RAYMOND JAMES FINANCIAL INC 10-Q

ITEM 1. FINANCIAL STATEMENTS RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) $ in millions, except per share amounts December 31, 2020 September 30, 2020 Assets: Cash and cash equivalents $ 5,377 $ 5,390 Assets segregated pursuant to regulations ( $ 2,749 and $ 0 , at fair value) 8,768 4,244 Collateralized agreements 533 422 Financial instruments, at fair value: Trading assets ( $ 268 and $ 265 pledged as collateral) 386 513 Available-for-sale securities ( $ 22 and $ 23 pledged as collateral) 8,000 7,650 Derivative assets 368 438 Other investments ( $ 37 and $ 37 pledged as collateral) 863 334 Brokerage client receivables, net 2,286 2,435 Other receivables, net 850 927 Bank loans, net 21,957 21,195 Loans to financial advisors, net 976 1,012 Property and equipment, net 534 535 Deferred income taxes, net 262 262 Goodwill and identifiable intangible assets, net 834 600 Other assets 1,663 1,525 Total assets $ 53,657 $ 47,482 Liabilities and shareholders’ equity: Bank deposits $ 27,790 $ 26,801 Collateralized financings 297 250 Financial instrument liabilities, at fair value: Trading liabilities 152 240 Derivative liabilities 310 393 Brokerage client payables 11,918 6,792 Accrued compensation, commissions and benefits 1,135 1,384 Other payables 1,710 1,513 Other borrowings 862 888 Senior notes payable 2,045 2,045 Total liabilities 46,219 40,306 Commitments and contingencies (see Note 14) 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; 159,127,724 and 159,007,158 shares issued as of December 31, 2020 and September 30, 2020, respectively, and 137,378,992 and 136,556,559 shares outstanding as of December 31, 2020 and September 30, 2020, respectively 2 2 Additional paid-in capital 1,996 2,007 Retained earnings 6,702 6,484 Treasury stock, at cost; 21,748,732 and 22,450,599 common shares as of December 31, 2020 and September 30, 2020, respectively ( 1,354 ) ( 1,390 ) Accumulated other comprehensive income 17 11 Total equity attributable to Raymond James Financial, Inc. 7,363 7,114 Noncontrolling interests 75 62 Total shareholders’ equity 7,438 7,176 Total liabilities and shareholders’ equity $ 53,657 $ 47,482 See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited). 3 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) Three months ended December 31, in millions, except per share amounts 2020 2019 Revenues: Asset management and related administrative fees $ 1,067 $ 955 Brokerage revenues: Securities commissions 381 363 Principal transactions 147 97 Total brokerage revenues 528 460 Account and service fees 145 178 Investment banking 261 141 Interest income 203 297 Other 56 29 Total revenues 2,260 2,060 Interest expense ( 38 ) ( 51 ) Net revenues 2,222 2,009 Non-interest expenses: Compensation, commissions and benefits 1,500 1,351 Non-compensation expenses: Communications and information processing 99 94 Occupancy and equipment 57 57 Business development 23 44 Investment sub-advisory fees 28 26 Professional fees 30 21 Bank loan provision/(benefit) for credit losses 14 ( 2 ) Acquisition-related expenses 2 — Other 70 59 Total non-compensation expenses 323 299 Total non-interest expenses 1,823 1,650 Pre-tax income 399 359 Provision for income taxes 87 91 Net income $ 312 $ 268 Earnings per common share – basic $ 2.27 $ 1.93 Earnings per common share – diluted $ 2.23 $ 1.89 Weighted-average common shares outstanding – basic 136.8 138.3 Weighted-average common and common equivalent shares outstanding – diluted 139.7 141.5 Net income $ 312 $ 268 Other comprehensive income/(loss), net of tax: Available-for-sale securities ( 17 ) ( 1 ) Currency translations, net of the impact of net investment hedges 18 9 Cash flow hedges 5 10 Total other comprehensive income, net of tax 6 18 Total comprehensive income $ 318 $ 286 See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited). 4 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) Three months ended December 31, $ in millions, except per share amounts 2020 2019 Common stock, par value $ .01 per share: Balance beginning of period $ 2 $ 2 Share issuances — — Balance end of period 2 2 Additional paid-in capital: Balance beginning of period 2,007 1,938 Employee stock purchases 6 6 Exercise of stock options and vesting of restricted stock units, net of forfeitures ( 59 ) ( 63 ) Restricted stock, stock option and restricted stock unit expense 42 41 Balance end of period 1,996 1,922 Retained earnings: Balance beginning of period 6,484 5,874 Cumulative adjustments for changes in accounting principles ( 35 ) — Net income attributable to Raymond James Financial, Inc. 312 268 Cash dividends declared (see Note 20) ( 59 ) ( 56 ) Balance end of period 6,702 6,086 Treasury stock: Balance beginning of period ( 1,390 ) ( 1,210 ) Purchases/surrenders ( 18 ) ( 19 ) Exercise of stock options and vesting of restricted stock units, net of forfeitures 54 66 Balance end of period ( 1,354 ) ( 1,163 ) Accumulated other comprehensive income/(loss): Balance beginning of period 11 ( 23 ) Other comprehensive income, net of tax 6 18 Balance end of period 17 ( 5 ) Total equity attributable to Raymond James Financial, Inc. $ 7,363 $ 6,842 Noncontrolling interests: Balance beginning of period $ 62 $ 62 Net income/(loss) attributable to noncontrolling interests 13 ( 1 ) Balance end of period 75 61 Total shareholders’ equity $ 7,438 $ 6,903 See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited). 5 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended December 31, $ in millions 2020 2019 Cash flows from operating activities: Net income $ 312 $ 268 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 32 30 Deferred income taxes 18 16 Premium and discount amortization on available-for-sale securities and loss on other investments ( 1 ) 8 Provisions for credit losses and legal and regulatory proceedings 16 1 Share-based compensation expense 43 43 Unrealized gain on company-owned life insurance policies, net of expenses ( 83 ) ( 35 ) Other 22 9 Net change in: Assets segregated pursuant to regulations excluding cash and cash equivalents ( 2,749 ) — Collateralized agreements, net of collateralized financings ( 62 ) 21 Loans provided to financial advisors, net of repayments 5 ( 12 ) Brokerage client receivables and other accounts receivable, net 254 188 Trading instruments, net 22 4 Derivative instruments, net ( 9 ) 52 Other assets ( 530 ) ( 81 ) Brokerage client payables and other accounts payable 4,953 465 Accrued compensation, commissions and benefits ( 253 ) ( 340 ) Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale ( 86 ) ( 91 ) Net cash provided by operating activities 1,904 546 Cash flows from investing activities: Additions to property and equipment ( 25 ) ( 36 ) Increase in bank loans, net ( 704 ) ( 365 ) Proceeds from sales of loans held for investment 16 25 Purchases of available-for-sale securities ( 1,243 ) ( 314 ) Available-for-sale securities maturations, repayments and redemptions 544 206 Proceeds from sales of available-for-sale securities 519 — Business acquisitions, net of cash acquired ( 218 ) — Other investing activities, net ( 12 ) ( 18 ) Net cash used in investing activities ( 1,123 ) ( 502 ) See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited). 6 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended December 31, $ in millions 2020 2019 Cash flows from financing activities: Proceeds from short-term borrowings, net — 6 Proceeds from Federal Home Loan Bank advances — 850 Repayments of Federal Home Loan Bank advances and other borrowed funds ( 26 ) ( 851 ) Exercise of stock options and employee stock purchases 18 25 Increase in bank deposits 989 694 Purchases of treasury stock ( 18 ) ( 19 ) Dividends on common stock ( 55 ) ( 51 ) Net cash provided by financing activities 908 654 Currency adjustment: Effect of exchange rate changes on cash 73 21 Net increase in cash and cash equivalents, including those segregated pursuant to regulations 1,762 719 Cash and cash equivalents, including those segregated pursuant to regulations at beginning of year 9,634 5,971 Cash and cash equivalents, including those segregated pursuant to regulations at end of period $ 11,396 $ 6,690 Cash and cash equivalents $ 5,377 $ 4,109 Cash and cash equivalents segregated pursuant to regulations 6,019 2,581 Total cash and cash equivalents, including those segregated pursuant to regulations at end of period $ 11,396 $ 6,690 Supplemental disclosures of cash flow information: Cash paid for interest $ 35 $ 39 Cash paid for income taxes, net $ 67 $ 9 Cash outflows for lease liabilities $ 27 $ 23 Non-cash right-of-use (“ROU”) assets recorded for new and modified leases $ 50 $ 12 See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited). 7 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) December 31, 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 21 of this Form 10-Q. As used herein, the terms “our,” “we,” or “us” refer to RJF and/or one or more of its subsidiaries. Basis of presentation The accompanying unaudited condensed consolidated financial statements include the accounts of RJF and its consolidated subsidiaries that are generally controlled through a majority voting interest. We consolidate all of our 100 % owned subsidiaries. In addition, we consolidate any variable interest entity (“VIE”) in which we are the primary beneficiary. Additional information on these VIEs is provided in Note 2 of our Annual Report on Form 10-K (“2020 Form 10-K”) for the year ended September 30, 2020, as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) and in Note 10 of this Form 10-Q. When we do not have a controlling interest in an entity, but we exert significant influence over the entity, we apply the equity method of accounting. All material intercompany balances and transactions have been eliminated in consolidation. Accounting estimates and assumptions Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) but is not required for interim reporting purposes has been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of our consolidated financial position and results of operations for the periods presented. The nature of our business is such that the results of any interim period are not necessarily indicative of results for a full year. These unaudited condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto included in our 2020 Form 10-K. To prepare condensed consolidated financial statements in accordance with GAAP, we must make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates and could have a material impact on the condensed consolidated financial statements. Reclassifications Certain prior-period amounts have been reclassified to conform to the current period’s presentation. 8 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 2 – UPDATE OF SIGNIFICANT ACCOUNTING POLICIES A summary of our significant accounting policies is included in Note 2 of our 2020 Form 10-K. During the three months ended December 31, 2020, there were no significant changes to our significant accounting policies other than the accounting policies adopted or modified as part of our implementation of new or amended accounting guidance, as noted in the following sections. Accounting guidance adopted in fiscal 2021 Credit losses In June 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the measurement of credit losses on financial instruments (ASU 2016-13), which replaces the incurred credit loss and other models with the Current Expected Credit Losses (“CECL”) model. The guidance involves several aspects of the accounting for credit losses related to certain financial instruments, including assets measured at amortized cost, available-for-sale debt securities and certain off-balance sheet commitments. The new guidance, and subsequent updates, broadens the information that an entity must consider in developing its estimated credit losses expected to occur over the remaining life of in-scope financial assets. The measurement of expected credit losses includes historical experience, current conditions and reasonable and supportable forecasts. This new guidance was effective for our fiscal year beginning on October 1, 2020 and was adopted under a modified retrospective approach. The impact of adoption of this new standard resulted in an increase in our allowance for credit losses, including reserves for unfunded lending commitments, of approximately $ 45 million and a corresponding reduction in the beginning balance of retained earnings of approximately $ 35 million, net of tax. The increase in our allowance for credit losses was primarily attributable to loans to financial advisors and, to a lesser extent, bank loans. Prior-period amounts have not been restated. See Notes 8 and 9 for further information related to bank loans and loans to financial advisors and the related allowances for credit losses. The following sections highlight changes to our accounting policies as a result of this adoption. Available-for-sale securities Available-for-sale securities are generally held by Raym ond James Bank, N.A. (“RJ Bank, N.A.”) and are 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, N.A. are used as part of its 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. As a result of the adoption of the new CECL guidance, credit losses on available-for-sale securities are limited to the difference between the security’s amortized cost basis and its fair value and should be recognized through an allowance for credit losses rather than as a direct reduction in amortized cost basis. Given that our available-for-sale securities portfolio is comprised of government agency securities for which payments of both principal and interest are guaranteed, and based on the lack of historical credit losses, we expect zero credit losses on this portfolio and the related accrued interest receivable. On a quarterly basis, we reassess our expectation of zero credit losses to consider changes in the available-for-sale securities portfolio. Other receivables Other receivables primarily include receivables from brokers, dealers and clearing organizations, accrued interest receivables and accrued fees from product sponsors. Receivables from brokers, dealers and clearing organizations primarily consist of deposits placed with clearing organizations, including initial margin and 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 Condensed Consolidated Statements of Financial Condition, net of any allowance for credit losses. However, these receivables generally have minimal credit risk due to the low probability of clearing organization default and the short-term nature of receivables related to securities settlements and therefore, the allowance for credit losses on such receivables is not significant. Any allowance for credit losses is recorded for other receivables using estimates and assumptions based on historical experience, current facts and other factors. We update these estimates through periodic evaluations against actual trends experienced. As permitted under the CECL guidance, we include accrued interest receivables related to our financial assets in “Other receivables” on the Condensed Consolidated Statements of Financial Condition instead of with the related financial instrument. We reverse any uncollectible accrued interest into interest income generally when the related financial asset is moved to 9 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) nonaccrual status. As we write off uncollectible amounts in a timely manner, we do not recognize an allowance for credit loss against accrued interest receivable. Loans to financial advisors, net We offer loans to financial advisors for recruiting and retention purposes. The decision to extend credit to a financial advisor or other key revenue producer is generally based on their ability to generate future revenues. Loans offered are generally repaid over a five to 10 year period, with interest recognized as earned, and are contingent upon affiliation with us. These loans are not assignable by the financial advisor and may only be assigned by us to a successor in interest. There is no fee income associated with these loans. In the event that the financial advisor is no longer affiliated with us, any unpaid balance of such loan becomes immediately due and payable to us. Based upon the nature of these financing receivables affiliation status is the primary credit risk factor within this portfolio. We present the outstanding balance of loans to financial advisors on our Condensed Consolidated Statements of Financial Condition, net of the allowance for credit losses. Refer to the allowance for credit losses section that follows for further information related to our allowance for credit losses on our loans to financial advisors. See Note 9 for additional information on our loans to financial advisors. Loans to financial advisors are considered past due once they are 30 days or more delinquent as to the payment of contractual interest or principal. Loans are placed on nonaccrual status when we determine that full payment of contractual principal and interest is in doubt, or the loan is past due 180 days or more as to contractual interest or principal. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is written-off against interest income. Interest is recognized using the cash method until the loan qualifies for return to accrual status. Loans are returned to an accrual status when the loans have been brought contractually current with the original terms and have been maintained on a current basis for a reasonable period, generally six months. When we determine that it is likely a loan will not be collected in full, the loan is evaluated for a potential write down of the carrying value. After consideration of the borrower’s ability to restructure the loan, sources of repayment, and other factors affecting the borrower’s ability to repay the debt, the portion of the loan deemed a confirmed loss, if any, is charged-off. A charge-off is taken against the allowance for credit losses for the difference between the amortized cost and the amount we estimate will ultimately be collected. Additional charge-offs are taken if there is an adverse change in the expected cash flows. Allowance for credit losses We evaluate our held for investment bank loans, unfunded lending commitments, loans to financial advisors and certain other financial assets to estimate an allowance for credit losses over the remaining life of the financial instrument. The remaining life of our financial assets is determined by considering contractual terms, expected prepayments and cancellation features, among other factors. We employ multiple methodologies in estimating an allowance for credit losses and our approaches differ by type of financial asset and the risk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of the portfolio, the related credit risk characteristics, and the overall economic and environmental conditions affecting the financial assets. For certain of our financial assets with collateral maintenance provisions (e.g., collateralized agreements, margin loans and securities-based loans), we apply the practical expedient allowed under the CECL model in estimating an allowance for credit losses. We reasonably expect that borrowers (or counterparties, as applicable) will replenish the collateral as required. As a result, we estimate zero credit losses to the extent that the fair value equals or exceeds the related carrying value of the financial asset. When the fair value of the collateral securing the financial asset is less than the carrying value, qualitative factors such as historical experience (adjusted for current risk characteristics and economic conditions) as well as reasonable and supportable forecasts are considered in estimating the allowance for credit losses. Credit losses are charged off against the allowance when we believe the uncollectibility of the financial asset is confirmed. Subsequent recoveries, if any, are credited to the allowance. Credit loss expense is recorded in earnings in an amount necessary to adjust the allowance for credit losses to our estimate as of the end of each reporting period. Our provision for credit losses for outstanding bank loans is included in “Bank loan provision/(benefit) for credit losses” on our Condensed Consolidated Statements of Income and Comprehensive Income and our provision for credit losses for all other financing receivables and unfunded lending commitments is included in “Other” expense. 10 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Loans We generally estimate the allowance for credit losses on our loan portfolios using credit risk models which incorporate relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. Our forecasts incorporate assumptions related to macroeconomic indicators including, but not limited to, U.S. gross domestic product, equity market indices, unemployment rates, and commercial real estate and residential home price indices. At the conclusion of our reasonable and supportable forecast period, which currently ranges from two to three years depending on the model and macroeconomic variables, we use a linear reversion approach over a one -year period to revert to historical loss information for commercial and industrial (“C&I”), real estate investment trust (“REIT”) and tax-exempt loans. For commercial real estate (“CRE”) and residential mortgage loans, we incorporate a reasonable and supportable forecast of various macroeconomic variables over the remaining life of the assets. The development of the reasonable and supportable forecast incorporates an assumption that each macroeconomic variable will revert to a long-term expectation starting in years two to three of the forecast and largely completing within the first five years of the forecast. We assess the length of the reasonable and supportable forecast period and the reversion period, our reversion approach, our economic forecasts and our methodology for estimating the historical loss information, on a quarterly basis. The allowance for credit losses on loans is generally evaluated and measured on a collective basis, typically by loan portfolio segment, due to similar risk characteristics. When a loan does not share similar risk characteristics with other loans, the loan is evaluated for credit losses on an individual basis. Various risk characteristics are considered when determining whether the loan should be collectively evaluated including, but not limited to, financial asset type, internal risk ratings, collateral type, industry of the borrower, and historical or expected credit loss patterns. The allowance for credit losses on collectively evaluated loans is comprised of two components: (a) a quantitative allowance; and (b) a qualitative allowance, which is based on an analysis of model limitations and other factors not considered by the model. There are several factors considered in estimating the quantitative allowance for credit losses on collectively evaluated loans which generally include, but are not limited to, the internal risk rating, historical loss experience (including adjustments due to current risk characteristics and economic conditions), prepayments, borrower-controlled extensions, and expected recoveries. We use third-party data for historical information on collectively evaluated corporate loans (C&I, CRE and REIT loans) and residential mortgage loans. The qualitative portion of our allowance for credit losses includes certain factors that are not incorporated into the quantitative estimate and would generally require adjustments to the allowance for credit losses. These qualitative factors are intended to address developing trends related to each portfolio segment and would generally include, but are not limited to: changes in lending policies and procedures, including changes in underwriting standards and collection; our loan review process; volume and severity of delinquent loans; changes in the nature, volume and terms of loans; credit concentrations; changes in the value of underlying collateral; legal and regulatory requirements; and local, regional, national and international economic conditions. Held for investment bank loans The allowance for credit losses for the C&I, CRE (primarily loans that are secured by income-producing properties and commercial real estate construction loans), REIT (loans made to businesses that own or finance income-producing real estate), tax-exempt and residential mortgage portfolio segments is estimated using credit risk models that project a probability of default (“PD”) multiplied by the loss given default (“LGD”) at the loan-level for every period remaining in the loan’s expected life, including the maturity period. Historical data, combined with macroeconomic variables, are used in estimating the PD and LGD. Our credit risk models consider several factors when estimating the expected credit losses which may include, but are not limited to, financial performance and position, estimated prepayments, geographic location, industry or sector type, debt type, loan size, capital structure, initial risk levels and the economic outlook. Additional factors considered by the residential mortgage model include Fair Isaac Corporation (“FICO”) scores and loan-to-value (“LTV”) ratios. We generally use one of two methods to measure the allowance for credit losses on individually evaluated loans. A discounted cash flow approach is used to estimate the allowance for credit losses on certain nonaccrual corporate loans and all troubled debt restructurings (“TDRs”) that are not collateral-dependent. For collateral-dependent loans and for instances where foreclosure is probable, we use an approach that considers the fair value of the collateral less selling costs when measuring the allowance for credit losses. A loan is collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral. See Note 8 for further information about our bank loans, including credit quality indicators considered in developing the allowance for credit losses. 11 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Unfunded lending commitments We estimate credit losses on unfunded lending commitments using a methodology consistent with that used for bank loans in the respective portfolio segment and also based on the expected funding probabilities for fully binding commitments. As a result, the allowance for credit losses for unfunded lending commitments will vary depending upon the mix of lending commitments and future funding expectations. All classes of individually evaluated unfunded lending commitments are analyzed in conjunction with the specific allowance process previously described. The allowance for credit losses related to unfunded lending commitments is included in “Other payables” on our Condensed Consolidated Statements of Financial Condition. Loans to financial advisors The allowance for credit losses on loans to financial advisors is estimated using credit risk models that incorporate average annual loan-level loss rates and estimated prepayments based on historical data. The qualitative component of our estimate considers internal and external factors that are not incorporated into the quantitative estimate such as the reasonable and supportable forecast period. In estimating an allowance for credit losses on our individually-evaluated loans to financial advisors, we generally take into account the affiliation status of the financial advisor (i.e., whether the advisor is actively affiliated with us or has terminated affiliation with us), the borrower’s ability to restructure the loan, sources of repayment, and other factors affecting the borrower’s ability to repay the debt. NOTE 3 – ACQUISITIONS Acquisition announced and completed during the three months ended December 31, 2020 In December 2020, we announced and completed our acquisition of all of the outstanding shares of NWPS Holdings, Inc. and its wholly-owned subsidiaries (collectively “NWPS”), doing business as NWPS and Northwest Plan Services. As an independent provider of retirement plan administration, consulting, actuarial and administration services, the addition of NWPS allows us to expand our retirement services offerings, including retirement plan administration services, to advisors and clients. For purposes of certain acquisition-related financial reporting requirements, the NWPS acquisition was not considered a material acquisition. NWPS has been integrated into our Private Client Group (“PCG”) segment and its results of operations have been included in our results prospectively from the closing date of December 24, 2020. The NWPS acquisition resulted in the addition of $ 139 million of goodwill and $ 96 million of identifiable intangible assets during the three months ended December 31, 2020. The goodwill associated with this acquisition primarily represents synergies from combining NWPS with our existing businesses. The identifiable intangible assets primarily relate to customer relationships and have a weighted-average useful life of 24.8 years. Due to the timing of the close of this acquisition, certain information is not yet available and the amounts of goodwill and intangible assets are considered provisional. We believe the information currently available provides a reasonable basis for estimating the fair value of these assets. However, these provisional estimates may be adjusted upon the availability of new information regarding facts and circumstances which existed at the acquisition date. We expect to finalize this valuation in our fiscal second quarter of 2021. See Notes 2 and 10 of our 2020 Form 10-K for additional information about our goodwill and identifiable intangible assets, including the related accounting policies. Acquisition announcement On December 17, 2020, we announced we had entered into a definitive agreement to acquire all of the outstanding shares of Financo, an investment bank focused on the consumer sector. The addition of Financo will allow us to strategically grow our capabilities in consumer and retail investment banking. Financo will operate within our Capital Markets segment upon completion of the acquisition, which we expect to close in March or April of 2021, subject to regulatory and other closing conditions. Acquisition-related expenses Certain acquisition and integration costs associated with these acquisitions were included in “Acquisition and disposition-related expenses” for the three months ended December 31, 2020 on our Condensed Consolidated Statements of Income and Comprehensive Income. Such costs primarily included legal and other professional fees. 12 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 4 – FAIR VALUE Our “Financial instruments” and “Financial instrument liabilities” on our Condensed Consolidated Statements of Financial Condition are recorded at fair value under GAAP. For further information about such instruments and our significant accounting policies related to fair value, see Notes 2 and 3 of our 2020 Form 10-K. The following tables present assets and liabilities measured at fair value on a recurring basis. Netting adjustments represent the impact of counterparty and collateral netting on our derivative balances included on our Condensed Consolidated Statements of Financial Condition. See Note 6 for additional information. $ in millions Level 1 Level 2 Level 3 Netting adjustments Balance as of December 31, 2020 Assets at fair value on a recurring basis: Assets segregated pursuant to regulations $ 2,749 $ — $ — $ — $ 2,749 Trading assets Municipal and provincial obligations — 32 — — 32 Corporate obligations 11 31 — — 42 Government and agency obligations 16 91 — — 107 Agency MBS and agency CMOs — 146 — — 146 Total debt securities 27 300 — — 327 Equity securities 14 5 — — 19 Brokered certificates of deposit — 37 — — 37 Other — — 3 — 3 Total trading assets 41 342 3 — 386 Available-for-sale securities (1) 16 7,984 — — 8,000 Derivative assets Interest rate - matched book — 273 — — 273 Interest rate - other 34 189 — ( 128 ) 95 Total derivative assets 34 462 — ( 128 ) 368 Other investments - private equity - not measured at net asset value (“NAV”) — — 52 — 52 All other investments: Government and agency obligations (2) 603 — — — 603 Other 100 1 22 — 123 Total all other investments 703 1 22 — 726 Subtotal 3,543 8,789 77 ( 128 ) 12,281 Other investments - private equity - measured at NAV 85 Total assets at fair value on a recurring basis $ 3,543 $ 8,789 $ 77 $ ( 128 ) $ 12,366 Liabilities at fair value on a recurring basis: Trading liabilities Municipal and provincial obligations $ 1 $ — $ — $ — $ 1 Corporate obligations 1 3 — — 4 Government and agency obligations 61 — — — 61 Total debt securities 63 3 — — 66 Equity securities 79 7 — — 86 Total trading liabilities 142 10 — — 152 Derivative liabilities Interest rate - matched book — 273 — — 273 Interest rate - other 37 124 — ( 138 ) 23 Foreign exchange — 11 — — 11 Other — 2 1 — 3 Total derivative liabilities 37 410 1 ( 138 ) 310 Total liabilities at fair value on a recurring basis $ 179 $ 420 $ 1 $ ( 138 ) $ 462 (1) Substantially all of our available-for-sale securities consist of agency MBS and agency CMOs. See Note 5 for further information. (2) These assets are comprised of U.S. Treasuries purchased to meet future customer reserve requirements or to meet certain deposit requirements with clearing organizations. 13 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) $ in millions Level 1 Level 2 Level 3 Netting adjustments Balance as of September 30, 2020 Assets at fair value on a recurring basis: Trading assets 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 assets 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: Government and agency obligations (2) 103 — — — 103 Other 92 1 22 — 115 Total all other investments 195 1 22 — 218 Subtotal 267 8,653 71 ( 135 ) 8,856 Other investments - private equity - measured at NAV 79 Total assets at fair value on a recurring basis $ 267 $ 8,653 $ 71 $ ( 135 ) $ 8,935 Liabilities at fair value on a recurring basis: Trading liabilities Municipal and provincial obligations $ 1 $ — $ — $ — $ 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 liabilities 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 5 for further information. (2) These assets are comprised of U.S. Treasuries purchased to meet certain deposit requirements with clearing organizations. 14 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Level 3 recurring fair value measurements The following tables present the changes in fair value for Level 3 assets and liabilities measured at fair value on a recurring basis. The realized and unrealized gains and losses in the tables may include changes in fair value that were attributable to both observable and unobservable inputs. In the following tables, gains/(losses) on trading instruments are reported in “Principal transactions” and gains/(losses) on other investments are reported in “Other” revenues. Three months ended December 31, 2020 Level 3 instruments at fair value Financial assets Financial liabilities Trading assets Other investments Derivative liabilities $ in millions Other Private equity investments All other Other Fair value beginning of period $ 12 $ 37 $ 22 $ ( 5 ) Total gains/(losses) included in earnings 2 15 — 4 Purchases and contributions 6 — — — Sales and distributions ( 17 ) — — — Transfers: Into Level 3 — — — — Out of Level 3 — — — — Fair value end of period $ 3 $ 52 $ 22 $ ( 1 ) Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period $ 3 $ 15 $ — $ 3 Three months ended December 31, 2019 Level 3 instruments at fair value Financial assets Financial liabilities Trading assets Other investments Trading liabilities $ in millions Other Private equity investments All other Other Fair value beginning of period $ 3 $ 63 $ 24 $ ( 1 ) Total gains/(losses) included in earnings ( 1 ) — — — Purchases and contributions 31 — — 1 Sales and distributions ( 14 ) ( 1 ) — ( 1 ) Transfers: Into Level 3 — — — — Out of Level 3 — — — — Fair value end of period $ 19 $ 62 $ 24 $ ( 1 ) Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period $ — $ — $ — $ — As of December 31, 2020, 23 % of our assets and 1 % of our liabilities were measured at fair value on a recurring basis. In comparison, as of September 30, 2020, 19 % 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 primarily due to a significant increase in assets segregated pursuant to regulations at fair value during fiscal 2021, driven by a significant increase in client cash balances. As of both December 31, 2020 and September 30, 2020, Level 3 assets represented less than 1 % of our assets measured at fair value on a recurring basis. 15 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Quantitative information about level 3 fair value measurements The following table presents the valuation techniques and significant unobservable inputs used in the valuation of certain of our private equity investments classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument. Certain investments are valued initially at transaction price and updated as other investment-specific events take place which indicate that a change in the carrying values of these investments is appropriate. Other investment-specific events include such events as our periodic review, significant transactions occur or new developments become known. Recurring measurements $ in millions Fair value at December 31, 2020 Valuation technique(s) Unobservable input Range (weighted-average) Other investments - private equity investments (not measured at NAV) $ 52 Discounted cash flow, transaction price or other investment-specific events Discount rate 25 % Terminal earnings before interest, tax, depreciation and amortization (“EBITDA”) multiple 9.0 x Terminal year 2021 - 2042 (2022) Fair value at September 30, 2020 Other investments - private equity investments (not measured at NAV) $ 37 Discounted cash flow, transaction price or other investment-specific events Discount rate 25 % Terminal EBITDA multiple 9.0 x Terminal year 2021 - 2042 (2023) Qualitative information about unobservable inputs For our recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs are described in the following section. Private equity investments The significant unobservable inputs used in the fair value measurement of private equity investments generally relate to the financial performance of the investment entity and the market’s required return on investments from entities in industries in which we hold investments. Increases in the discount rate would have resulted in a lower fair value measurement. Increases in the terminal EBITDA multiple would have resulted in a higher fair value measurement. Increases in the terminal year are dependent upon each investment’s strategy, but generally result in a lower fair value measurement. Investments in private equity measured at net asset value per share As more fully described in Note 2 of our 2020 Form 10-K, as a practical expedient, we utilize NAV or its equivalent to determine the recorded value of a portion of our private equity investments portfolio. We utilize NAV when the fund investment does not have a readily determinable fair value and the NAV of the fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the investments at fair value. Our private equity portfolio as of December 31, 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. 16 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) The following table presents the recorded value and unfunded commitments related to our private equity investments portfolio. $ in millions Recorded value Unfunded commitment December 31, 2020 Private equity investments measured at NAV $ 85 $ 9 Private equity investments not measured at NAV 52 Total private equity investments $ 137 September 30, 2020 Private equity investments measured at NAV $ 79 $ 9 Private equity investments not measured at NAV 37 Total private equity investments $ 116 Of the total private equity investments, the portions we owned were $ 102 million and $ 90 million as of December 31, 2020 and September 30, 2020, respectively. The portions of the private equity investments we did not own were $ 35 million and $ 26 million as of December 31, 2020 and September 30, 2020, respectively, and were included as a component of noncontrolling interests on our Condensed Consolidated Statements of Financial Condition. As a financial holding company, we are subject to holding period limitations for our merchant banking activities. As a result, we will be required to exit certain of our private equity investments by February 2022. Additionally, many of our private equity fund investments meet the definition of prohibited covered funds as defined by the Volcker Rule enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. We have received approval from the Board of Governors of the Federal Reserve System (“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) December 31, 2020 Bank loans: Residential mortgage loans $ 4 $ 12 $ 16 Collateral or discounted cash flow (1) Prepayment rate 7 yrs. - 12 yrs. ( 10.6 yrs.) Corporate loans $ — $ 14 $ 14 Collateral or discounted cash flow (1) Not meaningful (1) Not meaningful (1) Loans held for sale $ 104 $ — $ 104 N/A N/A N/A September 30, 2020 Bank loans: Residential mortgage loans $ 4 $ 13 $ 17 Collateral or discounted cash flow (1) Prepayment rate 7 yrs. - 12 yrs. ( 10.6 yrs.) Corporate loans $ — $ 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 (1) The valuation techniques used to estimate the fair values are based on collateral value less selling costs for the collateral-dependent loans and discounted cash flows for loans that are not collateral-dependent. 17 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Financial instruments not recorded at fair value Many, but not all, of the financial instruments we hold were recorded at fair value on the Condensed Consolidated Statements of Financial Condition. The following table presents the estimated fair value and fair value hierarchy of financial assets and liabilities that are not recorded at fair value in accordance with GAAP on the Condensed Consolidated Statements of Financial Condition at December 31, 2020 and September 30, 2020. This table excludes financial instruments that are carried at amounts which approximate fair value. Refer to Note 3 of our 2020 Form 10-K for a discussion of the fair value hierarchy classifications of our financial instruments that are not recorded at fair value. $ in millions Level 2 Level 3 Total estimated fair value Carrying amount December 31, 2020 Financial assets: Bank loans, net $ 105 $ 21,737 $ 21,842 $ 21,823 Financial liabilities: Bank deposits - certificates of deposit $ — $ 946 $ 946 $ 912 Senior notes payable $ 2,572 $ — $ 2,572 $ 2,045 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 NOTE 5 – AVAILABLE-FOR-SALE SECURITIES Available-for-sale securities are primarily comprised of agency MBS and agency CMOs owned by RJ Bank, N.A. As of October 1, 2020, we adopted new accounting guidance related to the measurement of credit losses on financial instruments, including available-for-sale securities. Refer to Note 2 for further information about this guidance and a discussion of our available-for-sale securities. 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 December 31, 2020 Agency residential MBS $ 4,421 $ 72 $ ( 3 ) $ 4,490 Agency commercial MBS 1,161 17 ( 4 ) 1,174 Agency CMOs 2,308 17 ( 5 ) 2,320 Other securities 15 1 — 16 Total available-for-sale securities $ 7,905 $ 107 $ ( 12 ) $ 8,000 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 The amortized costs and fair values in the preceding table exclude $ 14 million and $ 15 million of accrued interest on available-for-sale securities as of December 31, 2020 and September 30, 2020, respectively, which was included in “Other receivables” on our Condensed Consolidated Statements of Financial Condition. See Note 4 for additional information regarding the fair value of available-for-sale securities. 18 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) The following table details the contractual maturities, amortized costs, carrying values and current yields for our available-for-sale securities. Since our MBS and CMO available-for-sale securities are backed by mortgages, actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. As of December 31, 2020, the duration of our available-for-sale securities portfolio was approximately 3 years. December 31, 2020 $ in millions Within one year After one but within five years After five but within ten years After ten years Total Agency residential MBS Amortized cost $ — $ 37 $ 1,639 $ 2,745 $ 4,421 Carrying value $ — $ 38 $ 1,669 $ 2,783 $ 4,490 Agency commercial MBS Amortized cost $ 25 $ 148 $ 845 $ 143 $ 1,161 Carrying value $ 25 $ 151 $ 853 $ 145 $ 1,174 Agency CMOs Amortized cost $ — $ 1 $ 63 $ 2,244 $ 2,308 Carrying value $ — $ 1 $ 64 $ 2,255 $ 2,320 Other securities Amortized cost $ — $ 7 $ 8 $ — $ 15 Carrying value $ — $ 7 $ 9 $ — $ 16 Total available-for-sale securities Amortized cost $ 25 $ 193 $ 2,555 $ 5,132 $ 7,905 Carrying value $ 25 $ 197 $ 2,595 $ 5,183 $ 8,000 Weighted-average yield 2.13 % 2.06 % 1.44 % 1.28 % 1.35 % 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 December 31, 2020 Agency residential MBS $ 827 $ ( 3 ) $ — $ — $ 827 $ ( 3 ) Agency commercial MBS 493 ( 4 ) — — 493 ( 4 ) Agency CMOs 1,042 ( 5 ) — — 1,042 ( 5 ) Total $ 2,362 $ ( 12 ) $ — $ — $ 2,362 $ ( 12 ) 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 ) The contractual cash flows of our available-for-sale securities are guaranteed by the U.S. government or its agencies. At December 31, 2020, of the 119 available-for-sale securities in an unrealized loss position, all were in a continuous unrealized loss position for less than 12 months. We do not consider unrealized losses associated with these securities to be credit losses due to the guarantee of the full payment of principal and interest, and the fact that we have the ability and intent to hold these securities. In addition, unrealized losses related to these available-for-sale securities are generally due to changes in market interest rates. At December 31, 2020, based on our assessment of this portfolio, we did not recognize an allowance for credit losses on our available-for-sale securities. At December 31, 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 $ 4.93 billion and $ 2.68 billion, respectively, and a fair value of $ 5.00 billion and $ 2.70 billion, respectively. During the three months ended December 31, 2020, we received proceeds of $ 519 million, resulting in an insignificant gain, from 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 Condensed Consolidated Statements of Income and Comprehensive Income. During the three months ended December 31, 2019, there were no sales of available-for-sale securities. 19 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 6 – DERIVATIVE ASSETS AND DERIVATIVE LIABILITIES Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative liabilities” on our Condensed Consolidated Statements of Financial Condition. Cash flows related to our derivatives are included within operating activities on the Condensed Consolidated Statements of Cash Flows. The significant accounting policies governing our derivatives, including our methodologies for determining fair value, are described in Note 2 of our 2020 Form 10-K. Derivative balances included on our financial statements The following table presents the gross fair values and notional amounts of derivatives by product type, the amounts of counterparty and cash collateral netting on our Condensed Consolidated Statements of Financial Condition, as well as collateral posted and received under credit support agreements that do not meet the criteria for netting under GAAP. December 31, 2020 September 30, 2020 $ in millions Derivative assets Derivative liabilities Notional amount Derivative assets Derivative liabilities Notional amount Derivatives not designated as hedging instruments Interest rate - matched book $ 273 $ 273 $ 1,985 $ 333 $ 333 $ 2,174 Interest rate - other (1) 223 161 17,017 240 161 19,206 Foreign exchange — 4 645 — 2 605 Other — 3 582 — 6 608 Subtotal 496 441 20,229 573 502 22,593 Derivatives designated as hedging instruments Interest rate — — 850 — — 850 Foreign exchange — 7 895 — 3 866 Subtotal — 7 1,745 — 3 1,716 Total gross fair value/notional amount 496 448 $ 21,974 573 505 $ 24,309 Offset on the Condensed Consolidated Statements of Financial Condition Counterparty netting ( 41 ) ( 41 ) ( 40 ) ( 40 ) Cash collateral netting ( 87 ) ( 97 ) ( 95 ) ( 72 ) Total amounts offset ( 128 ) ( 138 ) ( 135 ) ( 112 ) Net amounts presented on the Condensed Consolidated Statements of Financial Condition 368 310 438 393 Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition Financial instruments (2) ( 289 ) ( 273 ) ( 349 ) ( 333 ) Total $ 79 $ 37 $ 89 $ 60 (1) Substantially all relates to interest rate derivatives entered into as part of our fixed income business operations, including to-be-announced (“TBA”) security contracts that are accounted for as derivatives. (2) Although the matched book derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the agreement with the third-party intermediary includes terms that are similar to a master netting agreement. As a result, we present the matched book amounts net in the preceding table. 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 period. See Note 15 for additional information. Three months ended December 31, $ in millions 2020 2019 Interest rate (cash flow hedges) $ 5 $ 10 Foreign exchange (net investment hedges) ( 29 ) ( 13 ) Total gains/(losses) in AOCI, net of taxes $ ( 24 ) $ ( 3 ) There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness for each of the three months ended December 31, 2020 and 2019. We expect to reclassify $ 16 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 7 years. 20 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) The following table details the gains/(losses) on derivatives not designated as hedging instruments recognized on the Condensed Consolidated Statements of Income and Comprehensive Income. $ in millions Three months ended December 31, Location of gain/(loss) 2020 2019 Interest rate Principal transactions/other revenues $ 4 $ 5 Foreign exchange Other revenues $ ( 26 ) $ ( 11 ) Other Principal transactions $ 4 $ — Risks associated with our derivatives and related risk mitigation Credit risk We are exposed to credit losses in the event of nonperformance by the counterparties to 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 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 on matched book derivatives is related to our uncollected derivative transaction fee revenues, which were insignificant as of both December 31, 2020 and September 30, 2020. We are not exposed to market risk on these derivatives due to the pass-through transaction structure described in Note 2 of our 2020 Form 10-K. Interest rate and foreign exchange risk We are exposed to interest rate risk related to certain of our interest rate derivatives. We are also exposed to foreign exchange risk related to our forward foreign exchange derivatives. On a daily basis, we monitor our risk exposure on our derivatives based on established limits with respect to a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis and volatility risks, both for the total portfolio and by maturity period. 21 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 7 – COLLATERALIZED AGREEMENTS AND FINANCINGS Collateralized agreements are comprised of securities purchased under agreements to resell (“reverse repurchase agreements”) and securities borrowed. Collateralized financings are comprised of securities sold under agreements to repurchase (“repurchase agreements”) and securities loaned. We enter into these transactions in order to facilitate client activities, acquire securities to cover short positions and finance certain firm activities. The significant accounting policies governing our collateralized agreements and financings are described in Note 2 of our 2020 Form 10-K. Our reverse repurchase agreements, repurchase agreements, securities borrowing and securities lending transactions are governed by master agreements that are widely used by counterparties and that may allow for net settlements of payments in the normal course, as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of the parties to the transaction. For financial statement purposes, we do not offset our reverse repurchase agreements, repurchase agreements, securities borrowed and securities loaned because the conditions for netting as specified by GAAP are not met. Although not offset on the Condensed Consolidated Statements of Financial Condition, these transactions are included in the following table. Collateralized agreements Collateralized financings $ in millions Reverse repurchase agreements Securities borrowed Total Repurchase agreements Securities loaned Total December 31, 2020 Gross amounts of recognized assets/liabilities $ 162 $ 371 $ 533 $ 233 $ 64 $ 297 Gross amounts offset on the Condensed Consolidated Statements of Financial Condition — — — — — — Net amounts presented on the Condensed Consolidated Statements of Financial Condition 162 371 533 233 64 297 Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition ( 162 ) ( 355 ) ( 517 ) ( 233 ) ( 58 ) ( 291 ) Net amounts $ — $ 16 $ 16 $ — $ 6 $ 6 September 30, 2020 Gross amounts of recognized assets/liabilities $ 207 $ 215 $ 422 $ 165 $ 85 $ 250 Gross amounts offset on the Condensed Consolidated Statements of Financial Condition — — — — — — Net amounts presented on the Condensed Consolidated Statements of Financial Condition 207 215 422 165 85 250 Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition ( 207 ) ( 209 ) ( 416 ) ( 165 ) ( 79 ) ( 244 ) Net amounts $ — $ 6 $ 6 $ — $ 6 $ 6 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 Condensed Consolidated Statements of Financial Condition. Collateral received and pledged We receive cash and securities as collateral, primarily in connection with reverse repurchase agreements, securities borrowed, derivative transactions and client margin loans. The collateral we receive reduces our credit exposure to individual counterparties. In many cases, we are permitted to deliver or repledge financial instruments we have received as collateral to satisfy our collateral requirements under our repurchase agreements, securities lending agreements or other secured borrowings, to satisfy deposit requirements with clearing organizations, or to otherwise meet either our or our clients’ settlement requirements. 22 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) The following table presents financial instruments at fair value that we received as collateral, were not included on our Condensed Consolidated Statements of Financial Condition, and that were available to be delivered or repledged, along with the balances of such instruments that were delivered or repledged, to satisfy one of our purposes previously described. $ in millions December 31, 2020 September 30, 2020 Collateral we received that was available to be delivered or repledged $ 3,064 $ 2,869 Collateral that we delivered or repledged $ 793 $ 788 Encumbered assets We pledge certain of our assets to collateralize either repurchase agreements or other secured borrowings, maintain lines of credit, or to satisfy our collateral or settlement requirements with counterparties or clearing organizations who may or may not have the right to deliver or repledge such instruments. The following table presents information about our assets that have been pledged for one of the purposes previously described. $ in millions December 31, 2020 September 30, 2020 Had the right to deliver or repledge $ 327 $ 325 Did not have the right to deliver or repledge $ 65 $ 65 Bank loans, net pledged at Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank of Atlanta $ 5,359 $ 5,367 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 December 31, 2020 Repurchase agreements: Government and agency obligations $ 127 $ — $ — $ — $ 127 Agency MBS and agency CMOs 106 — — — 106 Total repurchase agreements 233 — — — 233 Securities loaned: Equity securities 64 — — — 64 Total collateralized financings $ 297 $ — $ — $ — $ 297 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 As of both December 31, 2020 and September 30, 2020, 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. 23 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 8 – BANK LOANS, NET Bank client receivables are comprised of loans originated or purchased by RJ Bank and include C&I loans, REIT loans, tax-exempt loans, commercial and residential real estate loans, and SBL and other loans. These receivables are collateralized by first and, to a lesser extent, second mortgages on residential or other real property, other assets of the borrower, a pledge of revenue, securities or are unsecured. See Note 2 of our 2020 Form 10-K for a discussion of accounting policies related to bank loans. As of October 1, 2020, we adopted new accounting guidance related to the measurement of credit losses on financial instruments. See Note 2 for further information about this guidance and a discussion of our accounting policies related to our allowance for credit losses. We segregate our loan portfolio into six loan portfolio segments: C&I, CRE, REIT, tax-exempt, residential mortgage, and SBL and other. We have redefined certain of our portfolio segments to align with the new methodology applied in determining the allowance for credit losses. Prior-period loan portfolio segments have been revised to conform to the current presentation. Loan balances on the following tables are presented at amortized cost (outstanding principal balance net of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs), except for certain held for sale loans recorded at fair value. Bank loans are presented on our Condensed Consolidated Statements of Financial Condition at amortized cost (or fair value where applicable) less the allowance for credit losses. The following table presents the balances for both the held for sale and held for investment loan portfolios, as well as the associated percentage of each portfolio segment in RJ Bank’s total loan portfolio. December 31, 2020 September 30, 2020 $ in millions Balance % Balance % C&I loans $ 7,499 33 % $ 7,421 34 % CRE loans 2,664 12 % 2,489 12 % REIT loans 1,254 6 % 1,210 5 % Tax-exempt loans 1,237 6 % 1,259 6 % Residential mortgage loans 4,928 22 % 4,973 23 % SBL and other 4,544 20 % 4,087 19 % Total loans held for investment 22,126 99 % 21,439 99 % Held for sale loans 209 1 % 110 1 % Total loans held for sale and investment 22,335 100 % 21,549 100 % Allowance for credit losses ( 378 ) ( 354 ) Bank loans, net $ 21,957 $ 21,195 Accrued interest receivable on bank loans $ 46 $ 45 The allowance for credit losses as of December 31, 2020 was determined using the new methodology under CECL, which was adopted on October 1, 2020. Prior periods have not been restated and were calculated under the incurred loss methodology. Accrued interest receivables presented in the preceding table are reported in “Other receivables” on our Condensed Consolidated Statements of Financial Condition. At December 31, 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 of our 2020 Form 10-K for more information regarding borrowings from the FHLB. Held for sale loans RJ Bank originated or purchased $ 582 million and $ 706 million of loans held for sale during the three months ended December 31, 2020 and 2019, respectively. Proceeds from the sale of these held for sale loans amounted to $ 188 million and $ 214 million during the three months ended December 31, 2020 and 2019, respectively. Net gains resulting from such sales were insignificant in each of the three months ended December 31, 2020 and 2019. 24 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Purchases and sales of loans held for investment The following table presents purchases and sales of any loans held for investment by portfolio segment. $ in millions C&I loans Residential mortgage loans Total Three months ended December 31, 2020 Purchases $ 122 $ 46 $ 168 Sales $ 5 $ — $ 5 Three months ended December 31, 2019 Purchases $ 67 $ 158 $ 225 Sales $ 20 $ — $ 20 Sales in the preceding table represent the recorded investment (i.e., net of charge-offs and discounts or premiums) of loans held for investment that were transferred to loans held for sale and subsequently sold to a third party during the respective period. As more fully described in Note 2 of our 2020 Form 10-K, corporate loan sales generally occur as part of our credit management activities. Aging analysis of loans held for investment The following table presents information on delinquency status of our loans held for investment. $ in millions 30-89 days and accruing 90 days or more and accruing Total past due and accruing Nonaccrual with allowance Nonaccrual with no allowance Current and accruing Total loans held for investment December 31, 2020 C&I loans $ — $ — $ — $ — $ — $ 7,499 $ 7,499 CRE loans — — — — 14 2,650 2,664 REIT loans — — — — — 1,254 1,254 Tax-exempt loans — — — — — 1,237 1,237 Residential mortgage loans 3 — 3 9 5 4,911 4,928 SBL and other — — — — — 4,544 4,544 Total loans held for investment $ 3 $ — $ 3 $ 9 $ 19 $ 22,095 $ 22,126 September 30, 2020 C&I loans $ — $ — $ — $ 2 $ — $ 7,419 $ 7,421 CRE loans — — — — 14 2,475 2,489 REIT loans — — — — — 1,210 1,210 Tax-exempt loans — — — — — 1,259 1,259 Residential mortgage loans — — — 3 11 4,959 4,973 SBL and other — — — — — 4,087 4,087 Total loans held for investment $ — $ — $ — $ 5 $ 25 $ 21,409 $ 21,439 The preceding table includes $ 13 million and $ 15 million at December 31, 2020 and September 30, 2020, respectively, of nonaccrual loans which were current pursuant to their contractual terms. The table also includes CRE and residential first mortgage loan TDRs of $ 14 million and $ 15 million, respectively, at December 31, 2020 and $ 6 million and $ 15 million, respectively, at September 30, 2020. Other real estate owned, included in “Other assets” on our Condensed Consolidated Statements of Financial Condition, was insignificant at both December 31, 2020 and September 30, 2020. Collateral-dependent loans A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the underlying collateral. At December 31, 2020, we had $ 13 million of collateral-dependent CRE loans, which were fully collateralized by retail and industrial real estate, and $ 7 million of collateral-dependent residential loans, which were fully collateralized by single family homes. Collateral-dependent loans do not include loans to borrowers who have been granted forbearance as result of the coronavirus (“COVID-19”) pandemic. Such loans may be considered collateral-dependent after the forbearance period expires. The recorded investment in mortgage loans secured by 25 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) one-to-four family residential properties for which formal foreclosure proceedings were in process was $ 6 million at both December 31, 2020 and September 30, 2020. Credit quality indicators The credit quality of RJ Bank’s loan portfolio is summarized monthly by management using internal risk ratings, which align with the standard asset classification system utilized by bank regulators. 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 RJ Bank’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. RJ Bank does not have any 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. 26 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) The following tables present RJ Bank’s held for investment loan portfolio by year of origination and credit quality indicator as of December 31, 2020. $ in millions 2021 2020 2019 2018 2017 Prior Revolving loans Total C&I loans Risk rating: Pass $ 66 $ 991 $ 1,109 $ 1,493 $ 1,121 $ 1,591 $ 709 $ 7,080 Special mention — — 44 102 12 — 43 201 Substandard — 28 78 78 — 34 — 218 Doubtful — — — — — — — — Total C&I loans $ 66 $ 1,019 $ 1,231 $ 1,673 $ 1,133 $ 1,625 $ 752 $ 7,499 CRE loans Risk rating: Pass $ 133 $ 406 $ 599 $ 653 $ 225 $ 210 $ 60 $ 2,286 Special mention — 45 103 49 — 47 — 244 Substandard — — 14 68 8 44 — 134 Doubtful — — — — — — — — Total CRE loans $ 133 $ 451 $ 716 $ 770 $ 233 $ 301 $ 60 $ 2,664 REIT loans Risk rating: Pass $ 121 $ 49 $ 164 $ 98 $ 82 $ 344 $ 322 $ 1,180 Special mention — — — — 18 — 27 45 Substandard — — 22 — 4 — 3 29 Doubtful — — — — — — — — Total REIT loans $ 121 $ 49 $ 186 $ 98 $ 104 $ 344 $ 352 $ 1,254 Tax-exempt loans Risk rating: Pass $ 9 $ 59 $ 123 $ 211 $ 279 $ 556 $ — $ 1,237 Special mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total tax-exempt loans $ 9 $ 59 $ 123 $ 211 $ 279 $ 556 $ — $ 1,237 Residential mortgage loans Risk rating: Pass $ 376 $ 1,551 $ 877 $ 550 $ 605 $ 920 $ 21 $ 4,900 Special mention — — — — — 6 — 6 Substandard — — — — 1 21 — 22 Doubtful — — — — — — — — Total residential mortgage loans $ 376 $ 1,551 $ 877 $ 550 $ 606 $ 947 $ 21 $ 4,928 SBL and other Risk rating: Pass $ — $ 46 $ 12 $ — $ — $ — $ 4,486 $ 4,544 Special mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total SBL and other $ — $ 46 $ 12 $ — $ — $ — $ 4,486 $ 4,544 Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans. RJ Bank also monitors the credit quality of the residential mortgage loan portfolio utilizing FICO scores and LTV ratios. A FICO score measures a borrower’s creditworthiness by considering factors such as payment and credit history. LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan. 27 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) The following table presents the held for investment residential mortgage loan portfolio by FICO score and by LTV ratio at origination. $ in millions December 31, 2020 September 30, 2020 FICO score: Below 600 $ 67 $ 67 600 - 699 380 363 700 - 799 3,424 3,463 800 + 1,052 1,076 FICO score not available 5 4 Total $ 4,928 $ 4,973 LTV ratio: Below 80% $ 3,812 $ 3,852 80%+ 1,116 1,121 Total $ 4,928 $ 4,973 Allowance for credit losses The following table presents changes in the allowance for credit losses on held for investment bank loans by portfolio segment. $ in millions C&I loans CRE loans REIT loans Tax-exempt loans Residential mortgage loans SBL and other Total Three months ended December 31, 2020 Balance at beginning of period $ 200 $ 81 $ 36 $ 14 $ 18 $ 5 $ 354 Impact of CECL adoption 19 ( 11 ) ( 9 ) ( 12 ) 24 ( 2 ) 9 Provision/(benefit) for credit losses ( 22 ) 42 3 — ( 9 ) — 14 Net (charge-offs)/recoveries: Charge-offs — — — — — — — Recoveries — — — — — — — Net (charge-offs)/recoveries — — — — — — — Foreign exchange translation adjustment 1 — — — — — 1 Balance at end of period $ 198 $ 112 $ 30 $ 2 $ 33 $ 3 $ 378 Three months ended December 31, 2019 Balance at beginning of period $ 139 $ 34 $ 15 $ 9 $ 16 $ 5 $ 218 Provision/(benefit) for credit losses — 2 ( 3 ) ( 1 ) 1 ( 1 ) ( 2 ) Net (charge-offs)/recoveries: Charge-offs — — — — — — — Recoveries — — — — — — — Net (charge-offs)/recoveries — — — — — — — Foreign exchange translation adjustment — — — — — — — Balance at end of period $ 139 $ 36 $ 12 $ 8 $ 17 $ 4 $ 216 The allowance for credit losses on held for investment bank loans increased $ 15 million to $ 378 million since the adoption of CECL on October 1, 2020. The increase was primarily driven by forecasted declines in commercial real estate values, partially offset by the impacts of a reduction in criticized loans and improvements in other forecasted macroeconomic inputs, including unemployment and gross domestic product. See Note 2 for further information about the adoption of CECL and the impact to the allowance for credit losses. The allowance for credit losses on unfunded lending commitments, which is included in “Other payables” on our Condensed Consolidated Statements of Financial Condition, was $ 20 million and $ 12 million at December 31, 2020 and September 30, 2020, respectively. The increase in the allowance for credit losses on unfunded lending commitments was predominantly due to the adoption impact of CECL. 28 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 9 – LOANS TO FINANCIAL ADVISORS, NET Loans to financial advisors are primarily comprised of loans originated as a part of our recruiting activities. See Note 2 for a discussion of our accounting policies related to loans to financial advisors and the related allowance for credit losses. The following table presents the balances for our loans to financial advisors and the related accrued interest receivable. $ in millions December 31, 2020 September 30, 2020 Currently affiliated with the firm (1) $ 989 $ 1,001 No longer affiliated with the firm (2) 16 15 Total loans to financial advisors 1,005 1,016 Allowance for credit losses ( 29 ) ( 4 ) Loans to financial advisors, net $ 976 $ 1,012 Accrued interest receivable on loans to financial advisors $ 4 $ 4 (1) These loans were predominately current. (2) These loans were predominately past due for a period of 180 days or more and on nonaccrual status. The allowance for credit losses as of December 31, 2020 was determined using the new methodology under CECL, which was adopted on October 1, 2020. Prior periods have not been restated and were calculated under the incurred loss methodology. The increase in the allowance from September 30, 2020 to December 31, 2020 was due to the October 1, 2020 CECL adoption, which resulted in an increase in our allowance for credit losses of $ 25 million. See Note 2 for further information on the CECL adoption. Accrued interest receivables presented in the preceding table are reported in “Other receivables” on the Condensed Consolidated Statements of Financial Condition. 29 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 10 – VARIABLE INTEREST ENTITIES A VIE requires consolidation by the entity’s primary beneficiary. We evaluate all of the entities in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. Refer to Note 2 of our 2020 Form 10-K for a discussion of our principal involvement with VIEs and the accounting policies regarding determination of whether we are deemed to be the primary beneficiary of VIEs. VIEs where we are the primary beneficiary Of the VIEs in which we hold an interest, we have determined that certain limited partnerships which are part of our private equity portfolio (“Private Equity Interests”), certain Low-Income Housing Tax Credit (“LIHTC”) funds and the trust we utilize in connection with restricted stock unit (“RSU”) awards granted to certain employees of one of our Canadian subsidiaries (the “Restricted Stock Trust Fund”) require consolidation in our financial statements, as we are deemed the primary beneficiary of such VIEs. The aggregate assets and liabilities of the VIEs we consolidate are provided in the following table. Aggregate assets and aggregate liabilities may differ from the consolidated carrying value of assets and liabilities due to the elimination of intercompany assets and liabilities held by the consolidated VIE. $ in millions Aggregate assets Aggregate liabilities December 31, 2020 Private Equity Interests $ 48 $ 4 LIHTC funds 165 68 Restricted Stock Trust Fund 21 21 Total $ 234 $ 93 September 30, 2020 Private Equity Interests $ 39 $ 4 LIHTC funds 168 76 Restricted Stock Trust Fund 14 14 Total $ 221 $ 94 The following table presents information about the carrying value of the assets and liabilities of the VIEs which we consolidate and which are included on our Condensed Consolidated Statements of Financial Condition. Intercompany balances are eliminated in consolidation and not reflected in the following table. $ in millions December 31, 2020 September 30, 2020 Assets: Cash and cash equivalents and assets segregated pursuant to regulations $ 8 $ 9 Other investments 46 37 Other receivables 5 — Other assets 158 164 Total assets $ 217 $ 210 Liabilities: Other payables $ 69 $ 76 Total liabilities $ 69 $ 76 Noncontrolling interests $ 72 $ 62 VIEs where we hold a variable interest but are not the primary beneficiary As discussed in Note 2 of our 2020 Form 10-K, we have concluded that for certain VIEs we are not the primary beneficiary and therefore do not consolidate these VIEs. Such VIEs include certain Private Equity Interests, certain LIHTC funds, and other limited partnerships. Our risk of loss for these VIEs is limited to our investments in, advances to, and/or receivables due from these VIEs. 30 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Aggregate assets, liabilities and risk of loss The aggregate assets, liabilities, and our exposure to loss from those VIEs in which we hold a variable interest, but as to which we have concluded we are not the primary beneficiary, are provided in the following table. December 31, 2020 September 30, 2020 $ in millions Aggregate assets Aggregate liabilities Our risk of loss Aggregate assets Aggregate liabilities Our risk of loss Private Equity Interests $ 7,255 $ 98 $ 73 $ 7,738 $ 96 $ 67 LIHTC funds 6,754 2,058 26 6,516 1,993 66 Other 305 169 7 227 136 6 Total $ 14,314 $ 2,325 $ 106 $ 14,481 $ 2,225 $ 139 NOTE 11 – LEASES As of December 31, 2020 and September 30, 2020, our lease commitments resulted in ROU assets of $ 350 million and $ 321 million, respectively, and lease liabilities of $ 372 million and $ 345 million, respectively, which were included in “ Other assets ” and “ Other payables ,” respectively, on our Condensed Consolidated Statements of Financial Condition. The weighted-average remaining lease term and discount-rate for our leases was 5.5 years and 3.80 %, respectively, as of December 31, 2020. See Note 2 of our 2020 Form 10-K for a discussion of our accounting policies related to leases. Lease expense The following table details the components of lease expense, which is included in “Occupancy and equipment” expense on our Condensed Consolidated Statements of Income and Comprehensive Income. Lease expense is recognized on a straight-line basis over the lease term if the ROU asset has not been impaired or abandoned. Three months ended December 31, $ in millions 2020 2019 Lease costs $ 27 23 Variable lease costs $ 6 8 Variable lease costs in the preceding table include payments for common area maintenance charges and other variable costs that are not reflected in the measurement of ROU assets and lease liabilities. Lease liabilities The maturities of lease liabilities as of December 31, 2020 are presented in the following table. Fiscal year ended September 30, $ in millions Remainder of 2021 $ 74 2022 90 2023 72 2024 54 2025 40 Thereafter 86 Gross lease payments 416 Less: interest ( 44 ) Present value of lease liabilities $ 372 Lease payments in the preceding table exclude $ 145 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 three years to 11 years. 31 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 12 – BANK DEPOSITS Bank deposits include savings and money market accounts, certificates of deposit with RJ Bank, N.A., Negotiable Order of Withdrawal (“NOW”) accounts and demand deposits. The following table presents a summary of bank deposits, 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. December 31, 2020 September 30, 2020 $ in millions Balance Weighted-average rate Balance Weighted-average rate Savings and money market accounts $ 26,702 0.01 % $ 25,604 0.01 % Certificates of deposit 912 1.93 % 1,017 1.94 % NOW accounts 158 1.90 % 156 1.92 % Demand deposits (non-interest-bearing) 18 — 24 — Total bank deposits $ 27,790 0.08 % $ 26,801 0.09 % Total bank deposits in the preceding table exclude affiliate deposits of $ 185 million at both December 31, 2020 and September 30, 2020, all of which were held in a deposit account at RJ Bank, N.A. on behalf of RJF. Savings and money market accounts in the preceding table consist primarily of deposits that are cash balances swept to RJ Bank, N.A. from the client investment accounts maintained at RJ&A. These balances are held in Federal Deposit Insurance Corporation (“FDIC”)-insured bank accounts through the Raymond James Bank Deposit Program (“RJBDP”). The aggregate amount of individual time deposit account balances that exceeded the FDIC insurance limit at December 31, 2020 was approximately $ 22 million. The following table sets forth the scheduled maturities of certificates of deposit. December 31, 2020 September 30, 2020 $ in millions Denominations greater than or equal to $100,000 Denominations less than $100,000 Denominations greater than or equal to $100,000 Denominations less than $100,000 Three months or less $ 37 $ 22 $ 59 $ 76 Over three through six months 16 9 26 18 Over six through twelve months 17 103 19 26 Over one through two years 54 210 43 206 Over two through three years 69 171 67 170 Over three through four years 19 160 37 165 Over four through five years 7 18 7 98 Total certificates of deposit $ 219 $ 693 $ 258 $ 759 Interest expense on deposits, excluding interest expense related to affiliate deposits, is summarized in the following table. Three months ended December 31, $ in millions 2020 2019 Savings, money market, and NOW accounts $ 1 $ 12 Certificates of deposit 5 4 Total interest expense on deposits $ 6 $ 16 32 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 13 – INCOME TAXES The income tax provision for interim periods is comprised of tax on ordinary income provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of discrete items. We estimate the annual effective tax rate quarterly based on the forecasted pre-tax results of our U.S. and non-U.S. operations. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax. These discrete items generally relate to changes in tax laws, adjustments to the actual liability determined upon filing tax returns, excess tax benefits related to share-based compensation and adjustments to previously recorded reserves for uncertain tax positions. For discussion of income tax accounting policies and other income tax related information, see Notes 2 and 16 of our 2020 Form 10-K. Effective tax rate Our effective income tax rate was 21.8 % for the three months ended December 31, 2020, which was lower than the 22.2 % effective tax rate for fiscal year 2020. The slight decrease in the effective income tax rate was primarily due to an increase in valuation gains associated with our company-owned life insurance policies which are not subject to tax. Uncertain tax positions 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 the federal and various state statutes of limitations and the anticipated resolution of certain positions with the Internal Revenue Service (“IRS”). NOTE 14 – 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 December 31, 2020, we had one such open underwriting commitment, which was subsequently settled in an open market transaction and did not result in a significant loss. We offer loans to prospective financial advisors for recruiting and retention purposes (see Notes 2 and 9 for further discussion of our loans to financial advisors). These offers are contingent upon certain events occurring, including the individuals joining us and meeting certain conditions outlined in their offer. 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 subject to market risk resulting from fluctuations in interest rates and our exposure is limited to the replacement value of those commitments. The following table presents RJ Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding. $ in millions December 31, 2020 September 30, 2020 Open-end consumer lines of credit (primarily SBL) $ 13,120 $ 12,148 Commercial lines of credit $ 1,560 $ 1,482 Unfunded loan commitments $ 566 $ 532 Standby letters of credit $ 31 $ 33 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. 33 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Because many of our lending commitments expire without being funded in whole or in part, the contractual amounts are not estimates of our actual future credit exposure or future liquidity requirements. The allowance for credit losses calculated under CECL provides for potential losses related to the unfunded lending commitments. See Notes 2 and 8 for further discussion of this allowance for credit losses related to unfunded lending commitments. RJ&A enters into margin lending arrangements which allow customers to borrow against the value of qualifying securities. Margin loans are collateralized by the securities held in the customer’s account at RJ&A. Collateral levels and established credit terms are monitored daily and we require customers to deposit additional collateral or reduce balances as necessary. Investment commitments We had unfunded commitments to various investments, including private equity investments and certain RJ Bank investments, of $ 34 million as of December 31, 2020. Other commitments Raymond James Tax Credit Funds, Inc. (“RJTCF”) sells investments in project partnerships to various LIHTC funds, which have third-party investors, and for which RJTCF serves as the managing member or general partner. RJTCF typically sells investments in project partnerships to LIHTC funds within 90 days of their acquisition. Until such investments are sold to LIHTC funds, RJTCF is responsible for funding investment commitments to such partnerships. As of December 31, 2020, RJTCF had committed approximately $ 120 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 of our 2020 Form 10-K for further discussion of these activities. At December 31, 2020, we had $ 318 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 December 31, 2020, the fair value of the TBA securities and the estimated fair value of the purchase commitments were insignificant. On December 17, 2020, we announced we had entered into a definitive agreement to acquire all of the outstanding shares of Financo. We expect the closing date of the transaction to occur in March or April of 2021. See Note 3 for additional information. For information regarding our lease commitments, including the maturities of our lease liabilities, see Note 11. Guarantees Our U.S. broker-dealer subsidiaries are required by federal law to be members of the Securities Investors Protection Corporation (“SIPC”). The SIPC fund provides protection up to $ 500 thousand per client for securities and cash held in client accounts, including a limitation of $ 250 thousand on claims for cash balances. We have purchased excess SIPC coverage through various syndicates of Lloyd’s of London. For RJ&A, our clearing broker-dealer, the additional protection currently provided has an aggregate firm limit of $ 750 million for cash and securities, including a sub-limit of $ 1.9 million per client for cash above basic SIPC. Account protection applies when a SIPC member fails financially and is unable to meet its obligations to clients. This coverage does not protect against market fluctuations. RJF has provided an indemnity to Lloyd’s of London against any and all losses they may incur associated with the excess SIPC policies. We guarantee the debt of one of our private equity investments. The amount of such debt, including the undrawn portion of a revolving credit facility, was $ 13 million as of December 31, 2020. The debt, which matures in 2022, is secured by substantially all of the assets of the borrower. 34 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 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 December 31, 2020, we estimated the upper end of the range of reasonably possible aggregate loss to be approximately $ 180 million in excess of the aggregate accruals for such matters. Refer to Note 2 of our 2020 Form 10-K for a discussion of our criteria for recognizing liabilities for contingencies. We may from time to time include in any descriptions of individual matters herein certain quantitative information about the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings. Although this information may provide insight into the potential magnitude of a matter, it does not represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual related thereto. 35 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 15 – 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 Three months ended December 31, 2020 AOCI as of beginning of period $ 115 $ ( 140 ) $ ( 25 ) $ 89 $ ( 53 ) $ 11 OCI: OCI before reclassifications and taxes ( 38 ) 45 7 ( 18 ) 3 ( 8 ) Amounts reclassified from AOCI, before tax — 2 2 ( 5 ) 4 1 Pre-tax net OCI ( 38 ) 47 9 ( 23 ) 7 ( 7 ) Income tax effect 9 — 9 6 ( 2 ) 13 OCI for the period, net of tax ( 29 ) 47 18 ( 17 ) 5 6 AOCI as of end of period $ 86 $ ( 93 ) $ ( 7 ) $ 72 $ ( 48 ) $ 17 Three months ended December 31, 2019 AOCI as of beginning of period $ 110 $ ( 135 ) $ ( 25 ) $ 21 $ ( 19 ) $ ( 23 ) OCI: OCI before reclassifications and taxes ( 17 ) 22 5 ( 2 ) 14 17 Amounts reclassified from AOCI, before tax — — — — — — Pre-tax net OCI ( 17 ) 22 5 ( 2 ) 14 17 Income tax effect 4 — 4 1 ( 4 ) 1 OCI for the period, net of tax ( 13 ) 22 9 ( 1 ) 10 18 AOCI as of end of period $ 97 $ ( 113 ) $ ( 16 ) $ 20 $ ( 9 ) $ ( 5 ) Reclassifications from AOCI to net income, excluding taxes, for the three months ended December 31, 2020 were primarily recorded in “Other” revenue and “Interest expense” on the Condensed Consolidated Statements of Income and Comprehensive Income. Our net investment hedges and cash flow hedges relate to our derivatives associated with RJ Bank’s business operations. See Note 2 of our 2020 Form 10-K and Note 6 for additional information on these derivatives. 36 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 16 – REVENUES The following tables present our sources of revenues by segment. For further information about our significant accounting policies related to revenue recognition, see Note 2 of our 2020 Form 10-K. See Note 21 of this Form 10-Q for additional information on our segment results. Three months ended December 31, 2020 $ in millions Private Client Group Capital Markets Asset Management RJ Bank Other and intersegment eliminations Total Revenues: Asset management and related administrative fees $ 885 $ 2 $ 188 $ — $ ( 8 ) $ 1,067 Brokerage revenues: Securities commissions: Mutual and other fund products 148 2 2 — ( 1 ) 151 Insurance and annuity products 98 — — — — 98 Equities, ETFs and fixed income products 95 37 — — — 132 Subtotal securities commissions 341 39 2 — ( 1 ) 381 Principal transactions (1) 12 134 — 1 — 147 Total brokerage revenues 353 173 2 1 ( 1 ) 528 Account and services fees: Mutual fund and annuity service fees 94 — — — — 94 RJBDP fees 64 — — — ( 43 ) 21 Client account and other fees 32 2 4 — ( 8 ) 30 Total account and service fees 190 2 4 — ( 51 ) 145 Investment banking: Merger & acquisition and advisory — 149 — — — 149 Equity underwriting 6 60 — — — 66 Debt underwriting — 46 — — — 46 Total investment banking 6 255 — — — 261 Other: Tax credit fund revenues — 16 — — — 16 All other (1) 5 3 1 9 22 40 Total other 5 19 1 9 22 56 Total non-interest revenues 1,439 451 195 10 ( 38 ) 2,057 Interest income (1) 30 3 — 168 2 203 Total revenues 1,469 454 195 178 ( 36 ) 2,260 Interest expense ( 2 ) ( 2 ) — ( 11 ) ( 23 ) ( 38 ) Net revenues $ 1,467 $ 452 $ 195 $ 167 $ ( 59 ) $ 2,222 (1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers. 37 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Three months ended December 31, 2019 $ in millions Private Client Group Capital Markets Asset Management RJ Bank Other and intersegment eliminations Total Revenues: Asset management and related administrative fees $ 782 $ 2 $ 176 $ — $ ( 5 ) $ 955 Brokerage revenues: Securities commissions: Mutual and other fund products 144 3 2 — ( 1 ) 148 Insurance and annuity products 101 — — — — 101 Equities, ETFs and fixed income products 85 30 — — ( 1 ) 114 Subtotal securities commissions 330 33 2 — ( 2 ) 363 Principal transactions (1) 17 82 — — ( 2 ) 97 Total brokerage revenues 347 115 2 — ( 4 ) 460 Account and services fees: Mutual fund and annuity service fees 90 — 1 — ( 1 ) 90 RJBDP fees 105 — — — ( 47 ) 58 Client account and other fees 29 1 4 — ( 4 ) 30 Total account and service fees 224 1 5 — ( 52 ) 178 Investment banking: Merger & acquisition and advisory — 60 — — — 60 Equity underwriting 11 39 — — — 50 Debt underwriting — 31 — — — 31 Total investment banking 11 130 — — — 141 Other: Tax credit fund revenues — 18 — — — 18 All other (1) 9 — — 6 ( 4 ) 11 Total other 9 18 — 6 ( 4 ) 29 Total non-interest revenues 1,373 266 183 6 ( 65 ) 1,763 Interest income (1) 49 8 1 231 8 297 Total revenues 1,422 274 184 237 ( 57 ) 2,060 Interest expense ( 8 ) ( 6 ) — ( 21 ) ( 16 ) ( 51 ) Net revenues $ 1,414 $ 268 $ 184 $ 216 $ ( 73 ) $ 2,009 (1) These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers. At December 31, 2020 and September 30, 2020, net receivables related to contracts with customers were $ 299 million and $ 342 million, respectively. 38 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 17 – INTEREST INCOME AND INTEREST EXPENSE The following table details the components of interest income and interest expense. Three months ended December 31, $ in millions 2020 2019 Interest income: Cash and cash equivalents $ 4 $ 17 Assets segregated pursuant to regulations 3 11 Available-for-sale securities 23 18 Brokerage client receivables 18 27 Bank loans, net of unearned income and deferred expenses 145 206 All other 10 18 Total interest income $ 203 $ 297 Interest expense: Bank deposits $ 6 $ 16 Brokerage client payables 1 3 Other borrowings 5 5 Senior notes payable 24 18 All other 2 9 Total interest expense 38 51 Net interest income 165 246 Bank loan (provision)/benefit for credit losses ( 14 ) 2 Net interest income after bank loan (provision)/benefit for credit losses $ 151 $ 248 Interest expense related to bank deposits in the preceding table excludes interest expense associated with affiliate deposits, which has been eliminated in consolidation. NOTE 18 – SHARE-BASED COMPENSATION We have one share-based compensation plan for our employees, Board of Directors and independent contractor financial advisors. Generally, we reissue our treasury shares under The Amended and Restated 2012 Stock Incentive Plan; however, we are also permitted to issue new shares. Annual share-based compensation awards are primarily issued during the fiscal first quarter of each year. Our share-based compensation accounting policies are described in Note 2 of our 2020 Form 10-K. Other information related to our share-based awards is presented in Note 21 of our 2020 Form 10-K. During the three months ended December 31, 2020, we granted approximately 1.3 million RSUs to employees and outside members of our Board of Directors with a weighted-average grant-date fair value of $ 91.28 . For the three months ended December 31, 2020, total compensation expense for RSUs granted to our employees and members of our Board of Directors was $ 41 million, compared with $ 40 million for the three months ended December 31, 2019. As of December 31, 2020, there were $ 246 million of total pre-tax compensation costs not yet recognized (net of estimated forfeitures) related to RSUs granted to employees and members of our Board of Directors, including those granted during the three months ended December 31, 2020. These costs are expected to be recognized over a weighted-average period of 3.3 years. 39 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 19 – REGULATORY CAPITAL REQUIREMENTS RJF, as a bank holding company and financial holding company, RJ Bank, N.A., Raymond James Trust, N.A. (“RJ Trust”) and our broker-dealer subsidiaries are subject to capital requirements by various regulatory authorities. Capital levels of each entity are monitored to ensure compliance with our various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on our financial results. 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 the applicable regulatory guidelines. RJF’s and RJ Bank, N.A.’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. RJF and RJ Bank, N.A. are required to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), Tier 1 capital to average assets (as defined), and under rules defined under the Basel III capital framework, Common equity Tier 1 capital (“CET1”) to risk-weighted assets. RJF and RJ Bank, N.A. each calculate these ratios under the Basel III standardized approach in order to assess compliance with both regulatory requirements and their internal capital policies. In order to maintain our ability to take certain capital actions, including dividends and common equity repurchases, and to make bonus payments, we must hold a capital conservation buffer above our minimum risk-based capital requirements. As of December 31, 2020, both RJF’s and RJ Bank, N.A.’s capital levels exceeded the capital conservation buffer requirement and were each categorized as “well-capitalized.” For further discussion of regulatory capital requirements applicable to certain of our businesses and subsidiaries, see Note 22 of our 2020 Form 10-K. To meet requirements for capital adequacy purposes or to be categorized as “well-capitalized,” RJF must maintain minimum CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the following table. Actual Requirement for capital adequacy purposes To be well-capitalized under regulatory provisions $ in millions Amount Ratio Amount Ratio Amount Ratio RJF as of December 31, 2020: CET1 $ 6,538 23.4 % $ 1,255 4.5 % $ 1,813 6.5 % Tier 1 capital $ 6,538 23.4 % $ 1,674 6.0 % $ 2,232 8.0 % Total capital $ 6,860 24.6 % $ 2,232 8.0 % $ 2,790 10.0 % Tier 1 leverage $ 6,538 12.9 % $ 2,028 4.0 % $ 2,535 5.0 % RJF as of September 30, 2020: CET1 $ 6,490 24.2 % $ 1,208 4.5 % $ 1,744 6.5 % Tier 1 capital $ 6,490 24.2 % $ 1,610 6.0 % $ 2,147 8.0 % Total capital $ 6,804 25.4 % $ 2,147 8.0 % $ 2,684 10.0 % Tier 1 leverage $ 6,490 14.2 % $ 1,824 4.0 % $ 2,280 5.0 % As of December 31, 2020 RJF’s Tier 1 and Total capital ratios declined compared to September 30, 2020, resulting from an increase in goodwill and intangible assets arising from the NWPS acquisition and an increase in risk-weighted assets, partially offset by an increase in equity due to positive earnings, net of dividends. The increase in risk-weighted assets was driven by increases in our loan portfolio and market risk-equivalent assets. RJF’s Tier 1 leverage ratio at December 31, 2020 decreased compared to September 30, 2020 due to increased average assets, driven by higher assets segregated pursuant to regulations due to an increase in client cash in the Client Interest Program (“CIP”), as well as growth in available-for-sale securities and loans. 40 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) To meet the requirements for capital adequacy or to be categorized as “well-capitalized,” RJ Bank, N.A. must maintain CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the following table. Actual Requirement for capital adequacy purposes To be well-capitalized under regulatory provisions $ in millions Amount Ratio Amount Ratio Amount Ratio RJ Bank, N.A. as of December 31, 2020: CET1 $ 2,340 13.1 % $ 803 4.5 % $ 1,160 6.5 % Tier 1 capital $ 2,340 13.1 % $ 1,071 6.0 % $ 1,428 8.0 % Total capital $ 2,565 14.4 % $ 1,428 8.0 % $ 1,784 10.0 % Tier 1 leverage $ 2,340 7.5 % $ 1,251 4.0 % $ 1,563 5.0 % RJ Bank, N.A. as of September 30, 2020: CET1 $ 2,279 13.0 % $ 788 4.5 % $ 1,138 6.5 % Tier 1 capital $ 2,279 13.0 % $ 1,051 6.0 % $ 1,401 8.0 % Total capital $ 2,500 14.3 % $ 1,401 8.0 % $ 1,751 10.0 % Tier 1 leverage $ 2,279 7.7 % $ 1,183 4.0 % $ 1,479 5.0 % RJ Bank, N.A.’s Tier 1 capital and Total capital ratios at December 31, 2020 increased compared to September 30, 2020, due to positive earnings, partially offset by growth in loans and lending commitments and available-for-sale securities. RJ Bank, N.A.’s Tier 1 leverage ratio at December 31, 2020 decreased compared to September 30, 2020, due to increased average assets, driven by growth in available-for-sale securities and loans. Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934. The following table presents the net capital position of RJ&A. $ in millions December 31, 2020 September 30, 2020 Raymond James & Associates, Inc. : (Alternative Method elected) Net capital as a percent of aggregate debit items 59.9 % 48.0 % Net capital $ 1,498 $ 1,245 Less: required net capital ( 50 ) ( 52 ) Excess net capital $ 1,448 $ 1,193 As of December 31, 2020, Raymond James Financial Services, Inc. (“RJFS”), Raymond James Ltd. (“RJ Ltd.”), RJ Trust and all of our other active regulated domestic and international subsidiaries were in compliance with and exceeded all applicable capital requirements. 41 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 20 – EARNINGS PER SHARE The following table presents the computation of basic and diluted earnings per common share. Three months ended December 31, in millions, except per share amounts 2020 2019 Income for basic earnings per common share: Net income $ 312 $ 268 Less allocation of earnings and dividends to participating securities ( 1 ) ( 1 ) Net income attributable to RJF common shareholders $ 311 $ 267 Income for diluted earnings per common share: Net income $ 312 $ 268 Less allocation of earnings and dividends to participating securities ( 1 ) ( 1 ) Net income attributable to RJF common shareholders $ 311 $ 267 Common shares: Average common shares in basic computation 136.8 138.3 Dilutive effect of outstanding stock options and certain RSUs 2.9 3.2 Average common shares used in diluted computation 139.7 141.5 Earnings per common share: Basic $ 2.27 $ 1.93 Diluted $ 2.23 $ 1.89 Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive 1.4 1.5 The allocation of earnings and dividends to participating securities in the preceding table represents dividends paid during the period to participating securities, consisting of certain RSUs, plus an allocation of undistributed earnings to such participating securities. Participating securities and related dividends paid on these participating securities were insignificant for the three months ended December 31, 2020 and 2019. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed. Dividends per common share declared and paid are detailed in the following table for each respective period. Three months ended December 31, 2020 2019 Dividends per common share - declared $ 0.39 $ 0.37 Dividends per common share - paid $ 0.37 $ 0.34 42 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 21 – 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. For a further discussion of our segments, see Note 24 of our 2020 Form 10-K. The following table presents information concerning operations in these segments. Three months ended December 31, $ in millions 2020 2019 Net revenues: Private Client Group $ 1,467 $ 1,414 Capital Markets 452 268 Asset Management 195 184 RJ Bank 167 216 Other 4 ( 8 ) Intersegment eliminations ( 63 ) ( 65 ) Total net revenues $ 2,222 $ 2,009 Pre-tax income/(loss): Private Client Group $ 140 $ 153 Capital Markets 129 29 Asset Management 83 73 RJ Bank 71 135 Other ( 24 ) ( 31 ) Total pre-tax income $ 399 $ 359 No individual client accounted for more than ten percent of revenues in any of the periods presented. The following table presents our net interest income on a segment basis. Three months ended December 31, $ in millions 2020 2019 Net interest income/(expense): Private Client Group $ 28 $ 41 Capital Markets 1 2 Asset Management — 1 RJ Bank 157 210 Other ( 21 ) ( 8 ) Net interest income $ 165 $ 246 The following table presents our total assets on a segment basis. $ in millions December 31, 2020 September 30, 2020 Total assets: Private Client Group $ 17,998 $ 12,574 Capital Markets 1,960 2,336 Asset Management 388 380 RJ Bank 31,352 30,356 Other 1,959 1,836 Total $ 53,657 $ 47,482 43 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) The following table presents goodwill, which was included in our total assets, on a segment basis. $ in millions December 31, 2020 September 30, 2020 Goodwill: Private Client Group (1) $ 417 $ 277 Capital Markets 120 120 Asset Management 69 69 Total $ 606 $ 466 (1) The balance includes a provisional estimate of $ 139 million of goodwill arising from our acquisition of NWPS during the three months ended December 31, 2020. We have operations in the U.S., Canada and Europe. Substantially all long-lived assets are located in the U.S. The following table presents our net revenues and pre-tax income classified by major geographic area in which they were earned. Three months ended December 31, $ in millions 2020 2019 Net revenues: U.S. $ 2,079 $ 1,875 Canada 105 95 Europe 38 39 Total $ 2,222 $ 2,009 Pre-tax income/(loss): U.S. $ 396 $ 352 Canada 1 8 Europe 2 ( 1 ) Total $ 399 $ 359 The following table presents our total assets by major geographic area in which they were held. $ in millions December 31, 2020 September 30, 2020 Total assets: U.S. $ 50,158 $ 44,090 Canada 3,380 3,260 Europe 119 132 Total $ 53,657 $ 47,482 The following table presents goodwill, which was included in our total assets, classified by major geographic area in which it was held. $ in millions December 31, 2020 September 30, 2020 Goodwill: U.S. (1) $ 572 $ 433 Canada 25 24 Europe 9 9 Total $ 606 $ 466 (1) The balance includes a provisional estimate of $ 139 million of goodwill arising from our acquisition of NWPS during the three months ended December 31, 2020. 44 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES