensation plans that provide benefits to our independent contractor financial advisors who meet certain production requirements. Company-owned life insurance is the primary source of funding for this plan. The contributions are made in amounts approved annually by management. Certain independent contractor financial advisors are also eligible to participate in our VDCP. Eligible participants may elect to defer a percentage or specific dollar amount of their compensation into the VDCP. Company-owned life insurance is the primary source of funding for this plan. 140 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 22 – REGULATORY CAPITAL REQUIREMENTS RJF, as a bank holding company and financial holding company, RJ Bank, Raymond James Trust, N.A. (“RJ Trust”) and our broker-dealer subsidiaries are subject to capital requirements by various regulatory authorities. Capital levels of each entity are monitored to ensure compliance with our various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on our financial results. As a bank holding company, RJF is subject to the risk-based capital requirements of the Fed. These risk-based capital requirements are expressed as capital ratios that compare measures of regulatory capital to risk-weighted assets, which incorporates quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory guidelines. RJF’s and RJ Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. RJF and RJ Bank are required to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), Tier 1 capital to average assets (as defined), and under rules defined under the Basel III capital framework, Common equity Tier 1 capital (“CET1”) to risk-weighted assets. RJF and RJ Bank each calculate these ratios under the Basel III standardized approach in order to assess compliance with both regulatory requirements and their internal capital policies. In order to maintain our ability to take certain capital actions, including dividends and common equity repurchases, and to make bonus payments, we must hold a capital conservation buffer above our minimum risk-based capital requirements. As of September 30, 2020, both RJF’s and RJ Bank’s capital levels exceeded the capital conservation buffer requirement and were each categorized as “well-capitalized.” To meet requirements for capital adequacy purposes or to be categorized as “well-capitalized,” RJF must maintain minimum CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the following table. Actual Requirement for capital adequacy purposes To be well-capitalized under regulatory provisions $ in millions Amount Ratio Amount Ratio Amount Ratio RJF as of September 30, 2020: CET1 $ 6,490 24.2 % $ 1,208 4.5 % $ 1,744 6.5 % Tier 1 capital $ 6,490 24.2 % $ 1,610 6.0 % $ 2,147 8.0 % Total capital $ 6,804 25.4 % $ 2,147 8.0 % $ 2,684 10.0 % Tier 1 leverage $ 6,490 14.2 % $ 1,824 4.0 % $ 2,280 5.0 % RJF as of September 30, 2019: CET1 $ 5,971 24.8 % $ 1,085 4.5 % $ 1,567 6.5 % Tier 1 capital $ 5,971 24.8 % $ 1,446 6.0 % $ 1,928 8.0 % Total capital $ 6,207 25.8 % $ 1,928 8.0 % $ 2,410 10.0 % Tier 1 leverage $ 5,971 15.7 % $ 1,525 4.0 % $ 1,906 5.0 % RJF’s Tier 1 and Total capital ratios at September 30, 2020 decreased compared to September 30, 2019, due to an increase in risk-weighted assets, partially offset by an increase in equity. The increase in risk-weighted assets was primarily due to growth in cash and cash equivalents segregated pursuant to regulations, available-for-sale securities held at RJ Bank and the residential loan portfolio, as well as the impact of higher market volatility on our market risk-weighted assets, partially offset by a decrease in the C&I loan portfolio. The increase in equity reflected positive earnings during the year, net of share repurchases and dividends. RJF’s Tier 1 leverage ratio at September 30, 2020 decreased compared to September 30, 2019, due to growth of average assets, primarily cash, cash and cash equivalents segregated pursuant to regulations and available-for-sale securities held at RJ Bank, partially offset by the aforementioned change in equity. 141 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements To meet the requirements for capital adequacy or to be categorized as “well-capitalized,” RJ Bank must maintain CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the following table. Actual Requirement for capital adequacy purposes To be well-capitalized under regulatory provisions $ in millions Amount Ratio Amount Ratio Amount Ratio RJ Bank as of September 30, 2020: CET1 $ 2,279 13.0 % $ 788 4.5 % $ 1,138 6.5 % Tier 1 capital $ 2,279 13.0 % $ 1,051 6.0 % $ 1,401 8.0 % Total capital $ 2,500 14.3 % $ 1,401 8.0 % $ 1,751 10.0 % Tier 1 leverage $ 2,279 7.7 % $ 1,183 4.0 % $ 1,479 5.0 % RJ Bank as of September 30, 2019: CET1 $ 2,246 13.2 % $ 764 4.5 % $ 1,103 6.5 % Tier 1 capital $ 2,246 13.2 % $ 1,018 6.0 % $ 1,358 8.0 % Total capital $ 2,458 14.5 % $ 1,358 8.0 % $ 1,697 10.0 % Tier 1 leverage $ 2,246 8.8 % $ 1,021 4.0 % $ 1,276 5.0 % RJ Bank’s Tier 1 capital and Total capital ratios at September 30, 2020 decreased compared to September 30, 2019, primarily due to the growth in available-for-sale securities and residential loans, net of decreases in C&I loans. RJ Bank’s Tier 1 leverage ratio at September 30, 2020 decreased compared to September 30, 2019, due to the growth in average assets, primarily related to available-for-sale securities. Our intention is to maintain RJ Bank’s “well-capitalized” status. In the unlikely event that RJ Bank failed to maintain its “well-capitalized” status, the consequences could include a requirement to obtain a waiver from the FDIC prior to acceptance, renewal, or rollover of brokered deposits and higher FDIC premiums but would not significantly impact on our operations. RJ Bank may pay dividends to RJF without prior approval of its regulator as long as the dividend does not exceed the sum of RJ Bank’s current calendar year and the previous two calendar years’ retained net income, and RJ Bank maintains its targeted regulatory capital ratios. Dividends from RJ Bank may be limited to the extent that capital is needed to support its balance sheet growth. Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934. As a member firm of the Financial Industry Regulatory Authority (“FINRA”), RJ&A is subject to FINRA’s capital requirements, which are substantially the same as Rule 15c3-1. Rule 15c3-1 provides for an “alternative net capital requirement,” which RJ&A has elected. Regulations require that minimum net capital, as defined, be equal to the greater of $ 1.5 million or 2 % of aggregate debit items arising from client balances. 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. The following table presents the net capital position of RJ&A. September 30, $ in millions 2020 2019 Raymond James & Associates, Inc.: (Alternative Method elected) Net capital as a percent of aggregate debit items 48.0 % 39.7 % Net capital $ 1,245 $ 1,056 Less: required net capital ( 52 ) ( 53 ) Excess net capital $ 1,193 $ 1,003 As of September 30, 2020, RJ Trust, RJFS, RJ Ltd. and all of our other active regulated domestic and international subsidiaries were in compliance with and exceeded all applicable capital requirements. RJF expects to continue paying cash dividends. However, the payment and rate of dividends on our common stock are subject to several factors including our operating results, financial and regulatory requirements or restrictions, and the availability of funds from our subsidiaries, including our broker-dealer and bank subsidiaries, which may also be subject to restrictions under regulatory capital rules. The availability of funds from subsidiaries may also be subject to restrictions contained in loan covenants of certain broker-dealer loan agreements and restrictions by bank regulators on dividends to the parent from RJ Bank. 142 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 23 – EARNINGS PER SHARE The following table presents the computation of basic and diluted earnings per common share. Year ended September 30, $ in millions, except per share amounts 2020 2019 2018 Income for basic earnings per common share: Net income $ 818 $ 1,034 $ 857 Less allocation of earnings and dividends to participating securities ( 1 ) ( 2 ) ( 1 ) Net income attributable to RJF common shareholders $ 817 $ 1,032 $ 856 Income for diluted earnings per common share: Net income $ 818 $ 1,034 $ 857 Less allocation of earnings and dividends to participating securities ( 1 ) ( 2 ) ( 1 ) Net income attributable to RJF common shareholders $ 817 $ 1,032 $ 856 Common shares: Average common shares in basic computation 137.6 141.0 145.3 Dilutive effect of outstanding stock options and certain RSUs 2.6 3.0 3.5 Average common shares used in diluted computation 140.2 144.0 148.8 Earnings per common share: Basic $ 5.94 $ 7.32 $ 5.89 Diluted $ 5.83 $ 7.17 $ 5.75 Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive 1.6 0.4 0.5 The allocation of earnings and dividends to participating securities in the preceding table represents dividends paid during the year to participating securities plus an allocation of undistributed earnings to participating securities. Participating securities represent unvested restricted stock and certain RSUs. Participating securities and related dividends paid on these participating securities were insignificant for the years ended September 30, 2020, 2019 and 2018. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed. Dividends per common share declared and paid are detailed in the following table for each respective period. Year ended September 30, 2020 2019 2018 Dividends per common share - declared $ 1.48 $ 1.36 $ 1.10 Dividends per common share - paid $ 1.45 $ 1.32 $ 1.02 143 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 24 – SEGMENT INFORMATION We currently operate through the following five segments: PCG; Capital Markets; Asset Management; RJ Bank; and Other. The segments are determined based upon factors such as the services provided and the distribution channels served and are consistent with how we assess performance and determine how to allocate our resources. The financial results of our segments are presented using the same policies as those described in Note 2. Segment results include allocations of most corporate overhead and benefits expenses to each segment. Refer to the following discussion of the Other segment for a description of the corporate expenses that are not allocated to segments. Intersegment revenues, expenses, receivables and payables are eliminated upon consolidation. The PCG segment provides financial planning, investment advisory and securities transaction services through a branch office network throughout the U.S., Canada and the United Kingdom. The PCG segment includes revenues from securities transaction services, including the sale of equities, mutual funds, fixed income products, and insurance and annuity products to retail clients. In addition, this segment includes revenues from investment advisory services for which we charge either a fee computed as a percentage of assets in a client’s account or a flat period fee. The segment includes servicing fee revenues from mutual fund and annuity companies whose products we distribute and from banks to which we sweep clients’ cash in the RJBDP, our multi-bank sweep program. The segment also includes net interest earnings primarily on client margin loans and cash balances. Our Capital Markets segment conducts institutional sales, securities trading, equity research, investment banking and the syndication and management of investments that qualify for tax credits. We primarily conduct these activities in the U.S., Canada and Europe. 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 a portion of our fee-based assets under administration for our PCG clients through our Asset Management Services division and through RJ Trust. This segment also provides asset management services through Carillon Tower Advisers and affiliates (collectively, “Carillon Tower Advisers”) for certain retail accounts managed on behalf of third-party institutions, institutional accounts and proprietary mutual funds that we manage. RJ Bank provides various types of loans, including corporate loans, tax-exempt loans, residential loans, SBL and other loans. RJ Bank is active in corporate loan syndications and participations and also provides FDIC-insured deposit accounts, including to clients of our broker-dealer subsidiaries. RJ Bank generates net interest income principally through the interest income earned on loans and an investment portfolio of securities, which is offset by the interest expense it pays on client deposits and on its borrowings. The Other segment includes the results of our private equity investments, interest income on certain corporate cash balances, and certain corporate overhead costs of RJF that are not allocated to operating segments, including the interest costs on our public debt. The Other segment also includes expenses related to our reduction in workforce during the fiscal fourth quarter of 2020. 144 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following tables present information concerning operations in these segments. Year ended September 30, $ in millions 2020 2019 2018 Net revenues: Private Client Group $ 5,552 $ 5,359 $ 5,093 Capital Markets 1,291 1,083 964 Asset Management 715 691 654 RJ Bank 765 846 727 Other ( 82 ) 5 ( 15 ) Intersegment eliminations ( 251 ) ( 244 ) ( 149 ) Total net revenues $ 7,990 $ 7,740 $ 7,274 Pre-tax income/(loss): Private Client Group $ 539 $ 579 $ 576 Capital Markets (1) 225 110 91 Asset Management 284 253 235 RJ Bank 196 515 492 Other (2) ( 192 ) ( 82 ) ( 83 ) Total pre-tax income $ 1,052 $ 1,375 $ 1,311 (1) The year ended September 30, 2020 includes a $ 7 million loss related to the pending disposition of our interests in certain entities that operate predominantly in France. The year ended September 30, 2019 includes a $ 15 million loss on the sale of our operations related to research, sales and trading of European equities, as well as a $ 19 million goodwill impairment charge related to our Canadian Capital Markets business. (2) The year ended September 30, 2020 includes reduction in workforce expenses of $ 46 million associated with position eliminations that occurred in our fiscal fourth quarter of 2020 in response to the economic environment. These expenses primarily consist of severance and related payroll expenses, as well as expenses related to company-paid benefits. No individual client accounted for more than ten percent of revenues in any of the years presented. The following table presents our net income on a segment basis. Year ended September 30, $ in millions 2020 2019 2018 Net interest income/(expense): Private Client Group $ 132 $ 183 $ 165 Capital Markets 9 4 4 Asset Management 1 3 2 RJ Bank 738 820 704 Other and intersegment eliminations ( 58 ) ( 12 ) ( 33 ) Net interest income $ 822 $ 998 $ 842 The following table presents our total assets on a segment basis. September 30, $ in millions 2020 2019 Total assets: Private Client Group $ 12,574 $ 9,042 Capital Markets 2,336 2,287 Asset Management 380 401 RJ Bank 30,356 25,516 Other 1,836 1,584 Total $ 47,482 $ 38,830 145 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table presents goodwill, which was included in our total assets, on a segment basis. September 30, $ in millions 2020 2019 Goodwill: Private Client Group $ 277 $ 275 Capital Markets 120 120 Asset Management 69 69 Total $ 466 $ 464 We have operations in the U.S., Canada and Europe. Substantially all long-lived assets are located in the U.S. The following table presents our net revenues and pre-tax income classified by major geographic area in which they were earned. Year ended September 30, $ in millions 2020 2019 2018 Net revenues: U.S. $ 7,446 $ 7,211 $ 6,754 Canada 386 391 381 Europe 158 138 139 Total $ 7,990 $ 7,740 $ 7,274 Pre-tax income/(loss): U.S. $ 1,028 $ 1,356 $ 1,269 Canada 29 29 47 Europe (1) ( 5 ) ( 10 ) ( 5 ) Total $ 1,052 $ 1,375 $ 1,311 (1) The pre-tax loss in Europe for the year ended September 30, 2020 reflects a $ 7 million loss related to the pending disposition of our interests in certain entities that operate predominantly in France. The pre-tax loss in Europe for the year ended September 30, 2019 reflects a $ 15 million loss on the sale of our operations related to research, sales and trading of European equities. These losses were recorded in our Capital Markets segment. The following table presents our total assets by major geographic area in which they were held. September 30, $ in millions 2020 2019 Total assets: U.S. $ 44,090 $ 35,978 Canada 3,260 2,754 Europe 132 98 Total $ 47,482 $ 38,830 The following table presents goodwill, which was included in our total assets, classified by major geographic area in which it was held. September 30, $ in millions 2020 2019 Goodwill: U.S. $ 433 $ 433 Canada 24 23 Europe 9 8 Total $ 466 $ 464 During the year ended September 30, 2019, we recognized an impairment charge of $ 19 million related to our Canadian Capital Markets business. See Note 10 for a discussion of our goodwill impairment testing. NOTE 25 – CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) As more fully described in Note 1, RJF (or the “Parent”) is a financial holding company whose subsidiaries are engaged in various financial services activities. The Parent’s primary activities include investments in subsidiaries and corporate investments, including cash management, company-owned life insurance policies and private equity investments. The primary source of operating cash available to the Parent is provided by dividends from its subsidiaries. 146 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements RJ&A, our principal domestic broker-dealer subsidiary of the Parent, is required by regulations to maintain a minimum amount of net capital. Other broker-dealer, non-bank subsidiaries of the Parent are also required by regulations to maintain a minimum amount of net capital, but the net capital requirements of those other subsidiaries are much less significant. RJ&A is further required by certain covenants in its borrowing agreements to maintain minimum net capital equal to 10 % of aggregate debit balances. At September 30, 2020, each of these broker-dealer subsidiaries exceeded their minimum net capital requirements (see Note 22 for further information). Net assets of approximately $ 3.30 billion as of September 30, 2020 were restricted under regulatory or other restrictions from being transferred from certain subsidiaries to the Parent without prior approval of the respective entities’ regulator. Cash and cash equivalents of $ 2.16 billion and $ 1.35 billion as of September 30, 2020 and 2019, respectively, were held directly by RJF in depository accounts at third-party financial institutions, held in depository accounts at RJ Bank, or were otherwise invested by one of our subsidiaries on behalf of RJF. The amount held in depository accounts at RJ Bank was $ 185 million as of September 30, 2020, of which $ 108 million was available on demand without restriction. As of September 30, 2019, $ 163 million was held in depository accounts at RJ Bank, of which $ 107 million was available on demand without restriction. See Notes 14, 15, 17 and 22 for more information regarding borrowings, commitments, contingencies and guarantees, and regulatory capital requirements of the Parent and its subsidiaries. The following table presents the Parent’s statements of financial condition. September 30, $ in millions 2020 2019 Assets: Cash and cash equivalents $ 478 $ 540 Assets segregated pursuant to regulations 78 57 Intercompany receivables from subsidiaries (primarily non-bank subsidiaries) 1,903 1,143 Investments in consolidated subsidiaries: Bank subsidiary 2,315 2,248 Non-bank subsidiaries 4,306 4,093 Property and equipment, net 14 14 Goodwill and identifiable intangible assets, net 32 32 Other assets 804 728 Total assets $ 9,930 $ 8,855 Liabilities and equity: Accrued compensation and benefits $ 596 $ 514 Intercompany payables to subsidiaries: Bank subsidiary 21 — Non-bank subsidiaries 28 119 Other payables 126 91 Senior notes payable 2,045 1,550 Total liabilities 2,816 2,274 Equity 7,114 6,581 Total liabilities and equity $ 9,930 $ 8,855 Of the total intercompany receivable from non-bank subsidiaries, $ 1.70 billion and $ 827 million at September 30, 2020 and 2019, respectively, was invested in cash and cash equivalents by the subsidiary on behalf of the Parent. 147 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table presents the Parent’s statements of income. Year ended September 30, $ in millions 2020 2019 2018 Revenues: Dividends from non-bank subsidiaries $ 634 $ 632 $ 225 Dividends from bank subsidiary 130 190 130 Interest from subsidiaries 18 31 25 Interest income 3 7 4 Other 23 20 20 Total revenues 808 880 404 Interest expense ( 87 ) ( 75 ) ( 74 ) Net revenues 721 805 330 Non-interest expenses: Compensation and benefits (1) 63 73 68 Non-compensations expenses: Communications and information processing 6 8 9 Occupancy and equipment 1 1 1 Business development 18 20 20 Other 23 16 17 Intercompany allocations and charges ( 16 ) ( 24 ) ( 32 ) Total non-compensation expenses 32 21 15 Total non-interest expenses 95 94 83 Pre-tax income before equity in undistributed net income of subsidiaries 626 711 247 Income tax benefit ( 58 ) ( 31 ) ( 12 ) Income before equity in undistributed net income of subsidiaries 684 742 259 Equity in undistributed net income of subsidiaries 134 292 598 Net income $ 818 $ 1,034 $ 857 (1) The year ended September 30, 2020 includes the portion of the reduction in workforce expenses incurred during the fiscal fourth quarter of 2020 that relates to the Parent. 148 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table presents the Parent’s statements of cash flows. Year ended September 30, $ in millions 2020 2019 2018 Cash flows from operating activities: Net income $ 818 $ 1,034 $ 857 Adjustments to reconcile net income to net cash provided by operating activities: Loss on investments 4 4 1 Unrealized gain on company-owned life insurance policies, net of expenses ( 50 ) ( 5 ) ( 37 ) Equity in undistributed net income of subsidiaries ( 134 ) ( 292 ) ( 598 ) Other 102 100 114 Net change in: Assets segregated pursuant to regulations — — ( 1 ) Intercompany receivables 126 ( 51 ) 6 Other assets 24 ( 16 ) 49 Intercompany payables ( 70 ) ( 22 ) 88 Other payables 24 ( 1 ) 13 Accrued compensation and benefits 73 34 66 Net cash provided by operating activities 917 785 558 Cash flows from investing activities: Investments in subsidiaries ( 106 ) ( 24 ) ( 205 ) (Advances to)/repayments from subsidiaries, net ( 885 ) 63 4 Proceeds from sales of investments 9 3 12 Purchase of investments in company-owned life insurance policies, net ( 55 ) ( 44 ) ( 70 ) Net cash used in investing activities ( 1,037 ) ( 2 ) ( 259 ) Cash flows from financing activities: Proceeds from borrowing on the RJF Credit Facility — 300 300 Repayment of borrowings on the RJF Credit Facility — ( 300 ) ( 300 ) Proceeds from senior note issuances, net of debt issuance costs paid 494 — — Exercise of stock options and employee stock purchases 62 65 63 Purchase of treasury stock ( 272 ) ( 778 ) ( 62 ) Dividends on common stock ( 205 ) ( 191 ) ( 151 ) Net cash provided by/(used in) financing activities 79 ( 904 ) ( 150 ) Net increase/(decrease) in cash and cash equivalents ( 41 ) ( 121 ) 149 Cash, cash equivalents, and cash segregated pursuant to regulations at beginning of year 596 717 568 Cash, cash equivalents, and cash segregated pursuant to regulations at end of year $ 555 $ 596 $ 717 Cash and cash equivalents $ 478 $ 540 $ 695 Cash segregated pursuant to regulations 77 56 22 Total cash, cash equivalents, and cash segregated pursuant to regulations at end of year $ 555 $ 596 $ 717 Supplemental disclosures of cash flow information: Cash paid for interest $ 72 $ 78 $ 78 Cash paid for income taxes, net $ 32 $ 42 $ 163 Supplemental disclosures of noncash activity: Investments in subsidiaries, net $ — $ ( 43 ) $ — 149 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES SUPPLEMENTARY DATA: SELECTED QUARTERLY FINANCIAL DATA (unaudited) Fiscal Year 2020 in millions, except per share amounts 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Net revenues $ 2,009 $ 2,068 $ 1,834 $ 2,079 Non-interest expenses $ 1,650 $ 1,829 $ 1,636 $ 1,823 Pre-tax income $ 359 $ 239 $ 198 $ 256 Net income $ 268 $ 169 $ 172 $ 209 Earnings per common share - basic $ 1.93 $ 1.22 $ 1.25 $ 1.53 Earnings per common share - diluted $ 1.89 $ 1.20 $ 1.23 $ 1.50 Dividends per common share - declared $ 0.37 $ 0.37 $ 0.37 $ 0.37 Fiscal Year 2019 in millions, except per share amounts 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Net revenues $ 1,931 $ 1,859 $ 1,927 $ 2,023 Non-interest expenses $ 1,599 $ 1,512 $ 1,585 $ 1,669 Pre-tax income $ 332 $ 347 $ 342 $ 354 Net income $ 249 $ 261 $ 259 $ 265 Earnings per common share - basic $ 1.73 $ 1.85 $ 1.84 $ 1.90 Earnings per common share - diluted $ 1.69 $ 1.81 $ 1.80 $ 1.86 Dividends per common share - declared $ 0.34 $ 0.34 $ 0.34 $ 0.34 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.