What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2021-02-08 · 598 added, 324 removed, 821 unchanged (53% of the section changed)

12 unchanged sentences

Statement of financial condition analysis 76

Contractual obligations 65

Regulatory 77

1 unchanged sentence

Recent accounting developments 79

Off-balance sheet arrangements 66

Risk management 79

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Forward-looking statements include information concerning future strategic objectives, business prospects, anticipated savings, financial results (including expenses, earnings, liquidity, cash flow and capital expenditures), industry or market conditions, demand for and pricing of our products, acquisitions and divestitures, anticipated results of litigation, regulatory developments, effects of accounting pronouncements, and general economic conditions.

In addition, words such as “believes,” “expects,” “anticipates,” “plans,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

In addition, words such as “believes,” “expects,” “anticipates,” “estimates,” “projects,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements.

Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions.

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EXECUTIVE OVERVIEW

Three months ended December 31, 2020 compared with the three months ended December 31, 2019

Quarter ended March 31, 2021 compared with the quarter ended March 31, 2020

Net revenues of $2.37 billion increased $304 million, or 15%.

Pre-tax income of $447 million increased $208 million, or 87%, and our net income of $355 million increased $186 million, or 110%.

Our earnings per diluted share were $2.23, reflecting an 18% increase.

Our annualized return on equity (“ROE”) during the three months ended December 31, 2020 was 17.2%, compared with 16.0% for the prior-year quarter, and annualized return on tangible common equity (“ROTCE”) was 19.0% (1) , compared with 17.5% (1) for the prior-year quarter.

Client assets under administration increased to $1.02 trillion as of December 31, 2020.

Our earnings per diluted share were $2.51, reflecting a 109% increase.

Our annualized return on equity (“ROE”) during the quarter was 19.0%, compared with 9.9% in the prior-year quarter, and annualized return on tangible common equity (“ROTCE”) was 21.2% (1) , compared with 10.8% (1) for the prior-year quarter.

Client assets under administration increased to $1.09 trillion as of March 31, 2021.

The $304 million increase in net revenues compared with the prior-year quarter was primarily driven by higher asset management and related administrative fees, largely attributable to higher PCG assets in fee-based accounts, as well as strong investment banking and brokerage revenues, which also increased compared with the prior-year quarter.

Revenues in the current year also included private equity valuation gains, compared with losses in the prior-year quarter, a portion of which was attributable to noncontrolling interests and was offset in other expenses.

Revenues in the current-year quarter also included $8 million of private equity valuation gains, compared with losses in the prior-year quarter of $39 million of which $22 million were attributable to noncontrolling interests and were offset in other expenses.

Offsetting these increases was the negative impact of lower short-term interest rates on our net interest income and RJBDP fees from third-party banks.

(1) “ROTCE” is a non-GAAP financial measure.

Please see the “Reconciliation of non-GAAP financial measures to GAAP financial measures” in this MD&A for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure and for other important disclosures.

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

Compensation, commissions and benefits expense increased $149 million, or 11%, mostly resulting from the increase in asset management and related administrative fees, brokerage revenues and investment banking revenues.

Our compensation ratio, or the ratio of compensation, commissions and benefits expense to net revenues, increased slightly to 67.5%, compared with 67.2% for the prior-year quarter, primarily due to the negative impact of lower interest rates on revenues that are not directly compensable, such as net interest income and RJBDP fees from third-party banks.

Non-compensation expenses increased $24 million, or 8%, primarily due to a $16 million increase in the bank loan provision for credit losses, which was $14 million in the current quarter computed under the CECL methodology compared with a benefit of $2 million in the prior-year quarter computed under the incurred loss methodology.

Other expenses increased, primarily due to the aforementioned private equity valuation gains attributable to noncontrolling interests.

These increases were partially offset by a decline in business development expenses, primarily due to lower travel and event-related expenses as a result of the COVID-19 pandemic.

Our effective income tax rate was 21.8% for the three months ended December 31, 2020, a decrease compared with the 25.3% effective income tax rate for the prior-year quarter, primarily due to a number of discrete tax items impacting the prior-year quarter’s effective tax rate that did not recur in the current quarter.

The firm ended our fiscal first quarter of 2021 with capital ratios well in excess of regulatory requirements and substantial liquidity, with approximately $1.8 billion (1) of cash at the parent company.

In December 2020, the Board of Directors increased the quarterly dividend by 5% to $0.39 per share and authorized share repurchases of up to $750 million, which replaced the previous authorization.

Pursuant to this authorization, we repurchased approximately 108,000 shares of common stock during the three months ended December 31, 2020 for $10 million at an average price of approximately $92.80 per share.

As of December 31, 2020, we had $740 million of availability remaining under the authorization.

We expect to continue share repurchases in fiscal 2021 to offset share-based compensation dilution.

We also plan to continue to be opportunistic in deploying our capital in future quarters, through a combination of organic growth, additional share repurchases and acquisitions, such as the NWPS acquisition we announced and completed during the quarter, as well as our announced acquisition of Financo, which is anticipated to close in March or April of 2021.

While our results for our fiscal first quarter of 2021 were strong and we remain well-positioned entering our fiscal second quarter, with strong capital ratios and over $1 trillion of client assets under administration, we expect to continue to face headwinds from a full year of lower short-term interest rates due to the impact of the 150 basis point reduction by the Federal Reserve of its benchmark short-term interest rate in March 2020, as we do not anticipate short-term interest rates will recover to the beginning of the fiscal year 2020 level during fiscal 2021.

In addition, there is still a high degree of economic uncertainty resulting from the COVID-19 pandemic, as well as a new federal government administration.

As a result, volatility of both brokerage revenues and investment banking revenues could continue, which may negatively impact our ability to sustain the current quarter revenue levels in future periods.

While our results during the quarter were negatively impacted by provisions for credit losses related to our bank loan portfolio, further market deterioration could result in additional provisions in future quarters.

The timing and amount of the business development expenses we will incur in future quarters will be heavily influenced by the status of the COVID-19 pandemic and related vaccine distribution.

Compensation, commissions and benefits expense increased $226 million, or 16%, primarily resulting from the growth in revenues and pre-tax earnings compared with the prior-year quarter.

Our compensation ratio, or the ratio of compensation, commissions and benefits expense to net revenues, increased to 69.5%, compared with 68.8% for the prior-year quarter, primarily due to a change in the composition of net revenues compared with the prior-year quarter, as revenues that are directly compensable (i.e., asset management and related administrative fees, brokerage revenues and investment banking revenues) increased, while revenues that are not directly compensable (i.e., net interest income and RJBDP fees from third-party banks) declined.

Non-compensation expenses decreased $130 million, or 32%, primarily due to a $141 million decrease in the bank loan provision for credit losses, which was a benefit of $32 million in the current-year quarter computed under the CECL methodology compared with a provision of $109 million in the prior-year quarter computed under the incurred loss methodology.

Business development expenses also decreased, primarily due to lower travel and event-related expenses as a result of the COVID-19 pandemic.

Other expenses increased, primarily due to the aforementioned private equity valuation losses in the prior-year quarter that were attributable to noncontrolling interests and were offset within other expenses.

Our effective income tax rate was 20.6% for our fiscal second quarter of 2021, a decrease compared with the 29.3% effective income tax rate for the prior-year quarter, primarily due to valuation gains associated with our company-owned life insurance policies which are not subject to tax, compared with valuation losses on such policies in the prior-year quarter.

The firm ended our fiscal second quarter of 2021 with capital ratios well in excess of regulatory requirements and substantial liquidity, with approximately $1.7 billion (1) of cash at the parent company.

Pursuant to our Board of Directors’ share repurchase authorization, we repurchased 500,000 shares of common stock during our fiscal second quarter for $60 million at an average price of approximately $120 per share, leaving $680 million of availability remaining under the authorization as of March 31, 2021.

We expect to continue share repurchases during the second half of fiscal 2021, for total repurchases throughout the fiscal year of at least $200 million to offset share-based compensation dilution.

We also expect to continue to be opportunistic in deploying our capital in future quarters, through a combination of organic growth, additional share repurchases and acquisitions, such as the NWPS and Financo acquisitions announced and completed during fiscal 2021.

During the quarter, we announced a $750 million 30-year senior notes offering at 3.75%, which closed at the beginning of our fiscal third quarter of 2021.

We utilized the proceeds from the offering and cash on hand to early-redeem our existing $250 million of 5.625% senior notes due 2024 and our $500 million of 3.625% senior notes due 2026, which were outstanding as of March 31, 2021.

We expect to record a loss on the early-extinguishment of the existing notes approximating $97 million during our fiscal third quarter of 2021.

Our results for our fiscal second quarter of 2021 were strong and we remain well-positioned entering our fiscal third quarter, with strong capital ratios, over $1 trillion of client assets under administration, a 7% increase in PCG fee-based accounts as of March 31, 2021 compared with December 31, 2021, which provides a tailwind for our fiscal third quarter asset management and related administrative fees, and a strong investment banking backlog.

However, we expect to continue to face headwinds from lower short-term interest rates due to the impact of the 150 basis point reduction by the Federal Reserve of its benchmark short-term interest rate in March 2020.

In addition, there is still economic uncertainty resulting from the COVID-19 pandemic, as well as a new federal government administration.

As a result, we may experience volatility of brokerage revenues and investment banking revenues, which may negatively impact our ability to sustain the current quarter revenue levels in future periods.

Although our results during the quarter were positively impacted by a benefit for credit losses related to our bank loan portfolio, net loan growth and/or future market deterioration could result in increased provisions in future quarters.

In addition, we expect that business development expenses will increase over the next several quarters, as COVID-19 vaccination rates increase and business and event-related travel resumes.

A summary of our financial results by segment as compared to the prior-year quarter is as follows:

• PCG segment net revenues of $1.47 billion increased 4%, while pre-tax income of $140 million decreased 8%.

The $53 million increase in net revenues was primarily attributable to an increase in asset management and related administrative fees due to higher assets in fee-based accounts at the beginning of the current-year quarter, partially offset by decreases in RJBDP fees from third-party banks and net interest income due to lower short-term interest rates.

Non-interest expenses increased $66 million, or 5%, primarily resulting from an increase in compensation expenses largely due to the growth in compensable net revenues, primarily asset management and related administrative fees, partially offset by a decrease in business development expenses.

• Capital Markets net revenues of $452 million increased 69% and pre-tax income of $129 million increased 345%.

The $184 million increase in net revenues was primarily due to an increase in investment banking revenues, particularly merger & acquisition revenues, as well as continued strength in fixed income brokerage revenues.

Non-interest expenses increased $84 million, or 35%, due to higher compensation expenses, primarily attributable to the increase in revenues.

• PCG segment net revenues of $1.65 billion increased 10% and pre-tax income of $192 million increased 13%.

The $152 million increase in net revenues was primarily attributable to an increase in asset management fees due to higher assets in fee-based accounts at the beginning of the current-year quarter and higher brokerage revenues, partially offset by decreases in RJBDP fees from third-party banks and net interest income due to lower short-term interest rates.

Non-interest expenses increased $130 million, or 10%, primarily resulting from an increase in compensation expenses largely due to the growth in compensable net revenues.

(1) For additional information, please see the “Liquidity and capital resources - Sources of liquidity” section in this MD&A.

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Management’s Discussion and Analysis

• Capital Markets net revenues of $433 million increased 49% and pre-tax income of $105 million increased 275%.

The $143 million increase in net revenues was primarily due to an increase in investment banking revenues from both mergers & acquisition activity and underwriting activity, as well as growth in fixed income brokerage revenues.

Non-interest expenses increased $66 million, or 25%, due to higher compensation expenses, primarily attributable to the increase in revenues, partially offset by a decrease in business development expenses.

• Asset Management segment net revenues of $209 million increased 14% and pre-tax income of $87 million increased 19%.

The increase in net revenues was driven by higher assets in fee-based programs offered to PCG clients and market appreciation, partially offset by net outflows at Carillon Tower Advisers.

• RJ Bank net revenues of $167 million decreased 23% and pre-tax income of $71 million decreased 47%.

The $25 million increase in net revenues was primarily driven by net inflows into fee-based programs offered to PCG clients and by equity market appreciation.

Non-interest expenses increased $11 million, or 10%, primarily due to higher compensation expenses and higher investment sub-advisory fees.

• RJ Bank net revenues of $160 million decreased 24%, while pre-tax income of $111 million increased 693%.

The $50 million decrease in net revenues reflected the negative impact of lower short-term interest rates, which more than offset the growth in interest-earning assets.

Non-interest expenses increased $15 million, or 19%, primarily due to a $16 million increase in the bank loan provision for credit losses.

• Our Other segment reflected a pre-tax loss that was $7 million less than the loss in the prior-year quarter, primarily due to the aforementioned private equity valuation gains, partially offset by lower interest income on corporate cash balances due to lower short-term interest rates, and increased interest expense due to the issuance of $500 million of senior notes in March 2020.

Non-interest expenses decreased $147 million, or 75%, primarily due to a $141 million decrease in the bank loan provision for credit losses.

• Our Other segment reflected a pre-tax loss that was $2 million larger than the loss in the prior-year quarter, due to lower interest income on corporate cash balances resulting from lower short-term interest rates, and increased interest expense due to the issuance of $500 million of senior notes in March 2020, partially offset by the impact of private equity gains in the current-quarter period compared with losses in the prior-year quarter.

Six months ended March 31, 2021 compared with the six months ended March 31, 2020

Net revenues of $4.59 billion increased $517 million, or 13%.

Pre-tax income of $846 million increased $248 million, or 41%, and our net income of $667 million increased $230 million, or 53%.

Our earnings per diluted share were $4.74, reflecting a 53% increase.

Our annualized ROE for the six months ended March 31, 2021 was 18.1%, compared with 13.0% for the prior-year period, and annualized ROTCE was 20.1% (1) , compared with 14.2% (1) for the prior-year period.

The $517 million increase in net revenues compared with the prior-year period was primarily driven by higher asset management and related administrative fees, largely attributable to higher PCG assets in fee-based accounts, as well as strong investment banking and brokerage revenues, which also increased compared with the prior-year period.

Revenues in the current year also included private equity valuation gains of $32 million ($10 million attributable to noncontrolling interests), compared with $41 million of losses in the prior-year period ($23 million attributable to noncontrolling interests).

Offsetting these increases was the negative impact of lower short-term interest rates on our net interest income and RJBDP fees from third-party banks.

Compensation, commissions and benefits expense increased $375 million, or 14%, primarily resulting from the growth in revenues and pre-tax earnings compared with the prior-year period.

Our compensation ratio, or the ratio of compensation, commissions, and benefits expense to net revenues, increased to 68.5%, compared with 68.0% for the prior-year period, primarily due to a change in the composition of net revenues compared with the prior-year period, as revenues that are directly compensable (i.e.

asset management and related administrative fees, brokerage revenues and investment banking revenues) increased, while revenues that are not directly compensable (i.e., net interest income and RJBDP fees from third-party banks) declined.

Non-compensation expenses decreased $106 million, or 15%, primarily due to a $125 million decrease in the bank loan provision for credit losses, which was a benefit of $18 million in the current year computed under the CECL methodology compared with a provision of $107 million in the prior-year period computed under the incurred loss methodology.

Business development expenses also declined, primarily due to lower travel and event-related expenses as a result of the COVID-19 pandemic.

Offsetting these decreases, other expenses increased, primarily due to the change in private equity valuations attributable to noncontrolling interests compared with the prior-year period.

Our effective income tax rate was 21.2% for the six months ended March 31, 2021, a decrease from 26.9% for the prior-year period, primarily due to valuation gains associated with our company-owned life insurance policies which are not subject to tax, compared with valuation losses on such policies in the prior-year period.

(1) “ROTCE” is a non-GAAP financial measure.

RAYMOND JAMES FINANCIAL, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Pursuant to the Board of Directors’ repurchase authorization, we repurchased 607,750 shares of common stock during the six months ended March 31, 2021 for approximately $70 million at an average price of approximately $115 per share.

A summary of our financial results by segment as compared to the prior-year period is as follows:

• PCG segment net revenues of $3.11 billion increased 7% and pre-tax income of $332 million increased 3%.

The $205 million increase in net revenues was primarily attributable to an increase in asset management fees due to higher assets in fee-based accounts at the beginning of each quarterly billing period within the current-year period and higher brokerage revenues, partially offset by decreases in RJBDP fees from third-party banks and net interest income due to lower short-term interest rates.

Non-interest expenses increased $196 million, or 8%, primarily resulting from an increase in compensation expenses largely due to the growth in compensable net revenues.

• Capital Markets net revenues of $885 million increased 59% and pre-tax income of $234 million increased 311%.

The $327 million increase in net revenues was primarily due to an increase in investment banking revenues, particularly merger & acquisition revenues, as well as growth in fixed income brokerage revenues.

Non-interest expenses increased $150 million, or 30%, due to higher compensation expenses, primarily attributable to the increase in net revenues, partially offset by a decrease in business development expenses.

• Asset Management segment net revenues of $404 million increased 10% and pre-tax income of $170 million increased 16%.

The increase in net revenues was primarily driven by net inflows into fee-based programs offered to PCG clients and by equity market appreciation.

Non-interest expenses increased $12 million, or 5%, due to higher investment sub-advisory fees and an increase in compensation expenses.

• RJ Bank net revenues of $327 million decreased 23%, while pre-tax income of $182 million increased 22%.

The $99 million decrease in net revenues reflected the negative impact of lower short-term interest rates, which more than offset the growth in interest-earning assets.

Non-interest expenses decreased $132 million, or 48%, primarily due to a $125 million decrease in the bank loan provision for credit losses.

• Our Other segment reflected a pre-tax loss that was $5 million less than the loss in the prior-year period, primarily due to the aforementioned private equity valuation gains compared with losses in the prior-year period, partially offset by lower interest income on corporate cash balances due to lower short-term interest rates, and increased interest expense due to the issuance of $500 million of senior notes in March 2020.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES

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The following table provides a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure for the periods indicated.

Three months ended December 31,

Three months ended March 31, Six months ended March 31,

$ in millions 2021 2020 2021 2020

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Return on tangible common equity 21.2 % 10.8 % 20.1 % 14.2 %

Average equity is computed by adding the total equity attributable to RJF as of the date indicated to the prior quarter-end total, and dividing by two, or in the case of average tangible common equity, computed by adding tangible common equity as of the date indicated to the prior quarter-end total, and dividing by two.

ROE is computed by dividing annualized net income for the period indicated by average equity for each respective period or, in the case of ROTCE, computed by dividing annualized net income by average tangible common equity for each respective period.

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

Average equity for the quarter-to-date period is computed by adding the total equity attributable to RJF as of the date indicated to the prior quarter-end total, and dividing by two, or in the case of average tangible common equity, computed by adding tangible common equity as of the date indicated to the prior quarter-end total, and dividing by two.

Average equity for the year-to-date period is computed by adding the total equity attributable to RJF as of each quarter-end date during the indicated year-to-date period to the beginning of the year total, and dividing by three, or in the case of average tangible common equity, computed by adding tangible common equity as of each quarter-end date during the indicated year-to-date period to the beginning of the year total, and dividing by three.

We currently operate through five segments.

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The following table presents our consolidated and segment net revenues and pre-tax income/(loss) for the periods indicated.

Three months ended December 31,

$ in millions 2020 2019 % change

Three months ended March 31, Six months ended March 31,

$ in millions 2021 2020 % change 2021 2020 % change

Total company

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Pre-tax income $ 111 $ 14 693 % $ 182 $ 149 22 %

Net revenues $ 4 $ (8) NM

Net revenues $ (12) $ (44) 73 % $ (8) $ (52) 85 %

Pre-tax loss $ (48) $ (46) (4) % $ (72) $ (77) 6 %

Intersegment eliminations

Net revenues $ (63) $ (65) NM

Net revenues $ (65) $ (67) NM $ (128) $ (132) NM

RAYMOND JAMES FINANCIAL, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

NET INTEREST ANALYSIS

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Target federal funds rate

Three months ended Low High End of period

December 31, 2020 0.00% 0.25% 0% - 0.25%

December 31, 2019 1.50% 2.00% 1.50% - 1.75%

Low High End of period

Three months ended

March 31, 2021 0.00% 0.25% 0% - 0.25%

March 31, 2020 0.00% 1.75% 0% - 0.25%

Six months ended

March 31, 2021 0.00% 0.25% 0% - 0.25%

March 31, 2020 0.00% 2.00% 0% - 0.25%

In response to macroeconomic concerns resulting from the COVID-19 pandemic, the Federal Reserve decreased its benchmark short-term interest rate in March 2020 to a range of 0-0.25%, a reduction of 150 basis points.

These decreases, in addition to the interest rate cuts implemented in calendar 2019 (225 basis points in total), negatively impacted our net interest income, as well as the fees we earn from third-party banks on client cash balances swept to such banks as part of the RJBDP, which are also sensitive to changes in interest rates.

The negative impact of the decline in short-term interest rates outweighed the growth in interest-earning assets and RJBDP balances swept to third-party banks compared with the prior-year quarter, and we expect a continuation of this trend for the remainder of fiscal 2021.

Given the relationship between our interest-sensitive assets and liabilities (primarily held in our PCG, RJ Bank and Other segments) and the nature of fees we earn from third-party banks on the RJBDP, decreases in short-term interest rates generally result in an overall decrease in our net earnings, although the magnitude of the impact to our net interest margin depends on the yields on interest-earning assets relative to the cost of interest-bearing liabilities, including deposit rates paid to clients on their

RAYMOND JAMES FINANCIAL, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

cash balances.

These decreases, in addition to other interest rate cuts implemented during calendar 2019 (225 basis points in total), have negatively impacted our net interest income, as well as the fees we earn from third-party banks on client cash balances swept to such banks as part of the RJBDP which are also sensitive to changes in interest rates.

The negative impact of the decline in short-term interest rates has outweighed the growth in interest-earning assets and RJBDP balances swept to third-party banks compared with the prior-year periods.

We expect the current near-zero interest rate environment to continue for the remainder of fiscal 2021.

Conversely, any increases in short-term interest rates and/or decreases in the deposit rates paid to clients generally have a positive impact on our earnings.

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The following tables present our consolidated average interest-earning asset and interest-bearing liability balances, interest income and expense and the related rates.

Three months ended December 31, 2020 compared with the three months ended December 31, 2019

Three months ended December 31,

RAYMOND JAMES FINANCIAL, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Quarter ended March 31, 2021 compared with the quarter ended March 31, 2020

Three months ended March 31,

$ in millions Average

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Assets segregated pursuant to regulations

10,087 5 0.18 % 2,820 11 1.64 %

Available-for-sale securities

7,997 21 1.08 % 3,443 19 2.28 %

Brokerage client receivables 2,222 19 3.36 % 2,366 21 3.57 %

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Loans held for investment:

7,540 48 2.56 % 8,017 81 3.99 %

2,665 17 2.54 % 2,620 26 3.93 %

REIT loans 1,309 8 2.50 % 1,322 12 3.69 %

Tax-exempt loans

1,227 8 3.35 % 1,212 8 3.36 %

Residential mortgage loans

5,005 34 2.72 % 4,847 38 3.13 %

SBL and other

4,638 26 2.23 % 3,469 31 3.60 %

Loans held for sale

177 1 1.89 % 142 2 3.85 %

Total bank loans, net

22,561 142 2.56 % 21,629 198 3.67 %

All other interest-earning assets 2,201 11 1.87 % 2,487 20 2.96 %

Total interest-earning assets $ 50,352 $ 200 1.61 % $ 37,346 $ 285 3.06 %

Interest-bearing liabilities:

Bank deposits:

Savings, money market and NOW accounts

$ 27,662 $ 2 0.02 % $ 22,877 $ 6 0.12 %

Certificates of deposit

898 4 1.88 % 1,094 6 2.03 %

Total bank deposits 28,560 6 0.08 % 23,971 12 0.24 %

Brokerage client payables 11,485 1 0.02 % 3,827 3 0.35 %

Other borrowings 862 5 2.18 % 895 5 2.23 %

Senior notes payable 2,045 24 4.74 % 1,556 19 4.71 %

All other interest-bearing liabilities 600 1 0.88 % 911 4 1.82 %

Total interest-bearing liabilities

$ 43,552 $ 37 0.34 % $ 31,160 $ 43 0.56 %

Net interest income

Firmwide net interest margin (net yield on interest-earning assets) 1.32 % 2.60 %

RJ Bank net interest margin 1.94 % 3.02 %

Nonaccrual loans are included in the average loan balances in the preceding table.

Any payments received for corporate nonaccrual loans are applied entirely to principal.

Interest income on residential mortgage nonaccrual loans is recognized on a cash basis.

The yield on tax-exempt loans in the preceding table is presented on a taxable-equivalent basis utilizing the applicable federal statutory rates for each of the three months ended March 31, 2021 and 2020.

RAYMOND JAMES FINANCIAL, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates.

The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities.

The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average yield/cost.

Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous period’s volume.

Changes attributable to both volume and rate have been allocated proportionately.

Three months ended March 31,

2021 compared to 2020

Increase/(decrease) due to

$ in millions Volume Rate Total

Interest income:

Interest-earning assets:

Cash and cash equivalents $ 2 $ (16) $ (14)

Assets segregated pursuant to regulations 30 (36) (6)

Available-for-sale securities 26 (24) 2

Brokerage client receivables (2) — (2)

Bank loans, net of unearned income and deferred expenses:

Loans held for investment:

C&I loans (5) (28) (33)

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Total interest-earning assets 58 (143) (85)

Interest expense:

Interest-bearing liabilities:

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Savings, money market and NOW accounts 2 (6) (4)

Certificates of deposit (1) (1) (2)

Total bank deposits 1 (7) (6)

Brokerage client payables 7 (9) (2)

Other borrowings — — —

Senior notes payable 5 — 5

All other interest-bearing liabilities (1) (2) (3)

Total interest-bearing liabilities 12 (18) (6)

Change in net interest income $ 46 $ (125) $ (79)

RAYMOND JAMES FINANCIAL, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Six months ended March 31, 2021 compared with the six months ended March 31, 2020

Six months ended March 31,

$ in millions Average

balance Interest Annualized

Interest-earning assets:

Cash and cash equivalents $ 5,500 $ 6 0.23 % $ 4,227 $ 33 1.55 %

Assets segregated pursuant to regulations 7,954 8 0.19 % 2,583 22 1.75 %

Available-for-sale securities 7,735 44 1.14 % 3,265 37 2.29 %

Brokerage client receivables 2,152 37 3.42 % 2,402 48 4.04 %

Bank loans, net of unearned income and deferred expenses:

Loans held for investment:

C&I loans 7,537 99 2.60 % 8,039 167 4.07 %

CRE loans 2,623 34 2.56 % 2,572 53 4.04 %

REIT loans 1,272 16 2.47 % 1,330 25 3.77 %

Tax-exempt loans 1,232 16 3.35 % 1,218 16 3.36 %

Residential mortgage loans 5,003 69 2.75 % 4,743 75 3.16 %

SBL and other 4,460 51 2.26 % 3,403 65 3.78 %

Loans held for sale 159 2 2.36 % 151 3 3.97 %

Total bank loans, net 22,286 287 2.59 % 21,456 404 3.76 %

All other interest-earning assets 2,247 21 1.93 % 2,511 38 2.89 %

Total interest-earning assets $ 47,874 $ 403 1.69 % $ 36,444 $ 582 3.19 %

Interest-bearing liabilities:

Bank deposits:

Savings, money market and NOW accounts

$ 27,144 $ 3 0.02 % $ 22,260 $ 18 0.16 %

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925 9 1.90 % 937 10 2.10 %

Total bank deposits 28,069 12 0.08 % 23,197 28 0.24 %

Brokerage client payables

5 unchanged sentences

Net interest income $ 328 $ 488

Net interest margin (net yield on interest-earning assets) 1.45 % 2.78 %

Nonaccrual loans are included in the average loan balances in the preceding tables.

Firmwide net interest margin (net yield on interest-earning assets) 1.38 % 2.69 %

RJ Bank net interest margin 1.98 % 3.12 %

Nonaccrual loans are included in the average loan balances in the preceding table.

Any payments received for corporate nonaccrual loans are applied entirely to principal.

Interest income on residential mortgage nonaccrual loans is recognized on a cash basis.

The yield on tax-exempt loans in the preceding tables is presented on a taxable-equivalent basis utilizing the applicable federal statutory rates for each of the three months ended December 31, 2020 and 2019.

The yield on tax-exempt loans in the preceding table is presented on a taxable-equivalent basis utilizing the applicable federal statutory rates for each of the six months ended March 31, 2021 and 2020.

RAYMOND JAMES FINANCIAL, INC.

6 unchanged sentences

Changes attributable to both volume and rate have been allocated proportionately.

Three months ended December 31,

Six months ended March 31,

2021 compared to 2020

15 unchanged sentences

SBL and other 20 (34) (14)

Loans held for sale — (1) (1)

Total bank loans, net 14 (131) (117)

6 unchanged sentences

Certificates of deposit — (1) (1)

Total bank deposits 4 (20) (16)

Brokerage client payables 13 (17) (4)

Other borrowings — — —

Senior notes payable 11 — 11

8 unchanged sentences

Operating results

Three months ended December 31,

$ in millions 2020 2019 % change

Three months ended March 31, Six months ended March 31,

$ in millions 2021 2020 % change 2021 2020 % change

Asset management and related administrative fees

2 unchanged sentences

Mutual and other fund products

183 163 12 % 331 307 8 %

Insurance and annuity products

109 99 10 % 207 200 4 %

Equities, ETFs and fixed income products

121 122 (1) % 228 224 2 %

Total brokerage revenues 413 384 8 % 766 731 5 %

1 unchanged sentence

Mutual fund and annuity service fees

99 88 13 % 193 178 8 %

Third-party banks 19 51 (63) % 40 109 (63) %

1 unchanged sentence

Client account and other fees

42 35 20 % 74 64 16 %

Total account and service fees 204 222 (8) % 394 446 (12) %

Investment banking

16 11 45 % 22 22 —

Interest income

30 45 (33) % 60 94 (36) %

8 7 14 % 13 16 (19) %

Total revenues 1,650 1,502 10 % 3,119 2,924 7 %

4 unchanged sentences

Financial advisor compensation and benefits

1,040 915 14 % 1,971 1,772 11 %

Administrative compensation and benefits 260 245 6 % 509 492 3 %

3 unchanged sentences

Communications and information processing

69 62 11 % 131 121 8 %

Occupancy and equipment

45 44 2 % 88 88 —

Business development

15 24 (38) % 31 51 (39) %

Professional fees

10 9 11 % 23 17 35 %

16 26 (38) % 29 45 (36) %

Total non-compensation expenses

7 unchanged sentences

PCG client asset balances

$ in billions December 31,

$ in billions March 31,

2021 December 31,

2020 September 30,

2020 March 31,

2020 December 31,

18 unchanged sentences

As fees for substantially all of such accounts are billed based on balances as of the beginning of the quarter, revenues from fee-based accounts may not be immediately affected by changes in asset values, but rather the impacts are seen in the following quarter.

PCG assets under administration increased during the three months ended December 31, 2020 primarily due to equity market appreciation, as well as net inflows of client assets.

PCG assets under administration increased during the three months ended March 31, 2021 primarily due to equity market appreciation, as well as net inflows of client assets.

In addition, PCG assets in fee-based accounts continued to increase as a percentage of overall PCG assets under administration due to clients’ increased preference for fee-based alternatives versus transaction-based accounts.

1 unchanged sentence

Financial advisors

2020 September 30,

2021 December 31,

2020 September 30,

2020 March 31,

Employees 3,375 3,387 3,404 3,376

1 unchanged sentence

Total advisors 8,327 8,233 8,239 8,148

The number of financial advisors decreased slightly from September 30, 2020 as new recruits and trainees that were moved into production were outpaced by the number of financial advisors who left the firm, including planned retirements which are generally higher during the December quarter than in other quarters.

In addition, a number of advisors who were previously affiliated with the firm as independent contractors or employees, transferred their affiliation to our RIA & Custody Services (“RCS”) Division.

Advisors in RCS are not included in our financial advisor count, although their assets are still included in client assets under administration.

While the recruiting pipeline remains active, the recruiting environment has become increasingly competitive, particularly in the employee advisor affiliation option.

The number of financial advisors increased compared with the prior quarter and September 30, 2020 due to recruiting of financial advisors and new trainees that were moved into production roles, partially offset by the impact of advisors who left the firm, including planned retirements, where assets are generally retained at the firm.

The growth in the number of financial advisors has been impacted by a smaller training class in the current year, as well as the transfer of advisors who were previously affiliated with the firm as independent contractors or employees to our RIA & Custody Services (“RCS”) division.

Advisors in RCS are not included in the financial advisor count, although their assets are still included in client assets under administration.

While the recruiting pipeline remains active across our affiliation options, the recruiting environment has become increasingly competitive, particularly in the employee channel, which has caused us to increase the value offered to prospects in our recruiting packages for financial advisors.

RAYMOND JAMES FINANCIAL, INC.

2 unchanged sentences

Clients’ domestic cash sweep balances

$ in millions December 31,

2020 September 30,

$ in millions March 31,

2021 December 31,

2020 September 30,

2020 March 31,

RJ Bank $ 28,174 $ 26,697 $ 25,599 $ 28,711

4 unchanged sentences

$ 62,801 $ 61,608 $ 55,596 $ 52,872

Three months ended December 31,

Three months ended March 31, Six months ended March 31,

2021 2020 2021 2020

Average yield on RJBDP - third-party banks

6 unchanged sentences

The fees from RJ Bank are eliminated in consolidation.

PCG segment results are impacted by changes in the allocation of client cash balances in RJBDP between RJ Bank and third-party banks, and by changes in the allocation of cash balances between RJBDP and CIP.

Client cash balances remained elevated as of December 31, 2020 as a result of market uncertainty caused primarily by the COVID-19 pandemic and uncertainty of the nature and timing of policy changes by the new federal government administration.

Three months ended December 31, 2020 compared with the three months ended December 31, 2019

Net revenues of $1.47 billion increased $53 million, or 4%, while pre-tax income of $140 million decreased $13 million, or 8%, largely due to the impact of lower short-term interest rates.

PCG segment results are impacted by changes in the allocation of client cash balances in RJBDP between RJ Bank and third-party banks.

PCG segment results are also impacted by changes in the allocation of cash balances between RJBDP and CIP, as the net yield to the firm on cash balances in CIP (i.e., the spread between amounts earned on assets segregated for regulatory purposes and the interest paid to clients on CIP balances) is lower than the yield to the firm on RJBDP balances, on average.

Client cash balances remained elevated as of March 31, 2021 compared to prior year balances as a result of a number of factors, including the continuing economic uncertainty caused by the COVID-19 pandemic, as well as uncertainty related to the nature and timing of policy changes that may be put forth by the new federal government administration.

The average yield on RJBDP - third party banks decreased compared with the prior-year periods due to the significant decline in short-term interest rates.

We expect the average yield on RJBDP balances at third-party banks to remain approximately 0.30% for the remainder of our 2021 fiscal year;

however, this projected yield could decline if demand for deposits from third-party banks does not improve from current levels.

Quarter ended March 31, 2021 compared with the quarter ended March 31, 2020

Net revenues of $1.65 billion increased $152 million, or 10%, and pre-tax income of $192 million increased $22 million, or 13%.

Asset management and related administrative fees increased $146 million, or 18%, primarily due to higher assets in fee-based accounts at the beginning of the quarter.

As assets in these accounts are billed primarily on balances as of the beginning of the quarter, the 12% increase in fee-based assets during the quarter will positively impact asset management fees in our fiscal second quarter of 2021.

Brokerage revenues increased $6 million, or 2%.

Account and service fees decreased $34 million, or 15%, primarily due to a decline in RJBDP fees from third-party banks as a result of lower short-term interest rates, which more than offset the impact of the significant increase in client cash balances swept to such banks.

Net interest income decreased $13 million, or 32%, primarily driven by a decline in short-term interest rates, reducing the interest income earned on assets segregated pursuant to regulations and client margin loans.

Partially offsetting the decrease in interest income, interest expense also decreased, primarily due to the impact of lower deposit rates paid on client cash balances.

As assets in these accounts are billed primarily on balances as of the beginning of the quarter, the 7% increase in fee-based assets as of March 31, 2021 compared to December 31, 2020, should positively impact asset management fees in our fiscal third quarter of 2021.

Brokerage revenues increased $29 million, or 8%, primarily due to higher trailing revenues from mutual and other fund products and annuity products, as well as higher transactional revenues.

Account and service fees decreased $18 million, or 8%, primarily due to a decline in RJBDP fees from third-party banks as a result of lower short-term interest rates.

Partially offsetting this decrease was an increase in mutual fund service fees, as well as incremental client account and other fees resulting from our acquisition of NWPS at the end of our fiscal first quarter of 2021.

Net interest income decreased $11 million, or 29%, driven by a decline in interest income due to lower short-term interest rates applicable to both cash and segregated asset balances, which more than offset the impact of significantly higher segregated asset balances.

As reflected in the table above, our CIP balances increased significantly compared with the prior-year quarter resulting in the increase in segregated assets, and a significant portion of the increase was related to lower-yielding segregated

RAYMOND JAMES FINANCIAL, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

short-term U.S.

Treasury securities and, where capacity allowed us, cash deposit accounts at various financial institutions to meet our reserve requirements.

Partially offsetting the impact of a decrease in interest income, interest expense also decreased despite the significant increase in client cash balances in our CIP, due to the impact of lower deposit rates paid on these balances.

Compensation-related expenses increased $140 million, or 12%, primarily due to higher compensable net revenues.

Compensation-related expenses increased more than net revenues as RJBDP fees from third-party banks and net interest income, which have no associated direct compensation expense, significantly declined.

Non-compensation expenses decreased $10 million, or 6%, primarily due to decreases in travel and event-related expenses as a result of the COVID-19 pandemic.

Compensation-related expenses increased at a higher rate than net revenues as RJBDP fees from third-party banks and net interest income, which have no associated direct compensation expense, significantly declined.

Non-compensation expenses decreased $10 million, or 6%, primarily due to lower provisions for legal matters, as well as lower travel and event-related expenses as a result of the COVID-19 pandemic.

Partially offsetting these decreases was an increase in technology-related expenses reflecting ongoing upgrades to our technology platforms.

Six months ended March 31, 2021 compared with the six months ended March 31, 2020

Net revenues of $3.11 billion increased $205 million, or 7%, and pre-tax income of $332 million increased $9 million, or 3%.

Asset management and related administrative fees increased $249 million, or 15%, primarily due to higher assets in fee-based accounts at the beginning of each of the current-year quarterly billing periods compared with the prior-year quarterly billing periods.

Brokerage revenues increased $35 million, or 5%, primarily due to higher trailing revenues from mutual and other fund products and annuity products, as well as higher transactional revenues due to increased client activity.

Account and service fees decreased $52 million, or 12%, primarily due to a decline in RJBDP fees from third-party banks as a result of lower short-term interest rates.

Net interest income decreased $24 million, or 30%, driven by a decline in interest income due to lower short-term interest rates applicable to both cash and segregated asset balances, which more than offset the impact of significantly higher segregated asset balances.

As reflected in the table above, our CIP balances increased significantly compared with the prior-year period resulting in the increase in segregated assets, and a significant portion of the increase was related to segregated short-term U.S.

Treasury securities and, where capacity allowed us, cash deposit accounts at various financial institutions.

Compensation-related expenses increased $216 million, or 10%, primarily due to higher compensable net revenues.

Non-compensation expenses decreased $20 million, or 6%, primarily due to decreases in travel and event-related expenses as a result of the COVID-19 pandemic and lower provisions for legal matters, partially offset by higher technology-related expenses, reflecting ongoing upgrades to our technology platforms.

RAYMOND JAMES FINANCIAL, INC.

4 unchanged sentences

Operating results

Three months ended December 31,

$ in millions 2020 2019 % change

Three months ended March 31, Six months ended March 31,

$ in millions 2021 2020 % change 2021 2020 % change

Brokerage revenues:

2 unchanged sentences

Total brokerage revenues

176 130 35 % 349 245 42 %

Investment banking:

Merger & acquisition and advisory

122 72 69 % 271 132 105 %

Equity underwriting

67 43 56 % 127 82 55 %

Debt underwriting

37 22 68 % 83 53 57 %

Total investment banking 226 137 65 % 481 267 80 %

Interest income

5 10 (50) % 8 18 (56) %

Tax credit fund revenues

24 12 100 % 40 30 33 %

4 7 (43) % 11 10 10 %

Total revenues 435 296 47 % 889 570 56 %

4 unchanged sentences

Compensation, commissions and benefits

259 184 41 % 511 350 46 %

Non-compensation expenses:

Communications and information processing

20 20 — 39 39 —

Occupancy and equipment

9 9 — 18 18 —

Business development

6 15 (60) % 15 31 (52) %

Professional fees

13 13 — 26 23 13 %

21 21 — 42 40 5 %

Total non-compensation expenses

69 78 (12) % 140 151 (7) %

Total non-interest expenses 328 262 25 % 651 501 30 %

Pre-tax income $ 105 $ 28 275 % $ 234 $ 57 311 %

Three months ended December 31, 2020 compared with the three months ended December 31, 2019

Quarter ended March 31, 2021 compared with the quarter ended March 31, 2020

Net revenues of $433 million increased $143 million, or 49%, and pre-tax income of $105 million increased $77 million, or 275%.

Brokerage revenues increased $58 million, or 50%, due to a significant increase in fixed income brokerage revenues and, to a lesser extent, equity brokerage revenues.

Brokerage revenues increased $46 million, or 35%, primarily due to a significant increase in fixed income brokerage revenues.

The increase in fixed income brokerage revenues was primarily due to continued high levels of client activity during the current quarter, particularly with depository clients.

Based on the current level of interest rates and economic conditions, we expect fixed income brokerage revenues to remain strong in the near-term.

Investment banking revenues increased $125 million, or 96%, due to a significant increase in merger & acquisition revenues, as well as continued strength in equity and debt underwriting.

The significant increase in merger & acquisition revenues reflected an increase in the number of transactions, as well as larger individual transactions.

Equity underwriting revenues also increased significantly, primarily due to an increase in market activity.

The increase in debt underwriting primarily reflected higher revenues from asset-backed and corporate underwritings.

While our investment banking pipelines are strong, future activity may be negatively impacted by economic uncertainty or factors resulting from the ongoing COVID-19 pandemic.

Investment banking revenues increased $89 million, or 65%, due to a significant increase in merger & acquisition revenues, as well as continued strength in equity and debt underwriting, which also increased significantly compared with the prior-year quarter.

The increase in merger & acquisition revenues reflected a higher number of transactions, as well as larger individual transactions.

The increase in equity underwriting revenues was primarily due to higher levels of market activity and the increase in debt underwriting primarily reflected higher revenues from asset-backed and corporate underwritings.

In addition to the strong results during the quarter, our investment banking pipelines are also strong and reflect the investments we have made in the business over the past several years, including the acquisition of Financo which closed at the end of our fiscal second

RAYMOND JAMES FINANCIAL, INC.

1 unchanged sentence

Management’s Discussion and Analysis

Compensation-related expenses increased $86 million, or 52%, primarily due to the increase in revenues.

Non-compensation expenses decreased $2 million, or 3%, primarily due to lower travel-related expenses as a result of the COVID-19 pandemic, partially offset by higher investment banking transaction expenses due to increased activity.

During the quarter, we completed the sale of our interests in certain entities that operated predominantly in France, which did not have a significant impact on our fiscal first quarter of 2021 results as an estimate of the loss on the sale was included in our fiscal fourth quarter of 2020 results.

quarter of 2021.

However, future activity may be negatively impacted by economic uncertainty or factors resulting from the ongoing COVID-19 pandemic.

Compensation-related expenses increased $75 million, or 41%, primarily due to the increase in compensable net revenues.

Non-compensation expenses decreased $9 million, or 12%, primarily due to lower travel and event-related expenses as a result of the COVID-19 pandemic.

Six months ended March 31, 2021 compared with the six months ended March 31, 2020

Net revenues of $885 million increased $327 million, or 59%, and pre-tax income of $234 million increased $177 million, or 311%.

Brokerage revenues increased $104 million, or 42%, due to a significant increase in fixed income brokerage revenues due to the aforementioned increase in client activity levels during the current-year period, particularly with depository clients.

Investment banking revenues increased $214 million, or 80%, due to a significant increase in merger & acquisition revenues, as well as an increase in underwriting revenues.

The significant increase in merger & acquisition revenues reflected an increase in the number of transactions, as well as larger individual transactions.

Equity underwriting revenues also increased significantly, primarily due to an increase in market activity.

An increase in debt underwriting primarily reflected higher revenues from asset-backed and corporate underwritings.

Compensation-related expenses increased $161 million, or 46%, primarily due to the increase in compensable net revenues.

Non-compensation expenses decreased $11 million, or 7%, primarily due to lower travel and event-related expenses as a result of the COVID-19 pandemic.

RESULTS OF OPERATIONS – ASSET MANAGEMENT

1 unchanged sentence

Operating results

Three months ended December 31,

$ in millions 2020 2019 % change

Three months ended March 31, Six months ended March 31,

$ in millions 2021 2020 % change 2021 2020 % change

Asset management and related administrative fees:

4 unchanged sentences

Account and service fees

5 4 25 % 9 9 —

All other 3 3 — 6 6 —

2 unchanged sentences

Compensation, commissions and benefits

50 45 11 % 95 90 6 %

Non-compensation expenses:

Communications and information processing

12 12 — 23 23 —

Investment sub-advisory fees

30 26 15 % 58 51 14 %

30 28 7 % 58 58 —

Total non-compensation expenses 72 66 9 % 139 132 5 %

1 unchanged sentence

Pre-tax income $ 87 $ 73 19 % $ 170 $ 146 16 %

RAYMOND JAMES FINANCIAL, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Selected key metrics

3 unchanged sentences

Revenues related to fee-based AUA in our PCG segment are shared by the PCG and Asset Management segments, the amount of which depends on whether clients are invested in assets that are in managed programs overseen by our Asset Management segment and the administrative services provided (see our “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for more information).

Our AUM in AMS are impacted by market fluctuations and net inflows or outflows of assets, including transfers between fee-based accounts and transaction-based accounts within our PCG segment.

Our AUM in AMS are impacted by market fluctuations and net inflows or outflows of assets, as well as transfers between fee-based accounts and transaction-based accounts within our PCG segment.

Revenues earned by Carillon Tower Advisers for retail accounts managed on behalf of third-party institutions, institutional accounts and our proprietary mutual funds are recorded entirely in the Asset Management segment.

2 unchanged sentences

Approximately 65% of these fees are based on balances as of the beginning of the quarter, approximately 10% are based on balances as of the end of the quarter, and approximately 25% are based on average daily balances throughout the quarter.

RAYMOND JAMES FINANCIAL, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Financial assets under management

$ in billions December 31,

$ in billions March 31,

2021 December 31,

2020 September 30,

2020 March 31,

2020 December 31,

8 unchanged sentences

Activity (including activity in assets managed for affiliated entities)

Three months ended December 31,

Three months ended March 31, Six months ended March 31,

$ in billions 2021 2020 2021 2020

Financial assets under management at beginning of period $ 178.8 $ 159.3 $ 161.7 $ 150.3

Carillon Tower Advisers - net outflows (0.3) (0.4)

Carillon Tower Advisers - net inflows/(outflows) 1.4 (2.0) 1.1 (2.4)

AMS - net inflows 3.6 1.2 5.3 3.3

Net market appreciation in asset values 15.7 7.3

Net market appreciation/(depreciation) in asset values 4.0 (22.8) 19.7 (15.5)

Financial assets under management at end of period $ 187.8 $ 135.7 $ 187.8 $ 135.7

1 unchanged sentence

Assets managed by Carillon Tower Advisers include assets managed by its subsidiaries and affiliates:

Eagle Asset Management, the Scout Group, ClariVest Asset Management and Cougar Global Investments.

Eagle Asset Management, Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management and Cougar Global Investments.

The following table presents Carillon Tower Advisers’ AUM by objective, excluding assets for which it does not exercise discretion, as well as the approximate average client fee rate earned on such assets for the period presented.

$ in billions December 31, 2020 Average fee rate for the three months ended December 31, 2020

RAYMOND JAMES FINANCIAL, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

$ in billions March 31, 2021 Average fee rate for the three months ended March 31, 2021

Equity $ 30.4 0.52 %

6 unchanged sentences

Administrative fees associated with these programs are predominantly based on balances at the beginning of the quarter.

$ in billions December 31,

$ in billions March 31,

2021 December 31,

2020 September 30,

2020 March 31,

2020 December 31,

2 unchanged sentences

The following table includes assets held in asset-based programs in RJ Trust (including those managed for affiliated entities).

$ in billions December 31,

$ in billions March 31,

2021 December 31,

2020 September 30,

2020 March 31,

2020 December 31,

1 unchanged sentence

Total assets $ 7.8 $ 7.6 $ 7.1 $ 6.4 $ 7.2 $ 6.6

Quarter ended March 31, 2021 compared with the quarter ended March 31, 2020

Net revenues of $209 million increased $25 million, or 14%, and pre-tax income of $87 million increased $14 million, or 19%.

Asset management and related administrative fees increased $24 million, or 14%, driven by higher AUM and higher assets in non-discretionary asset-based programs, primarily driven by equity market appreciation and net inflows into fee-based accounts in PCG.

Carillon Tower Advisers generated net inflows during the current-year quarter, despite the structural headwinds for active asset managers resulting from the industry shift from actively managed investment strategies to passive investment strategies.

Compensation expenses increased $5 million, or 11%, and included the impact of higher net revenues.

Non-compensation expenses increased $6 million, or 9%, largely due to an increase in investment sub-advisory fees resulting from an increase in AUM in sub-advised programs.

Six months ended March 31, 2021 compared with the six months ended March 31, 2020

Net revenues of $404 million increased $36 million, or 10%, and pre-tax income of $170 million increased $24 million, or 16%.

Asset management and related administrative fees increased $36 million, or 10%, driven by higher assets in non-discretionary asset-based programs and higher AUM, primarily due to equity market appreciation and net inflows into fee-based accounts in PCG.

Compensation expenses increased $5 million, or 6%, and included the impact of higher net revenues.

Non-compensation expenses increased $7 million, or 5%, due to an increase in investment sub-advisory fees resulting from an increase in AUM in sub-advised programs.

RAYMOND JAMES FINANCIAL, INC.

1 unchanged sentence

Management’s Discussion and Analysis

Three months ended December 31, 2020 compared with the three months ended December 31, 2019

Net revenues of $195 million increased $11 million, or 6%, and pre-tax income of $83 million increased $10 million, or 14%.

Asset management and related administrative fees increased $12 million, or 7%, driven by higher assets in non-discretionary asset-based programs, as well as higher financial assets under management.

The increase in financial assets under management during the quarter reflected equity market appreciation and net inflows at AMS, partially offset by net outflows at Carillon Tower Advisers, which continues to be negatively impacted by the industry shift from actively managed investment strategies to passive investment strategies.

If this trend continues, our AUM and asset management fees would continue to be negatively affected.

Compensation expenses were unchanged compared with the prior-year quarter and non-compensation expenses increased $1 million, or 2%.

RESULTS OF OPERATIONS – RJ BANK

1 unchanged sentence

Operating results

Three months ended December 31,

$ in millions 2020 2019 % change

Three months ended March 31, Six months ended March 31,

$ in millions 2021 2020 % change 2021 2020 % change

Interest income $ 165 $ 223 (26) % $ 333 $ 454 (27) %

5 unchanged sentences

Compensation and benefits

13 13 — 25 25 —

Non-compensation expenses:

Bank loan provision/(benefit) for credit losses 14 (2) NM

Bank loan provision/(benefit) for credit losses (32) 109 NM (18) 107 NM

RJBDP fees to PCG

44 48 (8) % 87 95 (8) %

24 26 (8) % 51 50 2 %

Total non-compensation expenses 36 183 (80) % 120 252 (52) %

1 unchanged sentence

Pre-tax income $ 111 $ 14 693 % $ 182 $ 149 22 %

Three months ended December 31, 2020 compared with the three months ended December 31, 2019

Net revenues of $167 million decreased $49 million, or 23%, and pre-tax income of $71 million decreased $64 million, or 47%.

Quarter ended March 31, 2021 compared with the quarter ended March 31, 2020

Net revenues of $160 million decreased $50 million, or 24%, and pre-tax income of $111 million increased $97 million, or 693%.

Net interest income decreased $50 million, or 24%, as the negative impact from lower short-term interest rates more than offset the impact of higher average interest-earning assets.

The increase in average interest-earning assets was primarily driven by significant growth in the available-for-sale securities portfolio, as well as increases in average loans and average cash balances.

The increase in average interest-earning assets was primarily driven by significant growth in the available-for-sale securities portfolio and securities-based loans to PCG clients.

The net interest margin decreased to 1.94% from 3.02% for the prior-year quarter, primarily due to the significant decline in short-term interest rates, as well as a higher concentration of agency-backed available-for-sale securities, which have a lower yield than loans, on average.

Based on current rates, as well as the elevated prepayment speeds of higher-yielding securities and mortgages, we expect our net interest margin to further decline by 5 to 10 basis points throughout the remainder of our current fiscal year.

The bank loan provision for credit losses was $14 million, which was calculated under the CECL model, compared with a $2 million benefit in the prior-year quarter, which was calculated under the incurred loss model.

The current quarter provision was largely attributable to changes in inputs to our CECL model since our October 1, 2020 adoption date, including forecasted declines in commercial real estate values, partially offset by improvements in other forecasted macroeconomic inputs, including unemployment and gross domestic product, as well as a reduction in criticized loans.

Based on current rates, as well as the elevated prepayment speeds of higher-yielding securities and mortgages, we expect our net interest margin to further decline to approximately 1.9% throughout the remainder of our current fiscal year.

We had a $32 million bank loan benefit for credit losses in the current quarter, which was calculated under the CECL model, compared with a $109 million provision in the prior-year quarter, which was calculated under the incurred loss model.

The current quarter benefit reflected changes in macroeconomic inputs to our CECL model during the quarter, including an improved outlook for the commercial real estate and residential mortgage bank loan portfolios, partially offset by the impact of weakened equity market forecasts on the C&I and REIT loan portfolios and an increase in criticized loans.

The provision for credit losses in the prior-year quarter reflected the rapid economic deterioration caused by the COVID-19 pandemic.

Six months ended March 31, 2021 compared with the six months ended March 31, 2020

Net revenues of $327 million decreased $99 million, or 23%, and pre-tax income of $182 million increased $33 million, or 22%.

Net interest income decreased $103 million, or 25%, as the negative impact from lower short-term interest rates more than offset the impact of higher average interest-earning assets.

The increase in average interest-earning assets was primarily driven by significant growth in the available-for-sale securities portfolio and securities-based loans to PCG clients.

The net interest margin decreased to 1.98% from 3.12% for the prior-year period, primarily due to the significant decline in short-term interest rates, as well as a higher concentration of agency-backed available-for-sale securities, which have a lower yield than loans, on average.

RAYMOND JAMES FINANCIAL, INC.

1 unchanged sentence

Management’s Discussion and Analysis

We had a bank loan benefit for credit losses of $18 million, which was calculated under the CECL model, compared with a $107 million provision in the prior-year period, which was calculated under the incurred loss model.

The current period benefit was largely attributable to changes in inputs to our CECL model since our October 1, 2020 adoption date, reflecting improvements in certain forecasted macroeconomic inputs, including unemployment and gross domestic product, partially offset by forecasted declines in commercial real estate values since our CECL adoption date, as well as an increase in criticized loans.

The provision for credit losses in the prior-year period reflected the rapid economic deterioration caused by the COVID-19 pandemic.

RJBDP fees paid to PCG decreased compared with the prior-year period due to a decrease in the number of accounts swept to RJ Bank as part of the RJBDP.

The fees paid by RJ Bank to PCG are eliminated in consolidation.

RESULTS OF OPERATIONS – OTHER

2 unchanged sentences

Operating results

Three months ended December 31,

$ in millions 2020 2019 % change

Three months ended March 31, Six months ended March 31,

$ in millions 2021 2020 % change 2021 2020 % change

Interest income $ 3 $ 12 (75) % $ 6 $ 24 (75) %

Gains/(losses) on private equity investments 24 (2) NM

All other 1 2 (50) %

Total revenues 28 12 133 %

Gains/(losses) on private equity investments 8 (39) NM 32 (41) NM

All other 2 — NM 3 2 50 %

Total revenues 13 (27) NM 41 (15) NM

Interest expense (25) (17) 47 % (49) (37) 32 %

Net revenues 4 (8) NM

Net revenues (12) (44) 73 % (8) (52) 85 %

Non-interest expenses:

2 unchanged sentences

Total non-interest expenses 36 2 1,700 % 64 25 156 %

$ (24) $ (31) 23 %

Three months ended December 31, 2020 compared with the three months ended December 31, 2019

The pre-tax loss of $24 million was $7 million less than the loss in the prior-year quarter.

Net revenues increased $12 million as the current quarter included positive net revenues of $4 million compared with negative net revenues of $8 million in the prior-year quarter.

The current quarter included $24 million of private equity valuation gains, of which $10 million were attributable to noncontrolling interests, which are offset within other expenses.

These valuation gains were primarily the result of an improved outlook on certain of our investments resulting from improved market conditions since the onset of the COVID-19 pandemic.

Interest income earned on corporate cash balances decreased compared with the prior-year quarter due to lower short-term interest rates, partially offset by the impact of higher average balances, and interest expense increased as a result of the issuance of $500 million of senior notes in March 2020.

Non-interest expenses increased $5 million, or 22%, primarily due to the aforementioned $10 million related to noncontrolling interests and $2 million of acquisition-related expenses in the current quarter arising from our acquisition of NWPS and our announced acquisition of Financo, partially offset by a reduction in compensation expense.

Pre-tax loss $ (48) $ (46) (4) % $ (72) $ (77) 6 %

Quarter ended March 31, 2021 compared with the quarter ended March 31, 2020

The pre-tax loss of $48 million was $2 million larger than the loss in the prior-year quarter.

Net revenues increased $32 million, as the current quarter included $8 million of private equity valuation gains, compared with $39 million of private equity valuation losses in the prior-year quarter, of which $22 million were attributable to noncontrolling interests and were offset within other expenses.

The current quarter valuation gains primarily reflected the impact of continued improvement in market conditions on certain of our fund investments, while the prior-year losses reflected the impact of challenging market conditions at the onset of the COVID-19 pandemic.

Offsetting this increase, interest income earned on corporate cash balances decreased compared with the prior-year quarter due to lower short-term interest rates, and interest expense increased as a result of the issuance of $500 million of senior notes in March 2020.

Non-interest expenses increased $34 million, primarily due to the aforementioned $22 million offset of private equity valuation losses attributable to noncontrolling interests in the prior-year quarter and an increase in compensation expense.

Six months ended March 31, 2021 compared with the six months ended March 31, 2020

The pre-tax loss of $72 million was $5 million less than the loss in the prior-year period.

Net revenues increased $44 million, primarily due to private equity valuation gains in the current period, compared with losses in the prior-year period.

The current period included $32 million of private equity valuation gains, of which $10 million were attributable to noncontrolling interests, which are offset within other expenses.

These valuation gains were primarily the result of continued improvement in market conditions on certain of our investments.

The prior-year period included $41 million of private equity valuation losses, of which $23 million were attributable to noncontrolling interests and were offset within other

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

Interest income earned on corporate cash balances decreased compared with the prior-year period due to lower short-term interest rates, partially offset by the impact of higher average balances, and interest expense increased as a result of the issuance of $500 million of senior notes in March 2020.

Non-interest expenses increased $39 million, or 156%, primarily due to the aforementioned $10 million in gains attributable to noncontrolling interests, compared with $23 million in losses in the prior-year period.

The $2 million of acquisition-related expenses in the current-year period arose from our acquisitions of NWPS and Financo during fiscal 2021.

CERTAIN STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES

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The following table provides certain of those disclosures.

Three months ended December 31,

Three months ended March 31, Six months ended March 31,

2021 2020 2021 2020

Return on assets 2.6% 1.5% 2.5% 2.0%

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Return on assets is computed by dividing annualized net income for the period indicated by average assets for each respective period.

Average assets is computed by adding total assets as of the date indicated to the prior quarter-end total and dividing by two.

Average assets for the quarter is computed by adding total assets as of the date indicated to the prior quarter-end total and dividing by two.

Average assets for the year-to-date period is computed by adding total assets as of each quarter-end date during the year-to-date period to the beginning of the year total and dividing by three.

Return on equity is computed by dividing annualized net income for the period indicated by average equity for each respective period.

Average equity is computed by adding total equity attributable to RJF as of the date indicated to the prior quarter-end total and dividing by two.

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

Average equity for the quarter is computed by adding total equity attributable to RJF as of the date indicated to the prior quarter-end total and dividing by two.

Average equity for the year-to-date period is computed by adding total equity attributable to RJF as of each quarter-end date during the year-to-date period to the beginning of the year total and dividing by three.

Average equity to average assets is computed by dividing average equity by average assets, as calculated in accordance with the previous explanations.

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Financing activities could include bank borrowings, collateralized financing arrangements or additional capital raising activities under our “universal” shelf registration statement.

Cash and cash equivalents was relatively unchanged at $5.38 billion as of December 31, 2020.

During the quarter, we had a significant increase in client cash balances, which increased both our brokerage client payables and our bank deposits.

This cash was largely used to purchase U.S.

Treasuries that were segregated pursuant to regulations as of December 31, 2020 or held to meet future customer reserve requirements in our broker-dealer activities, or were invested in available-for-sale securities and bank loans as part of our banking activities.

In addition, cash provided by our operations, including positive net income and a decrease in certain receivable balances, was offset by annual bonus payments during the quarter, as well as cash used for the NWPS acquisition.

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

Cash and cash equivalents increased $461 million during the six months ended March 31, 2021 to $5.85 billion.

During the six months ended March 31, 2021, cash provided by our operations, including significant net income, was offset by cash used to fund dividend payments and share repurchases, and investments in future growth with our acquisitions of NWPS and Financo.

We also had significant increases in client cash balances, which increased both our brokerage client payables and our bank deposits.

However, this cash was largely used to increase our assets segregated pursuant to regulations, primarily through the purchase of U.S.

Treasuries, as part of our brokerage activities, and to increase our available-for-sale securities and our bank loan portfolio as part of our banking activities.

We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and available from committed and uncommitted financing facilities, provide adequate funds for continuing operations at current levels of activity.

Sources of liquidity

Nearly $1.8 billion of our total December 31, 2020 cash and cash equivalents included cash on hand at the parent, as well as parent cash loaned to RJ&A.

Approximately $1.7 billion of our total March 31, 2021 cash and cash equivalents included cash held directly at the parent, or parent cash loaned to RJ&A.

As of March 31, 2021, RJF had loaned $1.24 billion to RJ&A (such amount is included in the RJ&A cash balance in the following table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business activities.

The following table presents our holdings of cash and cash equivalents.

$ in millions December 31, 2020

$ in millions March 31, 2021

RJ Bank, N.A.

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RJF maintained depository accounts at RJ Bank, N.A.

with a balance of $ 185 million as of December 31, 2020.

The portion of this total that was available on demand without restrictions, which amounted to $108 million as of December 31, 2020, is reflected in the RJF total (and is excluded from the RJ Bank, N.A.

with a balance of $185 million as of March 31, 2021.

The portion of this total that was available on demand without restrictions, which amounted to $108 million as of March 31, 2021, is reflected in the RJF total (and is excluded from the RJ Bank, N.A.

cash balance in the preceding table).

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

RJF had loaned $1.32 billion to RJ&A as of December 31, 2020 (such amount is included in the RJ&A cash balance in the preceding table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business activities.

A large portion of the RJ Ltd.

cash and cash equivalents balance as of December 31, 2020 was held to meet regulatory requirements and was not available for use by the parent.

cash and cash equivalents balance as of March 31, 2021 was held to meet regulatory requirements and was not available for use by the parent.

In addition to the cash balances described, we have various other potential sources of cash available to the parent from subsidiaries, as described in the following section.

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Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities and Exchange Act of 1934.

As a member firm of FINRA, RJ&A is subject to FINRA’s capital requirements, which are substantially the same as Rule 15c3-1.

As a member firm of the Financial Industry Regulatory Authority (“FINRA”), RJ&A is subject to FINRA’s capital requirements, which are substantially the same as Rule 15c3-1.

Rule 15c3-1 provides for an “alternative net capital requirement,” which RJ&A has elected.

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In addition, covenants in RJ&A’s committed financing facilities require its net capital to be a minimum of 10% of aggregate debit items.

At December 31, 2020, RJ&A exceeded the minimum regulatory requirements, the covenants in its financing arrangements pertaining to net capital, as well as its internally-targeted net capital tolerances.

At March 31, 2021, RJ&A exceeded the minimum regulatory requirements, the covenants in its financing arrangements pertaining to net capital, as well as its internally-targeted net capital tolerances.

FINRA may impose certain restrictions, such as restricting withdrawals of equity capital, if a member firm were to fall below a certain threshold or fail to meet minimum net capital requirements.

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With growth in the value of client assets in such accounts, the capital of RJ&A may need to grow to continue to satisfy this requirement.

As a result, RJ&A may limit dividends it would otherwise remit to RJF.

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

result, RJ&A may limit dividends it would otherwise remit to RJF.

We evaluate regulatory requirements, loan covenants and certain internal tolerances when determining the amount of liquidity available to RJF from RJ&A.

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Although we have liquidity available to us from our other subsidiaries, the available amounts are not as significant as those previously described and, in certain instances, may be subject to regulatory requirements.

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

Borrowings and financing arrangements

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The following table presents our committed financing arrangements with third-party lenders, which we generally utilize to finance a portion of our fixed income trading instruments, and the outstanding balances related thereto.

December 31, 2020

March 31, 2021

$ in millions RJ&A RJF Total Total number of arrangements

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Committed unsecured 200 300 500 1

200 300 500 1

Total committed financing arrangements

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Total outstanding borrowing amount

(1) The Credit Facility provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF.

Our committed unsecured financing arrangement in the preceding table represents our Credit Facility, which provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF.

RJ&A may borrow up to $500 million under the Credit Facility, depending on the amount of outstanding borrowings by RJF.

For additional details on our committed unsecured financing arrangement, see our discussion of the Credit Facility in Note 14 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K.

In April 2021, we amended our Credit Facility, maintaining the $500 million maximum borrowing amount, but extending the term through April 2026 and incorporating a lower cost of borrowing under the facility and certain favorable covenant modifications.

Uncommitted financing arrangements

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Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed and are generally collateralized by non-customer, RJ&A-owned securities or by securities that we have received as collateral under reverse repurchase agreements.

As of December 31, 2020, we had outstanding borrowings under three uncommitted secured borrowing arrangements out of a total of 11 uncommitted financing arrangements (seven uncommitted secured and four uncommitted unsecured).

As of March 31, 2021, we had outstanding borrowings under two uncommitted secured borrowing arrangements out of a total of 11 uncommitted financing arrangements (seven uncommitted secured and four uncommitted unsecured).

However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities.

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

The following table presents our borrowings on uncommitted financing arrangements, all of which were in the form of repurchase agreements in RJ&A and were included in “Collateralized financings” on our Condensed Consolidated Statements of Financial Condition.

$ in millions December 31, 2020

$ in millions March 31, 2021

Outstanding borrowing amount:

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Total outstanding borrowing amount

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

The average daily balance outstanding during the five most recent quarters, the maximum month-end balance outstanding during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements are detailed in the following table.

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during the quarter End of period

March 31, 2021 $ 226 $ 260 $ 222 $ 242 $ 280 $ 224

December 31, 2020 $ 211 $ 236 $ 233 $ 204 $ 259 $ 162

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March 31, 2020 $ 218 $ 238 $ 215 $ 283 $ 388 $ 130

December 31, 2019 $ 184 $ 200 $ 200 $ 355 $ 351 $ 326

Other borrowings and collateralized financings

RJ Bank had $850 million in FHLB borrowings outstanding at December 31, 2020, comprised of floating-rate advances, all of which were secured by a blanket lien on RJ Bank’s residential mortgage loan portfolio (see Note 14 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K for additional information regarding these borrowings).

RJ Bank had an additional $3.04 billion in immediate credit available from the FHLB as of December 31, 2020 and, with the pledge of additional eligible collateral to the FHLB, total available credit of 30% of total assets.

RJ Bank had $850 million in FHLB borrowings outstanding at March 31, 2021, comprised of floating-rate advances, all of which were secured by a blanket lien on RJ Bank’s residential mortgage loan portfolio (see Note 14 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K for additional information regarding these borrowings).

RJ Bank had an additional $3.13 billion in immediate credit available from the FHLB as of March 31, 2021 and, with the pledge of additional eligible collateral to the FHLB, total available credit of 30% of total assets.

RJ Bank is eligible to participate in the Federal Reserve’s discount window program;

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Where permitted, we have also loaned, to broker-dealers and other financial institutions, securities owned by clients or the firm.

We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balance of $64 million as of December 31, 2020 related to the securities loaned included in “Collateralized financings” on our Condensed Consolidated Statements of Financial Condition of this Form 10-Q.

We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balance of $56 million as of March 31, 2021 related to the securities loaned included in “Collateralized financings” on our Condensed Consolidated Statements of Financial Condition of this Form 10-Q.

See Note 7 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for more information on our collateralized agreements and financings.

At December 31, 2020, in addition to the financing arrangements previously described, we had $12 million outstanding on a mortgage loan for our St.

At March 31, 2021, in addition to the financing arrangements previously described, we had $11 million outstanding on a mortgage loan for our St.

Petersburg, Florida home-office complex that is included in “Other borrowings” on our Condensed Consolidated Statements of Financial Condition of this Form 10-Q.

Senior notes payable

At December 31, 2020, we had aggregate outstanding senior notes payable of $2.05 billion.

At March 31, 2021, we had aggregate outstanding senior notes payable of $2.05 billion.

Our senior notes payable, exclusive of any unaccreted premiums or discounts and debt issuance costs, was comprised of $250 million par 5.625% senior notes due 2024, $500 million par 3.625% senior notes due 2026, $500 million par 4.65% senior notes due 2030, and $800 million par 4.95% senior notes due 2046.

See Note 15 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K for additional information.

In April 2021, we sold in a registered underwritten public offering $750 million in aggregate principal amount of 3.75% senior notes due April 2051.

We utilized the proceeds from the offering and cash on hand to early-redeem our existing $250 million

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

par 5.625% senior notes due 2024 and our $500 million par 3.625% senior notes due 2026, which were outstanding as of March 31, 2021.

See Note 14 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information.

Credit ratings

Our issuer and senior long-term debt ratings as of the most current report are detailed in the following table.

In April 2021, Fitch Ratings, Inc.

assigned its first issuer and senior long-term debt rating for Raymond James Financial, Inc.

Rating Agency Rating Outlook

Standard & Poor’s Ratings Services BBB+ Stable

Fitch Ratings, Inc.

Moody’s Investors Services Baa1 Stable

Our current long-term debt ratings depend upon a number of factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trends and volatility, balance sheet composition, liquidity and liquidity management, capital structure, overall risk management, business diversification and market share, and competitive

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

position in the markets in which we operate.

Deteriorations in any of these factors could impact our credit ratings.

Standard & Poor’s Ratings Services BBB+ Stable

Deterioration in any of these factors could impact our credit ratings.

Any rating downgrades could increase our costs in the event we were to obtain additional financing.

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None of our borrowing arrangements contains a condition or event of default related to our credit ratings.

However, a credit downgrade would result in the firm incurring a higher facility fee on the $500 million Credit Facility, in addition to triggering a higher interest rate applicable to any borrowings outstanding on that line as of and subsequent to such downgrade.

However, a credit downgrade would result in the firm incurring a higher facility fee on the Credit Facility, in addition to triggering a higher interest rate applicable to any borrowings outstanding on that line as of and subsequent to such downgrade.

Conversely, an improvement in RJF’s current credit rating could have a favorable impact on the facility fee, as well as the interest rate applicable to any borrowings on such line.

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Certain of our non-qualified deferred compensation plans and other employee benefit plans are employee-directed while others are company-directed.

Certain policies which we could readily borrow against had a cash surrender value of $750 million as of December 31, 2020, comprised of $460 million related to employee-directed plans and $290 million related to company-directed plans, and we were able to borrow up to 90%, or $675 million, of the December 31, 2020 total without restriction.

Certain policies which we could readily borrow against had a cash surrender value of $789 million as of March 31, 2021, comprised of $484 million related to employee-directed plans and $305 million related to company-directed plans, and we were able to borrow up to 90%, or $710 million, of the March 31, 2021 total without restriction.

To effect any such borrowing, the underlying investments would be converted to money market investments, therefore requiring us to take market risk related to the employee-directed plans.

There were no borrowings outstanding against any of these policies as of December 31, 2020.

There were no borrowings outstanding against any of these policies as of March 31, 2021.

On May 18, 2018, we filed a “universal” shelf registration statement with the SEC pursuant to which we can issue debt, equity and other capital instruments if and when necessary or perceived by us to be opportune.

Subject to certain conditions, this registration statement will be effective through May 18, 2021.

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.

We currently have the ability to utilize our cash on-hand to fund the purchase.

See Note 3 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information.

See the Contractual obligations section of this MD&A for information regarding our contractual obligations.

STATEMENT OF FINANCIAL CONDITION ANALYSIS

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A significant portion of our assets are liquid in nature, providing us with flexibility in financing our business.

Total assets of $53.66 billion as of December 31, 2020 were $6.18 billion, or 13%, greater than our total assets as of September 30, 2020.

The increase in assets was primarily due to a $4.52 billion increase in assets segregated pursuant to regulations, due to a significant increase in client cash balances.

Bank loans, net increased by $762 million due to an increase in SBL and CRE loans.

In addition, Other investments increased $529 million, primarily due to the purchase of U.S.

Treasuries to meet future customer reserve requirements, and available-for-sale securities increased $350 million.

Goodwill and identifiable intangible assets, net increased $234 million due to the acquisition of NWPS during the quarter.

As of December 31, 2020, our total liabilities of $46.22 billion were $5.91 billion, or 15%, greater than our total liabilities as of September 30, 2020.

The increase in total liabilities was primarily related to the significant increase in client cash balances as of December 31, 2020, including a $5.13 billion increase in brokerage client payables, primarily due to an increase in client cash held in our CIP, and a $989 million increase in bank deposits, reflecting higher RJBDP balances held at RJ Bank, N.A.

Offsetting these increases was a decrease in accrued compensation, commissions and benefits of $249 million, primarily due to the payment of accrued bonuses during the three months ended December 31, 2020.

Total assets of $56.07 billion as of March 31, 2021 were $8.58 billion, or 18%, greater than our total assets as of September 30, 2020.

The increase in assets was primarily due to a $5.43 billion increase in assets segregated pursuant to regulations, primarily due to a significant increase in client cash balances.

Bank loans, net increased by $1.68 billion, primarily due to an increase in

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

CONTRACTUAL OBLIGATIONS

There were no significant changes to the contractual obligations presented in our 2020 Form 10-K, other than in the ordinary course of business, as of December 31, 2020.

See Note 14 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information regarding our commitments as of December 31, 2020.

SBL and corporate loans.

In addition, available-for-sale securities increased $508 million and cash and cash equivalents increased $461 million.

Goodwill and identifiable intangible assets, net increased $268 million due to the acquisitions of NWPS and Financo during the six months ended March 31, 2021.

As of March 31, 2021, our total liabilities of $48.43 billion were $8.12 billion, or 20%, greater than our total liabilities as of September 30, 2020.

The increase in total liabilities was primarily related to the significant increase in client cash balances as of March 31, 2021, including a $5.68 billion increase in brokerage client payables, primarily due to an increase in client cash held in our CIP, and a $2.45 billion increase in bank deposits, reflecting higher RJBDP balances held at RJ Bank.

Refer to the discussion of the regulatory environment in which we operate and the impact on our operations of certain rules and regulations in “Item 1 - Business - Regulation” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory” of our 2020 Form 10-K.

RJF and many of its subsidiaries are each subject to various regulatory capital requirements.

As of December 31, 2020, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements.

As of March 31, 2021, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements.

In addition, RJF and RJ Bank, N.A.

were categorized as “well-capitalized” as of December 31, 2020.

were categorized as “well-capitalized” as of March 31, 2021.

The maintenance of certain risk-based and other regulatory capital levels could influence various capital allocation decisions impacting one or more of our businesses.

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government enacted the Consolidated Appropriations Act, 2021 in December 2020.

The new stimulus bill provides additional emergency COVID-19 relief, as well as extends certain provisions of the CARES Act.

This additional stimulus bill provided further emergency COVID-19 relief, as well as extended certain provisions of the CARES Act.

Under the CARES Act, financial institutions were permitted to temporarily suspend any determination of a loan modification as a result of the effects of COVID-19 as being a TDR, including impairment for accounting purposes.

The Consolidated Appropriations Act, 2021 extends such relief until the earlier of:

The Consolidated Appropriations Act, 2021 extended such relief until the earlier of:

(1) 60 days after the date on which the national emergency concerning COVID-19 terminates;

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RJ Bank, N.A.

will also apply to the Federal Reserve Bank of Atlanta to retain its membership in the Federal Reserve System.

If approved as a state member bank, RJ Bank, N.A.

would cease to be supervised by the OCC and instead become jointly supervised by the OFR and the Fed.

also filed an application with the Federal Reserve Bank of Atlanta to retain its membership in the Federal Reserve System.

Upon conversion to a state member bank, RJ Bank, N.A.

will cease to be supervised by the OCC and instead become jointly supervised by the OFR and the Fed.

As a state member bank, RJ Bank, N.A.

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As a state member bank, we do not anticipate that there will be any material changes to RJ Bank, N.A.’s existing business or operations.

Privacy and data protection

The legislature of the State of Florida recently considered a proposed data privacy law which would have required companies to reveal the data they are gathering, required them to delete that data upon a consumer’s request and made them liable for selling this data when instructed not to.

If adopted, this legislation (as well as additional emerging state and international privacy laws) could increase compliance risk, client servicing costs, and potentially result in additional litigation and regulatory fines.

Personal data collection associated with the use of artificial intelligence, mobile applications, and remote connectivity solutions, generally increases the amount of personal data collected and processed about consumers and contributes to risks associated with unauthorized data disclosure and access.

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

Discontinuation of LIBOR

The administrator of LIBOR has proposed to extend publication of the most commonly used U.S.

dollar LIBOR settings to June 30, 2023 and to cease publishing other LIBOR settings on December 31, 2021.

federal banking agencies have issued guidance strongly encouraging banking organizations to cease using the U.S.

dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021.

Our enterprise-wide initiative is continuing to assess and implement necessary changes to our contracts, systems, processes, documentation, and models .

CRITICAL ACCOUNTING ESTIMATES

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We believe that of our accounting estimates and assumptions, those described in the following sections involve a high degree of judgment and complexity.

Market disruptions as a result of the COVID-19 pandemic have made it more challenging for us to determine the amount of our allowance for credit losses and the fair value of certain of our assets, particularly our private equity

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

The current circumstances have required a greater reliance on judgment than in recent periods in determining these amounts as of December 31, 2020.

Economic uncertainty as a result of the COVID-19 pandemic has made it more challenging for us to determine the amount of our allowance for credit losses and has required a greater reliance on judgment in recent periods in determining this amount.

Valuation of financial instruments

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For a description of the significant estimates and judgments associated with establishing such accruals, see the “Contingent liabilities” section of Note 2 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K.

In addition, refer to Note 14 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding legal and regulatory matter contingencies as of December 31, 2020.

In addition, refer to Note 16 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding legal and regulatory matter contingencies as of March 31, 2021.

Allowance for credit losses

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Effective October 1, 2020, we adopted the CECL accounting guidance which changed the methodology used to measure the allowance for credit losses from an allowance based on incurred losses to an allowance based on expected credit losses over a financial asset’s lifetime.

The remaining life of our financial assets is determined by considering contractual terms, expected prepayments and cancellation features, among other factors.

The remaining life of our financial assets is determined by considering contractual terms and expected prepayments, among other factors.

We employ multiple methodologies in estimating an allowance for credit losses and our approaches differ by type of financial asset and the risk characteristics within each financial asset type.

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In such an event, any losses in excess of our allowance would result in a decrease in our net income, as well as a decrease in the level of regulatory capital.

See the discussion regarding our methodology in estimating the allowance for credit losses in Note 2 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

See Notes 8 and 9 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on our RJ Bank and financial advisor loan portfolios.

Our allowance for credit losses at December 31, 2020 was primarily related to bank loans held by RJ Bank and loans to financial advisors.

At December 31, 2020, the amortized cost of all RJ Bank loans was $22.34 billion and the related allowance for credit losses was $378 million, or 1.71% of the held for investment loan portfolio.

At December 31, 2020, the amortized cost of loans to financial advisors was $1.01 billion and the related allowance for credit losses was $29 million, which was 2.89% of the loan portfolio.

RECENT ACCOUNTING DEVELOPMENTS

The FASB has issued certain accounting updates which were assessed and either determined to be not applicable or are not expected to have a significant impact on our financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

For information regarding our off-balance sheet arrangements, see Note 2 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K and Note 14 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

See the discussion regarding our methodology in estimating the allowance for credit losses in Note 2 of the

RAYMOND JAMES FINANCIAL, INC.

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Management’s Discussion and Analysis

Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

See Notes 8 and 9 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on our RJ Bank and financial advisor loan portfolios.

Our allowance for credit losses at March 31, 2021 was primarily related to bank loans held by RJ Bank and loans to financial advisors.

At March 31, 2021, the amortized cost of all RJ Bank loans was $23.22 billion and the related allowance for credit losses was $345 million, or 1.50% of the held for investment loan portfolio.

At March 31, 2021, the amortized cost of loans to financial advisors was $1.02 billion and the related allowance for credit losses was $28 million, which was 2.76% of the loan portfolio.

RECENT ACCOUNTING DEVELOPMENTS

The FASB has issued certain accounting updates which were assessed and either determined to be not applicable or are not expected to have a significant impact on our financial statements.

RISK MANAGEMENT

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Treasury securities, futures contracts, liquid spread products and derivatives.

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Management’s Discussion and Analysis

We monitor the Value-at-Risk (“VaR”) for all of our trading portfolios on a daily basis.

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For regulatory capital calculation purposes, we also report VaR numbers for a ten-day time horizon.

The Fed’s MRR requires us to perform daily back-testing procedures of our VaR model, whereby we compare each day’s projected VaR to its regulatory-defined daily trading losses, which exclude fees, commissions, reserves, net interest income and

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intraday trading.

Regulatory-defined daily trading losses are used to evaluate the performance of our VaR model and are not comparable to our actual daily net revenues.

Based on these daily “ex ante” versus “ex post ” comparisons, we determine whether the number of times that regulatory-defined daily trading losses exceed VaR is consistent with our expectations at a 99% confidence level.

During the three months ended December 31, 2020, our regulatory-defined daily losses in our trading portfolios did not exceed our predicted VaR.

During the six months ended March 31, 2021, our regulatory-defined daily losses in our trading portfolios did not exceed our predicted VaR.

The following table sets forth the high, low, period-end and daily average VaR for all of our trading portfolios, including fixed income and equity instruments, for the period and dates indicated.

Three months ended December 31, 2020 Period-end VaR Three months ended December 31,

$ in millions High Low December 31,

Six months ended March 31, 2021 Period-end VaR Three months ended March 31, Six months ended March 31,

$ in millions High Low March 31,

2021 September 30,

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Daily VaR $ 11 $ 3 $ 5 $ 8 Average daily VaR $ 6 $ 1 $ 6 $ 1

Our period-end VaR decreased to $3 million as of December 31, 2020 from $8 million as of September 30, 2020, primarily due to lower trading inventory as of December 31, 2020.

However, average trading inventories were higher during the current quarter compared with the prior-year quarter, which resulted in an increase in average daily VaR when combined with the impact of increased volatility from the COVID-19 pandemic on our VaR model.

Average daily VaR was higher during the current-year period compared with the prior-year period, as a result of the impact of increased volatility from the COVID-19 pandemic on our VaR model.

However, toward the end of the current-year quarter, COVID-19 pandemic related scenarios started to fall outside of the VaR model’s twelve-month historical simulation period, resulting in period-end VaR decreasing to $5 million as of March 31, 2021 from $8 million as of September 30, 2020.

The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations.

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These interest-earning assets are primarily funded by client deposits.

Based on its current asset portfolio, RJ Bank is subject to interest rate risk.

Based on its current asset portfolio, RJ Bank is subject to interest rate

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Management’s Discussion and Analysis

RJ Bank analyzes interest rate risk based on forecasted net interest income, which is the net amount of interest received and interest paid, and the net portfolio valuation, both across a range of interest rate scenarios.

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For further information regarding this hedging strategy, see Note 2 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K.

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Management’s Discussion and Analysis

The following table is an analysis of RJ Bank’s estimated net interest income over a 12-month period based on instantaneous shifts in interest rates (expressed in basis points) using RJ Bank’s own asset/liability model, which assumes that interest rates do not decline below zero.

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Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net interest analysis” of this Form 10-Q for a discussion of the impact changes in short-term interest rates could have on the firm’s operations.

The following table shows the contractual maturities of RJ Bank’s loan portfolio at December 31, 2020, including contractual principal repayments.

The following table shows the contractual maturities of RJ Bank’s loan portfolio at March 31, 2021, including contractual principal repayments.

This table does not include any estimates of prepayments, which could shorten the average loan lives and cause the actual timing of the loan repayments to differ significantly from those shown in the table.

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Total loans $ 6,144 $ 7,005 $ 10,075 $ 23,224

The following table shows the distribution of the recorded investment of those RJ Bank loans that mature in more than one year between fixed and adjustable interest rate loans at December 31, 2020.

The following table shows the distribution of the recorded investment of those RJ Bank loans that mature in more than one year between fixed and adjustable interest rate loans at March 31, 2021.

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Management’s Discussion and Analysis

Interest rate type

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In our RJ Bank available-for-sale securities portfolio, we hold primarily fixed-rate agency MBS and agency CMOs which are carried at fair value on our Condensed Consolidated Statements of Financial Condition, with changes in the fair value of the portfolio recorded through OCI on our Condensed Consolidated Statements of Income and Comprehensive Income.

At December 31, 2020, our RJ Bank available-for-sale securities portfolio had a fair value of $8 billion with a weighted-average yield of 1.35% and a duration of 3 years.

At March 31, 2021, our RJ Bank available-for-sale securities portfolio had a fair value of $8.16 billion with a weighted-average yield of 1.15% and a weighted-average life of approximately 4 years.

See Note 5 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information.

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Equity price risk

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Our broker-dealer activities are generally client-driven, and we carry equity securities as part of our trading inventory to facilitate such activities, although the amounts are not as significant as our fixed income trading inventory.

We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions throughout each day and establishing position limits.

We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions each day and establishing position limits.

Equity securities held in our trading inventory are generally included in VaR.

In addition, we have a private equity portfolio, included in “Other investments” on our Condensed Consolidated Statements of Financial Condition, which is comprised of various direct investments, as well as investments in third-party private equity funds and various legacy private equity funds which we sponsor.

Of the total private equity investments at December 31, 2020 of $137 million, the portion we owned was $ 102 million.

Of the total private equity investments at March 31, 2021 of $140 million, the portion we owned was $105 million.

See Note 4 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on this portfolio.

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We are subject to foreign exchange risk due to our investments in foreign subsidiaries as well as transactions and resulting balances denominated in a currency other than the U.S.

For example, our bank loan portfolio includes loans which are denominated in Canadian dollars, totaling $1.16 billion and $1.05 billion at December 31, 2020 and September 30, 2020, respectively, when converted to the U.S.

For example, our bank loan portfolio includes loans which are denominated in Canadian dollars, totaling $1.14 billion and $1.05 billion at March 31, 2021 and September 30, 2020, respectively, when converted to the U.S.

A portion of such loans are held by RJ Bank, N.A.’s Canadian subsidiary, which is discussed in the following sections.

Investments in foreign subsidiaries

RJ Bank, N.A.

has an investment in a Canadian subsidiary, resulting in foreign exchange risk.

To mitigate its foreign exchange risk, RJ Bank, N.A.

utilizes short-term, forward foreign exchange contracts.

RJ Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk.

To mitigate its foreign exchange risk, RJ Bank utilizes short-term, forward foreign exchange contracts.

These derivatives are primarily accounted for as net investment hedges in the condensed consolidated financial statements.

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We had foreign exchange risk in our investment in RJ Ltd.

of CAD 362 million at December 31, 2020, which was not hedged.

Foreign exchange gains/losses related to this investment are primarily reflected in OCI on our Condensed Consolidated Statements of Income and Comprehensive Income.

of CAD 380 million at March 31, 2021, which was not hedged.

Foreign exchange gains/losses related to this investment are primarily reflected in OCI on our Condensed Consolidated

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Statements of Income and Comprehensive Income.

See Note 17 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information regarding our components of OCI.

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See further discussion of our credit risk, including how we manage such risk, in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” of our 2020 Form 10-K.

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Management’s Discussion and Analysis

The decline in economic activity as a result of the COVID-19 pandemic has caused increased credit risk in general and particularly with regard to companies in sectors that have been most significantly impacted by the economic disruption, including energy, airlines, entertainment and leisure, restaurants and gaming.

The initial decline in economic activity as a result of the COVID-19 pandemic caused increased credit risk particularly with regard to companies in sectors that were most significantly impacted by the economic disruption, including energy, airlines, entertainment and leisure, restaurants and gaming.

The speed and magnitude in which various sectors have recovered since the onset of the pandemic has been continually evolving.

Given the stresses on certain of our clients’ liquidity, we enhanced our credit monitoring activities, with an increased focus on monitoring our credit exposures and counterparty credit risk.

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We have also required collateral to be posted across our credit risk exposures in accordance with agreements with our borrowers and counterparties.

Although economic conditions have generally improved, we have maintained our increased focus on monitoring our credit exposures and counterparty credit risk.

Brokerage activities

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We offer loans to financial advisors and certain other key revenue producers primarily for recruiting, transitional cost assistance and retention purposes.

We have credit risk and may incur a loss primarily in the event that such borrower is no longer affiliated with us.

We have credit risk and may incur a loss primarily in the event that such borrower is no longer

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Management’s Discussion and Analysis

affiliated with us.

See Notes 2 and 9 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information about our loans to financial advisors.

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While RJ Bank’s loan portfolio is diversified, a significant downturn in the overall economy, such as that experienced in our fiscal year 2020 as a result of the COVID-19 pandemic, deterioration in real estate values or a significant issue within any sector or sectors where RJ Bank has a concentration will generally result in large provisions for credit losses and/or charge-offs.

Conversely, should the economy recover at a faster pace than initially forecasted, or the negative impact of the significant downtown event be less than originally projected, the timing and magnitude of any decreases in required reserves for credit losses can be uncertain.

RJ Bank determines the allowance required for specific loan grades based on relative risk characteristics of the loan portfolio.

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Adverse developments in any of these areas may have a negative effect on the credit quality of loans in this segment.

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Management’s Discussion and Analysis

Loans in this segment are made to businesses that own or finance income-producing real estate across various property sectors.

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All of RJ Bank’s residential mortgage loans adhere to stringent underwriting parameters pertaining to credit score and credit history, debt-to-income ratio of borrower, LTV, and combined LTV (including second mortgage/home equity loans).

RJ Bank does not originate or purchase option adjustable rate mortgage (“ARM”) loans with negative amortization, reverse mortgages, or loans to subprime borrowers.

RJ Bank does not originate or purchase adjustable rate mortgage (“ARM”) loans with negative amortization, reverse mortgages, or loans to subprime borrowers.

Loans with deeply discounted teaser rates are not originated or purchased.

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A decline in the strength of the economy, particularly unemployment rates and housing prices, among other factors, could have a significant effect on the credit quality of loans in this segment.

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SBL and other:

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These factors have a potentially negative impact on loan performance and net charge-offs.

Our allowance for credit losses as of December 31, 2020 was determined under the CECL model due to our October 1, 2020 adoption of the new credit impairment standard.

Our allowance for credit losses as of March 31, 2021 was determined under the CECL model due to our October 1, 2020 adoption of the new credit impairment standard.

See Notes 2 and 8 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information.

Our allowance for credit losses, as well as our methodologies and assumptions used in estimating the allowance, are regularly evaluated to determine if our methods and estimates continue to be appropriate for each class of loans, with adjustments made on a quarterly basis.

Several factors were taken into consideration in evaluating the allowance for credit losses at December 31, 2020, including loan and borrower characteristics, such as internal risk ratings, delinquency status, collateral type and the remaining term of the loan adjusted for expected prepayments.

In addition, the estimate of credit losses considered the lack of net charge-offs during the period, the level of nonperforming loans and the impact of the COVID-19 pandemic.

Several factors were taken into consideration in evaluating the allowance for credit losses at March 31, 2021, including loan and borrower characteristics, such as internal risk ratings, delinquency status, collateral type and the remaining term of the loan adjusted for expected prepayments.

In addition, the estimate of credit losses considered the relatively small amount of net charge-offs during the period, the level of nonperforming loans and the impact of the COVID-19 pandemic.

RJ Bank also considered the uncertainty related to certain industry sectors, including commercial real estate, and the extent of credit exposure to specific borrowers within the portfolio.

Finally, RJ Bank considered current economic conditions that might impact the portfolio.

We will continue to assess the impact of the COVID-19 pandemic and, as more information becomes available regarding the financial repercussions to our borrowers, the risk ratings for individual loans will be updated and the allowance will be adjusted accordingly.

RJ Bank’s allowance for credit losses as a percentage of bank loans held for investment was 1.71% and 1.65% at December 31, 2020 and September 30, 2020, respectively.

See Note 8 in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for detail on the changes in RJ Bank’s allowance for credit losses.

The bank loan provision for credit losses for the three months ended December 31, 2020 was $14 million compared to a benefit for credit losses of $2 million for the prior-year quarter.

See further explanation of the credit loss provision increase in “Management’s Discussion and Analysis - Results of Operations - RJ Bank” of this Form 10-Q.

We continue to assess the impact of both the COVID-19 pandemic and the economic recovery therefrom, as new information becomes available regarding the financial repercussions to our borrowers, the risk ratings for individual loans will be updated and the allowance will be adjusted accordingly.

RJ Bank’s allowance for credit losses as a percentage of bank loans held for investment was 1.50%, 1.69% and 1.65% at March 31, 2021, October 1, 2020 (our CECL adoption date) and September 30, 2020, respectively.

During the three and six months ended March 31, 2021, we had a benefit for credit losses on our bank loan portfolio of $32 million and $18 million, respectively, compared to a provision for credit losses of $109 million and $107 million for the three and six months ended March 31, 2020, respectively.

See further explanation of the credit loss provision increase in “Management’s Discussion and Analysis - Results of Operations - RJ Bank” of this Form 10-Q and Note 8 in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for detail on the changes in RJ Bank’s allowance for credit losses.

The level of charge-off activity is a factor that is considered in evaluating the potential severity of future credit losses.

See Note 8 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on charge-offs.

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Management’s Discussion and Analysis

The following table presents net loan (charge-offs)/recoveries and the percentage of net loan (charge-offs)/recoveries to the average outstanding loan balances by loan portfolio segment.

Three Months Ended March 31 Six months ended March 31

2021 2020 2021 2020

$ in millions Net loan

(charge-off)/recovery

loans Net loan

(charge-off)/recovery

amount % of avg.

loans Net loan

(charge-off)/recovery

loans Net loan

(charge-off)/recovery

amount % of avg.

C&I loans $ (2) 0.11 % $ — — % $ (2) 0.05 % $ — — %

Total $ (2) 0.04 % $ — — % $ (2) 0.02 % $ — — %

(1) Charge-offs for both the three and six months ended March 31, 2021 related to loan sales during the period.

The level of nonperforming loans is another indicator of potential future credit losses.

The following table presents the nonperforming loans balance and total allowance for credit losses for the periods presented.

December 31, 2020 September 30, 2020

March 31, 2021 September 30, 2020

$ in millions Nonperforming

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0.13 % 0.14 %

Included in nonperforming residential mortgage loans as of December 31, 2020 were $7 million in loans for which $3 million in charge-offs were previously recorded, resulting in less exposure within the remaining balance.

See Note 8 in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for loan categories as a percentage of total loans receivable.

The nonperforming loan balances in the preceding table exclude $10 million as of both December 31, 2020 and September 30, 2020 of residential TDRs which were returned to accrual status in accordance with our policy.

Total nonperforming assets, including the nonperforming loans in the preceding table and other real estate acquired in the settlement of residential mortgages, amounted to $28 million and $32 million at December 31, 2020 and September 30, 2020, respectively.

Total nonperforming assets as a percentage of RJ Bank total assets were 0.09% and 0.10% at December 31, 2020 and September 30, 2020, respectively.

Although our nonperforming assets as a percentage of RJ Bank assets remained low as of December 31, 2020, prolonged or further market deterioration could result in an increase in our nonperforming assets, an increase in our allowance for credit losses and/or an increase in net charge-offs in future periods, although the extent will depend on future developments that are highly uncertain.

We have received requests from certain borrowers for forbearance, which is generally a short-term deferral of their loan payments to us, driven or exacerbated by the economic impacts of the COVID-19 pandemic.

Certain borrowers have also requested modifications of covenant terms and repayment plans.

In accordance with the CARES Act and the Consolidated Appropriations Act, 2021, we have elected to not apply TDR classification to any COVID-19 related loan modifications that were performed after March 1, 2020 to borrowers who were current as of December 31, 2019.

Based on the amortized costs as of the end of December 31, 2020, we have active payment deferrals on approximately $90 million and $49 million of our corporate and residential loans, respectively.

Such deferrals could delay the recognition of charge-offs, delinquencies, and nonaccrual status for these borrowers who would have otherwise moved into past due or nonaccrual status.

Modification requests have continued to decline and a majority of the borrowers that have exited forbearance have become current on their principal and interest payments.

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Management’s Discussion and Analysis

Included in nonperforming residential mortgage loans as of March 31, 2021 were $6 million in loans for which $3 million in charge-offs were previously recorded, resulting in less exposure within the remaining balance.

See Note 8 in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for loan categories as a percentage of total loans receivable.

The nonperforming loan balances in the preceding table exclude $9 million and $10 million as of March 31, 2021 and September 30, 2020, respectively, of residential TDRs which were returned to accrual status in accordance with our policy.

Total nonperforming assets, including the nonperforming loans in the preceding table and other real estate acquired in the settlement of residential mortgages, amounted to $31 million and $32 million at March 31, 2021 and September 30, 2020, respectively.

Total nonperforming assets as a percentage of RJ Bank total assets were 0.09% and 0.10% at March 31, 2021 and September 30, 2020, respectively.

Although our nonperforming assets as a percentage of RJ Bank assets remained low as of March 31, 2021, prolonged or further market deterioration could result in an increase in our nonperforming assets, an increase in our allowance for credit losses and/or an increase in net charge-offs in future periods, although the extent will depend on future developments that are highly uncertain.

We have received requests from certain borrowers for forbearance, which is generally a short-term deferral of their loan payments, or modification of certain covenant terms, driven or exacerbated by the economic impacts of the COVID-19 pandemic.

Based on the amortized costs, approximately $52 million and $5 million of our corporate and residential loans, respectively, were in active forbearance as of March 31, 2021.

As certain borrowers exit forbearance we have received requests for loan modifications, including repayment plans.

In accordance with the CARES Act and the Consolidated Appropriations Act, 2021, we have elected to not apply TDR classification to any COVID-19 related loan modifications performed between March 1, 2020 and December 31, 2021, to borrowers who were current as of December 31, 2019.

As of March 31, 2021, we had residential loans of $31 million for which the borrower had requested a loan modification, where the request had been initiated but not completed or approved.

As the delinquency status is not affected for loans that are in active forbearance or for loan modifications that have not yet been approved, the recognition of charge-offs, delinquencies, and nonaccrual status could be delayed for these borrowers who would have otherwise moved into past due or nonaccrual status.

Forbearance and modification requests have continued to decline and the majority of the borrowers that have exited forbearance, but have not requested loan modifications, have become current on their principal and interest payments.

Loan underwriting policies

RJ Bank’s underwriting policies for the major types of loans are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” of our 2020 Form 10-K.

There were no material changes in RJ Bank’s underwriting policies during the three months ended December 31, 2020.

There were no material changes in RJ Bank’s underwriting policies during the six months ended March 31, 2021.

Risk monitoring process

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There are various other factors included in these processes, depending on the loan portfolio.

There were no material changes to those processes and policies during the three months ended December 31, 2020.

There were no material changes to those processes and policies during the six months ended March 31, 2021.

Residential mortgage and SBL and other loan portfolios

The collateral securing RJ Bank’s SBL and other portfolio is monitored on a recurring basis, with marketable collateral monitored on a daily basis.

Collateral adjustments are made by the borrower as necessary to ensure RJ Bank’s loans are

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Management’s Discussion and Analysis

adequately secured, resulting in minimizing its credit risk.

Collateral adjustments are made by the borrower as necessary to ensure RJ Bank’s loans are adequately secured, resulting in minimizing its credit risk.

Collateral calls have been minimal relative to our SBL and other portfolio with no losses incurred to date.

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See Note 8 in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for additional information.

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Management’s Discussion and Analysis

The following table presents a summary of delinquent residential mortgage loans, the vast majority of which are first mortgage loans, which are comprised of loans which are two or more payments past due as well as loans in the process of foreclosure.

Amounts in the following table do not include residential loans to borrowers who have been granted forbearance as a result of the COVID-19 pandemic and whose loans were not considered delinquent prior to the forbearance.

Such loans may be considered delinquent after the forbearance period, depending on their payment status.

As a result, the amount of residential loans considered delinquent may increase significantly when the forbearance periods expire.

Amounts in the following table do not include residential loans to borrowers who were granted forbearance as a result of the COVID-19 pandemic and whose loans were not considered delinquent prior to the forbearance.

Such loans may be considered delinquent after the forbearance period or completion of loss mitigation efforts, depending on their payment status.

As a result, the amount of residential loans considered delinquent may increase significantly in the future.

Amount of delinquent residential loans Delinquent residential loans as a percentage of outstanding loan balances

$ in millions 30-89 days 90 days or more Total 30-89 days 90 days or more Total

December 31, 2020 $ 5 $ 7 $ 12 0.10 % 0.14 % 0.24 %

March 31, 2021 $ 3 $ 8 $ 11 0.06 % 0.16 % 0.22 %

September 30, 2020 $ 3 $ 7 $ 10 0.06 % 0.14 % 0.20 %

Our December 31, 2020 percentage continues to compare favorably to the national average for over 30 day delinquencies of 3.16%, as most recently reported by the Fed.

Our March 31, 2021 percentage continues to compare favorably to the national average for over 30 day delinquencies of 3.12%, as most recently reported by the Fed.

Credit risk is also managed by diversifying the residential mortgage portfolio.

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The following table details the geographic concentrations (top five states) of RJ Bank’s one-to-four family residential mortgage loans.

December 31, 2020

March 31, 2021

Loans outstanding as a % of RJ Bank total residential mortgage loans Loans outstanding as a % of RJ Bank total loans

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Payments may increase significantly when the interest-only period ends and the loan principal begins to amortize.

At December 31, 2020 and September 30, 2020, these loans totaled $1.73 billion and $1.67 billion, respectively, or approximately 35% and 34% of the residential mortgage portfolio, respectively.

The weighted-average number of years before the remainder of the loans, which were still in their interest-only period at December 31, 2020, begins amortizing is 6 years.

At March 31, 2021 and September 30, 2020, these loans totaled $1.82 billion and $1.67 billion, respectively, or approximately 36% and 34% of the residential mortgage portfolio, respectively.

The weighted-average number of years before the remainder of the loans, which were still in their interest-only period at March 31, 2021, begins amortizing is 6 years.

Corporate and tax-exempt loans

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The following table details the industry concentrations (top five categories) of RJ Bank’s corporate loans.

December 31, 2020

March 31, 2021

Loans outstanding as a % of RJ Bank total corporate loans Loans outstanding as a % of RJ Bank total loans

Office real estate 7.6% 3.9%

Automotive/transportation 6.9% 3.5%

Hospitality 6.2% 3.2%

Business systems and services 6.8% 3.5%

Automotive/transportation 6.4% 3.3%

Multi-family 6.0% 3.1%

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Management’s Discussion and Analysis

Hospitality 5.7% 2.9%

The COVID-19 pandemic negatively impacted our corporate loan portfolio in fiscal 2020 and could do so again in the future.

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We may also experience further losses on corporate loans in other industries as a direct or indirect result of the pandemic, including on our CRE loans secured by retail and hospitality properties.

Although we saw deterioration in oil prices for much of fiscal year 2020 due to the pandemic and prices continued to be below pre-pandemic levels during the fiscal first quarter of 2021, our energy portfolio has minimal direct commodity price exposure since it consists of loans to midstream distribution companies and convenience stores, with no loans to exploration and production enterprises.

However, if we continue to see a significant deterioration in oil prices, our borrowers, and as a result our loans to such clients, could be negatively impacted in the future.

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Management’s Discussion and Analysis

Although we saw deterioration in oil prices for much of fiscal year 2020 due to the pandemic, oil prices returned to pre-pandemic levels during the second quarter of fiscal 2021.

In addition, our energy portfolio has minimal direct commodity price exposure since it consists of loans to midstream distribution companies and convenience stores, with no loans to exploration and production enterprises.

However, in the event of significant deterioration in oil prices in the future, our borrowers, and our loans to such borrowers, could be negatively impacted.

Liquidity risk

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As a result, a substantial portion of our associates continue to work remotely.

The firm continues to monitor conditions and has developed a phased approach to reopening our offices based on regional indicators of infection positivity rates, and has and will continue to operate in compliance with all applicable laws and regulations.

As of December 31, 2020, we have reopened certain of our offices in a limited capacity and are operating under strict public health and safety protocols in such locations.

Periods of severe market volatility, such as those that arose in response to the COVID-19 pandemic, can result in a significantly higher level of transactions on specific days and other activity which may cause operational challenges from time to time that may result in losses.

The firm continues to monitor conditions and has developed a phased approach to reopening our offices which complies with all applicable laws, regulations, and Centers for Disease Control guidelines.

As of March 31, 2021, we had reopened most of our offices in a limited capacity and have been operating under strict public health and safety protocols in such locations.

We are also closely monitoring the rollout of the COVID-19 vaccines as well as monitoring the ongoing infection positivity rates, to provide insight to the nature of our plans and their implementation timing.

We are working to develop and finalize such plans for a post-pandemic return to a more normal, pre-pandemic type of operating environment that allows us to be efficient, but is also safe for both our associates and clients.

Periods of severe market volatility, such as those that arose most notably in fiscal 2020 in response to the onset of the COVID-19 pandemic, can result in a significantly higher level of transactions on specific days and other activity which may present operational challenges from time to time that may result in losses.

These losses can result from, but are not limited to, trade errors, failed transaction settlements, late collateral calls to borrowers and counterparties, or interruptions to our system processing.

We did not incur any significant losses related to our operations during the three months ended December 31, 2020.

As more fully described in the discussion of our business technology risks included in various risk factors presented in “Item 1A - Risk Factors” of our 2020 Form 10-K, despite our implementation of protective measures and endeavoring to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to human error, natural disasters, power loss, cyber-attacks and other information security breaches, and other events that could have an impact on the security and stability of our operations.

We did not incur any significant losses related to such operational challenges during the six months ended March 31, 2021.

Model risk refers to the possibility of unintended business outcomes arising from the design, implementation or use of models.

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Compliance risk is the risk of legal or regulatory sanctions, financial loss, or reputational damage that the firm may suffer from a failure to comply with applicable laws, external standards, or internal requirements.

See “Item 7 - Management’s Discussion

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and Analysis of Financial Condition and Results of Operations - Risk management - Compliance risk” of our 2020 Form 10-K for information on our compliance risks, including how we manage such risks.

See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Compliance risk” of our 2020 Form 10-K for information on our compliance risks, including how we manage such risks.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management” of this Form 10-Q for our quantitative and qualitative disclosures about market risk.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis