RAYMOND JAMES FINANCIAL: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)
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INDEX
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Factors affecting "forward-looking statements" 52 Introduction 52 Executive overview 52
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
56 Segments 58 Net interest analysis 58 Results of OperationsPrivate Client Group 63 Capital Markets 67 Asset Management 69Raymond James Bank 71 Other 72 Certain statistical disclosures by bank holding companies
73
Liquidity and capital resources
74
Statement of financial condition analysis
78
Regulatory
78
Critical accounting estimates
79
Recent accounting developments 80
Risk management 81
51
--------------------------------------------------------------------------------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 and our level of success in integrating acquired businesses, industry or market conditions, demand for and pricing of our products, 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," "estimates," "projects," and future or conditional verbs such as "will," "may," "could," "should," and "would," as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from those expressed in the forward-looking statements. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our filings with theSEC from time to time, including our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, which are available at www.raymondjames.com and theSEC's website at www.sec.gov. We expressly disclaim any obligation to update any forward-looking statement in the event it later turns out to be inaccurate, whether as a result of new information, future events or otherwise.
INTRODUCTION
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help the reader understand the
results of our operations and financial condition. This MD&A is provided as a
supplement to, and should be read in conjunction with, our condensed
consolidated financial statements and accompanying notes to condensed
consolidated financial statements. Where "NM" is used in various percentage
change computations, the computed percentage change has been determined to be
not meaningful.
We operate as a financial holding company and bank holding company. Results in
the businesses in which we operate are highly correlated to general economic
conditions and, more specifically, to the direction of the U.S. equity and fixed
income markets, changes in interest rates, market volatility, corporate and
mortgage lending markets and commercial and residential credit trends. Overall
market conditions, economic, political and regulatory trends, and industry
competition are among the factors which could affect us and which are
unpredictable and beyond our control. These factors affect the financial
decisions made by market participants, including investors, borrowers, and
competitors, impacting their level of participation in the financial markets.
These factors also impact the level of investment banking activity and asset
valuations, which ultimately affect our business results.
EXECUTIVE OVERVIEW
Quarter ended
Net revenues of$2.47 billion increased$637 million , or 35%, and pre-tax income of$385 million increased$187 million , or 94%, compared with the prior-year quarter, which was negatively impacted by uncertainty resulting from the onset of the COVID-19 pandemic. Net income of$307 million increased$135 million , or 78%, and our earnings per diluted share were$2.18 , reflecting a 77% increase. Our annualized return on equity ("ROE") for the quarter was 15.9%, compared with 10.0% in the prior-year quarter, and annualized return on tangible common equity ("ROTCE") was 17.7% (1), compared with 10.9% (1) for the prior-year quarter. During the quarter, we completed a$750 million , 30-year senior notes offering at 3.75%, utilizing the proceeds from the offering and cash on hand to early-redeem our$250 million of 5.625% senior notes due 2024 and our$500 million of 3.625% senior notes due 2026. We recognized losses on the extinguishment of such notes of$98 million . Excluding these losses and acquisition-related expenses of$7 million , our adjusted net income was$386 million (1) and our adjusted earnings per diluted share were$2.74 (1). Adjusted annualized ROE for the quarter was 19.9% (1) and adjusted annualized ROTCE was 22.2% (1). Client assets under administration increased to$1.17 trillion as ofJune 30, 2021 , a 33% increase overJune 30, 2020 . (1) ROTCE, adjusted net income, adjusted earnings per diluted share, adjusted annualized ROE and adjusted annualized ROTCE are non-GAAP financial measures. Please see the "Reconciliation of non-GAAP financial measures to GAAP financial measures" in this MD&A for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure, and for other important disclosures. 52 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis The$637 million , or 35%, increase in net revenues compared with the prior-year quarter was primarily driven by significantly higher asset management and related administrative fees, largely attributable to higher PCG assets in fee-based accounts, and strong investment banking revenues, also significantly higher than the prior-year quarter. Brokerage revenues were also strong and increased compared with the prior-year quarter. Revenues in the current-year quarter included$24 million of private equity valuation gains, of which$10 million were attributable to noncontrolling interests and were offset in other expenses, compared with insignificant gains in the prior-year quarter. Compensation, commissions and benefits expense increased$384 million , or 30%, primarily resulting from 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, decreased to 67.2%, compared with 69.6% for the prior-year quarter, primarily due to a change in the composition of net revenues compared with the prior-year quarter. Our current quarter compensation ratio reflected the impact of strong net revenues in the Capital Markets segment, which had a 57% compensation ratio for the quarter, and from the private equity valuation gains, which do not have direct compensation associated with them. Non-compensation expenses increased$66 million , or 18%, primarily due to the losses on extinguishment of debt of$98 million described above, the aforementioned private equity valuation gains attributable to noncontrolling interests in the current quarter that were offset within other expenses, acquisition-related expenses, and increased investment sub-advisory fees. Business development expenses also increased from the very low prior-year quarter level, primarily due to higher recruiting-related expenses and an increase in travel, meal and event-related expenses. These increases were offset by a$100 million decrease in the bank loan provision for credit losses, which was a benefit of$19 million in the current-year quarter computed under the CECL methodology compared with a provision of$81 million in the prior-year quarter computed under the incurred loss methodology. Our effective income tax rate was 20.3% for our fiscal third quarter of 2021, an increase compared with a 13.1% effective income tax rate for the prior-year quarter. Our tax rate in the prior-year quarter was unusually low due to a significant change in the projected impact of our corporate-owned life insurance portfolio on our effective tax rate during that quarter, from a large non-deductible loss projected atMarch 31, 2020 , to a relatively small non-taxable gain projected as ofJune 30, 2020 resulting from a significant rebound in equity markets during our fiscal third quarter of 2020. We expect our effective tax rate to be approximately 21% in the fiscal fourth quarter of 2021. The firm ended our fiscal third quarter of 2021 with capital ratios well in excess of regulatory requirements and substantial liquidity, with approximately$1.6 billion (1) of cash at the parent company. Pursuant to our Board of Directors' share repurchase authorization, we repurchased 375,000 shares of common stock during our fiscal third quarter for$48 million at an average price of$128.55 per share, leaving$632 million of availability remaining under the authorization as ofJune 30, 2021 . We expect to continue to be opportunistic in deploying our capital in future quarters, through a combination of organic growth, additional share repurchases and acquisitions, as evidenced by the NWPS andFinanco acquisitions, which were announced and completed during fiscal 2021, and the announced acquisitions ofCharles Stanley and Cebile. Our results for our fiscal third quarter of 2021 were strong and we remain well-positioned entering our fiscal fourth quarter, with strong capital ratios, over$1 trillion of client assets under administration, a 9% increase in PCG fee-based assets fromMarch 31, 2021 toJune 30, 2021 , and a strong investment banking backlog. However, we expect to continue to face headwinds from near-zero short-term interest rates and continued economic uncertainty resulting from the ongoing COVID-19 pandemic, which continues to evolve as recently experienced with the rapid spread of the Delta variant. As a result, we may experience volatility of brokerage revenues and investment banking revenues, which may negatively impact our ability to sustain the level of revenues in future periods which were achieved in the current quarter. Although our results during the quarter were positively impacted by a benefit for credit losses related to our bank loan portfolio, net loan growth and/or future market deterioration could result in increased provisions in future quarters. In addition, we expect that expenses may continue to increase over the next several quarters as business and event-related travel increase and as we continue to make investments in our technology and growth.
A summary of our financial results by segment compared to the previous year’s quarter is as follows:
•PCG segment net revenues of$1.70 billion increased 36% and pre-tax income of$195 million increased 114%. The$447 million increase in net revenues was primarily attributable to a significant increase in asset management fees due to higher assets in fee-based accounts at the beginning of the current-year quarter, and higher brokerage and account and service fee revenues. Non-interest expenses increased$343 million , or 30%, primarily resulting from an increase in compensation expenses largely due to the growth in net revenues.
(1) For more information, please refer to the “Liquidity and Capital Resources – Sources of Liquidity†section of this MD&A.
53 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis •Capital Markets net revenues of$446 million increased 38% and pre-tax income of$115 million increased 85%. The$123 million increase in net revenues was due to a significant increase in investment banking revenues from both mergers & acquisition activity and equity underwriting activity compared with the prior-year quarter, which was negatively impacted by the COVID-19 pandemic. Non-interest expenses increased$70 million , or 27%, primarily due to higher compensation expenses resulting from the increase in revenues. •Asset Management segment net revenues of$225 million increased 38% and pre-tax income of$105 million increased 75%. The$62 million increase in net revenues was primarily driven by higher financial assets under management. Non-interest expenses increased$17 million , or 17%, primarily due to higher investment sub-advisory fees. •Raymond James Bank net revenues of$169 million decreased 5%, while pre-tax income of$104 million increased 643%. The$9 million decrease in net revenues primarily reflected the negative impact of lower short-term interest rates and a shift in the composition of interest-earning assets, which more than offset the growth in interest-earning assets. Non-interest expenses decreased$99 million , or 60%, primarily due to the$100 million decrease in the bank loan provision for credit losses. •The Other segment reflected a pre-tax loss that was$105 million larger than the loss in the prior-year quarter, due to the aforementioned losses on extinguishment of debt of$98 million and acquisition-related expenses of$4 million , partially offset by the impact of the private equity gains in the current-year quarter.
Nine months ended
Net revenues of$7.07 billion increased$1.15 billion , or 20%, and pre-tax income of$1.23 billion increased$435 million , or 55%. Net income of$974 million increased$365 million , or 60% and our earnings per diluted share were$6.92 , also reflecting a 60% increase. Our annualized ROE for the nine months endedJune 30, 2021 was 17.4%, compared with 11.9% for the prior-year period, and annualized ROTCE was 19.3% (1), compared with 13.1% (1) for the prior-year period. Excluding the impact of losses on extinguishment of debt and acquisition-related expenses, adjusted net income was$1.06 billion and adjusted earnings per diluted share were$7.50 (1). Adjusted annualized ROE was 18.7% (1) and adjusted annualized ROTCE was 20.8% (1). The$1.15 billion increase in net revenues compared with the prior-year period was primarily driven by higher asset management and related administrative fees, largely attributable to higher PCG assets in fee-based accounts, as well as strong investment banking and brokerage revenues, which also increased compared with the prior-year period. Revenues in the current year also included private equity gains of$56 million ($20 million attributable to noncontrolling interests), compared with$40 million of losses in the prior-year period ($23 million attributable to noncontrolling interests). Offsetting these increases was the negative impact of lower short-term interest rates on our net interest income and RJBDP fees from third-party banks. Compensation, commissions and benefits expense increased$759 million , or 19%, primarily resulting from the growth in revenues and pre-tax income compared with the prior-year period. Our compensation ratio was 68.1%, compared with 68.5% for the prior-year period. Non-compensation expenses decreased$40 million , or 4%, primarily due to a$225 million decrease in the bank loan provision for credit losses, which was a benefit of$37 million in the current year computed under the CECL methodology compared with a provision of$188 million in the prior-year period computed under the incurred loss methodology. Business development expenses also declined, due to lower travel and event-related expenses as a result of the COVID-19 pandemic, partially offset by an increase in recruiting-related expenses. Offsetting these decreases was the aforementioned losses on extinguishment of debt of$98 million in the current-year period and an increase in other expenses, primarily due to the change in private equity valuations attributable to noncontrolling interests compared with the prior-year period. Our effective income tax rate was 20.9% for the nine months endedJune 30, 2021 , a decrease from 23.5% for the prior-year period, primarily due to the impact of larger non-taxable gains on our corporate-owned life insurance portfolio in the current-year period. Pursuant to the Board of Directors' repurchase authorization, we repurchased 982,750 shares of common stock during the nine months endedJune 30, 2021 for approximately$118 million at an average price of approximately$120 per share. (1) ROTCE, adjusted net income, adjusted earnings per diluted share, adjusted annualized ROE and adjusted annualized ROTCE are non-GAAP financial measures. Please see the "Reconciliation of non-GAAP financial measures to GAAP financial measures" in this MD&A for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure, and for other important disclosures. 54 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
A summary of our financial results by segment compared to the previous year period is as follows:
•PCG segment net revenues of$4.81 billion increased 16% and pre-tax income of$527 million increased 27%. The$652 million increase in net revenues was primarily attributable to an increase in asset management fees largely due to higher assets in fee-based accounts at the beginning of each quarterly billing period within the current-year period, and higher brokerage revenues, partially offset by decreases in RJBDP fees from third-party banks and net interest income due to lower short-term interest rates. Non-interest expenses increased$539 million , or 14%, primarily resulting from an increase in compensation expenses largely due to the growth in revenues. •Capital Markets net revenues of$1.33 billion increased 51% and pre-tax income of$349 million increased 193%. The$450 million increase in net revenues was primarily due to a significant increase in investment banking revenues from both mergers & acquisition activity and underwriting activity, as well as growth in fixed income brokerage revenues. Non-interest expenses increased$220 million , or 29%, due to higher compensation expenses primarily attributable to the increase in revenues, partially offset by a decrease in business development expenses. •Asset Management segment net revenues of$629 million increased 18% and pre-tax income of$275 million increased 33%. The$98 million increase in net revenues was primarily driven by higher financial assets under management. Non-interest expenses increased$29 million , or 9%, primarily due to higher investment sub-advisory fees. •Raymond James Bank segment net revenues of$496 million decreased 18%, while pre-tax income of$286 million increased 75%. The$108 million decrease in net revenues reflected the negative impact of lower short-term interest rates, which more than offset the growth in interest-earning assets. Non-interest expenses decreased$231 million , or 52%, primarily due to a$225 million decrease in the bank loan provision for credit losses. •The Other segment reflected a pre-tax loss that was$100 million greater than the loss in the prior-year period, primarily due to the losses on extinguishment of debt of$98 million and acquisition-related expenses of$6 million in the current-year period. These negative impacts were partially offset by the aforementioned private equity gains compared with losses in the prior-year period. 55
--------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES WITH GAAP FINANCIAL MEASURES
We utilize certain non-GAAP financial measures as additional measures to aid in,
and enhance, the understanding of our financial results and related measures.
These non-GAAP financial measures include adjusted net income, adjusted earnings
per diluted share, adjusted ROE, ROTCE, and adjusted ROTCE. We believe certain
of these non-GAAP financial measures provides useful information to management
and investors by excluding certain material items that may not be indicative of
our core operating results. We utilize these non-GAAP financial measures in
assessing the financial performance of the business, as they facilitate a
meaningful comparison of current- and prior-period results. We believe that
ROTCE is meaningful to investors as this measure facilitates comparison of our
results to the results of other companies. In the following tables, the tax
effect of non-GAAP adjustments reflects the statutory rate associated with each
non-GAAP item. These non-GAAP financial measures should be considered in
addition to, and not as a substitute for, measures of financial performance
prepared in accordance with GAAP. In addition, our non-GAAP financial measures
may not be comparable to similarly titled non-GAAP financial measures of other
companies. The following tables provide a reconciliation of non-GAAP financial
measures to the most directly comparable GAAP financial measures for the periods
indicated.
Three months ended Nine months ended
$ in millions June 30, 2021 June 30, 2021
Net income $ 307 $ 974
Non-GAAP adjustments:
Losses on extinguishment of debt 98 98
Acquisition-related expenses 7 9
Pre-tax impact of non-GAAP adjustments 105 107
Tax effect of non-GAAP adjustments (26) (26)
Total non-GAAP adjustments, net of tax 79 81
Adjusted net income $ 386 $ 1,055
Earnings per common share - diluted $ 2.18 $ 6.92
Non-GAAP adjustments:
Losses on extinguishment of debt 0.69 0.70
Acquisition-related expenses 0.05 0.06
Tax effect of non-GAAP adjustments (0.18) (0.18)
Total non-GAAP adjustments, net of tax 0.56 0.58
Adjusted earnings per common share - diluted $ 2.74 $ 7.50
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Three months ended June 30, Nine months ended June 30,
$ in millions 2021 2020 2021 2020
Annualized return on equity
Average equity $ 7,728 $ 6,882 $ 7,483 $ 6,797
Impact on average equity of non-GAAP
adjustments:
Losses on extinguishment of debt 49 NA 25 NA
Acquisition-related expenses 4 NA 2 NA
Tax effect of non-GAAP adjustments (13) NA (7) NA
Adjusted average equity $ 7,768 NA $ 7,503 NA
Average equity $ 7,728 $ 6,882 $ 7,483 $ 6,797
Less:
Average goodwill and identifiable intangible
assets, net 865 603 791 606
Average deferred tax liabilities, net (56) (32) (51) (30)
Average tangible common equity $ 6,919 $ 6,311 $ 6,743 $ 6,221
Impact on average equity of non-GAAP
adjustments:
Losses on extinguishment of debt 49 NA 25 NA
Acquisition-related expenses 4 NA 2 NA
Tax effect of non-GAAP adjustments (13) NA (7) NA
Adjusted average tangible common equity $ 6,959 NA $ 6,763 NA
Return on equity 15.9 % 10.0 % 17.4 % 11.9 %
Adjusted annualized return on equity 19.9 % NA 18.7 % NA
Return on tangible common equity 17.7 % 10.9 % 19.3 % 13.1 %
Adjusted annualized return on tangible common
equity 22.2 % NA 20.8 % NA
Average equity for the quarterly periods 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. Average equity
for the year-to-date periods is computed by adding the total equity attributable
to RJF as of each quarter-end date during the indicated year-to-date period to
the beginning of the year total, and dividing by four, or in the case of average
tangible common equity, computed by adding tangible common equity as of each
quarter-end date during the indicated year-to-date period to the beginning of
the year total, and dividing by four. Adjusted average equity is computed by
adjusting for the impact on average equity of the non-GAAP adjustments, as
applicable for each respective period. Adjusted average tangible common equity
is computed by adjusting for the impact on average tangible common equity of the
non-GAAP adjustments, as applicable for each respective period.
ROE is computed by dividing annualized net income for the period indicated by
average equity for each respective period or, in the case of ROTCE, computed by
dividing annualized net income by average tangible common equity for each
respective period. Adjusted ROE is computed by dividing annualized adjusted net
income by adjusted average equity for each respective period, or in the case of
adjusted ROTCE, computed by dividing annualized adjusted net income by adjusted
average tangible common equity for each respective period.
57
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
SEGMENTS
We currently operate through five segments. Our business segments are PCG, Capital Markets, Asset Management andRaymond James Bank . Our Other segment includes our private equity investments, interest income on certain corporate cash balances, certain acquisition-related expenses, and certain corporate overhead costs of RJF, including the interest costs on our public debt and any losses on extinguishment of such debt.
The following table presents our consolidated and segment net income and our income / (loss) before tax for the periods indicated.
Three months ended June 30, Nine months ended June 30, $ in millions 2021 2020 % change 2021 2020 % change Total company Net revenues$ 2,471 $ 1,834 35 %$ 7,065 $ 5,911 20 % Pre-tax income $ 385$ 198 94 %$ 1,231 $ 796 55 % Private Client Group Net revenues$ 1,696 $ 1,249 36 %$ 4,810 $ 4,158 16 % Pre-tax income $ 195$ 91 114 % $ 527$ 414 27 % Capital Markets Net revenues $ 446$ 323 38 %$ 1,331 $ 881 51 % Pre-tax income $ 115$ 62 85 % $ 349$ 119 193 % Asset Management Net revenues $ 225$ 163 38 % $ 629$ 531 18 % Pre-tax income $ 105$ 60 75 % $ 275$ 206 33 % Raymond James Bank Net revenues $ 169$ 178 (5) % $ 496$ 604 (18) % Pre-tax income $ 104$ 14 643 % $ 286$ 163 75 % Other Net revenues $ 2$ (20) NM $ (6)$ (72) 92 % Pre-tax loss$ (134) $ (29) (362) %$ (206) $ (106) (94) % Intersegment eliminations Net revenues $ (67)$ (59) (14) %$ (195) $ (191) (2) % NET INTEREST ANALYSIS
The following table shows the high, low and end-of-period federal funds rates for the periods presented.
Target federal funds rate
Low High End of period
Three months ended
June 30, 2021 0.00% 0.25% 0% - 0.25%
June 30, 2020 0.00% 0.25% 0% - 0.25%
Nine months ended
June 30, 2021 0.00% 0.25% 0% - 0.25%
June 30, 2020 0.00% 2.00% 0% - 0.25%
In response to macroeconomic concerns resulting from the COVID-19 pandemic, the
Federal Reserve decreased its benchmark short-term interest rate in March 2020
to a range of 0-0.25%, a reduction of 150 basis points. These decreases, in
addition to other interest rate cuts implemented during calendar 2019 (225 basis
points in total), have negatively impacted our net interest income, as well as
the fees we earn from third-party banks on client cash balances swept to such
banks as part of the RJBDP which are also sensitive to changes in interest
rates. The negative impact of the decline in short-term interest rates has
outweighed the growth in interest-earning assets and RJBDP balances swept to
third-party banks compared with the prior-year periods. We expect the current
near-zero interest rate environment to continue for the remainder of fiscal 2021
and into fiscal 2022.
58
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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, decreases in
short-term interest rates generally result in an overall decrease in our net
earnings, although the magnitude of the impact to the 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. Conversely, any increases in short-term interest rates and/or
decreases in the deposit rates paid to clients generally have a positive impact
on our earnings.
Refer to the discussion of the specific components of our net interest income
within "Management's Discussion and Analysis - Results of Operations" for our
PCG, Raymond James Bank , and Other segments. 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.
The following tables present our consolidated average interest-earning asset and
interest-bearing liability balances, interest income and expense and the related
rates.
Quarter ended
Three months ended June 30,
2021 2020
Average Annualized Average Annualized
daily average daily average
$ in millions balance Interest rate balance Interest rate
Interest-earning assets:
Cash and cash equivalents $ 5,644 $ 3 0.20 % $ 6,605 $ 4 0.26 %
Assets segregated pursuant to regulations 9,016 3 0.16 % 3,408 3 0.36 %
Available-for-sale securities 8,041 20 0.96 % 4,437 23 2.01 %
Brokerage client receivables 2,363 19 3.33 % 2,065 18 3.47 %
Bank loans, net of unearned income and deferred
expenses:
Loans held for investment:
C&I loans 7,936 50 2.51 % 7,957 58 2.93 %
CRE loans 2,748 18 2.59 % 2,610 19 2.85 %
REIT loans 1,327 9 2.53 % 1,412 9 2.45 %
Tax-exempt loans 1,294 9 3.33 % 1,272 9 3.34 %
Residential mortgage loans 5,126 34 2.70 % 4,983 37 2.97 %
SBL and other 5,208 29 2.22 % 3,576 24 2.59 %
Loans held for sale 142 1 2.92 % 111 1 3.22 %
Total bank loans, net 23,781 150 2.54 % 21,921 157 2.87 %
All other interest-earning assets 2,288 10 1.51 % 1,964 12 2.66 %
Total interest-earning assets $ 51,133 $ 205 1.60 % $ 40,400 $ 217 2.16 %
Interest-bearing liabilities:
Bank deposits:
Savings, money market and NOW accounts $ 28,908 $ 1 0.02 % $ 25,060 $ 2 0.02 %
Certificates of deposit 883 4 1.91 % 1,104 5 2.00 %
Total bank deposits 29,791 5 0.08 % 26,164 7 0.10 %
Brokerage client payables 10,486 1 0.03 % 4,751 3 0.18 %
Other borrowings 860 4 2.19 % 891 5 2.23 %
Senior notes payable 2,211 25 4.49 % 2,067 24 4.69 %
All other interest-bearing liabilities 602 5 1.12 % 586 3 1.10 %
Total interest-bearing liabilities $ 43,950 $ 40 0.34 % $ 34,459 $ 42 0.48 %
Net interest income $ 165 $ 175
Firmwide net interest margin (net yield on
interest-earning assets) 1.31 % 1.75 %
Raymond James Bank net interest margin 1.92 % 2.29 %
Unaccounted loans are included in the average loan balances in the previous table. All payments received for unaccounted business loans are fully charged to principal. Interest income on non-accrued residential mortgage loans is recorded on a cash basis.
59 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
The yield on the tax exempt loans in the previous table is presented on a taxable equivalent basis using the applicable federal statutory rates for each of the three months ended.
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 June 30,
2021 compared to 2020
Increase/(decrease) due to
$ in millions Volume Rate Total Interest income: Interest-earning assets: Cash and cash equivalents $ -$ (1) $ (1) Assets segregated pursuant to regulations 5 (5) - Available-for-sale securities 18 (21) (3) Brokerage client receivables 2 (1) 1 Bank loans, net of unearned income and deferred expenses: Loans held for investment: C&I loans - (8) (8) CRE loans 1 (2) (1) REIT loans 1 (1) - Tax-exempt loans - - - Residential mortgage loans 1 (4) (3) SBL and other 9 (4) 5 Loans held for sale - - - Total bank loans, net 12 (19) (7) All other interest-earning assets 2 (4) (2) Total interest-earning assets$ 39 $ (51) $ (12) Interest expense: Interest-bearing liabilities: Bank deposits: Savings, money market and NOW accounts $ -$ (1) $ (1) Certificates of deposit (1) - (1) Total bank deposits (1) (1) (2) Brokerage client payables 2 (4) (2) Other borrowings - (1) (1) Senior notes payable 2 (1) 1 All other interest-bearing liabilities - 2 2 Total interest-bearing liabilities$ 3 $ (5) $ (2) Change in net interest income$ 36 $ (46) $ (10) 60
--------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Nine months endedJune 30, 2021 compared with the nine months endedJune 30, 2020 Nine months ended June 30, 2021 2020 Average Annualized Average Annualized daily average daily average $ in millions balance Interest rate balance Interest rate Interest-earning assets: Cash and cash equivalents$ 5,548 $ 9 0.22 %$ 5,013 $ 37 0.99 % Assets segregated pursuant to regulations 8,307 11 0.18 % 2,853 25 1.20 % Available-for-sale securities 7,837 64 1.08 % 3,654 60 2.18 % Brokerage client receivables 2,222 56 3.38 % 2,290 66 3.87 % Bank loans, net of unearned income and deferred expenses: Loans held for investment: C&I loans 7,670 149 2.57 % 8,012 225 3.70 % CRE loans 2,665 52 2.57 % 2,593 72 3.63 % REIT loans 1,290 25 2.49 % 1,349 34 3.33 % Tax-exempt loans 1,253 25 3.34 % 1,236 25 3.35 % Residential mortgage loans 5,044 103 2.73 % 4,823 112 3.09 % SBL and other 4,709 80 2.24 % 3,460 89 3.37 % Loans held for sale 153 3 2.54 % 138 4 3.77 % Total bank loans, net 22,784 437 2.57 % 21,611 561 3.46 % All other interest-earning assets 2,264 31 1.79 % 2,329 50 2.82 % Total interest-earning assets$ 48,962 $ 608 1.66 %$ 37,750 $ 799 2.83 % Interest-bearing liabilities: Bank deposits: Savings, money market and NOW accounts$ 27,732 $ 4 0.02 %$ 23,190 $ 20 0.11 % Certificates of deposit 911 13 1.90 % 993 15 2.06 % Total bank deposits 28,643 17 0.08 % 24,183 35 0.19 % Brokerage client payables 9,765 3 0.03 % 3,929 9 0.31 % Other borrowings 863 14 2.20 % 893 15 2.23 % Senior notes payable 2,115 73 4.62 % 1,742 61 4.66 % All other interest-bearing liabilities 591 8 1.05 % 878 16 1.81 % Total interest-bearing liabilities$ 41,977 $ 115 0.36 %$ 31,625 $ 136 0.56 % Net interest income$ 493 $ 663 Firmwide net interest margin (net yield on interest-earning assets) 1.35 % 2.36 % Raymond James Bank net interest margin 1.96 % 2.82 %
Unaccounted loans are included in the average loan balances in the previous table. All payments received for unaccounted business loans are fully charged to principal. Interest income on non-accrued residential mortgage loans is recorded on a cash basis.
The yield on the tax exempt loans in the previous table is presented on a taxable equivalent basis using the applicable federal statutory rates for each of the nine months ended.
61 --------------------------------------------------------------------------------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. Nine months endedJune 30, 2021 compared to 2020 Increase/(decrease) due to
$ in millions Volume Rate Total Interest income: Interest-earning assets: Cash and cash equivalents$ 10 $ (38) $ (28) Assets segregated pursuant to regulations 52 (66) (14) Available-for-sale securities 69 (65) 4 Brokerage client receivables (3) (7) (10) Bank loans, net of unearned income and deferred expenses: Loans held for investment: C&I loans (11) (65) (76) CRE loans 1 (21) (20) REIT loans - (9) (9) Tax-exempt loans 2 (2) - Residential mortgage loans 5 (14) (9) SBL and other 27 (36) (9) Loans held for sale 1 (2) (1) Total bank loans, net 25 (149) (124) All other interest-earning assets (4) (15) (19) Total interest-earning assets$ 149 $ (340) $ (191) Interest expense: Interest-bearing liabilities: Bank deposits: Savings, money market and NOW accounts$ 4 $ (20) $ (16) Certificates of deposit (1) (1) (2) Total bank deposits 3 (21) (18) Brokerage client payables 15 (21) (6) Other borrowings - (1) (1) Senior notes payable 13 (1) 12 All other interest-bearing liabilities (7) (1) (8) Total interest-bearing liabilities$ 24 $ (45) $ (21) Change in net interest income$ 125 $ (295) $ (170) 62
--------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
OPERATING RESULTS – PRIVATE CUSTOMER 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 2020 Form
10-K.
Operating results
Three months ended June 30, Nine months ended June 30,
$ in millions 2021 2020 % change 2021 2020 % change
Revenues:
Asset management and related administrative
fees $ 1,050 $ 715 47 % $ 2,914 $ 2,330 25 %
Brokerage revenues:
Mutual and other fund products 167 131 27 % 498 438 14 %
Insurance and annuity products 113 88 28 % 320 288 11 %
Equities, ETFs and fixed income products 110 100 10 % 338 324 4 %
Total brokerage revenues 390 319 22 % 1,156 1,050 10 %
Account and service fees:
Mutual fund and annuity service fees 105 82 28 % 298 260 15 %
RJBDP fees:
Third-party banks 18 20 (10) % 58 129 (55) %
Raymond James Bank 47 43 9 % 134 138 (3) %
Client account and other fees 39 32 22 % 113 96 18 %
Total account and service fees 209 177 18 % 603 623 (3) %
Investment banking 11 7 57 % 33 29 14 %
Interest income 31 31 - 91 125 (27) %
All other 7 4 75 % 20 20 -
Total revenues 1,698 1,253 36 % 4,817 4,177 15 %
Interest expense (2) (4) (50) % (7) (19) (63) %
Net revenues 1,696 1,249 36 % 4,810 4,158 16 %
Non-interest expenses:
Financial advisor compensation and benefits 1,082 783 38 % 3,053 2,555 19 %
Administrative compensation and benefits 251 235 7 % 760 727 5 %
Total compensation, commissions and
benefits 1,333 1,018 31 % 3,813 3,282 16 %
Non-compensation expenses:
Communications and information processing 70 66 6 % 201 187 7 %
Occupancy and equipment 45 42 7 % 133 130 2 %
Business development 19 12 58 % 50 63 (21) %
Professional fees 10 8 25 % 33 25 32 %
All other 24 12 100 % 53 57 (7) %
Total non-compensation expenses 168 140 20 % 470 462 2 %
Total non-interest expenses 1,501 1,158 30 % 4,283 3,744 14 %
Pre-tax income $ 195 $ 91 114 % $ 527 $ 414 27 %
63
--------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Selected key metrics PCG client asset balances As of June 30, March 31, September 30, June 30, March 31, September 30, $ in billions 2021 2021 2020 2020 2020 2019 Assets under administration ("AUA")$ 1,102.9 $ 1,028.1 $ 883.3 $ 833.1 $ 734.0 $
798.4
Assets in fee-based accounts (1)
$ 475.3 $ 443.0 $ 383.5 $
409.1
Percent of AUA in fee-based
accounts 55.9 % 55.2 % 53.8 % 53.2 % 52.2 % 51.2 %
(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 revenues 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 are recorded
in "Asset management and related administrative fees" on our Condensed
Consolidated Statements of Income and Comprehensive Income. Fees received from
such accounts are based on the value of client assets in fee-based accounts and
vary based on the specific account types in which the client invests and the
level of assets in the client relationship. As fees for substantially all of
such accounts are billed based on balances as of the beginning of the quarter,
revenues from fee-based accounts may not be immediately affected by changes in
asset values, but rather the impacts are seen in the following quarter.
PCG assets under administration increased during the three months ended June 30,
2021 , primarily due to equity market appreciation, as well as net inflows of
client assets. In addition, PCG assets in fee-based accounts continued to
increase as a percentage of overall PCG assets under administration due to
clients' increased preference for fee-based alternatives versus
transaction-based accounts. As a result of the shift to fee-based accounts over
the past several years, a larger portion of our PCG revenues are more directly
impacted by market movements.
Financial advisors
June 30, March 31, September 30, June 30,
2021 2021 2020 2020
Employees 3,423 3,375 3,404 3,379
Independent contractors 4,990 4,952 4,835 4,776
Total advisors 8,413 8,327 8,239 8,155
The number of financial advisors increased compared with the prior quarter and
September 30, 2020 due to strong recruiting of financial advisors and new
trainees that were moved into production roles, partially offset by the impact
of advisors who left the firm, including planned retirements, where assets are
generally retained at the firm. The growth in the number of financial advisors
has been impacted by the transfer of advisors who were previously affiliated
with the firm as independent contractors or employees to our RIA & Custody
Services ("RCS") division. Advisors in RCS are not included in the financial
advisor count, although their assets are still included in client assets under
administration. The recruiting pipeline remains strong across our affiliation
options despite an increasingly competitive recruiting environment.
64
--------------------------------------------------------------------------------
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Domestic customer cash transfer balances
As of
June 30, March 31, December 31, September 30, June 30,
$ in millions 2021 2021 2020 2020 2020
RJBDP
Raymond James Bank $ 29,253 $ 28,174 $ 26,697 $ 25,599 $ 24,101
Third-party banks 25,080 25,110 26,142 25,998 24,661
Subtotal RJBDP 54,333 53,284 52,839 51,597 48,762
CIP 8,610 9,517 8,769 3,999 3,157
Total clients' domestic cash
sweep balances $ 62,943 $ 62,801 $ 61,608 $ 55,596 $ 51,919
Three months ended June 30, Nine months ended June 30,
2021 2020 2021 2020
Average yield on RJBDP - third-party banks 0.29 % 0.33 % 0.30 % 0.97 %
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
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 are impacted by changes in the allocation of client cash
balances in RJBDP between Raymond James Bank and third-party banks. PCG segment
results are also impacted by changes in the allocation of cash balances between
RJBDP and CIP, as the net yield to the firm on cash balances in CIP (i.e., the
spread between amounts earned on assets segregated for regulatory purposes and
the interest paid to clients on CIP balances) is lower than the yield to the
firm on RJBDP balances, on average.
Client cash balances remained elevated as of June 30, 2021 compared to prior
year balances as a result of a number of factors, including the continuing
economic uncertainty caused by the COVID-19 pandemic, as well as uncertainty
related to the nature and timing of policy changes that may be put forth by the
new federal government administration. The average yield on RJBDP - third-party
banks decreased compared with the prior-year periods due to a decline in
short-term interest rates. We expect the average yield on RJBDP balances at
third-party banks to remain approximately 0.29% for the remainder of our 2021
fiscal year; however, this projected yield could decline in fiscal 2022 if
demand for deposits from third-party banks does not improve from current levels.
Quarter ended
Net turnover of
Asset management and related administrative fees increased$335 million , or 47%, primarily due to higher assets in fee-based accounts at the beginning of the current quarter. As assets in these accounts are billed primarily on balances as of the beginning of the quarter, the 9% increase in fee-based assets as ofJune 30, 2021 compared toMarch 31, 2021 , should positively impact asset management fees in our fiscal fourth quarter of 2021. Brokerage revenues increased$71 million , or 22%, due to higher trailing revenues from mutual and other fund products and annuity products, resulting from higher asset values in the current quarter, as well as higher transactional revenues. Account and service fees increased$32 million , or 18%, primarily due to an increase in mutual fund service fees, primarily resulting from higher average mutual fund assets, as well as incremental client account and other fees resulting from our acquisition of NWPS at the end of our fiscal first quarter of 2021.
Compensation expenses increased
65 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Non-remuneration expenses increased
Nine months ended
Net turnover of
Asset management and related administrative fees increased$584 million , or 25%, primarily due to higher assets in fee-based accounts at the beginning of each of the current-year quarterly billing periods compared with the prior-year quarterly billing periods.
Brokerage revenues increased
Account and service fees decreased$20 million , or 3%, primarily due to a decline in RJBDP fees from third-party banks as a result of lower short-term interest rates. Partially offsetting this decrease was an increase in mutual fund service fees, resulting from higher average mutual fund assets, as well as incremental client account and other fees resulting from our acquisition of NWPS at the end of our fiscal first quarter of 2021. Net interest income decreased$22 million , or 21%, driven by a decline in interest income due to lower short-term interest rates applicable to both cash and segregated asset balances, which more than offset the impact of higher segregated asset balances. Our CIP balances increased significantly compared with the prior-year period resulting in the increase in segregated assets, and a majority of the increase was held in segregated short-termU.S. Treasury securities at very low interest rates. Partially offsetting the impact of a decrease in interest income, interest expense also decreased, despite the significant increase in client cash balances in our CIP, due to the impact of lower deposit rates paid on these balances.
Compensation expenses increased
Non-compensation expenses increased$8 million , or 2%, largely due to higher communications and information processing expenses, partially offset by lower business development expenses due to limited travel and event-related expenses during the COVID-19 pandemic. 66 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
OPERATING RESULTS – 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 2020 Form 10-K.
Operating results
Three months ended June 30, Nine months ended June 30,
$ in millions 2021 2020 % change 2021 2020 % change
Revenues:
Brokerage revenues:
Fixed income $ 124 $ 125 (1) % $ 397 $ 296 34 %
Equity 36 41 (12) % 112 115 (3) %
Total brokerage revenues 160 166 (4) % 509 411 24 %
Investment banking:
Merger & acquisition and advisory 153 60 155 % 424 192 121 %
Equity underwriting 69 35 97 % 196 117 68 %
Debt underwriting 43 37 16 % 126 90 40 %
Total investment banking 265 132 101 % 746 399 87 %
Interest income 4 4 - 12 22 (45) %
Tax credit fund revenues 17
20 (15) % 57 50 14 % All other 3 3 - 14 13 8 % Total revenues 449 325 38 % 1,338 895 49 % Interest expense (3) (2) 50 % (7) (14) (50) % Net revenues 446 323 38 % 1,331 881 51 % Non-interest expenses: Compensation, commissions and benefits 256 195 31 % 767 545 41 % Non-compensation expenses: Communications and information processing 22 19 16 % 61 58 5 % Occupancy and equipment 9 9 - 27 27 - Business development 8 7 14 % 23 38 (39) % Professional fees 12 12 - 38 35 9 % Acquisition-related expenses 3 - NM 3 - NM All other 21 19 11 % 63 59 7 % Total non-compensation expenses 75 66 14 % 215 217 (1) % Total non-interest expenses 331 261 27 % 982 762 29 % Pre-tax income $ 115$ 62 85 % $ 349$ 119 193 %
Quarter ended
Net turnover of
Brokerage revenues decreased$6 million , or 4%, primarily due to a decrease in equity brokerage revenues, as uncertainty related to the onset of the COVID-19 pandemic drove high levels of client activity in the prior-year quarter. Similarly, fixed income brokerage revenues continued to be strong but were slightly lower than the prior-year quarter. Investment banking revenues increased$133 million , or 101%, compared with the prior-year quarter, due to a combination of strong results in the current quarter, and a prior-year quarter which had been negatively impacted by a slowdown in activity during the onset of the COVID-19 pandemic. Merger & acquisition and advisory revenues increased significantly compared with the prior-year quarter, due to an increase in both the number and size of transactions, and reflected strong activity in both theU.S. andU.K. Equity underwriting revenues increased significantly, primarily due to higher levels of client activity and larger transactions in the current quarter. Debt underwriting revenues also increased, due to higher revenues from corporate underwritings, partially offset by lower revenues from public finance and asset-backed transactions. In addition to the strong results during the quarter, our investment banking pipelines remain strong and, in part, reflect the investments we have made 67 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis over the past several years, which has positioned us to enhance our services to our clients. The most recent example of such investments is our acquisition ofFinanco which closed at the end of our fiscal second quarter of 2021.
Compensation expenses increased
Non-compensation expenses increased$9 million , or 14%, and included$3 million of acquisition-related expenses, comprised of the amortization expense related to intangible assets with short useful lives which arose in our acquisition ofFinanco .
Nine months ended
Net turnover of
Brokerage revenues increased$98 million , or 24%, due to a significant increase in fixed income brokerage revenues as a result of an increase in client activity levels throughout the current-year period. The significant increase in client activity levels, particularly with depository clients, began toward the end of our fiscal second quarter of fiscal 2020. Investment banking revenues increased$347 million , or 87%, due to a significant increase in merger & acquisition and advisory revenues and underwriting revenues. The significant increase in merger & acquisition and advisory revenues reflected larger individual transactions and an increase in the number of transactions, as the current-year period reflected high levels of client activity, while the prior-year period was impacted by low levels of client activity during the onset of the pandemic. Equity underwriting revenues also increased significantly, primarily due to an increase in market activity in both theU.S. andCanada . An increase in debt underwriting primarily reflected higher revenues from corporate and asset-backed underwritings, partially offset by lower revenues from public finance transactions.
Compensation expenses increased
Non-compensation expenses decreased$2 million , or 1%, primarily due to lower travel and event-related expenses as a result of the COVID-19 pandemic, partially offset by smaller increases across various expense categories, including the aforementioned acquisition-related expenses associated with theFinanco acquisition. 68 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
OPERATING RESULTS – 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 2020 Form 10-K.
Operating results
Three months ended June 30, Nine months ended June 30,
$ in millions 2021 2020 % change 2021 2020 % change
Revenues:
Asset management and related administrative
fees:
Managed programs $ 148 $ 109 36 % $ 414 $ 358 16 %
Administration and other 70 48 46 % 193 152 27 %
Total asset management and related
administrative fees 218 157 39 % 607 510 19 %
Account and service fees 4 3 33 % 13 12 8 %
All other 3 3 - 9 9 -
Net revenues 225 163 38 % 629 531 18 %
Non-interest expenses:
Compensation, commissions and benefits 43 44 (2) % 138 134 3 %
Non-compensation expenses:
Communications and information processing 12 10 20 % 35 33 6 %
Investment sub-advisory fees 33 23 43 % 91 74 23 %
All other 32 26 23 % 90 84 7 %
Total non-compensation expenses 77 59 31 % 216 191 13 %
Total non-interest expenses 120 103 17 % 354 325 9 %
Pre-tax income $ 105 $ 60 75 % $ 275 $ 206 33 %
Selected key metrics
Managed programs
Management fees recorded in our Asset Management segment are generally
calculated as a percentage of the value of our fee-billable financial assets
under management ("AUM"). These AUM include the portion of fee-based AUA in our
PCG segment that is invested in programs overseen by our Asset Management
segment (included in the "AMS" line of the following table), as well as retail
accounts managed on behalf of third-party institutions, institutional accounts
and proprietary mutual funds that we manage (collectively included in the
"Carillon Tower Advisers" line of the following table).
Revenues related to fee-based AUA in our PCG segment are shared by the PCG and
Asset Management segments, the amount of which depends on whether 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, as well as transfers between fee-based accounts and
transaction-based accounts within our PCG segment.
Revenues earned by Carillon Tower Advisers for retail accounts managed on behalf
of third-party institutions, institutional accounts and our proprietary mutual
funds are recorded entirely in the Asset Management segment. Our AUM in Carillon
Tower Advisers are impacted by market and investment performance and net inflows
or outflows of assets.
The fees for our managed programs are generally collected quarterly. Approximately 65% ​​of these fees are based on balances at the start of the quarter, approximately 10% are based on balances at the end of the quarter, and approximately 25% are based on the average daily balances throughout the quarter.
69 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Financial assets under management
June 30, March 31, September 30, June 30, March 31, September 30,
$ in billions 2021 2021 2020 2020 2020 2019
AMS (1) $ 131.8 $ 121.2 $ 102.2 $ 96.0 $ 84.0 $ 91.8
Carillon Tower Advisers 69.2 66.6 59.5 57.5 51.7 58.5
Subtotal financial assets
under management 201.0 187.8 161.7 153.5 135.7 150.3
Less: Assets managed for
affiliated entities (10.0) (9.6) (8.6) (8.1) (7.5) (7.2)
Total financial assets under
management $ 191.0 $ 178.2 $ 153.1 $ 145.4 $ 128.2 $ 143.1
(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. 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.
Activity (including activity in assets under management for affiliated entities)
Three months ended June 30, Nine months ended June 30,
$ in billions 2021 2020 2021 2020
Financial assets under management at beginning
of period $ 187.8 $ 135.7 $ 161.7 $ 150.3
Carillon Tower Advisers - net
inflows/(outflows) (0.3) (2.0) 0.8 (4.4)
AMS - net inflows 4.5 1.5 9.8 4.8
Net market appreciation in asset values 9.0 18.3 28.7 2.8
Financial assets under management at end of
period $ 201.0 $ 153.5 $ 201.0 $ 153.5
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 for the period presented.
Average rate of fees for the
three months ended June 30,
$ in billions June 30, 2021 2021
Equity $ 31.6 0.52 %
Fixed income 31.6 0.18 %
Balanced 6.0 0.35 %
Total financial assets under management $ 69.2 0.35 %
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 "). Administrative fees associated with these programs are predominantly based on balances at the beginning of the quarter. June 30, March 31, September 30, June 30, March 31, September 30, $ in billions 2021 2021 2020 2020 2020 2019 Total assets$ 361.5 $ 334.2 $ 280.6 $ 253.7 $ 217.3 $ 229.7 RJ Trust
The following table includes the assets held in the asset-based programs in
(including those managed for affiliated entities).
June 30, March 31, September 30, June 30, March 31, September 30, $ in billions 2021 2021 2020 2020 2020 2019 Total assets$ 8.1 $ 7.8 $ 7.1$ 7.1 $ 6.4 $ 6.6 70
--------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Quarter ended
Net turnover of
Increase in asset management and related administration fees
Compensation expenses decreased$1 million , or 2%, and non-compensation expenses increased$18 million , or 31%. The increase in non-compensation expenses was primarily due to investment sub-advisory fees, which resulted from the increase in AUM in sub-advised programs.
Nine months ended
Net turnover of
Asset management and related administrative fees increased$97 million , or 19%, driven by higher AUM and higher assets in non-discretionary asset-based programs, resulting from both equity market appreciation and net inflows.Carillon Tower Advisers generated net inflows during the current-year period, despite the structural headwinds for active asset managers resulting from the industry shift from actively managed investment strategies to passive investment strategies. Compensation expenses increased$4 million , or 3%, and included the impact of higher net revenues. Non-compensation expenses increased$25 million , or 13%, largely due to investment sub-advisory fees which resulted from the increase in AUM in sub-advised programs.
RESULTS OF OPERATIONS – RAYMOND JAMES BANK
For an overview of ourRaymond James Bank segment operations, as well as a description of the key factors impacting ourRaymond James Bank segment results of operations, refer to the information presented in "Item 1 - Business" and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2020 Form 10-K. Operating results Three months ended June 30, Nine months ended June 30, $ in millions 2021 2020 % change 2021 2020 % change Revenues: Interest income $ 172$ 181 (5) % $ 505$ 635 (20) % Interest expense (11) (12) (8) % (32) (51) (37) % Net interest income 161 169 (5) % 473 584 (19) % All other 8 9 (11) % 23 20 15 % Net revenues 169 178 (5) % 496 604 (18) % Non-interest expenses: Compensation and benefits 13 13 - 38 38 - Non-compensation expenses: Bank loan provision/(benefit) for credit losses (19) 81 NM (37) 188 NM RJBDP fees to PCG 47 43 9 % 134 138 (3) % All other 24 27 (11) % 75 77 (3) % Total non-compensation expenses 52 151 (66) % 172 403 (57) % Total non-interest expenses 65 164 (60) % 210 441 (52) % Pre-tax income $ 104$ 14 643 % $ 286$ 163 75 %
Quarter ended
Net turnover of
Net interest income decreased$8 million , or 5%, as the negative impacts from lower average LIBOR and a shift in the composition of interest-earning assets compared with the prior-year quarter more than offset the impact of higher average interest-earning assets. The net interest margin decreased to 1.92% from 2.29% for the prior-year quarter, primarily due to the decline in average LIBOR, as well as a higher concentration of agency-backed available-for-sale securities, which have a lower 71 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis yield on average than loans. Based on current rates, as well as the elevated prepayment of higher-yielding securities and mortgages, we project our net interest margin to decline to approximately 1.90% for our fiscal fourth quarter of 2021. The bank loan benefit for credit losses was$19 million in the current quarter, which was calculated under the CECL model, compared with an$81 million provision in the prior-year quarter, which was calculated under the incurred loss model. The current quarter benefit reflected an improved economic forecast, as well as improved credit ratings within our corporate loan portfolio. The provision for credit losses in the prior-year quarter reflected the rapid and widespread economic deterioration and uncertainty at the onset of the COVID-19 pandemic.
Nine months ended
Net turnover of
Net interest income decreased$111 million , or 19%, as the negative impact from lower short-term interest rates more than offset the impact of higher average interest-earning assets. The increase in average interest-earning assets was primarily driven by significant growth in the available-for-sale securities portfolio and securities-based loans to PCG clients. The net interest margin decreased to 1.96% from 2.82% for the prior-year period, primarily due to the significant decline in short-term interest rates, as well as a higher concentration of agency-backed available-for-sale securities, which on average have a lower yield than loans. We had a bank loan benefit for credit losses of$37 million , which was calculated under the CECL model, compared with a$188 million provision in the prior-year period, which was calculated under the incurred loss model. The current period benefit was largely attributable to improved economic forecasts utilized in our CECL model since ourOctober 1, 2020 adoption date, including improved outlooks on unemployment and gross domestic product, which favorably impact most of our loan portfolios, as well as improved credit ratings within our corporate loan portfolio. The provision for credit losses in the prior-year period reflected the rapid and widespread economic deterioration and uncertainty caused by the onset of the COVID-19 pandemic.
OPERATING RESULTS – 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 and any losses on extinguishment
of such debt. For an overview of our Other segment operations, refer to the
information presented in "Item 1 - Business" of our 2020 Form 10-K.
Operating results
Three months ended June 30, Nine months ended June 30,
$ in millions 2021 2020 % change 2021 2020 % change
Revenues:
Interest income $ - $ 3 (100) % $ 6 $ 27 (78) %
Gains/(losses) on private equity
investments 24 1 2,300 % 56 (40) NM
All other 4 2 100 % 7 4 75 %
Total revenues 28 6 367 % 69 (9) NM
Interest expense (26) (26) - (75) (63) 19 %
Net revenues 2 (20) NM (6) (72) 92 %
Non-interest expenses:
Compensation and all other 34 9 278 % 96 34 182 %
Losses on extinguishment of debt 98 - NM 98 - NM
Acquisition-related expenses 4 - NM 6 - NM
Total non-interest expenses 136 9 1,411 % 200 34 488 %
Pre-tax loss $ (134) $ (29) (362) % $ (206) $ (106) (94) %
Quarter ended
The pre-tax loss of
72 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Net revenues increased$22 million , as the current quarter included$24 million of private equity valuation gains, of which$10 million were attributable to noncontrolling interests and were offset within other expenses, compared with$1 million of gains in the prior-year quarter. The current quarter valuation gains primarily reflected the impact of continued improvement in market conditions and an improved outlook for certain of our investments. Non-interest expenses increased$127 million , primarily due to losses on the extinguishment of debt of$98 million (see Note 14 for further information), as well as the aforementioned$10 million offset of private equity valuation losses attributable to noncontrolling interests in the current quarter. The$4 million of acquisition-related expenses in the current quarter primarily included professional expenses associated with our acquisitions ofCebile Capital , which was announced in our fiscal third quarter of 2021, andCharles Stanley , which was announced inJuly 2021 .
Nine months ended
The pre-tax loss of
Net revenues increased$66 million , primarily due to private equity valuation gains in the current period, compared with losses in the prior-year period, which reflected the impact of challenging market conditions at the onset of the COVID-19 pandemic. The current period included$56 million of private equity valuation gains, of which$20 million were attributable to noncontrolling interests and were offset within other expenses. These valuation gains were primarily the result of continued improvement in market conditions and an improved outlook for certain of our investments. The prior-year period included$40 million of private equity valuation losses, of which$23 million were attributable to noncontrolling interests and were offset within other expenses. Interest income earned on corporate cash balances decreased compared with the prior-year period due to lower short-term interest rates, partially offset by the impact of higher average balances, and interest expense increased primarily as a result of the issuance of$500 million of senior notes inMarch 2020 . Non-interest expenses increased$166 million , or 488%, primarily due to the aforementioned losses on extinguishment of debt of$98 million , as well as the aforementioned$20 million in gains attributable to noncontrolling interests, compared with$23 million in losses in the prior-year period. The$6 million of acquisition-related expenses in the current year primarily included professional and integration expenses associated with our acquisitions of NWPS andFinanco during fiscal 2021, as well as our announced acquisitions ofCebile Capital andCharles Stanley .
CERTAIN STATISTICAL DISCLOSURES BY BANK HOLDINGS
We are required to provide certain statistical disclosures as a bank holding company under theSEC's Industry Guide 3. The following table provides certain of those disclosures. Three months ended June 30, Nine months ended June 30, 2021 2020 2021 2020 Return on assets 2.2% 1.5% 2.4% 1.9% Return on equity 15.9% 10.0% 17.4% 11.9% Average equity to average assets 13.6% 14.6% 14.0% 15.7% Dividend payout ratio 17.9% 30.1% 16.9% 25.6% Return on assets is computed by dividing annualized net income for the period indicated by average assets for each respective period. Average assets for the quarter is computed by adding total assets as of the date indicated to the prior quarter-end total and dividing by two. Average assets for the year-to-date period is computed by adding total assets as of each quarter-end date during the year-to-date period to the beginning of the year total and dividing by four. Return on equity is computed by dividing annualized net income for the period indicated by average equity for each respective period. Average equity for the quarter is computed by adding total equity attributable to RJF as of the date indicated to the prior quarter-end total and dividing by two. Average equity for the year-to-date period is computed by adding total equity attributable to RJF as of each quarter-end date during the year-to-date period to the beginning of the year total and dividing by four.
Average equity over average assets is calculated by dividing average equity by average assets, as calculated in accordance with the previous explanations.
The dividend payout ratio is calculated by dividing the dividends declared per common share during the period by the diluted earnings per common share for the period.
73 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
Refer to the “Analysis of Net Interest†and “Risk Management – Credit Risk†sections of this MD&A and the notes to the condensed consolidated financial statements of this Form 10-Q for other required information.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is essential to our business. The primary objective of our liquidity management activities is to ensure adequate funding to conduct our business in a range of economic and market environments.
Senior management establishes our liquidity and capital management framework. This framework includes senior management's review of short- and long-term cash flow forecasts, review of monthly 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 capital 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, liquidity and capital structure, and maintains our relationships with various lenders. The objective of this framework is to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity. Liquidity is 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. Cash and cash equivalents increased$592 million during the nine months endedJune 30, 2021 to$5.98 billion . During the nine months endedJune 30, 2021 , cash provided by our operations (including significant net income) and proceeds from our$750 million of 3.75% senior notes offering (net of debt issuance costs), were offset by cash used for the early-redemption of$750 million of our pre-existing senior notes and the related make-whole premiums, dividend payments, share repurchases, and investments in future growth with our acquisitions of NWPS andFinanco . We also had significant increases in client cash balances, which increased both our brokerage client payables and our bank deposits. However, this cash was largely used to increase our assets segregated pursuant to regulations, primarily through the purchase ofU.S. Treasuries, as part of our brokerage activities, and to increase our bank loan portfolio and available-for-sale securities as part of our banking activities.
We believe that our existing assets, most of which are liquid in nature, as well as funds generated by operations and available from committed and uncommitted funding facilities, provide adequate funds for continued operations at corporate levels. current activity.
Sources of liquidity
Approximately$1.6 billion of our totalJune 30, 2021 cash and cash equivalents included cash held directly at the parent, or parent cash loaned to RJ&A. As ofJune 30, 2021 , RJF had loaned$1.09 billion to RJ&A (such amount is included in the RJ&A cash balance in the following table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business activities. The following table presents our holdings of cash and cash equivalents. $ in millions June 30, 2021 RJF $ 480 RJ&A 2,262 Raymond James Bank 1,847 RJ Ltd. 869 RJFS 123 Carillon Tower Advisers 82 Other subsidiaries 319
Total cash and cash equivalents
RJF maintained depository accounts atRaymond James Bank with a balance of$185 million as ofJune 30, 2021 . The portion of this total that was available on demand without restrictions, which amounted to$108 million as ofJune 30, 2021 , is reflected in the RJF total (and is excluded from theRaymond James Bank cash balance in the preceding table). A large portion of theRJ Ltd. cash and cash equivalents balance as ofJune 30, 2021 was held to meet regulatory requirements and was not available for use by the parent. 74 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis
In addition to the cash balances described, we have various other potential sources of cash available to the parent company from subsidiaries, as described in the following section.
Liquidity available from subsidiaries
Liquidity is mainly available to RJF, the parent company, from
Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities and Exchange Act of 1934. As a member firm of theFinancial Industry Regulatory Authority ("FINRA"), RJ&A is subject toFINRA's capital requirements, which are substantially the same as Rule 15c3-1. Rule 15c3-1 provides for an "alternative net capital requirement," which RJ&A has elected. Regulations require that minimum net capital, as defined, be equal to the greater of$1.5 million or 2% of aggregate debit items arising from client transactions. In addition, covenants in RJ&A's committed financing facilities require its net capital to be a minimum of 10% of aggregate debit items. AtJune 30, 2021 , RJ&A exceeded the minimum regulatory requirements, the covenants in its financing arrangements pertaining to net capital, as well as its internally-targeted net capital tolerances.FINRA may impose certain restrictions, such as restricting withdrawals of equity capital, if a member firm were to fall below a certain threshold or fail to meet minimum net capital requirements. RJ&A, as a nonbank custodian of Individual Retirement Accounts ("IRAs"), must also satisfy certain Internal Revenue Service regulations in order to accept new IRAs and qualified plans and retain the accounts for which it serves as nonbank custodian. With growth in the value of client assets in such accounts, the capital of RJ&A may need to grow to continue to satisfy this requirement. As a result, RJ&A may limit dividends it would otherwise remit to RJF. We evaluate regulatory requirements, loan covenants and certain internal tolerances when determining the amount of liquidity available to RJF from RJ&A.Raymond James Bank may pay dividends to RJF without prior approval of its regulator as long as the dividends do not exceed the sum ofRaymond James Bank's current calendar year and the previous two calendar years' retained net income, andRaymond James Bank maintains its targeted regulatory capital ratios. Dividends fromRaymond James Bank may be limited to the extent that capital is needed to support its balance sheet growth.
Although we have cash from our other subsidiaries, the amounts available are not as large as those described above and, in some cases, may be subject to regulatory requirements.
Loans and financing
Funding modalities committed
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 the$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. June 30, 2021 Total number of $ in millions RJ&A RJF Total arrangements Financing arrangement: Committed secured$ 100 $ -$ 100 1 Committed unsecured 200 300 500 1 Total committed financing arrangements$ 300 $ 300 $ 600 2 Outstanding borrowing amount: Committed secured $ - $ - $ - Committed unsecured - - - Total outstanding borrowing amount $ - $
– $ –
75 --------------------------------------------------------------------------------RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management's Discussion and Analysis Our committed unsecured financing arrangement in the preceding table represents our Credit Facility, which provides for maximum borrowings of up to$500 million , with a sublimit of$300 million for RJF. RJ&A may borrow up to$500 million under the Credit Facility, depending on the amount of outstanding borrowings by RJF. For additional details on our committed unsecured financing arrangement, see our discussion of the Credit Facility in Note 14 of the Notes to Consolidated Financial Statements of our 2020 Form 10-K. InApril 2021 , we amended our Credit Facility, maintaining the$500 million maximum borrowing amount, but extending the term throughApril 2026 and incorporating a lower cost of borrowing under the facility and certain favorable covenant modifications.
Funding modalities not committed
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. As ofJune 30, 2021 , we had outstanding borrowings under three uncommitted secured borrowing arrangements out of a total of 11 uncommitted financing arrangements (seven uncommitted secured and four uncommitted unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities.
The following table shows our borrowings on uncommitted financing agreements, which were all in the form of repurchase agreements in RJ&A and have been included in “Secured financing†on our condensed consolidated statements of financial position.
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