RAYMOND JAMES FINANCIAL INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INDEX PAGE Factors affecting “forward-looking statements” 43 Introduction 43 Executive overview 43 Reconciliation of non-GAAP financial measures to GAAP financial measures 45 Segments 46 Net interest analysis 47 Results of Operations Private Client Group 50 Capital Markets 53 Asset Management 54 Raymond James Bank 57 Other 58 Certain statistical disclosures by bank holding companies 59 Statement of financial condition analysis 59 Liquidity and capital resources 60 Regulatory 65 Critical accounting estimates 65 Recent accounting developments 66 Risk management 66 42 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis FACTORS AFFECTING “FORWARD-LOOKING STATEMENTS” Certain statements made in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning future strategic objectives, business prospects, anticipated savings, financial results (including expenses, earnings, liquidity, cash flow and capital expenditures), anticipated timing and benefits of our acquisitions (including our acquisition of Charles Stanley completed on January 21, 2022, as well as our proposed acquisition of TriState Capital), and our level of success in integrating acquired businesses, anticipated results of litigation, regulatory developments, impacts of the COVID-19 pandemic, effects of accounting pronouncements, and general economic conditions. In addition, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “forecasts,” 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, is intended to identify forward-looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our filings with the SEC from time to time, including our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which are available at www.raymondjames.com and the SEC’s website at www.sec.gov. We expressly disclaim any obligation to update any forward-looking statement in the event it later turns out to be inaccurate, whether as a result of new information, future events or otherwise. INTRODUCTION The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of our operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and accompanying notes to condensed consolidated financial statements. Where “NM” is used in various percentage change computations, the computed percentage change has been determined to be not meaningful. We operate as a financial holding company and bank holding company. Results in the businesses in which we operate are highly correlated to general economic conditions and, more specifically, to the direction of the U.S. equity and fixed income markets, changes in interest rates, market volatility, corporate and mortgage lending markets and commercial and residential credit trends. Overall market conditions, economic, political and regulatory trends, and industry competition are among the factors which could affect us and which are unpredictable and beyond our control. These factors affect the financial decisions made by market participants, including investors, borrowers, and competitors, impacting their level of participation in the financial markets. These factors also impact the level of investment banking activity and asset valuations, which ultimately affect our business results. EXECUTIVE OVERVIEW Three months ended December 31, 2021 compared with the three months ended December 31, 2020 For our fiscal first quarter of 2022, we generated net revenues of $2.78 billion, an increase of 25% compared with the prior-year quarter, and pre-tax income of $558 million, an increase of 40%. Our net income of $446 million was 43% higher than the prior-year quarter and our earnings per diluted share were $2.10, reflecting a 42% increase. Our annualized return on equity (“ROE”) was 21.2%, compared with 17.2% for the prior-year quarter, and annualized return on tangible common equity (“ROTCE”) was 23.4% (1) , compared with 19.0% (1) for the prior-year quarter. The significant increase in net revenues compared with the prior-year quarter was primarily driven by higher asset management and related administrative fees, primarily attributable to higher PCG client assets in fee-based accounts, and strong investment banking revenues, which also increased compared with the prior-year quarter. (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 measure, and for other important disclosures. 43 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Compensation, commissions and benefits expense increased $384 million, or 26%, primarily attributable to the growth in revenues and pre-tax income compared with the prior-year quarter. Our compensation ratio, or the ratio of compensation, commissions and benefits expense to net revenues, was 67.7%, compared with 67.5% for the prior-year quarter. Non-compensation expenses increased $16 million, or 5%, primarily due to increases in communications and information processing and business development expenses, as well as higher investment sub-advisory fees. Partially offsetting these increases was a $25 million decrease in the bank loan provision for credit losses, which was a benefit of $11 million in the current quarter compared with a provision of $14 million in the prior-year quarter. Our effective income tax rate was 20.1% for our fiscal first quarter of 2022, a decrease from 21.8% for the prior-year quarter. The decrease in the effective tax rate from the prior-year quarter was primarily due to a larger tax benefit recognized during the current quarter related to share-based compensation that vested during the period, partially offset by lower valuation gains on our corporate-owned life insurance portfolio compared with the prior-year quarter. As of December 31, 2021, our total capital ratio of 27.0% and tier 1 leverage ratio of 12.1% were each more than double the regulatory requirement to be considered well-capitalized. We also continue to have substantial liquidity, with $1.4 billion (1) of cash at the parent company, which includes cash loaned to RJ&A. We expect to continue to be opportunistic in deploying our capital in fiscal 2022, through a combination of organic growth and acquisitions, as evidenced by our acquisition of Charles Stanley, which we completed on January 21, 2022, as well as our proposed acquisition of TriState Capital, which we expect to close later in fiscal 2022. In December 2021, our Board of Directors increased the quarterly dividend 31% to $0.34 per share and authorized share repurchases of up to $1 billion, which replaced the previous authorization. Due to regulatory restrictions following the announcement of our pending acquisition of TriState Capital, we do not expect to repurchase common shares until after closing; however, the increase in the authorization reflects our current intention to repurchase shares after closing. As of February 4, 2022, $1 billion remained available under the share repurchase authorization. We remain well-positioned entering our fiscal second quarter, with $1.26 trillion of client assets under administration as of December 2021 as well as strong financial advisor recruiting activity and a robust investment banking pipeline. With clients’ domestic cash sweep balances of $73.5 billion as of December 2021, we believe we are also well-positioned for anticipated increases in short-term interest rates given the exposure to short-term interest rates for both our RJBDP balances with third-party banks and a significant portion of our assets at Raymond James Bank. However, we also expect to continue to face economic uncertainty, including that arising from inflation, supply chain complications, labor shortages, and uncertainty around U.S. economic policy. In addition, although the economy has continued to improve since the beginning of the COVID-19 pandemic, the pace of recovery in the future is uncertain due to concerns related to the pandemic, including the spread of variants. As a result, we may experience volatility in asset management fees, brokerage revenues and investment banking revenues. Although our results during the quarter were positively impacted by a benefit for credit losses related to our bank loan portfolio, net loan growth should result in additional provisions for bank loan losses in future periods and/or future market deterioration could result in increased provisions in future periods. In addition, although we have been focused on the management of expenses, we expect that expenses will continue to increase in fiscal 2022, as business and event-related travel continue to increase and as we continue to make investments in our people and technology to support our growth. (1) For additional information, please see the “Liquidity and capital resources - Sources of liquidity” section in this MD&A. 44 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURES We utilize certain non-GAAP financial measures, including ROTCE, as additional measures to aid in, and enhance, the understanding of our financial results and related measures. We believe that ROTCE is meaningful to investors as this measure facilitates comparison of our results to the results of other companies. Non-GAAP financial measures should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures of other companies. The following tables provide a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures for the periods indicated. Three months ended December 31, $ in millions 2021 2020 Average equity $ 8,423 $ 7,239 Less: Average goodwill and identifiable intangible assets, net 878 717 Average deferred tax liabilities, net (64) (45) Average tangible common equity $ 7,609 $ 6,567 Return on equity 21.2 % 17.2 % Return on tangible common equity 23.4 % 19.0 % 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. Tangible common equity is computed by subtracting goodwill and identifiable intangible assets, net, along with the associated deferred tax liabilities, from total equity attributable to RJF. 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. 45 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis SEGMENTS We currently operate through the following five segments: PCG; Capital Markets; Asset Management; Raymond James Bank; and Other. 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 2021 2020 % change Total company Net revenues $ 2,781 $ 2,222 25 % Pre-tax income $ 558 $ 399 40 % Private Client Group Net revenues $ 1,839 $ 1,467 25 % Pre-tax income $ 195 $ 140 39 % Capital Markets Net revenues $ 614 $ 452 36 % Pre-tax income $ 201 $ 129 56 % Asset Management Net revenues $ 236 $ 195 21 % Pre-tax income $ 107 $ 83 29 % Raymond James Bank Net revenues $ 183 $ 167 10 % Pre-tax income $ 102 $ 71 44 % Other Net revenues $ (15) $ 4 NM Pre-tax loss $ (47) $ (24) (96) % Intersegment eliminations Net revenues $ (76) $ (63) (21) % 46 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis NET INTEREST ANALYSIS 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%. These near-zero short-term interest rates have negatively impacted our net interest income, as well as the fee income we earn from third-party banks on client cash balances swept to such banks as part of the RJBDP (included in account and service fees) which are also sensitive to changes in interest rates. The Federal Reserve has recently indicated that it intends to increase its short-term interest rates some time during our fiscal 2022 in response to inflationary pressures and given the improving economic and employment conditions since the beginning of the COVID-19 pandemic. Given the relationship between our interest-sensitive assets and liabilities (primarily held in our PCG, Raymond James Bank and Other segments) and the nature of fees we earn from third-party banks on the RJBDP, increases in short-term interest rates generally result in an increase in our net earnings, although the magnitude of the impact to our net interest margin depends on the yields on interest-earning assets relative to the cost of interest-bearing liabilities, including deposit rates paid to clients on their cash balances. As a result, we believe we are well-positioned for our net interest earnings to be favorably impacted by any increase in short-term rates that may arise. Conversely, any decreases in short-term interest rates and/or increases in the deposit rates paid to clients would generally have a negative impact on our earnings. Based on our high concentration of floating-rate assets that are funded from clients’ domestic cash sweep balances, we estimate (based on static balances as of December 31, 2021) that an instantaneous 100 basis point increase in short-term interest rates would result in incremental pre-tax income of approximately $570 million annually, with approximately 65% reflected as net interest income and 35% reflected as account and service fees. The realization of such amounts is dependent upon a number of key assumptions and actual results may differ materially from our estimates. Refer to the discussion of our net interest income within the “Management’s Discussion and Analysis - Results of Operations” of our PCG, Raymond James Bank, and Other segments, where applicable. Also refer to “Management’s Discussion and Analysis - Results of Operations - Private Client Group - Clients’ domestic cash sweep balances” for further information on the RJBDP. 47 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The following table presents our consolidated average interest-earning asset and interest-bearing liability balances, interest income and expense and the related yields and rates. Three months ended December 31, 2021 compared with the three months ended December 31, 2020 Three months ended December 31, 2021 2020 $ in millions Average daily balance Interest Annualized average rate Average daily balance Interest Annualized average rate Interest-earning assets: Cash and cash equivalents $ 6,076 $ 3 0.18 % $ 5,712 $ 4 0.25 % Assets segregated for regulatory purposes and restricted cash 13,011 4 0.12 % 5,816 3 0.21 % Available-for-sale securities 8,511 22 1.02 % 7,478 23 1.21 % Brokerage client receivables 2,484 21 3.35 % 2,082 18 3.48 % Bank loans, net of unearned income and deferred expenses: Loans held for investment: C&I loans 8,581 55 2.49 % 7,535 51 2.63 % CRE loans 2,941 20 2.67 % 2,582 17 2.59 % REIT loans 1,133 7 2.56 % 1,235 8 2.43 % Tax-exempt loans 1,297 8 3.19 % 1,237 8 3.35 % Residential mortgage loans 5,451 37 2.68 % 5,001 35 2.77 % SBL and other 6,289 35 2.20 % 4,286 25 2.29 % Loans held for sale 239 2 2.94 % 141 1 2.94 % Total bank loans, net 25,931 164 2.52 % 22,017 145 2.62 % All other interest-earning assets 2,376 11 1.91 % 2,288 10 2.00 % Total interest-earning assets $ 58,389 $ 225 1.53 % $ 45,393 $ 203 1.78 % Interest-bearing liabilities: Bank deposits: Savings, money market and NOW accounts $ 31,894 $ 2 0.02 % $ 26,637 $ 1 0.02 % Certificates of deposit 843 4 1.87 % 952 5 1.93 % Total bank deposits 32,737 6 0.07 % 27,589 6 0.09 % Brokerage client payables 14,300 1 0.03 % 7,324 1 0.06 % Other borrowings 857 5 2.20 % 866 5 2.19 % Senior notes payable 2,037 23 4.44 % 2,045 24 4.70 % All other interest-bearing liabilities 650 2 1.16 % 574 2 1.14 % Total interest-bearing liabilities $ 50,581 $ 37 0.28 % $ 38,398 $ 38 0.39 % Net interest income $ 188 $ 165 Firmwide net interest margin (net yield on interest-earning assets) 1.29 % 1.45 % Raymond James Bank net interest margin 1.92 % 2.02 % 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 December 31, 2021 and 2020. Net interest income increased $23 million, or 14%, compared with the prior-year quarter, as significant growth in average interest-earning assets outweighed the year-over-year decrease in net interest margin. 48 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 December 31, 2021 compared to 2021 Increase/(decrease) due to $ in millions Volume Rate Total Interest income: Interest-earning assets: Cash and cash equivalents $ — $ (1) $ (1) Assets segregated for regulatory purposes and restricted cash 4 (3) 1 Available-for-sale securities 3 (4) (1) Brokerage client receivables 4 (1) 3 Bank loans, net of unearned income and deferred expenses: Loans held for investment: C&I loans 7 (3) 4 CRE loans 2 1 3 REIT loans (1) — (1) Tax-exempt loans — — — Residential mortgage loans 3 (1) 2 SBL and other 12 (2) 10 Loans held for sale 1 — 1 Total bank loans, net 24 (5) 19 All other interest-earning assets 2 (1) 1 Total interest-earning assets $ 37 $ (15) $ 22 Interest expense: Interest-bearing liabilities: Bank deposits: Savings, money market and NOW accounts $ 1 $ — $ 1 Certificates of deposit (1) — (1) Total bank deposits — — — Brokerage client payables 1 (1) — Other borrowings — — — Senior notes payable — (1) (1) All other interest-bearing liabilities — — — Total interest-bearing liabilities $ 1 $ (2) $ (1) Change in net interest income $ 36 $ (13) $ 23 49 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis RESULTS OF OPERATIONS – PRIVATE CLIENT GROUP For an overview of our PCG segment operations, as well as a description of the key factors impacting our PCG results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K. Operating results Three months ended December 31, $ in millions 2021 2020 % change Revenues: Asset management and related administrative fees $ 1,162 $ 885 31 % Brokerage revenues: Mutual and other fund products 171 148 16 % Insurance and annuity products 111 98 13 % Equities, ETFs and fixed income products 115 107 7 % Total brokerage revenues 397 353 12 % Account and service fees: Mutual fund and annuity service fees 114 94 21 % RJBDP fees: Third-party banks 17 21 (19) % Raymond James Bank 50 43 16 % Client account and other fees 49 32 53 % Total account and service fees 230 190 21 % Investment banking 13 6 117 % Interest income 33 30 10 % All other 7 5 40 % Total revenues 1,842 1,469 25 % Interest expense (3) (2) 50 % Net revenues 1,839 1,467 25 % Non-interest expenses: Financial advisor compensation and benefits 1,187 931 27 % Administrative compensation and benefits 283 249 14 % Total compensation, commissions and benefits 1,470 1,180 25 % Non-compensation expenses: Communications and information processing 71 62 15 % Occupancy and equipment 46 43 7 % Business development 27 16 69 % Professional fees 9 13 (31) % All other 21 13 62 % Total non-compensation expenses 174 147 18 % Total non-interest expenses 1,644 1,327 24 % Pre-tax income $ 195 $ 140 39 % 50 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Selected key metrics PCG client asset balances As of $ in billions December 31, 2021 September 30, 2021 December 31, 2020 September 30, 2020 Assets under administration (“AUA”) $ 1,199.8 $ 1,115.4 $ 974.2 $ 883.3 Assets in fee-based accounts (1) $ 677.8 $ 627.1 $ 532.7 $ 475.3 Percent of AUA in fee-based accounts 56.5 % 56.2 % 54.7 % 53.8 % (1) A portion of our “Assets in fee-based accounts” is invested in “managed programs” overseen by our Asset Management segment, specifically our Asset Management Services division of RJ&A (“AMS”). These assets are included in our Financial assets under management as disclosed in the “Selected key metrics” section of our “Management’s Discussion and Analysis - Results of Operations - Asset Management.” Fee-based accounts within our PCG segment are comprised of a wide array of products and programs that we offer our clients. The majority of assets in fee-based accounts within our PCG segment are invested in programs for which our financial advisors provide investment advisory services, either on a discretionary or non-discretionary basis. Administrative services for such accounts (e.g., record-keeping) are generally performed by our Asset Management segment and, as a result, a portion of the related revenue is shared with the Asset Management segment. We also offer our clients fee-based accounts that are invested in “managed programs” overseen by AMS, which is part of our Asset Management segment. Fee-billable assets invested in managed programs are included in both “Assets in fee-based accounts” in the preceding table and “Financial assets under management” in the Asset Management segment. Revenues related to managed programs are shared by our PCG and Asset Management segments. The Asset Management segment receives a higher portion of the revenues related to accounts invested in managed programs, as compared to the portion received for non-managed programs, as it is performing portfolio management services in addition to administrative services. The vast majority of the revenues we earn from fee-based accounts is recorded in “Asset management and related administrative fees” on our Condensed Consolidated Statements of Income and Comprehensive Income. Fees received from such accounts are based on the value of client assets in fee-based accounts and vary based on the specific account types in which the client invests and the level of assets in the client relationship. As fees for substantially all of such accounts are billed based on balances as of the beginning of the quarter, revenues from fee-based accounts may not be immediately affected by changes in asset values, but rather the impacts are seen in the following quarter. Assets in fee-based accounts in this segment increased 8% as of December 31, 2021 compared with September 30, 2021, which we expect will have a favorable impact on our related revenues in our fiscal second quarter of 2022, even after the offsetting effect of fewer days in the second quarter compared to the first quarter. PCG AUA increased during the three months ended December 31, 2021, primarily due to equity market appreciation as well as strong retention and recruiting of financial advisors. In addition, PCG assets in fee-based accounts continued to increase as a percentage of overall PCG AUA due to clients’ increased preference for fee-based alternatives versus transaction-based accounts. As a result of the continued increase in fee-based accounts as a percentage of total PCG AUA, a significant portion of our PCG revenues is more directly impacted by market movements. Financial advisors December 31, 2021 September 30, 2021 December 31, 2020 September 30, 2020 Employees 3,447 3,461 3,387 3,404 Independent contractors 5,017 5,021 4,846 4,835 Total advisors 8,464 8,482 8,233 8,239 51 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis The number of financial advisors as of December 31, 2021 decreased slightly compared to September 30, 2021 as new recruits and trainees that were moved into production roles were outpaced by the number of financial advisors who left the firm, including planned retirements, where assets are generally retained at the firm pursuant to advisor succession plans. Advisor departures due to retirements or advisors choosing to leave the business are typically elevated during the December quarter compared to other quarters. The number of financial advisors included in our financial advisor metric has been negatively impacted over the past several quarters by the transfer of advisors who were previously affiliated with the firm as independent contractors or employees to our Registered Investment Advisor & Custody Services (“RCS”) division. Advisors in RCS are not included in our financial advisor metric although their client assets, which were $101.6 billion as of December 31, 2021, are included in PCG AUA. The recruiting pipeline remains robust across our affiliation options despite a competitive recruiting environment. Clients’ domestic cash sweep balances As of $ in millions December 31, 2021 September 30, 2021 December 31, 2020 September 30, 2020 RJBDP: Raymond James Bank $ 33,097 $ 31,410 $ 26,697 $ 25,599 Third-party banks 24,316 24,496 26,142 25,998 Subtotal RJBDP 57,413 55,906 52,839 51,597 CIP 16,065 10,762 8,769 3,999 Total clients’ domestic cash sweep balances $ 73,478 $ 66,668 $ 61,608 $ 55,596 Three months ended December 31, 2021 2020 Average yield on RJBDP - third-party banks 0.28 % 0.31 % A significant portion of our clients’ cash is included in the RJBDP, a multi-bank sweep program in which clients’ cash deposits in their accounts are swept into interest-bearing deposit accounts at Raymond James Bank and various third-party banks. We earn servicing fees for the administrative services we provide related to our clients’ deposits that are swept to such banks as part of the RJBDP. The amounts from third-party banks are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates and the interest paid to clients by the third-party banks on balances in the RJBDP. The “Average yield on RJBDP - third party banks” in the preceding table is computed by dividing annualized RJBDP fees from third-party banks, which are net of the interest expense paid to clients by the third-party banks, by the average daily RJBDP balance at third-party banks. The average yield on RJBDP - third-party banks decreased slightly from the prior-year quarter, reflecting the impact of near-zero short-term interest rates and limited demand for deposits at third-party banks. If demand from third-party banks does not improve from current levels and short-term interest rates do not increase, we could continue to experience downward pressure on this yield or, in the case of an increase in short-term interest rates, may not experience a commensurate increase in this yield. The PCG segment also earns RJBDP servicing fees from the Raymond James Bank segment, which are based on the number of accounts that are swept to Raymond James Bank. The fees from the Raymond James Bank segment are eliminated in consolidation. PCG segment results can be impacted by changes in the allocation of client cash balances between RJBDP balances with Raymond James Bank, RJBDP balances with third-party banks, and CIP, as the PCG segment typically earns different amounts from each of the three client cash destinations, depending on multiple factors. Client cash balances continued to increase as of December 31, 2021. The growing cash balances combined with reduced capacity at third-party banks that participate in the RJBDP, resulted in a significant increase in cash balances held in CIP, also resulting in a significant increase in our assets segregated for regulatory purposes balance presented on our Condensed Consolidated Statements of Financial Condition. Three months ended December 31, 2021 compared with the three months ended December 31, 2020 Net revenues of $1.84 billion increased $372 million, or 25%, and pre-tax income of $195 million increased $55 million, or 39%. Asset management and related administrative fees increased $277 million, or 31%, primarily due to higher assets in fee-based accounts at the beginning of the current-year quarter. 52 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Brokerage revenues increased $44 million, or 12%, primarily due to higher trailing revenues from mutual and other fund products and annuity products, resulting from higher average asset values, as well as higher transactional revenues due to increased client activity. Account and service fees increased $40 million, or 21%, primarily due to an increase in mutual fund service fees resulting from higher average mutual fund assets, as well as incremental client account and other fees resulting from our acquisition of NWPS Holdings, Inc. at the end of our fiscal first quarter of 2021. Compensation-related expenses increased $290 million, or 25%, primarily due to higher revenues and continued improvement in financial performance, as well as an increase in compensation costs to support our growth. Non-compensation expenses increased $27 million, or 18%, largely due to increases in travel and event-related expenses compared with the low levels incurred in the prior-year quarter, as well as higher communications and information processing expenses primarily due to ongoing enhancements of our technology platforms. RESULTS OF OPERATIONS – CAPITAL MARKETS For an overview of our Capital Markets segment operations, as well as a description of the key factors impacting our Capital Markets results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K. Operating results Three months ended December 31, $ in millions 2021 2020 % change Revenues: Brokerage revenues: Fixed income $ 120 $ 131 (8) % Equity 39 42 (7) % Total brokerage revenues 159 173 (8) % Investment banking: Merger & acquisition and advisory 271 149 82 % Equity underwriting 97 60 62 % Debt underwriting 44 46 (4) % Total investment banking 412 255 62 % Interest income 5 3 67 % Tax credit fund revenues 35 16 119 % All other 5 7 (29) % Total revenues 616 454 36 % Interest expense (2) (2) — % Net revenues 614 452 36 % Non-interest expenses: Compensation, commissions and benefits 331 252 31 % Non-compensation expenses: Communications and information processing 22 19 16 % Occupancy and equipment 9 9 — % Business development 8 9 (11) % Professional fees 14 13 8 % Acquisition-related expenses 4 — NM All other 25 21 19 % Total non-compensation expenses 82 71 15 % Total non-interest expenses 413 323 28 % Pre-tax income $ 201 $ 129 56 % 53 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Three months ended December 31, 2021 compared with the three months ended December 31, 2020 Net revenues of $614 million increased $162 million, or 36%, and pre-tax income of $201 million increased $72 million, or 56%. Investment banking revenues increased $157 million, or 62%, due to a significant increase in merger & acquisition and advisory revenues and, to a lesser extent, equity underwriting revenues. The significant increase in merger & acquisition and advisory revenues reflected an increase in the number of transactions due to continued high levels of client activity, as well as an increase in the average fee per transaction. The increase in equity underwriting was primarily due to higher revenues from private placements. In addition to our strong results during the quarter, our investment banking pipeline remains strong going into our fiscal second quarter and, in part, reflect the investments we have made over the past several years, including our fiscal 2021 acquisitions of Financo and Cebile. Brokerage revenues decreased $14 million, or 8%, primarily due to a decrease in fixed income brokerage revenues, which remained solid but were lower than the prior-year quarter as a result of a decline in client activity levels compared with a strong prior-year quarter. While inherently difficult to predict, we expect fixed income brokerage revenues to remain solid in our fiscal second quarter driven in large part by expected continued demand from depository clients. Compensation-related expenses increased $79 million, or 31%, primarily due to the increase in revenues. Non-compensation expenses increased $11 million, or 15%, and included $4 million of acquisition-related expenses, comprised of the amortization of intangible assets with short useful lives which arose from the Financo and Cebile acquisitions. RESULTS OF OPERATIONS – ASSET MANAGEMENT For an overview of our Asset Management segment operations as well as a description of the key factors impacting our Asset Management results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K. Operating results Three months ended December 31, $ in millions 2021 2020 % change Revenues: Asset management and related administrative fees: Managed programs $ 151 $ 129 17 % Administration and other 76 59 29 % Total asset management and related administrative fees 227 188 21 % Account and service fees 6 4 50 % All other 3 3 — % Net revenues 236 195 21 % Non-interest expenses: Compensation, commissions and benefits 46 45 2 % Non-compensation expenses: Communications and information processing 12 11 9 % Investment sub-advisory fees 37 28 32 % All other 34 28 21 % Total non-compensation expenses 83 67 24 % Total non-interest expenses 129 112 15 % Pre-tax income $ 107 $ 83 29 % Selected key metrics Managed programs Management fees recorded in our Asset Management segment are generally calculated as a percentage of the value of our fee-billable financial assets under management (“AUM”). These AUM include the portion of fee-based AUA in our PCG segment that is invested in programs overseen by our Asset Management segment (included in the “AMS” line of the following table), 54 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis as well as retail accounts managed on behalf of third-party institutions, institutional accounts and proprietary mutual funds that we manage (collectively included in the “Carillon Tower Advisers” line of the following table). Revenues related to fee-based AUA in our PCG segment are shared by the PCG and Asset Management segments, the amount of which depends on whether clients are invested in assets that are in managed programs overseen by our Asset Management segment and the administrative services provided (see our “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for more information). Our AUM in AMS are impacted by market fluctuations and net inflows or outflows of assets, including transfers between fee-based accounts and transaction-based accounts within our PCG segment. Revenues earned 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. Our AUM in Carillon Tower Advisers are impacted by market and investment performance and net inflows or outflows of assets. Fees for our managed programs are generally collected quarterly. Approximately 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. Financial assets under management $ in billions December 31, 2021 September 30, 2021 December 31, 2020 September 30, 2020 AMS (1) $ 145.0 $ 134.4 $ 113.9 $ 102.2 Carillon Tower Advisers 68.9 67.8 64.9 59.5 Subtotal financial assets under management 213.9 202.2 178.8 161.7 Less: Assets managed for affiliated entities (10.7) (10.3) (9.2) (8.6) Total financial assets under management $ 203.2 $ 191.9 $ 169.6 $ 153.1 (1) Represents the portion of our PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and Analysis - Results of Operations - Private Client Group”) that is invested in managed programs overseen by the Asset Management segment. Activity (including activity in assets managed for affiliated entities) Three months ended December 31, $ in billions 2021 2020 Financial assets under management at beginning of period $ 202.2 $ 161.7 Carillon Tower Advisers - net outflows (0.4) (0.3) AMS - net inflows 3.5 1.7 Net market appreciation in asset values 8.6 15.7 Financial assets under management at end of period $ 213.9 $ 178.8 AMS See “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for further information about our retail client assets, including those fee-based assets invested in programs managed by AMS. Carillon Tower Advisers Assets managed by Carillon Tower Advisers include assets managed by its subsidiaries and affiliates: Eagle Asset Management, Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management and Cougar Global Investments. The following table 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. $ in billions December 31, 2021 Average fee rate Equity $ 30.3 0.52 % Fixed income 30.9 0.18 % Balanced 7.7 0.35 % Total financial assets under management $ 68.9 0.35 % 55 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Non-discretionary asset-based programs The following table includes assets held in certain non-discretionary asset-based programs for which the Asset Management segment does not exercise discretion but provides administrative support (including for affiliated entities). The vast majority of these assets are also included in our PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and Analysis - Results of Operations - Private Client Group”). $ in billions December 31, 2021 September 30, 2021 December 31, 2020 September 30, 2020 Total assets $ 392.4 $ 365.3 $ 313.5 $ 280.6 The increase in assets as of December 31, 2021 compared to September 30, 2021 was primarily due to equity market appreciation and continued growth in the PCG segment. Administrative fees associated with these programs are predominantly based on balances at the beginning of the quarter. RJ Trust The following table includes assets held in asset-based programs in RJ Trust (including those managed for affiliated entities). $ in billions December 31, 2021 September 30, 2021 December 31, 2020 September 30, 2020 Total assets $ 8.8 $ 8.1 $ 7.6 $ 7.1 Three months ended December 31, 2021 compared with the three months ended December 31, 2020 Net revenues of $236 million increased $41 million, or 21%, and pre-tax income of $107 million increased $24 million, or 29%. Asset management and related administrative fees increased $39 million, or 21%, driven by higher AUM and higher assets in non-discretionary asset-based programs. The increase in AUM resulted from both equity market appreciation and net inflows at AMS, partially offset by net outflows at Carillon Tower Advisers, which continued to be negatively impacted by the industry shift from actively managed investment strategies to passive investment strategies. Beginning October 1, 2021, AMS has received a lower portion of the client fee on certain managed fee-based products offered to PCG clients through AMS. These changes resulted in a $9 million reduction in asset management and related administrative fees in the Asset Management segment and an approximately $7 million reduction in firmwide pre-tax income during the quarter. Compensation expenses increased $1 million, or 2%, and included the impact of higher net revenues. Non-compensation expenses increased $16 million, or 24%, largely due to higher investment sub-advisory fees, which resulted from the increase in AUM in sub-advised programs, and an increase in platform fees. 56 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis RESULTS OF OPERATIONS – RAYMOND JAMES BANK For an overview of our Raymond James Bank segment operations, as well as a description of the key factors impacting our Raymond James Bank segment results of operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K. Operating results Three months ended December 31, $ in millions 2021 2020 % change Revenues: Interest income $ 187 $ 168 11 % Interest expense (10) (11) (9) % Net interest income 177 157 13 % All other 6 10 (40) % Net revenues 183 167 10 % Non-interest expenses: Compensation and benefits 13 12 8 % Non-compensation expenses: Bank loan provision/(benefit) for credit losses (11) 14 NM RJBDP fees to PCG 50 43 16 % All other 29 27 7 % Total non-compensation expenses 68 84 (19) % Total non-interest expenses 81 96 (16) % Pre-tax income $ 102 $ 71 44 % Three months ended December 31, 2021 compared with the three months ended December 31, 2020 Net revenues of $183 million increased $16 million, or 10%, and pre-tax income of $102 million increased $31 million, or 44%. Net interest income increased $20 million, or 13%, due to higher average interest-earning assets. The increase in average interest-earning assets was primarily driven by significant growth in securities-based loans and residential mortgages to PCG clients, as well as increases in average corporate loans and available-for-sale securities. The net interest margin decreased to 1.92% from 2.02% for the prior-year quarter, primarily due to lower short-term interest rates, as well as higher balances of agency-backed available-for-sale securities, which on average have a lower yield than loans. Absent any changes in short-term interest rates during the period, we expect the net interest margin for our fiscal second quarter of 2022 to remain relatively flat to the fiscal first quarter; however we expect net interest income to be positively impacted by the growth in loans. Given that a significant portion of our interest-earning assets are sensitive to changes in market interest rates, our net interest earnings should be favorably impacted by any increase in short-term interest rates. The bank loan benefit for credit losses was $11 million for the current quarter, compared with a provision for credit losses of $14 million for the prior-year quarter. The current quarter benefit was largely attributable to improvement in credit quality in the C&I bank loan portfolio and continued improvement in macroeconomic inputs to our CECL model, which positively impacted most loan portfolios, partially offset by provisions for credit losses related to loan growth. RJBDP fees to PCG increased $7 million, or 16%, due to an increase in the number of accounts swept to Raymond James Bank as part of the RJBDP. These fees are eliminated in consolidation. 57 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis RESULTS OF OPERATIONS – OTHER This segment includes our private equity investments, interest income on certain corporate cash balances, certain acquisition-related expenses, and certain corporate overhead costs of RJF that are not allocated to other segments, including the interest costs on our public debt. For an overview of our Other segment operations, refer to the information presented in “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Form 10-K. Operating results Three months ended December 31, $ in millions 2021 2020 % change Revenues: Interest income $ 1 $ 3 (67) % Gains on private equity investments 5 24 (79) % All other 2 1 100 % Total revenues 8 28 (71) % Interest expense (23) (24) (4) % Net revenues (15) 4 NM Non-interest expenses: Compensation and all other 30 26 15 % Acquisition-related expenses 2 2 — % Total non-interest expenses 32 28 14 % Pre-tax loss $ (47) $ (24) (96) % Three months ended December 31, 2021 compared with the three months ended December 31, 2020 The pre-tax loss of $47 million was $23 million larger than the loss in the prior-year quarter. Net revenues decreased $19 million, primarily due to a decrease in private equity valuation gains compared with the prior-year quarter. The current quarter included $5 million of private equity valuation gains, of which $1 million was attributable to noncontrolling interests and was offset within other expenses. The prior-year quarter included $24 million of private equity valuation gains, of which $10 million were attributable to noncontrolling interests and were offset within other expenses. Non-interest expenses increased $4 million, or 14%, primarily due to increases in compensation and benefit expenses, primarily resulting from the continued improvement in the financial performance of our businesses, partially offset by the aforementioned decrease in private equity gains attributable to noncontrolling interests. The $2 million of acquisition-related expenses in the current quarter primarily included professional fees associated with our acquisition of Charles Stanley and our announced acquisition of TriState Capital. 58 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis CERTAIN STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES We are required to provide certain statistical disclosures as a bank holding company under the SEC’s Industry Guide 3. The following table provides certain of those disclosures. Three months ended December 31, 2021 2020 Return on assets 2.7% 2.5% Return on equity 21.2% 17.2% Average equity to average assets 12.9% 14.3% Dividend payout ratio 16.2% 17.5% 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. 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. Average equity to average assets is computed by dividing average equity by average assets, as calculated in accordance with the previous explanations. Dividend payout ratio is computed by dividing dividends declared per common share during the period by earnings per diluted common share for the period. Refer to the “Net interest analysis” and “Risk management - Credit risk” sections of this MD&A and to the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for the other required disclosures. STATEMENT OF FINANCIAL CONDITION ANALYSIS The assets on our Condensed Consolidated Statements of Financial Condition consisted primarily of cash and cash equivalents, assets segregated for regulatory purposes and restricted cash (primarily segregated for the benefit of clients), receivables including bank loans, financial instruments held either for trading purposes or as investments, and other assets. A significant portion of our assets were liquid in nature, providing us with flexibility in financing our business. Total assets of $68.46 billion as of December 31, 2021 were $6.57 billion, or 11%, greater than our total assets as of September 30, 2021. The increase in assets was primarily due to a $4.14 billion increase in assets segregated for regulatory purposes and restricted cash, primarily due to a significant increase in client cash balances. Bank loans, net increased by $1.14 billion, primarily due to an increase in securities-based loans and residential mortgages to PCG clients, as well as an increase in corporate loans. In addition, cash and cash equivalents increased $1.02 billion and other investments increased $354 million, primarily due to the purchase of U.S. Treasuries to meet future broker-dealer customer reserve requirements. As of December 31, 2021, our total liabilities of $59.81 billion were $6.22 billion, or 12%, greater than our total liabilities as of September 30, 2021. The increase in total liabilities was primarily related to the significant increase in client cash balances as of December 31, 2021, which resulted in a $5.21 billion increase in brokerage client payables, primarily due to an increase in client cash held in our CIP, and a $1.60 billion increase in bank deposits, resulting from a higher RJBDP balance held at Raymond James Bank. Partially offsetting these increases was a decrease in accrued compensation, commissions and benefits of $397 million, primarily due to the seasonal payment of annual bonuses and the funding of profit-sharing and employee stock ownership benefit plans which occurred during the three months ended December 31, 2021. 59 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis LIQUIDITY AND CAPITAL RESOURCES Liquidity and capital are essential to our business. The primary goal of our liquidity management activities is to ensure adequate funding to conduct our business over a range of economic and market environments. We seek to manage capital levels to support execution of our business strategy, provide financial strength to our subsidiaries, and maintain sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and conservative internal management targets. Liquidity and capital resources are provided primarily through our business operations and financing activities. Financing activities could include bank borrowings, collateralized financing arrangements or additional capital raising activities under our “universal” shelf registration statement. We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and available from committed and uncommitted financing facilities, provide adequate funds for continuing operations at current levels of activity in the short-term. We also believe that we will be able to continue to meet our long-term cash requirements due to our strong financial position and ability to access capital from financial markets. Liquidity and capital management Senior management establishes our liquidity and capital management frameworks. Our liquidity and capital management frameworks are overseen by the RJF Asset and Liability Committee, a senior management committee that develops and executes strategies and policies to manage our liquidity risk and interest rate risk, as well as provides oversight over the firm’s investments. The liquidity management framework includes senior management’s review of short- and long-term cash flow forecasts, review of capital expenditures, monitoring of the availability of alternative sources of financing, and daily monitoring of liquidity in our significant subsidiaries. Our decisions on the allocation of resources to our business units consider, among other factors, projected profitability, cash flow, risk, and future liquidity needs. Our treasury department assists in evaluating, monitoring and controlling the impact that our business activities have on our financial condition and liquidity, and also maintains our relationships with various lenders. The objective of our liquidity management framework is to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity. Our capital planning and capital risk management processes are governed by the Capital Planning Committee (“CPC”), a senior management committee that provides oversight on our capital planning and ensures that our strategic planning and risk management processes are integrated into the capital planning process. The CPC meets at least quarterly to review key metrics related to the firm’s capital, such as debt structure and capital ratios; to analyze potential and emerging risks to capital; to oversee our annual firmwide capital stress test; and to propose capital actions to the Board of Directors, such as declaring dividends, repurchasing securities, and raising capital. To ensure that we have sufficient capital to absorb unanticipated losses, the firm adheres to capital risk appetite statements and tolerances set in excess of regulatory minimums, which are established by the CPC and approved by the Board of Directors. We conduct enterprise-wide capital stress testing to ensure that we maintain adequate capital to adhere to our established tolerances under multiple scenarios, including stressed scenarios. Cash flows Cash and cash equivalents (excluding amounts segregated for regulatory purposes and restricted cash) increased $1.02 billion to $8.22 billion during the three months ended December 31, 2021, primarily due to a significant increase in client cash balances and positive net income during the quarter. During the three months ended December 31, 2021, we had a significant increase in client cash balances which increased our brokerage client payables and bank deposits. This cash was largely used to purchase U.S. Treasuries in our brokerage operations, which were segregated for regulatory purposes or held in anticipation of future broker-dealer customer reserve requirements as of December 31, 2021, and to increase our bank loan portfolio and available-for-sale securities as part of our banking operations. Due to the timing of the increase in client cash balances, on January 3, 2022, $685 million of the $1.02 billion increase in cash and cash equivalents was segregated for regulatory purposes in order to comply with broker-dealer customer reserve requirements. 60 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Sources of liquidity Approximately $1.40 billion of our total December 31, 2021 cash and cash equivalents included cash held at the parent company, which included cash loaned to RJ&A. This parent cash balance does not include $385 million of cash set aside by the parent in a restricted account as of December 31, 2021 to be used to fund the acquisition of Charles Stanley. As of December 31, 2021, this restricted cash was included in “Assets segregated for regulatory purposes and restricted cash” on our Condensed Consolidated Statements of Financial Condition and is not included in the amounts presented in the following table. On January 21, 2022, we completed the acquisition of Charles Stanley, utilizing $372 million of this restricted cash to complete the acquisition. As of December 31, 2021, RJF had loaned $875 million 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, 2021 RJF $ 553 RJ&A 3,470 Raymond James Bank 2,646 Raymond James Ltd. (“RJ Ltd.”) 882 Raymond James Financial Services, Inc. 129 Carillon Tower Advisers 95 Other subsidiaries 441 Total cash and cash equivalents $ 8,216 RJF maintained depository accounts at Raymond James Bank with a balance of $229 million as of December 31, 2021. The portion of this total that was available on demand without restrictions, which amounted to $152 million as of December 31, 2021, is reflected in the RJF cash balance and excluded from the Raymond James Bank cash balance in the preceding table. On January 3, 2022, RJ&A segregated an additional $1.04 billion, comprised of $685 million of cash and $350 million of U.S. Treasuries, to meet its December 31, 2021 broker-dealer customer reserve requirement, resulting in a decrease in “Cash and cash equivalents” and “Other investments” on our statement of financial condition and an increase in “Assets segregated for regulatory purposes and restricted cash.” A large portion of the RJ Ltd. cash and cash equivalents balance as of December 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. Liquidity available from subsidiaries Liquidity is principally available to RJF, the parent company, from RJ&A and Raymond James Bank. 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 the Financial Industry Regulatory Authority (“FINRA”), RJ&A is subject to FINRA’s capital requirements, which are substantially the same as Rule 15c3-1. Rule 15c3-1 provides for an “alternative net capital requirement,” which RJ&A has elected. Regulations require that minimum net capital, as defined, be equal to the greater of $1.5 million or 2% of aggregate debit items arising from client balances. 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, 2021, RJ&A significantly exceeded the minimum regulatory requirements, the covenants in its financing arrangements pertaining to net capital, as well as its internally-targeted net capital tolerances and intends to use a portion of its excess net capital to remit dividends to RJF, in conformity with all required regulatory rules or approvals. FINRA may impose certain restrictions, such as restricting withdrawals of equity capital, if a member firm were to fall below a certain threshold or fail to meet minimum net capital requirements which may result in RJ&A limiting dividends it would otherwise remit to RJF. We evaluate regulatory requirements, loan covenants and certain internal tolerances when determining the amount of liquidity available to RJF from RJ&A. 61 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Raymond James Bank may pay dividends to RJF without prior approval of its regulator as long as the dividends do not exceed the sum of Raymond James Bank’s current calendar year and the previous two calendar years’ retained net income, and Raymond James Bank maintains its targeted regulatory capital ratios. Dividends from Raymond James Bank may be limited to the extent that capital is needed to support its balance sheet growth. Although we have liquidity available to us from our other subsidiaries, the available amounts are not as significant as those previously described and, in certain instances, may be subject to regulatory requirements. Borrowings and financing arrangements Committed financing arrangements Our ability to borrow is dependent upon compliance with the conditions in our various loan agreements and, in the case of secured borrowings, collateral eligibility requirements. Our committed financing arrangements consist of a tri-party repurchase agreement (i.e., securities sold under agreements to repurchase) and, in the case of our $500 million revolving credit facility agreement (the “Credit Facility”), an unsecured line of credit. The required market value of the collateral associated with the tri-party repurchase agreement ranges from 105% to 125% of the amount financed. The following table presents our committed financing arrangements with third-party lenders, which we generally utilize to finance a portion of our fixed income trading instruments, and the outstanding balances related thereto. December 31, 2021 $ in millions RJ&A RJF Total Total number of arrangements Financing arrangement: Committed secured $ 100 $ — $ 100 1 Committed unsecured 200 300 500 1 Total committed financing arrangements $ 300 $ 300 $ 600 2 Outstanding borrowing amount: Committed secured $ — $ — $ — Committed unsecured — — — Total outstanding borrowing amount $ — $ — $ — Our committed unsecured financing arrangement in the preceding table represents our Credit Facility, which provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF. RJ&A may borrow up to $500 million under the Credit Facility, depending on the amount of outstanding borrowings by RJF. For additional details on our committed unsecured financing arrangement, see our discussion of the Credit Facility in Note 16 of the Notes to Consolidated Financial Statements of our 2021 Form 10-K. Uncommitted financing arrangements Our uncommitted financing arrangements are in the form of secured lines of credit, secured bilateral or tri-party repurchase agreements, or unsecured lines of credit. Our arrangements with third-party lenders are generally utilized to finance a portion of our fixed income securities or for cash management purposes. Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed and are generally collateralized by RJ&A-owned securities or by securities that we have received as collateral under reverse repurchase agreements (i.e., securities purchased under agreements to resell). As of December 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. 62 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES 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, 2021 Outstanding borrowing amount: Uncommitted secured $ 203 Uncommitted unsecured — Total outstanding borrowing amount $ 203 The average daily balance outstanding during the five most recent quarters, the maximum month-end balance outstanding during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements are detailed in the following table. Repurchase transactions Reverse repurchase transactions For the quarter ended: ($ in millions) Average daily balance outstanding Maximum month-end balance outstanding during the quarter End of period balance outstanding Average daily balance outstanding Maximum month-end balance outstanding during the quarter End of period balance outstanding December 31, 2021 $ 247 $ 258 $ 203 $ 306 $ 305 $ 204 September 30, 2021 $ 220 $ 234 $ 205 $ 269 $ 286 $ 279 June 30, 2021 $ 194 $ 185 $ 185 $ 283 $ 339 $ 289 March 31, 2021 $ 226 $ 260 $ 222 $ 242 $ 280 $ 224 December 31, 2020 $ 211 $ 236 $ 233 $ 204 $ 259 $ 162 Other borrowings and collateralized financings We had $850 million in FHLB borrowings outstanding at December 31, 2021, comprised of floating-rate advances which mature in December 2023. The interest rates on the floating-rate advances reset quarterly and transitioned to a Secured Overnight Financing Rate (“SOFR”) -based rate in December 2021. We use interest rate swaps to manage the risk of increases in interest rates associated with these floating-rate advances by converting the balances subject to variable interest rates to a fixed interest rate. These FHLB borrowings were secured by a blanket lien on Raymond James Bank’s residential mortgage loan portfolio. Raymond James Bank had an additional $3.33 billion in immediate credit available from the FHLB as of December 31, 2021 and, with the pledge of additional eligible collateral to the FHLB, total available credit of 30% of total assets. See Note 16 of the Notes to Consolidated Financial Statements of our 2021 Form 10-K for additional information regarding these borrowings. Raymond James Bank is eligible to participate in the Federal Reserve’s discount window program; however, we do not view borrowings from the Federal Reserve as a primary source of funding. The credit available in this program is subject to periodic review, may be terminated or reduced at the discretion of the Federal Reserve, and is secured by pledged C&I loans. We act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from one broker-dealer and then lend them to another. Where permitted, we have also loaned, to broker-dealers and other financial institutions, securities owned by clients or the firm. We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balance of $65 million as of December 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. Senior notes payable At December 31, 2021, we had aggregate outstanding senior notes payable of $2.04 billion, which, exclusive of any unaccreted premiums or discounts and debt issuance costs, was comprised of $500 million par 4.65% senior notes due 2030, $800 million par 4.95% senior notes due 2046, and $750 million par 3.75% senior notes due 2051. See Note 17 of the Notes to the Consolidated Financial Statements of our 2021 Form 10-K for additional information. 63 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Credit ratings Our issuer and senior long-term debt ratings as of the most current report are detailed in the following table. Rating Agency Rating Outlook Fitch Ratings, Inc. A- Stable Moody’s Investors Services (1) Baa1 Review for Upgrade Standard & Poor’s Ratings Services BBB+ Stable (1) In November 2021, Moody’s Investor Services placed our senior debt and issuer rating on review for upgrade. 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 position in the markets in which we operate. Deterioration in any of these factors could impact our credit ratings. Any rating downgrades could increase our costs in the event we were to obtain additional financing. Should our credit rating be downgraded prior to a public debt offering, it is probable that we would have to offer a higher rate of interest to bond holders. A downgrade to below investment grade may make a public debt offering difficult to execute on terms we would consider to be favorable. A downgrade below investment grade could result in the termination of certain derivative contracts and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. A credit downgrade could damage our reputation and result in certain counterparties limiting their business with us, result in negative comments by analysts, potentially negatively impact investors’ and/or clients’ perception of us, and cause a decline in our stock price. None of our borrowing arrangements contains a condition or event of default related to our credit ratings. However, a credit downgrade would result in the firm incurring a higher facility fee on the Credit Facility, in addition to triggering a higher interest rate applicable to any borrowings outstanding on that line as of and subsequent to such downgrade. Conversely, an improvement in RJF’s current credit rating could have a favorable impact on the facility fee, as well as the interest rate applicable to any borrowings on such line. Other sources and uses of liquidity We have company-owned life insurance policies which are utilized to fund certain non-qualified deferred compensation plans and other employee benefit plans. Certain of our non-qualified deferred compensation plans and other employee benefit plans are employee-directed while others are company-directed. Of the company-owned life insurance policies which fund these plans, certain policies could be used as a source of liquidity for the firm. Those policies against which we could readily borrow had a cash surrender value of $896 million as of December 31, 2021, comprised of $553 million related to employee-directed plans and $343 million related to company-directed plans, and we were able to borrow up to 90%, or $807 million, of the December 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, 2021. On May 12, 2021, 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 12, 2024. On January 21, 2022, we completed our acquisition of all of the outstanding share capital of U.K.-based Charles Stanley at a price of £5.15 per share, or approximately £274 million ($372 million as of January 21, 2022). As of December 31, 2021, we had segregated $385 million in cash to fund the acquisition on the closing date, which was included in “Assets segregated for regulatory purposes and restricted cash” on our Condensed Consolidated Statements of Financial Condition. See Note 3 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information. On October 20, 2021, we announced we had entered into a definitive agreement to acquire TriState Capital in a combination cash and stock transaction, valued at approximately $1.1 billion. Under the terms of the agreement, TriState Capital common stockholders will receive $6.00 cash and 0.25 RJF shares for each share of TriState Capital common stock, which represents per share consideration of $31.09 based on the closing price of RJF common stock on October 19, 2021. We have entered into an agreement with the sole holder of the TriState Capital Series C Convertible Preferred Stock pursuant to which the Series C Convertible Preferred Stock will be converted to common shares at the prescribed exchange ratio and cashed out at $30 per share. The TriState Capital Series A Preferred Stock and Series B Preferred Stock will remain outstanding and will be 64 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis converted into equivalent preferred stock of RJF. The transaction, which is subject to customary closing conditions, including regulatory approvals and approval by TriState Capital shareholders, is expected to close later in fiscal 2022. We currently have the ability to utilize our cash on hand to fund the cash component of the acquisition. See Note 3 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information. As part of our ongoing operations, we also enter into contractual arrangements that may require future cash payments, including certificates of deposit, lease obligations and other contractual arrangements, such as for software and various services. See Notes 12 and 13 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding our lease obligations and certificates of deposit, respectively. We have entered into investment commitments, lending commitments and other commitments to extend credit for which we are unable to reasonably predict the timing of future payments. See Note 15 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information. REGULATORY Refer to the discussion of the regulatory environment in which we operate and the impact on our operations of certain rules and regulations in “Item 1 - Business - Regulation” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory” of our 2021 Form 10-K. RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As of December 31, 2021, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. In addition, RJF and Raymond James Bank were categorized as “well-capitalized” as of December 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. However, due to the current capital position of RJF and its regulated subsidiaries, we do not anticipate these capital requirements will have a negative impact on our future business activities. See Note 20 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information on regulatory capital requirements. Alternative reference rate transition Central banks and regulators in the U.S. and other jurisdictions are working to implement the transition to suitable replacements for the London Interbank Offered Rate (“LIBOR”). In December 2021, our FHLB borrowings and SBL converted from LIBOR-based interest rates to SOFR-based interest rates, resulting in an insignificant impact on interest income, interest expense, and cash flows. We continue to evaluate the effect of the alternative reference rate transition and at this time, given current economic conditions, we expect minimal financial impact. Refer to “Item 1 - Business - Regulation” of our 2021 Form 10-K f or additional information regarding the alternative reference rate transition and our planned response. CRITICAL ACCOUNTING ESTIMATES The condensed consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during any reporting period in our condensed consolidated financial statements. Management has established detailed policies and control procedures intended to ensure the appropriateness of such estimates and assumptions and their consistent application from period to period. For a description of our significant accounting policies, see Note 2 of the Notes to Consolidated Financial Statements of our 2021 Form 10-K. Due to their nature, estimates involve judgment based upon available information. Actual results or amounts could differ from estimates and the difference could have a material impact on the consolidated financial statements. Therefore, understanding these critical accounting estimates is important in understanding our reported results of operations and financial position. We believe that of our accounting estimates and assumptions, those described in the following sections involve a high degree of judgment and complexity. Valuation of financial instruments The use of fair value to measure financial instruments, with related gains or losses recognized on our Condensed Consolidated Statements of Income and Comprehensive Income, is fundamental to our financial statements and our risk management processes. See Note 2 of the Notes to Consolidated Financial Statements of our 2021 Form 10-K for a discussion of our fair value accounting policies regarding financial instruments and financial instrument liabilities. See Note 4 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on our financial instruments at fair value. 65 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Loss provisions Loss provisions for legal and regulatory matters The recorded amount of liabilities related to legal and regulatory matters is subject to significant management judgment. For a description of the significant estimates and judgments associated with establishing such accruals, see the “Contingent liabilities” section of Note 2 of the Notes to Consolidated Financial Statements of our 2021 Form 10-K. In addition, refer to Note 15 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, 2021. Allowance for credit losses We evaluate certain of our financial assets, including bank loans, to estimate an allowance for credit losses based on expected credit losses over a financial asset’s lifetime. Our estimates are based on ongoing evaluations of our financial assets, the related credit risk characteristics, and the overall economic and environmental conditions affecting the financial assets. Our process for determining the allowance for credit losses includes a complex analysis of several quantitative and qualitative factors requiring significant management judgment due to matters that are inherently uncertain. This uncertainty can produce volatility in our allowance for credit losses. In addition, the allowance for credit losses could be insufficient to cover actual losses. In such an event, any losses in excess of our allowance would result in a decrease in our net income, as well as a decrease in the level of regulatory capital. See Note 2 of the Notes to Consolidated Financial Statements of our 2021 Form 10-K for information regarding our methodologies and assumptions used in estimating the allowance for credit losses. See Note 8 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding our allowance for credit losses related to bank loans as of December 31, 2021. 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 Risks are an inherent part of our business and activities. Management of risk is critical to our fiscal soundness and profitability. Our risk management processes are multi-faceted and require communication, judgment and knowledge of financial products and markets. We have a formal Enterprise Risk Management (“ERM”) program to assess and review aggregate risks across the firm. Our management takes an active role in the ERM process, which requires specific administrative and business functions to participate in the identification, assessment, monitoring and control of various risks. The principal risks related to our business activities are market, credit, liquidity, operational, model, and compliance. Governance Our Board of Directors, including its Audit and Risk Committee, oversees the firm’s management and mitigation of risk, reinforcing a culture that encourages ethical conduct and risk management throughout the firm. Senior management communicates and reinforces this culture through three lines of risk management and a number of senior-level management committees. Our first line of risk management, which includes all of our businesses, owns its risks and is responsible for identifying, mitigating, and escalating risks arising from its day-to-day activities. The second line of risk management, which includes Compliance and Risk Management, advises our client-facing businesses and other first-line functions in identifying, assessing and mitigating risk. The second line of risk management tests and monitors the effectiveness of controls, as deemed necessary, and escalates risks when appropriate to senior management and the Board of Directors. The third line of risk management, Internal Audit, independently reviews activities conducted by the previous lines of risk management to assess their management and mitigation of risk, providing additional assurance to the Board of Directors and senior management, with a view toward enhancing our oversight, management, and mitigation of risk. 66 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Market risk Market risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory, derivatives and investment positions. We have exposure to market risk primarily through our broker-dealer trading operations and our banking operations. Our broker-dealer subsidiaries, primarily RJ&A, act as market makers and trade debt obligations and equity securities and maintain inventories to ensure availability of securities and to facilitate client transactions. Inventory levels may fluctuate daily as a result of client demand. We also hold investments in agency-backed MBS and agency-backed CMOs within Raymond James Bank’s available-for-sale securities portfolio, and from time-to-time may hold SBA loan securitizations not yet transferred. Our primary market risks relate to interest rates, equity prices, and foreign exchange rates. Interest rate risk results from changes in levels of interest rates, the volatility of interest rates, mortgage prepayment speeds and credit spreads. Equity risk results from changes in prices of equity securities. Foreign exchange risk results from changes in spot prices, forward prices and volatility of foreign exchange rates. See Note 2 of the Notes to Consolidated Financial Statements of our 2021 Form 10-K and Notes 4, 5 and 6 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for fair value and other information regarding our trading inventories, available-for-sale securities and derivative instruments. We regularly enter into underwriting commitments and, as a result, we may be subject to market risk on any unsold shares issued in the offerings to which we are committed. Risk exposure is controlled by limiting our participation, the transaction size or through the syndication process. The Market Risk Management department is responsible for measuring, monitoring, and reporting market risks associated with the firm’s trading and derivative portfolios. While Market Risk Management maintains ongoing communication with the revenue-generating business units, it is independent of such units. Interest rate risk Trading activities We are exposed to interest rate risk as a result of our trading inventory (primarily comprised of fixed income instruments) in our Capital Markets segment. Changes in value of our trading inventory may result from fluctuations in interest rates, credit spreads, equity prices, macroeconomic factors, investor expectations or risk appetites, liquidity, as well as dynamic relationships among these factors. We actively manage interest rate risk arising from our fixed income trading securities through the use of hedging strategies utilizing U.S. Treasuries, futures contracts, liquid spread products and derivatives. Our primary method for controlling risks within trading inventories is through the use of dollar-based and exposure-based limits. A hierarchy of limits exists at multiple levels, including firm, business unit, desk (e.g., for equities, corporate bonds, municipal bonds), product sub-type (e.g., below-investment-grade positions) and, at times, at the individual position. For derivative positions, which are primarily comprised of interest rate swaps, we have established limits based on a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis, and volatility risk. Derivative exposures are also monitored both for the total portfolio and by maturity periods. Trading positions and derivatives are monitored against these limits through daily reports that are distributed to senior management. During volatile markets, we may temporarily reduce limits and/or choose to pare our trading inventories to reduce risk. We monitor Value-at-Risk (“VaR”) for all of our trading portfolios on a daily basis for risk management purposes and as a result of applying the Fed’s Market Risk Rule (“MRR”) for the purpose of calculating our capital ratios. The MRR, also known as the “Risk-Based Capital Guidelines: Market Risk” rule released by the Fed, the Office of the Comptroller of the Currency and the FDIC, requires us to calculate VaR for all of our trading portfolios, including fixed income, equity, derivatives, and foreign exchange instruments. VaR is an appropriate statistical technique for estimating potential losses in trading portfolios due to typical adverse market movements over a specified time horizon with a suitable confidence level. However, there are inherent limitations of utilizing VaR including: historical movements in markets may not accurately predict future market movements; VaR does not take into account the liquidity of individual positions; VaR does not estimate losses over longer time horizons; and extended periods of one-directional markets potentially distort risks within the portfolio. In addition, should markets become more volatile, actual trading losses may exceed VaR results presented on a single day and might accumulate over a longer time horizon. As a result, management complements VaR with sensitivity analysis and stress testing and employs additional controls such as a daily review of trading results, review of aged inventory, independent review of pricing, monitoring of concentrations and review of issuer ratings. 67 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis To calculate VaR, we use models which incorporate historical simulation. This approach assumes that historical changes in market conditions, such as in interest rates and equity prices, are representative of future changes. Simulation is based on daily market data for the previous twelve months. VaR is reported at a 99% confidence level for a one-day time horizon. Assuming that future market conditions change as they have in the past twelve months, we would expect to incur losses greater than those predicted by our one-day VaR estimates about once every 100 trading days, or about three times per year on average. For regulatory capital calculation purposes, we also report VaR and Stressed VaR numbers for a ten-day time horizon. The VaR model is independently reviewed by our Model Risk Management function. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Model risk” of our 2021 Form 10-K for further information. The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations that management believes to be reasonable. However, there is no uniform industry methodology for estimating VaR, and different assumptions or approximations could produce materially different VaR estimates. As a result, VaR results are more reliable when used as indicators of risk levels and trends within a firm than as a basis for inferring differences in risk-taking across firms. The following table sets forth the high, low, period-end and average daily one-day VaR for all of our trading portfolios, including fixed income and equity instruments, and for our derivatives for the periods and dates indicated. Three months ended December 31, 2021 Period-end VaR Three months ended December 31, $ in millions High Low December 31, 2021 September 30, 2021 $ in millions 2021 2020 Daily VaR $ 2 $ 1 $ 1 $ 1 Average daily VaR $ 1 $ 6 Average daily VaR was lower during the current-year period compared with the prior-year period due to the impact of scenarios of elevated volatility as a result of the COVID-19 pandemic (which commenced in March 2020) on our VaR model during the prior-year quarter. The Fed’s MRR requires us to perform daily back-testing procedures for our VaR model, whereby we compare each day’s projected VaR to its regulatory-defined daily trading losses, which exclude fees, commissions, reserves, net interest income and intraday trading. Regulatory-defined daily trading losses are used to evaluate the performance of our VaR model and are not comparable to our actual daily net revenues. Based on these daily “ex ante” versus “ex post” comparisons, we determine whether the number of times that regulatory-defined daily trading losses exceed VaR is consistent with our expectations at a 99% confidence level. During the three months ended December 31, 2021, our regulatory-defined daily losses in our trading portfolios did not exceed our predicted VaR. Separately, RJF provides additional market risk disclosures to comply with the MRR, including 10-day VaR and 10-day Stressed VaR, which are available on our website at https://www.raymondjames.com/investor-relations/financial-information/filings-and-reports within “Other Reports and Information.” Banking operations Raymond James Bank maintains an interest-earning asset portfolio that is comprised of cash, C&I loans, commercial and residential real estate loans, REIT loans, tax-exempt loans and SBL and other loans, as well as agency-backed MBS and agency-backed CMOs (held in the available-for-sale securities portfolio), and SBA loan securitizations. These interest-earning assets are primarily funded by client deposits. Based on its current asset portfolio, Raymond James Bank is subject to interest rate risk. Raymond James 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. One of the objectives of Raymond James Bank’s Asset and Liability Committee is to manage the sensitivity of net interest income to changes in market interest rates. This committee uses several measures to monitor and limit Raymond James Bank’s interest rate risk, including scenario analysis and economic value of equity. The methods used to measure this sensitivity are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Market risk” of our 2021 Form 10-K. We utilize a hedging strategy using interest rate swaps as a result of Raymond James Bank’s asset and liability management process. For further information regarding this hedging strategy, see Note 2 of the Notes to Consolidated Financial Statements of our 2021 Form 10-K. 68 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis To ensure that Raymond James Bank remains within its tolerances established for net interest income, a sensitivity analysis of net interest income to interest rate conditions is estimated under a variety of scenarios. We use simulation models and estimation techniques to assess the sensitivity of net interest income to movements in interest rates. The model estimates the sensitivity by calculating interest income and interest expense in a dynamic balance sheet environment using current repricing, prepayment, and reinvestment of cash flow assumptions over a 12-month time horizon. Assumptions used in the model include interest rate movement, the slope of the yield curve, and balance sheet composition and growth. The model also considers interest rate-related risks such as pricing spreads, pricing of client cash accounts, and prepayments. Various interest rate scenarios are modeled in order to determine the effect those scenarios may have on net interest income. The following table is an analysis of Raymond James Bank’s estimated net interest income over a 12-month period based on instantaneous shifts in interest rates (expressed in basis points) using our previously described asset/liability model, which assumes a dynamic balance sheet and that interest rates do not decline below zero. While not presented, additional rate scenarios are performed, including interest rate ramps and yield curve shifts that may more realistically mimic the speed of potential interest rate movements. We also perform simulations on time horizons of up to five years to assess longer-term impacts to various interest rate scenarios. On a quarterly basis, we test expected model results to actual performance. Additionally, any changes made to key assumptions in the model are documented and approved by Raymond James Bank’s Asset and Liability Committee. Instantaneous changes in rate Net interest income ($ in millions) Projected change in net interest income +200 $1,033 33% +100 $980 26% 0 $778 —% -25 $751 (3)% 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 consolidated firm’s operations. The following table shows the contractual maturities of our bank loan portfolio at December 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. Due in $ in millions One year or less > One year – five years > Five years Total C&I loans $ 447 $ 4,988 $ 3,173 $ 8,608 CRE loans 707 1,966 319 2,992 REIT loans 75 1,085 29 1,189 Tax-exempt loans 4 130 1,156 1,290 Residential mortgage loans — 7 5,561 5,568 SBL and other 6,521 42 — 6,563 Total loans held for investment 7,754 8,218 10,238 26,210 Held for sale loans — 21 209 230 Total loans $ 7,754 $ 8,239 $ 10,447 $ 26,440 The following table shows the distribution of the recorded investment of those bank loans that mature in more than one year between fixed and adjustable interest rate loans at December 31, 2021. Interest rate type $ in millions Fixed Adjustable Total C&I loans $ 352 $ 7,809 $ 8,161 CRE loans 90 2,195 2,285 REIT loans — 1,114 1,114 Tax-exempt loans 1,286 — 1,286 Residential mortgage loans 202 5,366 5,568 SBL and other — 42 42 Total loans held for investment 1,930 16,526 18,456 Held for sale loans 1 229 230 Total loans $ 1,931 $ 16,755 $ 18,686 69 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Contractual loan terms for C&I, CRE, REIT and residential mortgage loans may include an interest rate floor, cap and/or fixed interest rates for a certain period of time, which would impact the timing of the interest rate reset for the respective loan. See the discussion within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk - Risk monitoring process” section of this Form 10-Q for additional information regarding Raymond James Bank’s interest-only residential mortgage loan portfolio. In our available-for-sale securities portfolio, we hold primarily fixed-rate agency-backed MBS and agency-backed CMOs which are carried at fair value on our 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, 2021, our available-for-sale securities portfolio had a fair value of $8.55 billion with a weighted-average yield of 1.13% and a weighted-average life of approximately four years. See Note 5 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information. Equity price risk We are exposed to equity price risk as a result of our capital markets activities. Our broker-dealer activities are generally client-driven, and we carry equity securities as part of our trading inventory to facilitate such activities, although the amounts are not as significant as our fixed income trading inventory. We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions each day and establishing position limits. Equity securities held in our trading inventory are generally included in VaR. In addition, we have a private equity portfolio, included in “Other investments” on our Condensed Consolidated Statements of Financial Condition, which is comprised of various direct investments, as well as investments in third-party private equity funds. Of the total private equity investments at December 31, 2021 of $157 million, the portion we owned was $115 million. See Note 4 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information on this portfolio. Foreign exchange risk We are subject to foreign exchange risk due to our investments in foreign subsidiaries as well as transactions and resulting balances denominated in a currency other than the U.S. dollar. For example, our bank loan portfolio includes loans which are denominated in Canadian dollars, totaling $1.26 billion and $1.29 billion at December 31, 2021 and September 30, 2021, respectively, when converted to the U.S. dollar. A majority of such loans are held by Raymond James Bank’s Canadian subsidiary, which is discussed in the following sections. Investments in foreign subsidiaries Raymond James Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate its foreign exchange risk, Raymond James Bank utilizes short-term, forward foreign exchange contracts. These derivatives are primarily accounted for as net investment hedges in the condensed consolidated financial statements. See Note 2 of the Notes to Consolidated Financial Statements of our 2021 Form 10-K and Note 6 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information regarding these derivatives. We had foreign exchange risk in our investment in RJ Ltd. of CAD 360 million at December 31, 2021, 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. See Note 16 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information regarding our components of OCI. We also have foreign exchange risk associated with our investments in subsidiaries located in Europe. These investments are not hedged and we do not believe we had material foreign exchange risk either individually, or in the aggregate, pertaining to these subsidiaries as of December 31, 2021. On January 21, 2022, we completed our acquisition of all the outstanding share capital of U.K.-based Charles Stanley at a price of £5.15 per share, or approximately £274 million ($372 million as of January 21, 2022). This transaction increased our foreign exchange exposure associated with investments in subsidiaries located in Europe. 70 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Transactions and resulting balances denominated in a currency other than the U.S. dollar We are subject to foreign exchange risk due to our holdings of cash and certain other assets and liabilities resulting from transactions denominated in a currency other than the U.S. dollar. Any currency-related gains/losses arising from these foreign currency denominated balances are reflected in “Other” revenues in our Condensed Consolidated Statements of Income and Comprehensive Income. The foreign exchange risk associated with a portion of such transactions and balances denominated in foreign currency are mitigated utilizing short-term, forward foreign exchange contracts. Such derivatives are not designated hedges and therefore, the related gains/losses are included in “Other” revenues in our Condensed Consolidated Statements of Income and Comprehensive Income. See Note 6 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding our derivatives. Credit risk Credit risk is the risk of loss due to adverse changes in a borrower’s, issuer’s or counterparty’s ability to meet its financial obligations under contractual or agreed-upon terms. The nature and amount of credit risk depends on the type of transaction, the structure and duration of that transaction, and the parties involved. Credit risk is an integral component of the profit assessment of lending and other financing activities. 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 2021 Form 10-K. Brokerage activities We are engaged in various trading and brokerage activities in which our counterparties primarily include broker-dealers, banks and other financial institutions. We are exposed to risk that these counterparties may not fulfill their obligations. In addition, certain commitments, including underwritings, may create exposure to individual issuers and businesses. The risk of default depends on the creditworthiness of the counterparty and/or the issuer of the instrument. In addition, we may be subject to concentration risk if we hold large positions in or have large commitments to a single counterparty, borrower, or group of similar counterparties or borrowers (e.g., in the same industry). We seek to mitigate these risks by imposing and monitoring individual and aggregate position limits within each business segment for each counterparty, conducting regular credit reviews of financial counterparties, reviewing security and loan concentrations, holding and calculating the fair value of collateral on certain transactions and conducting business through clearing organizations, which may guarantee performance. See Note 2 of the Notes to Consolidated Financial Statements of our 2021 Form 10-K and Notes 6 and 7 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information about our credit risk mitigation related to derivatives and collateralized agreements. Our client activities involve the execution, settlement, and financing of various transactions on behalf of our clients. Client activities are transacted on either a cash or margin basis. Credit exposure results from client margin loans, which are monitored daily and are collateralized by the securities in the clients’ accounts. We monitor exposure to industry sectors and individual securities and perform analysis on a daily basis in connection with our margin lending activities. We adjust our margin requirements if we believe our risk exposure is not appropriate based on market conditions. In addition, when clients execute a purchase, we are at some risk that the client will default on their financial obligation associated with the trade. If this occurs, we may have to liquidate the position at a loss. Further information about our determination of the allowance for credit losses associated with certain of our brokerage lending activities is described in Note 2 of the Notes to the Consolidated Financial Statements of our 2021 Form 10-K. We offer loans to financial advisors for recruiting and retention purposes. We have credit risk and may incur a loss primarily in the event that such borrower is no longer affiliated with us. See Note 2 of the Notes to the Consolidated Financial Statements of our 2021 Form 10-K and Note 9 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information about our loans to financial advisors. 71 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Banking activities Raymond James Bank has a substantial loan portfolio. Our strategy for credit risk management related to bank loans includes well-defined credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all corporate, tax-exempt, residential, SBL and other credit exposures. The strategy also includes diversification on a geographic, industry and client level, regular credit examinations and management reviews of all corporate and tax-exempt loans as well as individual delinquent residential loans. The credit risk management process also includes an annual independent review of the credit risk monitoring process that performs assessments of compliance with credit policies, risk ratings, and other critical credit information. We seek to identify potential problem loans early, record any necessary risk rating changes and charge-offs promptly, and maintain appropriate reserve levels for expected losses. We utilize a comprehensive credit risk rating system to measure the credit quality of individual corporate and tax-exempt loans and related unfunded lending commitments, including the probability of default and/or loss given default of each corporate and tax-exempt loan and commitment outstanding. For our SBL and residential mortgage loans, we utilize the credit risk rating system used by bank regulators in measuring the credit quality of each homogeneous class of loans. In evaluating credit risk, we consider trends in loan performance, the level of allowance coverage relative to similar banking institutions, industry or client concentrations, the loan portfolio composition and macroeconomic factors (both current and forecasted). These factors have a potentially negative impact on loan performance and net charge-offs. While our bank loan portfolio is diversified, a significant downturn in the overall economy, deterioration in real estate values or a significant issue within any sector or sectors where we have a concentration will generally result in large provisions for credit losses and/or charge-offs. Conversely, should the economy continue to recover at a faster pace than forecasted, we may experience an additional benefit for credit losses and/or recovery of amounts previously charged off, the timing and magnitude of which can be uncertain. We determine the allowance required for specific loan grades based on relative risk characteristics of the loan portfolio. On an ongoing basis, we evaluate our methods for determining the allowance for each class of loans and make enhancements we consider appropriate. Our allowance for credit losses methodology is described in Note 2 of the Notes to the Consolidated Financial Statements of our 2021 Form 10-K. As our bank loan portfolio is segregated into six portfolio segments, likewise, the allowance for credit losses is segregated by these same segments. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” of our 2021 Form 10-K for further information about the risk characteristics relevant to each portfolio segment. Our allowance for credit losses as a percentage of total bank loans held for investment was 1.18% and 1.27% at December 31, 2021 and September 30, 2021, respectively. The bank loan benefit for credit losses for the three months ended December 31, 2021 was $11 million compared to a provision for credit losses of $14 million for the prior-year quarter. See further explanation of the credit loss provision decrease in “Management’s Discussion and Analysis - Results of Operations - Raymond James Bank” of this Form 10-Q and Note 8 in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further information about our 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. 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 December 31, 2021 2020 $ in millions Net loan (charge-off)/recovery amount % of avg. outstanding loans Net loan (charge-off)/recovery amount % of avg. outstanding loans C&I loans $ (2) 0.09 % $ — — % Residential mortgage loans 1 0.07 % — — % Total $ (1) 0.02 % $ — — % 72 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis 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, 2021 September 30, 2021 $ in millions Nonperforming loan balance Allowance for credit losses balance Nonperforming loan balance Allowance for credit losses balance C&I loans $ 38 $ 179 $ 39 $ 191 CRE loans 20 72 20 66 REIT loans — 22 — 22 Tax-exempt loans — 2 — 2 Residential mortgage loans 15 30 15 35 SBL and other — 3 — 4 Total nonperforming loans held for investment (1) $ 73 $ 308 $ 74 $ 320 Total nonperforming loans as a % of total bank loans 0.28 % 0.29 % (1) Total nonperforming loans held for investment at December 31, 2021 and September 30, 2021 included $59 million and $61 million of nonperforming loans, respectively, which were current pursuant to their contractual terms. The nonperforming loan balances in the preceding table exclude $8 million as of December 31, 2021 and September 30, 2021, respectively, of residential TDRs which were returned to accrual status in accordance with our policy. The following table presents total nonperforming assets, including the nonperforming loans in the preceding table and other real estate acquired in the settlement of residential mortgages, as a percentage of Raymond James Bank’s total assets. $ in millions December 31, 2021 September 30, 2021 Total nonperforming assets $ 74 $ 74 Total nonperforming assets as a % of Raymond James Bank’s total assets 0.19 % 0.20 % Although our nonperforming assets as a percentage of Raymond James Bank’s assets remained low as of December 31, 2021, any prolonged 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, only $2 million of our residential loans remained in active forbearance as of December 31, 2021. As certain borrowers have exited forbearance we have received requests for loan modifications, including repayment plans. In accordance with the Coronavirus Aid, Relief, and Economic Security Act and the Consolidated Appropriations Act, 2021, we did not apply TDR classification to any COVID-19 related loan modifications performed from March 1, 2020 through December 31, 2021 to borrowers who were current as of December 31, 2019. As of December 31, 2021, we had residential loans of $5 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 those borrowers who would have otherwise moved into past due or nonaccrual status. Loan underwriting policies Our underwriting policies for the major types of bank loans are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk” of our 2021 Form 10-K. There were no significant changes in our bank loan underwriting policies during the three months ended December 31, 2021. Risk monitoring process Another component of credit risk strategy for our bank loan portfolio is the ongoing risk monitoring and review processes, including our internal loan review process, for all residential, SBL, corporate and tax-exempt credit exposures, as well as our rigorous processes to manage and limit credit losses arising from loan delinquencies. There are various other factors included in these processes, depending on the loan portfolio. There were no significant changes to those processes during the three months ended December 31, 2021. 73 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Residential mortgage and SBL and other loan portfolios The collateral securing our SBL and other portfolio is monitored on a recurring basis, with marketable collateral monitored on a daily basis. Collateral adjustments, as triggered by our monitoring procedures, are made by the borrower as necessary to ensure our loans are adequately secured, resulting in minimizing our credit risk. Collateral calls have been minimal relative to our SBL and other portfolio with no losses incurred to date. We track and review many factors to monitor credit risk in our residential mortgage loan portfolio. The factors include, but are not limited to: loan performance trends, loan product parameters and qualification requirements, borrower credit scores, level of documentation, loan purpose, geographic concentrations, average loan size, risk rating and LTV ratios. See Note 8 in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for additional information about our residential mortgage loan portfolio. 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 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 in the future. Amount of delinquent residential loans Delinquent residential loans as a percentage of outstanding residential mortgage loan balances $ in millions 30-89 days 90 days or more Total 30-89 days 90 days or more Total December 31, 2021 $ 4 $ 7 $ 11 0.07 % 0.13 % 0.20 % September 30, 2021 $ 4 $ 6 $ 10 0.08 % 0.11 % 0.19 % Our December 31, 2021 percentage compares favorably to the national average for over 30 day delinquencies of 2.55%, as most recently reported by the Fed. Credit risk is also managed by diversifying the residential mortgage portfolio. Most of the loans in our residential loan portfolio are to PCG clients across the U.S. The following table details the geographic concentrations (top five states) of our one-to-four family residential mortgage loans. December 31, 2021 Loans outstanding as a % of total residential mortgage loans Loans outstanding as a % of total bank loans CA 25.9% 5.5% FL 17.2% 3.6% TX 8.6% 1.8% NY 8.2% 1.7% CO 3.8% 0.8% Loans where borrowers may be subject to payment increases include adjustable-rate mortgage loans with terms that initially require payment of interest only. Payments may increase significantly when the interest-only period ends and the loan principal begins to amortize. At December 31, 2021 and September 30, 2021, these loans totaled $2.10 billion and $1.97 billion, respectively, or approximately 38% and 37% of the residential mortgage portfolio, respectively. The weighted-average number of years before the remainder of the loans, which were still in their interest-only period at December 31, 2021, begins amortizing is 7 years. 74 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Corporate and tax-exempt loans Credit risk in our corporate and tax-exempt bank loan portfolios is monitored on an individual loan basis. The majority of our tax-exempt bank loan portfolio is comprised of loans to investment-grade borrowers. Credit risk is managed by diversifying the corporate bank loan portfolio. Our corporate bank loan portfolio does not contain a significant concentration in any single industry. The following table details the industry concentrations (top five categories) of our corporate bank loans. December 31, 2021 Loans outstanding as a % of total corporate bank loans Loans outstanding as a % of total bank loans Office real estate 7.1% 3.4% Multi-family 6.6% 3.2% Automotive/transportation 6.6% 3.2% Consumer products and services 6.5% 3.1% Business systems and services 5.3% 2.6% Since the beginning of the COVID-19 pandemic, our credit risk efforts were focused on reducing our exposure and revising our credit limits related to sectors that we believed were the most vulnerable to the COVID-19 pandemic, such as the energy, airlines, entertainment and leisure, restaurant and gaming sectors. Although economic conditions have continued to improve since the beginning of the COVID-19 pandemic, we may experience further losses on our loans to borrowers in these sectors, particularly if economic conditions do not continue to improve in the future. We continue to monitor our exposure to office real estate, where trends have changed as a result of the COVID-19 pandemic, and may experience losses on loans in this sector in the future. 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. Liquidity risk See the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and capital resources” of this Form 10-Q for information regarding our liquidity and how we manage liquidity risk. Operational risk Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes, including cybersecurity incidents. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Operational risk” of our 2021 Form 10-K for a discussion of our operational risk and certain of our risk mitigation processes. In response to the COVID-19 pandemic, we activated and successfully executed on our business continuity protocols and continue to monitor the COVID-19 pandemic under such protocols. We have endeavored to protect the health and well-being of our associates and our clients while ensuring the continuity of business operations for our clients. As a result, a substantial portion of our associates continue to work remotely. We continue to monitor conditions and have reopened our offices in a limited capacity, complying with all applicable laws, regulations, and Centers for Disease Control and Prevention guidelines and operating under strict public health and safety protocols in such locations. We are planning for a full return to office in the second quarter of our fiscal 2022, which will include more work location flexibility for our associates; however, disruptions caused by variants may impact the timing of the implementation of these plans. Periods of severe market volatility, such as those that arose most notably in fiscal 2020 at 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 such operational challenges during the three months ended December 31, 2021. 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 2021 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. 75 RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and Analysis Model risk Model risk refers to the possibility of unintended business outcomes arising from the design, implementation or use of models. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Model risk” of our 2021 Form 10-K for information regarding how we utilize models throughout the firm and how we manage model risk. Compliance risk Compliance risk is the risk of legal or regulatory sanctions, financial loss, or reputational damage that the firm may suffer from a failure to comply with applicable laws, external standards, or internal requirements. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Compliance risk” of our 2021 Form 10-K for information on our compliance risks, including how we manage such risks. ITEM 3. 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.