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Organization

Raymond James Financial, Inc. (“RJF,” the “firm” or the “Company”) is a financial holding company which, together with its subsidiaries, is engaged in various financial services activities, including providing investment management services for retail and institutional clients, the underwriting, distribution, trading and brokerage of equity and debt securities, and the sale of mutual funds and other investment products.  The firm also provides corporate and retail banking services, and trust services.  For further information about our business segments, see Note 20 of this Form 10-Q. As used herein, the terms “our,” “we,” or “us” refer to RJF and/or one or more of its subsidiaries.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of RJF and its consolidated subsidiaries that are generally controlled through a majority voting interest. We consolidate all of our 100% owned subsidiaries. In addition, we consolidate any variable interest entity (“VIE”) in which we are the primary beneficiary. Additional information on these VIEs is provided in Note 2 of our Annual Report on Form 10-K (“2019 Form 10-K”) for the year ended September 30, 2019, as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) and in Note 8 of this Form 10-Q. When we do not have a controlling interest in an entity, but we exert significant influence over the entity, we apply the equity method of accounting. All material intercompany balances and transactions have been eliminated in consolidation.

Accounting estimates and assumptions

Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) but is not required for interim reporting purposes has been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of our consolidated financial position and results of operations for the periods presented.

The nature of our business is such that the results of any interim period are not necessarily indicative of results for a full year. These unaudited condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto included in our 2019 Form 10-K. To prepare condensed consolidated financial statements in accordance with GAAP, we must make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates and could have a material impact on the condensed consolidated financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

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A summary of our significant accounting policies is included in Note 2 of our 2019 Form 10-K. During the three months ended December 31, 2019, there were no significant changes to our significant accounting policies other than the accounting policies adopted or modified as part of our implementation of new or amended accounting guidance, as noted in the following sections.

Recent accounting developments

Accounting guidance recently adopted

Lease accounting - In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the accounting for leases (ASU 2016-02). The new guidance and subsequent amendments requires the recognition of assets and liabilities on the balance sheet related to the rights and obligations created by lease agreements with terms greater than twelve months, regardless of whether they are classified as finance or operating leases. We adopted this guidance as of October 1, 2019 using the alternative modified retrospective approach, with no adjustments to prior periods presented. In addition, we elected the practical expedients permitted under the transition guidance which, among other things, allowed us to carry forward historical lease classification determinations. On the adoption date, we recognized right-of-use assets (“ROU assets”) and lease liabilities of $333 million and $357 million, respectively, in “Other assets” and “Other payables” on our Condensed Consolidated Statements of Financial Condition. The ROU assets and lease liabilities were primarily related to operating leases. The adoption had no effect on our results of operations or cash flows. The impact of the adoption on our regulatory capital measures was insignificant. See Note 9 for further information.

Derivatives and hedging (interest rate) - In October 2018, the FASB issued guidance amending Derivatives and Hedging (Topic 815) to add the overnight index swap rate based on the Secured Overnight Financing Rate (“SOFR”) to the list of U.S. benchmark interest rates that are eligible during the early stages of the market transition from the London Interbank Offered Rate (“LIBOR”) to SOFR (ASU 2018-16). The amendments to this guidance will provide adequate lead time for entities to prepare for changes to interest rate hedging strategies. We adopted the guidance October 1, 2019 and will apply the guidance prospectively for qualifying new or re-designated hedging relationships. The adoption did not impact our financial position or results of operations.

Accounting guidance not yet adopted as of December 31, 2019

Credit losses - In June 2016, the FASB issued new guidance related to the measurement of credit losses on financial instruments (ASU 2016-13). The amended guidance involves several aspects of the accounting for credit losses related to certain financial instruments including assets measured at amortized cost, available-for-sale debt securities and certain off-balance sheet commitments. The new guidance, and subsequent updates, broadens the information that an entity must consider in developing its estimated credit losses expected to occur over the remaining life of assets measured either collectively or individually to include historical experience, current conditions and reasonable and supportable forecasts, replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses (“CECL”) model.  The new guidance expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating credit losses and requires new disclosures of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This new guidance is first effective for our fiscal year beginning on October 1, 2020 and will be adopted under a modified retrospective approach. Although permitted, we do not plan to early adopt. Our cross-functional team has continued our implementation efforts, including data collection and processing, model development and validation, and establishment of the governance and control processes. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations, which will depend on, among other things, the current and expected macroeconomic conditions and the nature and characteristics of financial assets held by us on the date of adoption.

Internal use software (cloud computing) - In August 2018, the FASB issued guidance on the accounting for implementation costs incurred by customers in cloud computing arrangements (ASU 2018-15). This guidance requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancelable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. This amended guidance is first effective for our fiscal year beginning on October 1, 2020 with early adoption permitted, although we do not plan to early adopt. The guidance may be adopted either using the prospective or retrospective approach. We are currently evaluating the impact of this new guidance on our financial position and results of operations.

Consolidation (decision making fees) - In October 2018, the FASB issued guidance on how all entities evaluate decision-making fees under the VIE guidance (ASU 2018-17). Under the new guidance, to determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis, rather than in their entirety. This guidance is first effective for our fiscal year beginning on October 1, 2020. Although permitted, we do not plan

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to early adopt. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.

Income Taxes (simplification) - In December 2019, the FASB issued amended guidance to simplify of the accounting for income taxes (ASU 2019-12). The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in current guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This new guidance is first effective for our fiscal year beginning on October 1, 2021 with early adoption permitted. We are currently evaluating the impact of this new guidance on our financial position and results of operations.

Equity Securities, Equity Method Investments, and Certain Derivative Instruments - In January 2020, the FASB issued new guidance clarifying the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives (ASU 2020-01). The new guidance, among other things, states that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting, for the purposes of applying the fair value measurement alternative immediately before applying or upon discontinuing the equity method. The new guidance is effective for our fiscal year beginning October 1, 2021 and should be applied prospectively. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.

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Our “Financial instruments owned” and “Financial instruments sold but not yet purchased” on our Condensed Consolidated Statements of Financial Condition are recorded at fair value under GAAP. For further information about such instruments and our significant accounting policies related to fair value, see Note 2 and Note 4 of our 2019 Form 10-K. The following tables present assets and liabilities measured at fair value on a recurring basis. Netting adjustments represent the impact of counterparty and collateral netting on our derivative balances included on our Condensed Consolidated Statements of Financial Condition. See Note 5 for additional information.

$ in millions		Level 1				Level 2				Level 3				Netting adjustments				Balance as of December 31, 2019
Assets at fair value on a recurring basis:
Trading instruments
Municipal and provincial obligations		$	1			$	149			$	—			$	—			$	150
Corporate obligations		12				80				—				—				92
Government and agency obligations		6				52				—				—				58
Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)		—				230				—				—				230
Non-agency CMOs and asset-backed securities (“ABS”)		—				39				—				—				39
Total debt securities		19				550				—				—				569
Equity securities		10				1				—				—				11
Brokered certificates of deposit		—				33				—				—				33
Other		—				—				19				—				19
Total trading instruments		29				584				19				—				632
Available-for-sale securities (1)		10				3,212				—				—				3,222
Derivative assets
Interest rate - matched book		—				244				—				—				244
Interest rate - other		5				128				—				(89		)		44
Total derivative assets		5				372				—				(89		)		288
Other investments - private equity - not measured at net asset value (“NAV”)		—				—				62				—				62
All other investments		196				1				24				—				221
Subtotal		240				4,169				105				(89		)		4,425
Other investments - private equity - measured at NAV																		80
Total assets at fair value on a recurring basis		$	240			$	4,169			$	105			$	(89	)		$	4,505
Liabilities at fair value on a recurring basis:
Trading instruments sold but not yet purchased
Municipal and provincial obligations		$	1			$	—			$	—			$	—			$	1
Corporate obligations		1				16				—				—				17
Government and agency obligations		187				—				—				—				187
Total debt securities		189				16				—				—				205
Equity securities		4				—				—				—				4
Other		—				—				1				—				1
Total trading instruments sold but not yet purchased		193				16				1				—				210
Derivative liabilities
Interest rate - matched book		—				244				—				—				244
Interest rate - other		5				107				—				(71		)		41
Foreign exchange		—				15				—				—				15
Equity		—				6				—				—				6
Total derivative liabilities		5				372				—				(71		)		306
Total liabilities at fair value on a recurring basis		$	198			$	388			$	1			$	(71	)		$	516

(1) Substantially all of our available-for-sale securities consist of agency MBS and CMOs. See Note 4 for further information.

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$ in millions		Level 1				Level 2				Level 3				Netting adjustments				Balance as of September 30, 2019
Assets at fair value on a recurring basis:
Trading instruments
Municipal and provincial obligations		$	—			$	267			$	—			$	—			$	267
Corporate obligations		8				95				—				—				103
Government and agency obligations		12				67				—				—				79
Agency MBS and CMOs		—				147				—				—				147
Non-agency CMOs and ABS		—				51				—				—				51
Total debt securities		20				627				—				—				647
Equity securities		12				1				—				—				13
Brokered certificates of deposit		—				45				—				—				45
Other		—				—				3				—				3
Total trading instruments		32				673				3				—				708
Available-for-sale securities (1)		10				3,083				—				—				3,093
Derivative assets
Interest rate - matched book		—				280				—				—				280
Interest rate - other		3				182				—				(127		)		58
Total derivative assets		3				462				—				(127		)		338
Other investments - private equity - not measured at NAV		—				—				63				—				63
All other investments		194				1				24				—				219
Subtotal		239				4,219				90				(127		)		4,421
Other investments - private equity - measured at NAV																		83
Total assets at fair value on a recurring basis		$	239			$	4,219			$	90			$	(127	)		$	4,504
Liabilities at fair value on a recurring basis:
Trading instruments sold but not yet purchased
Corporate obligations		$	2			$	20			$	—			$	—			$	22
Government and agency obligations		269				—				—				—				269
Total debt securities		271				20				—				—				291
Equity securities		4				—				—				—				4
Other		—				—				1				—				1
Total trading instruments sold but not yet purchased		275				20				1				—				296
Derivative liabilities
Interest rate - matched book		—				280				—				—				280
Interest rate - other		4				142				—				(121		)		25
Foreign exchange		—				2				—				—				2
Equity		—				6				—				—				6
Total derivative liabilities		4				430				—				(121		)		313
Total liabilities at fair value on a recurring basis		$	279			$	450			$	1			$	(121	)		$	609

(1)	Substantially all of our available-for-sale securities consist of agency MBS and CMOs. See Note 4 for further information.

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Level 3 recurring fair value measurements

The following tables present the changes in fair value for Level 3 assets and liabilities measured at fair value on a recurring basis. The realized and unrealized gains and losses in the tables may include changes in fair value that were attributable to both observable and unobservable inputs. In the following tables, gains/(losses) on trading instruments are reported in “Principal transactions” and gains/(losses) on other investments are reported in “Other” revenues.

Three months ended December 31, 2019 Level 3 instruments at fair value
		Financial assets												Financial liabilities
		Trading instruments				Other investments								Trading instruments
$ in millions		Other				Private equity investments				All other				Other
Fair value beginning of period		$	3			$	63			$	24			$	(1	)
Total gains/(losses) included in earnings		(1		)		—				—				—
Purchases and contributions		31				—				—				1
Sales and distributions		(14		)		(1		)		—				(1		)
Transfers:
Into Level 3		—				—				—				—
Out of Level 3		—				—				—				—
Fair value end of period		$	19			$	62			$	24			$	(1	)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period		$	—			$	—			$	—			$	—

Three months ended December 31, 2018 Level 3 instruments at fair value
		Financial assets												Financial liabilities
		Trading instruments				Other investments								Trading instruments
$ in millions		Other				Private equity investments				All other				Other
Fair value beginning of period		$	1			$	56			$	67			$	(7	)
Total gains/(losses) included in earnings		1				—				—				2
Purchases and contributions		38				3				—				5
Sales and distributions		(37		)		—				—				(4		)
Transfers:
Into Level 3		—				—				—				—
Out of Level 3		—				—				—				—
Fair value end of period		$	3			$	59			$	67			$	(4	)
Unrealized gains/(losses) for the period included in earnings for instruments held at the end of the reporting period		$	1			$	—			$	—			$	—

As of December 31, 2019, 11% of our assets and 2% of our liabilities were measured at fair value on a recurring basis.  In comparison, as of September 30, 2019, 12% of our assets and 2% of our liabilities were measured at fair value on a recurring basis. Instruments measured at fair value on a recurring basis categorized as Level 3 represented 2% of our assets measured at fair value as of both December 31, 2019 and September 30, 2019.

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Quantitative information about level 3 fair value measurements

The following tables present the valuation techniques and significant unobservable inputs used in the valuation of a majority of our financial instruments classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument.

Level 3 financial instrument $ in millions		Fair value at December 31, 2019				Valuation technique(s)		Unobservable input		Range (weighted-average)
Recurring measurements
Other investments - private equity investments (not measured at NAV)		$	50			Income approach - discounted cash flow		Discount rate		25	%
								Terminal earnings before interest, tax, depreciation and amortization (“EBITDA”) multiple		12.5x
								Terminal year		2021 - 2042 (2022)
		$	12			Transaction price or other investment-specific events (1)		Not meaningful (1)		Not meaningful (1)

Level 3 financial instrument $ in millions		Fair value at September 30, 2019				Valuation technique(s)		Unobservable input		Range (weighted-average)
Recurring measurements
Other investments - private equity investments (not measured at NAV)		$	50			Income approach - discounted cash flow		Discount rate		25	%
								Terminal EBITDA multiple		12.5x
								Terminal year		2021 - 2042 (2022)
		$	13			Transaction price or other investment-specific events (1)		Not meaningful (1)		Not meaningful (1)

(1)

Certain investments are valued initially at transaction price and updated as other investment-specific events take place which indicate that a change in the carrying values of these investments is appropriate. Other investment-specific events include such events as our periodic review, significant transactions occur, new developments become known, or we receive information from a fund manager which allows us to update our proportionate share of net assets.

Qualitative information about unobservable inputs

Private equity investments

The significant unobservable inputs used in the fair value measurement of private equity investments generally relate to the financial performance of the investment entity and the market’s required return on investments from entities in industries in which we hold investments. Increases in the discount rate and/or a later terminal year would have resulted in a lower fair value measurement. Increases in the terminal EBITDA multiple would have resulted in a higher fair value measurement.

Investments in private equity measured at net asset value per share

As more fully described in Note 2 of our 2019 Form 10-K, as a practical expedient, we utilize NAV or its equivalent to determine the recorded value of a portion of our private equity investments portfolio. We utilize NAV when the fund investment does not have a readily determinable fair value and the NAV of the fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the investments at fair value.

Our private equity portfolio includes various direct investments, as well as investments in third-party private equity funds and various legacy private equity funds which we sponsor. The portfolio is primarily invested in a broad range of industries including leveraged buyouts, growth capital, distressed capital, venture capital and mezzanine capital. Due to the closed-end nature of certain of our fund investments, such investments cannot be redeemed directly with the funds. Our investment is monetized by distributions received through the liquidation of the underlying assets of those funds, the timing of which is uncertain.

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The following table presents the recorded value and unfunded commitments related to our private equity investments portfolio.

$ in millions		Recorded value				Unfunded commitment
December 31, 2019
Private equity investments measured at NAV		$	80			$	13
Private equity investments not measured at NAV		62
Total private equity investments		$	142
September 30, 2019
Private equity investments measured at NAV		$	83			$	15
Private equity investments not measured at NAV		63
Total private equity investments		$	146

Of the total private equity investments, the portions we owned were $97 million and $99 million as of December 31, 2019 and September 30, 2019, respectively. The portions of the private equity investments we did not own were $45 million and $47 million as of December 31, 2019 and September 30, 2019, respectively, and were included as a component of noncontrolling interests on our Condensed Consolidated Statements of Financial Condition.

Many of these fund investments meet the definition of prohibited covered funds as defined by the Volcker Rule enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. We have received approval from the Board of Governors of the Federal Reserve System (the “Fed”) to continue to hold the majority of our covered fund investments until July 2022. However, our current focus is on the divestiture of this portfolio.

Financial instruments measured at fair value on a nonrecurring basis

The following table presents assets measured at fair value on a nonrecurring basis along with the valuation techniques and significant unobservable inputs used in the valuation of the assets classified as level 3. These inputs represent those that a market participant would take into account when pricing these instruments. Weighted averages are calculated by weighting each input by the relative fair value of the related financial instrument.

$ in millions		Level 2				Level 3				Total fair value				Valuation technique(s)		Unobservable input		Range (weighted-average)
December 31, 2019
Bank loans, net:
Impaired loans: residential		$	5			$	14			$	19			Discounted cash flow		Prepayment rate		7 yrs. - 12 yrs. (10.4 yrs.)
Impaired loans: corporate		$	—			$	20			$	20			Collateral or discounted cash flow (1)		Not meaningful (1)		Not meaningful (1)
Loan held for sale		$	64			$	—			$	64			N/A		N/A		N/A
Other assets: other real estate owned		$	1			$	—			$	1			N/A		N/A		N/A
September 30, 2019
Bank loans, net:
Impaired loans: residential		$	7			$	14			$	21			Discounted cash flow		Prepayment rate		7 yrs. - 12 yrs. (10.4 yrs.)
Impaired loans: corporate		$	—			$	21			$	21			Collateral or discounted cash flow (1)		Not meaningful (1)		Not meaningful (1)
Loan held for sale		$	66			$	—			$	66			N/A		N/A		N/A
Other assets: other real estate owned		$	1			$	—			$	1			N/A		N/A		N/A

(1)	The valuation techniques used for the corporate loans are based on collateral value less selling costs for the collateral dependent loans and discounted cash flows for impaired loans that are not collateral dependent.

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Financial instruments not recorded at fair value

Many, but not all, of the financial instruments we hold were recorded at fair value on the Condensed Consolidated Statements of Financial Condition. The following table presents the estimated fair value and fair value hierarchy of financial assets and liabilities that are not recorded at fair value in accordance with GAAP on the Condensed Consolidated Statements of Financial Condition at December 31, 2019 and September 30, 2019. This table excludes financial instruments that are carried at amounts which approximate fair value. Refer to Note 4 of our 2019 Form 10-K for a discussion of the fair value hierarchy classification of our financial instruments that are not recorded at fair value.

$ in millions		Level 1				Level 2				Level 3				Total estimated fair value				Carrying amount
December 31, 2019
Financial assets:
Bank loans, net		$	—			$	139			$	21,034			$	21,173			$	21,193
Financial liabilities:
Bank deposits - certificates of deposit		$	—			$	—			$	1,062			$	1,062			$	1,056
Senior notes payable		$	—			$	1,755			$	—			$	1,755			$	1,550
September 30, 2019
Financial assets:
Bank loans, net		$	—			$	75			$	20,710			$	20,785			$	20,783
Financial liabilities:
Bank deposits - certificates of deposit		$	—			$	—			$	617			$	617			$	605
Senior notes payable		$	—			$	1,760			$	—			$	1,760			$	1,550

Available-for-sale securities are primarily comprised of agency MBS and CMOs owned by Raymond James Bank (“RJ Bank”). Refer to the discussion of our available-for-sale securities accounting policies, including the fair value determination process, in Note 2 of our 2019 Form 10-K.

The following table details the amortized cost and fair values of our available-for-sale securities.

$ in millions		Cost basis				Gross unrealized gains				Gross unrealized losses				Fair value
December 31, 2019
Agency residential MBS		$	1,622			$	22			$	(1	)		$	1,643
Agency commercial MBS		343				3				—				346
Agency CMOs		1,220				6				(3		)		1,223
Other securities		10				$	—			$	—			10
Total available-for-sale securities		$	3,195			$	31			$	(4	)		$	3,222
September 30, 2019
Agency residential MBS		$	1,555			$	20			$	(1	)		$	1,574
Agency commercial MBS		305				5				—				310
Agency CMOs		1,195				7				(3		)		1,199
Other securities		10				—				—				10
Total available-for-sale securities		$	3,065			$	32			$	(4	)		$	3,093

See Note 3 for additional information regarding the fair value of available-for-sale securities.

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The following table details the contractual maturities, amortized costs, carrying values and current yields for our available-for-sale securities.  Since our MBS and CMO available-for-sale securities are backed by mortgages, actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. As of December 31, 2019, the average expected duration of our available-for-sale securities portfolio was approximately three years.

		December 31, 2019
$ in millions		Within one year				After one but within five years				After five but within ten years				After ten years				Total
Agency residential MBS
Amortized cost		$	—			$	36			$	787			$	799			$	1,622
Carrying value		$	—			$	36			$	798			$	809			$	1,643
Agency commercial MBS
Amortized cost		$	5			$	207			$	97			$	34			$	343
Carrying value		$	5			$	209			$	98			$	34			$	346
Agency CMOs
Amortized cost		$	—			$	—			$	82			$	1,138			$	1,220
Carrying value		$	—			$	—			$	82			$	1,141			$	1,223
Other securities
Amortized cost		$	—			$	2			$	8			$	—			$	10
Carrying value		$	—			$	2			$	8			$	—			$	10
Total available-for-sale securities
Amortized cost		$	5			$	245			$	974			$	1,971			$	3,195
Carrying value		$	5			$	247			$	986			$	1,984			$	3,222
Weighted-average yield		1.69		%		2.33		%		2.39		%		2.33		%		2.35		%

The following table details the gross unrealized losses and fair values of securities that were in a loss position at the reporting period end, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position.

		Less than 12 months								12 months or more								Total
$ in millions		Estimated fair value				Unrealized losses				Estimated fair value				Unrealized losses				Estimated fair value				Unrealized losses
December 31, 2019
Agency residential MBS		$	122			$	—			$	96			$	(1	)		$	218			$	(1	)
Agency commercial MBS		41				—				44				—				85				—
Agency CMOs		219				(1		)		297				(2		)		516				(3		)
Other securities		10				—				—				—				10				—
Total		$	392			$	(1	)		$	437			$	(3	)		$	829			$	(4	)
September 30, 2019
Agency residential MBS		$	166			$	—			$	114			$	(1	)		$	280			$	(1	)
Agency commercial MBS		—				—				44				—				44				—
Agency CMOs		145				(1		)		351				(2		)		496				(3		)
Other securities		2				—				—				—				2				—
Total		$	313			$	(1	)		$	509			$	(3	)		$	822			$	(4	)

The contractual cash flows of our available-for-sale securities are guaranteed by the U.S. government or its agencies. At December 31, 2019, of the 118 available-for-sale securities in an unrealized loss position, 51 were in a continuous unrealized loss position for less than 12 months and 67 were for 12 months or more. At December 31, 2019, debt securities we held in excess of ten percent of our equity included Federal National Home Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) which had an amortized cost of $2.07 billion and $873 million, respectively, and a fair value of $2.08 billion and $881 million, respectively.

During the three months ended December 31, 2019 and 2018, there were no sales of available-for-sale securities.

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Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative liabilities” on our Condensed Consolidated Statements of Financial Condition. Cash flows related to our derivatives are included within operating activities on the Condensed Consolidated Statements of Cash Flows. The significant accounting policies governing our derivatives, including our methodologies for determining fair value, are described in Note 2 of our 2019 Form 10-K.

Derivative balances included on our financial statements

The following table presents the gross fair value and notional amount of derivatives by product type, the amounts of counterparty and cash collateral netting on our Condensed Consolidated Statements of Financial Condition, as well as collateral posted and received under credit support agreements that do not meet the criteria for netting under GAAP.

		December 31, 2019												September 30, 2019
$ in millions		Derivative assets				Derivative liabilities				Notional amount				Derivative assets				Derivative liabilities				Notional amount
Derivatives not designated as hedging instruments
Interest rate - matched book		$	244			$	244			$	2,281			$	280			$	280			$	2,296
Interest rate - other (1)		132				112				10,846				184				146				10,690
Foreign exchange		—				6				551				—				1				573
Equity		—				6				6				—				6				6
Subtotal		376				368				13,684				464				433				13,565
Derivatives designated as hedging instruments
Interest rate		1				—				850				1				—				850
Foreign exchange		—				9				877				—				1				856
Subtotal		1				9				1,727				1				1				1,706
Total gross fair value/notional amount		377				377				$	15,411			465				434				$	15,271
Offset on the Condensed Consolidated Statements of Financial Condition
Counterparty netting		(19		)		(19		)						(24		)		(24		)
Cash collateral netting		(70		)		(52		)						(103		)		(97		)
Total amounts offset		(89		)		(71		)						(127		)		(121		)
Net amounts presented on the Condensed Consolidated Statements of Financial Condition		288				306								338				313
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition
Financial instruments (2)		(254		)		(244		)						(297		)		(280		)
Total		$	34			$	62							$	41			$	33

(1)	Substantially all relates to interest rate derivatives entered into as part of our fixed income business operations, including to be announced (“TBA”) security contracts that are accounted for as derivatives.

(2)	Although the matched book derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the agreement with the third-party intermediary includes terms that are similar to a master netting agreement. As a result, we present the matched book amounts net in the preceding table.

The following table details the gains/(losses) included in accumulated other comprehensive income (“AOCI”), net of income taxes, on derivatives designated as hedging instruments. These gains/(losses) included any amounts reclassified from AOCI to net income during the period. See Note 14 for additional information.

		Three months ended December 31,
$ in millions		2019				2018
Interest rate (cash flow hedges)		$	10			$	(17	)
Foreign exchange (net investment hedges)		(13		)		37
Total gains/(losses) in AOCI, net of taxes		$	(3	)		$	20

There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness for each of the three months ended December 31, 2019 and 2018. We expect to reclassify an insignificant amount of interest expense out of AOCI and into earnings within the next 12 months. The maximum length of time over which forecasted transactions are or will be hedged is 8 years.

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The following table details the gains/(losses) on derivatives not designated as hedging instruments recognized on the Condensed Consolidated Statements of Income and Comprehensive Income.

$ in millions		Location of gain/(loss) included on the Condensed Consolidated Statements of Income and Comprehensive Income		Gain/(loss) recognized during the three months ended December 31,
				2019				2018
Interest rate		Principal transactions/other revenues		$	5			$	2
Foreign exchange		Other revenues		$	(11	)		$	26
Equity		Compensation, commissions and benefits expense		$	—			$	5

Risks associated with our derivatives and related risk mitigation

Credit risk

We are exposed to credit losses in the event of nonperformance by the counterparties to forward foreign exchange derivative agreements and interest rate derivatives that are not cleared through a clearing organization. Where we are subject to credit exposure, we perform a credit evaluation of counterparties prior to entering into derivative transactions and we monitor their credit standings.  We may require initial margin or collateral from counterparties in the form of cash deposits or other marketable securities to support certain of these obligations as established by the credit threshold specified by the agreement and/or as a result of monitoring the credit standing of the counterparties.

Our only exposure to credit risk in the matched book derivatives operations is related to our uncollected derivative transaction fee revenues, which were insignificant as of both December 31, 2019 and September 30, 2019. We are not exposed to market risk on these derivatives due to the pass-through transaction structure described in Note 2 of our 2019 Form 10-K.

Interest rate and foreign exchange risk

We are exposed to interest rate risk related to certain of our interest rate derivatives. We are also exposed to foreign exchange risk related to our forward foreign exchange derivatives.  On a daily basis, we monitor our risk exposure on our derivatives based on established limits with respect to a number of factors, including interest rate, foreign exchange spot and forward rates, spread, ratio, basis and volatility risks, both for the total portfolio and by maturity period.

Derivatives with credit-risk-related contingent features

Certain of our derivative contracts contain provisions that require our debt to maintain an investment-grade rating from one or more of the major credit rating agencies. If our debt were to fall below investment-grade, the counterparties to the derivative instruments could terminate and request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that were in a liability position was insignificant as of both December 31, 2019 and September 30, 2019.

Collateralized agreements are securities purchased under agreements to resell (“reverse repurchase agreements”) and securities borrowed. Collateralized financings are securities sold under agreements to repurchase (“repurchase agreements”) and securities loaned. We enter into these transactions in order to facilitate client activities, invest excess cash, acquire securities to cover short positions and finance certain firm activities. The significant accounting policies governing our collateralized agreements and financings are described in Note 2 of our 2019 Form 10-K.

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For financial statement purposes, we do not offset our reverse repurchase agreements, repurchase agreements, securities borrowing and securities lending transactions because the conditions for netting as specified by GAAP are not met. Our reverse repurchase agreements, repurchase agreements, securities borrowing and securities lending transactions are governed by master agreements that are widely used by counterparties and that may allow for net settlements of payments in the normal course, as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of the parties to the transaction. Although not offset on the Condensed Consolidated Statements of Financial Condition, these transactions are included in the following table.

		Assets								Liabilities
$ in millions		Reverse repurchase agreements				Securities borrowed				Repurchase agreements				Securities loaned
December 31, 2019
Gross amounts of recognized assets/liabilities		$	326			$	211			$	200			$	239
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition		—				—				—				—
Net amounts presented on the Condensed Consolidated Statements of Financial Condition		326				211				200				239
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition		(326		)		(207		)		(200		)		(229		)
Net amounts		$	—			$	4			$	—			$	10
September 30, 2019
Gross amounts of recognized assets/liabilities		$	343			$	248			$	150			$	323
Gross amounts offset on the Condensed Consolidated Statements of Financial Condition		—				—				—				—
Net amounts presented on the Condensed Consolidated Statements of Financial Condition		343				248				150				323
Gross amounts not offset on the Condensed Consolidated Statements of Financial Condition		(343		)		(243		)		(150		)		(311		)
Net amounts		$	—			$	5			$	—			$	12

Total collateral received under reverse repurchase agreements and the total amount of collateral posted under repurchase agreements exceeds the carrying value of these agreements on our Condensed Consolidated Statements of Financial Condition.

Collateral received and pledged

We receive cash and securities as collateral, primarily in connection with reverse repurchase agreements, securities borrowed, derivative transactions and client margin loans. The collateral we receive reduces our credit exposure to individual counterparties.

In many cases, we are permitted to deliver or repledge financial instruments we have received as collateral to satisfy our collateral requirements under our repurchase agreements, securities lending agreements or other secured borrowings, to satisfy deposit requirements with clearing organizations, or to otherwise meet either our or our clients’ settlement requirements.

The following table presents financial instruments at fair value that we received as collateral, were not included on our Condensed Consolidated Statements of Financial Condition, and that were available to be delivered or repledged, along with the balances of such instruments that were delivered or repledged, to satisfy one of our purposes previously described.

$ in millions		December 31, 2019				September 30, 2019
Collateral we received that was available to be delivered or repledged		$	2,860			$	2,931
Collateral that we delivered or repledged		$	860			$	897

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Encumbered assets

We pledge certain of our assets to collateralize either repurchase agreements or other secured borrowings, maintain lines of credit, or to satisfy our collateral or settlement requirements with counterparties or clearing organizations who may or may not have the right to deliver or repledge such instruments. The following table presents information about our assets that have been pledged for one of the purposes previously described.

$ in millions		December 31, 2019				September 30, 2019
Had the right to deliver or repledge		$	493			$	591
Did not have the right to deliver or repledge		$	65			$	65
Bank loans, net pledged at Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank		$	4,905			$	4,653

Repurchase agreements, repurchase-to-maturity transactions and securities loaned accounted for as secured borrowings

The following table presents the remaining contractual maturity of repurchase agreements and securities lending transactions accounted for as secured borrowings.

$ in millions		Overnight and continuous				Up to 30 days				30-90 days				Greater than 90 days				Total
December 31, 2019
Repurchase agreements:
Government and agency obligations		$	77			$	—			$	—			$	—			$	77
Agency MBS and CMOs		123				—				—				—				123
Total repurchase agreements		200				—				—				—				200
Securities loaned:
Equity securities		239				—				—				—				239
Total		$	439			$	—			$	—			$	—			$	439
September 30, 2019
Repurchase agreements:
Government and agency obligations		$	70			$	—			$	—			$	—			$	70
Agency MBS and CMOs		80				—				—				—				80
Total repurchase agreements		150				—				—				—				150
Securities loaned:
Equity securities		323				—				—				—				323
Total		$	473			$	—			$	—			$	—			$	473

As of both December 31, 2019 and September 30, 2019, we did not have any “repurchase-to-maturity” agreements, which are repurchase agreements where a security is transferred under an agreement to repurchase and the maturity date of the repurchase agreement matches the maturity date of the underlying security.

Bank client receivables are comprised of loans originated or purchased by RJ Bank and include commercial and industrial (“C&I”) loans, tax-exempt loans, commercial and residential real estate loans, securities-based loans (“SBL”) and other loans. These receivables are collateralized by first and, to a lesser extent, second mortgages on residential or other real property, other assets of the borrower, a pledge of revenue or are unsecured. See Note 2 of our 2019 Form 10-K for a discussion of accounting policies related to bank loans and allowances for losses.

We segregate our loan portfolio into six loan portfolio segments: C&I, commercial real estate (“CRE”), CRE construction, tax-exempt, residential mortgage, and SBL and other. These portfolio segments also serve as the portfolio loan classes for purposes of credit analysis, except for residential mortgage loans which are further disaggregated into residential first mortgage and residential home equity classes.

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The following table presents the balances for both the held for sale and held for investment loan portfolios, as well as the associated percentage of each portfolio segment in RJ Bank’s total loan portfolio. “Loans held for sale, net” and “Total loans held for investment, net” in the following table are presented net of unearned income and deferred expenses, which include purchase premiums, purchase discounts and net deferred origination fees and costs.

		December 31, 2019							September 30, 2019
$ in millions		Balance				%			Balance				%
Loans held for investment:
C&I loans		$	8,043			37	%		$	8,098			38	%
CRE construction loans		167				1	%		185				1	%
CRE loans		3,773				17	%		3,652				17	%
Tax-exempt loans		1,220				6	%		1,241				6	%
Residential mortgage loans		4,705				22	%		4,454				21	%
SBL and other		3,411				16	%		3,349				16	%
Total loans held for investment		21,319							20,979
Net unearned income and deferred expenses		(10		)					(12		)
Total loans held for investment, net		21,309							20,967
Loans held for sale, net		203				1	%		142				1	%
Total loans held for sale and investment		21,512				100	%		21,109				100	%
Allowance for loan losses		(216		)					(218		)
Bank loans, net		$	21,296						$	20,891

At December 31, 2019, the FHLB had a blanket lien on RJ Bank’s residential mortgage loan portfolio as security for the repayment of certain borrowings. See Note 11 for more information regarding borrowings from the FHLB.

Loans held for sale

RJ Bank originated or purchased $706 million and $792 million of loans held for sale during the three months ended December 31, 2019, and 2018, respectively. Proceeds from the sale of these held for sale loans amounted to $214 million and $257 million during the three months ended December 31, 2019, and 2018, respectively. Net gains resulting from such sales were insignificant during the three months ended December 31, 2019 and 2018.

Purchases and sales of loans held for investment

The following table presents purchases and sales of any loans held for investment by portfolio segment.

$ in millions		C&I loans				Residential mortgage loans				Total
Three months ended December 31, 2019
Purchases		$	67			$	158			$	225
Sales		$	20			$	—			$	20
Three months ended December 31, 2018
Purchases		$	262			$	76			$	338
Sales		$	69			$	—			$	69

Sales in the preceding table represent the recorded investment of loans held for investment that were transferred to loans held for sale and subsequently sold to a third party during the respective period. As more fully described in Note 2 of our 2019 Form 10-K, corporate loan (C&I, CRE and CRE construction) sales generally occur as part of our credit management activities.

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Aging analysis of loans held for investment

The following table presents an analysis of the payment status of loans held for investment. Amounts in the table exclude any net unearned income and deferred expenses.

$ in millions		30-89 days and accruing				90 days or more and accruing				Total past due and accruing				Nonaccrual				Current and accruing				Total loans held for investment
December 31, 2019
C&I loans		$	—			$	—			$	—			$	16			$	8,027			$	8,043
CRE construction loans		—				—				—				—				167				167
CRE loans		—				—				—				7				3,766				3,773
Tax-exempt loans		—				—				—				—				1,220				1,220
Residential mortgage loans:
First mortgage loans		1				—				1				15				4,664				4,680
Home equity loans/lines		—				—				—				—				25				25
SBL and other		—				—				—				—				3,411				3,411
Total loans held for investment		$	1			$	—			$	1			$	38			$	21,280			$	21,319
September 30, 2019
C&I loans		$	—			$	—			$	—			$	19			$	8,079			$	8,098
CRE construction loans		—				—				—				—				185				185
CRE loans		—				—				—				8				3,644				3,652
Tax-exempt loans		—				—				—				—				1,241				1,241
Residential mortgage loans:
First mortgage loans		2				—				2				16				4,409				4,427
Home equity loans/lines		—				—				—				—				27				27
SBL and other		—				—				—				—				3,349				3,349
Total loans held for investment		$	2			$	—			$	2			$	43			$	20,934			$	20,979

The preceding table includes $28 million and $32 million at December 31, 2019 and September 30, 2019, respectively, of nonaccrual loans which were current pursuant to their contractual terms.

Other real estate owned, included in “Other assets” on our Condensed Consolidated Statements of Financial Condition, was $3 million at both December 31, 2019 and September 30, 2019. The recorded investment in mortgage loans secured by one-to-four family residential properties for which formal foreclosure proceedings were in process was $7 million at both December 31, 2019 and September 30, 2019.

Impaired loans and troubled debt restructurings

The following table provides a summary of RJ Bank’s impaired loans.

		December 31, 2019												September 30, 2019
$ in millions		Gross recorded investment				Unpaid principal balance				Allowance for losses				Gross recorded investment				Unpaid principal balance				Allowance for losses
Impaired loans with allowance for loan losses:
C&I loans		$	16			$	18			$	3			$	19			$	20			$	6
Residential - first mortgage loans		9				12				1				11				13				1
Total		25				30				4				30				33				7
Impaired loans without allowance for loan losses:
CRE loans		7				13				—				8				13				—
Residential - first mortgage loans		11				17				—				11				17				—
Total		18				30				—				19				30				—
Total impaired loans		$	43			$	60			$	4			$	49			$	63			$	7

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Impaired loan balances with allowances for loan losses have had reserves established based upon management’s analysis. There is no allowance required when the discounted cash flow, collateral value or market value of a loan equals or exceeds the carrying value.  These are generally loans in process of foreclosure that have already been adjusted to fair value.

The preceding table includes C&I, CRE and residential first mortgage loans troubled debt restructurings (“TDRs”) of $16 million, $7 million and $17 million, respectively, at December 31, 2019 and $19 million, $8 million and $18 million, respectively, at September 30, 2019.

The average balance of the total impaired loans was as follows.

		Three months ended December 31,
$ in millions		2019				2018
C&I loans		$	18			$	10
CRE loans		7				—
Residential - first mortgage loans		21				27
Total average impaired loan balance		$	46			$	37

Credit quality indicators

The credit quality of RJ Bank’s loan portfolio is summarized monthly by management using the standard asset classification system utilized by bank regulators for the SBL and residential mortgage loan portfolios and internal risk ratings, which correspond to the same standard asset classifications for the corporate loan portfolios.  These classifications are divided into three groups:  Not Classified (Pass), Special Mention, and Classified or Adverse Rating (Substandard, Doubtful and Loss). These terms are defined as follows:

Pass – Loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less costs to acquire and sell, of any underlying collateral in a timely manner.

Special Mention – Loans which have potential weaknesses that deserve management’s close attention. These loans are not adversely classified and do not expose RJ Bank to sufficient risk to warrant an adverse classification.

Substandard – Loans which are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans with this classification are characterized by the distinct possibility that RJ Bank will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans which have all the weaknesses inherent in loans classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently-known facts, conditions and values.

Loss – Loans which are considered by management to be uncollectible and of such little value that their continuance on our books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted.  We do not have any bank loan balances within this classification because, in accordance with our accounting policy, loans, or a portion thereof considered to be uncollectible, are charged-off prior to the assignment of this classification.

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The following table presents the credit quality of RJ Bank’s held for investment loan portfolio.

$ in millions		Pass				Special mention				Substandard				Doubtful				Total
December 31, 2019
C&I loans		$	7,799			$	98			$	146			$	—			$	8,043
CRE construction loans		167				—				—				—				167
CRE loans		3,701				36				36				—				3,773
Tax-exempt loans		1,220				—				—				—				1,220
Residential mortgage loans:
First mortgage loans		4,647				9				24				—				4,680
Home equity loans/lines		25				—				—				—				25
SBL and other		3,411				—				—				—				3,411
Total loans held for investment		$	20,970			$	143			$	206			$	—			$	21,319
September 30, 2019
C&I loans		$	7,870			$	152			$	76			$	—			$	8,098
CRE construction loans		185				—				—				—				185
CRE loans		3,630				—				22				—				3,652
Tax-exempt loans		1,241				—				—				—				1,241
Residential mortgage loans:
First mortgage loans		4,392				10				25				—				4,427
Home equity loans/lines		27				—				—				—				27
SBL and other		3,349				—				—				—				3,349
Total loans held for investment		$	20,694			$	162			$	123			$	—			$	20,979

Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.

Allowance for loan losses and reserve for unfunded lending commitments

The following table presents changes in the allowance for loan losses of RJ Bank by portfolio segment.

		Loans held for investment
$ in millions		C&I loans				CRE construction loans				CRE loans				Tax-exempt loans				Residential mortgage loans				SBL and other				Total
Three months ended December 31, 2019
Balance at beginning of period		$	139			$	3			$	46			$	9			$	16			$	5			$	218
Provision/(benefit) for loan losses		—				(1		)		—				(1		)		1				(1		)		(2		)
Net (charge-offs)/recoveries:
Charge-offs		—				—				—				—				—				—				—
Recoveries		—				—				—				—				—				—				—
Net charge-offs		—				—				—				—				—				—				—
Foreign exchange translation adjustment		—				—				—				—				—				—				—
Balance at end of period		$	139			$	2			$	46			$	8			$	17			$	4			$	216
Three months ended December 31, 2018
Balance at beginning of period		$	123			$	3			$	47			$	9			$	17			$	4			$	203
Provision/(benefit) for loan losses		15				—				(1		)		—				1				1				16
Net (charge-offs)/recoveries:
Charge-offs		—				—				—				—				—				—				—
Recoveries		—				—				—				—				1				—				1
Net (charge-offs)/recoveries		—				—				—				—				1				—				1
Foreign exchange translation adjustment		(1		)		—				—				—				—				—				(1		)
Balance at end of period		$	137			$	3			$	46			$	9			$	19			$	5			$	219

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The following table presents, by loan portfolio segment, RJ Bank’s recorded investment (excluding any net unearned income and deferred expenses) and the related allowance for loan losses.

		Loans held for investment
		Allowance for loan losses												Recorded investment
$ in millions		Individually evaluated for impairment				Collectively evaluated for impairment				Total				Individually evaluated for impairment				Collectively evaluated for impairment				Total
December 31, 2019
C&I loans		$	3			$	136			$	139			$	16			$	8,027			$	8,043
CRE construction loans		—				2				2				—				167				167
CRE loans		—				46				46				7				3,766				3,773
Tax-exempt loans		—				8				8				—				1,220				1,220
Residential mortgage loans		1				16				17				26				4,679				4,705
SBL and other		—				4				4				—				3,411				3,411
Total		$	4			$	212			$	216			$	49			$	21,270			$	21,319
September 30, 2019
C&I loans		$	6			$	133			$	139			$	19			$	8,079			$	8,098
CRE construction loans		—				3				3				—				185				185
CRE loans		—				46				46				8				3,644				3,652
Tax-exempt loans		—				9				9				—				1,241				1,241
Residential mortgage loans		1				15				16				28				4,426				4,454
SBL and other		—				5				5				—				3,349				3,349
Total		$	7			$	211			$	218			$	55			$	20,924			$	20,979

The reserve for unfunded lending commitments, which is included in “Other payables” on our Condensed Consolidated Statements of Financial Condition, was $8 million and $9 million at December 31, 2019 and September 30, 2019, respectively.

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A VIE requires consolidation by the entity’s primary beneficiary.  We evaluate all of the entities in which we are involved to determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. Refer to Note 2 of our 2019 Form 10-K for a discussion of our principal involvement with VIEs and the accounting policies regarding determination of whether we are deemed to be the primary beneficiary of VIEs.

VIEs where we are the primary beneficiary

Of the VIEs in which we hold an interest, we have determined that certain limited partnerships which are part of our private equity portfolio (“Private Equity Interests”), certain Low-Income Housing Tax Credit (“LIHTC”) funds and the trust we utilize in connection with restricted stock unit (“RSU”) awards granted to certain employees of one of our Canadian subsidiaries (the “Restricted Stock Trust Fund”) require consolidation in our financial statements, as we are deemed the primary beneficiary of such VIEs.  The aggregate assets and liabilities of the VIEs we consolidate are provided in the following table. Aggregate assets and aggregate liabilities may differ from the consolidated carrying value of assets and liabilities due to the elimination of intercompany assets and liabilities held by the consolidated VIE.

$ in millions		Aggregate assets				Aggregate liabilities
December 31, 2019
Private Equity Interests		$	63			$	4
LIHTC funds		77				4
Restricted Stock Trust Fund		21				21
Total		$	161			$	29
September 30, 2019
Private Equity Interests		$	65			$	4
LIHTC funds		80				5
Restricted Stock Trust Fund		14				14
Total		$	159			$	23

The following table presents information about the carrying value of the assets and liabilities of the VIEs which we consolidate and which are included on our Condensed Consolidated Statements of Financial Condition. Intercompany balances are eliminated in consolidation and not reflected in the following table.

$ in millions		December 31, 2019				September 30, 2019
Assets:
Cash, cash equivalents and cash segregated pursuant to regulations		$	6			$	7
Other investments		60				63
Other assets		72				75
Total assets		$	138			$	145
Liabilities:
Other payables		$	2			$	4
Total liabilities		$	2			$	4
Noncontrolling interests		$	57			$	60

VIEs where we hold a variable interest but are not the primary beneficiary

As discussed in Note 2 of our 2019 Form 10-K, we have concluded that for certain VIEs we are not the primary beneficiary and therefore do not consolidate these VIEs. Such VIEs include certain Private Equity Interests, certain LIHTC funds, and other limited partnerships. Our risk of loss for these VIEs is limited to our investments in, advances to, and/or receivables due from these VIEs.

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Aggregate assets, liabilities and risk of loss

The aggregate assets, liabilities, and our exposure to loss from those VIEs in which we hold a variable interest, but as to which we have concluded we are not the primary beneficiary, are provided in the following table.

		December 31, 2019												September 30, 2019
$ in millions		Aggregate assets				Aggregate liabilities				Our risk of loss				Aggregate assets				Aggregate liabilities				Our risk of loss
Private Equity Interests		$	5,672			$	117			$	63			$	6,317			$	117			$	63
LIHTC funds		6,254				2,117				42				6,001				2,221				64
Other		208				115				4				205				115				4
Total		$	12,134			$	2,349			$	109			$	12,523			$	2,453			$	131

We have operating leases for the premises we occupy in many of our U.S. and foreign locations, including our employee-based branch office operations. We also lease certain office and technology equipment. At inception, we determine if an arrangement to utilize a building or piece of equipment is a lease and, if so, the appropriate lease classification. If the arrangement is determined to be a lease, we recognize a ROU asset and a corresponding lease liability on our balance sheet. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We have elected the practical expedient, where leases with an initial term of 12 months or less are not recorded as an ROU asset or lease liability. Our lease terms include any noncancelable periods and may reflect periods covered by options to extend or terminate when it is reasonably certain that we will exercise those options. As of December 31, 2019, the weighted average remaining lease term for our operating leases was 5 years.

We record our operating lease ROU assets at the amount of the lease liability plus any prepaid rent and initial direct costs, less any lease incentives and accrued rent. We record lease liabilities at commencement date based on the present value of lease payments over the lease term, which is discounted using our commencement date incremental borrowing rate. Our incremental borrowing rate considers the weighted average yields on our senior notes payable, adjusted for collateralization and tenor. As of December 31, 2019, the weighted-average discount rate for our operating leases was 3.85%. Payments that vary because of changes in facts or circumstances occurring after the commencement date are considered variable and are expensed in the period incurred. For our real estate leases, we elected the practical expedient to account for the lease and non-lease components as a single lease. We have not elected the practical expedient for our equipment leases and account for lease and non-lease components separately. As of December 31, 2019, ROU assets of $324 million and lease liabilities of $349 million were included as components of “Other assets” and “Other payables,” respectively, on our Condensed Consolidated Statements of Financial Condition.

Lease expense

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term if the ROU asset has not been impaired or abandoned.

The components of lease expense were as follows.

$ in million		Three months ended December 31, 2019
Operating lease cost		$	23
Variable lease cost (1)		$	8

(1)	Includes payments for common area maintenance charges and other variable costs that are not reflected in the measurement of ROU assets and lease liabilities.

Finance leases and sublease income were immaterial for all periods presented. Short-term lease expense for the three months ended December 31, 2019 was immaterial.

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Lease liabilities

Maturities of lease liabilities as of December 31, 2019 were as follows.

Maturity of lease liabilities for fiscal year ended September 30,		$ in millions
Remainder of 2020		$	65
2021		91
2022		67
2023		54
2024		39
After 2024		73
Total lease payments		389
Less: interest		40
Present value of lease liabilities		$	349

Operating lease payments in the preceding table exclude $98 million of legally binding minimum lease payments for leases signed but not yet commenced. These leases are estimated to commence between fiscal year 2020 and 2021 with lease terms ranging from 2 years to 10 years.

Statement of cash flows supplemental information

$ in millions		Three months ended December 31, 2019
Cash outflows - lease liabilities		$	23
Non-cash - ROU assets recorded for new and modified leases		$	12

Minimum future lease commitments (under previous GAAP)

As of the date of adoption, our undiscounted minimum annual rental commitments under operating leases were materially unchanged from the disclosure in Note 17 of our 2019 Form 10-K, which is included in the following table.

Fiscal year ended September 30,		$ in millions
2020		$	103
2021		95
2022		79
2023		66
2024		49
Thereafter		127
Total		$	519

Bank deposits include savings and money market accounts, certificates of deposit with RJ Bank, Negotiable Order of Withdrawal (“NOW”) accounts and demand deposits. The following table presents a summary of bank deposits including the weighted-average rate, the calculation of which was based on the actual deposit balances at each respective period.

		December 31, 2019							September 30, 2019
$ in millions		Balance				Weighted-average rate			Balance				Weighted-average rate
Savings and money market accounts		$	21,896			0.17	%		$	21,654			0.25	%
Certificates of deposit		1,056				2.07	%		605				2.33	%
NOW accounts		6				0.01	%		6				0.01	%
Demand deposits (non-interest-bearing)		17				—			16				—
Total		$	22,975			0.26	%		$	22,281			0.31	%

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Total bank deposits in the preceding table exclude affiliate deposits of $164 million at December 31, 2019 and $163 million at September 30, 2019, all of which were held in a deposit account at RJ Bank on behalf of RJF.

Savings and money market accounts in the preceding table consist primarily of deposits that are cash balances swept from the client investment accounts maintained at Raymond James & Associates, Inc. (“RJ&A”) to RJ Bank. These balances are held in Federal Deposit Insurance Corporation (“FDIC”)-insured bank accounts through the Raymond James Bank Deposit Program (“RJBDP”). The aggregate amount of individual time deposit account balances that exceeded the FDIC insurance limit at December 31, 2019 was approximately $45 million.

The following table sets forth the scheduled maturities of certificates of deposit.

		December 31, 2019								September 30, 2019
$ in millions		Denominations greater than or equal to $100,000				Denominations less than $100,000				Denominations greater than or equal to $100,000				Denominations less than $100,000
Three months or less		$	40			$	22			$	24			$	19
Over three through six months		59				19				26				21
Over six through twelve months		101				93				75				37
Over one through two years		21				108				32				36
Over two through three years		53				194				40				93
Over three through four years		69				137				66				47
Over four through five years		19				121				38				51
Total certificates of deposit		$	362			$	694			$	301			$	304

Interest expense on deposits, excluding interest expense related to affiliate deposits, is summarized in the following table.

		Three months ended December 31,
$ in millions		2019				2018
Savings, money market, and NOW accounts		$	12			$	33
Certificates of deposit		4				2
Total interest expense on deposits		$	16			$	35

 

The following table details the components of other borrowings.

$ in millions		December 31, 2019				September 30, 2019
FHLB advances		$	875			$	875
Unsecured lines of credit		6				—
Mortgage notes payable and other		18				19
Total other borrowings		$	899			$	894

FHLB advances

Borrowings from the FHLB as of December 31, 2019 and September 30, 2019, were comprised of both floating and fixed-rate advances. As of December 31, 2019 and September 30, 2019, the floating-rate advances totaled $850 million. The interest rates on the floating-rate advances, which mature in December 2022, reset quarterly and are generally based on LIBOR. We use interest rate swaps to manage the risk of increases in interest rates associated with these floating-rate advances by converting the balances subject to variable interest rates to a fixed interest rate. Refer to Note 2 of our 2019 Form 10-K for information regarding these interest rate swaps, which are accounted for as hedging instruments. As of both December 31, 2019 and September 30, 2019, the fixed-rate advance totaled $25 million and bears interest at a fixed rate of 3.4%. This advance matures in October 2020. All of the advances were secured by a blanket lien granted to the FHLB on our residential mortgage loan portfolio. The weighted average interest rate on these FHLB advances as of December 31, 2019 and September 30, 2019 was 2.11% and 2.17%, respectively.

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Secured and unsecured financing arrangements

On February 19, 2019, RJF and RJ&A entered into an unsecured revolving credit facility agreement (the “Credit Facility”). The Credit Facility has a maturity date of February 2024 and the lenders include a number of financial institutions. This committed unsecured borrowing facility provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF, at variable rates of interest based on LIBOR, as adjusted for RJF’s credit rating. There were no borrowings outstanding on the Credit Facility as of December 31, 2019. There is a facility fee associated with the Credit Facility, which also varies with RJF’s credit rating. Based upon RJF’s credit rating as of December 31, 2019, the variable rate facility fee, which is applied to the committed amount, was 0.175% per annum.

In addition to the Credit Facility, we maintain various secured and unsecured lines of credit, which are generally utilized to finance certain fixed income securities or for cash management purposes. Borrowings during the period were generally day-to-day. The interest rates for these arrangements are variable and are based on the Fed Funds rate, LIBOR, a lenders prime rate, or the Canadian prime rate, as applicable. The weighted average interest rate on our outstanding borrowings as of December 31, 2019 was 2.87%.

We also have other collateralized financings included in “Securities sold under agreements to repurchase” and “Securities loaned” on our Condensed Consolidated Statements of Financial Condition. See Note 6 for information regarding our other collateralized financing arrangements.

Mortgage notes payable and other

Mortgage notes payable pertain to mortgage loans on certain of our corporate headquarters offices located in St. Petersburg, Florida. These mortgage loans are secured by land, buildings, and improvements.  These mortgage loans bear a fixed interest rate of 5.7% with repayment terms of monthly interest and principal debt service and have a January 2023 maturity.

The income tax provision for interim periods is comprised of tax on ordinary income provided at the most recent estimated annual effective tax rate, adjusted for the tax effect of discrete items.  We estimate the annual effective tax rate quarterly based on the forecasted pretax results of our U.S. and non-U.S. operations. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax.  These discrete items generally relate to changes in tax laws, adjustments to the actual liability determined upon filing tax returns, excess tax benefits related to share-based compensation and adjustments to previously recorded reserves for uncertain tax positions. For discussion of income tax accounting policies and other income tax related information, see Notes 2 and 16 of our 2019 Form 10-K.

Effective tax rate

Our effective income tax rate was 25.3% for the three months ended December 31, 2019, a slight increase compared with the 24.8% effective tax rate for fiscal year 2019.

Uncertain tax positions

We anticipate that the uncertain tax position liability balance will not change significantly over the next twelve months.

Commitments and contingencies

Loan and underwriting commitments

In the normal course of business, we enter into commitments for fixed income and equity underwritings. As of December 31, 2019, we had two such open underwriting commitments, which were subsequently settled in open market transactions and none of which resulted in a significant loss.

We offer loans to prospective financial advisors and certain key revenue producers primarily for recruiting, transitional cost assistance, and retention purposes (see Note 2 of our 2019 Form 10-K for a discussion of our accounting policies governing these transactions).

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These offers are contingent upon certain events occurring, including the individuals joining us and meeting certain conditions outlined in their offer. Our unfunded loan commitments related to such offers were insignificant as of December 31, 2019.

Commitments to extend credit and other credit-related financial instruments

RJ Bank has outstanding, at any time, a significant number of commitments to extend credit and other credit-related off-balance sheet financial instruments such as standby letters of credit and loan purchases, which then extend over varying periods of time. These arrangements are subject to strict underwriting assessments and each customer’s credit worthiness is evaluated on a case-by-case basis. Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and our exposure is limited to the replacement value of those commitments.

The following table presents RJ Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding.

$ in millions		December 31, 2019				September 30, 2019
Open-end consumer lines of credit (primarily SBL)		$	10,091			$	9,328
Commercial lines of credit		$	1,566			$	1,527
Unfunded loan commitments		$	606			$	599
Standby letters of credit		$	45			$	40

Open-end consumer lines of credit primarily represent the unfunded amounts of RJ Bank loans to consumers that are secured by marketable securities at advance rates consistent with industry standards. The proceeds from repayment or, if necessary, the liquidation of collateral, which is monitored daily, are expected to satisfy the amounts drawn against these existing lines of credit. These lines of credit are primarily uncommitted, as we reserve the right to not make any advances or may terminate these lines at any time.

  

Because many of our lending commitments expire without being funded in whole or part, the contractual amounts are not estimates of our actual future credit exposure or future liquidity requirements. We maintain a reserve to provide for potential losses related to the unfunded lending commitments. See Note 7 for further discussion of this reserve for unfunded lending commitments.

RJ&A enters into margin lending arrangements which allow customers to borrow against the value of qualifying securities. Margin loans are collateralized by the securities held in the customer’s account at RJ&A. Collateral levels and established credit terms are monitored daily and we require customers to deposit additional collateral or reduce balances as necessary.

Investment commitments

We had unfunded commitments to various investments, including private equity investments and certain RJ Bank investments, of $44 million as of December 31, 2019.

Other commitments

 

Raymond James Tax Credit Funds, Inc. (“RJTCF”) sells investments in project partnerships to various LIHTC funds, which have third-party investors, and for which RJTCF serves as the managing member or general partner. RJTCF typically sells investments in project partnerships to LIHTC funds within 90 days of their acquisition. Until such investments are sold to LIHTC funds, RJTCF is responsible for funding investment commitments to such partnerships. As of December 31, 2019, RJTCF had committed approximately $197 million to project partnerships that had not yet been sold to LIHTC funds. Because we expect to sell these project partnerships to LIHTC funds and the equity funding events arise over future periods, the contractual commitments are not expected to impact our future liquidity requirements. RJTCF may also make short-term loans or advances to project partnerships and LIHTC funds.

As a part of our fixed income public finance operations, we enter into forward commitments to purchase agency MBS (see the discussion of these activities within Note 2 of our 2019 Form 10-K).  At December 31, 2019, we had $224 million principal amount of outstanding forward MBS purchase commitments, which were expected to be purchased within 90 days following commitment.  In order to hedge the market interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into TBA security contracts with investors for generic MBS at specific rates and prices to be delivered on settlement dates in the future. We may be subject to loss if the timing of, or the actual amount of, the MBS differs significantly from the term and notional amount of the TBA security contract to which we entered.  These TBA securities and related purchase commitments are accounted for at fair value. As of December 31, 2019, the fair value of the TBA securities and the estimated fair value of the purchase commitments were insignificant.

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Guarantees

Our U.S. broker-dealer subsidiaries are required by federal law to be members of the Securities Investors Protection Corporation (“SIPC”). The SIPC fund provides protection up to $500 thousand per client for securities and cash held in client accounts, including a limitation of $250 thousand on claims for cash balances. We have purchased excess SIPC coverage through various syndicates of Lloyd’s of London. For RJ&A, our clearing broker-dealer, the additional protection currently provided has an aggregate firm limit of $750 million for cash and securities, including a sub-limit of $1.9 million per client for cash above basic SIPC. Account protection applies when a SIPC member fails financially and is unable to meet obligations to clients. This coverage does not protect against market fluctuations. RJF has provided an indemnity to Lloyd’s of London against any and all losses they may incur associated with the excess SIPC policies.

We guarantee the debt of one of our private equity investments. The amount of such debt, including the undrawn portion of a revolving credit facility, was $13 million as of December 31, 2019. The debt, which matures in 2021, is secured by substantially all of the assets of the borrower.

Legal and regulatory matter contingencies

In addition to any matters that may be specifically described in the following sections, in the normal course of our business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities as a diversified financial services institution.

RJF and certain of its subsidiaries are subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations. Reviews can result in the imposition of sanctions for regulatory violations, ranging from non-monetary censures to fines and, in serious cases, temporary or permanent suspension from conducting business, or limitations on certain business activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time into industry practices, which can also result in the imposition of such sanctions.

We may contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased significantly in the financial services industry. There can be no assurance that material losses will not be incurred from claims that have not yet been asserted or are not yet determined to be material.

For many legal and regulatory matters, we are unable to estimate a range of reasonably possible loss as we cannot predict if, how or when such proceedings or investigations will be resolved or what the eventual settlement, fine, penalty or other relief, if any, may be. A large number of factors may contribute to this inherent unpredictability: the proceeding is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be allowed to proceed on that basis; the other party is seeking relief other than or in addition to compensatory damages (including, in the case of regulatory and governmental proceedings, potential fines and penalties); the matters present significant legal uncertainties; we have not engaged in settlement discussions; discovery is not complete; there are significant facts in dispute; and numerous parties are named as defendants (including where it is uncertain how liability might be shared among defendants). Subject to the foregoing, after consultation with counsel, we believe that the outcome of such litigation and regulatory proceedings will not have a material adverse effect on our consolidated financial condition. However, the outcome of such litigation and proceedings could be material to our operating results and cash flows for a particular future period, depending on, among other things, our revenues or income for such period.

There are certain matters for which we are unable to estimate the upper end of the range of reasonably possible loss. With respect to legal and regulatory matters for which management has been able to estimate a range of reasonably possible loss as of December 31, 2019, we estimated the upper end of the range of reasonably possible aggregate loss to be approximately $80 million in excess of the aggregate accruals for such matters.  Refer to Note 2 of our 2019 Form 10-K for a discussion of our criteria for recognizing liabilities for contingencies.

We may from time to time include in any descriptions of individual matters herein certain quantitative information about the plaintiff’s claim against us as alleged in the plaintiff’s pleadings or other public filings. Although this information may provide insight into the potential magnitude of a matter, it does not represent our estimate of reasonably possible loss or our judgment as to any currently appropriate accrual related thereto.

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All of the components of other comprehensive income (“OCI”), net of tax, were attributable to RJF. The following table presents the net change in AOCI as well as the changes, and the related tax effects, of each component of AOCI.

$ in millions		Net investment hedges				Currency translations				Subtotal: net investment hedges and currency translations				Available- for-sale securities				Cash flow hedges				Total
Three months ended December 31, 2019
AOCI as of beginning of period		$	110			$	(135	)		$	(25	)		$	21			$	(19	)		$	(23	)
OCI:
OCI before reclassifications and taxes		(17		)		22				5				(2		)		14				17
Amounts reclassified from AOCI, before tax		—				—				—				—				—				—
Pre-tax net OCI		(17		)		22				5				(2		)		14				17
Income tax effect		4				—				4				1				(4		)		1
OCI for the period, net of tax		(13		)		22				9				(1		)		10				18
AOCI as of end of period		$	97			$	(113	)		$	(16	)		$	20			$	(9	)		$	(5	)
Three months ended December 31, 2018
AOCI as of beginning of period		$	88			$	(111	)		$	(23	)		$	(46	)		$	42			$	(27	)
Cumulative effect of adoption of ASU 2016-01		—				—				—				(4		)		—				(4		)
OCI:
OCI before reclassifications and taxes		49				(50		)		(1		)		32				(24		)		7
Amounts reclassified from AOCI, before tax		—				—				—				—				(1		)		(1		)
Pre-tax net OCI		49				(50		)		(1		)		32				(25		)		6
Income tax effect		(12		)		—				(12		)		(10		)		8				(14		)
OCI for the period, net of tax		37				(50		)		(13		)		22				(17		)		(8		)
AOCI as of end of period		$	125			$	(161	)		$	(36	)		$	(28	)		$	25			$	(39	)

As of October 1, 2018, we adopted accounting guidance (ASU 2016-01) that generally requires changes in the fair value of equity securities to be recorded in net income. Accordingly, as of the date of adoption, we reclassified a cumulative unrealized gain on such securities, net of tax, from AOCI to retained earnings.

Reclassifications from AOCI to net income, excluding taxes, for the three months ended December 31, 2018 were recorded in “Interest expense” on the Condensed Consolidated Statements of Income and Comprehensive Income.

Our net investment hedges and cash flow hedges relate to our derivatives associated with RJ Bank’s business operations. See Note 2 of our 2019 Form 10-K and Note 5 for additional information on these derivatives.

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The following tables present our sources of revenues by segment. For further information about our significant accounting policies related to revenue recognition, see Note 2 of our 2019 Form 10-K. See Note 20 of this Form 10-Q for additional information on our segment results.

		Three months ended December 31, 2019
$ in millions		Private Client Group				Capital Markets				Asset Management				RJ Bank				Other and intersegment eliminations				Total
Revenues:
Asset management and related administrative fees		$	782			$	2			$	176			$	—			$	(5	)		$	955
Brokerage revenues:
Securities commissions:
Mutual and other fund products		144				3				2				—				(1		)		148
Insurance and annuity products		101				—				—				—				—				101
Equities, ETFs and fixed income products		85				30				—				—				(1		)		114
Subtotal securities commissions		330				33				2				—				(2		)		363
Principal transactions (1)		17				82				—				—				(2		)		97
Total brokerage revenues		347				115				2				—				(4		)		460
Account and services fees:
Mutual fund and annuity service fees		90				—				1				—				(1		)		90
RJBDP fees		105				—				—				—				(47		)		58
Client account and other fees		29				1				4				—				(4		)		30
Total account and service fees		224				1				5				—				(52		)		178
Investment banking:
Merger & acquisition and advisory		—				60				—				—				—				60
Equity underwriting		11				39				—				—				—				50
Debt underwriting		—				31				—				—				—				31
Total investment banking		11				130				—				—				—				141
Other:
Tax credit fund revenues		—				18				—				—				—				18
All other (1)		9				—				—				6				(4		)		11
Total other		9				18				—				6				(4		)		29
Total non-interest revenues		1,373				266				183				6				(65		)		1,763
Interest income (1)		49				8				1				231				8				297
Total revenues		1,422				274				184				237				(57		)		2,060
Interest expense		(8		)		(6		)		—				(21		)		(16		)		(51		)
Net revenues		$	1,414			$	268			$	184			$	216			$	(73	)		$	2,009

(1)	These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.

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		Three months ended December 31, 2018
$ in millions		Private Client Group				Capital Markets				Asset Management				RJ Bank				Other and intersegment eliminations				Total
Revenues:
Asset management and related administrative fees		$	707			$	2			$	161			$	—			$	(5	)		$	865
Brokerage revenues:
Securities commissions:
Mutual and other fund products		157				2				3				—				(2		)		160
Insurance and annuity products		104				—				—				—				—				104
Equities, ETFs and fixed income products		84				40				—				—				—				124
Subtotal securities commissions		345				42				3				—				(2		)		388
Principal transactions (1)		19				57				—				1				(1		)		76
Total brokerage revenues		364				99				3				1				(3		)		464
Account and services fees:
Mutual fund and annuity service fees		83				—				1				—				(3		)		81
RJBDP fees		109				—				1				—				(41		)		69
Client account and other fees		33				—				7				—				(5		)		35
Total account and service fees		225				—				9				—				(49		)		185
Investment banking:
Merger & acquisition and advisory		—				85				—				—				—				85
Equity underwriting		7				27				—				—				1				35
Debt underwriting		—				17				—				—				—				17
Total investment banking		7				129				—				—				1				137
Other:
Tax credit fund revenues		—				19				—				—				—				19
All other (1)		7				2				—				5				4				18
Total other		7				21				—				5				4				37
Total non-interest revenues		1,310				251				173				6				(52		)		1,688
Interest income (1)		56				10				1				239				10				316
Total revenues		1,366				261				174				245				(42		)		2,004
Interest expense		(10		)		(8		)		—				(42		)		(13		)		(73		)
Net revenues		$	1,356			$	253			$	174			$	203			$	(55	)		$	1,931

(1)	These revenues are generally not in scope of the accounting guidance for revenue from contracts with customers.

At December 31, 2019 and September 30, 2019, net receivables related to contracts with customers were $320 million and $347 million, respectively.

We record deferred revenue from contracts with customers when payment is received prior to the performance of our obligation to the customer. Deferred revenue balances were not material as of December 31, 2019 and September 30, 2019.

We have elected the practical expedient allowable by the accounting guidance to not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less.

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The following table details the components of interest income and interest expense.

		Three months ended December 31,
$ in millions		2019				2018
Interest income:
Assets segregated pursuant to regulations		$	11			$	15
Trading instruments		6				7
Available-for-sale securities		18				16
Margin loans		27				32
Bank loans, net of unearned income		206				214
Loans to financial advisors		5				4
Corporate cash and all other		24				28
Total interest income		$	297			$	316
Interest expense:
Bank deposits		$	16			$	35
Trading instruments sold but not yet purchased		1				2
Brokerage client payables		3				6
Other borrowings		5				6
Senior notes payable		18				18
Other		8				6
Total interest expense		51				73
Net interest income		246				243
Bank loan loss (provision)/benefit		2				(16		)
Net interest income after bank loan loss (provision)/benefit		$	248			$	227

Interest expense related to bank deposits in the preceding table excludes interest expense associated with affiliate deposits, which has been eliminated in consolidation.

We have one share-based compensation plan for our employees, Board of Directors and non-employees (independent contractor financial advisors). Generally, we reissue our treasury shares under The Amended and Restated 2012 Stock Incentive Plan; however, we are also permitted to issue new shares. Annual share-based compensation awards are primarily issued during the first fiscal quarter of each year.  Our share-based compensation accounting policies are described in Note 2 of our 2019 Form 10-K.  Other information related to our share-based awards is presented in Note 21 of our 2019 Form 10-K.  

During the three months ended December 31, 2019, we granted approximately 1.5 million RSUs to employees and outside members of our Board of Directors with a weighted-average grant-date fair value of $89.12. For the three months ended December 31, 2019, total compensation expense for RSUs granted to our employees and members of our Board of Directors was $40 million, compared with $38 million for the three months ended December 31, 2018.

As of December 31, 2019, there were $237 million of total pre-tax compensation costs not yet recognized (net of estimated forfeitures) related to RSUs granted to employees and members of our Board of Directors, including those granted during the three months ended December 31, 2019. These costs are expected to be recognized over a weighted-average period of 3.5 years.

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RJF, as a bank holding company and financial holding company, RJ Bank, our broker-dealer subsidiaries and Raymond James Trust, N.A. (“RJ Trust”) are subject to capital requirements by various regulatory authorities. Capital levels of each entity are monitored to ensure compliance with our various regulatory capital requirements.  Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on our financial results.

As a bank holding company, RJF is subject to the risk-based capital requirements of the Fed. These risk-based capital requirements are expressed as capital ratios that compare measures of regulatory capital to risk-weighted assets, which involve quantitative measures of our assets, liabilities, and certain off-balance-sheet items as calculated under regulatory guidelines. RJF’s and RJ Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

RJF and RJ Bank are required to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), Tier 1 capital to average assets (as defined), and under rules defined under the Basel III capital framework, Common equity Tier 1 capital (“CET1”) to risk-weighted assets. RJF and RJ Bank each calculate these ratios under the Basel III standardized approach in order to assess compliance with both regulatory requirements and their internal capital policies.  In order to maintain our ability to take certain capital actions, including dividends and common equity repurchases, and to make bonus payments, we must hold a capital conservation buffer above our minimum risk-based capital requirements. As of December 31, 2019, both RJF’s and RJ Bank’s capital levels exceeded the capital conservation buffer requirement and were each categorized as “well-capitalized.”

For further discussion of regulatory capital requirements applicable to certain of our businesses and subsidiaries, see Note 22 of our 2019 Form 10-K.

To meet requirements for capital adequacy purposes or to be categorized as “well-capitalized,” RJF must maintain minimum CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the following table.

		Actual							Requirement for capital adequacy purposes							To be well-capitalized under regulatory provisions
$ in millions		Amount				Ratio			Amount				Ratio			Amount				Ratio
RJF as of December 31, 2019:
CET1		$	6,230			24.8	%		$	1,133			4.5	%		$	1,636			6.5	%
Tier 1 capital		$	6,230			24.8	%		$	1,510			6.0	%		$	2,014			8.0	%
Total capital		$	6,465			25.7	%		$	2,014			8.0	%		$	2,517			10.0	%
Tier 1 leverage		$	6,230			15.8	%		$	1,573			4.0	%		$	1,967			5.0	%
RJF as of September 30, 2019:
CET1		$	5,971			24.8	%		$	1,085			4.5	%		$	1,567			6.5	%
Tier 1 capital		$	5,971			24.8	%		$	1,446			6.0	%		$	1,928			8.0	%
Total capital		$	6,207			25.8	%		$	1,928			8.0	%		$	2,410			10.0	%
Tier 1 leverage		$	5,971			15.7	%		$	1,525			4.0	%		$	1,906			5.0	%

RJF’s Tier 1 capital and Total capital ratios at December 31, 2019 were largely unchanged compared to September 30, 2019, as the impacts of the addition of ROU assets associated with the new lease accounting standard, an increase in market risk-weighted assets related to our trading positions, and growth of the bank loan portfolio were largely offset by positive earnings during the period.

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To meet the requirements for capital adequacy or to be categorized as “well-capitalized,” RJ Bank must maintain CET1, Tier 1 capital, Total capital and Tier 1 leverage amounts and ratios as set forth in the following table.

		Actual							Requirement for capital adequacy purposes							To be well-capitalized under regulatory provisions
$ in millions		Amount				Ratio			Amount				Ratio			Amount				Ratio
RJ Bank as of December 31, 2019:
CET1		$	2,289			13.3	%		$	775			4.5	%		$	1,120			6.5	%
Tier 1 capital		$	2,289			13.3	%		$	1,034			6.0	%		$	1,378			8.0	%
Total capital		$	2,504			14.5	%		$	1,378			8.0	%		$	1,723			10.0	%
Tier 1 leverage		$	2,289			8.8	%		$	1,037			4.0	%		$	1,297			5.0	%
RJ Bank as of September 30, 2019:
CET1		$	2,246			13.2	%		$	764			4.5	%		$	1,103			6.5	%
Tier 1 capital		$	2,246			13.2	%		$	1,018			6.0	%		$	1,358			8.0	%
Total capital		$	2,458			14.5	%		$	1,358			8.0	%		$	1,697			10.0	%
Tier 1 leverage		$	2,246			8.8	%		$	1,021			4.0	%		$	1,276			5.0	%

RJ Bank’s Tier 1 capital ratio at December 31, 2019 increased slightly compared to September 30, 2019 due to the impact of positive earnings during the current period, partially offset by growth of the bank loan portfolio.

Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934. The following table presents the net capital position of RJ&A.

$ in millions		December 31, 2019				September 30, 2019
Raymond James & Associates, Inc.:
(Alternative Method elected)
Net capital as a percent of aggregate debit items		41.6		%		39.7		%
Net capital		$	1,081			$	1,056
Less: required net capital		(52		)		(53		)
Excess net capital		$	1,029			$	1,003

As of December 31, 2019, RJFS, RJ Ltd., RJ Trust and all of our other active regulated domestic and international subsidiaries were in compliance with and exceeded all applicable capital requirements.

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The following table presents the computation of basic and diluted earnings per common share.

		Three months ended December 31,
in millions, except per share amounts		2019				2018
Income for basic earnings per common share:
Net income		$	268			$	249
Less allocation of earnings and dividends to participating securities		(1		)		—
Net income attributable to RJF common shareholders		$	267			$	249
Income for diluted earnings per common share:
Net income		$	268			$	249
Less allocation of earnings and dividends to participating securities		(1		)		—
Net income attributable to RJF common shareholders		$	267			$	249
Common shares:
Average common shares in basic computation		138.3				144.2
Dilutive effect of outstanding stock options and certain RSUs		3.2				3.1
Average common shares used in diluted computation		141.5				147.3
Earnings per common share:
Basic		$	1.93			$	1.73
Diluted		$	1.89			$	1.69
Stock options and certain RSUs excluded from weighted-average diluted common shares because their effect would be antidilutive		1.5				1.8

The allocation of earnings and dividends to participating securities in the preceding table represents dividends paid during the period to participating securities plus an allocation of undistributed earnings to participating securities.  Participating securities represent unvested restricted stock and certain RSUs. Participating securities and related dividends paid on these participating securities were insignificant for the three months ended December 31, 2019 and 2018.  Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.

Dividends per common share declared and paid are detailed in the following table for each respective period.

	Three months ended December 31,
	2019				2018
Dividends per common share - declared	$	0.37			$	0.34
Dividends per common share - paid	$	0.34			$	0.30

We currently operate through the following five segments: Private Client Group (“PCG”); Capital Markets; Asset Management; RJ Bank; and Other.

The segments are determined based upon factors such as the services provided and the distribution channels served and are consistent with how we assess performance and determine how to allocate our resources throughout our subsidiaries. For a further discussion of our segments, see Note 24 of our 2019 Form 10-K.

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The following tables present information concerning operations in these segments.

		Three months ended December 31,
$ in millions		2019				2018
Net revenues:
Private Client Group		$	1,414			$	1,356
Capital Markets		268				253
Asset Management		184				174
RJ Bank		216				203
Other		(8		)		2
Intersegment eliminations		(65		)		(57		)
Total net revenues		$	2,009			$	1,931
Pre-tax income/(loss):
Private Client Group		$	153			$	164
Capital Markets		29				12
Asset Management		73				64
RJ Bank		135				110
Other		(31		)		(18		)
Total pre-tax income		$	359			$	332

No individual client accounted for more than ten percent of revenues in any of the periods presented.

		Three months ended December 31,
$ in millions		2019				2018
Net interest income/(expense):
Private Client Group		$	41			$	46
Capital Markets		2				2
Asset Management		1				1
RJ Bank		210				197
Other and intersegment eliminations		(8		)		(3		)
Net interest income		$	246			$	243

The following table presents our total assets on a segment basis.

$ in millions		December 31, 2019				September 30, 2019
Total assets:
Private Client Group		$	9,755			$	9,042
Capital Markets		2,207				2,287
Asset Management		381				401
RJ Bank		26,283				25,516
Other		1,528				1,584
Total		$	40,154			$	38,830

The following table presents goodwill, which was included in our total assets, on a segment basis.

$ in millions		December 31, 2019				September 30, 2019
Goodwill:
Private Client Group		$	276			$	275
Capital Markets		120				120
Asset Management		69				69
Total		$	465			$	464

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We have operations in the U.S., Canada and Europe. Substantially all long-lived assets are located in the U.S.  The following table presents our net revenues and pre-tax income classified by major geographic area in which they were earned.

		Three months ended December 31,
$ in millions		2019				2018
Net revenues:
U.S.		$	1,875			$	1,796
Canada		95				99
Europe		39				36
Total		$	2,009			$	1,931
Pre-tax income/(loss):
U.S.		$	352			$	330
Canada		8				16
Europe (1)		(1		)		(14		)
Total		$	359			$	332

(1)	The pre-tax loss in Europe for the three months ended December 31, 2018 reflects a $15 million loss on the sale of our operations related to research, sales and trading of European equities incurred during the first fiscal quarter of 2019.

The following table presents our total assets by major geographic area in which they were held.

$ in millions		December 31, 2019				September 30, 2019
Total assets:
U.S.		$	37,285			$	35,978
Canada		2,751				2,754
Europe		118				98
Total		$	40,154			$	38,830

The following table presents goodwill, which was included in our total assets, classified by major geographic area in which it was held.

$ in millions		December 31, 2019				September 30, 2019
Goodwill:
U.S.		$	433			$	433
Canada		24				23
Europe		8				8
Total		$	465			$	464

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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•

PCG segment net revenues of $1.41 billion increased 4%, while pre-tax income of $153 million decreased 7%. The increase in net revenues was primarily attributable to an increase in asset management and related administrative fees due to higher assets in fee-based accounts. Non-interest expenses increased $69 million, or 6%, primarily resulting from an increase in compensation expenses due to the growth in compensable net revenues and higher staffing levels to support our continued growth and regulatory compliance requirements. Pre-tax income decreased despite an increase in net revenues due to a shift in the revenue mix, as net interest income and RJBDP fees from third-party banks, which have no associated direct payout expense, declined due to lower short-term interest rates. Meanwhile, revenues that have an associated direct payout expense (e.g., asset management and related administrative fees) increased.

•

Capital Markets net revenues of $268 million increased 6% and pre-tax income of $29 million increased 142%. The increase in net revenues was primarily due to an increase in fixed income brokerage revenues, as well as higher debt and equity underwriting revenues. These increases were partially offset by a decline in merger & acquisition and advisory revenues and lower equity brokerage revenues. Non-interest expenses decreased slightly, as the prior year impact of the aforementioned $15 million loss on the sale of our operations related to research, sales and trading of European equities was partially offset by higher compensation expense.

•	Our Asset Management segment net revenues of $184 million increased 6% and pre-tax income of $73 million increased 14%. The increase in net revenues was driven by growth in Private Client Group assets in fee-based accounts, which increased both in programs managed by the Asset Management segment and in other asset-based programs for which the segment provides administrative support.

•

RJ Bank net revenues of $216 million increased 6% and pre-tax income of $135 million increased 23%. The increase in net revenues reflected higher net interest income due to growth in interest-earning assets, which more than offset the lower net interest margin caused by lower short-term interest rates. Non-interest expenses decreased $12 million, or 13%, due to a $2 million loan loss benefit compared with a $16 million loan loss provision in the prior year quarter, partially offset by an increase in fees for RJBDP paid to PCG.

•

Our Other segment reflected a pre-tax loss that was $13 million larger compared to the prior year quarter, the result of a modest valuation loss on private equity investments, compared with gains in the prior year quarter, and lower interest income on corporate cash balances due to a decline in interest rates. Non-interest expenses increased $3 million, or 15%, primarily due to higher compensation-related expenses.

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(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.”

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(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.

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(1)	The Credit Facility provides for maximum borrowings of up to $500 million, with a sublimit of $300 million for RJF. For additional details on our committed unsecured financing arrangement, see our discussion of the Credit Facility in Note 11 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

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