Annual Report 2012
A journey of
years
A half-century of principled
action brought us here, and
it will carry us even farther
Year-End Financial Highlights
Total Revenues
Net Revenues
Net Income
Earnings per Share (Diluted)
Non-GAAP Net Income
Non-GAAP Earnings per Share (Diluted)
2012
2011
Change
$3,897,900,000
$3,399,886,000
$3,806,531,000
$3,334,056,000
$295,869,000
$278,353,000
$2.20
$2.19
$334,160,000
$2.51
1
1
$303,332,000
2
$2.39
2
14.6%
14.2%
6.3%
0.5%
10%
5%
Shareholders’ Equity
Shares Outstanding
$3,268,940,000
$2,587,619,000
26.3%
136,076,000
123,273,000
Shareholders’ Equity per Share
$24.02
$20.99
Five-Year Relative Stock Performance
Comparison of Five- Year Cumulative Total Return
Assumes Initial Investment of $100
$120
$100
$80
$60
$40
$20
$0
9/07
9/08
9/09
9/10
9/11
9/12
Raymond James Financial
S&P 500
Dow Jones U.S. Investment Services Index
1 Amounts exclude acquisition- and integration-related expenses and adjustments with respect to the Morgan Keegan acquisition in the amount of $59 million. Those adjustments include (1) the incremental interest expense the company incurred on financings it executed in anticipation of the closing of the transaction (the adjustment is the interest from the date of issuance of the debt up to the April 2, 2012 closing date of the Morgan Keegan acquisition); (2) the one-time acquisition and integration costs incurred in the Morgan Keegan transaction that are non-recurring expenses; and (3) the impact of additional common shares issued in anticipation of the closing date. The share adjustment is computed as the impact of the new shares from their date of issuance until the closing date of the acquisition, on the weighted average common shares outstanding utilized in the computation of basic and diluted earnings per share. See 8-k filed on October 24, 2012, for reconciliation to GAAP.2 Amounts exclude a $41 million pretax loss on auction rate securities repurchased.Prepared by Zacks Investment Research, Inc. Used with Permission. All rights reserved. 2
Message from the CEO
and the Chairman
6
An ever-growing promise
10
Business units
24
10-year financial
summary
26
Executive Committee
and Officers
28
Corporate and
shareholder information
29
Financial report
1
Message from the
ceo and the chairman
Dear Fellow Shareholder,
Raymond James Financial celebrated its 50th Anniversary in 2012. It was
gratifying to celebrate our growth from a start-up to an annual run rate of
almost $4.5 billion in revenues at the end of the year and reminisce about the
challenges which we survived, the innovations that we initiated and the culture
that we created. Our success was and is all about the people, both past and
present, who have been part of the Raymond James family, without whom we
wouldn’t have achieved this much. They remain steadfast in the pursuit of our
mission recited on page 23 of this annual report.
It is befitting that we attained many new records in 2012 in celebration of our
50th Anniversary. Net revenues were a record $3.8 billion, up 14% from last
year’s prior record, which relates principally to the addition of Morgan Keegan
for the second half of the year. Net expenses grew 16%, as costs of the merger
dampened the net growth of the overall company. Thus, net income grew only
6% to a record $296 million. Net income per fully diluted share grew to $2.20,
contrasted to $2.19 in fiscal 2011. On a non-GAAP basis, 2012 net income,
adjusted for costs of the merger, was $334 million, up 10% from last year’s non-
GAAP net income of $303 million, which excluded the pretax loss of $41 million
arising from the repurchase of ARS securities. Consequently, adjusted earnings
per fully diluted share were $2.51 compared to $2.39 last year. On a non-GAAP
basis, the after-tax operating margin on net revenues was 8.6% and the after-
tax rate of return on average equity was 11.0%. Shareholders’ equity increased
to $3.27 billion, or $24.02 per share, on September 30, 2012. The growth in
shareholders’ equity is primarily related to earnings and the public offering of
common shares issued in conjunction with the acquisition of Morgan Keegan.
Although segment results are informative with respect to understanding what’s
happening in the business, the results were materially impacted by continued
market volatility arising from the election, European economic instability,
persistent unemployment and nominal GDP growth in the U.S., and continuing
2
uncertainty about tax law and impending fiscal policy. Furthermore, the addition of Morgan Keegan in the second half of
the fiscal year contributed over $400 million in revenues and over $50 million in related pretax profits (before acquisition
and integration costs) for the two quarters that it has been included in consolidated results.
Subject to those caveats, the Private Client Group generated $2.48 billion in revenues, up 13% over last year, and $210
million of pretax profit contribution, down 4% from last year as much time, effort and retention dollars were expended in
welcoming Morgan Keegan advisors to the Raymond James family. The count of financial advisors grew from 5,350 at the
beginning of the year to 6,330 at year-end. Total client assets under administration grew from $256 billion to $390 billion.
The financial advisor desktop technology has gone and is going through a comprehensive software and hardware upgrade
as a result of the efforts of Bella Allaire and her entire team, aided by other departmental and operational business input.
Morgan Keegan is scheduled to be fully integrated onto our platform in the second fiscal quarter of 2013.
The Capital Markets segment produced $797 million in revenues in 2012, up 20%. The pretax profit contribution was $83
million, an increase of only 6%, largely due to anemic results in the Equity Capital Markets part of the business. We are in
the process of reducing expenses in this sector to improve financial results and are hopeful that revenues will increase as
U.S. corporate growth accelerates. Fixed Income and Public Finance are doing reasonably well in light of the pressure on
state and local governments to reduce costs. Raymond James Tax Credit Funds, which is included in this segment, had
another excellent year. On January 1, Ron Diner is becoming executive chairman of RJTCF and Steve Kropf will assume
the president and CEO role.
The Asset Management Group recorded a 5% increase in revenues to $237 million in 2012. The pretax profit contribution
grew 2% to $67 million, as revenues and profits can lag somewhat behind asset growth, and Eagle has added portfolio
managers to provide some new products, as is described in more detail in the asset management section of this report.
Total firm fee-based assets increased to over $100 billion at year-end, of which $43 billion were managed by Eagle, AMS-
Freedom or outside asset management companies.
We saved the best for last again as Raymond James Bank’s revenues grew by 23% to $346 million and its pretax profit
contribution increased by 39% to $240 million. Total loans grew 22% to $8.1 billion and loan performance continued to
improve. Total assets were $9.7 billion at year-end. We expect the bank to grow approximately at the rate supportable by
its net earnings, if conditions in the market permit.
In consonance with the importance of our 50th Anniversary, the year was filled with a long list of accomplishments, awards
and significant events, some of which are enumerated below:
• We acquired Morgan Keegan for $930 million (net of a $250 million cash dividend at closing) from Regions Financial,
which was the largest acquisition in our history. Thereby, we expanded our Raymond James financial advisor count
by approximately 890, added a premier fixed income/public finance department and generally integrated additional
experienced professionals throughout the firm. A number of operations have been combined already, and we plan to
complete the movement of the remainder of operations to the Raymond James platform in February 2013.
• Raymond James Financial raised $950 million net to us from one equity and two bond offerings to fund the acquisition,
without reducing the excellent liquidity position of the holding company.
• We acquired the minority 25% interest in our London-based UK private-client subsidiary, Raymond James Investment
Services, Ltd., from Killik, our partner since inception, for $3.8 million. That subsidiary is growing at a moderate pace
in spite of Europe’s economic problems and, more importantly, appears to have reached critical mass to become a
consistent profit contributor.
Our success was and is all about the people, both past and present,
who have been part of the Raymond James family, without whom
we wouldn’t have achieved this much.
3
Raymond James 2012 • In December 2011, Paul Reilly re-aligned his senior management team. He appointed Dennis
Zank chief operating officer of Raymond James Financial. Dennis has been instrumental in
guiding the Morgan Keegan integration. Tash Elwyn was appointed president of Raymond
3.81
James & Associates Private Client Group to fill Dennis Zank’s prior position. Scott Curtis was
3.33
2.92
2.81
2.55
2008
2009
2010
2011
2012
Net Revenue
$Billions
296
278
235
228
promoted to president of Raymond James Financial Services to become successor to Dick
Averitt, who retired as CEO of that subsidiary at 2012 year-end. Both report now to Chet
Helck, CEO of the Global Private Client Group. Chet is also currently serving as chairman of
the Securities Industry and Financial Markets Association (SIFMA). After closing the Morgan
Keegan transaction in April, John Carson, Morgan Keegan’s CEO, became president of
Raymond James Financial and has been leading the Morgan Keegan integration from the
Morgan Keegan side as the point man for an excellent team of managers in Memphis. Kevin
Giddis, another member of the Morgan Keegan team, has become head of Fixed Income,
and Rob Baird was named head of Public Finance, with both reporting to John Carson. We
believe we have one of the strongest leadership teams in the industry.
• For the second year in a row, Raymond James & Associates finished first in 2011 in
Registered Rep. magazine’s annual Broker Report Card competition. Financial advisors
rated us 9.3 on a 10 point scale, and 98% reported that Raymond James is the best firm
for which to work.
• In January, Raymond James Bank received approval to convert to a national bank. RJF
became a bank holding company and financial holding company with the Federal
Reserve Bank as a new regulator.
• In February, Raymond James Bank completed the acquisition of Allied Irish Banks’
$400 million Canadian loan portfolio.
• Following Richard Riess’ retirement, Jeff Dowdle was appointed the Asset Management
Group’s representative on the Executive Committee, while Richard Rossi and Cooper Abbott,
co-presidents of Eagle Asset Management, assumed the leadership role of our proprietary
asset management business. Indeed, in addition to Richard Riess’ legacy of growing a
first-class asset management company, his crowning achievement was to build an excellent
successor management team.
• For the second year in a row, Raymond James was selected as the fourth most admired
153
securities firm by Fortune magazine.
• In February, our real estate investment banking team was named the best real estate
investment banking team by Global Finance magazine’s World’s Best Investment 2012 list.
Furthermore, the Raymond James Investment Banking department also received four
awards from the M&A Advisor for transactions completed in 2011. Three of those deals
were designated “Deals of the Decade.”
• During the third quarter, Computerworld magazine named Raymond James one of the
Top 100 Best Places to Work in IT for the seventh consecutive year.
• Utilizing the advice of numerous financial advisors and operations personnel, Raymond James
released a new version of our Advisor Access platform, which fully integrates all client data and
new financial software on the desktop, to enable financial advisors to better serve their clients.
• To avoid natural disasters like hurricanes and earthquakes, Tim Eitel and Raymond LaCour
led an effort that selected Denver as a new home for our data center. Construction is now
underway on a 40,000-square-foot facility that will house our primary IT hardware. Operations
and IT development will still be located in St. Petersburg, Southfield and Memphis.
• Eagle recruited an experienced, highly rated team of small- and mid-cap portfolio managers
to provide more capacity in those disciplines. Moreover, subsequent to the end of fiscal 2012,
2008
2009
2010
2011
2012
Net Income
$Millions
4
Eagle completed the purchase of a 45% interest in ClariVest Asset Management LLC, which
offers a number of asset management products, utilizing quantitative selection screens.
• Raymond James Bank completed the purchase of $185 million of securities-based loans
from Regions Bank in July, pursuant to the Morgan Keegan acquisition agreement.
• For the third time in the last four years, our Canadian subsidiary, Raymond James Ltd.,
ranked highest in investor satisfaction among Canadian full-service brokerage firms in
the J.D. Power and Associates 2012 Full Service Investor Satisfaction Survey.
• In July 2012, Thomson Reuters named Raymond James a top 10 municipal bond
underwriter nationally in the first half of 2012.
In preparation for the 2012 annual report, we both read the last few annual reports. As might be
expected, the 2008 and 2009 reports were replete with risk management issues surrounding
the fiscal crisis. However, 2010 and 2011 shifted to a focus on recovery, which we correctly
described as slow and erratic, and on the need for government to deal with the deficit, i.e.,
increase revenues, materially reduce expenses in all areas and address entitlement reform for
the purpose of mitigating off-balance sheet obligations. Essentially nothing substantive has
been done in the last three years. Now, at the last minute, the administration and Congress
are conducting another fire drill at year-end to extend tax benefits to taxpayers below an
undefined income level and cause those above that level to have a higher rate. At the same
time, the parties are attempting to craft an agreement on other tax issues as well as agree, at
least generally, on some expenditure cuts. This is not a very professional approach to dealing
with the government’s financial challenges. By the way, expenditure cuts are described over a
10-year time frame with back-end loading, when we know there will be a high probability that
actions could be further delayed. Moreover, even if something is done, it’s still a small piece of
the requisite final fiscal puzzle. If something isn’t completed, the “fiscal cliff” will be dealt with
early next year and hopefully throughout 2013, as numerous actions will be necessary to put the
United States’ financial ship on a proper course.
13.0
11.3
10.6
9.7
7.9
2008
2009
2010
2011
2012
Return on Equity
Percent
5.0
3.2
3.3
2.9
Fortunately, the private, free enterprise segment of our economy continues to make slow
4.0
progress. Housing is showing signs of recovery, the United States is moving toward energy
independence, and employment levels have improved in spite of the lack of progress on
structural improvement in the United States’ fiscal architecture. Although the long-term
issues must be resolved, we still believe the private sector will muddle through while our
legislators procrastinate.
In the meantime, our challenges are to complete the platform integration with Morgan Keegan,
reduce redundant expenses and generate some additional organic growth. Since we continue
to enjoy excellent recruiting activity, vibrant loan growth in our bank and there are some signs of
improvement in Equity Capital Markets, we are encouraged about the prospects for 2013.
Best wishes for a happy, healthy and prosperous New Year!
Tom James, Executive Chairman
Paul Reilly, CEO
December 21, 2012
2008
2009
2010
2011
2012
Market Capitalization
$Billions
5
Raymond James 2012 An ever-growing promise
When Bob James started the firm that would become Raymond James
in an apartment building in 1962, he didn’t know that it would one day be
counted among the strongest and most respected investment firms in the
industry. But the operating principles he established then made it possible.
6
It was Bob’s beliefs – in championing
the entrepreneurial spirit, in being honest
and forthright, in acting intelligently and
always doing the right thing for clients –
that laid the groundwork for the firm’s
considerable success.
The beliefs Bob instilled in 1962 have been
crystallized in the spirit of innovation and
values that define Raymond James today:
independence, integrity, conservative
risk management and putting clients first.
And 50 years after our founding, chairman
Tom James and ceo Paul Reilly, our
leadership team, and our 13,900 advisors
and associates continue to uphold the
commitment this firm was built upon
as our values guide us forward.
R a y m o n d J a m e s 2 0 1 2
2012 Total Revenue
$3,897,900,000
1%
9%
6%
20%
64%
Private Client Group $2,475,190,000
Capital Markets
$796,941,000
Asset Management $237,224,000
Raymond James Bank $345,693,000
Other
$42,852,000
2012 Total Pretax Earnings
$471,525,000
(28)%
51%
45%
14%
18%
Private Client Group
$210,432,000
Capital Markets
$82,805,000
Asset Management
$67,241,000
Raymond James Bank $240,158,000
Other
($129,111,000)
7
What
years built …
… and what it stands for
Every structure that bears our name is a testament
to the principles, values and dedication of the
people whose hard work helped build this firm.
2
8
9
1
–
7
6
9
1
8,000
S q u a r e f e e t
6090 Central avenue
St. Petersburg, florida
7
8
9
1
–
2
8
9
1
85,000
S q u a r e f e e t
1400 66th Street n.
St. Petersburg, florida
o v e r
1,000,000
S q u a r e f e e t
880 Carillon Parkway
St. Petersburg, florida
t
n
e
s
e
r
P
–
7
8
9
1
t
n
e
s
e
r
P
–
5
0
0
2
88,000
S q u a r e f e e t
25900 telegraPh road
Southfield, Michigan
Floor brokerage and
specialist operations
begin on the
Philadelphia Stock
Exchange.
General insurance
agency today known
as Raymond James
Insurance Group
is formed.
Tom James
becomes CEO.
Raymond James
Invitational
Art Show debuts.
Investment
Management &
Research (IM&R)
founded as an
independent contractor
broker/dealer.
Eagle Asset
Management is formed.
Equity Research
department begins
operations.
Raymond James
survives the worst
bear market since the
Great Depression.
Robert Thomas
Securities
subsidiary forms
as independent
contractor
broker/dealer.
Net income exceeds
$1 million for
the first time.
RJ Properties
subsidiary forms
as real estate
general partner.
New York Stock
Exchange approves
Raymond James
stock for listing
(symbol: RJF).
Firm pays first
dividend.
Raymond James
Limited Partnership
Trading Desk
organizes.
Paris, France,
office opens.
Firm initiates
Stock Loan/
Stock Borrow
department.
Our corporate culture
commitment to client
service formalizes
under the name
Service 1st.
Research and
asset allocation
results begin
appearing in
The Wall Street
Journal.
Initial publication
of our Client Bill
of Rights.
Raymond James
Trust Company
subsidiary is formed.
Naming rights purchased
to Tampa’s Raymond
James Stadium®.
Goepel McDermid Inc.
acquired in Canada
and renamed Raymond
James Limited.
Raymond James
Bank introduces
first mortgages,
home equity loans
lines of credit.
Online banking
introduced by
Raymond James
Bank.
Raymond James Bank
completes nationwide
introduction of residential
lending products.
Firm affiliate Ballast
Point Ventures, L.P.
announces first
closing on $40 million
venture capital fund.
Firm acquires
relationships of Legg
Mason LM Financial
Partners subsidiary.
United Kingdom broker/
dealer Raymond James
Killik changes name
to Raymond James
Investment Services.
Robert A. James
Investments
incorporates.
Thomas A. James
joins the firm.
Gov. Jeb Bush and
Florida Cabinet
recognize Tom James
as the 2004 Florida
Free Enterpriser of
the Year.
Firm establishes its
Wealth Solutions
department to more
efficiently serve
advisors and high-net-
worth clients.
Paul Reilly named
future successor
to Tom James.
Heritage Family
of Funds group
rebranded the Eagle
Family of Funds.
Raymond James Bank
expands with acquisition
of Canadian commercial
loan portfolio of
Allied Irish Banks.
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
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1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Profit sharing plan
adopted for
employees.
First branch
office opens.
Raymond and Associates
merges into Robert A.
James Investments, and the
firm of Raymond James &
Associates (RJ&A) is formed.
Firm forms Investment
Banking division.
Raymond James
Financial (RJF)
incorporates as a
holding company.
RJ&A joins
Midwest Stock
Exchange.
RJ&A completes its first
successful public stock
underwriting for ABA
Industries.
Computers are
introduced to improve
operations efficiency.
Firm gains membership
on the New York Stock
Exchange.
Formal classroom
training of associates
begins, leading to the
formation of Raymond
James University.
American Stock
Exchange
approves firm
for membership.
RJ Oil & Gas subsidiary
incorporates as general
partner for oil and gas
limited partnerships.
Correspondent
clearing services
to independent
broker/dealers are
introduced.
Firm completes
$14 million initial
public offering.
RJ Leasing subsidiary
forms as general partner
for equipment leasing
limited partnerships.
Firm organizes
Public Finance
department.
Raymond James
completes secondary
offering of stock.
Geneva, Switzerland,
office opens.
Raymond James
Bank introduces
FDIC-insured savings
accounts and CDs.
Raymond James
International
Holdings, Inc.
founded.
Detroit-based regional
broker/dealer Roney &
Co. is acquired.
Clients gain access
to their account
information on
raymondjames.com.
Raymond James
Bank subsidiary
organizes.
Raymond James
Capital, our merchant
bank, is organized
as a subsidiary.
Online trading offered
to clients through their
financial advisors.
Our independent
contractor subsidiaries
Investment Management
& Research and Robert
Thomas Securities merge
to form Raymond James
Financial Services.
Total assets within
Raymond James Bank
surpass $1 billion.
Raymond James
Tax Credit Funds
cumulatively exceed
$1 billion in
equity raised.
Firm wins national
Business in the
Arts award.
Raymond James
Stadium hosts
Super Bowl XXXV.
Firm named to the
Fortune 1000 for
the first time.
Alternative Investments
Group created.
Raymond James
named to Fortune 1000
Most Admired Company
list for the first time.
Tom James is
elected chairman
of the Financial
Services Roundtable,
and chairman-elect
of the Florida
Council of 100.
J.D. Power and Associates ranks
firm highest in both investor
satisfaction and employee
advisor satisfaction.
Firm named best in
SmartMoney’s annual
America’s Best and
Worst broker survey.
Tom James named
National Entrepreneur of
the Year in the financial
services category by
Ernst & Young.
Forbes.com names firm
one of America’s Most
Trustworthy Companies
and One of America’s
Best Big Companies.
Paul Reilly succeeds
Tom James as CEO.
Tom remains
executive chairman
of the board.
Firm celebrates
50th anniversary.
Firm reports record
annual net revenues
of $3.81 billion.
Eagle Asset
Management launches
the Eagle Investment
Grade Bond Fund.
Life Well Planned,
the firm’s new
advertising campaign,
is launched in print,
broadcast and online.
Firm acquires Morgan
Keegan to become
one of the largest U.S.
wealth management
and investment banking
firms not headquartered
on Wall Street.
The purchase of Morgan
Keegan funded through
a combination of cash
on hand, a common
stock offering and two
senior note offerings.
t
n
e
s
e
r
P
–
7
9
9
1
242,169
S q u a r e f e e t
50 n. front Street
Memphis, tennessee
Raymond James
Stadium hosts Super
Bowl XLIII.
Lane Berry, a Boston-
based middle-market
investment banking and
advisory firm, is acquired.
Firm acquires
Chicago-based
Howe Barnes.
Private Client Group
“This was a
momentous year
in many ways. In
others, it was no
different from
every year that
came before it.”
Chet Helck
Chief Executive Officer
Raymond James Global Private Client Group
For Raymond James, it all started with the Private Client Group. Fifty years ago, it was our
only business. Today, it remains the most prominent part of the firm. And in 2012, the firm’s
dedication and support of the group were made evident in a particularly powerful way.
The acquisition of Morgan Keegan was not a move many industry watchers expected from us.
Our growth has traditionally been organic, driven by the strength and talent of our associates
and advisors with the occasional niche purchase. A transaction of this magnitude was
unprecedented in our history, but for Raymond James, this was much more than a transaction.
This was the union of two eminently compatible firms, or, to borrow the words of Paul Reilly,
“an opportunity that comes along only once every 20 years.”
On an analyst call just after the announcement, Tom James provided some insight into why our
two firms were such a good fit. Here’s what he told the assembled group: “Alan Morgan and I
grew up together in the business. There were a lot of roots that contributed to our recognition
that this was the right opportunity, but the most important thing here is the people. This brings
another professional group of financial advisors to our family, who think and serve their clients
like we do.”
10
Our technology team,
led by (from left)
Vin Campagnoli,
Sateesh Prabakaran,
Bella Loykhter Allaire
and David Allen,
launched a series of
major upgrades in 2012.
We announced the acquisition in January,
ahead of us, the integration has already
and it was formally completed in April.
brought nearly 900 new employee advisors
Twelve Morgan Keegan executives joined
to Raymond James & Associates and an
our leadership team, and, by industry
additional $66 billion in client assets to
standards, a remarkable percentage of
the Private Client Group.
Morgan Keegan advisors chose to stay
with the combined firm. Thanks to shared
values and our remarkably similar cultures,
thus far the transition from two companies
to one has been exceeding expectations.
In addition to the Morgan Keegan
acquisition, we made other less visible
but still significant announcements in
2012. Our technology team launched
a series of major initiatives, including
The hard work of professionals at both
an enhanced intranet, improvements
firms and a commitment to maintaining
to our client accounts center and
advisor and client service levels throughout
client relationship management
integration have enabled us to keep revenue
software, and the introduction of one
higher than Wall Street analysts projected.
of our biggest technology upgrades
We continue to surpass the milestones laid
to date. Advisor Access, introduced in
out in our integration plan and expect to
May, is the culmination of months of
fully align our businesses and associates
research, development and pilot testing
by early 2013. Though we have more work
conducted by our technology group.
d FinAlizE intEgrAtiOn with MOrgAn KEEgAn
R
A
w
R
O
F
k
O
O
L
A
we will continue to dedicate ourselves to the successful integration of Raymond James and
Morgan keegan, ensuring that Morgan keegan advisors, professionals and clients make the
full transition smoothly and have easy access to all the services and support they need.
COntinuE ExpAnding Our AFFiliAtiOn plAtFOrM
A major initiative for 2013 will be to expand our already robust AdvisorChoice® platform with
additional resources, services and ways for successful, client-focused and planning-oriented
advisors to affiliate with Raymond James. we plan to give particular attention to growing our
registered investment advisor (RIA) model.
MAintAin MOMEntuM in tEChnOlOgy innOvAtiOn
In addition to fully integrating Goal Planning & Monitoring and other systems across our
Advisor Access platform, we plan to continue improving our technologies and enhancing
our mobile capabilities to help advisors do business anywhere their clients are.
6,330
5,391
5,367 5,350
5,045
2008
2009
2010
2011
2012
Financial Advisors
Private client GrouP
2,449
2,465
2,450
2,366
2,653
2008
2009
2010
2011
2012
Branch Locations
Private client GrouP
368
249
254
223
197
2008
2009
2010
2011
2012
Client Assets
Private client GrouP
$Billions
excludes institutional assets of approximately
$22.5 billion and $2.5 billion at september
30, 2012 and 2011, respectively.
11
Raymond James 2012
Advisor Access is a fully integrated desktop
broker/dealers as well as their counterparts
application – a central point of interaction
in Canada and the United Kingdom. This
for all Raymond James technology. Our
success spurred a renewed focus on our
technology team worked extensively with
advisor affiliation platform, AdvisorChoice®.
advisors to develop the system, asking
The program emphasizes independence at
what they needed to serve their clients
each level – current models include traditional
even better and building accordingly.
employee, independent employee, independent
Goal Planning & Monitoring, powered by
MoneyGuidePro® and a key component
of the Advisor Access platform, is an
innovative financial planning software
solution that enables advisors to develop
contractor, independent RIA, and bank and
credit union advisor – and allows for flexibility
between models. This freedom enables
advisors to carve out completely unique spaces
for themselves within the larger spectrum.
highly personalized retirement and goal
2012 was a momentous year for Raymond
plans, seamlessly and conveniently.
James in many ways, but milestones and “firsts”
Our goal with these upgrades is to create an
integrated, intuitive technology offering that
puts everything advisors need to support their
clients one click away. With the implementation
of these tools, we are one step closer to that
goal and to offering one of the strongest
technology platforms in the industry.
aside, it was not so different from the years that
came before it. We remained focused on our
core principles and deepened our commitment
to treating our advisors like clients. And, in the
Private Client Group, we approached one of
our biggest opportunities to date with the same
conservatism and sound planning we’ve always
relied on. To me, our success this year was a
This year we also continued to see solid
testament to where Raymond James came
recruiting results beyond the Morgan Keegan
from and to how far we’ll go from here.
integration, with new and experienced
advisors joining the ranks at both of our U.S.
In 2012, Tash Elwyn
(left) and Scott Curtis
(right) took the reins
at Raymond James
& Associates and
Raymond James
Financial Services,
respectively.
2012
H i G H l i G H t s
| Morgan Keegan acquisition
announced on January 11
and closed on april 2.
| John carson named president
of raymond James Financial.
| Dennis Zank named chief
operating officer of raymond
James Financial.
| tash elwyn succeeded Zank
as president of raymond James
& associates.
| scott curtis named president
of raymond James Financial
services, succeeding the unit’s
retiring ceo Dick averitt.
| advisor access, featuring Goal
Planning & Monitoring and client
center, introduced.
thE First
AdvisOr
in 1962, ray Gussler became
the first raymond James
financial advisor – though the
term wouldn’t be popularized
until the 1970s. and aside from a
brief flirtation with independence
elsewhere, ray spent his entire
career with the firm. in fact, he
came back to our international
headquarters in august to help
celebrate our 50th anniversary.
12
Capital Markets
“In 2012, our capital
markets team
became an even
more formidable
force in the industry.”
Jeffrey Trocin
Executive Vice President
Equity Capital Markets
Raymond James & Associates
John Carson Jr.
President
Raymond James Financial
Fixed Income Capital Markets
In 1968, the first seeds for what would become Raymond James Capital Markets were
planted. Since then, we’ve grown substantially and steadily – winning recognition for
our research and expanding our capabilities. In 2012, that growth gained even more
momentum. Now that Raymond James and Morgan Keegan have come together,
our capital markets team is an even more formidable force in the industry.
Beyond the cultural fit and personal history between our two firms, what made the
acquisition so attractive was Morgan Keegan’s widely esteemed fixed income and public
finance units – and how naturally our two groups would fit together. In the years leading
up to the acquisition, the Raymond James leadership team placed an emphasis on
growing the capital markets business – making the opportunity to join forces ideal.
The acquisition has allowed Raymond James Capital Markets to strengthen
resources and expand capacity in three key areas: public finance, fixed income
and equity investment banking. In particular, our Public Finance and Fixed
Income teams have grown substantially both in number and expertise.
13
Raymond James 2012 796.9
664.3
592.0
533.3
506.2
2008
2009
2010
2011
2012
Total Revenue
caPital MarKets
$Millions
By retaining key
Morgan Keegan
leaders like Robert
Baird (left) and
Kevin Giddis (right),
we’ve smoothed
the transition and
strengthened our firm.
With the addition of 150 Morgan Keegan
140 associates across all disciplines
professionals, Raymond James Public
within the group, including Investment
Finance has doubled in size. The group
Banking, Equity Research, Institutional
is now a top 10 underwriter and home
Sales, Trading and Equity Origination/
to the largest underwriting desk in the
Syndicate. Our capabilities in Investment
Southeast. And the retention of key
Banking were particularly complemented
Morgan Keegan leaders, including Kevin
with meaningful additions in several of our
Giddis and Robert Baird, has smoothed
well-established industry practices such as
the integration and created a solid
energy, financial services and healthcare,
foundation for the combined businesses.
as well as new or greatly expanded
The Equity Capital Markets team was
150
bolstered by the addition of more than
practices in areas where Morgan Keegan
has leading franchises, including specialty
finance, security, industrials, transportation
119
113
81
78
2008
2009
2010
2011
2012
Underwritings
14
d dEEpEn Our rElAtiOnship with
R
A
w
R
O
F
k
O
O
L
A
rAyMOnd JAMEs BAnK
The relationship between Raymond James Capital Markets and Raymond James Bank is a
strong one – $4.3 billion of the bank’s current corporate loan commitments are with more than
165 Capital Markets clients. we plan to build on that strength by working together even more
proactively to grow our Investment Banking business and the bank’s corporate loan portfolio.
dEvElOp thE strEngth OF
Our COMBinEd tEAMs
with the addition of Morgan keegan, we have considerably expanded the size and expertise
of our Fixed Income team. we intend to continue developing this strength as we build what
we expect will be the premier middle markets fixed income franchise in the nation.
rAisE Our prOFilE As A tOp MuniCipAl
dEBt undErwritEr
we plan to capitalize on our newly minted status as a top 10 underwriter of municipal debt
by increasing our support and presence in the funding of public infrastructure – cities, schools,
highways, housing, airports and hospitals – throughout the nation.
and consumer (convenience store
Real Estate group was named the
and fuel products distribution).
top firm on Global Finance’s “World’s
But even before our firms joined
Best Investment Banks 2012” list.
forces, Raymond James Capital
Despite the backdrop of a challenging
Markets was well on its way to bigger
market and a near-unprecedented drop in
and better achievements. In 2012,
industry-wide equity commission volumes,
Raymond James managed a record
2012 was a success for Raymond James
150 underwritings – an increase of
Capital Markets. We posted the highest
more than 25% over the previous
revenues in our history, we earned
year. For fiscal 2012, Raymond
accolades from our industry, and we
James ranked 13th among all firms
successfully united two firms. Together,
in common equity underwriting
we’ll go on to accomplish even more.
activity. In addition, several of our
Investment Banking teams were
recognized with deal of the year
and deal of the decade awards by
various leading industry publications;
our Equity Research team received
multiple accolades from a variety of
consulting and rating firms; and our
Approximately 170
professionals keep
the Fixed Income
trading floor moving
in Memphis, which is
now home to our Fixed
Income and Public
Finance groups.
2012
H i G H l i G H t s
| John carson, former ceo
of Morgan Keegan, named
president of raymond James
Financial and head of Fixed
income capital Markets.
| robert Baird, former head
of investment banking at
Morgan Keegan, named
senior managing director and
head of Public Finance/Debt
investment Banking.
| Kevin Giddis, former head of
fixed income sales, trading
and research at Morgan Keegan,
named senior managing director
and head of Fixed income sales,
trading & research.
rAyMOnd whO?
in 1969, tom James persuaded local
defense contractor aBa industries
to let his firm take them public –
despite the fact that raymond James
had never managed a public stock
offering before. When telegrams
were sent out inviting 100 other
securities firms to participate in
the underwriting syndicate, most
responded with, “raymond who?”
But the iPo was a success, raising
just over $1 million, and served
as the first in a long line of iPos
from raymond James helping
to meet the financing needs of
companies across the country.
1515
Raymond James 2012
Asset Management
“Thanks to impressive
asset growth, strong
sales and some
strategic acquisitions,
2012 was a
noteworthy year.”
Jeff Dowdle
President, Asset Management Services
Senior Vice President
Raymond James & Associates
It wasn’t too long ago, 1975 to be precise, that our asset management business was an
informal collection of 13 individual accounts containing about $4 million in assets between
them – all managed by Tom James himself. Today, Raymond James Asset Management,
comprised of Asset Management Services (AMS) and Eagle Asset Management, manages
or administers in excess of $91 billion in fee-based assets. Assets have increased more
than $19 billion, or 27% from last year, making 2012 our most noteworthy year yet.
In addition to impressive asset growth and strong sales, we continued to expand our
product platform in 2012 in response to the shifting needs of financial advisors and their
clients in a volatile market environment.
The Freedom Unified Managed Account (UMA), which we introduced in 2008, has added
several new portfolio models in recent years, including flexible equity, equity income and
dynamic UMA models. As a result, UMA assets increased 70% over the course of the
fiscal year.
16
Alongside sound portfolio strategy,
Another addition came in August when
education has also been a major factor in
Charles Schwartz, Betsy Pecor, Matthew
Asset Management’s success. In addition
McGeary and Matthew Spitznagle
to providing institutional-quality investment
joined Eagle to manage small-, small/
solutions, we also offer advisors advice
mid- and mid-cap assets. Eagle also
on global markets, forward-looking capital
closed an agreement with ClariVest
market assumptions, asset allocation
Asset Management LLC, a firm with
models and portfolio construction.
established large-cap and institutional
91.0
71.8
65.2
Providing financial advisors with the
support they need to get the most from our
products and do the most for their clients
track records. This relationship provides
the potential to diversify Eagle’s offerings
along with a growth trajectory.
54.4
50.1
is a priority for Asset Management, as
This year, we also saw the departure
well as the firm. It’s one of the reasons we
of one of our longtime leaders and the
established the Raymond James Institute
advancement of two more. In January,
of Investment Management Consulting
Richard Riess, executive vice president of
(IIMC) in 2005. The IIMC offers a curriculum
Raymond James Asset Management, CEO
2008
2009
2010
2011
2012
that provides advisors with advanced
of Eagle Asset Management and chairman
institutional management principles and
of the board of trustees for the Eagle
the opportunity to collaborate with other
Family of Funds, announced his retirement.
advisors with similar business models. In
His mantle has been taken up by Richard
2012, 240 advisors participated in IIMC
Rossi and Cooper Abbott, who serve as
programs hosted by Asset Management
co-chief operating officers of Eagle.
Services and 235 in IIMC programs
held at Raymond James conferences.
To date, 916 advisors have earned
the institute’s internal designation.
2012 was an outstanding year for the
Raymond James Asset Management
division. We continued to expand
our product offerings and made
Alongside internal growth, Asset
strategic acquisitions that have further
Management also got a boost from the
strengthened our platform. And I believe,
Morgan Keegan acquisition. Approximately
moving forward, we will only get stronger.
$9.5 billion in fee-based assets will be
added to Asset Management Services
once the conversion is complete. And
the addition of nearly 900 Morgan
Keegan financial advisors presents a
tremendous opportunity for future growth.
“Providing financial advisors with the support they need to get
the most from our products and do the most for their clients is
a priority for Asset Management, as well as the firm.”
AMS: non-managed
AMS: managed
Eagle
Total Fee-Based
Assets
$Billions
17
Raymond James 2012 d ExplOrE nEw OppOrtunitiEs FrOM within
R
A
w
R
O
F
k
O
O
L
A
In 2012, we welcomed Morgan keegan’s Institutional Consulting Group, which provides
consulting expertise to small-to-mid-size nonprofits, qualified retirement plans, corporate
assets and private foundations. It enabled us to enter a new segment, and we’re focused
on expanding more fully into the space in the coming months.
sEEK Out AdditiOnAl
strAtEgiC pArtnErships
In fiscal 2012, Eagle added small-cap, small/mid-cap and mid-cap investment capabilities
by hiring key portfolio managers and acquired a 45% interest in large-cap manager
ClariVest Asset Management LLC. The group plans to continue to strategically explore
similar opportunities moving forward.
divErsiFy BusinEss viA nEw strAtEgiEs
And MultiplE ChAnnEls
Eagle took several steps to increase capacity in 2012 and will work to maintain that
momentum by continuing to expand its institutional, retail and mutual fund distribution
channels, welcoming some potentially exciting international relationships.
Eagle Asset
Management
announced new
leadership in 2012,
naming Cooper Abbott
(left) and Richard
Rossi (right) co-chief
operating officers.
2012
H i G H l i G H t s
| richard rossi and cooper abbott
named co-chief operating officers of
eagle asset Management, assuming
the mantle of a retiring richard K.
riess, executive vice president of
asset Management, ceo of eagle
asset Management and chairman
of the board of trustees of the eagle
Family of Funds.
| eagle asset Management added
capacity and new asset classes
to portfolio offerings.
| Jeff Dowdle named to raymond
James executive committee to
represent asset Management.
An EduCAtiOn
the institute of investment
Management consulting is just
one example of the emphasis
raymond James places on
continuing education. We’re so
dedicated to ongoing learning,
in fact, that we started our own
“university.” in the late 1960s,
our distance from Wall street put
us at a distance from the schools
that fed graduates into the major
brokerage firms. so, Bob James,
tom James and other firm leaders
began offering formal classes to
train associates in investment
banking and advisors on the
fundamentals of financial planning.
these classes would continue
to grow in size and frequency
until raymond James university
was made official in 1991.
18
Raymond James Bank
“2012 was the
year Raymond
James Bank came
into its own.”
Steven Raney
President and CEO
Raymond James Bank
At Raymond James Bank, we’ve taken our time growing. Established in 1994, it wasn’t until
2005 that our assets topped $1 billion. However, since 2007, when total deposits leapt 99%
over the previous year, our growth has continued. And in 2012, we came into our own. The
bank led the firm in annual pretax income and posted record earnings in each quarter of the
fiscal year. We also officially became a national bank. To quote Paul Reilly, “A couple of years
ago, analysts were telling us to get out of the banking business. This is why we didn’t.”
We believe much of our recent success can be attributed to the conservative approach
and long-term development strategy we’ve followed from the beginning. Though Raymond
James Bank was initially launched as a thrift charter bank, we planned for growth from the
outset. And as we outgrew the thrift designation, we took the next step. We applied for
national bank status, and in January 2012, we received approval of the charter – making
Raymond James Bank a national bank and Raymond James Financial a bank holding
company, as well as a financial holding company.
19
Raymond James 2012 11.41
11.12
10.83
9.7
9.0
2008
2009
2010
2011
2012
Total Bank Assets
$Billions
1 Includes $1.9 billion borrowed overnight
for regulatory reasons. 2 Includes $3.2 billion
excess for regulatory reasons. 3 Includes
$3.5 billion excess for regulatory reasons.
8.0
7.1
6.6
6.5
6.1
Raymond James
Bank took steps
to expand its
mortgage lending
practice in 2012,
an initiative led by
(from left) Jennifer
Abele, Joe Wessel
and Laetitia Boyle.
Another announcement made early in the
the year, we made several key hires to
year was the finalization of our acquisition
support the initiative. Veteran mortgage
of Allied Irish Banks’ Canadian commercial
specialists were added in several key
loan portfolio. This acquisition was a natural
geographic areas, expanding our
fit for us, and we benefited immediately
presence in North Carolina, Tennessee,
thanks to the already strong, established
Chicago and, of course, Tampa Bay.
presence of our Canadian investment
dealer, Raymond James Ltd. Through the
deal, which is comprised of $480 million
in total loan commitments, the bank
expanded into Canada for the first time.
2012 was a record year for Raymond
James Bank in nearly every aspect, but
more important than how far we’ve come
is how we got here. At the bank, we share
the same commitment to teamwork,
In addition to our northward expansion,
innovation and the core principles
we also expanded our product line in 2012
that have guided Raymond James for
with the introduction of securities-based
the past 50 years. Those principles –
lending, including securities-based loans
conservatism, independence, integrity
purchased from Regions Bank as part
and always putting clients first – have
of the Morgan Keegan acquisition.
been behind every record we’ve set
2008
2009
2010
2011
2012
Total Loans
$Billions
Several more new faces were welcomed
into another key area of the bank poised
for expansion. Despite the dubious recent
history of the industry at large, growing
the mortgage banking business –
conservatively – was a priority for the
bank in 2012. And over the course of
and every success we’ve experienced.
And I know they’ll continue to drive us
forward, as a bank and as a united firm.
20
The bank added
securities-based
lending to its
product lineup in
2012 thanks in large
part to the efforts of
(from left) Tuyen Tu,
Doug Brigman and
Katie Clark.
“Those principles – conservatism, independence, integrity
and always putting clients first – have been behind every
record we’ve set and every success we’ve experienced.”
d
R
A
w
R
O
F
k
O
O
L
A
ExpAnd lEnding suppOrt FOr
FinAnCiAl AdvisOrs
One of our biggest initiatives moving forward will be increasing the mortgage lending
support we offer financial advisors and their clients. we plan to continue expanding our
network of mortgage consultants and deepening the resources available to advisors.
inCrEAsE AdvisOr AwArEnEss
OF Our CApABilitiEs
In addition to expanding the support we offer financial advisors, we will also be working to
increase their awareness of all the bank has to offer. Through communication and education
efforts, we’ll help them explore the ways we can help them gather and retain additional
client assets.
iMprOvE thE rAyMOnd JAMEs
BAnK ExpEriEnCE
As we have from our outset, we will also continue our commitment to enhancing
the quality and overall coordination of working with Raymond James Bank,
making the experience even more seamless for advisors and their clients.
2012
H i G H l i G H t s
| raymond James Bank received
its national bank charter.
| securities-based lending
was introduced.
| the acquisition of the canadian
commercial loan portfolio of
allied irish Banks was finalized.
nOt BAnK-OwnEd.
BAnK OwnEr.
the idea of raymond James
owning a bank was first outlined
in the 1983 prospectus for our
initial public offering. it would be
another 11 years before we put
the plan into action and acquired
three local branches of a small
thrift bank. eleven years after that,
the bank would top $1 billion in
assets for the first time. and only
seven years later, raymond James
Bank received approval to become
a national bank and finished the
year with $9.7 billion in assets.
21
21
Raymond James 2012
A journey of 50 years begins here
The best way we’ve found to celebrate 50 years
is to look forward to the next 50.
22
While we have much to reflect on and
be proud of after a steadily successful
half-century in the industry, we’re
enthusiastic about taking on the
challenges that lie ahead, bulwarked by
our values, a powerful business platform
and a new generation of experienced,
proven managers. Guided by the
same principles we were built on –
independence, integrity, intelligence
and always putting clients first – we are
confident that the best is yet to come.
our deepest thanks to every leader,
advisor, associate and client who has
helped Raymond James come so far –
and to all those who will help us
continue our journey.
M i s s i o n
s t a t e M e n t
Our business is people and their
financial well-being. Therefore,
in the pursuit of our goals, we will
conduct ourselves in accordance
with the following precepts:
| our clients will always come first.
| We must provide the highest level of
service with integrity.
| assisting our clients in the attainment
of their financial objectives is our most
worthy enterprise.
| We must communicate with our clients
clearly and frequently.
| teamwork – cooperating with and
providing assistance and support to our
fellow associates – is fundamental to
sustaining a quality work environment
that nurtures opportunities for unparalleled
service, personal growth and job satisfaction.
| continuing education is necessary to maintain
the timeliness of investment knowledge, tax law
information and financial planning techniques.
| innovation is requisite to our survival in a
changing world.
| to emulate others in our industry requires us
to continue to work hard; to excel beyond our
peers requires us to provide an even higher
caliber of service to our clients.
| We must give something back to the
communities in which we live and work.
23
Raymond James 2012 10-Year Financial Summary
ReSulTS
Total Revenues
$ 1,497,571,000
$ 1,829,776,000
$ 2,168,196,000
$ 2,645,578,000
2003
2004
2005
2006
Net Revenues
Net Income
Net Income per Share (a)
Basic
Diluted
Weighted Average Common Shares
1,451,960,000
1,781,259,000
2,050,407,000
2,348,908,000
86,317,000
127,575,000
151,046,000
214,342,000
0.79
0.78
1.16
1.14
1.37
1.33
1.86
(b)
1.83
(b)
Outstanding – Basic (a)
109,236,000
110,093,000
110,217,000
112,211,000
(b)
Weighted Average Common and Common Equivalent Shares
Outstanding – Diluted (a)
110,624,000
111,603,000
113,048,000
114,238,000
(b)
Cash Dividends Declared per Common Share (a)
0.16
0.18
0.21
0.32
FinanCial
ConDiTion
Total Assets
Long-Term Debt
Shareholders’ Equity
Shares Outstanding (a)
6,911,638,000
7,621,846,000
8,365,158,000
(c)
11,505,415,000
(c)
167,013,000
174,223,000
(g)
280,784,000
(g)
286,712,000
(g)
924,735,000
1,065,213,000
1,241,823,000
1,463,869,000
109,148,000
110,769,000
113,394,000
114,064,000
Shareholders’ Equity per Share at End of Period (a)
8.47
9.62
10.95
12.83
year ended 9-26-03
year ended 9-24-04
year ended 9-30-05
year ended 9-30-06
24
(a) Excludes non-vested shares and gives effect to the three-for-two stock splits paid on March 22, 2006, and March 24, 2004. (b) Effective October 1, 2009, we implemented new FASB guidance that changes the manner in which earnings per share is computed. The new guidance requires unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) to be considered participating securities and, therefore, included in the earnings allocation in computing earnings per share under the two-class method. Our unvested restricted shares and restricted stock units granted as part of our share-based compensation are considered participating securities. Footnoted periods presented have been restated to reflect this change. (c) We elect to net-by-counterparty the fair value of certain interest rate swap contracts. See note 18 of the Notes to the Consolidated Financial Statements for additional information. As of October 1, 2008, we adopted new FASB guidance. Footnoted periods presented have been restated to reflect this change. (d) Total assets include $1.9 billion in cash, offset by an equal amount in overnight borrowing (repaid October 1, 2008) to meet point-in-time regulatory balance sheet composition requirements related to RJ Bank qualifying as a thrift institution. (e) Total assets include $3.2 billion invested in qualifying assets comprised of $2 billion in reverse repurchase agreements (collateralized by GNMA and U.S. Treasury securities) and $1.2 billion in U.S. Treasury securities, offset by $900 million in overnight borrowing (repaid October 1, 2009) and $2.3 billion in customer deposits (redirected to third party banks participating in the Raymond James Bank Deposit Program in October 2009), to meet point-in-time regulatory balance sheet composition requirements related to RJ Bank’s qualifying as a thrift institution. (f) Total assets include $3.1 billion in qualifying assets, offset by $2.4 billion in overnight borrowings (repaid October 1, 2010) and $700 million in additional RJBDP deposits (redirected to third party banks participating in the Raymond 2007
2008
2009
2010
2011
(j)
2012
(k)
$ 3,109,579,000
$ 3,204,932,000
$ 2,602,519,000
$ 2,979,516,000
$ 3,399,886,000
$ 3,897,900,000
2,609,915,000
2,812,703,000
2,545,566,000
2,916,665,000
3,334,056,000
3,806,531,000
250,430,000
235,078,000
152,750,000
228,283,000
278,353,000
295,869,000
2.10
(b)
2.07
(b)
1.95
(b)
1.93
(b)
1.25
(b)
1.25
(b)
1.83
1.83
2.20
2.19
2.22
2.20
115,268,000
(b)
116,110,000
(b)
117,188,000
(b)
119,335,000
122,448,000
130,806,000
117,011,000
(b)
117,140,000
(b)
117,288,000
(b)
119,592,000
122,836,000
131,791,000
0.40
0.44
0.44
0.44
0.52
0.52
16,228,797,000
(c)
20,709,616,000
(c,d)
18,226,728,000
(e)
17,883,081,000
(f)
18,006,995,000
21,160,265,000
214,864,000
(g)
197,910,000
(g)
477,423,000
(g,h)
416,369,000
(g,h)
662,006,000
(g,h,i)
1,385,514,000
(g,h,i,l)
1,757,814,000
1,883,905,000
2,032,463,000
2,302,816,000
2,587,619,000
3,268,940,000
116,649,000
116,434,000
118,799,000
121,041,000
123,273,000
136,076,000
15.07
16.18
17.11
19.03
20.99
24.02
year ended 9-30-07
year ended 9-30-08
year ended 9-30-09
year ended 9-30-10
year ended 9-30-11
year ended 9-30-12
25
Raymond James 2012James Bank Deposit Program in early October 2010) to meet point-in-time regulatory balance sheet composition requirements related to RJ Bank’s qualifying as a thrift institution. (g) Includes the long-term portion of loans payable related to investments by variable interest entities in real estate partnerships (which are nonrecourse to us), Federal Home Loan Bank advances, our mortgage and other borrowings. (h) Includes $300 million in senior notes from a public offering in August 2009. (i) Includes $250 million in senior notes from a public offering in April 2011. (j) Amounts include a loss on Auction Rate Securities repurchase of $41 million. Net of its associated income tax effect, net income would have been $303,332,000 for the year (a non-GAAP measure) and basic and diluted earnings per share would have been $2.40 and $2.39, respectively (a non-GAAP measure). (k) Amounts exclude acquisition- and integration-related expenses and adjustments with respect to the Morgan Keegan acquisition in the amount of $59 million. Those adjustments include (1) the incremental interest expense the company incurred on financings it executed in anticipation of the closing of the transaction (the adjustment is the interest from the date of issuance of the debt up to the April 2, 2012, closing date of the Morgan Keegan acquisition); (2) the one-time acquisition and integration costs incurred in the Morgan Keegan transaction that are non-recurring expenses; and (3) the impact of additional common shares issued in anticipation of the closing date. The share adjustment is computed as the impact of the new shares from their date of issuance until the closing date of the acquisition, on the weighted average common shares outstanding utilized in the computation of basic and diluted earnings per share. See 8-k filed on October 24, 2012, for reconciliation to GAAP. (l) Includes $350 million in senior notes from a public offering in February 2012 and $250 million in senior notes from a public offering in March 2012. Raymond James Financial, Inc. Board of Directors
Shelley G. Broader
President and CEO
Walmart Canada Corp.
Francis S. Godbold
Vice Chairman
Raymond James Financial
H. William Habermeyer Jr.
Retired; Former President and CEO
Progress Energy Florida
Chet Helck
Executive Vice President
Raymond James Financial
CEO, Global Private Client Group
thomas A. James
Executive Chairman of the Board
Raymond James Financial
Gordon l. Johnson
President
Highway Safety Devices, Inc.
A specialty contractor for municipal roadway projects
Paul C. Reilly
Chief Executive Officer
Raymond James Financial
Robert P. Saltzman
Retired; Former President and CEO
Jackson National Life Insurance Company
Wick Simmons
Retired securities industry executive
Susan N. Story
President and CEO
Southern Company Services, Inc.
The service company for the Southern Company electric system
Raymond James Financial, Inc. Executive Committee
Bella loykhter Allaire
Executive Vice President
Technology and Operations
Raymond James & Associates
Paul d. Allison
Chairman, President and CEO
Raymond James Ltd.
John C. Carson Jr.
President
Raymond James Financial
Fixed Income Capital Markets
Chet Helck
Executive Vice President
Raymond James Financial
CEO, Global Private Client Group
Jeffrey P. Julien
Executive Vice President, Finance
Chief Financial Officer and Treasurer
Raymond James Financial
Steven M. Raney
President and CEO
Raymond James Bank
Paul C. Reilly
Chief Executive Officer
Raymond James Financial
Jeffrey A. dowdle
President, Asset Management Services
Senior Vice President
Raymond James & Associates
Jeffrey E. trocin
Executive Vice President
Equity Capital Markets
Raymond James & Associates
dennis W. Zank
Chief Operating Officer
Raymond James Financial
Chief Executive Officer
Raymond James & Associates
Other Executive Officers
Jennifer C. Ackart
Senior Vice President
Controller
Raymond James Financial
George Catanese
Senior Vice President
Chief Risk Officer
Raymond James Financial
Paul l. Matecki
Senior Vice President
General Counsel
Corporate Secretary
Raymond James Financial
26
Raymond James Financial, Inc. Board of Directors
Shelley G. Broader, Robert P. Saltzman, Wick Simmons, chet Helck,
Francis S. Godbold, Paul c. Reilly, Thomas A. James,
H. William Habermeyer Jr., Susan N. Story, Gordon L. Johnson
27
Raymond James 2012 Corporate and Shareholder Information
Number of Shareholders
At December 14, 2012, there were
approximately 20,000 shareholders.
10-K; Certifications
A copy of the annual report to the Securities and Exchange
Commission on form 10-K is available, without charge, at
sec.gov, upon request in writing to Corporate Secretary,
Raymond James Financial, Inc., 880 Carillon Parkway,
St. Petersburg, Florida 33716, or by emailing
investorrelations@raymondjames.com.
Raymond James has included, as exhibits to its 2012 Annual
Report on form 10-K, certifications of its chief executive
officer and chief financial officer as to the quality of the
company’s public disclosure. Raymond James’ chief executive
officer has also submitted to the New York Stock Exchange
a certification that he is not aware of any violations by the
company of the NYSE corporate listing standards.
Annual Meeting
The annual meeting of shareholders will be conducted
at Raymond James Financial’s headquarters in The
Raymond James Financial Center, 880 Carillon Parkway,
St. Petersburg, Florida, on February 21, 2013, at 4:30 p.m.
The meeting will be broadcast live via streaming audio
on raymondjames.com under “Our Company –
Investor Relations – Shareholders’ Meeting.”
Notice of the annual meeting, proxy statement and
proxy voting instructions accompany this report to
shareholders. Quarterly reports are made available to
shareholders in February, May, August and November.
Electronic delivery
If you are interested in electronic delivery
of future copies of this report, please see
the proxy voting instructions.
transfer Agent and Registrar
Computershare Shareowner Services LLC
P.O. Box 43006
Providence, RI 02940-3006
800-837-7596
computershare.com/investor
Independent Auditors
KPMG LLP
New York Stock Exchange Symbol
RJF
Covering Analysts
Alexander Blostein
Goldman Sachs & Co.
Christopher Harris
Wells Fargo Securities, LLC
Joel Jeffrey
Keefe, Bruyette and Woods
William R. Katz
Citigroup Global Markets, Inc.
Hugh M. Miller
Sidoti & Company, LLC
Devin Ryan
Sandler O’Neill + Partners, L.P.
Douglas Sipkin
Susquehanna Financial Group, LLLP
Steve Stelmach
FBR Capital Markets & Co.
David Trone
JMP Securities
Principal Subsidiaries
Raymond James & Associates, Inc.
Securities broker/dealer
Member New York Stock Exchange
Member Financial Industry Regulatory Authority
Raymond James Financial Services, Inc.
Securities broker/dealer
Member Financial Industry Regulatory Authority
Raymond James Financial Services Advisors, Inc.
Registered Investment Advisor
Raymond James Ltd.
Canadian securities broker/dealer
Member Toronto Stock Exchange
Eagle Asset Management, Inc.
Asset and mutual fund management
Raymond James Bank, N.A.
Member Federal Deposit Insurance Corporation
Morgan Keegan & Company, Inc.
Securities broker/dealer
Member New York Stock Exchange
Member Financial Industry Regulatory Authority
28
Annual Report
On Form 10-K for
Fiscal Year ended
September 30, 2012
R A Y M O N D J A M E S 2 0 1 2
29
Index
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2012
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9109
RAYMOND JAMES FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction of
incorporation or organization)
880 Carillon Parkway, St. Petersburg, Florida
(Address of principal executive offices)
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.01 Par Value
6.90% Senior Notes Due 2042
No. 59-1517485
(I.R.S. Employer
Identification No.)
33716
(Zip Code)
(727) 567-1000
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of March 31, 2012, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant computed by reference
to the price at which the common stock was last sold was $4,182,729,713.
The number of shares outstanding of the registrant's common stock as of November 19, 2012 was 138,434,615
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held
February 21, 2013 are incorporated by reference into Part III.
RAYMOND JAMES FINANCIAL, INC.
TABLE OF CONTENTS
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
PART II.
Business
Risk factors
Unresolved staff comments
Properties
Legal proceedings
Item 5.
Market for registrant's common equity, related shareholder matters and issuer purchases of equity
Item 6.
Item 7.
securities
Selected financial data
Management's discussion and analysis of financial condition and results of operations
Item 7A.
Quantitative and qualitative disclosures about market risk
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Financial statements and supplementary data
Changes in and disagreements with accountants on accounting and financial disclosure
Controls and procedures
Other information
Directors, executive officers and corporate governance
Executive compensation
Security ownership of certain beneficial owners and management and related shareholder matters
Certain relationships and related transactions, and director independence
Principal accountant fees and services
Exhibits, financial statement schedules
Signatures
PAGE
3
15
29
29
30
31
33
35
77
92
189
189
192
192
192
192
192
192
192
196
2
Index
Item 1. BUSINESS
PART I
Raymond James Financial, Inc. (“RJF”), the parent company of a business established in 1962 and a public company since
1983, is a financial holding company headquartered in St. Petersburg, Florida whose subsidiaries are engaged in various financial
services businesses predominantly in the United States of America (“U.S.”) and Canada. At September 30, 2012, its principal
subsidiaries include Raymond James & Associates, Inc. (“RJ&A”), Morgan Keegan & Company, Inc. (“MK & Co.”), Raymond
James Financial Services, Inc. (“RJFS”), Raymond James Financial Services Advisors, Inc. (“RJFSA”), Raymond James Ltd.
(“RJ Ltd.”), Eagle Asset Management, Inc. (“Eagle”), and Raymond James Bank, N.A. (“RJ Bank”). All of these subsidiaries are
wholly owned by RJF. RJF and its subsidiaries are hereinafter collectively referred to as “our,” “we” or “us.”
As a financial holding company, RJF is subject to the oversight and periodic examination of the Board of Governors of the
Federal Reserve System (the “Fed”).
PRINCIPAL SUBSIDIARIES
Our principal subsidiary, RJ&A, is the largest full service brokerage and investment firm headquartered in the state of Florida
and with over 225 locations throughout the U.S, is one of the largest retail brokerage firms in the country. RJ&A is a self-clearing
broker-dealer engaged in most aspects of securities distribution, trading, investment banking and asset management. RJ&A also
offers financial planning services for individuals and provides clearing services for RJFS, RJFSA, other affiliated entities and
several unaffiliated broker-dealers. In addition, RJ&A has ten institutional sales offices in Europe. RJ&A is a member of the New
York Stock Exchange Euronext (“NYSE”) and most regional exchanges in the U.S. It is also a member of the Financial Industry
Regulatory Authority (“FINRA”) and the Securities Investors Protection Corporation (“SIPC”).
RJFS is one of the largest independent contractor brokerage firms in the U.S., is a member of FINRA and SIPC, but is not a
member of any exchanges. Financial advisors affiliated with RJFS may offer their clients all products and services offered through
RJ&A including investment advisory products and services which are offered through its affiliated registered investment advisor,
RJFSA. Both RJFS and RJFSA clear all of their business on a fully disclosed basis through RJ&A.
On April 2, 2012 (the “Closing Date”), RJF completed the acquisition of all of the issued and outstanding shares of MK &
Co. and MK Holding, Inc. and certain of its affiliates (collectively referred to hereinafter as “Morgan Keegan”) from Regions
Financial Corporation (“Regions”). MK & Co. is a self-clearing broker-dealer, headquartered in Memphis, Tennessee, engaged
in most aspects of securities distribution and trading. MK & Co. is a member of the NYSE and most regional exchanges in the
U.S., as well as FINRA and SIPC. Morgan Keegan brings us a strong private client business, one of the industry's top fixed income
and public finance groups, and a significant equity capital markets division.
RJ Ltd. is our Canadian broker-dealer subsidiary which engages in both retail and institutional distribution and investment
banking. RJ Ltd. is a member of the Toronto Stock Exchange (“TSX”) and the Investment Industry Regulatory Organization of
Canada (“IIROC”). Its U.S. broker-dealer subsidiary is a member of FINRA and SIPC.
Eagle is a registered investment advisor serving as the discretionary manager for individual and institutional equity and fixed
income portfolios and our internally sponsored mutual funds.
RJ Bank originates and purchases commercial and industrial (“C&I”) loans, commercial and residential real estate loans, as
well as consumer loans, all of which are funded primarily by cash balances swept from the investment accounts of our broker-
dealer subsidiaries' clients.
BUSINESS SEGMENTS
We have eight business segments: “Private Client Group” or “PCG”; “Capital Markets”; “Asset Management”; RJ Bank;
“Emerging Markets”; “Securities Lending” ; “Proprietary Capital” and certain corporate activities combined in the “Other” segment.
Our financial information for each of the fiscal years ended September 30, 2012, September 30, 2011, and September 30, 2010 is
included in the consolidated financial statements and notes thereto.
3
Index
PRIVATE CLIENT GROUP
We provide securities transaction and financial planning services to over 2.3 million client accounts through the branch office
systems of RJ&A, RJFS, RJFSA, MK & Co., RJ Ltd. and Raymond James Investment Services Limited (“RJIS”), in the United
Kingdom. Our financial advisors offer a broad range of investments and services, including both third party and proprietary
products, and a variety of financial planning services. We charge sales commissions or asset-based fees for investment services
we provide to our Private Client Group clients based on established schedules. Varying discounts may be given, generally based
upon the client's level of business, the trade size, service level provided, and other relevant factors. In fiscal year 2012, the portion
of revenues from this segment that we consider recurring include sources such as asset-based fees including mutual fund and
annuity trailing commissions, and interest income and represented approximately 64% of the Private Client Group's total revenues.
Revenues of this segment are correlated with total client assets under administration. As of September 30, 2012, client assets
under administration of our private client group amounted to $368 billion.
The majority of our U.S. financial advisors are also licensed to sell insurance and annuity products through our general
insurance agency, Planning Corporation of America (“PCA”), a wholly owned subsidiary of RJ&A. Through the financial advisors
of our domestic broker-dealer subsidiaries, PCA provides product and marketing support for a broad range of insurance products,
principally fixed and variable annuities, life insurance, disability insurance and long-term care coverage.
Our U.S. financial advisors offer a number of professionally managed load mutual funds, as well as a selection of no-load
funds. RJ&A, MK & Co. and RJFS maintain dealer sales agreements with most major distributors of mutual fund shares sold
through broker-dealers.
Net interest revenue in the Private Client Group is generated by customer balances, predominantly the earnings on margin
loans and assets segregated pursuant to regulations, less interest paid on customer cash balances (“Client Interest Program”). We
also utilize a multi-bank sweep program which generates fee revenue from unaffiliated banks in lieu of interest revenue. The cash
sweep program, the Raymond James Bank Deposit Program (“RJBDP”), is a multi-bank (RJ Bank and several non-affiliated
banks) program under which clients' cash deposits in their brokerage accounts are re-deposited through a third party service into
interest-bearing deposit accounts ($245,000 per bank for individual accounts and $490,000 for joint accounts) at up to 12 banks.
This program enables clients to obtain up to $2.5 million in individual FDIC deposit insurance coverage ($5 million for joint
accounts) in addition to competitive rates for their cash balances. See Item 7, “Management's Discussion and Analysis of Financial
Condition and Results of Operations,” in this report for information regarding our net interest revenues.
Clients' transactions in securities are affected on either a cash or margin basis. RJ&A, MK & Co. and RJ Ltd. make margin
loans to clients collateralized by the securities purchased or by other securities owned by the client. Interest is charged to clients
on the amount borrowed. The interest rate charged to a client on a margin loan is based on current interest rates and on the size
of the loan balance in the client's account.
Typically, broker-dealers utilize bank borrowings and equity capital as the primary sources of funds to finance clients' margin
account borrowings. RJ&A and MK & Co.'s source of funds to finance clients' margin account balances has been cash balances
in brokerage clients' accounts, which are funds awaiting investment. In addition, pursuant to written agreements with clients,
broker-dealers are permitted by the Securities and Exchange Commission (“SEC”) and FINRA rules to lend client securities in
margin accounts to other financial institutions. SEC regulations, however, restrict the use of clients' funds derived from pledging
and lending clients' securities, as well as funds awaiting investment, to the financing of margin account balances; to the extent not
so used, such funds are required to be deposited in a special segregated account for the benefit of clients. The regulations also
require broker-dealers, within designated periods of time, to obtain possession or control of, and to segregate, clients' fully paid
and excess margin securities.
No single client accounts for a material percentage of this segment's total business.
Raymond James & Associates
RJ&A is a full service broker-dealer that employs financial advisors throughout the U.S. RJ&A's financial advisors work in
a traditional branch setting supported by local management and administrative staffs. The number of financial advisors per office
ranges from one to 28. RJ&A financial advisors are employees and their compensation includes commission payments and
participation in the firm's benefit plans. Experienced financial advisors are hired from a wide variety of competitors. As a part
of their agreement to join us we may make loans to financial advisors and to certain key revenue producers, primarily for recruiting
and/or retention purposes. In addition, individuals are trained each year to become financial advisors at the Robert A. James
National Training Center in St. Petersburg, Florida.
4
Index
Morgan Keegan & Company, Inc.
MK & Co. is a full service broker-dealer that employs financial advisors primarily in the southeastern U.S. MK & Co.'s
financial advisors work in a traditional branch setting supported by local management and administrative staffs. The number of
financial advisors per office ranges from one to 56. MK & Co. financial advisors are employees and their compensation includes
commission payments and participation in the firm's benefit plans. Experienced financial advisors are hired from a wide variety
of competitors. As a part of their agreement to join MK & Co, it may make loans to financial advisors and to certain key revenue
producers, primarily for recruiting and/or retention purposes.
Our plan is to migrate all the financial advisors and client accounts from the MK & Co. platform and fully integrate the MK
& Co. operations onto the RJ&A platform during the second quarter of fiscal year 2013.
Raymond James Financial Services
RJFS is a broker-dealer that supports independent contractor financial advisors in providing products and services to their
Private Client Group clients throughout the U.S. The number of financial advisors in RJFS offices ranges from one to 45.
Independent contractors are responsible for all of their direct costs and, accordingly, are paid a larger percentage of commissions
and fees than employee advisors. They are permitted to conduct, on a limited basis, certain other approved businesses unrelated
to their RJFS activities such as offering insurance products, independent registered investment advisory services and accounting
and tax services, among others, with the approval of RJFS management.
The Financial Institutions Division (“FID”) is a subdivision of RJFS. Through FID, RJFS services financial institutions such
as banks, thrifts and credit unions, and their clients. RJFS also provides custodial, trading and other services (including access to
clients' account information and the services of the Asset Management segment) to unaffiliated independent registered investment
advisors through its Investment Advisor Division (“IAD”).
Raymond James Financial Services Advisors
RJFSA is a registered investment advisor that exclusively supports the investment advisory activities of the RJFS financial
advisors.
Raymond James Ltd.
RJ Ltd. is a wholly owned self-clearing broker-dealer subsidiary headquartered in Canada with its own operations and
information processing personnel. Financial advisors can affiliate with RJ Ltd. either as employees or independent contractors.
Raymond James Investment Services Limited
RJIS is a wholly owned broker dealer that operates an independent contractor financial advisor network in the United Kingdom.
RJIS also provides custodial and execution services to independent investment advisory firms.
Operations and Information Technology
RJ&A and MK & Co.'s operations personnel are responsible for the execution of orders, processing of securities transactions,
custody of client securities, support of client accounts, receipt, identification and delivery of funds and securities, and compliance
with certain regulatory and legal requirements for most of our U.S. securities brokerage operations through three locations in Saint
Petersburg, Florida, Memphis, Tennessee and Southfield, Michigan. RJ Ltd. operations personnel have similar responsibilities at
our Canadian brokerage operations located in Vancouver, British Columbia.
The information technology department develops and supports the integrated solutions that provide a differentiated platform
for our business. This platform is designed to allow our advisors to spend more time with their clients and enhance and grow their
business.
Our business continuity program has been developed to provide reasonable assurance of business continuity in the event of
disruptions at our critical facilities. Business departments have developed operational plans for such disruptions, and we have a
staff which devotes their full time to monitoring and facilitating those plans. Our business continuity plan continues to be enhanced
and tested to allow for continuous business processing in the event of weather-related or other interruptions of operations at the
RJF headquarters complex.
5
Index
We have also developed a business continuity plan for our PCG retail branches in the event these branches are impacted by
severe weather. RJA offices utilize an integrated telephone system to route clients to a centralized support center that services
clients directly in the event of a branch office closure. MK & Co. branches are assigned a “contingency branch” in another part
of the region that allows the impacted branch the ability to communicate through the contingency branch.
In the area of information security, we have developed and implemented a framework of principles, policies and technology
to protect the information assets of the firm and its clients. Safeguards are applied to maintain the confidentiality, integrity and
availability of information resources.
CAPITAL MARKETS
Capital Markets activities consist primarily of equity and fixed income products and services. During fiscal year 2012, we
integrated MK & Co's equity capital markets, including research and investment banking, as well as certain fixed income operations,
into RJ&A. No single client accounts for a material percentage of this segment's total business.
Institutional Sales
Institutional sales commissions account for a significant portion of this segment's revenue, which is fueled by a combination
of general market activity and the Capital Markets group's ability to identify and promote attractive investment opportunities. Our
institutional clients are serviced by institutional equity departments of RJ&A and RJ Ltd.; the RJ&A and MK & Co. fixed income
departments; RJ&A's European offices; Raymond James Financial International, Ltd, an institutional UK broker-dealer
headquartered in London, England; and Raymond James European Securities, Inc., (“RJES”) a joint venture that is headquartered
in Paris, France in which we hold a controlling interest. We charge commissions on equity transactions based on trade size and
the amount of business conducted annually with each institution. Fixed income commissions are based on trade size and the
characteristics of the specific security involved.
Over 100 domestic and overseas professionals located in offices in the U.S. and Europe comprise RJ&A's institutional equity
sales and sales trading departments and maintain relationships with more than 1,200 institutional clients. Some European and
U.S. offices also provide services to high net worth clients. RJ Ltd. has approximately 35 institutional equity sales and trading
professionals servicing predominantly Canadian, U.S. and European institutional investors from offices in Canada and Europe.
From offices in various locations within the U.S., RJ&A and MK & Co. distribute to institutional clients both taxable and
tax-exempt fixed income products, primarily municipal, corporate, government agency and mortgage-backed bonds. RJ&A carries
inventory positions of taxable and tax-exempt securities to facilitate institutional sales activities.
Trading
Trading equity securities involves the purchase and sale of securities from and to our clients or other dealers. Profits and
losses are derived from the spreads between bid and asked prices, as well as market trends for the individual securities during the
period we hold them. RJ&A makes markets in nearly 1,000 common stocks. Similar to the equity research department, this
operation serves to support both our institutional and Private Client Group sales efforts. The RJ Ltd. trading desks not only support
client activity, but also take proprietary positions that are closely monitored within well defined limits. RJ Ltd. also provides
specialist services in approximately 150 TSX listed common stocks.
RJ&A trades both taxable and tax-exempt fixed income securities. When RJ&A acquired Morgan Keegan, the fixed income
traders of MK & Co. were integrated into RJ&A. The taxable and tax-exempt fixed income traders purchase and sell corporate,
municipal, government, government agency, and mortgage-backed bonds, asset-backed securities, preferred stock and certificates
of deposit from and to our clients or other dealers. RJ&A enters into future commitments such as forward contracts and “to be
announced” securities (e.g., securities having a stated coupon and original term to maturity, although the issuer and/or the specific
pool of mortgage loans is not known at the time of the transaction). Low levels of proprietary trading positions are also periodically
taken by RJ&A for various purposes and are closely monitored within well defined limits. In addition, a subsidiary of RJF, RJ
Capital Services, Inc., participates in the interest rate swaps market as a principal, either to economically hedge RJ&A fixed income
inventory, for transactions with customers, or to a limited extent for its own account.
6
Index
Equity Research
The domestic analysts in RJ&A's research department support our institutional and retail sales efforts and publish research
on approximately 1,000 companies. This research primarily focuses on U.S. companies in specific industries including
communication services, consumer, energy, financial services, healthcare, real estate, technology, technology services,
transportation and infrastructure, and security, defense and government services. Proprietary industry studies and company-specific
research reports are made available to both institutional and individual clients. RJ Ltd. has 17 analysts who publish research on
approximately 200 primarily Canadian companies focused in the energy, energy services, mining, forest products, agricultural,
technology, clean technology, consumer and industrial products, and real estate sectors. Additionally, we provide coverage of
approximately 90 European and approximately 80 Latin American companies through joint ventures in which we hold interests.
Investment Banking
The nearly 170 professionals of RJ&A's investment banking group reside in various locations within the U.S. and are involved
in a variety of activities including public and private equity financing for corporate clients, and merger and acquisition advisory
services. RJ Ltd.'s investment banking group consists of approximately 30 professionals who reside in various locations within
Canada and provide equity financing and financial advisory services to corporate clients. Our investment banking activities provide
a comprehensive range of strategic and financial advisory services tailored to our clients' business life cycles and backed by our
strategic industry focus.
Fixed income investment banking includes debt underwriting and public finance activities. The over 90 professionals in the
RJ&A and MK & Co. public finance divisions operate out of various offices located throughout the U.S., and serve as a financial
advisor, placement agent or underwriter to various issuers who include municipal agencies (including political subdivisions),
housing developers and non-profit health care institutions.
RJ&A and MK & Co. act as a consultant, underwriter or selling group member for corporate bonds, mortgage-backed securities,
agency bonds, preferred stock and unit investment trusts. When underwriting new issue securities, RJ&A or MK & Co. agree to
purchase the issue through a negotiated sale or submits a competitive bid.
Syndicate
The syndicate department consists of professionals who coordinate the marketing, distribution, pricing and stabilization of
lead and co-managed equity underwritings. In addition to lead and co-managed offerings, this department coordinates the firm's
syndicate and selling group activities in transactions managed by other investment banking firms.
Raymond James Tax Credit Funds, Inc.
Raymond James Tax Credit Funds, Inc. (“RJTCF”) is the general partner or managing member in a number of limited
partnerships and limited liability companies. These partnerships and limited liability companies invest in real estate project entities
that qualify for tax credits under Section 42 of the Internal Revenue Code. RJTCF has been an active participant in the tax credit
program since its inception in 1986 and currently focuses on tax credit funds for institutional investors that invest in a portfolio
of tax credit-eligible multi-family apartments. The investors' expected returns on their investments in these funds are primarily
derived from tax credits and tax losses that investors can use to reduce their federal tax liability. During fiscal 2012, RJTCF invested
approximately $596 million for large institutional investors in approximately 80 real estate transactions for properties located
throughout the U.S. Since inception, RJTCF has raised over $4 billion in equity and has sponsored 75 tax credit funds, with
investments in over 1,400 tax credit apartment properties in nearly all 50 states and one U.S. Territory.
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Index
ASSET MANAGEMENT
Our Asset Management segment includes the operations of Eagle, the Eagle Family of Funds (“Eagle Funds”), the asset
management operations of RJ&A (“AMS”), Raymond James Trust, and other fee-based programs. The majority of the revenue
for this segment is generated by the investment advisory fees related to asset management services for individual investment
portfolios, mutual funds and managed programs. Investment advisory fees are also earned on assets held in managed and non-
managed programs. These fees are computed based on balances either at the beginning of the quarter, the end of the quarter, or
average assets. Consistent with industry practice, fees from private client investment portfolios are typically based on asset values
at the beginning of the period while institutional fees are typically based on asset values at the end of the period. Asset balances
are impacted by both the performance of the market and new sales and redemptions of client accounts/funds. Rising markets
positively impact revenues from investment advisory fees as existing accounts increase in value, and individuals and institutions
may commit incremental funds in rising markets. No single client accounts for a material percentage of this segment's total
business.
Eagle Asset Management, Inc.
Eagle is a registered investment advisor with approximately $20 billion in assets under management and $1.6 billion in assets
under advisement (non-discretionary advised assets) as of September 30, 2012. Eagle offers a variety of equity and fixed income
objectives managed by a number of portfolio management teams and a subsidiary investment advisor, Eagle Boston Investment
Management, Inc. Eagle's clients include institutions, corporations, pension and profit sharing plans, foundations, endowments,
variable annuities, individuals and mutual funds. Eagle also serves as investment advisor to the Eagle Funds. Most clients are
charged fees based upon assets under management, however in some cases performance fees may be earned for outperforming
respective benchmarks. Eagle also earns fees on non-discretionary assets for providing their account models to professional
advisors at other firms.
Eagle Fund Distributors, Inc. (“EFD”), a wholly owned subsidiary of Eagle, is a registered broker-dealer engaged in the
distribution of the Eagle Funds.
The Small Cap Growth Fund, Mid Cap Growth Fund, Growth and Income Fund, Mid Cap Stock Fund, Investment Grade
Bond Fund, and Eagle Smaller Company Fund are managed by Eagle. The Capital Appreciation Fund and International Equity
Fund utilize unaffiliated sub-advisors.
Eagle class shares of both a taxable and a tax-exempt money market fund are available to clients of Eagle and its affiliates
through an unrelated third party.
AMS
AMS manages several investment advisory programs which maintain an approved list of investment managers, provide asset
allocation model portfolios, establish custodial facilities, monitor performance of client accounts, provide clients with accounting
and other administrative services, and assist investment managers with certain trading management activities. One of AMS'
programs, “Raymond James Consulting Services” is a managed program in which Raymond James Consulting Services serves
as a conduit for AMS clients to access a number of independent investment managers, in addition to Eagle, with initial investment
amounts that are far below normal program minimums, as well as providing monitoring and due diligence services. AMS earns
fees generally ranging from 0.35% to 0.85% of asset balances per annum, a portion of which is paid to predominately independent
investment managers and Eagle who direct the investments within clients' accounts. In addition, AMS offers additional accounts
managed within fee based asset allocation platforms under our Freedom accounts and other managed programs. Freedom's
investment committee manages portfolios of mutual funds, exchange traded funds and separately managed account models on a
discretionary basis. AMS earns fees generally ranging from 0.10% to 0.50% of these asset balances per annum. For separately
managed account models a portion of the fee may be paid to the investment managers who provide the models. At September 30,
2012, these managed programs had over $24 billion in assets under management, including approximately $4 billion managed by
Eagle.
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Index
AMS also provides certain services for their non-managed fee-based programs (Passport, Ambassador and other non-managed
programs). They provide performance reporting, research, sales, accounting, trading and other administrative services. Advisory
services are provided by PCG financial advisors. Client fees are based on the individual account or relationship size and may also
be dependent on the type of securities in the accounts. Total client fees generally range from 0.50% to 3.00% of assets, and are
predominantly allocated to the PCG segment, with a lesser share of revenue generated from these activities allocated to this Asset
Management segment. As of September 30, 2012, these programs had approximately $51 billion in assets. RJFS and RJFSA offer
similar fee-based programs called IMPAC (“IMPAC”). All revenues for IMPAC are allocated to either RJFS or RJFSA. As of
September 30, 2012, IMPAC had approximately $11.6 billion in assets serviced by RJFS financial advisors and RJFSA registered
investment advisors (see the Private Client Group segment discussion in this Item 1 for additional information). Morgan Keegan
offers similar programs to its clients as those described above, which will be incorporated into the above described AMS programs
upon the completion of the integration of MK & Co. into RJ&A which is planned for fiscal year 2013.
In addition to the foregoing programs, AMS also administers managed fee-based programs for clients who have contracted
for portfolio management services from non-affiliated investment advisors that are not part of the Raymond James Consulting
Services program.
Raymond James Trust, National Association
Raymond James Trust, National Association, (“RJT”) provides personal trust services primarily to existing clients of our
broker-dealer subsidiaries. Portfolio management of trust assets can be subcontracted to our asset management operations. This
subsidiary had a total of approximately $2.5 billion in client assets at September 30, 2012, including more than $160 million in
the donor-advised charitable foundation known as the Raymond James Charitable Endowment Fund.
RJ BANK
RJ Bank provides corporate, residential and consumer loans, as well as Federal Deposit Insurance Corporation (“FDIC”)
insured deposit accounts, to clients of our broker-dealer subsidiaries and to the general public. RJ Bank is active in corporate loan
syndications and participations. RJ Bank generates revenue principally through the interest income earned on loans and investments,
which is offset by the interest expense it pays on client deposits and on its borrowings. See Item 7, “Management's Discussion
and Analysis of Financial Condition and Results of Operations,” in this report for financial information regarding RJ Bank's net
interest earnings. Effective, February 1, 2012, RJ Bank became a national bank, regulated by the Office of the Comptroller of the
Currency (“OCC”),
RJ Bank operates from a single branch location adjacent to RJF's headquarters complex in St. Petersburg, Florida. Access to
RJ Bank's products and services is available nationwide through the offices of our affiliated broker-dealers as well as through
telephonic and electronic banking services. RJ Bank's assets include C&I loans, commercial and residential real estate loans, as
well as consumer loans, primarily consisting of securities-based loans. Corporate loans represent approximately 75% of RJ Bank's
loan portfolio of which 95% are U.S. and Canadian syndicated loans. Residential mortgage loans are originated and held for
investment or sold in the secondary market. RJ Bank's total liabilities primarily consist of deposits that are cash balances swept
from the investment accounts maintained at RJ&A.
RJ Bank does not have any significant concentrations with any one industry or customer (see table of industry concentration
in Item 7A, “Credit Risk”).
EMERGING MARKETS
Raymond James International Holdings, Inc. (“RJIH”), through its subsidiaries, currently has interests in operations in Latin
American countries including Argentina, Uruguay and Brazil. Through these entities we operate securities brokerage, investment
banking, asset management and equity research businesses. In fiscal year 2012, approximately 66% of this segment's investment
banking revenues arose from one client. No single client accounts for a material percentage of the remainder of revenue generated
by this segment.
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Index
SECURITIES LENDING
This segment conducts its business through the borrowing and lending of securities from and to other broker-dealers, financial
institutions and other counterparties. Generally, we conduct these activities as an intermediary (referred to as “Matched Book”).
However, Securities Lending will also loan customer marginable securities held in a margin account containing a debit (referred
to as lending from the “Box”) to counterparties. The borrower of the securities puts up a cash deposit on which interest is earned.
The lender in turn receives cash and pays interest. These cash deposits are adjusted daily to reflect changes in the current market
value of the underlying securities. Additionally, securities are borrowed from other broker-dealers (referred to as borrowing for
the “Box”) to facilitate RJ&A's clearance and settlement obligations. The net revenues of this securities lending business are the
interest spreads generated. No single client accounts for a material percentage of this segment's total business.
PROPRIETARY CAPITAL
This segment consists of our principal capital and private equity activities including various direct and third party private
equity and merchant banking investments; employee investment funds (the “Employee Funds”); and various private equity funds
which we sponsor including Raymond James Capital Partners, L.P. As of September 30, 2012, certain of our merchant banking
investments include investments in an allergy immunotherapy testing and treatment supply company, a manufacturer of crime
investigation and forensic supplies, an event photography business, and a company pursuing a new concept in the salon services
market.
We participate in profits or losses through both general and limited partnership interests. Additionally, we realize profits or
incur losses as a result of direct merchant banking investments. The Employee Funds are limited partnerships, some of which we
are the general partner, that invest in our merchant banking and private equity activities and other unaffiliated venture capital
limited partnerships. The Employee Funds were established as compensation and retention vehicles for certain of our qualified
key employees.
OTHER
This segment includes various corporate overhead costs of RJF including the interest cost on our public debt, the acquisition
and integration costs associated with our acquisition of Morgan Keegan (see further discussion in Note 3 of the Notes to the
Consolidated Financial Statements in this Form 10-K), and the loss associated with the securities repurchased in the prior year as
a result of the auction rate securities (“ARS”) settlement (see further discussion of this matter in the Other segment section of
Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K).
COMPETITION
We are engaged in intensely competitive businesses. We compete with many larger, better capitalized providers of financial
services, including other securities firms, most of which are affiliated with major financial services companies, insurance companies,
banking institutions and other organizations. We also compete with a number of firms offering on-line financial services and
discount brokerage services, usually with lower levels of service, to individual clients. We compete principally on the basis of the
quality of our associates, service, product selection, location and reputation in local markets.
In the financial services industry, there is significant competition for qualified associates. Our ability to compete effectively
in these businesses is substantially dependent on our continuing ability to attract, retain and motivate qualified associates, including
successful financial advisors, investment bankers, trading professionals, portfolio managers and other revenue producing or
specialized personnel.
REGULATION
The following discussion sets forth some of the material elements of the regulatory framework applicable to the financial
services industry and provides some specific information relevant to us. The regulatory framework is intended primarily for the
protection of our customers and the securities markets, our depositors and the Federal Deposit Insurance Fund and not for the
protection of our creditors or shareholders. Under certain circumstances, these rules may limit our ability to make capital
withdrawals from RJ Bank or our broker-dealer subsidiaries.
To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy
may have a material effect on our business.
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Index
The financial services industry in the U.S. is subject to extensive regulation under federal and state laws. During our fiscal
2010, the U. S. government enacted financial services reform legislation known as the Dodd-Frank Wall Street Reform & Consumer
Protection Act (“Dodd-Frank Act”). Because of the nature of our business and our business practices, we presently do not expect
the Dodd-Frank Act to have a significant direct impact on our operations as a whole. However, because many of the implementing
regulations will result from further studies by various regulatory agencies, the specific impact on each of our businesses is uncertain.
The SEC is the federal agency charged with administration of the federal securities laws. Financial services firms are also
subject to regulation by state securities commissions in those states in which they conduct business. RJ&A, RJFS and MK & Co.
are currently registered as broker-dealers in all 50 states. In addition, financial services firms are subject to regulation by various
foreign governments, securities exchanges, central banks and regulatory bodies, particularly in those countries where they have
established offices. We have offices in Europe, Canada and Latin America.
Much of the regulation of broker-dealers in the U.S. and Canada, however, has been delegated to self-regulatory organizations
(“SROs”), principally FINRA, the IIROC and securities exchanges. These SROs adopt and amend rules (which are subject to
approval by government agencies) for regulating the industry and conduct periodic examinations of member broker-dealers.
The SEC, SROs and state securities commissions may conduct administrative proceedings that can result in censure, fine,
suspension or expulsion of a broker-dealer, its officers or employees. Such administrative proceedings, whether or not resulting
in adverse findings, can require substantial expenditures and can have an adverse impact on the reputation of a broker-dealer.
Our U.S. broker-dealer subsidiaries are required by federal law to belong to SIPC. When the SIPC fund falls below a certain
amount, members are required to pay higher annual assessments to replenish the reserves. During fiscal year 2012, certain of our
domestic broker-dealer subsidiaries incurred expenses amounting to 0.25% of net operating revenues as defined by SIPC, or
approximately $4.5 million, to SIPC as a special assessment. The SIPC fund provides protection for securities held in customer
accounts up to $500,000 per customer, with a limitation of $250,000 on claims for cash balances. We have purchased excess SIPC
coverage through various syndicates of Lloyd's, a London-based firm that holds an “A+” rating from Standard and Poor's and
Fitch Ratings. Excess SIPC is fully protected by the Lloyd's trust funds and Lloyd's Central Fund. For RJ&A, the additional
protection currently provided has an aggregate firm limit of $750 million, including a sub-limit of $1.9 million per customer for
cash above basic SIPC. For MK & Co., the additional protection currently provided has a limit of $124.5 million per customer
and an aggregate firm limit of $400 million, with no sub-limit 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.
RJ Ltd. is currently registered in all provinces and territories in Canada. The financial services industry in Canada is subject
to comprehensive regulation under both federal and provincial laws. Securities commissions have been established in all provinces
and territorial jurisdictions which are charged with the administration of securities laws. Investment dealers in Canada are also
subject to regulation by SROs, which are responsible for the enforcement of, and conformity with, securities legislation for their
members and have been granted the powers to prescribe their own rules of conduct and financial requirements of members. RJ
Ltd. is regulated by the securities commissions in the jurisdictions of registration as well as by the SROs and the IIROC.
RJ Ltd. is required by the IIROC to belong to the Canadian Investors Protection Fund (“CIPF”), whose primary role is investor
protection. The CIPF Board of Directors determines the fund size required to meet its coverage obligations and sets a quarterly
assessment rate. Dealer members are assessed the lesser of 1.0% of revenue or a risk-based assessment. The CIPF provides
protection for securities and cash held in client accounts up to $1 million Canadian dollars (“CDN”) per client with separate
coverage of CDN $1 million for certain types of accounts. This coverage does not protect against market fluctuations.
See Note 25 of the Notes to Consolidated Financial Statements for further information on SEC, FINRA and IIROC regulations
pertaining to broker-dealer regulatory minimum net capital requirements.
Our investment advisory operations, including the mutual funds that we sponsor, are also subject to extensive regulation. Our
U.S. asset managers are registered as investment advisors with the SEC and are also required to make notice filings in certain
states. Virtually all aspects of the asset management business are subject to various federal and state laws and regulations. These
laws and regulations are primarily intended to benefit the asset management clients.
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During January 2012, RJF's application to become a bank holding company and a financial holding company was approved
by the Fed and RJ Bank's conversion was approved by the OCC. These changes became effective February 1, 2012. RJF converted
to a bank holding company in order to provide RJ Bank the ability to maintain a portfolio with a greater percentage of its assets
invested in corporate loans than were otherwise permissible under the thrift regulations RJ Bank was previously subject to.
Prior to February 1, 2012, RJF was a “unitary savings and loan holding company” as defined by federal law, because it owned
one savings association, RJ Bank. For the periods through and including September 30, 2011, we were under the supervision of,
and subject to the rules, regulations, and periodic examination by, either the Office of Thrift Supervision (“OTS”) or the OCC
(upon the July 21, 2011 merger of the OTS with the OCC). Additionally, RJ Bank is subject to the rules and regulations of the
Fed and the FDIC. Collectively, these rules and regulations cover all aspects of the banking business including lending practices,
safeguarding deposits, capital structure, transactions with affiliates and conduct and qualifications of personnel. Since we were
a savings and loan holding company prior to May 4, 1999, we were exempt from certain restrictions that would otherwise apply
under federal law to the activities and investments of a savings and loan holding company. These restrictions would have become
applicable to us if RJ Bank had failed to meet an annual qualified thrift lender (“QTL”) test established by federal law, which
required RJ Bank to make qualifying investments to meet this point-in-time test. On September 30, 2011, RJ Bank was granted
an exception to the QTL requirement until September 29, 2012. As RJ Bank converted to a national bank during fiscal 2012, as
of September 30, 2012 it is no longer subject to the QTL test and no longer has to make qualifying investments in order to maintain
regulatory compliance.
RJF, as a result of our conversion to a financial holding company, and RJ Bank are subject to various regulatory capital
requirements established by bank regulators. 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 and RJ Bank's
financial results. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, RJF and RJ Bank
must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. RJF's and RJ Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components of our capital, risk weightings of assets, off-balance sheet transactions,
and other factors. Quantitative measures established by regulation to ensure capital adequacy require RJF, as a financial holding
company, and RJ Bank to maintain minimum amounts and ratios of Total and Tier I capital to risk-weighted assets and Tier I
capital to adjusted assets (as defined in the regulations). See Note 25 of the Notes to Consolidated Financial Statements in this
Form 10-K for further information.
In June of 2012, the OCC, the FRB and the FDIC published three Notices of Proposed Rulemaking (the “NPRs”) to implement
aspects of Basel III, as well as to implement aspects of the Dodd-Frank Act. The proposed rules would increase the quantity and
quality of capital required by establishing a new common equity Tier 1 minimum capital requirement, a higher minimum Tier 1
capital requirement, and more conservative standards for including an instrument in regulatory capital. In addition, these NPRs
propose to apply limits on capital distributions and certain discretionary bonus payments if a specified amount of common equity
Tier 1 capital in addition to the amount necessary to meet minimum capital requirements is not held and revised rules for calculating
risk-weighted assets to enhance risk sensitivity and address weaknesses identified over recent years. Based on our current internal
capital analyses, we believe that RJF and RJ Bank would meet all capital adequacy requirements under the applicable NPRs.
However, since these NPRs are subject to change, the adoption of these proposed rules could restrict our ability to grow during
favorable market conditions or require us to raise additional capital and liquidity. As a result, our business, results of operations,
financial condition or prospects could be adversely affected. See Item 1A, “Risk Factors”, within this Form 10-K for more
information.
In addition, since RJ Bank provides products covered by FDIC insurance, RJ Bank is subject to the Federal Deposit Insurance
Act.
Our federally chartered trust company is subject to regulation by the OCC. This regulation focuses on, among other things,
ensuring the safety and soundness of RJT's fiduciary services.
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Index
As a public company whose common stock is listed on the NYSE, we are subject to corporate governance requirements
established by the SEC and NYSE, as well as federal and state law. Under the Sarbanes-Oxley Act, we are required to meet certain
requirements regarding business dealings with members of our Board of Directors, the structure of our Audit Committee, and
ethical standards for our senior financial officers. Under SEC and NYSE rules, we are required to comply with other standards of
corporate governance, including having a majority of independent directors serve on our Board of Directors, and the establishment
of independent audit, compensation and corporate governance committees. The Dodd-Frank Act included a number of provisions
imposing governance standards, including those regarding “Say-on-Pay” votes for shareholders, incentive compensation
clawbacks, compensation committee independence and disclosure concerning executive compensation, employee and director
hedging and chairman and CEO positions.
Under Section 404 of the Sarbanes-Oxley Act, we are required to assess the effectiveness of our internal controls over financial
reporting and to obtain an opinion from our independent auditors regarding the effectiveness of our internal controls over financial
reporting.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the registrant (which includes officers of certain significant subsidiaries) who are not Directors of the
registrant are as follows:
Jennifer C. Ackart
Bella Loykhter Allaire
Paul D. Allison
John C. Carson, Jr.
George Catanese
Jeffrey A. Dowdle
Jeffrey P. Julien
Paul L. Matecki
Steven M. Raney
Jeffrey E. Trocin
Dennis W. Zank
48
59
56
56
53
48
56
56
47
53
58
Senior Vice President, Controller
Executive Vice President - Technology and Operations - Raymond James
& Associates, Inc. since June, 2011; Managing Director and Chief
Information Officer, UBS Wealth Management Americas, November,
2006 - January, 2011
Chairman, President and CEO - Raymond James Ltd. since January,
2009; Co-President and Co-CEO - Raymond James Ltd., August, 2008 -
January, 2009; Executive Vice President and Vice Chairman, Merrill
Lynch Canada, December, 2007 - August, 2008; Executive Vice
President and Managing Director, Co-Head of Canada Investment
Banking, Merrill Lynch Canada, March, 2001 - December, 2007
President - Raymond James Financial, Inc. since April, 2012. Chief
Executive Officer and Executive Managing Director - Morgan Keegan &
Company, Inc. since March, 2008; President - Fixed Income Capital
Markets - Morgan Keegan & Company, Inc., 1994 - February, 2008
Senior Vice President and Chief Risk Officer since October, 2005;
Director, Internal Audit, November, 2001 - October, 2005
President - Asset Management Services - Raymond James & Associates,
Inc. since January, 2005; Senior Vice President - Raymond James &
Associates, Inc. since January, 2005
Executive Vice President - Finance, Chief Financial Officer and
Treasurer, Director and/or officer of several RJF subsidiaries
Senior Vice President - General Counsel, Secretary
President and CEO - Raymond James Bank, FSB since January, 2006;
Partner and Director of Business Development, LCM Group, February,
2005 - December, 2005; various executive positions in the Tampa Bay
area, Bank of America, June, 1988 - January, 2005
Executive Vice President - Equity Capital Markets - Raymond James &
Associates, Inc.
Chief Operating Officer since January, 2012; Chief Executive Officer -
Raymond James & Associates, Inc. since January, 2012; President -
Raymond James & Associates, Inc., December, 2002 - December, 2011
Except where otherwise indicated, the executive officer has held his or her current position for more than five years.
EMPLOYEES AND INDEPENDENT CONTRACTORS
Our employees and independent contractors are vital to our success in the financial services industry. As of September 30,
2012, we have approximately 10,400 employees. As of September 30, 2012, we have more than 3,500 independent contractors
with whom we are affiliated.
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Index
OTHER INFORMATION
Our internet address is www.raymondjames.com; investors can find financial information on our website under “Our Company
- Investor Relations - Financial Reports - SEC Filings.” We make available, free of charge, through links to the SEC website,
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports, which include certain
XBRL instance files, are available through our website as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. We also make available on our website our Annual Report to Shareholders and our proxy statements
in PDF format under “Our Company - Investors Relations -Shareholders' Meeting.” A copy of any document we file with the
SEC is available at the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. Please call the
SEC at 1-800-SEC-0330 for information on the Public Reference Room. The SEC maintains an internet site that contains annual,
quarterly and current reports, proxy and information statements and other information that we file electronically with the SEC.
The SEC's internet site is www.sec.gov.
Additionally, we make available on our website under “Our Company - Investor Relations - Corporate Governance,” a number
of our corporate governance documents. These include: the Corporate Governance Principles, the charters of the Audit Committee
and the Corporate Governance, Nominating and Compensation Committee of the Board of Directors, our Compensation
Recoupment Policy, the Senior Financial Officers' Code of Ethics, and the Codes of Ethics for Employees and the Board of
Directors. Printed copies of these documents will be furnished to any shareholder upon request. The information on our website
is not incorporated by reference into this report.
Factors affecting “forward-looking statements”
From time to time, we may publish “forward-looking statements” within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, or make oral statements that constitute
forward-looking statements. These forward-looking statements may relate to such matters as anticipated financial performance,
future revenues or earnings, business prospects, allowance for loan loss levels at RJ Bank, projected ventures, new products,
anticipated market performance, recruiting efforts, regulatory approvals, the integration of Morgan Keegan, and other matters.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, we caution readers that a variety of factors could cause our actual results to differ materially
from the anticipated results or other expectations expressed in our forward-looking statements. These risks and uncertainties, many
of which are beyond our control, are discussed in Item 1A, “Risk Factors,” in this report. We do not undertake any obligation to
publicly update or revise any forward-looking statements.
ITEM 1A.
RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, including those described below, that could
adversely affect our business, financial condition, results of operations, liquidity and the trading price of our common stock or
our senior notes which are listed on the NYSE.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Damage to our reputation could damage our businesses.
Maintaining our reputation is critical to our attracting and maintaining customers, investors and employees. If we fail to deal
with, or appear to fail to deal with, various issues that may give rise to reputational risk, we could significantly harm our business
prospects. These issues include, but are not limited to, any of the risks discussed in this Item 1A, appropriately dealing with
potential conflicts of interest, legal and regulatory requirements, ethical issues, money-laundering, privacy, record keeping, sales
and trading practices, failure to sell securities we have underwritten at the anticipated price levels, and the proper identification
of the legal, reputational, credit, liquidity, and market risks inherent in our products. A failure to deliver appropriate standards of
service and quality, or a failure or perceived failure to treat customers and clients fairly, can result in customer dissatisfaction,
litigation and heightened regulatory scrutiny, all of which can lead to lost revenue, higher operating costs and harm to our reputation.
Further, negative publicity regarding us, whether or not true, may also result in harm to our prospects.
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We are affected by difficult domestic and international macroeconomic conditions that impact the global financial markets.
We are engaged in various financial services businesses. As such, we are generally affected by domestic and international
macroeconomic and political conditions, including levels of economic output, interest and inflation rates, employment levels,
consumer confidence levels, and fiscal and monetary policy. These conditions may directly and indirectly impact a number of
factors in the global financial markets that may be detrimental to our operating results, including the levels of trading, investing,
and origination activity in the securities markets, security valuations, the absolute and relative level and volatility of interest and
currency rates, real estate values, the actual and perceived quality of issuers and borrowers, and the supply of and demand for
loans and deposits.
During the last five years we have experienced operating cycles during generally weak and uncertain U.S. and global economic
conditions, including lower levels of economic output, artificially maintained levels of historically low interest rates, high rates
of unemployment, and significant uncertainty with regards to fiscal and monetary policy both domestically and abroad. These
conditions have led to several factors in the global financial markets that have negatively impacted our net revenue and profitability.
While select factors indicate signs of improvement, significant uncertainty remains. A period of sustained downturns and/or
volatility in the securities markets, further reductions to the general level of short term interest rates, a return to increased dislocations
in the credit markets, further reductions in the value of real estate, and other negative market factors may significantly impair our
revenues and profitability. We may experience a decline in commission revenue from a lower volume of trades we execute for our
clients, a decline in fees from reduced portfolio values of securities managed on behalf of our clients, a reduction in revenue from
the number and size of transactions in which we provide underwriting, financial advisory and other services, increased credit
provisions and charge-offs, losses sustained from our customers and market participants failure to fulfill their settlement obligations,
reduced net interest earnings, and other losses. These periods of reduced revenue and other losses may be accompanied by periods
of reduced profitability because certain of our expenses including but not limited to our interest expense on debt, rent, facilities
and salary expenses are fixed and, our ability to reduce them over short periods of time is limited.
In August 2011, the credit rating agency Standard & Poor's (“S&P”) lowered its long term sovereign credit rating on the U.S.
from AAA to AA+, while maintaining a negative outlook. The downgrade reflected S&P's view that an August 2011 agreement
of U.S. lawmakers regarding the debt ceiling fell short of what would be necessary to stabilize the U.S. government's medium
term debt dynamics. The two other major credit rating agencies did not downgrade their previously issued U.S. sovereign credit
ratings. We have specific concerns relating to future or further downgrades of the U.S. sovereign credit rating by one or more of
the major credit rating agencies that could have material adverse impacts on financial markets and economic conditions in the
U.S. and throughout the world and, in turn, could have a material adverse effect on our business, financial condition and liquidity.
Because of the unprecedented nature of any negative credit rating actions with respect to U.S. government obligations, the ultimate
impacts on global markets and our business, financial condition and liquidity are unpredictable and may not be immediately
apparent.
Additionally, the negative impact on economic conditions and global markets from further European Union's (“EU”) sovereign
debt matters could adversely affect our business, financial condition and liquidity. Concerns about the EU sovereign debt have
caused uncertainty and disruption for financial markets globally, and continued uncertainties loom over the outcome the EU's
financial support programs and the possibility that other EU member states may experience similar financial troubles.
Our businesses and earnings are affected by the fiscal and other policies adopted by various regulatory authorities of the U.S.,
non-U.S. governments, and international agencies. The Fed regulates the supply of money and credit in the U.S. Fed policies
determine in large part the cost of funds for lending and investing and the return earned on those loans and investments. The
market impact from such policies can also materially decrease the value of certain of our financial assets, most notably debt
securities. Changes in Fed policies are beyond our control and, consequently, the impact of these changes on our activities and
results of our operations are difficult to predict.
U.S. state and local governments also continue to struggle with budget pressures caused by the recent recession, and concerns
regarding municipal issuer credit quality. If these trends continue, investor concerns could potentially reduce the number and size
of transactions in which we participate and in turn reduce investment banking revenues.
Declines in the real estate market over the past few years, along with high foreclosure rates and prolonged high unemployment
rates, resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities as well
as commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default
swaps and other derivative securities, in turn caused many financial institutions to seek additional capital, to merge with larger
and stronger institutions and, in some cases, to fail.
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RJ Bank is particularly affected by domestic economic conditions. Such conditions include: U.S. interest rates, the rate of
unemployment, real estate prices, the level of consumer confidence, changes in consumer spending and the number of personal
bankruptcies, among others. The deterioration of these conditions can diminish loan demand, lead to an increase in mortgage and
other loan delinquencies, affect loan repayment performance and result in higher reserves and net charge-offs, which can adversely
affect our earnings.
Lack of liquidity or access to capital could impair our business and financial condition.
Maintaining an appropriate level of liquidity, or the amount of capital that is readily available for investment, spending, or to
meet our contractual obligations is essential to our business. Our inability to maintain adequate levels of capital in the form of
cash and readily available access to the credit and capital markets could have a significant negative effect on our financial condition.
If liquidity from our brokerage or banking operations are inadequate or unavailable, we may be required to scale back or curtail
our operations, including limiting our efforts to recruit additional financial advisors, selling assets at prices that may be less
favorable to us, and cutting or eliminating the dividends we pay to our shareholders. Some potential conditions that could negatively
affect our liquidity include the inability of our subsidiaries to generate cash in the form of dividends from earnings, changes
imposed by regulators to our liquidity or capital requirements in our subsidiaries that may prevent the upstream of dividends in
the form of cash to the parent company, limited or no accessibility to credit markets for secured and unsecured borrowings within
our subsidiaries, diminished access to the capital markets at the parent company, and other commitments or restrictions on capital
as a result of adverse legal settlements, judgments, or regulatory sanctions.
The availability of outside financing, including access to the credit and capital markets, depends on a variety of factors, such
as conditions in the debt and equity markets, the general availability of credit, the volume of securities trading activity, the overall
availability of credit to the financial services sector, and our credit ratings. Our cost and availability of funding may be adversely
affected by illiquid credit markets and wider credit spreads. Additionally, lenders may from time to time curtail, or even cease, to
provide funding to borrowers as a result of any future concerns about the stability of the markets generally, and the strength of
counterparties specifically.
If RJF's credit ratings were downgraded, or if rating agencies indicate that a downgrade may occur, our business, financial
position, and results of operations could be adversely affected, perceptions of our financial strength could be damaged, and as a
result, adversely affect our relationships with clients. Such a reduction in our credit ratings could also adversely affect our liquidity
and competitive position, increase our incremental borrowing costs, limit our access to the capital markets, trigger obligations
under certain financial agreements, or decrease the number of investors, clients and counterparties willing or permitted to do
business with or lend to us, thereby curtailing our business operations and reducing profitability. As such, we may not be able to
successfully obtain additional outside financing to fund our operations on favorable terms, or at all. The impact of a credit rating
downgrade to a level below investment grade would result in our breaching provisions in certain of our derivative instruments,
and may result in a request for immediate payment and/or ongoing overnight collateralization on our derivative instruments in
liability positions.
Furthermore, as a bank holding company, we may become subject to a prohibition or to limitations on our ability to pay
dividends or repurchase our stock. The OCC, the Fed and the FDIC have the authority, and under certain circumstances the duty,
to prohibit or to limit the payment of dividends by the entities they supervise.
See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital
Resources,” in this Form 10-K for additional information on liquidity and how we manage our liquidity risk.
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Index
We are exposed to market risk.
We are, directly and indirectly, affected by changes in market conditions. Market risk generally represents the risk that values
of assets and liabilities or revenues will be adversely affected by changes in market conditions. For example, changes in interest
rates could adversely affect our net interest spread, the difference between the yield we earn on our assets and the interest rate we
pay for deposits and other sources of funding, which in turn impacts our net interest income and earnings. Changes in interest
rates could affect the interest earned on assets differently than interest paid on liabilities. In our brokerage operations, a rising
interest rate environment generally results in our earning a larger net interest spread. Conversely in those operations, a falling
interest rate environment generally results in our earning a smaller net interest spread. If we are unable to effectively manage our
interest rate risk, changes in interest rates could have a material adverse effect on our profitability.
Market risk is inherent in the financial instruments associated with our operations and activities including loans, deposits,
securities, short-term borrowings, long-term debt, trading account assets and liabilities, derivatives and venture capital and merchant
banking investments. Market conditions that change from time to time, thereby exposing us to market risk, include fluctuations
in interest rates, equity prices, relative exchange rates, and price deterioration or changes in value due to changes in market
perception or actual credit quality of an issuer.
In addition, disruptions in the liquidity or transparency of the financial markets may result in our inability to sell, syndicate
or realize the value of security positions, thereby leading to increased concentrations. The inability to reduce our positions in
specific securities may not only increase the market and credit risks associated with such positions, but also increase the level of
risk-weighted assets on our balance sheet, thereby increasing capital requirements which could adversely affect our profitability.
Our venture capital and merchant banking investments are carried at fair value with unrealized gains and losses reflected in
earnings. The value of our private equity portfolios can fluctuate and earnings from our venture capital investments can be volatile
and difficult to predict. When, and if, we recognize gains can depend on a number of factors, including general economic conditions,
the prospects of the companies in which we invest, when these companies go public, the size of our position relative to the public
float and whether we are subject to any resale restrictions. Further, our investments could incur significant mark-to-market losses,
especially if they have been written up in prior periods because of higher market prices.
See Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in this Form 10-K for additional information
regarding our exposure to and approaches to managing market risk.
We are exposed to credit risk.
We are generally exposed to the risk that third parties that owe us money, securities or other assets do not meet their performance
obligations due to bankruptcy, lack of liquidity, operational failure or other reasons.
We actively buy and sell securities from and to clients and counterparties in the normal course of our broker-dealer businesses
exposing us to credit risk. Although generally collateralized by the underlying security to the transaction, we still face the risk
associated with changes in the market value of collateral through settlement date. We also hold certain securities and derivatives
in our trading accounts. Deterioration in the actual or perceived credit quality of the underlying issuers of securities, or the non-
performance of issuers and counterparties to certain derivative contracts could result in trading losses.
We borrow securities from and lend securities to other broker-dealers, and may also enter into agreements to repurchase and
agreements to resell securities as part of investing and financing activities. A sharp change in the security market values utilized
in these transactions may result in losses if counterparties to these transactions fail to honor their commitments.
We manage the risk associated with these transactions by establishing and monitoring credit limits and by monitoring collateral
and transaction levels daily. A significant deterioration in the credit quality of one of our counterparties could lead to concerns in
the market about the credit quality of other counterparties in the same industry, thereby exacerbating our credit risk exposure. We
may require counterparties to deposit additional collateral or substitute collateral pledged. In the case of aged securities failed to
receive, we may, under industry regulations, purchase the underlying securities in the market and seek reimbursement for any
losses from the counterparty.
Also, we permit our clients to purchase securities on margin. During periods of steep declines in securities prices, the value
of the collateral securing client margin loans may fall below the amount of the purchaser's indebtedness. If the clients are unable
to provide additional collateral for these margin loans, we may incur losses on those margin transactions. This may cause us to
incur additional expenses defending or pursuing claims or litigation related to counterparty or client defaults.
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Index
We deposit our cash in depository institutions as a means of maintaining the liquidity necessary to meet our operating needs,
and we also facilitate the deposit of cash awaiting investment in depository institutions on behalf of our clients. A failure of a
depository institution to return these deposits could severely impact our operating liquidity, could result in significant reputational
damage, and adversely impact our financial performance.
We also incur credit risk by lending to businesses and individuals including, but not limited to, C&I loans, commercial and
residential mortgage loans, home equity lines of credit, and margin and non-purpose loans collateralized by securities. We incur
credit risk through our investments which include mortgage backed securities, collateralized mortgage obligations, auction rate
securities, and other municipal securities.
The credit quality of RJ Bank's loans and our investment portfolios can have a significant impact on earnings and overall
financial performance. Our credit risk and credit losses can increase if our loans or investments are concentrated among borrowers
or issuers engaged in the same or similar activities, industries, geographies, or to borrowers or issuers who as a group may be
uniquely or disproportionately affected by economic or market conditions. The deterioration of an individually large exposure,
for example due to a natural disaster, act of terrorism, severe weather event, or economic event, could lead to additional loan loss
provisions and/or charges-offs, or credit impairment of our investments, and subsequently have a material impact on our net income
and regulatory capital.
Further declines in the real estate market or sustained economic downturns may cause us to further write down the value of
some of the loans in RJ Bank's portfolio, foreclose on certain real estate properties or write down the value of some of our available
for sale securities portfolio. Credit quality generally may also be affected by adverse changes in the financial performance or
condition of our debtors or deterioration in the strength of the U.S. economy. Our policies also can adversely affect borrowers,
potentially increasing the risk that they may fail to repay their loans or satisfy their obligations to us.
See Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in this Form 10-K for additional information
regarding our exposure to and approaches to managing credit risk.
Our business depends on fees generated from the distribution of financial products and on fees earned from the management
of client accounts by our asset management subsidiaries.
A large portion of our revenues are derived from fees generated from the distribution of financial products such as mutual
funds and variable annuities. Changes in the structure or amount of the fees paid by the sponsors of these products could directly
affect our revenues, business and financial condition. In addition, if these products experience losses or increased investor
redemptions, we may receive reduced fees from the investment management and distribution services we provide on behalf of the
mutual funds and annuities. The investment management fees we are paid may also decline over time due to factors such as
increased competition, renegotiation of contracts and the introduction of new, lower-priced investment products and services.
Changes in market values or in the fee structure of asset management accounts would affect our revenues, business and financial
condition. Asset management fees often are primarily comprised of base management and incentive fees. Management fees are
primarily based on assets under management. Assets under management balances are impacted by net inflow/outflow of client
assets and market values. Below market investment performance by our funds and portfolio managers could result in a loss of
managed accounts and could result in reputational damage that might make it more difficult to attract new investors and thus
further impacting our business and financial condition. If we experience losses of managed accounts, our fee revenue will decline.
In addition, in periods of declining market values, our asset values under management may resultantly decline, which would
negatively impact our fee revenues.
Our underwriting, market-making, trading, and other business activities place our capital at risk.
We may incur losses and be subject to reputational harm to the extent that, for any reason, we are unable to sell securities
which we have underwritten at the anticipated price levels. As an underwriter, we also are subject to heightened standards regarding
liability for material misstatements or omissions in prospectuses and other offering documents relating to offerings we underwrite.
As a market maker, we may own positions in specific securities, and these undiversified holdings concentrate the risk of market
fluctuations and may result in greater losses than would be the case if our holdings were more diversified. In addition, we may
incur losses as a result of proprietary positions we hold.
From time to time and as part of our underwriting processes, we may carry significant positions in securities of a single issuer
or issuers engaged in a specific industry. Sudden changes in the value of these positions could impact our financial results.
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We have made and may continue to make principal investments in private equity funds and other illiquid investments, which
are typically private limited partnership interests and securities that are not publicly traded. There is risk that we may be unable
to realize our investment objectives by sale or other disposition at attractive prices or that we may otherwise be unable to complete
a desirable exit strategy. In particular, these risks could arise from changes in the financial condition or prospects of the portfolio
companies in which investments are made, changes in economic conditions or changes in laws, regulations, fiscal policies or
political conditions. It could take a substantial period of time to identify attractive investment opportunities and then to realize the
cash value of such investments through resale. Even if a private equity investment proves to be profitable, it may be several years
or longer before any profits can be realized in cash.
The soundness of other financial institutions and intermediaries affects us.
We face the risk of operational failure, termination or capacity constraints of any of the clearing agents, exchanges, clearing
houses or other financial intermediaries that we use to facilitate our securities transactions. As a result of the consolidation over
the years among clearing agents, exchanges and clearing houses, our exposure to certain financial intermediaries has increased
and could affect our ability to find adequate and cost-effective alternatives should the need arise. Any failure, termination or
constraint of these intermediaries could adversely affect our ability to execute transactions, service our clients and manage our
exposure to risk.
Our ability to engage in routine trading and funding transactions could be adversely affected by the actions and commercial
soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, funding,
counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute
transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks,
mutual and hedge funds and other institutional clients. Furthermore, although we do not hold any EU sovereign debt, we may do
business with and be exposed to financial institutions that have been affected by the recent EU sovereign debt crisis. As a result,
defaults by, or even rumors or questions about the financial condition of, one or more financial services institutions, or the financial
services industry generally, have historically led to market-wide liquidity problems and could lead to losses or defaults by us or
by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In
addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient
to recover the full amount of the loan or derivative exposure due us. Although we have not suffered any material or significant
losses as a result of the failure of any financial counterparty, any such losses in the future may materially adversely affect our
results of operations.
We have experienced increased pricing pressures in areas of our business which may impair our future revenue and
profitability.
In recent years, our business has experienced increased pricing pressures on trading margins and commissions in fixed income
and equity trading. In the fixed income market, regulatory requirements have resulted in greater price transparency, leading to
increased price competition and decreased trading margins. In the equity market, we have experienced increased pricing pressure
from institutional clients to reduce commissions, and this pressure has been augmented by the increased use of electronic and
direct market access trading, which has created additional competitive downward pressure on trading margins. We believe that
price competition and pricing pressures in these and other areas will continue as institutional investors continue to reduce the
amounts they are willing to pay, including by reducing the number of brokerage firms they use, and some of our competitors seek
to obtain market share by reducing fees, commissions or margins.
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Index
The acquisition of Morgan Keegan involves risks that could affect our business.
On April 2, 2012 we completed our purchase of all of the issued and outstanding shares of Morgan Keegan (refer to the
discussion of this acquisition in Note 3 of the Notes to the Consolidated Financial Statements in this Form 10-K).
Acquisitions of this magnitude pose numerous risks, including: difficulty in integrating our and Morgan Keegan's businesses,
services and products; failure to achieve anticipated synergies or realize the projected benefits of the transaction; diversion of
management's attention from other business concerns due to transaction-related issues; potential loss of clients or key employees;
the need to combine accounting and data processing systems and management controls and to integrate relationships with clients,
trading counterparties and business partners; the inability to sustain revenue and earnings growth; and changes in the capital
markets. There is no assurance that this acquisition will yield all of the positive benefits anticipated. If we are not able to integrate
successfully, there is a risk that our results of operations, financial condition and cash flows may be materially and adversely
affected.
Regions may fail to honor its indemnification obligations associated with Morgan Keegan matters.
Under the definitive stock purchase agreement dated January 11, 2012 entered into by RJF and Regions governing our
acquisition of Morgan Keegan (the “SPA”), Regions has ongoing obligations to indemnify RJF with respect to certain litigation
as well as other matters. RJF is relying on Regions fulfilling its indemnification obligations under the SPA with respect to such
matters. Our inability to enforce these indemnification provisions, or our failure to recover losses for which we are entitled to be
indemnified, could result in our incurring significant costs for defense, settlement and any adverse judgments and resultantly have
an adverse effect on our results of operations, financial condition, and our regulatory capital levels.
See Note 3 of the Notes to the Consolidated Financial Statements in this Form 10-K for further information regarding these
indemnification agreements.
Growth of our business could increase costs and regulatory risks.
We may incur significant expenses in connection with further expansion of our existing businesses, or recruitment of financial
advisors, or in connection with strategic acquisitions or investments, if and to the extent they arise from time to time. Our overall
profitability would be negatively affected if investments and expenses associated with such growth are not matched or exceeded
by the revenues that are derived from such investment or growth.
Expansion may also create a need for additional compliance, documentation, risk management and internal controls procedures,
and often involves the hiring of additional personnel to monitor such procedures. To the extent such procedures are not adequate
to appropriately monitor any new or expanded business, we could be exposed to a material loss or regulatory sanction.
Moreover, to the extent we pursue strategic acquisitions, we may be unable to complete such acquisitions on acceptable terms,
or be unable to successfully integrate the operations of any acquired business into our existing business. Such acquisitions could
be of significant size and/or complexity. This effort, together with difficulties we may encounter in integrating an acquired business,
could have an adverse affect on our business, financial condition, and results of operations. In addition, we may need to raise
equity capital or borrow to finance such acquisitions, which could dilute our shareholders or increase our leverage. Any such
borrowings might not be available on terms as favorable to us as our current borrowings, or perhaps at all.
We face intense competition.
We are engaged in intensely competitive businesses. We compete on the basis of a number of factors, including the quality
of our financial advisors and associates, our products and services, pricing (such as execution pricing and fee levels), location and
reputation in relevant markets. Over time there has been substantial consolidation and convergence among companies in the
financial services industry which has significantly increased the capital base and geographic reach of our competitors. See the
section entitled “Competition” of Item 1 of this Form 10-K for additional information about our competitors. Our ability to develop
and retain our client base depends on the reputation, judgment, business generation capabilities and skills of our employees and
financial advisors. As such, to compete effectively we must attract, retain and motivate qualified associates, including successful
financial advisors, investment bankers, trading professionals, portfolio managers and other revenue producing or specialized
personnel. Competitive pressures we experience could have an adverse affect on our business, results of operations, financial
condition and liquidity.
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We compete directly with national full service broker-dealers, investment banking firms, and commercial banks, and to a
lesser extent, with discount brokers and dealers and investment advisors. In addition, we face competition from more recent
entrants into the market and increased use of alternative sales channels by other firms. Domestic commercial banks and investment
banking boutique firms have entered the broker-dealer business, and large international banks are now serving our markets as
well. Legislative and regulatory initiatives which eased what were at one time restrictions on the sales of securities and underwriting
activities by commercial banks have increased competition. We also compete indirectly for investment assets with insurance
companies, real estate firms, hedge funds, and others. This increased competition could cause our business to suffer.
Competition for personnel within the financial services industry is intense. The cost of retaining skilled professionals in the
financial services industry has escalated considerably. Employers in the industry are increasingly offering guaranteed contracts,
upfront payments, and increased compensation. These can be important factors in a current employee's decision to leave us as
well as a prospective employee's decision to join us. As competition for skilled professionals in the industry remains intense, we
may have to devote significantly more resources to attracting and retaining qualified personnel. In particular, our financial results
may be adversely affected by the costs we incur in connection with any upfront loans or other incentives we may offer to newly
recruited financial advisors.
Moreover, companies in our industry whose employees accept positions with competitors frequently claim that those
competitors have engaged in unfair hiring practices. We have been subject to several such claims in the past and may be subject
to additional claims in the future as we seek to hire qualified personnel, some of whom may currently be working for our competitors.
Some of these claims may result in material litigation. We could incur substantial costs in defending ourselves against these claims,
regardless of their merits. Such claims could also discourage potential employees who currently work for our competitors from
joining us.
To remain competitive, our future success also depends in part on our ability to develop and enhance our products and services.
In addition, the continued development of internet, networking or telecommunication technologies or other technological changes
could require us to incur substantial expenditures to enhance or adapt our services or infrastructure. An inability to develop new
products and services, or enhance existing offerings, could have a material adverse effect on our profitability.
We are exposed to operational risk.
Our diverse operations are exposed to risk of loss resulting from inadequate or failed internal processes, people and systems
or from external events. Our businesses depend on our ability to process and monitor, on a daily basis, a large number of complex
transactions across numerous and diverse markets. The inability of our systems to accommodate an increasing volume of
transactions could also constrain our ability to expand our businesses. Our financial, accounting, data processing or other operating
systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our
control, adversely affecting our ability to process these transactions or provide these services. Operational risk exists in every
activity, function or unit of our business, and can take the form of internal or external fraud, employment and hiring practices, an
error in meeting a professional obligation, failure to meet corporate fiduciary standards, business disruption or system failures and
failed transaction processing. Also, increasing use of automated technology has the potential to amplify risks from manual or
system processing errors, including outsourced operations.
While we have business contingency plans in place, our ability to conduct business may be adversely affected by a disruption
involving physical site access, catastrophic events including weather related events, events involving electrical, environmental or
communications, as well as events impacting services provided by others that we rely upon which could impact our employees
or third parties with whom we conduct business.
See Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in this Form 10-K for additional information
regarding our exposure to and approaches to managing operational risk.
Our businesses depend on technology.
Our businesses rely extensively on electronic data processing and communications systems. In addition to better serving
clients, the effective use of technology increases efficiency and enables us to reduce costs. Adapting or developing our technology
systems to meet new regulatory requirements, client needs, and competitive demands is critical for our business. Introduction of
new technology presents challenges on a regular basis. There are significant technical and financial costs and risks in the
development of new or enhanced applications, including the risk that we might be unable to effectively use new technologies or
adapt our applications to emerging industry standards.
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Index
Our continued success will depend, in part, upon our ability to successfully maintain and upgrade the capability of our systems,
our ability to address the needs of our clients by using technology to provide products and services that satisfy their demands and
our ability to retain skilled information technology employees. Failure of our systems, which could result from events beyond our
control, or an inability to effectively upgrade those systems or implement new technology-driven products or services, could result
in financial losses, liability to clients and damage to our reputation.
Customer, public and regulatory expectations regarding operational and information security have increased. Thus, our
operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and
breakdowns. Our operations rely on the secure processing, storage and transmission of confidential and other information in our
computer systems and networks. Although to-date we have not experienced any material losses relating to cyber attacks or other
information security breaches, there can be no assurance that we will not suffer such losses in the future. Notwithstanding that
we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks
may be vulnerable to human error, natural disasters, power loss, spam attacks, unauthorized access, distributed denial of service
(“DDOS”) attacks, computer viruses and other malicious code and other events that could have a security impact. If one or more
of these events occur, this could jeopardize our, or our clients' or counterparties', confidential and other information processed
stored in and transmitted through our computer systems and networks, or otherwise cause interruptions or malfunctions in our,
our clients', our counterparties' or third parties' operations. We may be required to expend significant additional resources to
modify our protective measures, to investigate and remediate vulnerabilities or other exposures or to make required notifications,
and we may be subject to litigation and financial losses that are either not insured or are not fully covered through any insurance
we maintain. A technological breakdown could also interfere with our ability to comply with financial reporting and other regulatory
requirements, exposing us to potential disciplinary action by regulators.
Extraordinary trading volumes beyond reasonably foreseeable spikes in volumes could cause our computer systems to operate
at an unacceptably slow speed or even fail. While we have made investments to maintain the reliability and scalability of our
systems and added hardware to address extraordinary volumes, there can be no assurance that our systems will be sufficient to
handle truly extraordinary and unforeseen circumstances. Systems failures and delays could occur and could cause, among other
things, unanticipated disruptions in service to our clients, slower system response time resulting in transactions not being processed
as quickly as our clients desire, decreased levels for client service and client satisfactions and harm to our reputation.
See Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in this Form 10-K for additional information
regarding our exposure to and approaches to managing these types of operational risk.
Our operations could be adversely affected by serious weather conditions.
Our principal operations are located in St. Petersburg, Florida. While we have a business continuity plan that permits significant
operations to be conducted from our Southfield, Michigan and Memphis, Tennessee locations (see Item 1, “Business” in this Form
10-K), our operations could be adversely affected by hurricanes or other serious weather conditions that could affect the processing
of transactions, communications and the ability of our associates to get to our offices or work from home. Refer to the "we are
exposed to credit risk" risk factor in this Item 1A for a discussion of how events, including weather events, could adversely impact
RJ Bank's loan portfolio and the "we are exposed to operational risk" risk factor in this Item 1A, for a discussion of how weather
related events could impact our ability to conduct business.
We are exposed to litigation risks.
Many aspects of our business involve substantial risks of liability, arising from the normal course of business. We have been
named as a defendant or co-defendant in lawsuits and arbitrations involving primarily claims for damages. The risks associated
with potential litigation often may be difficult to assess or quantify and the existence and magnitude of potential claims often
remain unknown for substantial periods of time. Unauthorized or illegal acts of our employees could result in substantial liability
for us. Advisors may not understand investor needs or risk tolerances. Such failures may result in the recommendation or purchase
of a portfolio of assets that may not be suitable for the investor. To the extent we fail to know our customers or improperly advise
them, we could be found liable for losses suffered by such customers, which could harm our business. Our Private Client Group
business segment has historically had more risk of litigation than our institutional businesses.
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In highly volatile markets, the volume of claims and amount of damages sought in litigation and regulatory proceedings
against financial institutions has historically increased. These risks include potential liability under securities or other laws for
alleged materially false or misleading statements made in connection with securities offerings and other transactions, issues related
to the suitability of our investment advice based on our clients' investment objectives (including auction rate securities), the inability
to sell or redeem securities in a timely manner during adverse market conditions, contractual issues, employment claims and
potential liability for other advice we provide to participants in strategic transactions. Substantial legal liability could have a
material adverse financial effect or cause us significant reputational harm, which in turn could seriously harm our business and
our prospects.
In addition to the foregoing financial costs and risks associated with potential liability, the costs of defending individual
litigation and claims continue to increase over time. The amount of outside attorneys' fees incurred in connection with the defense
of litigation and claims could be substantial and might materially and adversely affect our results of operations.
As it pertains to Morgan Keegan, a number of the types of claims and matters described above are subject to indemnification
from Regions. Refer to the separate risk factor in this section entitled, “Regions may fail to honor its indemnification obligations
associated with Morgan Keegan matters” for a discussion of the risks associated with these indemnifications.
See Item 3, “Legal Proceedings” in this Form 10-K for a discussion of our legal matters and Item 7A, “Quantitative and
Qualitative Disclosures about Market Risk,” in this Form 10-K for discussion regarding our approach to managing legal risk.
The preparation of the consolidated financial statements requires the use of estimates that may vary from actual results
and new accounting standards could adversely affect future reported results.
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Such estimates and assumptions may require management to make difficult,
subjective and complex judgments about matters that are inherently uncertain. One of our most critical estimates is RJ Bank's
allowance for loan losses. At any given point in time, conditions in the real estate and credit markets may influence the complexity
and increase the uncertainty involved in estimating the losses inherent in RJ Bank's loan portfolio. If management's underlying
assumptions and judgments prove to be inaccurate, one outcome could be that the allowance for loan losses could be insufficient
to cover actual losses. Our financial condition, including our liquidity and capital, and results of operations could be materially
and adversely impacted. See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations-
Critical Accounting Estimates,” in this Form 10-K for additional information on the nature of these estimates.
Our financial instruments, including certain trading assets and liabilities, available for sale securities including ARS, certain
loans, intangible assets and private equity investments, among other items, require management to make a determination of their
fair value in order to prepare our consolidated financial statements. Where quoted market prices are not available, we may make
fair value determinations based on internally developed models or other means which ultimately rely to some degree on our
judgment. Some of these instruments and other assets and liabilities may have no direct observable inputs, making their valuation
particularly subjective, being based on significant estimation and judgment. In addition, sudden illiquidity in markets or declines
in prices of certain securities may make it more difficult to value certain items, which may lead to the possibility that such valuations
will be subject to further change or adjustment and could lead to declines in our earnings in subsequent periods.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of
operations. From time to time the Financial Accounting Standards Board (“FASB”) and the SEC change the financial accounting
and reporting standards that govern the preparation of our financial statements. In addition, accounting standard setters and those
who interpret the accounting standards may change or even reverse their previous interpretations or positions on how these standards
should be applied. These changes can be hard to predict and can materially impact how we record and report our financial condition
and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in our
restating prior period financial statements. For a further discussion of some of our significant accounting policies and standards,
see the “Critical Accounting Estimates” discussion within Item 7, and Note 2 of the Notes to Consolidated Financial Statements,
in this Form 10-K.
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Index
Our risk management policies and procedures may leave us exposed to unidentified or unanticipated risk.
We seek to manage, monitor and control our operational, legal and regulatory risk through operational and compliance reporting
systems, internal controls, management review processes and other mechanisms; however, there can be no assurance that our
procedures will be fully effective. Further, our risk management methods may not effectively predict future risk exposures, which
could be significantly greater than the historical measures indicate. In addition, some of our risk management methods are based
on an evaluation of information regarding markets, clients and other matters that are based on assumptions that may no longer be
accurate. A failure to adequately manage our growth, or to effectively manage our risk, could materially and adversely affect our
business and financial condition. Our risk management processes include addressing potential conflicts of interest that arise in
our business. We have procedures and controls in place to address conflicts of interest. Management of potential conflicts of
interest has become increasingly complex as we expand our business activities through more numerous transactions, obligations
and interests with and among our clients. The failure to adequately address or the perceived failure to adequately address, conflicts
of interest could affect our reputation, the willingness of clients to transact business with us or give rise to litigation or regulatory
actions. Therefore, there can be no assurance that conflicts of interest will not arise in the future that could cause material harm
to us.
For more information on how we monitor and manage market and certain other risks, see Item 7A, “Quantitative and Qualitative
Disclosures about Market Risk,” in this Form 10-K.
We are exposed to risk from international markets.
We do business in other parts of the world, including a few developing regions of the world commonly known as emerging
markets and, as a result, are exposed to a number of risks, including economic, market, litigation and regulatory risks, in non-U.S.
markets. Our businesses and revenues derived from non-U.S. operations are subject to risk of loss from currency fluctuations,
social or political instability, changes in governmental policies or policies of central banks, downgrades in the credit ratings of
sovereign countries, expropriation, nationalization, confiscation of assets and unfavorable legislative and political developments.
Action or inaction in any of these operations, including failure to follow proper practices with respect to regulatory compliance
and/or corporate governance, could harm our operations and/or our reputation. We also invest or trade in the securities of
corporations located in non-U.S. jurisdictions. Revenues from the trading of non-U.S. securities also may be subject to negative
fluctuations as a result of the above factors. The impact of these fluctuations could be magnified because generally non-U.S.
trading markets, particularly in emerging market countries, are smaller, less liquid and more volatile than U.S. trading markets.
Additionally, a political, economic or financial disruption in a country or region could adversely impact our business and increase
volatility in financial markets generally.
We have risks related to our insurance programs.
Our operations and financial results are subject to risks and uncertainties related to our use of a combination of insurance,
self-insured retention and self-insurance for a number of risks, including most significantly: property and casualty, workers'
compensation, errors and omissions liability, general liability and the portion of employee-related health care benefits plans we
fund, among others.
While we endeavor to purchase insurance coverage that is appropriate to our assessment of risk, we are unable to predict with
certainty the frequency, nature or magnitude of claims for direct or consequential damages. Our business may be negatively
affected if in the future our insurance proves to be inadequate or unavailable. In addition, insurance claims may divert management
resources away from operating our business.
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Index
RISKS RELATED TO OUR REGULATORY ENVIRONMENT
Changes in regulations resulting from either the Dodd-Frank act or any new regulations may affect our businesses.
The market and economic conditions over the past few years have led to legislation and numerous and continuing proposals
for changes in the regulation of the financial services industry, including significant additional legislation and regulation in the
U.S. and abroad. The Dodd-Frank Act enacted sweeping changes in the supervision and regulation of the financial industry
designed to provide for greater oversight of financial industry participants, reduce risk in banking practices and in securities and
derivatives trading, enhance public company corporate governance practices and executive compensation disclosures, and provide
for greater protections to individual consumers and investors. Certain elements of the Dodd-Frank Act became effective
immediately, while the details of many provisions are subject to additional studies and final rule writing by various applicable
regulatory agencies. The ultimate impact that the Dodd-Frank Act will have on us, the financial industry and the economy cannot
be known until all such rules and regulations called for under the Dodd-Frank Act have been finalized and implemented.
The Dodd-Frank Act may impact the manner in which we market our products and services, manage our business and its
operations and interact with regulators, all of which while not currently anticipated to, could materially impact our results of
operations, financial condition and liquidity. Certain provisions of the Dodd-Frank Act that may impact our business include, but
are not limited to: the establishment of a fiduciary standard for broker-dealers, regulatory oversight of incentive compensation,
the imposition of capital requirements on financial holding companies and to a lesser extent, greater oversight over derivatives
trading and restrictions on proprietary trading.
Additionally, we are closely monitoring regulatory developments related to the “Volcker Rule.” Until the final regulations
under the Volcker Rule are adopted, the precise definition of prohibited “proprietary trading”, the scope of any exceptions for
market making and hedging, and the scope of permitted hedge fund and private equity fund activities remains uncertain. It is
unclear under the proposed rules whether some portion of our market-making and risk mitigation activities, as currently conducted,
will be required to be curtailed or will be otherwise adversely affected. In addition, the rules, if enacted as proposed, would prohibit
certain securitization structures and would bar U.S. banking entities from sponsoring or investing in certain non-U.S. funds. Also,
with respect to certain of our investments in illiquid private equity funds, should regulators not exercise their authority to permit
us to hold such investments beyond the minimum statutory divestment period, we could incur substantial losses when we dispose
of such investments, as we may be forced to sell such investments at a substantial discount in the secondary market as a result of
both the constrained timing of such sales and the possibility that other financial institutions are likewise liquidating their investments
at the same time. When the regulations are final, we will be in a position to complete a review of our relevant activities to make
plans to implement compliance with the Volcker Rule, which will likely not require full conformance until July 2014, subject to
extensions.
To the extent the Dodd-Frank Act impacts the operations, financial condition, liquidity and capital requirements of unaffiliated
financial institutions with whom we transact business, those institutions may seek to pass on increased costs, reduce their capacity
to transact, or otherwise present inefficiencies in their interactions with us.
The Basel III capital standards will impose additional capital, liquidity and other requirements on us that could decrease
our competitiveness and profitability.
In June of 2012, the OCC, the FRB and the FDIC published three NPRs to implement aspects of Basel III, as well as to
implement aspects of the Dodd-Frank Act. The proposed rules would increase the quantity and quality of capital required by
establishing a new common equity tier 1 minimum capital requirement, a higher minimum tier 1 capital requirement, and more
conservative standards for including an instrument in regulatory capital. In addition, these NPRs propose to apply limits on capital
distributions and certain discretionary bonus payments if a specified amount of common equity tier 1 capital in addition to the
amount necessary to meet minimum capital requirements is not held and revised rules for calculating risk-weighted assets to
enhance risk sensitivity and address weaknesses identified over recent years. Given that these proposed NPRs are subject to
change, the adoption of these proposed rules could restrict our ability to grow during favorable market conditions or require us to
raise additional capital and liquidity. As a result, our business, results of operations, financial condition or prospects could be
adversely affected.
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Index
We operate in a highly regulated industry in which future developments could adversely affect our business and financial
condition.
The securities industry is subject to extensive regulation, and broker-dealers and investment advisors are subject to regulations
covering all aspects of the securities business including, but not limited to, sales and trading methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital structure of securities firms, anti-money laundering
efforts, record keeping and the conduct of directors, officers and employees. If laws or regulations are violated, we could be
subject to one or more of the following: civil liability, criminal liability, sanctions which could include the revocation of our
subsidiaries' registrations as investment advisors or broker-dealers, the revocation of the licenses of our financial advisors, censures,
fines or a temporary suspension or permanent bar from conducting business. Any of those events could have a material adverse
effect on our business, financial condition and prospects.
The majority of our affiliated financial advisors are independent contractors. Legislative or regulatory action that redefines
the criteria for determining whether a person is an employee or an independent contractor could materially impact our relationships
with our advisors and our business, resulting in an adverse effect on our results of operations.
During fiscal year 2012, RJF became both a bank holding company and a financial holding company. Although we have a
statutory grace period of two years, with the possibility of three one-year extensions for a total grace period of up to five years,
to conform existing activities and investments to the restrictions on nonbanking activities that apply to financial holding companies,
we expect to be able to continue to engage in the vast majority of the activities in which we currently engage. After such time, it
is possible that certain of our existing activities will be deemed to be impermissible under applicable regulations. In addition, as
a financial holding company subject to the supervision and regulation of the Fed, we are now subject to the Fed's risk-based and
leverage capital requirements and information reporting requirements.
We currently invest in selected private equity and merchant banking investments (see the description of this activity in the
“Proprietary Capital” section of Part 1, Item 1 Business, within this Form 10-K). As a financial holding company, the magnitude
of such investments is subject to certain limitations. At our current investment levels, we do not anticipate having to make any
otherwise unplanned divestitures of these investments in order to comply with regulatory limits, however, the amount of future
investments may be limited in order to maintain compliance within regulatory specified levels.
As a result of our conversion, we are subject to additional bank holding company regulatory reporting requirements which
add to our administrative workload and costs. The maintenance of certain risk-based regulatory capital levels could impact various
capital allocation decisions of one or more of our businesses. However, due to our strong current capital position, we do not
anticipate that these capital requirements will have any negative impact on our future business activities. See the section entitled
“Business - Regulation” of Item 1 of this Form 10-K for additional information.
As a financial holding company, we are regulated by the Fed. RJ Bank is also regulated by the OCC and FDIC. This oversight
includes, but is not limited to, scrutiny with respect to affiliate transactions and compliance with consumer regulations. The
economic and political environment has caused increased focus on the regulation of the financial services industry, including many
proposals for new rules. Any new rules issued by our regulators could affect us in substantial and unpredictable ways and could
have an adverse effect on our business, financial condition, and results of operations. We also may be adversely affected as a result
of changes in federal, state, or foreign tax laws, or by changes in the interpretation or enforcement of existing laws and regulations.
The SEC has proposed certain measures that would establish a new framework to replace the requirements of Rule 12b-1
under the Investment Company Act of 1940, with respect to how mutual funds collect and pay fees to cover the costs of selling
and marketing their shares. Any adoption of such measures would be phased in over a number of years. As these measures are
neither final nor undergoing implementation throughout the financial services industry, the impact of changes such as those currently
proposed cannot be predicted at this time. As this regulatory trend continues, it could adversely affect our operations and, in turn,
our financial results.
See the section entitled “Business - Regulation” within Item 1 of this Form 10-K for additional information regarding our
regulatory environment and Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in this Form 10-K regarding
our approaches to managing regulatory risk. Regulatory actions brought against us may result in judgments, settlements, fines,
penalties or other results adverse to us, which could have a material adverse affect on our business, financial condition or results
of operation.
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Index
Failure to comply with regulatory capital requirements would significantly harm our business.
We are subject to the SEC's uniform net capital rule (Rule 15c3-1) and the net capital rule of FINRA, which may limit our
ability to make withdrawals of capital from our broker-dealer subsidiaries. The uniform net capital rule sets the minimum level
of net capital a broker-dealer must maintain and also requires that a portion of its assets be relatively liquid. FINRA may prohibit
a member firm from expanding its business or paying cash dividends if resulting net capital falls below its requirements. In
addition, our Canada based broker-dealer subsidiary is subject to similar limitations under applicable regulation in that jurisdiction.
RJF and RJ Bank are subject to various regulatory and capital requirements administered by the federal banking regulators.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, RJF and RJ Bank must meet specific
capital guidelines that involve quantitative measures of RJF and RJ Bank's assets, liabilities, and certain off-balance sheet items
as calculated under regulatory accounting practices. RJF's and RJ Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components of our capital, risk weightings of assets, off-balance sheet transactions,
and other factors. Quantitative measures established by regulation to ensure capital adequacy require RJF and RJ Bank to maintain
minimum amounts and ratios of Total and Tier I Capital to risk-weighted assets and Tier I Capital to adjusted assets (as defined
in the regulations). Failure to meet minimum capital requirements can trigger certain mandatory and possibly additional
discretionary, actions by regulators that, if undertaken, could harm RJ Bank's operations and our financial condition.
Additionally, as RJF is a holding company, it depends on dividends, distributions and other payments from its subsidiaries to
fund payments of its obligations including, among others, debt service. Regulatory capital requirements applicable to some of
our significant subsidiaries may impede access to funds the holding company needs to make payments on any such obligations.
See Note 25 of the Notes to Consolidated Financial Statements in this Form 10-K for further information on regulations and
capital requirements.
RISKS RELATED TO OUR COMMON STOCK
The market price of our common stock may continue to be volatile.
The market price of our common stock has been, and is likely to continue to be, volatile and subject to fluctuations. Stocks
of financial institutions have, from time to time, experienced significant downward pressure in connection with economic conditions
or events and may again experience such pressures in the future. Changes in the stock market generally or as it concerns our
industry, as well as geopolitical, economic and business factors unrelated to us, may also affect our stock price. Significant declines
in the market price of our common stock or failure of the market price to increase could harm our ability to recruit and retain key
employees, reduce our access to debt or equity capital and otherwise harm our business or financial condition.
Our current shareholders may experience dilution in their holdings if we issue additional shares of common stock as a
result of future offerings or acquisitions where we use our common stock.
As part of our business strategy, we may seek opportunities for growth through strategic acquisitions in which we may consider
issuing equity securities as part of the consideration. Additionally, we may obtain additional capital through the public sale of
debt or equity securities. If we sell equity securities, the value of our common stock could experience dilution. Furthermore,
these securities could have rights, preferences and privileges more favorable than those of the common stock. Moreover, if we
issue additional shares of common stock in connection with equity compensation, future acquisitions, or as a result of financing,
an investor's ownership interest in our company will be diluted.
The issuance of any additional shares of common stock or securities convertible into or exchangeable for common stock or
that represent the right to receive common stock, or the exercise of such securities, could be substantially dilutive to holders of
our common stock. Holders of our shares of common stock have no preemptive rights that entitle holders to purchase their pro
rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution
to our shareholders. The market price of our common stock could decline as a result of sales or issuance of shares of our common
stock or securities convertible into or exchangeable for common stock.
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Index
Our officers, directors and employees own a substantial amount of our common stock and therefore exercise significant
control over our corporate governance and affairs, which may result in their taking actions with which other shareholders
do not agree.
As of September 30, 2012, our executive officers, directors and employees control a relatively significant portion of our
outstanding common stock (including restricted stock and exercisable stock options which they hold). These shareholders, if they
act together, may be able to exercise substantial influence over the outcome of all corporate actions requiring approval of our
shareholders, including the election of directors and approval of significant corporate transactions, which may result in corporate
action with which other shareholders do not agree. This concentration of ownership may also have the effect of delaying or
preventing a change in control that might affect the market price of our common stock, given that our articles of incorporation
require the affirmative vote of two-thirds of all shares outstanding and entitled to vote to approve any of the specified types of
business combinations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
The RJF headquarters is located on approximately 55 acres within the Carillon office park in St. Petersburg, Florida. The RJF
headquarters complex currently includes four main buildings which encompass a total of 883,000 square feet of office space, the
RJ Bank building which is a 44,000 square-foot two-story building, and two five-story parking garages. At this St. Petersburg
location, we have the ability to add approximately 490,000 square feet of new office space. We also have 30,000 square feet of
leased space near the Carillon office park. Our due diligence review is ongoing as it pertains to approximately 65 acres located
in Pasco County, Florida. We entered into an agreement during fiscal year 2011 to purchase this property, subject to the outcome
of our due diligence, to be used for potential future expansion of our office facilities in the Tampa Bay area. We also conduct
operations in Michigan from our 88,000 square-foot building on 13 acres in Southfield, Michigan. During fiscal year 2012, we
acquired a three acre parcel in the Denver, Colorado area where an approximately 40,000 square foot information technology data
center is currently under construction and expected to be operational in fiscal year 2013.
We lease offices in various locations throughout the U.S. and in certain foreign countries. Morgan Keegan's headquarters is
located in approximately 242,000 square feet of leased office space in a 21-story office building in downtown Memphis, Tennessee.
With the exception of a company-owned RJ&A branch office building in Crystal River, Florida, RJ&A and MK & Co. branches
are leased with various expiration dates through 2022. RJ Ltd. leases premises for main offices in Vancouver, Calgary and Toronto
and for branch offices throughout Canada. These leases have various expiration dates through 2026. RJ Ltd. does not own any
land or buildings. See Note 20 of the Notes to Consolidated Financial Statements in this Form 10-K for further information on
our lease commitments.
Leases for branch offices of RJFS, the independent contractors of RJ Ltd., and RJIS, are the responsibility of the respective
independent contractor financial advisors.
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Index
Item 3. LEGAL PROCEEDINGS
Pre-Closing Date Morgan Keegan matters (all of which are subject to indemnification by Regions)
In July 2006, MK & Co. and a former MK & Co. analyst were named as defendants in a lawsuit filed by a Canadian insurance
and financial services company, Fairfax Financial Holdings, and its American subsidiary in the Circuit Court of Morris County,
New Jersey. Plaintiffs made claims under a civil Racketeer Influenced and Corrupt Organizations (“RICO”) statute, for commercial
disparagement, tortious interference with contractual relationships, tortious interference with prospective economic advantage
and common law conspiracy. Plaintiffs alleged that defendants engaged in a multi-year conspiracy to publish and disseminate
false and defamatory information about plaintiffs to improperly drive down plaintiff's stock price, so that others could profit from
short positions. Plaintiffs alleged that defendants' actions damaged their reputations and harmed their business relationships.
Plaintiffs alleged a number of categories of damages they sustained, including lost insurance business, lost financings and increased
financing costs, increased audit fees and directors and officers insurance premiums and lost acquisitions, and have requested
monetary damages. These claims were never considered to be meritorious by MK & Co., but some of the claims survived an
extended motion practice and discovery process. On May 11, 2012, the trial court ruled that New York law applied to plaintiff's
RICO claims, therefore the claims were not subject to treble damages. On June 27, 2012, the trial court dismissed plaintiffs' tortious
interference with prospective relations claim, but allowed other claims to go forward. A jury trial was set to begin on September 10,
2012. Prior to its commencement the court dismissed the remaining claims with prejudice. Plaintiffs have appealed the court's
rulings.
Certain of the Morgan Keegan entities, along with Regions, have been named in class-action lawsuits filed in federal and
state courts on behalf of shareholders of Regions and investors who purchased shares of certain mutual funds in the Regions
Morgan Keegan Fund complex (the “Regions Funds”). The Regions Funds were formerly managed by Morgan Asset Management
(“MAM”), an entity which was at one time a subsidiary of one of the Morgan Keegan affiliates, but an entity which was not part
of our Morgan Keegan acquisition. The complaints contain various allegations, including claims that the Regions Funds and the
defendants misrepresented or failed to disclose material facts relating to the activities of the Funds. No class has been certified.
Certain of the shareholders in the Funds and other interested parties have entered into arbitration proceedings and individual civil
claims, in lieu of participating in the class action lawsuits.
In March 2009, MK & Co. received a Wells Notice from the SEC's Atlanta Regional Office related to ARS indicating that
the SEC staff intended to recommend that the SEC take civil action against the firm. On July 21, 2009, the SEC filed a complaint
in the United States District Court for the Northern District of Georgia (the “Court”) against MK & Co. alleging violations of the
federal securities laws in connection with ARS that MK & Co. underwrote, marketed and sold. On June 28, 2011, the Court
granted MK & Co.'s Motion for Summary Judgment, dismissing the case brought by the SEC. On May 2, 2012, the United States
Court of Appeals for the Eleventh Circuit reversed the Court's decision and remanded the case, which is scheduled for trial beginning
November 26, 2012. Beginning in February 2009, MK & Co. commenced a voluntary program to repurchase ARS that it underwrote
and sold to MK & Co. customers, and extended that repurchase program on October 1, 2009, to include certain ARS that were
sold by MK & Co. to its customers but were underwritten by other firms. On July 21, 2009, the Alabama Securities Commission
issued a “Show Cause” order to MK & Co. arising out of the ARS matter that is the subject of the SEC complaint described above.
The order requires MK & Co. to show cause why its registration as a broker-dealer should not be suspended or revoked in the
State of Alabama and also why it should not be subject to disgorgement, repurchasing all ARS sold to Alabama residents and
payment of costs and penalties.
Prior to the Closing Date, Morgan Keegan was involved in other litigation arising in the normal course of its business. On
all such matters, RJF is subject to indemnification from Regions pursuant to the terms of the SPA.
Indemnification from Regions
As more fully described in Note 3 of the Notes to the Consolidated Financial Statements in this Form 10-K, the SPA provides
that Regions will indemnify RJF for losses incurred in connection with any legal proceedings pending as of the closing date or
commenced after the closing date related to pre-closing matters. All of the pre-Closing Date Morgan Keegan matters described
above are subject to such indemnification provisions. See Note 20 of the Notes to the Consolidated Financial Statements in this
Form 10-K for additional information regarding Morgan Keegan's pre-Closing Date legal matter contingencies.
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Index
Other matters unrelated to Morgan Keegan
We are a defendant or co-defendant in various lawsuits and arbitrations incidental to our securities business, matters which
are unrelated to the pre-Closing Date activities of Morgan Keegan. We are contesting the allegations in these cases and believe
that there are meritorious defenses in each of these lawsuits and arbitrations. In view of the number and diversity of claims against
us, the number of jurisdictions in which litigation is pending and the inherent difficulty of predicting the outcome of litigation and
other claims, we cannot state with certainty what the eventual outcome of pending litigation or other claims will be. In the opinion
of management, based on current available information, review with outside legal counsel, and consideration of amounts provided
for in the accompanying consolidated financial statements with respect to these matters, ultimate resolution of these matters will
not have a material adverse impact on our financial position or cumulative results of operations. However, resolution of one or
more of these matters may have a material effect on the results of operations in any future period, depending upon the ultimate
resolution of those matters and upon the level of income for such period.
See Note 20 of the Notes to the Consolidated Financial Statements in this Form 10-K for additional information regarding
legal matter contingencies.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NYSE under the symbol “RJF.” At November 15, 2012 there were approximately 20,000
holders of our common stock. Our transfer agent is Computershare Shareowner Services LLC whose address is P.O. Box 43006,
Providence, RI 02940-3006. The following table sets forth for the periods indicated the high and low trades for our common
stock:
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal year
2012
2011
High
Low
High
Low
$
$
32.37
38.18
37.67
38.95
23.16
31.59
31.96
30.99
$
$
33.62
39.68
39.00
34.46
25.21
31.90
31.10
24.16
Cash dividends per share of common stock paid during the quarter are reflected below. The dividends were declared during
the quarter preceding their payment.
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal year
2012
2011
$
$
0.13
0.13
0.13
0.13
0.11
0.13
0.13
0.13
See Note 25 of the Notes to Consolidated Financial Statements in this Form 10-K for information regarding our intentions
for paying cash dividends and the related capital restrictions. On August 23, 2012, our Board of Directors declared a quarterly
dividend of $0.13 in cash per share of common stock which was paid on October 15, 2012.
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Index
The following table presents information on our purchases of our own stock, on a monthly basis, for the twelve month period
ended September 30, 2012:
October 1, 2011 – October 31, 2011
November 1, 2011 – November 30, 2011
December 1, 2011 – December 31, 2011
First quarter
January 1, 2012 – January 31, 2012
February 1, 2012 – February 29, 2012
March 1, 2012 – March 31, 2012
Second quarter
April 1, 2012 – April 30, 2012
May 1, 2012 – May 31, 2012
June 1, 2012 – June 30, 2012
Third quarter
July 1, 2012 – July 31, 2012
August 1, 2012 – August 31, 2012
September 1, 2012 – September 30, 2012
Fourth quarter
Fiscal year total
Number of
shares
purchased (1)
Average price
per share
394,080
245,521
—
639,601
61,025
—
—
61,025
$
$
$
$
— $
—
—
— $
10,805
4,344
—
15,149
715,775
$
$
$
24.53
29.00
—
26.25
34.58
—
—
34.58
—
—
—
—
32.59
35.34
—
33.38
27.11
(1) We purchase our own stock in conjunction with a number of activities, each of which are described below. We do not have a formal
stock repurchase plan. As of September 30, 2012, there is $40.8 million remaining on the current authorization of our Board of Directors
for open market share repurchases.
From time to time, our Board of Directors has authorized specific dollar amounts for repurchases at the discretion of our Board’s
Securities Repurchase Committee. The decision to repurchase securities is subject to cash availability and other factors. Historically
we have considered such purchases when the price of our stock approaches 1.5 times book value. During the year ended September
30, 2012, we purchased 394,080 of our shares in open market transactions for a total of $9.7 million, or an average price of approximately
$24.53 per share.
Share purchases for the trust fund that was established and funded to acquire our common stock in the open market and used to settle
restricted stock units granted as a retention vehicle for certain employees of our wholly owned Canadian subsidiary (see Note 2 and
Note 11 of the Notes to Consolidated Financial Statements in this Form 10-K for more information on this trust fund) amounted to
254,921 shares for a total of $7.4 million, for the fiscal year ended September 30, 2012.
We also repurchase shares when employees surrender shares as payment for option exercises or withholding taxes. During the fiscal
year ended September 30, 2012, there were 66,774 shares surrendered to us by employees as payment for option exercises or withholding
taxes.
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Index
ITEM 6. SELECTED FINANCIAL DATA
Operating results:
Total revenues
Net revenues
Net income attributable to RJF
Net income per share - basic
Net income per share - diluted
Weighted-average common shares outstanding - basic
Weighted-average common and common equivalent
shares outstanding - diluted
2012
2011
Year ended September 30,
2009
2010
2008
(in thousands, except per share data)
$ 3,897,900 $ 3,399,886 $ 2,979,516
$ 3,806,531 $ 3,334,056 $ 2,916,665
228,283
$
1.83
$
1.83
$
119,335
295,869 $
2.22 $
2.20 $
278,353 $
2.20 $
2.19 $
130,806
122,448
$ 2,602,519
$ 2,545,566
$
152,750
$
$
$ 3,204,932
$ 2,812,703
$
235,078
1.25 (1) $
(1)
$
1.25
117,188 (1)
1.95 (1)
(1)
1.93
116,110 (1)
Cash dividends per common share - declared
$
0.52 $
0.52 $
0.44
$
131,791
122,836
119,592
117,288 (1)
0.44
$
117,140 (1)
0.44
Financial condition:
Total assets
Long-term debt (6)
Shareholders' equity
Shares outstanding (7)
Book value per share at end of year
Tangible book value per share at end of year (a non-
GAAP measure) (8)
662,006 $
$ 21,160,265 $ 18,006,995 $ 17,883,081
416,369
$ 1,385,514 $
$ 3,268,940 $ 2,587,619 $ 2,302,816
121,041
19.03
20.99 $
24.02 $
123,273
136,076
$
(4)(5)
(2)
(3)
$ 18,226,728
477,423
$
$ 2,032,463
118,799
17.11
$
$ 20,709,616
197,910
$
$ 1,883,905
116,434
16.18
$
$
21.42 $
20.45 $
18.49
$
16.56
$
15.64
(1) Effective for fiscal year 2010, we implemented new accounting guidance that changed the manner in which earnings per share were
computed. The new guidance requires unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) to be considered participating securities and, therefore, included in the earnings allocation in
computing earnings per share under the two-class method. Our unvested restricted shares and certain restricted stock units granted as
part of our share-based compensation are considered participating securities. To enhance comparability, the earnings per share amounts
and the weighted-average share amounts outstanding for the years prior to the effective date of the new accounting guidance have been
revised from the amounts initially reported, to reflect the amounts which would have been presented had this accounting guidance been
effective in those years.
(2) Total assets include $3.1 billion in qualifying assets, offset by $2.4 billion in overnight borrowings and $700 million in additional RJBDP
deposits to meet point-in-time regulatory balance sheet composition requirements related to RJ Bank's qualifying as a thrift institution
at such time.
(3) Total assets include $1.2 billion in U.S. Treasury securities and $2 billion in reverse repurchase agreements, offset by $2.3 billion in
additional RJBDP deposits and $900 million in overnight borrowings to meet point-in-time regulatory balance sheet composition
requirements related to RJ Bank's qualifying as a thrift institution at such time.
(4) Total assets include $1.9 billion in cash, offset by an equal amount in an overnight borrowing to meet point-in-time regulatory balance
sheet composition requirements related to RJ Bank's qualifying as a thrift institution at such time.
(5) We elect to net-by-counterparty the fair value of certain interest rate swap contracts. See Note 18 of the Notes to Consolidated Financial
Statements in this Form 10-K for additional information. As of October 1, 2008, we adopted new accounting guidance. Under the new
guidance, as we elect to net-by-counterparty the fair value of interest rate swap contracts, we must also net-by-counterparty any collateral
exchanged as part of the swap agreement. Footnoted periods presented above have been adjusted from the amounts initially reported to
reflect this change. The table below shows these adjustments.
Total assets initially reported
Adjustment arising from change in presentation of derivatives netting
Adjusted total assets
$
$
20,731,859
(22,243)
20,709,616
Year ended September 30, 2008
(in thousands)
Footnotes are continued on the following page.
33
Index
Continued from the previous page.
(6) Includes the portion of the following debt instruments which repayment is due later than twelve months from September 30 of the
respective year: our senior notes, loans payable of consolidated variable interest entities (which are non-recourse to us), Federal Home
Loan Bank (“FHLB”) advances, our mortgage loan, and the term debt of any joint venture we consolidate.
(7) Excludes non-vested shares.
(8) This non-GAAP measure is computed by dividing shareholders' equity, less goodwill and other identifiable intangible assets, net of their
related deferred tax balances (which are $8 million and $7 million as of September 30, 2012 and 2011 respectively), by the number of
shares outstanding. Management believes tangible book value per share is a measure that is useful to assess capital strength and that the
GAAP and non-GAAP measures should be considered together.
34
Index
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of our
operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, our
consolidated financial statements and accompanying notes to consolidated financial statements. Where “NM” is used in various
percentage change computations, the computed percentage change has been determined not to be meaningful.
Executive overview
Results in the investment businesses in which we operate are highly correlated to the general overall strength of economic
conditions and, more specifically, to the direction of the U.S. equity markets. Overall market conditions, interest rates, economic,
political and regulatory trends, and industry competition are among the factors which could affect us and which are unpredictable
and beyond our control. These factors affect the financial decisions made by investors, including their level of participation in
the financial markets. They also impact the level of public offerings, trading profits and asset valuations. In turn, these decisions
affect our business results.
Year ended September 30, 2012 compared with the year ended September 30, 2011
On April 2, 2012, we completed our acquisition of Morgan Keegan from Regions. This acquisition expands both our private
client and our capital markets businesses. Morgan Keegan brings to us a strong private client business, one of the industry’s top
fixed income and public finance groups, and a significant equity capital markets division. Headquartered in Memphis with 57 full-
service offices in 20 states, Morgan Keegan had approximately 3,100 employees and over 900 financial advisors as of the date of
our purchase, 892 of whom have been retained as of September 30, 2012. While an addition of this size is a departure from our
focus on organic growth supplemented by individual hires and small acquisitions, it is not a departure from our overall strategy.
We have used strategic mergers to grow throughout our history when the timing and pricing were right and, most importantly,
when there was a strong cultural fit and clear path for integration. With the addition of Morgan Keegan, we are one of the country’s
largest wealth management and investment banking firms, affording us even greater ability to support our financial advisors and
retail and institutional clients.
Our fiscal year 2012 results include six months of Morgan Keegan results, and therefore comparisons to prior years are not
necessarily meaningful for many of our key financial and operating metrics. Furthermore, integration of both equity and fixed
income capital markets began immediately following the Closing Date which precludes the determination of legacy Morgan
Keegan results in those areas. We continue to execute our integration plans; our plan is to migrate all the private client financial
advisors and client accounts off of the Morgan Keegan platforms and fully integrate those operations onto our RJ&A platform
during the second quarter of fiscal year 2013.
Despite the somewhat challenging market conditions during the fiscal year, most of our businesses performed relatively well
as we accomplished record annual net revenue and net income levels. Our net revenues of $3.8 billion represent a 14% increase
compared to the prior year. Excluding net revenues estimated to be attributable to the addition of Morgan Keegan, net revenues
increased 2% compared to the prior year. All of our segments realized increased revenues over the prior year with the exception
of our Emerging Markets segment. Total client assets under administration increased to $390 billion, a 52% increase as compared
to the prior year. Approximately $85 billion of the client assets under administration total are associated with legacy Morgan
Keegan branches. Our Private Client Group and Capital Markets segments benefited significantly from the acquisition of Morgan
Keegan. Non-interest expenses increased $455 million, or 16%, from the prior year primarily due to the addition of Morgan
Keegan. The current year non-interest expenses include $59 million of acquisition and integration related costs we incurred
specifically associated with the Morgan Keegan acquisition, while the prior year includes $41 million pertaining to a nonrecurring
loss on auction rate securities repurchased. The bank loan loss provision decreased $8 million from the prior year reflecting the
overall improvement in the credit markets over that period.
Inclusive of the impact of the acquisition of Morgan Keegan, our pre-tax income increased $10 million, or 2%, while our net
income increased $18 million, or 6%, as compared to the prior year. After consideration of the acquisition related expenses we
incurred and the $2 million of incremental interest expense we incurred as part of the pre-Closing Date execution of our Morgan
Keegan purchase financing strategies, we generated adjusted pre-tax income of $533 million (a non-GAAP measure) for the current
year. After adjusting the prior year for the effect of the prior year nonrecurring loss on auction rate securities repurchased, we
generated adjusted pre-tax income of $503 million (a non-GAAP measure), reflecting an increase in adjusted pre-tax income (a
non-GAAP measure) of $30 million, or 6%, as compared to the prior year.
35
Index
Our financial results during the year were most significantly impacted by:
• RJ Bank generated a $67 million, or 39%, increase in pre-tax income over the prior year to a record $240 million. The
increase primarily resulted from an increase in net interest revenues resulting from higher average loan balances while
maintaining the net interest spread at a level consistent with the prior year, and a lower loan loss provision resulting
primarily from improved credit characteristics both in our loan portfolio and in the markets as a whole.
• Our Private Client Group segment generated net revenues of $2.5 billion, a 13% increase over the prior year. Pre-tax
income of $210 million represents a 4% decrease compared to the prior year. The increase in revenues is in large part
due to our acquisition of Morgan Keegan and the high levels of retention of the Morgan Keegan financial advisors since
the acquisition Closing Date. Client assets under administration of the Private Client Group increased 44% at September
30, 2012 as compared to the prior year, to $368 billion, which is a result of both the assets brought on by Morgan Keegan
branches and 18% growth in legacy RJF private client assets. The current year's pre-tax income was negatively impacted
by a significant increase in our technology costs resulting from system enhancements to existing platforms and projects
which address numerous regulatory requirements.
• The Capital Markets segment realized a $5 million, or 6%, increase in pre-tax income despite very challenging equity
capital markets conditions throughout the year. As a result of our Morgan Keegan acquisition, we realized substantially
increased fixed income institutional sales commissions as well an increase in trading profits compared to the prior
year. Our acquisition of Morgan Keegan provides us with significantly increased scale in the capital markets industry,
primarily as it pertains to fixed income operations and public finance. Weakness in the equity capital markets throughout
the year significantly impacted both our institutional equity sales commission levels as well as our securities underwriting
revenues. A decrease in current year equity capital markets activity in Canada, which had a particularly strong prior year,
also had a significant negative impact on our current year segment results.
• Our Asset Management segment generated $67 million of pre-tax income, a 2% increase compared to the prior year. Assets
under management increased to record levels as of September 30, 2012. Net inflows of client assets, including assets of
Morgan Keegan clients, and appreciation in the market values of assets drove the increase.
• A $15 million, or 247%, increase in the pre-tax income (after consideration of the attribution to noncontrolling interests)
generated by our Proprietary Capital segment was the result of positive valuation adjustments of certain of our investments.
• Our Emerging Markets segment generated a $7 million pre-tax loss in the current year, a $12 million decrease from the
prior year segment pre-tax income. Net revenues in this segment decreased by $19 million, or 45%, due to a decrease
in investment banking revenues caused in part by the volatility and a reduced level of capital markets activity in the global
markets, as well as regulatory changes in certain countries, which had a negative impact on this segments results.
• We incurred acquisition and integration related costs in the current year associated with the Morgan Keegan acquisition
of $59 million. We anticipate incurring additional acquisition and integration costs of approximately $40 million in fiscal
year 2013 as we continue to execute our integration plans.
• Our effective tax rate decreased to 37.3% from the prior year rate of 39.7%, primarily resulting from gains realized in
the current year (as compared to losses in the prior year) on our company-owned life insurance investments, which are
not subject to tax.
During January 2012, RJF’s application to become a bank holding company and a financial holding company was approved
by the Fed and RJ Bank’s conversion to a national bank was approved by the OCC. These changes became effective February 1,
2012. This status better represents the way RJ Bank has been conducting its business.
With regard to regulatory changes that could impact our businesses, based on our review of the Dodd-Frank Act, and because
of the nature of our businesses and our business practices, we presently do not expect the legislation to have a significant impact
on our operations. However, because many of the regulations will result from further studies and are yet to be adopted by various
regulatory agencies, the impact on our businesses remains uncertain.
36
Index
Year ended September 30, 2011 compared with the year ended September 30, 2010
Our net revenues improved by $417 million, or 14%, to a record $3.3 billion for the year ended September 30, 2011 as
compared to the prior year. Non-interest expenses increased $323 million, or 13%, to $2.9 billion, driven primarily by higher
variable compensation costs resulting from the increase in commissions, investment banking revenues, and overall firm profitability
and the $41 million loss on ARS repurchased, partially offset by a $47 million, or 58%, decrease in the bank loan loss provision.
We generated record net income of $278 million, a $50 million, or 22%, improvement over the prior year period. Excluding the
loss on ARS repurchased, net of its associated income tax effect, net income would have been $303 million, a 33% increase over
the prior year level (a non-GAAP measure).
Our financial results during the year were most significantly impacted by:
• A $58 million, or 36%, increase in the pre-tax income of our PCG segment. This increase resulted from a combination
of favorable factors, including the increased activity levels of our private clients due to an improved level of confidence
in the equity markets for the first three quarters of the fiscal year, and our continued realization of the benefits of our
active recruiting in recent years as evidenced by record financial advisor productivity.
• A $61 million, or 54%, increase in the pre-tax income generated by RJ Bank. This increase primarily resulted from
a significantly lower loan loss provision related to the improved credit quality of our loan portfolio.
• A $19 million, or 41%, increase in pre-tax income generated by our Asset Management segment. Assets under
management increased steadily during the first three quarters of the fiscal year resulting from both increased valuations
in the equity markets and the net inflows of client assets. During the fourth quarter, equity markets declined which
impacted year end asset levels. However, net inflows for the year were strong, and even though the 4th quarter equity
market decline led to a flat twelve month equity market, year over year assets under management increased 7%.
• A $6 million, or 7%, decrease in the pre-tax income of our Capital Markets segment. Investment banking revenues
in fiscal year 2011 increased over the prior year; however, results were significantly impacted by decreases in trading
profits primarily associated with fixed income securities, decreases in fixed income institutional sales commissions
resulting from the unsettled financial markets, especially during the last two quarters of this fiscal year. Further,
expenses increased as we made efforts to expand our capital markets business, including the acquisition of Howe
Barnes Hoefer and Arnett, Inc. (“Howe Barnes”).
• Our effective tax rate increased to 39.7% from the prior year rate of 36.9%, primarily resulting from an increase in
the average state tax rate component of this blended rate, an increase in certain expenses during the fiscal year which
are not deductible for tax purposes, including losses on our company-owned life insurance, and a decrease in the
amount of tax credits we realized from our ownership interest in certain low-income housing tax credit partnerships.
• A pre-tax $41 million loss on ARS repurchased.
In April, 2011 we completed our acquisition of Howe Barnes. This acquisition reflects our growth strategy to expand both
our capital markets and our private client presence in strategic markets. As of the end of our fiscal year the successful integration
of the primary businesses of Howe Barnes into our operations has been completed.
In April, 2011 we completed a sale of $250 million of 4.25% senior notes, due April 2016. With our resultant liquidity, we
believe we are well positioned to execute our growth strategies in each of our core businesses.
In June, 2011 we settled the ARS matter with various regulatory agencies by offering to repurchase certain ARS from our
clients, or former clients. As of September 30, 2011, we had purchased $245 million par value ARS from current or former clients
as a result of this settlement. Prior to September 30, 2011, $16 million of the repurchased ARS were redeemed at par by their
issuer. We believe that even though the $41 million pre-tax loss on auction rate securities repurchased was significant, the resolution
of the ARS matter was in the best interest of our clients and the firm.
37
Index
Segments
The following table presents our consolidated and segment gross revenues and pre-tax income, excluding noncontrolling
interests, for the years indicated:
2012
Year ended September 30,
2011
(in thousands)
2010
Total company
Revenues
Pre-tax income excluding noncontrolling interests
$
3,897,900
471,525
$
3,399,886
461,247
$
2,979,516
361,908
Private Client Group
Revenues
Pre-tax income
Capital Markets
Revenues
Pre-tax income
Asset Management
Revenues
Pre-tax income
RJ Bank
Revenues
Pre-tax income
Emerging Markets
Revenues
Pre-tax (loss) income
Securities Lending
Revenues
Pre-tax income
Proprietary Capital
Revenues
Pre-tax income (loss)
Other
Revenues
Pre-tax loss
Intersegment eliminations
Revenues
2,475,190
210,432
2,185,990
218,811
1,903,101
160,470
796,941
82,805
664,276
77,990
591,949
84,236
237,224
67,241
226,511
66,176
196,817
46,981
345,693
240,158
281,992
172,993
276,770
112,009
23,911
(7,050)
9,480
4,659
48,875
15,232
43,184
4,531
6,432
1,488
16,805
4,391
16,639
(5,446)
8,837
2,721
17,029
1,728
11,800
(141,952)
10,524
(85,133)
8,056
(40,791)
(51,214)
(35,828)
(39,682)
38
Index
Net interest analysis
We have certain assets and liabilities, not only held in our RJ Bank segment but also held in our PCG and Capital Markets
segments, which are subject to changes in interest rates; these changes in interest rates have an impact on our overall financial
performance. Given the relationship of our interest sensitive assets to liabilities held in each of these segments, an increase in
short-term interest rates would result in an overall increase in our net earnings (we currently have more assets than liabilities with
a yield that would be affected by a change in short-term interest rates). A gradual increase in short-term interest rates would have
the most significant favorable impact on our PCG and RJ Bank segments. The actual amount of any benefit would be dependent
upon a variety of factors including, but not limited to, the change in balances, the rapidity and magnitude of the increase in rates,
and the interest rates paid on client cash balances.
The following table presents average balance data and interest income and expense data, as well as the related net interest
income:
2012
Average
balance(1)
Interest
inc./exp.
Average
yield/
cost
Year ended September 30,
2011
2010
Average
balance(1)
Interest
inc./exp.
($ in thousands)
Average
yield/
cost
Average
balance(1)
Interest
inc./exp.
Average
yield/
cost
$ 1,858,481
$ 60,104
3.23% $ 1,495,931
$ 52,361
3.50% $ 1,355,665
$ 46,650
3.44%
2,908,170
7,900
0.27%
2,099,190
8,424
0.40%
1,861,977
7,685
0.41%
7,501,832
319,211
4.26%
6,291,748
270,057
4.29%
6,439,827
257,988
4.01%
659,053
764,365
577,879
2,255,213
$ 16,524,993
9,076
20,977
9,110
26,880
$ 453,258
402,229
1.38%
598,155
2.74%
649,529
1.58%
1.19%
2,176,299
2.74% $ 13,713,081
10,815
20,549
6,035
24,077
$ 392,318
529,056
2.69%
553,142
3.44%
671,692
0.93%
1.11%
1,558,928
2.86% $ 12,970,287
17,846
18,146
8,448
14,129
$ 370,892
3.37%
3.28%
1.26%
0.91%
2.86%
$ 4,364,095
8,032,768
2,213
9,484
0.05% $ 3,456,009
6,967,727
0.12%
$
3,422
12,543
0.10% $ 2,958,026
6,882,537
0.18%
$
3,688
16,053
0.12%
0.23%
173,458
163,262
314,975
877,066
2,437
1,976
5,915
58,523
1.40%
1.21%
1.88%
6.67%
162,616
224,306
133,216
473,112
3,621
1,807
3,969
31,320
2.23%
0.81%
2.98%
6.62%
111,474
223,646
144,809
299,953
2,176
3,530
6,099
26,091
88,762
282,359
$ 14,296,745
5,032
5,789
$ 91,369
105,509
5.67%
2.05%
61,717
0.64% $ 11,584,212
6,049
3,099
$ 65,830
81,294
5.73%
5.02%
96,344
0.57% $ 10,798,083
4,457
757
$ 62,851
$ 361,889
$ 326,488
$ 308,041
1.95%
1.58%
4.21%
8.70%
5.48%
0.79%
0.58%
Interest-earning assets:
Margin balances
Assets segregated
pursuant to
regulations and other
segregated assets
Bank loans, net of
unearned income (2)
Available for sale
securities
Trading instruments(3)
Stock loan
Other(3)
Total
Interest-bearing
liabilities:
Brokerage client
liabilities
Bank deposits (2)
Trading instruments
sold but not yet
purchased(3)
Stock borrow
Borrowed funds
Senior notes
Loans payable of
consolidated variable
interest entities(3)
Other(3)
Total
Net interest
income
(1) Represents average daily balance, unless otherwise noted.
(2) See Results of Operations – RJ Bank in this MD&A for further information.
(3) Average balance is calculated based on the average of the end of month balances for each month within the period.
39
Index
Year ended September 30, 2012 compared with the year ended September 30, 2011 – Net Interest Analysis
Net interest income increased $35 million, or 11%, as compared to the prior year. Net interest income is earned primarily by
our PCG and RJ Bank segments, which are discussed separately below.
Net interest income in the PCG segment increased $10 million, or 15%, despite the impact of more client assets entering our
multi-bank sweep program, which pays a fee in lieu of interest. The increase was primarily the result of an increase in client
margin balances, a portion of which resulted from the addition of the balances associated with Morgan Keegan clients.
RJ Bank’s net interest income increased $51 million, or 19%, primarily as a result of an increase in average loans
outstanding. Refer to the discussion of the specific components of RJ Bank’s net interest income in the RJ Bank section of this
MD&A.
Interest income earned on our available for sale securities portfolio decreased due to significantly lower yields on the portfolio
as compared to the prior year. The average balance of the portfolio increased primarily as a result of the ARS we repurchased
during the quarter ended September 30, 2011 (refer to the discussion of the prior year ARS settlement in the Other segment section
of this Management's Discussion and Analysis) as well as the ARS we acquired in the Morgan Keegan transaction (see Note 3 of
the Notes to Consolidated Financial Statements in this Form 10-K). The yield on ARS is significantly lower than the yield on
historical available for sale securities. In addition, the yield on the portion of the portfolio that is not invested in ARS decreased
substantially. The result is a substantially lower weighted-average yield on available for sale securities as compared to the prior
year.
Interest expense on our senior notes increased approximately $27 million over the prior year. The increase is primarily
comprised of $21 million of interest expense resulting from our March 2012 issuance of $350 million 6.9% senior notes and $250
million 5.625% senior notes; and $6 million of additional interest expense in the current year associated with our April 2011
issuance of $250 million 4.25% senior notes. Both of the March 2012 debt offerings were part of our financing activities associated
with funding the Morgan Keegan acquisition which closed on April 2, 2012.
Year ended September 30, 2011 compared with the year ended September 30, 2010 – Net Interest Analysis
Net interest income for the year ended September 30, 2011 increased by $18 million, or 6%, as compared to the prior year.
Net interest income is earned primarily by our PCG and RJ Bank segments, which are discussed separately below. In addition to
the activity in those segments, our net interest income was negatively impacted during the year ended September 30, 2011 by the
$5 million of interest expense associated with our April 2011 issuance of $250 million of 4.25% senior notes.
Net interest income in the PCG segment increased $12 million, or 21%, resulting primarily from increased client margin
balances and slightly higher interest rates thereon. Interest earned in our Canadian operations increased due to an increase in both
interest rates and the balance of segregated assets.
RJ Bank's net interest income for the year increased $12 million, or 5%, primarily resulting from an increase in net interest
margin inclusive of the $6 million first quarter correction of an accumulated interest income understatement in prior years related
to purchased residential mortgage loan pools. Refer to the discussion of the specific components of RJ Bank's net interest income
in the RJ Bank section of this MD&A.
40
Index
Results of Operations – Private Client Group
The following table presents consolidated financial information for our PCG segment for the years indicated:
Revenues:
Securities commissions and fees:
Equities
Fixed income products
Mutual funds
Fee-based accounts
Insurance and annuity products
New issue sales credits
Sub-total securities commissions and fees
Interest
Account and service fees:
Client account and service fees
Mutual fund and annuity service fees
Client transaction fees
Correspondent clearing fees
Account and service fees – all other
Sub-total account and service fees
Other
Total revenues
Interest expense
Net revenues
Non-interest expenses:
Sales commissions
Admin & incentive compensation and benefit costs
Communications and information processing
Occupancy and equipment
Business development
Clearance and other
Total non-interest expenses
Income before taxes and including noncontrolling
interests
Noncontrolling interests
Pre-tax income excluding noncontrolling
interests
Margin on net revenues
$
2012
377,483
79,074
473,154
764,688
289,614
72,209
2,056,222
86,756
148,503
136,514
21,547
2,812
219
309,595
22,617
2,475,190
9,063
2,466,127
1,491,286
418,871
113,851
95,476
65,503
70,708
2,255,695
210,432
—
% change
Year ended September 30,
2011
($ in thousands)
% change
36 % $
31 %
3 %
12 %
11 %
(4)%
13 %
14 %
20 %
24 %
(37)%
(19)%
2 %
14 %
9 %
13 %
4 %
13 %
12 %
22 %
62 %
24 %
18 %
(12)%
15 %
(4)%
276,562
60,193
458,555
685,672
261,045
75,590
1,817,617
76,237
123,277
110,281
34,162
3,454
215
271,389
20,747
2,185,990
8,741
2,177,249
1,332,207
343,097
70,369
77,099
55,538
80,468
1,958,778
218,471
(340)
10 % $
(13)%
9 %
24 %
11 %
26 %
15 %
21 %
4 %
35 %
(9)%
2 %
26 %
13 %
55 %
15 %
22 %
15 %
14 %
11 %
17 %
— %
13 %
13 %
13 %
37 %
2010
251,820
68,867
419,262
551,107
234,474
59,841
1,585,371
63,128
118,233
81,990
37,440
3,390
170
241,223
13,379
1,903,101
7,194
1,895,907
1,168,055
310,184
59,974
77,349
49,126
71,263
1,735,951
159,956
(514)
$
210,432
(4)% $
218,811
36 % $
160,470
8.5%
10.0%
8.5%
41
Index
The following table presents a summary of Private Client Group financial advisors as of the end of the fiscal year indicated:
RJ&A
MK & Co. (2)
RJFS
RJ Ltd.
RJIS
Total financial advisors
Employees
1,335
892
—
198
—
2,425
Independent
contractors
—
—
3,225
275
66
3,566
Investment
advisor
representatives (1)
—
—
242
—
97
339
September 30,
2012 total
September 30,
2011 total
1,335
892
3,467
473
163
6,330
1,311
—
3,430
452
157
5,350
(1) Investment advisor representatives with custody only relationships.
(2) We acquired MK & Co. during fiscal year 2012.
The following table presents a summary of Private Client Group branch locations as of the end of the fiscal year indicated:
RJ&A
MK & Co. (2)
RJFS
RJ Ltd.
RJIS
Total branch locations
Traditional
branches
Satellite
offices
Independent
contractor
branches
Investment
advisor
representative
branches (1)
September 30,
2012 total
September 30,
2011 total
180
59
—
13
—
252
48
80
581
23
—
732
—
—
1,415
86
39
1,540
—
—
95
—
34
129
228
139
2,091
122
73
2,653
221
—
2,045
117
67
2,450
(1) Investment advisor representatives with custody only relationships.
(2) We acquired MK & Co. during fiscal year 2012.
Year ended September 30, 2012 compared with the year ended September 30, 2011 – Private Client Group
Net revenues increased $289 million, or 13%. PCG pre-tax income decreased $8 million, or 4%, as compared to the prior
year. PCG’s pre-tax margin on net revenues decreased to 8.5% as compared to the prior year’s 10.0%.
The PCG business of the Morgan Keegan broker-dealer operated on its historic Morgan Keegan platform throughout this
reporting period. Our plan is to migrate all the financial advisors and client accounts off of the Morgan Keegan platform and fully
integrate those operations onto the RJ&A platform during the second quarter of fiscal year 2013.
Securities commissions and fees increased $239 million, or 13%. A significant portion of this increase results from our
acquisition of Morgan Keegan on April 2, 2012, which brought over 900 financial advisors into PCG, over 95% of whom have
been retained as of September 30, 2012. Overall, we have realized an 18.3% increase in the number of PCG financial advisors
as of September 30, 2012 as compared to September 30, 2011. Client assets under administration increased $112 billion, or 44%,
compared to the prior year end level, to $368 billion, in large part ($66 billion) as a result of the Morgan Keegan acquisition.
Equity market conditions in the U.S., while volatile during the fiscal year, were improved as compared to September 30, 2011
levels. We realized a significant increase in commissions and asset-based fees over the prior year levels. Securities commissions
and fees arising from our Canadian operations decreased 10% as compared to the prior year.
Client account and service fee revenues increased $25 million, or 20%, over the prior year. The portion of these revenues
generated from Morgan Keegan clients is $10 million. Of the remaining increase, the primary component is the result of an
increase in the fees we receive, in lieu of interest earnings, from our multi-bank sweep program; the fees increased as a result of
higher balances in the program.
42
Index
Mutual fund and annuity service fees increased $26 million, or 24%, primarily as a result of an increase in mutual fund
networking and omnibus fees, education and marketing support fees, and no-transaction fee program revenues, all of which are
paid to us by the mutual fund companies whose products we distribute. During the past year, we have been implementing a change
in the data sharing arrangements with many mutual fund companies converting from networking to an omnibus arrangement. The
fees earned from omnibus arrangements are greater than those under networking arrangements in order to compensate us for the
additional reporting requirements performed by the broker-dealer under omnibus arrangements. The largest portion of this
conversion occurred midway through the prior fiscal year. Excluding the impact of the revenues generated from Morgan Keegan
clients, these revenues increased $23 million, or 21%, as compared to the prior year. The Morgan Keegan client mutual fund
positions will be eligible for our omnibus program following conversion to the RJ&A platform.
Partially offsetting the increases in revenues described above, client transaction fees decreased $13 million, or 37%, primarily
as a result of certain mutual fund relationships converting over the past year to a no-transaction fee program and an April 2012
reduction in transaction fees associated with certain non-managed fee-based accounts. Under the mutual fund no-transaction fee
program, we receive increased fees from mutual fund companies which are included within mutual fund and annuity service fee
revenue described above, but our clients no longer pay us transaction fees on mutual fund trades within certain of our managed
programs.
While total segment revenues increased 13%, the portion that we consider to be recurring continues to increase and is
approximately 64% of total segment revenues for the year ended September 30, 2012 as compared to 61% for the prior
year. Recurring commission and fee revenues include asset based fees, trailing commissions from mutual funds, variable annuities
and insurance products, mutual fund service fees, fees earned on funds in our multi-bank sweep program, and interest. Assets in
fee-based accounts at September 30, 2012 are $103 billion, an increase of 51% as compared to the $68 billion of assets in fee-
based accounts at September 30, 2011. A portion (approximately $10 billion) of the increase in assets in fee-based accounts over
the preceding year balances resulted from the addition of the assets in the fee-based accounts of Morgan Keegan.
PCG net interest revenues increased $10 million, or 15%, primarily resulting from an increase in client margin balances.
There was a decrease in net interest earned on client cash balances as more of these funds are being swept into our multi-bank
sweep program, where a fee is earned by PCG instead of interest. A portion of the increase in client margin balances resulted
from the addition of the balances associated with Morgan Keegan clients.
Non-interest expenses increased $297 million, or 15%, over the prior year. Sales commission expense increased $159 million,
or 12%, generally consistent with the increase in commission and fee revenues. Administrative and incentive compensation
expenses increased $76 million, or 22%. The increase primarily results from increases in salaries and benefits due to increased
support staff and information technology and operations headcount arising from the addition of Morgan Keegan associates.
Communications and information processing expense increased $43 million, or 62%, primarily due to increases in information
systems costs. Computer software development costs and other information technology related costs, which include consulting
expenses, increased over $29 million as compared to the prior year as a result of various information technology enhancements
to existing platforms and additional reporting requirements, including regulatory requirements and those under omnibus
arrangements (refer to the increase in mutual fund and annuity service fee revenue arising from these arrangements discussed
above). Expenses primarily associated with the increase in our number of offices and personnel arising from the Morgan Keegan
acquisition resulted in an increase in office related expenses of $8 million.
Occupancy and equipment expense increased $18 million, or 24%, primarily due to the increase of approximately 140 branch
office locations resulting from the Morgan Keegan acquisition.
Business development expense increased $10 million, or 18%, primarily due to increases in travel and related costs, and
account transfer fees paid when a new client transfers their accounts from a competitor to us.
Partially offsetting the increases described above, clearance and other expense decreased $10 million, or 12%, resulting
primarily from favorable impacts on this segment resulting from Morgan Keegan's allocation practices which allocate certain
clearance costs to the capital markets operations.
43
Index
Year ended September 30, 2011 compared with the year ended September 30, 2010 – Private Client Group
Pre-tax income in the PCG segment increased $58 million, or 36%, for the year as compared to the prior year.
Net revenues increased $281 million, or 15%. PCG's margins were 10% of net revenues compared to 8.5% in the prior year.
Securities commissions and fees increased $232 million, or 15%, resulting from a number of favorable factors. Equity market
conditions for the first ten months of fiscal year 2011 were improved as compared to the prior year. Asset values increased for
most of the year and prior to the decline in the markets commencing in August, 2011, favorably impacting fees arising from client
assets in fee-based accounts. Total client assets under administration increased 3% as compared to the prior year end level, to
$256 billion. While our number of financial advisors increased only slightly year over year, average financial advisor productivity
reached record levels, increasing 15% over the prior year. Average financial advisor productivity increased in both our employee
and our independent contractor business models. We are realizing the benefits both from improved market conditions and from
the financial advisors that joined us during our very active 2008-2009 recruiting period.
Mutual fund and annuity service fees increased $28 million, or 35%, primarily as a result of an increase in mutual fund
networking and omnibus fees as well as education and marketing fees, both of which are earned from mutual fund and insurance
companies whose products we distribute. During the current year, we have been in the process of changing our data sharing
arrangements with many mutual fund companies from networking to an omnibus arrangement. The fees earned from omnibus
arrangements are greater than those under networking arrangements in order to compensate us for the additional reporting
requirements performed by the broker-dealer under omnibus arrangements.
Client transaction fees decreased $3 million, or 9%, primarily as a result of certain mutual fund relationships converting during
the current year to a no-transaction fee program. Under this program, we receive increased fees from mutual fund companies
which are included within mutual fund and annuity service fee revenue described above, but our clients no longer pay us transaction
fees on mutual fund trades within certain of our managed programs.
While total segment revenues increased 15%, the portion that we consider to be recurring was consistent with the prior year
at 61%. Assets in fee-based accounts at September 30, 2011 increased 11% to $67.5 billion as compared to $60.9 billion in the
prior year. Recurring commission and fee revenues include trailing commissions from mutual funds, variable annuities and
insurance products, mutual fund service fees and interest.
PCG interest revenues increased by $13 million, or 21%, resulting from an increase in client margin balances and a slight
increase in the interest rate earned on both customer reserve (segregated assets) balances and client margin balances. Interest
earned in our Canadian operations increased due to an increase in both interest rates and customer reserve balances.
Other revenues increased by $7 million, or 55%, primarily resulting from a $3 million increase in certain investments held
by our Canadian subsidiary and a $2 million increase in foreign currency gains resulting from an increase in cross currency trades
executed by our Canadian operation during the year.
Sales commission expense increased by $164 million, or 14%, directly related to the 15% increase in commission and fee
revenues. Administrative and incentive compensation expenses increased $33 million, or 11%. The increase primarily results
from annual increases in salaries and benefits and increases in incentive compensation related to the higher level of profitability.
Clearance and other expenses increased $9 million, or 12%, as compared to the prior year. The increase is primarily due to
clearance expense which is generally correlated with the increase in securities commissions and fees revenues.
44
Index
Results of Operations – Capital Markets
The following table presents consolidated financial information for our Capital Markets segment for the years indicated:
Revenues:
Institutional sales commissions:
Equity
Fixed income
Sub-total institutional sales commissions
$
Securities underwriting fees
Tax credit funds syndication fees
Mergers & acquisitions fees
Private placement fees
Trading profits
Interest
Other
Total revenues
Interest expense
Net revenues
Non-interest expenses:
Sales commissions
Admin & incentive compensation and benefit costs
Communications and information processing
Occupancy and equipment
Business development
Clearance and other
Total non-interest expenses
Income before taxes and including noncontrolling
interests
Noncontrolling interests
Pre-tax income excluding noncontrolling
interests
2012
222,696
264,747
487,443
95,486
31,693
81,242
11,005
47,115
21,744
21,213
796,941
16,203
780,738
176,344
372,007
57,003
30,295
36,593
58,365
730,607
50,131
(32,674)
% change
Year ended September 30,
2011
($ in thousands)
% change
(11)% $
111 %
30 %
(13)%
(12)%
(2)%
467 %
136 %
1 %
36 %
20 %
(2)%
21 %
38 %
16 %
27 %
30 %
6 %
42 %
23 %
(10)%
250,188
125,770
375,958
110,066
36,062
83,131
1,940
19,981
21,579
15,559
664,276
16,612
647,664
127,974
320,209
44,907
23,273
34,481
41,181
592,025
55,639
(22,351)
12 % $
(15)%
2 %
23 %
141 %
44 %
1 %
(37)%
19 %
90 %
12 %
30 %
12 %
— %
22 %
18 %
19 %
29 %
13 %
16 %
(17)%
2010
222,481
147,585
370,066
89,216
14,941
57,783
1,914
31,654
18,191
8,184
591,949
12,814
579,135
128,432
262,791
37,925
19,575
26,666
36,382
511,771
67,364
(16,872)
$
82,805
6 % $
77,990
(7)% $
84,236
Year ended September 30, 2012 compared with the year ended September 30, 2011 – Capital Markets
Pre-tax income in the Capital Markets segment increased $5 million, or 6%, as compared to the prior year.
Certain of the Capital Markets businesses of the Morgan Keegan broker-dealer we acquired on April 2, 2012 were immediately
integrated into RJ&A's operations on the date of acquisition. Other Morgan Keegan Capital Markets businesses are being integrated
into RJ&A over time. Morgan Keegan equity capital markets and fixed income operations are included in the current year results,
therefore, comparisons of our legacy capital markets operations, especially fixed income operations, to our current operations, are
not meaningful. Our plan is to have fully integrated all of the historic Morgan Keegan Capital Markets businesses into RJ&A by
the end of the second quarter of our fiscal year 2013.
The weakness in the equity capital markets negatively impacted our results. Our fixed income results reflect significant
improvement during the third and fourth quarter primarily driven by the acquisition of Morgan Keegan. The combination of our
former fixed income operations with Morgan Keegan's fixed income operations results in a combined department that is
approximately three times the size of our legacy fixed income business.
45
Index
Net revenues increased by $133 million, or 21%, primarily resulting from a $139 million, or 111%, increase in institutional
fixed income sales commissions, a $27 million, or 136%, increase in trading profits, and a $9 million increase in private placement
fees. These revenue increases were partially offset by a $27 million, or 11%, decrease in institutional equity sales commissions,
a $15 million, or 13%, decrease in underwriting fees, and a $4 million, or 12%, decrease in tax credit fund syndication fees.
Lingering concerns over the EU debt crisis and the U.S. economy had a negative impact on the capital markets for most of the
current fiscal year. Fixed income sales commissions increased over the prior year primarily due to the increased size of our fixed
income operations. Despite the increase in underwriting fees arising from the acquired Morgan Keegan fixed income public
finance operations of $23 million, our total underwriting fees decreased. Although equity market levels at the end of the current
year finished at higher levels than the prior year, the market for public offerings during the year has been erratic. The number of
lead and co-managed underwritings during the current year increased in our U.S. operations and decreased significantly in our
Canadian operations. The prior year was a particularly strong year for our Canadian equity capital markets operations but market
conditions in the industries in which they are concentrated (energy and mining) have slowed significantly since last year. Our tax
credit fund syndication subsidiary sold approximately $596 million in tax credit fund equity investments to investors during the
year, a decrease compared to the record volume of $616 million sold in the prior year.
Trading profits for the current year increased $27 million, or 136%, as compared to the prior year. The year over year increase
results in part from the acquisition of Morgan Keegan, as trading profits arise primarily from fixed income products. After our
acquisition of Morgan Keegan, we have more fixed income trading professionals then we had prior to the acquisition, providing
us a greater platform from which to generate trading profits. To support the increased number of trading professionals, our
inventories of fixed income products has also increased.
Non-interest expenses increased $139 million, or 23%, over the prior year primarily driven by the addition of the Morgan
Keegan fixed income operations. Sales commission expense increased $48 million, or 38%, which is directly correlated to the
increase in overall institutional sales commission revenues of 30%, and includes the shift to a higher percentage of fixed income
sales. Administrative and incentive compensation and benefit expense increased $52 million, or 16%, primarily driven by the
significant increase in personnel resulting from the Morgan Keegan acquisition, a full year of consolidation of RJES which became
effective when we acquired a controlling interest in that subsidiary in April, 2011, and to a lesser extent, the annual increase in
salary and benefits costs. The increase in clearance and other expense primarily resulted from an increase of approximately $15
million in clearance expenses arising from the larger combined fixed income operations, Morgan Keegan's allocation methodology,
and $2 million of expense in the current year arising from the amortization of various intangible assets which arose as a result of
the Morgan Keegan acquisition.
Noncontrolling interests represent the impact of consolidating certain low-income housing tax credit funds, which also impacts
other revenue, interest expense, and other expenses within this segment (see Note 11 of the Notes to Consolidated Financial
Statements in this Form 10-K for further details) as well as the impact of our consolidation of RJES, and reflects the portion of
these consolidated entities which we do not own. Total segment expenses attributable to noncontrolling interest increased by
approximately $10 million as compared to the prior year.
Year ended September 30, 2011 compared with the year ended September 30, 2010 – Capital Markets
Pre-tax income in the Capital Markets segment decreased $6 million, or 7%, for the year as compared to the prior year.
Net revenues increased by $69 million, or 12%, primarily resulting from a $28 million, or 12%, increase in institutional
equity sales commissions, a $25 million, or 44%, increase in merger and acquisition fees, a $21 million, or 23%, increase in
underwriting fees, and a $21 million, or 141%, increase in tax credit fund syndication fees, all of which were partially offset by
a $22 million, or 15%, decrease in institutional fixed income commissions and a $12 million, or 37% decrease in trading profits.
During recent years we have increased the number of capital markets professionals in both our fixed income and our equity capital
markets operations. Our increased revenues in the current year reflect the realization of the benefits of those successful efforts in
addition to improved equity markets for most of the year.
The increase in institutional equity sales commissions as compared to the prior year is due to a number of favorable factors
including favorable equity market conditions for the first ten months of the fiscal year. The decrease in fixed income institutional
sales commissions resulted primarily from a flat yield curve and the low interest rate environment.
46
Index
Both lead and co-managed underwritings in our U.S. and Canadian operations increased during the first nine months of the
fiscal year. However, market conditions in the fourth quarter were such that IPO activity was non-existent and secondary offering
volumes slowed. Even with little fourth quarter activity, we ended the year with increases over the prior year in lead-managed
underwritings arising from both our U.S. and our Canadian operations. The number of co-managed underwritings arising from
our Canadian operations increased 32% while co-managed underwritings from our U.S. operations decreased 4%, as compared
to the prior year.
The increase in merger and acquisition fees resulted primarily from increases in our business services, technology, energy,
consumer and retail, and transportation and industrial growth business sectors. The increase in tax credit fund syndication fees
resulted from a 66% increase in the volume of tax credit fund equity investments sold to investors, to $616 million from $371
million in the prior year.
The decrease in trading profits from the prior year is primarily related to fixed income products, and to a lesser extent, an
increase in facilitation losses from our equity market making activities. Trading profits for the first nine months of the year were
relatively strong in what was for the most part unsettled fixed income markets caused by issues during that period such as those
related to the U.S. debt ceiling. The increased levels of uncertainty in the markets resulting from solvency problems in several
European countries during the fourth quarter resulted in us generating a net trading loss during that period. In addition, the
facilitation losses increased due to the fourth quarter decline in the equity markets.
Other revenues increased $7 million, or 90%, primarily resulting from increases in revenues and the avoidance of certain
losses incurred in the prior year, associated with our tax credit fund syndication activities.
Non-interest expenses increased $80 million, or 16%. Administrative and incentive compensation expense increased $57
million, or 22%, as a result of a number of factors including the incremental growth in the number of fixed income investment
bankers, an increase in equity capital markets investment bankers in part arising from the Howe Barnes acquisition, increases in
incentive compensation as a result of the increased revenues of the segment, increased expenses resulting from the consolidation
of RJES, and certain one-time expenses incurred during the current year as a result of the Howe Barnes acquisition. Business
development expense increased $8 million, or 29%, with increases in both our domestic and Canadian capital markets groups
reflecting our efforts to expand these businesses in light of what had been improving market outlooks for the better part of fiscal
year 2011.
Noncontrolling interests reflect the impact of consolidating certain low-income housing tax credit funds, which impact other
revenue, interest expense, and other expenses within this segment (see Note 11 of the Notes to Consolidated Financial Statements
in this Form 10-K for further details) as well as the impact of RJES, initially consolidated in the June 2011 quarter. Noncontrolling
interests reflect the portion of these businesses that we do not own.
47
Index
Results of Operations – Asset Management
The following table presents consolidated financial information for our Asset Management segment for the years indicated:
2012
% change
% change
2010
Year ended September 30,
2011
($ in thousands)
Revenues:
Investment advisory fees
Other
Total revenues
Expenses:
$
198,369
38,855
237,224
5 % $
3 %
5 %
188,817
37,694
226,511
21 % $
(7)%
15 %
156,266
40,551
196,817
Admin & incentive compensation and benefit costs
Communications and information processing
Occupancy and equipment
Business development
Investment sub-advisory fees
Other
Total expenses
Income before taxes and including noncontrolling
interests
Noncontrolling interests
Pre-tax income excluding noncontrolling
interests
81,418
16,378
3,536
7,885
26,563
33,353
169,133
68,091
850
6 %
7 %
(4)%
7 %
(4)%
17 %
6 %
1 %
76,594
15,307
3,670
7,365
27,606
28,392
158,934
67,577
1,401
10 %
(16)%
(6)%
18 %
12 %
10 %
7 %
41 %
69,931
18,116
3,904
6,254
24,701
25,840
148,746
48,071
1,090
$
67,241
2 % $
66,176
41 % $
46,981
The following table reflects financial assets under management in managed programs that significantly impact segment results
at the dates indicated:
September 30,
2012
June 30,
2012
September 30,
2011
(in millions)
June 30,
2011
September 30,
2010
Assets under management:
Eagle Asset Management, Inc.
Raymond James Consulting Services
Unified Managed Accounts
Freedom Accounts & other managed
programs
$
Sub-total assets under
management
Less: Assets managed for affiliated
entities
Sub-total net assets under
management
Morgan Keegan managed fee-based
assets (1)
Total assets under management $
$
19,986
9,443
2,855
11,884
44,168
$
19,284
9,041
2,578
11,138
42,041
$
16,092
8,356
1,677
9,523
35,648
$
18,745
9,215
1,653
10,678
40,291
15,567
8,458
735
8,791
33,551
(4,185)
(3,943)
(3,579)
(3,668)
(3,544)
39,983
38,098
32,069
36,623
2,801
42,784
$
2,798
40,896
$
—
32,069
$
—
36,623
$
30,007
—
30,007
(1) All revenues generated since the Closing Date of the acquisition from assets in Morgan Keegan managed fee-based programs are included
in the PCG segment.
The majority of the revenue for this segment is generated by the investment advisory fees related to asset management services
for individual investment portfolios, mutual funds and managed programs. Asset balances are impacted by both the performance
of the market and the new sales and redemptions of client accounts/funds. Rising markets positively impact revenues from
investment advisory fees as existing accounts increase in value, and individuals and institutions typically commit incremental
funds in rising markets. As of September 30, 2012, approximately 82% of investment advisory fees recorded in this segment are
earned from assets held in managed programs. Of these revenues, approximately 55% of our investment advisory fees recorded
in a quarter are determined based on balances at the beginning of a quarter, approximately 25% are based on balances at the end
of the quarter and the remaining 20% are computed based on average assets throughout the quarter.
48
Index
The following table reflects assets under management in non-managed programs that significantly impact segment results at
the dates indicated:
September 30,
2012
June 30,
2012
September 30,
2011
(in millions)
June 30,
2011
September 30,
2010
Passport
Ambassador
Other non-managed fee-based assets
$
Sub-total assets under
management
Morgan Keegan non-managed fee-based
assets (1)
$
30,054
17,826
3,153
51,033
6,772
$
28,015
16,620
2,500
47,135
6,339
$
24,008
13,555
2,196
39,759
—
$
25,830
14,283
2,445
42,558
—
22,708
10,479
2,023
35,210
—
Total assets under management
$
57,805
$
53,474
$
39,759
$
42,558
$
35,210
(1) All revenues generated since the Closing Date of the acquisition from assets in Morgan Keegan non-managed fee-based programs are
included in the PCG segment.
As of September 30, 2012, approximately 18% of investment advisory fees recorded in this segment are earned from assets
held in non-managed programs and all such investment advisory fees are determined based on balances at the beginning of the
quarter.
Subsequent to year end, we announced the execution of a definitive agreement to purchase a substantial minority interest in
ClariVest Asset Management, LLC (“ClariVest”), an acquisition which will bolster our platform in the large-cap strategy space.
ClariVest, manages more than $3 billion in client assets and currently markets its investment services to corporate and public
pension plans, foundations, endowments and Taft-Hartley clients worldwide. We expect to consolidate the financial results of
ClariVest as a result of certain protective rights we will have under the operating agreement with ClariVest after the transaction
closes. In addition, a put and call agreement to be entered into at closing would provide Eagle with various paths to majority
ownership, the timing of which would depend upon the financial results of ClariVest's business and the tenure of existing ClariVest
management. We expect to close on this transaction, which is not material to our overall financial condition, around the end of
calendar 2012.
Year ended September 30, 2012 compared to the year ended September 30, 2011 – Asset Management
Pre-tax income in the Asset Management segment increased $1 million, or 2%, as compared to the prior year.
Investment advisory fee revenue increased by $10 million, or 5%, generated by an increase in assets under management. Total
legacy Raymond James assets under management in managed programs were $8.5 billion more at September 30, 2012 than they
were as of September 30, 2011, an increase of 24% (fee revenue excludes fees arising from fee-based assets in programs managed
by Morgan Keegan as the revenues associated with these activities are reflected in our PCG segment until the PCG integration
occurs in fiscal year 2013). Since the prior year, net inflows of client assets into managed programs approximated $3.5 billion
while asset values have increased by $5 billion. Despite the decrease in assets under management in non-managed programs
experienced during the fourth quarter of the prior year, resulting in lower revenue during our first quarter, assets in non-managed
programs steadily increased during the current year. As a result of the manner in which our fee revenues are computed, the increase
in assets under management experienced during the most recent September 2012 quarter will have a positive impact on our billings
for the first quarter of fiscal 2013.
Expenses increased by approximately $10 million, or 6%, resulting from a $5 million, or 6%, increase in administrative and
performance based incentive compensation, and a $5 million, or 17%, increase in other expenses. The increase in other expense
is primarily due to increases in various corporate overhead allocations to this segment, increases in the costs incurred so that certain
funds sponsored by Eagle are available as investment choices on the platforms of other broker-dealers, and an increase in the third
party expenses our Raymond James Trust subsidiary has incurred in the performance of certain of its obligations to clients.
49
Index
Year ended September 30, 2011 compared to the year ended September 30, 2010 – Asset Management
Pre-tax income in the Asset Management segment increased $19 million, or 41%, as compared to the prior year.
Investment advisory fees increased by $33 million, or 21%, from the prior year, generated by an increase in assets under
management. Assets under management in managed programs increased during the fiscal year 2011 by $2.1 billion, comprised
of $3.3 billion of new client assets net of a market value decrease of $1.2 billion. Our investment advisory fee revenues for the
year benefited from appreciation in the market values of assets in each of the first three quarters of the fiscal year, with the entire
decrease in market values occurring during the fourth quarter.
Expenses increased by $10 million, or 7%, primarily resulting from a $7 million, or 10%, increase in administrative and
incentive compensation, and a $3 million, or 12%, increase in investment sub-advisory fee expenses. Increases in incentive
compensation are highly correlated with revenues, portfolio performance and segment profitability. The investment sub-advisory
fee expense increase results from the increase in assets held in accounts managed by sub-advisors. Communications and information
processing expense decreased $3 million, or 16%, while other expense increased $3 million, or 10%, both of which result from
the utilization of a third party transfer agent for the Eagle family of mutual funds during the current year. These outsourced services
were performed internally during the prior year.
Results of Operations – RJ Bank
The following table presents consolidated financial information for RJ Bank for the years indicated:
Revenues:
Interest income
Interest expense
Net interest income
Other income (loss)
Net revenues
Non-interest expenses:
Employee compensation and benefits
Communications and information processing
Occupancy and equipment
Provision for loan losses
FDIC insurance premiums
Affiliate deposit account servicing fees
Other
Total non-interest expenses
Pre-tax income
2012
331,683
9,659
322,024
14,010
336,034
18,432
2,835
912
25,894
5,435
26,852
15,516
95,876
240,158
$
$
% change
Year ended September 30,
2011
($ in thousands)
% change
17 % $
(28)%
19 %
629 %
25 %
23 %
18 %
8 %
(23)%
(39)%
30 %
9 %
—
39 % $
284,640
13,334
271,306
(2,648)
268,658
14,968
2,402
842
33,655
8,855
20,733
14,210
95,665
172,993
2 % $
(29)%
5 %
(70)%
4 %
30 %
42 %
(4)%
(58)%
(21)%
(7)%
(21)%
(34)%
54 % $
2010
278,326
18,761
259,565
(1,556)
258,009
11,488
1,687
873
80,413
11,206
22,245
18,088
146,000
112,009
RJ Bank is a national bank, regulated by the OCC, which provides corporate, residential and consumer loans, as well as FDIC
insured deposit accounts, to clients of our broker-dealer subsidiaries and to the general public. RJ Bank is active in corporate loan
syndications and participations, and also purchases commercial loans in the secondary market. Residential mortgage loans are
originated and held for investment or sold in the secondary market. RJ Bank generates revenue principally through the interest
income earned on loans and investments, which is offset by the interest expense it pays on client deposits and on its borrowings.
50
Index
The tables below present certain credit quality trends for corporate loans and residential/consumer loans:
Net loan (charge-offs)/recoveries:
C&I loans
Commercial real estate (“CRE”) loans
Residential/mortgage loans
Consumer loans
Total
Allowance for loan losses:
Loans held for sale
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Residential/mortgage loans
Consumer loans
Total
Nonperforming assets:
Nonperforming loans:
C&I loans
CRE loans
Residential mortgage loans:
Residential mortgage loans
Home equity loans/lines
Total nonperforming loans
Other real estate owned:
CRE
Residential:
First mortgage
Home equity
Total other real estate owned
Total nonperforming assets
Total loans:
Loans held for sale, net(1)
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Net unearned income and deferred expenses
Total loans held for investment
Total loans
(1) Net of unearned income and deferred expenses.
2012
Year ended September 30,
2011
(in thousands)
2010
(10,486) $
(926)
(12,727)
(75)
(24,214) $
(458) $
(13,534)
(20,757)
(246)
(34,995) $
—
(54,053)
(29,548)
—
(83,601)
2012
As of September 30,
2011
(in thousands)
2010
— $
5
$
23
92,409
739
27,546
26,138
709
147,541
19,517
8,404
78,372
367
106,660
$
$
81,267
490
30,752
33,210
20
145,744
25,685
15,842
91,682
114
133,323
$
$
60,464
4,473
47,771
34,297
56
147,084
—
67,901
85,852
230
153,983
4,902
7,707
19,486
3,316
—
8,218
114,878
$
6,852
13
14,572
147,895
$
8,439
—
27,925
181,908
160,515
$
102,236
$
6,114
5,018,831
49,474
936,450
1,691,986
352,495
(70,698)
7,978,538
8,139,053
$
4,100,939
29,087
742,889
1,756,486
7,438
(45,417)
6,591,422
6,693,658
$
3,232,723
65,512
937,669
2,015,331
23,940
(39,276)
6,235,899
6,242,013
$
$
$
$
$
$
$
$
51
Index
Year ended September 30, 2012 compared to the year ended September 30, 2011 – RJ Bank
Pre-tax income generated by the RJ Bank segment increased $67 million, or 39%, as compared to the prior year. The
improvement in pre-tax income was primarily attributable to an increase of $67 million, or 25%, in net revenues and an $8 million,
or 23%, decrease in the provision for loan losses, offset by an $8 million, or 13%, increase in other non-interest expenses.
Net revenue was positively impacted by a $51 million increase in net interest income, $6 million less in other-than-temporarily
impaired (“OTTI”) losses on our available for sale securities portfolio, and an improvement of $8 million in foreign currency
transaction gains on Canadian dollar denominated loans in the corporate loan portfolio.
Net interest income increased $57 million over the prior year (excluding the impact of a $6 million correction recorded in
the prior year), primarily as a result of a $1.2 billion increase in average interest-earning banking assets. This increase in average
interest-earning banking assets was driven by a $1.2 billion increase in average corporate loans. While there were increases in
the Small Business Administration (“SBA”) and consumer loan portfolios as well as cash and investments, these were largely
offset by a decrease in residential mortgage loans. The yield on interest-earning banking assets of 3.61% was consistent with
3.60% in the prior year. The average loan portfolio yield was 4.20% as compared to 4.25% in the prior year. The loan portfolio
yield decreased due to a decline in the yield on the residential mortgage loan portfolio resulting from adjustable rate loans resetting
at lower rates, which offset an increase in the corporate loan portfolio yield. Average corporate loans outstanding include the
impact of the purchase of $400 million of Canadian loans on February 29, 2012. The net interest margin increased 0.07% from
the prior year to 3.50% due to a small increase in the yield on earning assets and a small decrease in the average cost of funds.
Corresponding to the increase in interest-earning banking assets, average interest-bearing banking liabilities increased $1.1 billion
to $8.1 billion.
The provision for loan losses during the year was positively impacted by a reduction in both C&I and CRE nonperforming
loans, improved credit characteristics of certain problem loans, and the reduction of the balance of residential mortgage
nonperforming loans. In addition, somewhat improved economic conditions relative to the prior year has limited the number of
new problem loans. Net loan charge-offs decreased $11 million, or 31%, to $24 million for the current year. Nonperforming loans
decreased $27 million, or 20%, compared to September 30, 2011. Corporate nonperforming loans decreased $14 million, or 33%,
and residential nonperforming loans decreased $13 million, or 14%.
The $8 million increase in non-interest expenses (excluding provision for loan losses) as compared to the prior year was
primarily attributable to a $3 million, or 23% increase in compensation and benefits related to staff additions and a $6 million
increase in affiliate deposit account servicing fees resulting from increased deposit balances.
The unrealized loss on our available for sale securities portfolio at September 30, 2012 was $17 million compared to $46
million as of September 30, 2011. This significant improvement was the result of higher market prices, despite the continued
uncertainty in the residential non-agency collateralized mortgage obligation (“CMOs”) market.
During the last week of October, 2012, the mid-Atlantic and Northeast regions of the U.S. suffered severe damage from
Hurricane Sandy and related storms. We are currently assessing the impact to our loan portfolio, if any. While we are unable to
estimate a range of loss associated with the financial impact of this weather related event at this time, once determinable, it could
have an adverse impact on our results of operations in fiscal year 2013.
Year ended September 30, 2011 compared to the year ended September 30, 2010 – RJ Bank
Pre-tax income generated by the RJ Bank segment increased $61 million, or 54%, for the year compared to the prior year.
The significant improvement in pre-tax income was attributable to a $47 million, or 58%, decrease in the provision for loan losses
and an increase of $12 million, or 5%, in net interest income.
52
Index
The increase in net interest income was primarily due to an increase of 0.12% in the net interest margin. The net interest
margin improvement for the year resulted from an increase in the loan portfolio yield from 3.97% to 4.25% due primarily to an
increase in corporate loan yields and a $6 million correction of an accumulated interest income understatement in prior years
related to purchased residential mortgage loan pools. Yields on the residential mortgage loan portfolio declined during the year
due to adjustable rate loans resetting to lower rates and the payoff of higher yielding loans in the current low interest rate environment.
Average interest-earning banking assets increased $44 million, or less than 1%, and totaled $7.8 billion at year end. An increase
in average C&I loans and significant increases in cash balances were offset by a decrease in the other loan portfolio segments.
Corresponding to the small increase in average interest-earning banking assets, average interest-bearing banking liabilities
increased less than 1% to $7 billion at year end. Continued low interest rates led to a $5 million, or 29%, decrease in interest
expense. The average cost of funds decreased from 0.27% to 0.19%. However, excluding the impact of excess RJBDP cash
balances held during the fourth quarter, the net interest margin would have increased by 0.26% over the prior year. These deposits
resulted from higher cash balances in our client accounts due to the market volatility, thus exceeding the RJBDP capacity at outside
financial institutions in the program. These deposits were invested in short term liquid investments producing very little interest
rate spread.
The provision for loan losses of $34 million for the current year was significantly lower than the $80 million in the prior year
and net loan charge-offs for the year decreased $49 million, or 58%, from $84 million to $35 million. These declines are a result
of an improvement in credit quality within the CRE portfolio, an improvement in the credit characteristics of certain problem
corporate loans, and the stabilization of the balance of residential mortgage nonperforming loans. However, unfavorable economic
conditions, including high unemployment rates, continued to have a negative impact on the residential mortgage loan portfolio.
The amount of nonperforming loans decreased $21 million, or 13%, during the year compared to the prior year. This decrease
was due to a reduction of $52 million in nonperforming CRE loans, partially offset by an increase of $26 million in C&I
nonperforming loans and an increase of $6 million in nonperforming residential mortgage loans. Other real estate owned decreased
$13 million, or 48%, to $15 million at year end due to the net sales of $12 million in CRE properties and $1 million in residential
properties.
The unrealized loss on our available for sale securities portfolio was $46 million, compared to $51 million as of the prior year
end. The unrealized loss was due to continued wide interest rate spreads across market sectors related to the continued uncertainty
in the residential non-agency CMO market. Certain securities were determined to be OTTI during the year as RJ Bank does not
expect to recover the amortized cost basis of the securities in full, and therefore an OTTI expense of $10 million was reflected in
fiscal year 2011 as a component of other loss, compared to a $12 million OTTI charge in the prior fiscal year.
53
Index
The following table presents average balance data and interest income and expense data for our banking operations, as well
as the related interest yields and rates and interest spread for the years indicated:
2012
Average
balance
Interest
inc./exp.
Average
yield/
cost
Year ended September 30,
2011
Average
balance
Interest
inc./exp.
($ in thousands)
Average
yield/
cost
Average
balance(4)
2010
Interest
inc./exp.
(4)
Average
yield/
cost(4)
Interest-earning
banking assets:
Loans, net of unearned
income(1)
Loans held for sale
Loans held for
investment:
$ 127,594
$
2,878
2.25%
$
33,354
$
881
2.64% $
39,049
$
1,256
3.22%
C&I loans
4,666,320
215,848
4.57%
3,540,449
156,934
4.39% 3,126,672
119,792
3.74%
37,802
847,774
1,734,032
88,310
5,100
35,422
57,279
2,684
7,501,832
319,211
13.27% (3)
4.11%
3.25%
2.99%
4.20%
63,650
795,841
1,740
30,369
2.70%
3.76%
80,685
972,619
1,844
32,889
1,851,516
80,007
4.27% 2,198,881
101,775
6,938
126
1.82%
21,921
432
6,291,748
270,057
4.25% 6,439,827
257,988
2.25%
3.34%
4.57%
1.97%
3.97%
—
—
—
—
—
—
171,507
147
0.09%
266,768
180,246
2,211
5,527
0.83%
3.07%
182,303
219,927
1,286
9,521
0.71%
4.33%
235,491
293,565
1,826
16,020
0.78%
5.46%
997,877
2,453
0.24%
993,167
2,619
0.26%
546,703
1,780
0.33%
125,587
2,281
1.81%
146,597
1,157
0.79%
102,387
565
0.55%
9,072,310
$ 331,683
3.61%
7,833,742
$ 284,640
3.60% 7,789,480
$ 278,326
3.55%
CRE construction
loans(2)
CRE loans
Residential
mortgage loans
Consumer loans
Total loans, net
Reverse repurchase
agreements
Agency mortgage-backed
securities (“MBS”)
Non-agency CMOs
Money market funds,
cash and cash
equivalents
FHLB stock, Federal
Reserve Bank of
Atlanta (“FRB”) stock,
and other
Total interest-
earning banking
assets
Non-interest-earning
banking assets:
Allowance for loan
losses
Unrealized loss on
available for sale
securities
Other assets
Total non-interest-
earning banking
assets
(146,263)
(38,863)
247,805
62,679
Total banking assets $ 9,134,989
(147,364)
(71,476)
231,872
13,032
$ 7,802,512
(144,436)
(42,280)
252,211
65,495
$ 7,899,237
(continued on next page)
54
Index
Interest-bearing banking
liabilities:
Deposits:
2012
Year ended September 30,
2011
Average
balance
Interest
inc./exp.
Average
yield/
cost
Average
balance
Interest
inc./exp.
Average
yield/
cost
Average
balance(4)
2010
Interest
inc./
exp.(4)
Average
yield/
cost(4)
($ in thousands)
(continued from previous page)
Certificates of deposit
$ 296,674
$ 6,501
2.19% $ 227,635
$
6,228
2.74% $ 206,137
$
6,563
3.18%
Money market, savings,
and NOW accounts (2)
7,736,094
3,060
0.04% 6,740,092
FHLB advances and other
51,834
98
0.19%
31,335
6,377
729
0.09% 6,676,400
2.30%
74,925
9,490
2,708
0.14%
3.57%
8,084,602
$ 9,659
0.12% 6,999,062
$ 13,334
0.19% 6,957,462
$ 18,761
0.27%
Total interest-bearing
banking liabilities
Non-interest-bearing
banking liabilities
76,000
Total banking liabilities
8,160,602
Total banking
shareholder’s equity
974,387
55,649
7,054,711
844,526
27,472
6,984,934
817,578
Total banking liabilities
and shareholders’
equity
Excess of interest-earning
banking assets over
interest-bearing banking
liabilities/net interest
income
Bank net interest:
Spread
Margin (net yield on
interest-earning banking
assets)
Ratio of interest-earning
banking assets to interest-
bearing banking liabilities
Return on average:
Total banking assets
Total banking shareholder's
equity
Average equity to average
total banking assets
$9,134,989
$7,899,237
$7,802,512
$ 987,708
$322,024
$ 834,680
$ 271,306
$ 832,018
$ 259,565
3.49%
3.50%
112.22%
1.69%
15.84%
10.67%
3.41%
3.43%
111.93%
1.39%
13.00%
10.69%
3.28%
3.31%
111.96%
0.90%
8.64%
10.48%
(1) Nonaccrual loans are included in the average loan balances. Payment or income received on impaired nonaccrual loans are applied to
principal. Income on other nonaccrual loans is recognized on a cash basis. Fee income on loans included in interest income for the
years ended September 30, 2012, 2011 and 2010 was $51 million, $38 million, and $35 million, respectively.
(2) Negotiable Order of Withdrawal (“NOW”) account.
(3) The CRE Construction yield for the current fiscal year was positively impacted by a loan payoff with a significant unearned discount.
Excluding the recognition of income related to this loan payoff, the yield was 7.03% for the year ended September 30, 2012.
(4) During the December 2010 quarter end, RJ Bank reclassified certain average loan balances to more closely align these balances with
its assignment of credit risk utilized within the allowance for loan losses evaluation. As a result, the average loan balances, related
interest income and the respective yield calculations presented above differ from those initially reported.
55
Index
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-
earning banking assets and liabilities, as well as changes in average interest rates. The following table shows the effect that these
factors had on the interest earned on RJ Bank's interest-earning assets and the interest incurred on its interest-bearing liabilities.
The effect of changes in volume is determined by multiplying the change in volume by the previous year's average yield/cost.
Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous year's volume.
Changes applicable to both volume and rate have been allocated proportionately.
Year ended September 30,
2012 compared to 2011
Increase (decrease) due to
Rate
Volume
2011 compared to 2010
Increase (decrease) due to
Rate
Total
Total
Volume
Interest revenue:
Interest-earning banking assets:
Loans, net of unearned income:
Loans held for sale
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans(1)
Consumer loans
Reverse repurchase agreements
Agency MBS
Non-agency CMOs
Money market funds, cash and cash equivalents
FHLB stock, FRB stock, and other
Total interest-earning banking assets
Interest expense:
Interest-bearing banking liabilities:
Deposits:
(in thousands)
$
2,489
$
(492) $
1,997
$
(183) $
(192) $
(375)
49,906
(706)
1,982
(4,673)
1,478
—
596
(1,717)
12
(166)
49,201
9,008
4,066
3,071
(11,678)
1,080
—
329
(2,277)
(178)
1,290
4,219
58,914
3,360
5,053
(16,351)
2,558
—
925
(3,994)
(166)
1,124
53,420
15,853
(390)
(5,978)
(16,077)
(295)
(147)
(412)
(4,018)
1,454
244
(9,949)
21,289
286
3,458
(12,068)
(11)
—
(128)
(2,481)
(615)
348
9,886
37,142
(104)
(2,520)
(28,145)
(306)
(147)
(540)
(6,499)
839
592
(63)
Certificates of deposit
Money market, savings and NOW accounts
FHLB advances and other
Total interest-bearing banking liabilities
Change in net interest income
$
1,889
942
477
3,308
45,893
$
(1,616)
(4,259)
(1,108)
(6,983)
11,202
$
273
(3,317)
(631)
(3,675)
57,095
$
684
91
(1,576)
(801)
(9,148) $
(1,019)
(3,204)
(403)
(4,626)
14,512
$
(335)
(3,113)
(1,979)
(5,427)
5,364
(1) Adjusted to exclude a $6 million December 2010 quarter end correction of an accumulated interest income understatement in prior periods
related to purchased residential mortgage loan pools.
56
Index
Results of Operations – Emerging Markets
The following table presents consolidated financial information of our Emerging Markets segment for the years indicated:
% change
Year ended September 30,
2011
($ in thousands)
% change
Revenues:
Securities commissions and fees
Investment banking
Investment advisory fees
Interest income
Trading profits
Other income
Total revenues
Interest expense
Net revenues
Non-interest expenses:
Compensation expense
Other expense
Total non-interest expenses
(Loss) income before taxes and including
noncontrolling interests:
Noncontrolling interests
Pre-tax (loss) income excluding noncontrolling
interests
$
2012
9,521
4,461
4,648
1,186
3,311
784
23,911
86
23,825
22,213
8,364
30,577
(6,752)
298
(26)% $
(77)%
4 %
(14)%
(22)%
52 %
(45)%
(53)%
(45)%
(15)%
(24)%
(18)%
(217)%
12,799
19,755
4,481
1,383
4,249
517
43,184
184
43,000
26,185
11,048
37,233
5,767
1,236
4,531
2010
6,677
324
4,213
337
4,657
431
16,639
244
16,395
15,077
7,699
22,776
(6,381)
(935)
92 % $
NM
6 %
310 %
(9)%
20 %
160 %
(25)%
162 %
74 %
43 %
63 %
190 %
$
(7,050)
(256)% $
183 % $
(5,446)
The Emerging Markets segment includes the results from our joint ventures in Latin America including Argentina, Uruguay
and Brazil. Subsequent to year end we ceased our operations in Brazil; this is not expected to have a material impact on our
financial results.
Year ended September 30, 2012 compared to the year ended September 30, 2011 – Emerging Markets
Pre-tax income in the Emerging Markets segment decreased $12 million, or 256%, as compared to the prior year.
Total revenues decreased approximately $19 million as compared to the prior year. Our revenues in this segment have been
negatively impacted by market volatility and the reduced level of capital markets activity globally, which has impacted investment
banking revenues, securities commissions, and trading profits as compared to the prior year, a period that was experiencing
generally improved global market conditions and numerous public offerings. Regulatory changes, particularly in Argentina, had
a major impact on our business. Investment banking revenues have decreased by over $15 million, securities commissions and
fees have decreased by $3 million and trading profits have decreased by $1 million. The prior year investment banking revenues
included $16 million in fees arising from our Argentine joint venture which acted as an advisor to institutional clients in several
significant transactions. In the current year, we recognized $3 million of investment banking revenues associated with certain of
those advisory services which had been deferred in the prior year pending the satisfaction of certain conditions.
Non-interest expenses decreased by $7 million, primarily resulting from a decrease in compensation related expenses resulting
from lower levels of revenues and profitability and from a decrease in clearing expenses that results from reduced trading activity.
57
Index
Year ended September 30, 2011 compared to the year ended September 30, 2010 – Emerging Markets
Pre-tax income in the Emerging Markets segment increased $10 million, or 183%, for the year.
Net revenues increased by $27 million, or 162%, resulting from increased investment banking fee revenue of $19 million and
increased securities commissions and fees of $6 million. The investment banking fee revenues primarily resulted from our Argentine
joint venture, which provided advisory services to institutional clients in several significant transactions during the current year.
The increase in securities commissions and fees results in large part from successful recruiting efforts by two of our Latin American
joint venture entities during fiscal year 2010.
Non-interest expenses increased $14 million, or 63%, primarily resulting from higher compensation expense associated with
the increased investment banking activity.
Results of Operations – Securities Lending
The following table presents consolidated financial information of our Securities Lending segment for the years indicated:
2012
% change
% change
2010
Year ended September 30,
2011
($ in thousands)
Interest income and expense:
Interest income
Interest expense
Net interest income
Other income
Net revenues
Non-interest expenses
Pre-tax income
$
$
9,110
1,976
7,134
370
7,504
2,845
4,659
51 % $
9 %
69 %
(7)%
62 %
(9)%
213 % $
6,035
1,807
4,228
397
4,625
3,137
1,488
(29)% $
(49)%
(14)%
2 %
(13)%
21 %
(45)% $
8,448
3,530
4,918
389
5,307
2,586
2,721
Year ended September 30, 2012 compared to the year ended September 30, 2011 – Securities Lending
Pre-tax income generated by this segment increased by approximately $3 million, or 213%, as compared to the prior year.
The increase is due to higher net interest income in both our Box lending activities as well as, but to a much lesser extent,
our Matched Book lending activities. In the Box lending activities, we realized a net $3 million increase in net interest as net
interest spreads increased significantly, more than offsetting a decrease in average balances outstanding. The increase in net interest
spread in Box lending activities resulted from our receiving a premium to the market rate on certain hard to locate securities. In
the Matched Book lending activities our net interest was relatively unchanged from the prior year level as higher net interest
spreads were offset by a decrease in our average balances outstanding.
Year ended September 30, 2011 compared to the year ended September 30, 2010 – Securities Lending
Pre-tax income generated by this segment decreased by $1 million, or 45%, for the year.
Net interest income decreased by $700 thousand, or 14%, resulting primarily from decreases in our Box lending activities,
but also including to a lesser extent, decreases in our Matched Book activities. In both our Box lending and Matched Book
activities, our net interest spread and our average balances outstanding decreased.
58
Index
Results of Operations – Proprietary Capital
The following table presents consolidated financial information for the Proprietary Capital segment for the years indicated:
Revenues:
Interest
Investment advisory fees
Other
Total revenues
Non-interest expenses:
Compensation expense
Other expenses
Total expenses
Income before taxes and including noncontrolling
interests:
Noncontrolling interests
Pre-tax income excluding noncontrolling
interests
$
2012
3,151
1,248
44,476
48,875
2,017
3,704
5,721
43,154
27,922
% change
Year ended September 30,
2011
($ in thousands)
% change
566 % $
31 %
189 %
191 %
(6)%
421 %
100 %
210 %
473
950
15,382
16,805
2,151
711
2,862
13,943
9,552
(76)% $
(14)%
10 %
(1)%
21 %
(65)%
(25)%
6 %
2010
1,953
1,100
13,976
17,029
1,785
2,051
3,836
13,193
11,465
$
15,232
247 % $
4,391
154 % $
1,728
The Proprietary Capital segment results are substantially determined by the valuations within Raymond James Capital Partners,
L.P. (“Capital Partners”), Raymond James Employee Investment Funds I and II (the “EIF Funds”), and the valuations of our direct
merchant banking investments and our investments in private equity funds (the “Third Party Private Funds”). As a part of the
Morgan Keegan acquisition, we acquired various direct and third party private equity and merchant banking investments, employee
investment funds and private equity funds of Morgan Keegan which have a fair value of approximately $132 million at September
30, 2012. In addition to those holdings as of September 30, 2012, our merchant banking investments, at fair value, include a $27
million investment in an event photography business (the “Event Photography Company”), a $23 million indirect investment
(through Capital Partners) in an allergy immunotherapy testing and treatment supply company (the “Allergy Company”), a $12
million investment in a manufacturer of crime investigation and forensic supplies (the “Forensic Company”), and a $3 million
indirect investment in a company pursuing a new concept in the salon services market.
Year ended September 30, 2012 compared to the year ended September 30, 2011 – Proprietary Capital
Pre-tax income generated by this segment increased by approximately $11 million, or 247%, as compared to the prior year. The
increase is due to the positive performance of the investments during the current year.
In the current year, total revenues resulted primarily from a valuation increase and dividends received from the Allergy
Company totaling approximately $30 million, a valuation increase in the Event Photography Company of approximately $6 million,
interest, dividends, distributions received and net valuation increases from other investments totaling $12 million, partially offset
by a $4 million valuation decrease of the Forensic Company.
The portion of this year’s revenue attributable to noncontrolling interests is significant as approximately $23 million of the
Allergy Company valuation increase and dividends received is attributed to others.
In comparison, the prior year results consist of the increase in the net valuation of the Third Party Private Funds of $6 million,
the increase in revenue pertaining to the Allergy Company of $8 million (which include both dividends received and a valuation
increase), a $4 million increase in the value of the Event Photography Company, and $4 million of valuation increases in the EIF
Funds, all of which are partially offset by a $5 million write-down in the value of the Forensic Company investment.
59
Index
Year ended September 30, 2011 compared to the year ended September 30, 2010 – Proprietary Capital
Pre-tax income generated by this segment increased by $3 million, or 154%, for the year as compared to the prior year.
In the current year, the results consists of the increase in the net valuation of the Third Party Private Funds of $6 million, the
increase in revenue pertaining to the Allergy Company of $8 million (which include both dividends received and a valuation
increase), a $4 million increase in the value of the Event Photography Company, and $4 million of valuation increases in the EIF
Funds, all of which are partially offset by a $5 million write-down in the value of the Forensic Company investment.
In the prior year, the revenue arose primarily from the dividends from and valuation investment increase of the Allergy
Company of $12 million and valuation increases in the Third Party Private Funds of $3 million.
Total expenses have decreased nearly $1 million in the current year as compared to the prior year. The prior year included
nearly $2 million of expenses related to due diligence activities which did not recur in the current year.
The portion of this year's revenue attributable to noncontrolling interests decreased by nearly $2 million. The majority of
the Allergy Company and the EIF Fund investments are held by others; therefore, a reduction in the portion of our revenues
attributable to those investments results in a lower attribution of income to others. The revenues from those investments decreased
by $3 million in the current year.
Results of Operations – Other
The following table presents consolidated financial information for the Other segment for the years indicated:
2012
% change
% change
2010
Year ended September 30,
2011
($ in thousands)
Revenues:
Interest income
Other
Total revenues
Interest expense
Net revenues
Non-interest expenses:
Acquisition related expenses
Loss on auction rate securities
repurchased
Other expense
Total non-interest expenses
Pre-tax loss
$
$
9,875
1,925
11,800
22 % $
(21)%
12 %
62,349
(50,549)
99 %
(142)%
8,086
2,438
10,524
31,374
(20,850)
29 % $
36 %
31 %
6,269
1,787
8,056
20 %
(15)%
26,113
(18,057)
59,284
NM
—
NM
—
—
32,119
91,403
(141,952)
NM
40 %
42 %
(67)% $
41,391
22,892
64,283
(85,133)
NM
1 %
183 %
(109)% $
—
22,734
22,734
(40,791)
Year ended September 30, 2012 compared to the year ended September 30, 2011 – Other
Pre-tax loss generated by this segment increased by approximately $57 million, or 67%, as compared to the prior year.
Interest income is $2 million higher than the prior year primarily resulting from interest income on ARS which we did not
own during most of the comparable prior year period.
Interest expense increased $31 million over the prior year. The increase is primarily comprised of: $21 million of interest
expense resulting from our March 2012 issuances of $350 million 6.9% senior notes and $250 million 5.625% senior notes and
$6 million of additional interest expense in the current year associated with our April 2011 issuance of $250 million 4.25% senior
notes, and $2 million of interest expense associated with the Regions Credit Agreement (as defined hereinafter in the Sources of
Liquidity section of this Item 7). Both of the March 2012 debt offerings and the Regions Credit Agreement were part of our
acquisition financing activities and other transactions associated with the Morgan Keegan acquisition.
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Index
The prior year period included a non-recurring $41 million loss on ARS repurchased.
Acquisition related expenses, all associated with our acquisition of Morgan Keegan, include approximately $21 million of
net severance related expense, $22 million of expense associated with our integration of Morgan Keegan's operations into our
own, $7 million of financial advisory fee expenses, $6 million of transaction bridge financing facility expenses, and $2 million
of legal expense. We anticipate incurring approximately $40 million of additional acquisition related expenses during our fiscal
year 2013 as we continue to implement our integration plans.
Other expenses increased $9 million in the current period primarily related to an increase in incentive compensation expense.
Year ended September 30, 2011 compared to the year ended September 30, 2010 – Other
Pre-tax loss generated by this segment increased by $44 million, or 109%, for the year as compared to the prior year.
Total revenues in the current year increased by $2 million, or 31%, as compared to the prior year. The revenue increases
result primarily from increases in the value of certain investments, some of which were sold during fiscal year 2011 and resulted
in realized gains, and an increase in interest income as a result of increases in parent company cash balances.
Interest expense in fiscal year 2011 increased $5 million, or 20%, as compared to the prior year primarily as a result of
additional interest expense associated with the April 4, 2011 issuance of $250 million of 4.25% senior notes due April, 2016.
The segment includes the loss on auction rate securities repurchased. On June 29, 2011, RJ&A and RJFS finalized settlements
with the SEC and other regulatory authorities, concluding investigations by the regulators into RJ&A and RJFS's offer and sale
of ARS. Under these settlement agreements we extended an offer to purchase at par, from certain current and former clients,
eligible ARS that were purchased through RJ&A or RJFS on or before February 13, 2008, provided the eligible ARS were not
transferred away from RJ&A or RJFS prior to January 1, 2006 and those securities were held on February 13, 2008. This offer
did not extend to clients whose accounts were owned, managed or advised by or through correspondent broker-dealers or unaffiliated
investment advisors or who acted as institutional money managers and did not hold ARS in RJ&A or RJFS accounts. This offer
remained open for a period of 75 days from the date which we sent the first offer notice to each respective current or former client
and has since expired. No fines were imposed by the SEC under the settlement agreement. A fine in the amount of $1.75 million
was imposed by the state regulators. As of September 30, 2011, $245 million of par value ARS were purchased from current or
former clients as a result of this settlement; $16 million of the purchased ARS were redeemed at par by their issuer subsequent to
the purchase and prior to September 30, 2011 (see Note 7 of the Notes to Consolidated Financial Statements in this Form 10-K
for additional information on our ARS holdings).
Liquidity and Capital Resources
Liquidity is essential to our business. The primary goal of our liquidity management activities is to ensure adequate funding
to conduct our business over a range of market environments.
Senior management establishes our liquidity and capital policies. These policies include senior management’s review of short-
and long-term cash flow forecasts, review of monthly capital expenditures, the monitoring of the availability of alternative sources
of financing, and the daily monitoring of liquidity in our significant subsidiaries. Our decisions on the allocation of capital to our
business units consider, among other factors, projected profitability and cash flow, risk and impact on future liquidity needs. Our
treasury departments assist in evaluating, monitoring and controlling the impact that our business activities have on our financial
condition, liquidity and capital structure as well as maintains our relationships with various lenders. The objectives of these policies
are to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity.
Liquidity is provided primarily through our business operations and financing activities. Financing activities could include
bank borrowings, repurchase agreement transactions or additional capital raising activities under our “universal” shelf registration
statement.
61
Index
Cash provided by operating activities during the year ended September 30, 2012, net of the impact of the acquisition of Morgan
Keegan, was $391 million. Operating cash generated by successful operating results over the year resulted in a $410 million
increase in cash. The increase in operating cash included $890 million as a result of a decreased amount of assets segregated
pursuant to regulations and other segregated assets; the lower required amount is primarily due to lower reserve requirements
associated with the increased capacity in our bank sweep program resulting in clients moving cash out of the broker-dealer and
therefore reducing our reserve requirement, combined with a decrease in the stock loan balance outstanding. A decrease in trading
instruments held provided a $103 million increase in operating cash. A decrease in the stock loaned, net of stock borrowed balances
resulted in a $358 million use of operating cash, due to a decrease in stock loan demand. A greater increase in our securities
purchased under agreements to resell than in our securities sold under agreements to repurchase used $210 million in operating
cash. An increase in loans to financial advisors used operating cash. This increase was primarily the result of the $134 million
in outstanding loans to Morgan Keegan financial advisors and certain key Morgan Keegan revenue producers as part of an employee
retention program. We used $425 million in operating cash as the balances of brokerage client payables and other accounts payable
decreased. All other components of operating activities combined to net a $115 million increase in operating cash.
Investing activities resulted in the use of $2.7 billion of cash in the year ended September 30, 2012. Cash was used to fund
a $1.4 billion increase in bank loans which included the $400 million purchase of Canadian loans. Cash in the net amount of $1.1
billion was used to acquire Morgan Keegan (see Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K for
further information on this acquisition). We also invested $83 million in private equity investments, $78 million in additions to
fixed assets, and $76 million in available for sale securities (primarily held by RJ Bank), net of maturations, redemptions and
repayments within that portfolio. We generated $31 million of cash from the redemption of FHLB stock in excess of investments
in FRB stock.
Financing activities provided $1.9 billion of cash in the year ended September 30, 2012. The cash provided was largely the
result of an equity offering which generated $363 million of proceeds and two debt financing transactions which generated
approximately $587 million of net proceeds, and a $128 million borrowing, net of repayments, under a new bank facility. We
completed these transactions as part of our financing for the acquisition of Morgan Keegan (see the discussion of the impact of
the Morgan Keegan acquisition on our liquidity below). In addition to these transactions driven by the Morgan Keegan acquisition,
$860 million of cash was generated from increases in RJ Bank customer deposits.
We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and committed
and uncommitted financing facilities, should provide adequate funds for continuing operations at current levels of activity.
Effective with the February, 2012 approval of RJF becoming a financial holding company, we are required to provide certain
disclosures including certain Statistical Disclosures by Bank Holding Companies. One of those disclosures is to provide RJF’s
dividend payout ratio, which is as follows for the periods indicated:
RJF dividend payout ratio(1)
For the year ended September 30,
2011
24%
2010
24%
2012
24%
(1) Computed as dividends declared per common share during the period as a percentage of diluted earnings per common share.
Refer to the RJ Bank section of this MD&A and the Notes to Consolidated Financial Statements in this Form 10-K for the
other required disclosures.
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Index
Sources of Liquidity
Approximately $539 million of either cash and cash equivalents or other marketable securities was available as of September 30,
2012 without restrictions. The September 30, 2012 balance of cash and cash equivalents held by either RJF or one of its consolidated
subsidiaries is as follow:
Cash and cash equivalents:
RJF
RJ&A(1)
Morgan Keegan & Company, Inc.
RJ Bank
Other
Total cash and cash equivalents
September 30, 2012
(in thousands)
$
$
259,129
286,754
247,568
934,485
252,084
1,980,020
(1) RJF has loaned $446 million to RJ&A as of September 30, 2012, a portion of which RJ&A has invested on behalf of RJF in cash and cash
equivalents.
In addition to the liquidity on hand described above, we have other various potential sources of liquidity which are described below.
Liquidity Available from Subsidiaries
Liquidity is principally available to the parent company from RJ&A, MK & Co., and RJ Bank.
RJ&A is required to maintain net capital equal to the greater of $1 million or 2% of aggregate debit balances arising from customer
transactions. Covenants in RJ&A’s committed secured financing facilities require its net capital to be a minimum of 10% of aggregate
debit balances. At September 30, 2012, RJ&A exceeded both the minimum regulatory and its financing covenants net capital requirements.
At that date, RJ&A had excess net capital of approximately $234 million, of which approximately $34 million is available for dividend
while still maintaining its desired net capital ratio of 15% of aggregate debit items. There are also limitations on the amount of dividends
that may be declared by a broker-dealer without FINRA approval.
MK & Co. is also required to maintain net capital equal to the greater of $1 million or 2% of aggregate debit balances arising from
customer transactions. At September 30, 2012, MK & Co. exceeded the minimum regulatory net capital requirements. At that date, MK
& Co. had excess net capital of approximately $261 million, of which approximately $201 million is available for dividend while still
maintaining its desired net capital ratio of 15% of aggregate debit items. Limitations on the amount of dividends that may be declared
by a broker-dealer without FINRA approval also apply to MK & Co.
Effective upon its conversion to a national bank, RJ Bank may pay dividends to the parent company without prior approval by its
regulator as long as the dividend does not exceed the sum of RJ Bank’s current calendar year and the previous two calendar years’ retained
net income, and RJ Bank maintains its targeted capital to risk-weighted assets ratios. During the year ended September 30, 2012, RJ
Bank made $75 million in dividend payments to RJF. RJF made capital contributions of $50 million to RJ Bank during the same period. RJ
Bank had approximately $117 million of capital in excess of the amount it would need as of September 30, 2012 to maintain its desired
total capital to risk-weighted assets ratio of 12%.
Liquidity available to us from our subsidiaries, other than RJ&A, MK & Co., and RJ Bank, is relatively insignificant and in certain
instances may be subject to regulatory requirements.
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Index
Borrowings and Financing Arrangements
The following table presents our domestic financing arrangements with third party lenders (other than the Regions Credit Agreement,
hereafter defined) that we generally utilize to finance a portion of our fixed income securities trading instruments held, and the outstanding
balances related thereto, as of September 30, 2012:
Committed secured(1)
Financing
Amount
Outstanding
balance
Uncommitted secured (1)(2)
Outstanding
Financing
balance
Amount
Uncommitted unsecured (1)(2)
Outstanding
Financing
balance
Amount
Total
Financing
Amount
Outstanding
balance
RJ&A
MK & Co.
RJF
Total
Total number of
agreements
$
$
335,000
—
—
335,000
$
$
75,000
—
—
75,000
$ 2,150,000
—
—
$ 2,150,000
$
$
($ in thousands)
$
131,761
—
—
131,761
$
375,000
40,000
100,000
515,000
$
$
— $ 2,860,000
40,000
—
—
100,000
— $ 3,000,000
$
$
206,761
—
—
206,761
3
7
8
18
(1) Our ability to borrow is dependent upon compliance with the conditions in the various committed loan agreements and collateral eligibility
requirements.
(2) Lenders are under no contractual obligation to lend to us under uncommitted credit facilities.
The committed domestic financing arrangements are in the form of either tri-party repurchase agreements or a secured line of
credit. The uncommitted domestic financing arrangements are in the form of secured lines of credit, secured bilateral or tri-party repurchase
agreements, or unsecured lines of credit.
We maintain three unsecured settlement lines of credit available to our Argentine joint venture in the aggregate amount of $13
million. Of the aggregate amount, one settlement line for $9 million is guaranteed by RJF. There were no borrowings outstanding on any
of these lines of credit as of September 30, 2012.
RJ Bank has $965 million in immediate credit available from the FHLB on September 30, 2012 and total available credit of 30%
of total assets, with the pledge of additional collateral to the FHLB.
RJ Bank is eligible to participate in the Fed’s discount-window program; however, RJ Bank does not view borrowings from the
Fed as a primary means of funding. The credit available in this program is subject to periodic review and may be terminated or reduced
at the discretion of the Fed.
From time to time we purchase short-term securities under agreements to resell (“Reverse Repurchase Agreements”) and sell
securities under agreements to repurchase (“Repurchase Agreements”). We account for each of these types of transactions as collateralized
financings with the outstanding balances on the Repurchase Agreements included in securities sold under agreements to repurchase. At
September 30, 2012, collateralized financings outstanding in the amount of $348 million are included in securities sold under agreements
to repurchase on the Consolidated Statements of Financial Condition. Of this total, outstanding balances on the committed and uncommitted
Repurchase Agreements (which are reflected in the table of domestic financing arrangements above) were $75 million and $132 million,
respectively, as of September 30, 2012. Such financings are generally collateralized by non-customer, RJ&A or MK & Co. owned
securities. The required market value of the collateral associated with the committed secured facilities ranges from 102% to 133% of
the amount financed.
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Index
The average daily balance outstanding during the five most recent successive quarters, the maximum month-end balance
outstanding during the quarter and the period end balances for Repurchase Agreements and Reverse Repurchase Agreements of RJF
are as follows:
Repurchase transactions
Maximum
month-end
balance
outstanding
during the
quarter
Average daily
balance
outstanding
End of period
balance
outstanding
Average daily
balance
outstanding
Reverse repurchase transactions
Maximum
month-end
balance
outstanding
during the
quarter
End of period
balance
outstanding
For the quarter ended:
$
September 30, 2012
June 30, 2012
March 31, 2012
December 31, 2011
September 30, 2011
$
346,654
411,238
180,875
184,925
145,574
$
349,495
506,618
176,335
244,961
290,686
(in thousands)
$
348,036
506,618
137,026
184,061
188,745
$
600,959
660,983
410,578
433,170
425,248
$
588,740
748,569
413,527
468,848
446,314
565,016
706,713
340,158
400,455
398,247
At September 30, 2012, in addition to the financing arrangements described above, we had corporate debt of $1.3 billion. The balance
is comprised of $350 million outstanding on our 6.90% senior notes due 2042, $249 million outstanding on our 5.625% senior notes due
2024, $300 million outstanding on our 8.60% senior notes due August 2019, $250 million outstanding on our 4.25% senior notes due
April 2016, $128 million of outstanding borrowings on the Regions Credit Agreement (see discussion below), $49 million outstanding
on a mortgage loan for our home-office complex, and $3 million outstanding on term loan financing provided to RJES.
On April 2, 2012, certain non-broker-dealer subsidiaries of RJF (the “Borrowers”) entered into a credit agreement (the “Regions
Credit Agreement”) with Regions Bank (the “Lender”) which provided for a $200 million loan made by the Lender to the Borrowers.
The proceeds from the loan were disbursed to us for working capital and general corporate purposes. The borrowings are secured by,
subject to certain exceptions, all the personal property of the Borrowers including (i) all present and future ARS owned by the Borrowers
(the “Pledged ARS”), (ii) all equity interests issued by the Borrowers, and (iii) all present and future equity interests and debt securities
owned by the Borrowers. The loan matures on April 2, 2015. Primarily as a result of redemptions during the last six months of the year
by certain issuers of Pledged ARS and distributions received from certain private equity investments and the resultant repayments to the
Lender, the outstanding principal balance on the Regions Credit Agreement as of September 30, 2012 was $128 million.
On November 14, 2012, the outstanding balance on the Regions Credit Agreement was repaid, and on that same date, one of the
Borrowers (the “Borrower”) entered into a new Revolving Credit Agreement (the “New Regions Credit Agreement”) with the Lender.
The New Regions Credit Agreement provides for a revolving line of credit to be made available by the Lender to the Borrower and is
subject to a guarantee in favor of the Lender provided by RJF. The proceeds from any borrowings under the line will be used for working
capital and general corporate purposes. The obligations under the New Regions Credit Agreement are secured by, subject to certain
exceptions, all of the Pledged ARS. The amount of any borrowing under the New Regions Credit Agreement cannot exceed 70% of the
value of the Pledged ARS. The maximum amount available under the New Regions Credit Agreement was $97.7 million as of November
16, 2012. The New Regions Credit Agreement expires on April 2, 2015.
Our current senior long-term debt ratings are:
Rating Agency
S&P
Moody’s Investor Service (“Moody’s”)
Rating
BBB
Baa2
Outlook
Negative
Stable
In January 2012, in response to our announcement regarding RJF entering into a definitive stock purchase agreement to acquire
Morgan Keegan (see further discussion in Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K), both S&P and
Moody’s placed RJF on review for possible downgrade.
The S&P rating and outlook reflected above are as presented in their March, 2012 report which concluded no change in the rating,
removed us from “credit watch with negative implications,” but assigned a less favorable outlook of “negative,” a change from “stable,”
which had been reflected in their previous report. S & P’s less favorable outlook is based upon their concern about certain risks associated
with our integration of Morgan Keegan.
The Moody’s rating and outlook reflected above are from their April, 2012 report, which concluded no change in the rating and an
improved outlook to “stable” from “ratings under review for possible downgrade.”
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Index
We believe our current long-term debt ratings depend upon a number of factors including industry dynamics, operating and economic
environment, operating results, operating margins, earnings trends and volatility, balance sheet composition, liquidity and liquidity
management, our capital structure, our overall risk management, business diversification and our market share, the success of our
integration of Morgan Keegan, and competitive position in the markets in which we operate. Deteriorations in any of these factors could
impact our credit ratings. Any rating downgrades could increase our costs in the event we were to pursue obtaining additional financing.
Should our credit rating be downgraded prior to a public debt offering it is probable that we would have to offer a higher rate of
interest to bond holders. A downgrade to below investment grade may make a public debt offering difficult to execute on terms we would
consider to be favorable. The Regions Credit Agreement included, and the New Regions Credit Agreement includes, as an event of
default, the failure of RJF as a guarantor of the repayment of the loan, to maintain an investment grade rating on its unsecured senior
debt. Otherwise, none of our credit agreements contain a condition or event of default related to our credit ratings. A downgrade below
investment grade could also result in the termination of certain derivative contracts and the counterparties to the derivative instruments
could request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability
positions (see Note 18 of our Notes to Consolidated Financial Statements in this Form 10-K for additional information). A credit downgrade
could create a reputational issue and could also result in certain counterparties limiting their business with us, result in negative comments
by analysts and potentially impact investor perception of us, and resultantly impact our stock price and/or our clients’ perception of us.
Other sources of liquidity
We own life insurance policies which are utilized to fund certain non-qualified deferred compensation plans and other employee
benefit plans. The policies which we could readily borrow against have a cash surrender value of approximately $143 million as of
September 30, 2012 and we are able to borrow up to 90%, or $128 million of the September 30, 2012 total, without restriction. There
are no borrowings outstanding against any of these policies as of September 30, 2012.
On May 24, 2012 we filed a “universal” shelf registration statement with the SEC to be in a position to access the capital markets if
and when necessary or perceived by us to be opportune. In August 2009, we sold $300 million in aggregate principal amount of 8.60%
senior notes due in August 2019, through a registered underwritten public offering. In April 2011, we sold $250 million in aggregate
principal amount of 4.25% senior notes due April 2016, through a registered underwritten public offering. In February 2012, we sold
11,075,000 shares of our common stock generating net proceeds of $363 million. In March 2012, we sold $350 million in aggregate
principal amount of 6.90% senior notes due in March 2042 and $250 million in aggregate principal amount of 5.625% senior notes due
April 2024, through registered underwritten public offerings.
See the “contractual obligations, commitments and contingencies” section below for information regarding our commitments.
Impact of the Morgan Keegan acquisition transactions on our liquidity
As more fully described in Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K, on January 11, 2012, RJF
entered into the SPA to acquire all of the issued and outstanding shares of Morgan Keegan from Regions. In anticipation of the closing
of this transaction during February and March 2012, we sold shares of our common stock and senior notes, which combined generated
approximately $950 million in net proceeds. On April 2, 2012, we completed the purchase transaction. Under the terms of the SPA,
Regions received $1.211 billion in cash from RJF on April 2, 2012 in exchange for 100% of the Morgan Keegan shares. Subsequent to
the completion of this purchase transaction on April 2, 2012, Morgan Keegan paid a $250 million dividend to RJF. On April 2, 2012,
RJF received $200 million in proceeds from borrowings on the Regions Credit Agreement; the outstanding balance has subsequently
been reduced to $128 million as of September 30, 2012 primarily as a result of redemptions of Pledged ARS and distributions received
from certain private equity investments. In addition to these April 2, 2012 transactions, during the month of April, 2012 we made cash
retention payments of approximately $136 million to certain key Morgan Keegan financial advisors. In August 2012, we received $23
million from Regions as a result of the determination of the final Closing Date tangible book value of Morgan Keegan. We have incurred
acquisition and integration charges associated with this purchase, a significant portion of which was incurred and paid during the last six
months of the year ended September 30, 2012 with the remaining portion, estimated to be approximately $40 million, to be incurred and
paid during fiscal year 2013.
In addition to customary indemnity for breaches of representations and warranties and covenants, the SPA also provides that Regions
will indemnify RJF for losses incurred in connection with any litigation or similar matter related to pre-closing actions. As a result of
these indemnifications, we do not anticipate the resolution of any pre-Closing Date Morgan Keegan litigation matters to negatively impact
our liquidity (see Note 3 and Note 20 of the Notes to Consolidated Financial Statements, and Part I Item 3 - Legal Proceedings, in this
Form 10-K for further information regarding the indemnifications and the nature of the pre-Closing Date matters).
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Index
Statement of financial condition analysis
The assets on our statement of financial condition consist primarily of cash and cash equivalents (a large portion of which is
segregated for the benefit of customers), receivables including bank loans, financial instruments held for either trading purposes
or as investments, and other assets. A significant portion of our assets are liquid in nature, providing us with flexibility in financing
our business. Total assets of $21.2 billion at September 30, 2012 are approximately $3.2 billion, or 18%, greater than our total
assets as of September 30, 2011. The increase in total assets results primarily from our April 2, 2012 acquisition of Morgan
Keegan, in which we acquired gross assets of approximately $3.1 billion (see Note 3 of the Notes to Consolidated Financial
Statements in this Form 10-K for further information regarding this acquisition). In addition to the increase in assets resulting
from the Morgan Keegan acquisition, which impacts most of the asset balances reflected on our consolidated statements of financial
condition, we have had a significant increase in net bank loans receivable since September 30, 2011 due to $1.4 billion in growth
of RJ Bank’s net loan portfolio during the year that included a $400 million purchase of Canadian loans.
As of September 30, 2012, our liabilities of $17.5 billion were $2.4 billion, or 16% greater than our liabilities as of
September 30, 2011. The increase in liabilities is primarily due to the Morgan Keegan acquisition in which we assumed $1.9
billion of liabilities as of the Closing Date, and two March 2012 debt financing transactions totaling approximately $600 million
which were components of our Morgan Keegan acquisition financing strategy.
Contractual obligations, commitments and contingencies
We have contractual obligations to make future payments in connection with debt, non-cancelable lease agreements, partnership
and limited liability company investments, commitments to extend credit, underwriting commitments and a naming rights
agreement. The following table sets forth these contractual obligations by fiscal year:
Corporate debt(1)
Interest on debt(1)
Loans payable of consolidated
variable interest entities(2)
Operating leases
Investments - private equity
partnerships
Certificates of deposit(3)
Commitments to extend credit -
RJ Bank (4)
RJ Bank loans purchased, not yet
settled
Commitments to real estate entities
Commitment to purchase real
estate in Pasco County, Florida(5)
Underwriting commitments
Naming rights for Raymond James
stadium
Loans and commitments to
financial advisors
Total
Total
2013
2014
$ 1,329,093
1,104,470
$
$
6,517
74,833
3,860
74,638
Fiscal year
2015
(in thousands)
132,342
74,638
$
2016
2017
Thereafter
$
253,970
74,637
$
$
4,578
64,012
927,826
741,712
81,713
409,618
56,432
318,879
18,775
75,289
56,432
56,382
2,526,840
2,526,840
46,510
3,122
3,500
9,156
13,018
46,510
3,122
3,500
9,156
3,835
19,061
66,630
—
40,909
—
—
—
—
—
17,949
60,470
—
70,117
—
—
—
—
—
13,331
53,557
—
63,340
—
—
—
—
—
3,988
4,148
1,047
8,240
42,283
4,357
111,389
88,131
—
—
—
—
—
—
—
—
—
—
25,599
$ 5,927,950
19,423
$ 2,900,614
$
3,559
212,645
$
944
360,608
$
1,294
461,176
$
100
207,344
279
$ 1,785,563
(1) See Note 17 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information.
(2) Loans which are non-recourse to us. See further discussion in Note 16 of the Notes to Consolidated Financial Statements in this Form
10-K.
(3) See Note 14 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information.
(4) See Note 26 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information.
(5) See discussion of this commitment in Item 2, “Properties” in this Form 10-K.
See Note 20 of the Notes to Consolidated Financial Statements in this Form 10-K for further information on our commitments
and contingencies.
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Index
The Board of Directors has approved the use of up to $75 million for investment in proprietary merchant banking opportunities.
As of September 30, 2012, we have invested approximately $39 million. The use of this capital is subject to availability of funds.
These activities may be impacted by regulations resulting from the Dodd-Frank Act. However, since the regulations have yet to
be adopted, any impact is uncertain. Our Board of Directors has also approved up to $200 million in short-term special situations
and bridge investments, primarily related to investment banking transactions. As of September 30, 2012, we did not have any such
investments.
We are authorized by the Board of Directors to repurchase our common stock for general corporate purposes. There is no
formal stock repurchase plan at this time. From time to time our Board of Directors has authorized specific dollar amounts for
repurchases at the discretion of our Board's Securities Repurchase Committee. As of September 30, 2012 the unused portion of
the current authorization was $41 million.
We are the lessor in a leveraged commercial aircraft transaction with Continental Airlines, Inc., now known as United
Continental (“Continental”). Our ability to realize our expected return is dependent upon this airline's ability to fulfill its lease
obligation. In the event that this airline defaults on its lease commitment and the Trustee for the debt holders is unable to re-lease
or sell the plane with adequate terms, we would suffer a loss of some or all of our investment. The net value of our leveraged
lease with Continental is approximately $10 million as of September 30, 2012 and is included in other assets on our Consolidated
Statements of Financial Condition. This lease expires in 2014.
In the normal course of business, certain subsidiaries of ours act as general partner and may be contingently liable for activities
of various limited partnerships. These partnerships engage primarily in real estate activities. In our opinion, such liabilities, if
any, for the obligations of the partnerships will not in the aggregate have a material adverse effect on our consolidated financial
position.
Regulatory
RJ&A, MK & Co., RJFS, Eagle Fund Distributors, Inc. and Raymond James (USA) Ltd. all had net capital in excess of
minimum requirements as of September 30, 2012.
RJ Ltd. was not in Early Warning Level 1 or Level 2 as of or during the year ended September 30, 2012.
During January 2012, RJF’s application to become a bank holding company and a financial holding company was approved
by the Fed, and RJ Bank’s conversion to a national bank was approved by the OCC. These changes became effective February
1, 2012. We converted to a bank holding company in order to provide RJ Bank the ability to maintain a portfolio with a greater
percentage of its assets invested in corporate loans than were otherwise permissible under the thrift regulations RJ Bank was
previously subject to. As a thrift, RJ Bank was required to make qualifying investments annually in order to meet the point in
time QTL test. As a national bank, RJ Bank will not have to make such qualifying investments in order to maintain regulatory
compliance.
We currently invest in selected private equity and merchant banking investments (see the Proprietary Capital section of
MD&A). As a financial holding company, the magnitude of such investments will be subject to certain limitations. At our current
investment levels, we do not anticipate having to make any otherwise unplanned divestitures of these investments in order to
comply with regulatory limits; however, the amount of future investments may be limited in order to maintain compliance within
regulatory specified levels.
As a result of our conversion, we are now subject to additional regulatory reporting requirements which add to our administrative
workload and costs. The maintenance of certain risk-based regulatory capital levels could impact various capital allocation
decisions impacting one or more of our businesses. However, due to our strong capital position, we do not anticipate these capital
requirements will have any negative impact on our future business activities.
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Index
RJ Bank is subject to various regulatory and capital requirements administered by bank regulators. See the Item 1 Business,
Regulation section in this Form 10-K, for a discussion of the regulatory environment in which RJ Bank operates. Under the
regulatory framework for prompt corrective action, RJ Bank met the requirements to be categorized as “well capitalized” as of
September 30, 2012. One of RJ Bank's U.S. subsidiaries is an agreement corporation and is subject to regulation by the Fed. As
of September 30, 2012, this RJ Bank subsidiary met the capital adequacy guideline requirements.
The Dodd-Frank Act has the potential to impact certain of our current business operations, including, but not limited to, its
impact on RJ Bank which is discussed in the Item 1 Business, Regulation section in this Form 10-K. Because of the nature of our
business and our business practices, we do not expect the Dodd-Frank Act to have a significant impact on our operations as a
whole. However, because many of the implementing regulations will result from further studies by various regulatory agencies,
the specific impact on each of our businesses is uncertain.
See Note 25 of the Notes to Consolidated Financial Statements in this Form 10-K for further information on regulatory and
capital requirements.
Critical accounting estimates
The consolidated financial statements are prepared in accordance with GAAP. For a description of our accounting policies,
see Note 2 of the Notes to the Consolidated Financial Statements in this Form 10-K. We believe that of our significant accounting
estimates, those described below involve a high degree of judgment and complexity. These estimates and assumptions affect the
amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements. Due to their nature, estimates
involve judgment based upon available information. Actual results or amounts could differ from estimates and the difference could
have a material impact on the consolidated financial statements. Therefore, understanding these critical accounting estimates is
important in understanding the reported results of our operations and our financial position.
Valuation of financial instruments, investments and other assets
The use of fair value to measure financial instruments, with related gains or losses recognized in our Consolidated Statements
of Income and Comprehensive Income, is fundamental to our financial statements and our risk management processes.
“Trading instruments” and “available for sale securities” are reflected in the Consolidated Statements of Financial Condition
at fair value or amounts that approximate fair value. Unrealized gains and losses related to these financial instruments are reflected
in our net income or our other comprehensive income, depending on the underlying purpose of the instrument.
We measure the fair value of our financial instruments in accordance with GAAP, which defines fair value, establishes a
framework that we use to measure fair value and provides for certain disclosures we provide about our fair value measurements
included in our financial statements. Refer to Notes 5 and 6 in our Notes to Consolidated Financial Statements in this Form 10-
K for these disclosures.
Fair value is defined by GAAP as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market
participants on the measurement date. We determine the fair values of our financial instruments and any other assets and liabilities
required by GAAP to be recognized at fair value in the financial statements as of the close of business of each financial statement
reporting period. These fair value determination processes also apply to any of our impairment tests or assessments performed for
nonfinancial instruments such as goodwill, identifiable intangible assets, certain real estate owned and other long-lived assets.
In determining fair value in accordance with GAAP, we use various valuation approaches, including market and/or income
approaches. Fair value is a market-based measure considered from the perspective of a market participant. As such, even when
assumptions of market participants are not readily available, our own assumptions reflect those that market participants would
use in pricing the asset or liability at the measurement date. GAAP provides for the following three levels to be used to classify
our fair value measurements:
Level 1-Financial instruments included in Level 1 are highly liquid instruments with quoted prices in active markets for
identical assets or liabilities. These include equity securities traded in active markets and certain U. S. Treasury securities,
other governmental obligations, or publicly traded corporate debt securities.
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Index
Level 2-Financial instruments reported in Level 2 include those that have pricing inputs that are other than quoted prices in
active markets, but which are either directly or indirectly observable as of the reporting date (i.e., prices for similar instruments).
Instruments that are generally included in this category are equity securities that are not actively traded, corporate obligations
infrequently traded, certain government and municipal obligations, interest rate swaps, certain asset-backed securities (“ABS”),
certain CMO's, certain MBS, and our derivative instruments.
Level 3-Financial instruments reported in Level 3 have little, if any, market activity and are measured using our best estimate
of fair value, where the inputs into the determination of fair value are both significant to the fair value measurement and
unobservable. These valuations require significant judgment or estimation. Instruments in this category generally include:
equity securities with unobservable inputs such as those investments made in our proprietary capital segment, certain non-
agency CMOs, certain non-agency ABS, pools of interest-only SBA loan strips (“I/O Strips”) and certain municipal and
corporate obligations which include ARS.
GAAP requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when performing
our fair value measurements. The availability of observable inputs can vary from instrument to instrument and in certain cases,
the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument's level
within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment
of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of
factors specific to the instrument.
Valuation techniques
The fair value for certain of our financial instruments is derived using pricing models and other valuation techniques that
involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of
judgment involved in determining the fair value of our financial instruments. Financial instruments for which actively quoted
prices or pricing parameters are available will generally have a higher degree of price transparency than financial instruments that
are thinly traded or not quoted. In accordance with GAAP, the criteria used to determine whether the market for a financial
instrument is active or inactive is based on the particular asset or liability. For equity securities, our definition of actively traded
is based on average daily volume and other market trading statistics. We have determined the market for certain other types of
financial instruments, including certain CMOs, ABS, certain collateralized debt obligations and ARS, to be volatile, uncertain or
inactive as of both September 30, 2012 and 2011. As a result, the valuation of these financial instruments included significant
management judgment in determining the relevance and reliability of market information available. We considered the inactivity
of the market to be evidenced by several factors, including a continued decreased price transparency caused by decreased volume
of trades relative to historical levels, stale transaction prices and transaction prices that varied significantly either over time or
among market makers.
The specific valuation techniques utilized for the categorization of financial instruments presented in our Consolidated
Statements of Financial Condition are described below.
Trading instruments and trading instruments sold but not yet purchased
Trading securities
Trading securities are comprised primarily of the financial instruments held by our broker-dealer subsidiaries (see Note 6 of
the Notes to Consolidated Financial Statements in this Form 10-K for more information). When available, we use quoted prices
in active markets to determine the fair value of these securities. Such instruments are classified within Level 1 of the fair value
hierarchy. Examples include exchange traded equity securities and liquid government debt securities.
When instruments are traded in secondary markets and quoted market prices do not exist for such securities, we utilize valuation
techniques, including matrix pricing, to estimate fair value. Matrix pricing generally utilizes spread-based models periodically
re-calibrated to observable inputs such as market trades, or to dealer price bids in similar securities in order to derive the fair value
of the instruments. Valuation techniques may also rely on other observable inputs such as yield curves, interest rates and expected
principal repayments, and default probabilities. Instruments valued using these inputs are typically classified within Level 2 of
the fair value hierarchy. We utilize prices from independent services to corroborate our estimate of fair value. Depending upon
the type of security, the pricing service may provide a listed price, a matrix price, or use other methods including broker-dealer
price quotations.
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Index
Positions in illiquid securities that do not have readily determinable fair values require significant judgment or estimation.
For these securities, which include ARS, we use pricing models, discounted cash flow methodologies, or similar techniques.
Assumptions utilized by these techniques include estimates of future delinquencies, loss severities, defaults and prepayments.
Securities valued using these techniques are classified within Level 3 of the fair value hierarchy. For certain CMOs, where there
has been limited activity or less transparency around significant inputs to the valuation, such as assumptions regarding performance
of the underlying mortgages, these securities are currently classified as Level 3 of the fair value hierarchy.
I/O Strip securities do not trade in an active market with readily observable prices. Accordingly, we use valuation techniques
that consider a number of factors including: (a) the original cost of the pooled underlying SBA loans from which the I/O Strip
securities were created, and any changes from the original to the hypothetical cost of buying similar loans under current market
conditions; (b) seasoning of the underlying SBA loans in the pool that back the I/O strip securities; (c) the type and nature of the
pooled SBA loans backing the I/O Strip securities; (d) actual and assumed prepayment rates on the underlying pools of SBA loans;
and (e) market data for past trades in comparable I/O Strip securities. Prices from independent sources are used to corroborate
our estimates of fair value. Our I/O Strip securities are recorded in “other securities” within our trading instruments on our
Consolidated Statements of Financial Condition. These fair value measurements use significant unobservable inputs and
accordingly, we classify them as Level 3 of the fair value hierarchy.
Derivatives
In our pre-Morgan Keegan acquisition fixed income business, we entered into interest rate swaps and futures contracts either
as part of our fixed income business to facilitate customer transactions, to hedge a portion of our trading inventory, or to a limited
extent, for our own account. We have continued to conduct this business in a substantially similar fashion subsequent to the
Closing Date of the Morgan Keegan acquisition. See Note 18 of the Notes to Consolidated Financial Statements in this Form 10-
K for more information.
Fair values for the interest rate derivative contracts arising from our legacy operations are obtained from internal pricing
models that consider current market trading levels and the contractual prices for the underlying financial instruments, as well as
time value, yield curve and other volatility factors underlying the positions. Since our model inputs can be observed in a liquid
market and the models do not require significant judgment, such derivative contracts are classified within Level 2 of the fair value
hierarchy. We utilize values obtained from third party counterparty derivatives dealers to corroborate the output of our internal
pricing models. The fair value of any cash collateral exchanged as part of the interest rate swap contract is netted, by counterparty,
against the fair value of the derivative instrument.
Morgan Keegan facilitates derivative transactions through non-broker-dealer subsidiaries, either Morgan Keegan Financial
Products, LLC or Morgan Keegan Capital Services, LLC (collectively referred to as the Morgan Keegan swaps subsidiaries or
“MKSS”). The only difference between the MKSS entities is that they utilize different third party financial institutions to facilitate
the offsetting transaction. MKSS enters into derivative transactions (primarily interest rate swaps) with customers of MK & Co.
For every derivative transaction MKSS enters into with a customer, it enters into an offsetting transaction with terms that mirror
the customer transaction, with a credit support provider who is a third party financial institution. We record the value of each
derivative position held at fair value, as either an asset or an offsetting liability, presented as “derivative instruments associated
with offsetting matched book positions”, as applicable, on our Consolidated Statements of Financial Condition. Fair value is
determined using an internal model which includes inputs from independent pricing sources to project future cash flows under
each underlying derivative contract. The cash flows are discounted to determine the present value. Since any changes in fair
value are completely offset by an opposite change in the offsetting transaction position, there is no net impact on our Consolidated
Statements of Income and Comprehensive Income from changes in the fair value of these derivative instruments.
A Canadian subsidiary of RJ Bank commenced operations during the year ended September 30, 2012 as a result of a purchase
of substantially all of a foreign bank’s Canadian corporate loan portfolio. RJ Bank enters into three month forward foreign exchange
contracts to hedge the risk related to their investment in this Canadian subsidiary. These derivatives are recorded at fair value on
the Consolidated Statements of Financial Condition, the majority of which are designated as net investment hedges.
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Index
Available for sale securities
Available for sale securities are comprised primarily of MBS, CMOs or other mortgage-related debt securities held
predominately by RJ Bank (the “RJ Bank AFS Securities”) and ARS held by a non-broker-dealer subsidiary of RJF (collectively
referred to as the “RJF AFS Securities”). Debt and equity securities classified as available for sale are reported at fair value with
unrealized gains and losses, net of deferred taxes, recorded through other comprehensive income and thereafter presented in
shareholders' equity as a component of accumulated other comprehensive income (“AOCI”) unless the loss is considered to be
other-than-temporary, in which case the related credit loss portion is recognized as a loss in other revenue. Realized gains and
losses on sales of such securities are recognized using the specific identification method and reflected in other revenue in the
period they are sold.
The fair value of agency and senior non-agency securities included within the RJ Bank AFS Securities is determined by
obtaining third party pricing service bid quotations from two independent pricing services. Third party pricing service bid quotations
are based on either current market data, or for any securities traded in markets where the trading activity has slowed significantly
such as the CMO market, the most recently available market data. The third party pricing services provide comparable price
evaluations utilizing available market data for similar securities. The market data the third party pricing services utilize for these
price evaluations includes observable data comprised of benchmark yields, reported trades, broker-dealer quotes, issuer spreads,
two-sided markets, benchmark securities, bids, offers, reference data including market research publications, and loan performance
experience. In order to validate that the pricing information used by the primary third party pricing service is observable, we
request, on a quarterly basis, some of the key market data available for a sample of senior securities and compare this data to that
which we observed in our independent accumulation of market information. Securities valued using these valuation techniques
are classified within Level 2 of the fair value hierarchy.
For senior non-agency securities within the RJ Bank AFS Securities where a significant difference exists between the primary
third party pricing service bid quotation and the secondary third party pricing service, we utilize a discounted cash flow analysis
to determine which third party price quote is most representative of fair value under the current market conditions. The fair values
for all senior non-agency securities at September 30, 2012 were based on the respective primary third party pricing service bid
quotation. Securities measured using these valuation techniques are generally classified within Level 2 of the fair value hierarchy.
ARS are long-term variable rate securities tied to short-term interest rates that were intended to be reset through a “Dutch
auction” process, which generally occurs every seven to 35 days. Holders of ARS were previously able to liquidate their holdings
to prospective buyers by participating in the auctions. During 2008, the Dutch auction process failed and holders were no longer
able to liquidate their holdings through the auction process. The fair value of the ARS holdings is estimated based on internal
pricing models. The pricing model takes into consideration the characteristics of the underlying securities, as well as multiple
inputs including the issuer and its credit quality, data from any recent trades, the expected timing of redemptions and an estimated
yield premium that a market participant would require over otherwise comparable securities to compensate for the illiquidity of
the ARS. These inputs require significant management judgment and, accordingly, these securities are classified within Level 3
of the fair value hierarchy.
For any RJF ARS Securities in an unrealized loss position at the reporting period end, we make an assessment whether these
securities are impaired on an other-than-temporary basis. In order to evaluate our risk exposure and any potential impairment of
these securities, on at least a quarterly basis, we review the characteristics of each security owned such as collateral type, delinquency
and foreclosure levels, credit enhancement, projected loan losses, collateral coverage and presence of U.S. government or
government agency guarantees. The following factors are considered to determine whether an impairment is other-than-temporary:
our intention to sell the security, our assessment of whether it is more likely than not that we will be required to sell the security
before the recovery of its amortized cost basis, and whether the evidence indicating that we will recover the amortized cost basis
of a security in full outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the
impairment, the severity and duration of the impairment, changes in value subsequent to period end, recent events specific to the
issuer or industry, forecasted performance of the security, and any changes to the rating of the security by a rating agency. Securities
on which there is an unrealized loss that is deemed to be other-than-temporary are written-down to fair value with the credit loss
portion of the write-down recorded as a realized loss in other revenue and the non-credit portion of the write-down recorded net
of deferred taxes in other comprehensive income and are thereafter presented in equity as a component of AOCI. The credit loss
portion of the write-down is the difference between the present value of the cash flows expected to be collected and the amortized
cost basis of the security. The previous amortized cost basis of the security less the other-than-temporary impairment recognized
in earnings establishes the new cost basis for the security.
72
Index
We estimate the portion of loss attributable to credit using a discounted cash flow model. For RJ Bank AFS Securities, our
discounted cash flow model utilizes relevant assumptions such as prepayment rate, default rate, and loss severity on a loan level
basis. These assumptions are subject to change depending on a number of factors such as economic conditions, changes in home
prices, and delinquency and foreclosure statistics, among others. Events that may trigger material declines in fair values or
additional credit losses for these securities in the future would include, but are not limited to, deterioration of credit metrics,
significantly higher levels of default and severity of loss on the underlying collateral, deteriorating credit enhancement and loss
coverage ratios, or further illiquidity.
Private equity investments
Private equity investments, held primarily by our Proprietary Capital segment, consist of various direct and third party private
equity and merchant banking investments. The valuation of these investments requires significant management judgment due to
the absence of quoted market prices, inherent lack of liquidity and long-term nature of these assets. As a result, these values cannot
be determined with precision and the calculated fair value estimates may not be realizable in a current sale or immediate settlement
of the instrument.
Direct private equity investments are valued initially at the transaction price until significant transactions or developments
indicate that a change in the carrying values of these investments is appropriate. The carrying values of these investments are
adjusted based on financial performance, investment-specific events, financing and sales transactions with third parties and
discounted cash flow models incorporating changes in market outlook. Investments in funds structured as limited partnerships
are generally valued based on the financial statements of the partnerships. Investments valued using these valuation techniques
are classified within Level 3 of the fair value hierarchy.
Other investments
Other investments consist primarily of marketable securities we hold that are associated with an MK & Co. deferred
compensation program, Canadian government bonds, term deposits with Canadian financial institutions, or investments in other
securities arising from the operations of RJ Ltd, and certain investments in limited partnerships (or funds) for which in a number
of instances, one of our affiliates serves as the managing member or general partner (see Note 11 of our Notes to Consolidated
Financial Statements in this Form 10-K for information regarding such funds).
Certain MK & Co. employees participate in deferred compensation plans. The balances are invested in certain marketable
securities that are held by MK & Co. until the vesting date, typically five years from the date of the deferral. We use quoted prices
in active markets to determine the fair value of these investments. Such instruments are classified within Level 1 of the fair value
hierarchy.
The Canadian government bonds are measured at fair value with any changes recognized in our Consolidated Statements of
Income and Comprehensive Income for the period. The fair value is based upon recent external market transactions. The Canadian
financial institution term deposits are recorded at cost, which approximates market value. These investments are classified within
Level 1 of the fair value hierarchy.
Level 3 assets and liabilities
As of September 30, 2012, 13% of our total assets and 4% of our total liabilities are instruments measured at fair value on a
recurring basis.
Financial instruments measured at fair value on a recurring basis categorized as Level 3 amount to $581 million as of
September 30, 2012 and represent 22% of our assets measured at fair value. Our private equity investments comprise $337 million,
or 58%, and our ARS positions comprise $234 million, or 40%, of the Level 3 assets as of September 30, 2012. Level 3 assets
represent 15.8% of total equity as of September 30, 2012.
Financial instruments which are liabilities categorized as Level 3 amount to $98 thousand as of September 30, 2012 and
represent less than 1% of liabilities measured at fair value.
See Notes 5, 6 and 7 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information on our
financial instruments.
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Index
Goodwill
Goodwill involves the application of significant management judgment. Of our total goodwill of $300 million, $228 million
arose from our current year acquisition of Morgan Keegan (see Note 3 of the Notes to Consolidated Financial Statements in this
Form 10-K for further information regarding the Morgan Keegan acquisition), $33 million arose from our acquisition of Goepel
McDermid, Inc. (now RJ Ltd.) which occurred during fiscal year 2001, $30 million arose from our acquisition of Roney & Co.
(now part of RJ&A) which occurred during fiscal year 1999, $7 million arose from our increased share of ownership in RJES
which occurred in April 2011, and $2 million arose from our acquisition of Howe Barnes which also occurred in April 2011. This
goodwill was allocated to reporting units; $173 million is included in the PCG segment and $127 million is included in the Capital
Markets segment.
We perform goodwill testing on an annual basis or when an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying value. We performed our annual goodwill impairment testing
as of December 31, 2011. We elected to perform a qualitative assessment for each reporting unit that includes an allocation of
goodwill to determine whether it is more likely than not that the carrying value of such reporting unit including the recorded
goodwill is in excess of the fair value of the reporting unit. In any instance in which we were unable to qualitatively conclude
that it is more likely than not that the fair value of the reporting unit exceeds the reporting unit's carrying value including goodwill,
a quantitative analysis of the fair value of the reporting unit was performed. Based upon the outcome of our qualitative assessment,
we determined that no quantitative analysis of the fair value of any reporting unit as of December 31, 2011 was required, with the
exception of our RJES reporting unit. For the RJES reporting unit, an income approach valuation model was updated as of
December 31, 2011 to assess the fair value of the reporting unit to compare to the carrying value of the reporting unit including
the recorded goodwill. Based upon the outcome of all the qualitative assessments and quantitative analyses performed, we
concluded that none of the goodwill allocated to any of our reporting units was impaired as of December 31, 2011. No events
have occurred since December 31, 2011 that would cause us to update the annual impairment testing we performed as of that date.
Loss provisions
Loss provisions arising from legal proceedings
We recognize liabilities for contingencies when there is an exposure that, when fully analyzed, indicates it is both probable
that a liability has been incurred and the amount of loss can be reasonably estimated. The estimated range of possible loss is based
upon currently available information and is subject to significant judgment, a variety of assumptions, and uncertainties. When a
range of possible loss can be estimated, we accrue the most likely amount of possible loss within that range; if the most likely
amount within that range is not determinable, we accrue a minimum based on the range of possible loss. No liability is recognized
for those matters which, in management's judgment, the determination of a reasonable estimate of loss is not possible.
We record liabilities related to legal proceedings in trade and other payables within our Consolidated Statements of Financial
Condition. The determination of whether a loss is probable, and if so the possible loss amount, requires significant judgment. We
consider many factors including, but not limited to: the amount of the claim; the amount of the loss in the client's account; the
basis and validity of the claim; the possibility of wrongdoing on the part of one of our employees; previous results in similar cases;
and legal precedents and case law. Each legal proceeding is reviewed with counsel in each accounting period and the liability is
adjusted as we consider appropriate. Any change in the liability amount is recorded in the consolidated financial statements and
is recognized as either a charge or a credit to net income in that period. The actual costs of resolving legal proceedings may be
substantially higher or lower than the recorded liability amounts for those matters. We expense our cost of defense related to such
matters in the period they are incurred.
Loss provisions arising from operations of our Broker-Dealers
We offer loans to financial advisors and certain key revenue producers, primarily for recruiting and retention purposes. These
loans are generally repaid over a five to eight year period with interest recognized as earned. There is no fee income associated
with these loans. We assess future recoverability of these loans through analysis of individual financial advisor production or
other performance standards. In the event that the financial advisor is no longer affiliated with us, any unpaid balance of such
loan becomes immediately due and payable to us. In determining the allowance for doubtful accounts from former employees or
independent contractors, management considers a number of factors including; any amounts due at termination, the reasons for
the terminated relationship, the former financial advisor's overall financial position, and our historical collection experience. When
the review of these factors indicates that further collection activity is highly unlikely, the outstanding balances of such loans are
written off and the corresponding allowance is reduced.
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We also record reserves or allowances for doubtful accounts related to client receivables. Client receivables at our broker-
dealer subsidiaries are generally collateralized by securities owned by the brokerage clients. Therefore, when a receivable is
considered to be impaired, the amount of the impairment is generally measured based on the fair value of the securities acting as
collateral, which is measured based on current prices from independent sources such as listed market prices or broker-dealer price
quotations.
Loan loss provisions arising from operations of RJ Bank
RJ Bank provides an allowance for loan losses which reflects our continuing evaluation of the probable losses inherent in the
loan portfolio. Refer to Note 2 of the Notes to the Consolidated Financial Statements in this form 10-K for discussion of RJ Bank's
policies regarding the allowance for loan losses, and refer to Note 9 of the Notes to the Consolidated Financial Statements in this
Form 10-K for quantitative information regarding the allowance balances as of September 30, 2012.
The current year's provision for loan losses includes $4 million resulting from the impact of our internal corporate loan
classification changes as a result of the banking regulators' annual Shared National Credit (“SNC”) examination. The impact of
the SNC exam results from differences in judgment applicable to a limited number of the credits reviewed in the annual exam.
We incorporate all regulatory trends observed during each annual SNC exam into our internal ratings methodology. The limited
number of loans with ratings differences, the lengthy period between SNC exams, and the lack of a consistent pattern of credit
characteristics leading to the loan ratings differences from year to year will cause the results of any year's exam to be unpredictable
and result in some changes from our internal ratings. Based on these factors, however, we do not believe the SNC exam results
to be indicative of current policies resulting in inaccurate loan classifications that need to be changed, rather, are differences in
judgment and are not indicative of future trends in the subsequent year. We do not always incorporate loan classification upgrades
that result from the SNC exam. Thus, based on this policy, the results of the annual SNC exam on our portfolio may result in an
increase to our provision for loan losses for the respective period these results become known. Given the relatively high percentage
of SNC loans in our total corporate loan portfolio and the probability that regulators are likely to have a different view on some
loans in our portfolio, the impact from each annual SNC exam may be material to any fiscal year's provision for loan losses should
the credit ratings changes resulting from such exam be numerous, significant (meaning more than a one notch classification
change), or associated with considerably large loans in our portfolio.
The 2012 SNC exam included a review of 279 corporate loans in our portfolio, which had an outstanding portfolio balance
of approximately $5 billion at the time of the review, representing approximately 84% of the total held for investment corporate
portfolio at such time. The 2012 exam resulted in loan classification downgrades for seven loans in our portfolio. The outstanding
balances associated with these loans approximated $123 million. Each of these loans were performing and the results indicated
a one notch lower loan classification was required than that reflected in our own internal classifications. The exam results also
included one loan classification upgrade from our internal ratings, which had an outstanding balance totaling approximately $700
thousand. The SNC exam results reflected downgrades representing less than 3% of our total corporate loans covered by the review.
The prior year's provision for loan losses included $2 million resulting from the impact of the respective period's annual
SNC exam. This prior year exam included a review of 244 corporate loans having an outstanding balance of approximately $4
billion at the time of the review, which was approximately 86% of the held for investment corporate loan portfolio. There were
five loan classification downgrades totaling $73 million, all of which were performing loans, and two upgrades totaling $4 million.
These downgrades represented less than 2% of the total corporate loans reviewed by the bank regulators, all of which were a one
notch change to our internal loan classifications.
At September 30, 2012, the amortized cost of all RJ Bank loans was $8 billion and an allowance for loan losses of $148
million was recorded against that balance. The total allowance for loan losses is equal to 1.81% of the amortized cost of the loan
portfolio.
The condition of the real estate and credit markets continues to influence the complexity and uncertainty involved in estimating
the losses inherent in RJ Bank’s loan portfolio. If our underlying assumptions and judgments prove to be inaccurate, the allowance
for loan losses could be insufficient to cover actual losses. In such an event, any losses would result in a decrease in our net income
as well as a decrease in the level of regulatory capital at RJ Bank.
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Income taxes
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year.
We utilize the asset and liability method to provide income taxes on all transactions recorded in the consolidated financial statements.
This method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying
amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference
is determined based on the tax rates that we expect to be in effect when the underlying items of income and expense are realized.
Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or
tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position,
results of operations, or liquidity. See Note 19 of the Notes to Consolidated Financial Statements in this Form 10-K for further
information on our uncertain tax positions.
Effects of recently issued accounting standards, and accounting standards not yet adopted
In April 2011, FASB issued new guidance regarding the evaluation of certain terms in repurchase agreements which impact
the determination of whether a repurchase arrangement should be accounted for as a secured borrowing or a sale. The new guidance
removes from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem
the financial assets on substantially agreed terms, even in the event of default by the transferee. We adopted this guidance as of
January 2, 2012. There was no significant impact on our consolidated financial statements.
In May 2011, the FASB issued new guidance amending the existing pronouncement related to fair value measurement. This
new guidance primarily expands the existing disclosure requirements for fair value. Specifically, the new guidance mandates the
following additional disclosures: 1) the amount of any transfers between Level 1 and Level 2 of the fair value hierarchy, 2) a
quantitative disclosure of the unobservable inputs and assumptions used in the measurement of Level 3 instruments, 3) a qualitative
discussion of the sensitivity of the fair value to changes in unobservable inputs and any inter-relationships between those inputs
that magnify or mitigate the effect on the measurement of Level 3 instruments and 4) the level within the fair value hierarchy of
items that are not measured at fair value in the statement of financial condition but whose fair value must be disclosed. This new
guidance was effective for us in our period ending March 31, 2012. Our adoption of this guidance resulted in additional disclosure
but did not have a significant impact on our consolidated financial position or results of operations. See these disclosures included
in Note 5 of the Notes to Consolidated Financial Statements in this Form 10-K.
In June 2011, the FASB issued new guidance amending the existing pronouncement regarding the presentation of
comprehensive income. This new guidance reduces the alternatives for the presentation of the components of other comprehensive
income. Specifically, it eliminates the alternative of presenting them as part of the Statement of Changes in Shareholders’ Equity.
This new guidance is effective for fiscal years, and interim periods within those years, beginning December 15, 2011; however,
early adoption is permitted. In December 2011, the FASB indefinitely deferred the effective date for certain provisions within
this new guidance, specifically, those provisions which require the presentation of reclassification adjustments out of accumulated
other comprehensive income by component in both the statement in which net income is presented and the statement in which
other comprehensive income is presented. We currently present the components of other comprehensive income within our
Consolidated Statements of Income and Comprehensive Income and, therefore, the adoption of this new guidance does not impact
us.
In September 2011, the FASB issued new guidance amending the existing pronouncement regarding the annual evaluation
of goodwill for potential impairment. This new guidance adds a new optional step to the prior guidance. This new step is an
optional qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount before applying the two-step goodwill impairment test. If one concludes, based on qualitative factors, that it is not more
likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test
is not required. We adopted this new guidance for our goodwill testing as of December 31, 2011. See the discussion within Note
13 of our Notes to Consolidated Financial Statements within this Form 10-K for the outcome of our application of this new guidance
in fiscal year 2012.
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In December 2011, the FASB issued new guidance amending the existing pronouncement by requiring additional disclosures
regarding the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative
instruments. Specifically, this new guidance will require additional information about financial instruments and derivative
instruments that are either; 1) offset or 2) subject to an enforceable master netting arrangement or similar agreement, irrespective
of whether they are currently offset. The additional disclosure is intended to provide greater transparency on the effect or potential
effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated
with certain financial instruments and derivative instruments within the scope of this amendment. This new guidance is first
effective for our financial report covering the quarter ended December 31, 2013. We are currently evaluating the impact the
adoption of this new guidance will have on our presentation of assets and liabilities within our consolidated statements of financial
condition.
Off-Balance Sheet arrangements
Information concerning our off-balance sheet arrangements is included in Note 26 of the Notes to Consolidated Financial
Statements in this Form 10-K. Such information is hereby incorporated by reference.
Effects of inflation
Our assets are primarily liquid in nature and are not significantly affected by inflation. However, the rate of inflation affects
our expenses, including employee compensation, communications and occupancy, which may not be readily recoverable through
charges for services we provide to our clients.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK MANAGEMENT
Risks are an inherent part of our business and activities. Management of these risks is critical to our fiscal soundness and
profitability. Our risk management processes are multi-faceted and require communication, judgment and knowledge of financial
products and markets. We have a formal Enterprise Risk Management (“ERM”) program to assess and review aggregate risks
across the firm. Our management takes an active role in the ERM process which requires specific administrative and business
functions to participate in the identification, assessment, monitoring and control of various risks. The results of this process are
extensively documented and reported to executive management and the RJF Audit Committee of the Board of Directors.
The principal risks involved in our business activities are market, credit, liquidity, operational, and regulatory and legal.
Market risk
Market risk is our risk of loss resulting from changes in interest rates and security prices. We have exposure to market risk
primarily through our broker-dealer and banking operations. Our broker-dealer subsidiaries, primarily RJ&A, trade tax-exempt
and taxable debt obligations and act as an active market maker in nearly 1,000 listed and over-the-counter equity securities. In
connection with these activities, we maintain inventories in order to ensure availability of securities and to facilitate client
transactions. RJ Bank holds investments in MBS and CMOs within its available for sale securities portfolio as well as SBA loan
securitizations not yet transferred. We hold certain ARS in a non-broker-dealer subsidiary of RJF. Additionally, primarily within
our Canadian broker-dealer subsidiary, we invest in securities for our own proprietary equity investment account.
See Notes 5 and 6 of the Notes to the Consolidated Financial Statements in this Form 10-K for information regarding the fair
value of trading inventories associated with our broker-dealer client facilitation, market-making and proprietary trading activities
in addition to RJ Bank's securitizations. See Note 7 of the Notes to the Consolidated Financial Statements in this Form 10-K for
information regarding the fair value of available for sale securities.
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Changes in value of our trading inventory may result from fluctuations in interest rates, issuers' perceived or actual ability to
meet their repayment obligations, equity prices, conditions impacting the economy as a whole, and the correlation among these
factors. We manage our trading inventory by product type and have established trading divisions that have responsibility for each
product type. Our primary method of controlling risk in our trading inventory is through the establishment and monitoring of limits
on the dollar amount of securities positions that can be entered into and other risk-based limits. Limits are established both for
categories of securities (e.g., OTC equities, corporate bonds, municipal bonds) and for individual traders. Position limits in trading
inventory accounts are monitored on a daily basis. Consolidated position and exposure reports are prepared and distributed to
senior management. Limit violations are carefully monitored. Management also monitors inventory levels and trading results, as
well as inventory aging, pricing, concentration and securities ratings. For derivatives, primarily interest rate swaps, we monitor
the exposure in our derivatives subsidiary daily based on established limits with respect to a number of factors, including interest
rate, spread, ratio, basis, and volatility risk. These exposures are monitored both on a total portfolio basis and separately for selected
maturity periods.
In the normal course of business, we enter into underwriting commitments. RJ&A, MK & Co. and RJ Ltd., as a lead, co-lead
or syndicate member in the underwriting deal, may be subject to market risk on any unsold shares issued in the offering to which
we are committed. Risk exposure is controlled by limiting participation, the deal size or through the syndication process.
Interest rate risk
Trading activities
We actively manage our interest rate risk arising from our fixed income trading securities through the use of hedging techniques
that involve swaps, futures and U.S. Treasury obligations. We monitor, on a daily basis, the Value-at-Risk (“VaR”) in our institutional
fixed income trading portfolios (cash instruments and interest rate derivatives). VaR is an appropriate statistical technique for
estimating the potential loss in trading portfolios due to typical adverse market movements over a specified time horizon with a
suitable confidence level.
To calculate VaR, we use historical simulation. This approach assumes that historical changes in market conditions are
representative of future changes. The simulation is based upon daily market data for the previous twelve months. VaR is reported
at a 99% confidence level based on a one-day time horizon. This means that we could expect to incur losses greater than those
predicted by the VaR estimates only once in every 100 trading days, or about 2.5 times a year on average over the course of time.
We have chosen the historical period of twelve months to be representative of the current interest rate markets. We utilize
stress testing to complement our VaR analysis so as to measure risk under historical and hypothetical adverse scenarios. VaR
results are indicative of relatively recent changes in general interest rate markets and are not designed to capture historical stress
periods beyond the twelve month historical period. Back testing procedures performed include comparing projected VaR results
to our daily trading losses in our institutional trading portfolios. We then verify that the number of times that daily trading losses
exceed VaR is consistent with our expectations at a 99% confidence level.
During the year ended September 30, 2012, the reported daily loss in the institutional fixed income trading portfolio did not
exceed the predicted VaR on any trading day.
Should the market suddenly become more volatile, actual trading losses may exceed the VaR results presented on a single
day and might accumulate over a longer time horizon, such as a number of consecutive trading days. Accordingly, management
employs additional interest rate risk controls including position limits, a daily review of trading results, review of the status of
aged inventory, independent controls on pricing, monitoring of concentration risk, and review of issuer ratings, as well as stress
testing. During volatile markets we may choose to pare our trading inventories to reduce risk.
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The following table sets forth the high, low, and daily average VaR for our overall institutional fixed income portfolio with
the corresponding dollar value of our portfolio as of the period and dates indicated:
Year ended September 30, 2012
Low
Daily Average
High
VaR at September 30,
2011
2012
Daily VaR
Related portfolio value (net) (1)
VaR as a percent of portfolio value
$
1,497
578,629
$
0.26%
($ in thousands)
804
389,170
$
218
225,005
$
1,007
486,467
$
441
220,436
0.10%
0.22%
0.22%
0.20%
(1) Portfolio value achieved on the day of the VaR calculation.
Effective with our acquisition of Morgan Keegan and subsequent to our conversion to a bank holding company and a financial
holding company, we adopted the Fed's Market Risk Rule (“MRR”) for the purpose of calculating our capital ratios. The MRR
requires us to extend the calculation of VaR for all of our trading portfolios, including equity and derivative instruments.
The following table sets forth the high, low, and daily average VaR for all of our total trading portfolio, including equity and
derivative instruments, as of the period and dates indicated:
Six months ended September 30, 2012
Low
High
Daily Average
VaR at September 30,
2012
Daily VaR
$
1,968
$
($ in thousands)
$
888
1,318
$
1,164
During the six month period ended September 30, 2012 that we computed VAR in accordance with the MRR, the reported
daily loss in our total trading portfolio did not exceed the predicted VaR on any trading day.
The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations. While
management believes that its assumptions and approximations are reasonable, there is no uniform industry methodology for
estimating VaR, and different assumptions or approximations could produce materially different VaR estimates. As a result, VaR
statistics are more reliable when used as indicators of risk levels and trends within a firm than as a basis for inferring differences
in risk-taking across firms.
In addition, see Note 18 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information
regarding our derivative financial instruments.
Banking operations
RJ Bank maintains an earning asset portfolio that is comprised of C&I, commercial and residential real estate, and consumer
loans, as well as MBS, CMOs, SBA loan securitizations, deposits at other banks and other investments. Those earning assets are
funded by RJ Bank’s obligations to customers (i.e. customer deposits). Based on its current earning asset portfolio, RJ Bank is
subject to interest rate risk. The current economic environment has led to an extended period of low market interest rates. As a
result, the majority of RJ Bank’s adjustable rate assets and liabilities have experienced a reduction in interest rate yields and costs
that reflect these very low market interest rates. During the year, RJ Bank has focused its interest rate risk analysis on the risk of
market interest rates rising. RJ Bank analyzes interest rate risk based on forecasted net interest income, which is the net amount
of interest received and interest paid, and the net portfolio valuation, both in a range of interest rate scenarios.
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One of the objectives of RJ Bank’s Asset Liability Management Committee is to manage the sensitivity of net interest income
to changes in market interest rates. This committee uses several measures to monitor and limit RJ Bank's interest rate risk including
scenario analysis, repricing gap analysis and limits, and net portfolio value and limits. Simulation models and estimation techniques
are used to assess the sensitivity of the net interest income stream to movements in interest rates. Assumptions about consumer
behavior play an important role in these calculations; this is particularly relevant for loans such as mortgages where the client has
the right, but not the obligation, to repay before the scheduled maturity. To ensure that RJ Bank is within its limits established for
net interest income, a sensitivity analysis of net interest income to interest rate conditions is estimated for a variety of scenarios.
RJ Bank utilizes an internally developed asset/liability model using standard industry software to analyze the available data. The
model calculates changes in net interest income by calculating interest income and interest expense from existing assets and
liabilities using current repricing, prepayment, and volume assumptions. Various interest rate scenarios are modeled in order to
determine the effect those scenarios would have on net interest income.
The following table is an analysis of RJ Bank’s estimated net interest income over a 12 month period based on instantaneous
shifts in interest rates (expressed in basis points) using RJ Bank’s own internal asset/liability model:
Instantaneous
changes in rate
+300
+200
+100
0
-100
Net interest
income
($ in thousands)
$359,150
$365,585
$367,813
$346,109
$331,083
Projected change in
net interest income
3.77%
5.63%
6.27%
—
(4.34)%
The following table presents the amount of RJ Bank’s interest-earning assets and interest-bearing liabilities expected to reprice,
prepay or mature in each of the indicated periods at September 30, 2012:
Interest-earning assets:
Loans
Available for sale securities
Other investments
Total interest-earning assets
Interest-bearing liabilities:
Transaction and savings accounts
Certificates of deposit
Total interest-bearing liabilities
Gap
Cumulative gap
0 - 6 months
7 - 12 months
1 - 5 years
5 or more years
Repricing opportunities
(in thousands)
$
$
7,134,495
241,827
1,013,928
8,390,250
8,236,811
27,629
8,264,440
125,810
125,810
$
$
594,680
27,260
—
621,940
—
28,753
28,753
593,187
718,997
$
$
310,959
157,145
—
468,104
—
262,497
262,497
205,607
924,604
$
$
169,617
90,675
—
260,292
—
—
—
260,292
1,184,896
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The following table shows the contractual maturities of RJ Bank’s loan portfolio at September 30, 2012, including contractual
principal repayments. This table does not, however, include any estimates of prepayments. These prepayments could shorten the
average loan lives and cause the actual timing of the loan repayments to differ significantly from those shown in the following
table:
Loans held for sale
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Total loans held for investment
Total loans
One year or less
>One year – five
years
> 5 years
Total
Due in
— $
(in thousands)
— $
147,032
$
147,032
82,389
—
248,198
1,018
338,930
670,535
670,535
$
3,598,941
26,360
603,593
13,215
13,507
4,255,616
4,255,616
$
1,337,501
23,114
84,659
1,677,753
58
3,123,085
3,270,117
$
5,018,831
49,474
936,450
1,691,986
352,495
8,049,236
8,196,268
$
$
The following table shows the distribution of the recorded investment of those RJ Bank loans that mature in more than one
year between fixed and adjustable interest rate loans at September 30, 2012:
Loans held for sale
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Total loans held for investment
Total loans
Interest rate type
Fixed
Adjustable
Total(1)
(in thousands)
$
13,474
$
133,558
$
147,032
3,305
—
32,296
198,193
58
233,852
247,326
$
4,933,137
49,474
655,956
1,492,775
(2)
13,507
7,144,849
7,278,407
$
$
4,936,442
49,474
688,252
1,690,968
13,565
7,378,701
7,525,733
(1) Excludes any net unearned income and deferred expenses.
(2) See the “Credit risk” discussion within Item 7A of this Form 10-K for additional information regarding RJ Bank’s interest-only loan
portfolio and related repricing schedule.
Equity price risk
We are exposed to equity price risk as a consequence of making markets in equity securities and the investment activities of
RJ&A and RJ Ltd. RJ&A's broker-dealer activities are primarily client-driven, with the objective of meeting clients' needs while
earning a trading profit to compensate for the risk associated with carrying inventory. RJ Ltd. has a proprietary trading business;
the average aggregate inventory held for proprietary trading by RJ Ltd. during the year ended September 30, 2012 was CDN $12
million. We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions
constantly throughout each day and establishing position limits.
Foreign exchange risk
We are subject to foreign exchange risk due to: financial instruments denominated in U.S. dollars predominantly held by RJ
Ltd., whose functional currency is the Canadian dollar, which may be impacted by fluctuation in foreign exchange rates; certain
loans held by RJ Bank denominated in Canadian currency; and our investments in foreign subsidiaries.
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In order to mitigate its portion of this risk, RJ Ltd. enters into forward foreign exchange contracts. The fair value of these
contracts is nominal. As of September 30, 2012, RJ Ltd. held forward contracts to buy and sell U.S. dollars totaling CDN $1
million and CDN $4 million, respectively. In addition, RJ Bank’s U.S. subsidiaries hedge the foreign exchange risk related to
their net investment in a Canadian subsidiary utilizing short-term, forward foreign exchange contracts. These derivative agreements
are accounted for as net investment hedges in the Consolidated Financial Statements. See Note 18 of the Consolidated Financial
Statements in this Form 10-K for further information regarding these derivative contracts.
Credit risk
Credit risk is the risk of loss due to adverse changes in a borrower's, issuer's or counterparty's ability to meet its financial
obligations under contractual or agreed upon terms. The nature and amount of credit risk depends on the type of transaction, the
structure and duration of that transaction, and the parties involved. Credit risk is an integral component of the profit assessment
of lending and other financing activities.
We are engaged in various trading and brokerage activities whose counterparties primarily include broker-dealers, banks and
other financial institutions. We are exposed to risk that these counterparties may not fulfill their obligations. The risk of default
depends on the creditworthiness of the counterparty and/or the issuer of the instrument. We manage this risk by imposing and
monitoring individual and aggregate position limits within each business segment for each counterparty, conducting regular credit
reviews of financial counterparties, reviewing security and loan concentrations, holding and marking to market collateral on certain
transactions and conducting business through clearing organizations, which may guarantee performance.
Our client activities involve the execution, settlement, and financing of various transactions on behalf of our clients. Client
activities are transacted on either a cash or margin basis. Credit exposure associated with our PCG segment results primarily from
customer margin accounts, which are monitored daily and are collateralized. When clients execute a purchase, we are at some risk
that the client will renege on the trade. If this occurs, we may have to liquidate the position at a loss. However, most private clients
have available funds in the account before the trade is executed. We monitor exposure to industry sectors and individual securities
and perform analysis on a regular basis in connection with our margin lending activities. We adjust our margin requirements if
we believe our risk exposure is not appropriate based on market conditions.
We are subject to concentration risk if we hold large positions, extend large loans to, or have large commitments with a single
counterparty, borrower, or group of similar counterparties or borrowers (e.g. in the same industry). Securities purchased under
agreements to resell consist primarily of securities issued by the U.S. government or its agencies. Receivables from and payables
to clients and stock borrow and lending activities are conducted with a large number of clients and counterparties and potential
concentration is carefully monitored. Inventory and investment positions taken and commitments made, including underwritings,
may involve exposure to individual issuers and businesses. We seek to limit this risk through careful review of the underlying
business and the use of limits established by senior management, taking into consideration factors including the financial strength
of the counterparty, the size of the position or commitment, the expected duration of the position or commitment and other positions
or commitments outstanding.
We are exposed to credit risk as a result of our leveraged lease with Continental. See the Contractual Obligations, Commitments
and Contingencies section above for further discussion of this exposure.
The valuation of the MBS and non-agency CMOs held as available for sale securities by RJ Bank is impacted by the credit
risk associated with the underlying residential loans. Underlying loan characteristics associated with this risk are considered in
valuing these securities. ARS held by a non-broker-dealer subsidiary of RJF is impacted by the credit worthiness of the ARS issuer.
See Note 7 of the Notes to the Consolidated Financial Statements in this Form 10-K for more information.
RJ Bank has substantial corporate and residential mortgage loan portfolios. A significant downturn in the overall economy,
deterioration in real estate values or a significant issue within any sector or sectors where RJ Bank has a concentration could result
in large provisions for loan losses and/or charge-offs.
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RJ Bank's strategy for credit risk management includes well-defined credit policies, uniform underwriting criteria, and ongoing
risk monitoring and review processes for all corporate, residential and consumer credit exposures. The strategy also includes
diversification on a geographic, industry and customer level, regular credit examinations and management reviews of all corporate
loans and individual delinquent residential and consumer loans. The credit risk management process also includes an annual
independent review of the credit risk monitoring process that performs assessments of compliance with corporate, residential
mortgage and consumer credit policies, risk ratings, and other critical credit information. RJ Bank seeks to identify potential
problem loans early, record any necessary risk rating changes and charge-offs promptly and maintain appropriate reserve levels
for probable incurred loan losses. RJ Bank's corporate loan portfolio is comprised of approximately 350 borrowers, the majority
of which are underwritten, managed and reviewed at RJ Bank's corporate headquarters location, which facilitates close monitoring
of the portfolio by credit risk personnel, relationship officers and senior RJ Bank executives. RJ Bank utilizes a comprehensive
credit risk rating system to measure the credit quality of individual corporate loans and related unfunded lending commitments,
including the probability of default and/or loss given default of each corporate loan and commitment outstanding.
RJ Bank's allowance for loan losses methodology are described in the Critical Accounting Estimates section of this Item 7
and Note 2 of the Notes to the Consolidated Financial Statements in this Form 10-K. As RJ Bank's loan portfolio is segregated
into five portfolio segments, likewise, the allowance for loan losses is segregated by these same segments. The risk characteristics
relevant to each portfolio segment are as follows:
C&I: Loans in this segment are made to businesses and are generally secured by all assets of the business. Repayment is
expected from the cash flows of the respective business. Unfavorable economic and political conditions, including the resultant
decrease in consumer or business spending, may have an adverse effect on the credit quality of loans in this segment.
CRE: Loans in this segment are primarily secured by income-producing properties. For owner-occupied properties, the cash
flows are derived from the operations of the business, and the underlying cash flows may be adversely affected by the
deterioration in the financial condition of the operating business. The underlying cash flows generated by non-owner-occupied
properties may be adversely affected by increased vacancy and rental rates, which are monitored on a quarterly basis. Adverse
developments in either of these areas may have a negative effect on the credit quality of loans in this segment.
CRE construction: Loans in this segment have similar risk characteristics of loans in the CRE segment as described above.
In addition, project budget overruns and performance variables related to the contractor and subcontractors may affect the
credit quality of loans in this segment. With respect to commercial construction of residential developments, there is also the
risk that the builder has a geographical concentration of developments. Adverse developments in all of these areas may
significantly affect the credit quality of the loans in this segment.
Residential mortgage (includes home equity loans/lines): All of RJ Bank's residential mortgage loans adhere to stringent
underwriting parameters pertaining to credit score and credit history, debt-to-income ratio of borrower, loan-to-value (“LTV”),
and combined LTV (including second mortgage/home equity loans). RJ Bank does not originate or purchase option adjustable
rate mortgage (“ARM”) loans with negative amortization, reverse mortgages, or other types of non-traditional loan products.
Loans with deeply discounted teaser rates are not originated or purchased. All loans in this segment are collateralized by
residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. The decline in
the strength of the economy, particularly unemployment rates and housing prices, could have a significant effect on the credit
quality of loans in this segment.
Consumer: Loans in this segment are primarily secured by marketable securities at advance rates consistent with industry
standards. These loans are monitored daily for adherence to LTV guidelines and when a loan exceeds the required LTV, a
collateral call is issued. Past due loans are minimal as any past due amounts result in a notice to the client and the potential
sale of securities to bring the loan within the prescribed LTV guidelines.
In evaluating credit risk, RJ Bank considers trends in loan performance, the level of allowance coverage relative to similar
banking institutions, industry or customer concentrations, the loan portfolio composition and macroeconomic factors. During
fiscal year 2012 corporate profit levels have improved but have remained weak as compared to historic levels. Unemployment
rates have remained high. Retail sales have been sluggish and credit quality trends, while improved in some sectors, remain
somewhat tenuous. All of these factors have a potentially negative impact on loan performance. However, during fiscal year
2012, corporate borrowers have continued to access the markets for new equity and debt. The volatility in residential home values
in certain geographies has continued to have an impact on residential mortgage loan performance. These factors all have the
capacity to negatively impact our provision for loan losses and net charge-offs.
83
Index
Several factors were taken into consideration in evaluating the allowance for loan losses at September 30, 2012, including
the risk profile of the portfolios, net charge-offs during the period, the level of nonperforming loans, and delinquency ratios. RJ
Bank also considered the uncertainty related to certain industry sectors and the extent of credit exposure to specific borrowers
within the portfolio. RJ Bank further stratified the performing residential loan portfolio based upon updated LTV estimates with
higher reserve percentages allocated to the higher LTV loans. Finally, RJ Bank considered current economic conditions that might
impact the portfolio. RJ Bank determined the allowance that was required for specific loan grades based on relative risk
characteristics of the loan portfolio. On an ongoing basis, RJ Bank evaluates its methods for determining the allowance for each
class of loans and makes enhancements it considers appropriate.
Changes in the allowance for loan losses of RJ Bank are as follows:
Allowance for loan losses, beginning of year
Provision for loan losses
$
145,744
25,894
2012
Twelve months ended September 30,
2010
2011
($ in thousands)
$ 150,272
80,413
88,155
169,341
$ 147,084
33,655
2009
$
2008
$
47,022
54,749
Charge-offs:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer
Total charge-offs
Recoveries:
CRE loans
Residential mortgage loans
Consumer
Total recoveries
Net charge-offs
Foreign exchange translation adjustment
Allowance for loan losses, end of year
$
(10,486)
—
(2,000)
(15,270)
(96)
(27,852)
1,074
2,543
21
3,638
(24,214)
117
147,541
(458)
—
(15,204)
(22,501)
(255)
(38,418)
—
—
(56,402)
(30,837)
—
(87,239)
1,670
1,744
9
3,423
(34,995)
—
$ 145,744
2,349
1,289
—
3,638
(83,601)
—
$ 147,084
$
—
(3,222)
(77,317)
(27,314)
—
(107,853)
1
628
—
629
(107,224)
—
150,272
$
—
—
(10,169)
(3,745)
—
(13,914)
—
298
—
298
(13,616)
—
88,155
Allowance for loan losses to total bank
loans outstanding
1.81%
2.18%
2.36%
2.23%
1.23%
The primary factors impacting the provision for loan losses during the period were a reduction in both nonperforming C&I
and CRE loans, an improvement in the credit characteristics of certain problem corporate loans, and the reduction of the balance
of residential mortgage nonperforming loans. In addition, although the amount of nonperforming loans remains elevated as
compared to the pre-2008 levels, somewhat improved economic conditions relative to the prior year have limited the amount of
new problem loans.
The current year's provision for loan loss also includes $4 million resulting from the impact of the banking regulators' annual
SNC exam. The prior year's provision for loan losses included $2 million resulting from the impact of the respective period's
annual SNC exam (see the Critical Accounting Estimates section of this Item 7 for additional information regarding the annual
SNC exam).
84
Index
The following table presents net loan charge-offs and the percentage of net loan charge-offs to the average outstanding loan
balances by loan portfolio segment:
2012
Twelve months ended September 30,
2011
2010
Net loan
charge-off
amount
% of avg.
outstanding
loans
Net loan
charge-off
amount
% of avg.
outstanding
loans
Net loan
charge-off
amount
% of avg.
outstanding
loans
C&I loans
CRE loans
Residential mortgage loans
Consumer loans
Total
$
$
(10,486)
(926)
(12,727)
(75)
(24,214)
($ in thousands)
0.22% $
0.11%
0.73%
0.08%
0.32% $
(458)
(13,534)
(20,757)
(246)
(34,995)
0.01% $
1.70%
1.12%
3.55%
0.56% $
—
(54,053)
(29,548)
—
(83,601)
—
5.56%
1.34%
—
1.30%
Twelve months ended September 30,
2009
2008
Net loan
charge-off
amount
% of avg.
outstanding
loans
Net loan
charge-off
amount
% of avg.
outstanding
loans
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Total
$
—
(3,222)
(77,316)
(26,686)
—
$ (107,224)
($ in thousands)
— $
0.96%
4.22%
0.99%
—
1.43% $
—
—
(10,169)
(3,447)
—
(13,616)
—
—
0.26%
0.15%
—
0.22%
85
Index
The level of charge-off activity is a factor that is considered in evaluating the potential for and severity of future credit losses.
The 31% decline in net charge-offs compared to the prior year was primarily attributable to improved credit quality in the CRE
loan portfolio in addition to a stabilization of the balance in nonperforming residential mortgage loans. The table below presents
nonperforming loans and total allowance for loan losses:
September 30, 2012
September 30, 2011
September 30, 2010
Nonperforming
loan balance
Allowance
for
loan losses
balance
Nonperforming
loan balance
Allowance
for
loan losses
balance
Nonperforming
loan balance
Allowance
for
loan losses
balance
Loans held for sale
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Total
$
$
— $
— $
(in thousands)
— $
(5)
$
— $
(23)
19,517
—
8,404
78,739
—
106,660
$
(92,409)
(739)
(27,546)
(26,138)
(709)
(147,541) $
25,685
—
15,842
91,796
—
133,323
$
(81,267)
(490)
(30,752)
(33,210)
(20)
(145,744)
$
—
—
67,901
86,082
—
153,983
$
(60,464)
(4,473)
(47,771)
(34,297)
(56)
(147,084)
September 30, 2009
September 30, 2008
Nonperforming
loan balance
Allowance
for
loan losses
balance
Nonperforming
loan balance
Allowance
for
loan losses
balance
— $
(in thousands)
(7) $
—
—
86,422
71,960
—
158,382
$
(84,841)
(3,237)
(34,018)
(28,081)
(88)
(150,272) $
— $
(1)
—
—
37,462
20,702
—
58,164
$
(55,105)
(7,061)
(17,239)
(8,588)
(161)
(88,155)
$
$
Loans held for sale
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Total
The level of nonperforming loans is another indicator of potential future credit losses. The amount of nonperforming loans
decreased 20% during the year ended September 30, 2012. This decrease was primarily due to a $13 million reduction in
nonperforming residential mortgage loans, a $7 million reduction in nonperforming CRE loans and a $6 million reduction in
nonperforming C&I loans. Included in nonperforming residential mortgage loans are $67 million in loans for which $42 million
in charge-offs were previously recorded, resulting in less exposure within the remaining balance.
Loan underwriting policies
A component of RJ Bank's credit risk management strategy is conservative, well-defined policies and procedures. RJ Bank's
underwriting policies for the major types of loans are:
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Index
Residential mortgage and consumer loan portfolio
RJ Bank's residential mortgage loan portfolio consists of first mortgage loans originated by RJ Bank via referrals from our
PCG financial advisors and the general public as well as first mortgage loans purchased by RJ Bank. All of RJ Bank's residential
mortgage loans adhere to strict underwriting parameters pertaining to credit score and credit history, debt-to-income ratio of the
borrower, LTV, and combined LTV (including second mortgage/home equity loans). Approximately 90% of the residential loans
are fully documented loans and 99% of the residential mortgage loan portfolio is owner-occupant borrowers for their primary or
second home residences, of which approximately 85% is for their primary residences. Substantially all of RJ Bank's residential
loans are ARM loans. Approximately 30% of the first lien residential mortgage loans are ARMs with interest-only payments based
on a fixed rate for an initial period of the loan, typically three to five years, then become fully amortizing, subject to annual and
lifetime interest rate caps. Certain of our originated 15 or 30-year fixed-rate mortgage loans are sold in the secondary market. RJ
Bank's consumer loan portfolio is comprised primarily of securities-based loans and represents approximately 4% of RJ Bank's
total loan portfolio. The underwriting policy for RJ Bank's consumer loans primarily includes a review of collateral, including
LTV, with a limited review of repayment history and the debt-to-income ratio of the borrower.
While RJ Bank has chosen not to participate in any government-sponsored loan modification programs, its loan modification
policy does take into consideration some of the programs' parameters and supports every effort to assist borrowers within the
guidelines of safety and soundness. In general, RJ Bank considers the qualification terms outlined in the government-sponsored
programs as well as the affordability test and other factors. RJ Bank retains flexibility to determine the appropriate modification
structure and required documentation to support the borrower's current financial situation before approving a modification. Short
sales are also used by RJ Bank to mitigate credit losses.
Corporate loan portfolio
RJ Bank's corporate loan portfolio is diversified among a number of industries in both the U.S. and Canada and comprised
of project finance real estate loans, commercial lines of credit and term loans, the majority of which are participations in SNC or
other large syndicated loans. RJ Bank is sometimes involved in the syndication of the loan at inception and some of these loans
have been purchased in the secondary trading markets. As the process for evaluating the SNCs or other large syndications is
consistent with the process for the other corporate loans in the portfolio, there is no additional credit risk with syndicated loans
as compared to any other loan in RJ Bank's corporate loan portfolio. In addition, all corporate loans are subject to RJ Bank's
regulatory review. The remainder of the corporate loan portfolio is comprised of smaller participations and direct loans. Regardless
of the source, all loans are independently underwritten to RJ Bank credit policies and are subject to loan committee approval, and
credit quality is monitored on an on-going basis by RJ Bank's corporate lending staff. RJ Bank credit policies include criteria
related to LTV limits based upon property type, single borrower loan limits, loan term and structure parameters (including guidance
on leverage, debt service coverage ratios and debt repayment ability), industry concentration limits, secondary sources of repayment,
and other criteria. A large portion of RJ Bank's corporate loans are to borrowers in industries in which we have expertise, through
coverage provided by our Capital Markets research analysts. More than half of RJ Bank's corporate borrowers are public companies.
RJ Bank's corporate loans are generally secured by all assets of the borrower and in some instances are secured by mortgages on
specific real estate. In a limited number of transactions, loans in the portfolio are extended on an unsecured basis. There are no
subordinated loans or mezzanine financings in the corporate loan portfolio.
Risk monitoring process
Another component of the credit risk strategy at RJ Bank is the ongoing risk monitoring and review processes for all residential,
consumer and corporate credit exposures. There are various other factors included in these processes, depending on the loan
portfolio.
Residential mortgage and consumer loans
We track and review many factors to monitor credit risk in RJ Bank’s residential mortgage and consumer loan portfolios. The
qualitative factors include, but are not limited to: loan performance trends, loan product parameters and qualification requirements,
borrower credit scores, occupancy (i.e., owner occupied, second home or investment property), level of documentation, loan
purpose, geographic concentrations, average loan size, and loan policy exceptions. These qualitative measures, while considered
and reviewed in establishing the allowance for loan losses, have generally not resulted in any quantitative adjustments to RJ Bank's
historical loss rates. In addition to historical loss rates, the quantitative factors utilized for the performing residential mortgage
loan portfolio include updated LTV ratios and expected home price changes. RJ Bank adjusts its loss given default (severity)
factor directly by an estimated home price change which is consistent with the published Case-Shiller index as well as projections
from other leading institutions forecasting home price changes.
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Index
RJ Bank obtains the most recently available information (generally on a quarter lag) to estimate current LTV ratios on the
individual loans in the performing residential mortgage loan portfolio. Current LTV ratios are estimated based on the initial
appraisal obtained at the time of origination, adjusted using relevant market indices for housing price changes that have occurred
since origination. The value of the homes could vary from actual market values due to change in the condition of the underlying
property, variations in housing price changes within metropolitan statistical areas and other factors.
RJ Bank estimates that residential mortgage loans with updated LTVs between 100% and 120% represent 15% of the residential
mortgage loan portfolio and residential mortgage loans with updated LTVs in excess of 120% represent 7% of the residential
mortgage loan portfolio. The current average estimated LTV is approximately 75% for the total residential mortgage loan
portfolio. Credit risk management utilizes this data in conjunction with delinquency statistics, loss experience and economic
circumstances to establish appropriate allowance for loan losses for the residential mortgage loan portfolio, which is based upon
an estimate for the probability of default and loss given default for each homogeneous class of loans.
The marketable collateral securing RJ Bank's securities-based loans within the consumer loan portfolio is monitored on a
daily basis. Collateral adjustments are made by the borrower as necessary to ensure RJ Bank's loans are adequately secured,
resulting in minimizing its credit risk.
Residential mortgage loan delinquency levels are elevated by historical standards at RJ Bank due to the economic downturn
and the high level of unemployment, however, the levels have improved during fiscal year 2012. Our consumer loan portfolio,
however, has not experienced high levels of delinquencies to date. At September 30, 2012 and September 30, 2011, there were
no delinquent consumer loans.
At September 30, 2012, loans over 30 days delinquent (including nonperforming loans) decreased to 3.55% of residential
mortgage loans outstanding, compared to 4.26% over 30 days delinquent at September 30, 2011. Additionally, our September 30,
2012 percentage compares favorably to the national average for over 30 day delinquencies of 10.3% as most recently reported by
the Fed. RJ Bank’s significantly lower delinquency rate as compared to its peers is the result of both our uniform underwriting
policies and the lack of non-traditional loan products and subprime loans.
The following table presents a summary of delinquent residential mortgage loans:
Delinquent residential loans (amount)
90 days or
more
Total(1)
30-89 days
Delinquent residential loans as a percentage
of outstanding loan balances
90 days or
more
30-89 days
Total(1)
September 30, 2012
Residential Mortgage Loans:
First mortgage loans
Home equity loans/lines
Total residential mortgage
loans
September 30, 2011
Residential Mortgage Loans:
First mortgage loans
Home equity loans/lines
Total residential mortgage
loans
$
$
$
$
($ in thousands)
$
10,276
338
$
49,476
—
59,752
338
10,614
$
49,476
$
60,090
$
12,718
88
$
61,870
114
74,588
202
12,806
$
61,984
$
74,790
0.62%
1.33%
0.63%
0.74%
0.28%
0.73%
2.97%
—%
2.92%
3.58%
0.37%
3.53%
3.58%
1.33%
3.55%
4.32%
0.65%
4.26%
(1) Comprised of loans which are two or more payments past due as well as loans in process of foreclosure.
88
Index
To manage and limit credit losses, we maintain a rigorous process to manage our loan delinquencies. With all whole loans
purchased generally on a servicing-retained basis and all originated first mortgages serviced by a third party, the primary collection
effort resides with the servicer. RJ Bank personnel direct and actively monitor the servicers' efforts through extensive
communications regarding individual loan status changes and requirements of timely and appropriate collection or property
management actions and reporting, including management of third parties used in the collection process (appraisers, attorneys,
etc.). Additionally, every residential mortgage and consumer loan over 60 days past due is reviewed by RJ Bank personnel monthly
and documented in a written report detailing delinquency information, balances, collection status, apprised value, and other data
points. RJ Bank senior management meets monthly to discuss the status, collection strategy and charge-off/write-down
recommendations on every residential mortgage or consumer loan over 60 days past due. Updated collateral valuations are obtained
for loans over 90 days past due and charge-offs are taken on individual loans based on these valuations.
Credit risk is also managed by diversifying the residential mortgage portfolio. The geographic concentrations (top five states)
of RJ Bank’s one-to-four family residential mortgage loans are as follows:
September 30, 2012
September 30, 2011
($ outstanding as a % of RJ Bank total assets)
2.8%
2.7%
1.5%
0.9%
0.7%
CA (1)
FL
NY
NJ
VA
3.3%
2.6%
1.9%
1.1%
0.9%
CA (1)
FL
NY
NJ
VA
(1) The concentration ratio for the state of California excludes 1.8% for September 30, 2012 and 1.9% for September 30, 2011 for loans
purchased from a large investment grade institution that have full repurchase recourse for any delinquent loans.
Loans where borrowers may be subject to payment increases include adjustable rate mortgage loans with terms that initially
require payment of interest only. Payments may increase significantly when the interest-only period ends and the loan principal
begins to amortize. At September 30, 2012 and September 30, 2011, these loans totaled $428 million and $640 million, respectively,
or approximately 30% and 40% of the residential mortgage portfolio, respectively. At September 30, 2012, the balance of
amortizing, former interest-only, loans totaled $432 million. The weighted average number of years before the remainder of the
loans, which were still in their interest-only period at September 30, 2012, begins amortizing is 3.1 years. In the current interest
rate environment, a large percentage of these loans were projected to adjust to a payment lower than the current payment. The
outstanding balance of loans that were interest-only at origination and based on their contractual terms are scheduled to reprice
are as follows:
One year or less
Over one year through two years
Over two years through three years
Over three years through four years
Over four years through five years
Over five years
Total outstanding residential interest-only loan balance
September 30, 2012
(in thousands)
$
$
273,639
71,518
28,887
8,858
17,155
28,040
428,097
A component of credit risk management for the residential portfolio is the LTV and borrower credit score at origination or
purchase. The most recent LTV/FICO scores at origination of RJ Bank’s residential first mortgage loan portfolio are as follows:
Residential first mortgage loan weighted-average LTV/FICO (1)
September 30, 2012
66%/753
September 30, 2011
66%/751
(1) At origination. Small group of local loans representing less than 0.5% of residential portfolio excluded.
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Index
Corporate loans
Credit risk in RJ Bank’s corporate loan portfolio is monitored on an individual loan basis for trends in borrower operating
performance, payment history, credit ratings, collateral performance, loan covenant compliance, annual SNC exam results, and
other factors including industry performance and concentrations. As part of the credit review process the loan grade is reviewed
at least quarterly to confirm the appropriate risk rating for each credit. The individual loan ratings resulting from the annual SNC
exam are incorporated in RJ Bank's internal loan ratings when the ratings are received and if the SNC rating is lower on an
individual loan than RJ Bank's internal rating, the loan is downgraded. While RJ Bank considers historical SNC exam results in
its loan ratings methodology, differences between the SNC exam and internal ratings on individual loans typically arise due to
subjectivity of the loan classification process. These differences may result in additional provision for loan losses in periods when
SNC exam results are received. See Note 2 of the Notes to Consolidated Financial Statements in this Form 10-K, specifically the
bank loans and allowances for losses section, and Critical Accounting Estimates in Item 7 of this Form 10-K, for additional
information on RJ Bank's corporate loan portfolio and allowance for loan loss policies.
At September 30, 2012, other than loans classified as nonperforming, there was one government-guaranteed loan totaling
$222 thousand that was delinquent greater than 30 days.
Credit risk is also managed by diversifying the corporate loan portfolio. RJ Bank’s corporate loan portfolio does not contain
a significant concentration in any single industry. The industry concentrations (top five categories) of RJ Bank’s corporate loans
are as follows:
September 30, 2012
September 30, 2011
($ outstanding as a % of RJ Bank total assets)
4.1% Business Systems and Services
3.2% Pharmaceuticals
3.1% Media communications
2.9% Consumer products and services
2.8% Retail real estate
4.2% Telecommunications
3.4% Consumer products and services
2.9% Media communications
2.9% Pharmaceuticals
2.6% Healthcare providers (non-hospital)
Liquidity risk
See the section entitled “Liquidity and capital resources” in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, in this Form 10-K for more information regarding our liquidity and how we manage liquidity
risk.
Operational risk
Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business
disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating
systems and inadequacies or breaches in our control processes. We operate different businesses in diverse markets and are reliant
on the ability of our employees and systems to process a large number of transactions. These risks are less direct than credit and
market risk, but managing them is critical, particularly in a rapidly changing environment with increasing transaction volumes
and complexity. In the event of a breakdown or improper operation of systems or improper action by employees, we could suffer
financial loss, regulatory sanctions and damage to our reputation. In order to mitigate and control operational risk, we have
developed and continue to enhance specific policies and procedures that are designed to identify and manage operational risk at
appropriate levels throughout the organization and within such departments as Accounting, Operations, Information Technology,
Legal, Compliance and Internal Audit. These control mechanisms attempt to ensure that operational policies and procedures are
being followed and that our various businesses are operating within established corporate policies and limits. Business continuity
plans exist for critical systems, and redundancies are built into the systems as deemed appropriate.
A Compliance and Standards Committee comprised of senior executives meets monthly to consider policy issues. The
committee reviews material customer complaints and litigation, as well as issues in operating departments, for the purpose of
identifying issues that present risk exposure to either us or our customers. The committee adopts policies to deal with these issues,
which are then disseminated throughout our operations.
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Index
A Quality of Markets Committee meets regularly to monitor the best execution activities of our trading departments as they
relate to customer orders. This committee is comprised of representatives from the OTC Trading, Listed Trading, Options, Municipal
Trading, Taxable Trading, Compliance and Legal Departments and is under the direction of one of our senior officers. This
committee reviews reports from the respective departments listed above and recommends action for improvement when necessary.
Regulatory and legal risk
Legal risk includes the risk of PCG customer claims, the possibility of sizable adverse legal judgments, exposure to pre-
Closing Date litigation matters of Morgan Keegan should Regions fail to honor its indemnification obligations (see Item 3 Legal
Proceedings and Note 20 of the Notes to Consolidated Financial Statements, in this Form 10-K for further discussion of the Regions
indemnification for such matters) and non-compliance with applicable legal and regulatory requirements. We are generally subject
to extensive regulation in the different jurisdictions in which we conduct business. Regulatory oversight of the financial services
industry has become increasingly demanding over the past several years and we, as well as others in the industry, have been directly
affected by this increased regulatory scrutiny.
We have comprehensive procedures addressing issues such as regulatory capital requirements, sales and trading practices,
use of and safekeeping of customer funds, extension of credit, collection activities, money laundering and record keeping. We
have designated Anti-money Laundering Officers in each of our subsidiaries who monitor compliance with regulations adopted
under the Bank Secrecy Act and the USA PATRIOT Act. We act as an underwriter or selling group member in both equity and
fixed income product offerings. Particularly when acting as lead or co-lead manager, we have financial and legal exposure. To
manage this exposure, a committee of senior executives reviews proposed underwriting commitments to assess the quality of the
offering and the adequacy of due diligence investigation.
Our banking activities are highly regulated and subject to impact from changes in banking laws and regulations, including
unanticipated rulings. Present economic conditions have led to rapid introduction of significant regulatory programs or changes
affecting consumer protection and disclosure requirements, financial reporting, and planned regulatory restructuring. Regulatory
requirements including recent changes to consumer and mortgage lending regulations, as well as new regulatory or government
programs, are closely monitored and acted upon to ensure a timely response. See further discussion of our risks associated with
new regulations, including the Dodd-Frank Act, in Item 1A, “Risk Factors” within this Form 10-K.
Our major business units have compliance departments that are responsible for regularly reviewing and revising compliance
and supervisory procedures to conform to changes in applicable regulations.
We have a number of outstanding claims resulting from, among other reasons, market conditions. While these claims may
not be the result of any wrongdoing, we do, at a minimum, incur costs associated with investigating and defending against such
claims. See further discussion of our accounting policy regarding such matters in the loss provisions arising from legal proceedings
section of “Critical Accounting Estimates” contained within Item 7, “Management's Discussion of Analysis of Financial Condition
and Results of Operations” and in Note 2 of our Notes to the Consolidated Financial Statements within this Form 10-K.
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Index
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Raymond James Financial, Inc.:
We have audited the accompanying consolidated statements of financial condition of Raymond James Financial, Inc. and
subsidiaries (the Company) as of September 30, 2012 and 2011, and the related consolidated statements of income and
comprehensive income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended
September 30, 2012. These consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Raymond James Financial, Inc. and subsidiaries as of September 30, 2012 and 2011, and the results of their operations and
their cash flows for each of the years in the three-year period ended September 30, 2012, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Raymond James Financial, Inc.'s internal control over financial reporting as of September 30, 2012, based on criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated November 21, 2012 expressed an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.
/s/ KPMG LLP
November 21, 2012
Tampa, Florida
Certified Public Accountants
92
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Assets:
Cash and cash equivalents
Assets segregated pursuant to regulations and other segregated assets
Securities purchased under agreements to resell and other collateralized financings
Financial instruments, at fair value:
Trading instruments
Available for sale securities
Private equity investments
Other investments
Derivative instruments associated with offsetting matched book positions
Receivables:
Brokerage clients, net
Stock borrowed
Bank loans, net
Brokers-dealers and clearing organizations
Loans to financial advisors, net
Other
Deposits with clearing organizations
Prepaid expenses and other assets
Investments in real estate partnerships held by consolidated variable interest entities
Property and equipment, net
Deferred income taxes, net
Goodwill and identifiable intangible assets, net
Total assets
September 30,
2012
2011
(in thousands)
$
1,980,020
$
2,784,199
565,016
804,272
733,874
336,927
310,806
458,265
2,067,117
200,160
7,991,512
225,306
445,497
427,641
163,848
605,566
299,611
231,195
168,187
361,246
2,439,695
3,548,683
398,247
492,771
520,665
168,785
125,571
—
1,716,828
225,561
6,547,914
96,096
231,466
304,898
91,482
363,221
320,384
169,850
171,911
72,967
$
21,160,265
$
18,006,995
See accompanying Notes to Consolidated Financial Statements.
93
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(continued from previous page)
September 30,
2012
2011
($ in thousands)
Liabilities and equity:
Trading instruments sold but not yet purchased, at fair value
$
232,436
$
Securities sold under agreements to repurchase
Derivative instruments associated with offsetting matched book positions, at fair value
Payables:
Brokerage clients
Stock loaned
Bank deposits
Brokers-dealers and clearing organizations
Trade and other
Accrued compensation, commissions and benefits
Loans payable of consolidated variable interest entities
Corporate debt
Total liabilities
Commitments and contingencies (see Note 20)
Equity
348,036
458,265
4,584,656
423,519
8,599,713
103,164
628,734
690,654
81,713
1,329,093
17,479,983
76,150
188,745
—
4,690,414
814,589
7,739,322
111,408
309,723
452,849
99,982
611,968
15,095,150
Preferred stock; $.10 par value; authorized 10,000,000 shares; issued and outstanding -0- shares
—
—
Common stock; $.01 par value; authorized 350,000,000 shares; issued 142,853,667 at
September 30, 2012 and 130,670,086 at September 30, 2011
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 5,117,049 common shares at September 30, 2012 and
4,263,029 common shares at September 30, 2011
Accumulated other comprehensive income
Total equity attributable to Raymond James Financial, Inc.
Noncontrolling interests
Total equity
Total liabilities and equity
1,404
1,030,288
2,346,563
(118,762)
9,447
3,268,940
411,342
3,680,282
1,271
565,135
2,125,818
(95,000)
(9,605)
2,587,619
324,226
2,911,845
$
21,160,265
$
18,006,995
See accompanying Notes to Consolidated Financial Statements.
94
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Revenues:
Securities commissions and fees
Investment banking
Investment advisory fees
Interest
Account and service fees
Net trading profits
Other
Total revenues
Interest expense
Net revenues
Non-interest expenses:
Compensation, commissions and benefits
Communications and information processing
Occupancy and equipment costs
Clearance and floor brokerage
Business development
Investment sub-advisory fees
Bank loan loss provision
Acquisition related expenses
Loss on auction rate securities repurchased
Other
Total non-interest expenses
Income including noncontrolling interests and before provision for income taxes
Provision for income taxes
Net income including noncontrolling interests
Net loss attributable to noncontrolling interests
Net income attributable to Raymond James Financial, Inc.
Net income per common share – basic
Net income per common share – diluted
Weighted-average common shares outstanding – basic
Weighted-average common and common equivalent shares outstanding – diluted
Net income attributable to Raymond James Financial, Inc.
Other comprehensive income, net of tax:(1)
Change in unrealized gain (loss) on available for sale securities and non-credit portion of
other-than-temporary impairment losses
Change in currency translations and net investment hedges
Total comprehensive income
Other-than-temporary impairment:
Total other-than-temporary impairment, net
Portion of (recoveries) losses recognized in other comprehensive income (before taxes)
Net impairment losses recognized in other revenue
Year ended September 30,
2012
2010
2011
(in thousands, except per share amounts)
$
$
$
$
2,535,484
223,579
223,850
453,258
319,718
55,538
86,473
3,897,900
91,369
3,806,531
2,620,058
195,895
134,199
39,422
118,712
29,210
25,894
59,284
—
115,936
3,338,610
467,921
175,656
292,265
(3,604)
295,869
2.22
2.20
130,806
131,791
$
$
$
$
2,190,436
251,183
216,750
392,318
286,523
27,506
35,170
3,399,886
65,830
3,334,056
2,270,735
137,605
108,600
38,461
94,875
30,100
33,655
—
41,391
127,889
2,883,311
450,745
182,894
267,851
(10,502)
278,353
2.20
2.19
122,448
122,836
1,950,909
164,957
173,939
370,892
251,877
38,256
28,686
2,979,516
62,851
2,916,665
1,993,561
121,957
104,945
35,123
80,213
26,700
80,413
—
—
117,609
2,560,521
356,144
133,625
222,519
(5,764)
228,283
1.83
1.83
119,335
119,592
$
$
$
$
$
295,869
$
278,353
$
228,283
12,886
6,166
314,921
$
2,621
(6,029)
274,945
$
30,147
5,459
263,889
$
17,144
(22,419)
(5,275) $
(11,977) $
1,743
(10,234) $
(27,709)
15,679
(12,030)
$
$
$
(1) The components of other comprehensive income, net of tax, are attributable to Raymond James Financial, Inc. None of the components of other comprehensive
income are attributable to noncontrolling interests.
See accompanying Notes to Consolidated Financial Statements.
95
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
2012
Year ended September 30,
2011
(in thousands, except per share amounts)
2010
Common stock, par value $.01 per share:
Balance, beginning of year
Issuance of shares, registered public offering
Other issuances
Balance, end of year
Shares exchangeable into common stock:
Balance, beginning of year
Exchanged
Balance, end of year
Additional paid-in capital:
Balance, beginning of year
Issuance of shares, registered public offering
Employee stock purchases
Exercise of stock options and vesting of restricted stock units, net of forfeitures
Restricted stock, stock option and restricted stock unit expense
Excess tax benefit (deficiency) from share-based payments
Issuance of stock as consideration for acquisition (3)
Other
Balance, end of year
Retained earnings:
Balance, beginning of year
Net income attributable to Raymond James Financial, Inc.
Cash dividends declared
Other
Balance, end of year
Treasury stock:
Balance, beginning of year
Purchases/surrenders
Exercise of stock options and vesting of restricted stock units, net of forfeitures
Issuance of stock as consideration for acquisition
Other
Balance, end of year
Accumulated other comprehensive income: (4)
Balance, beginning of year
Net unrealized gain on available for sale securities and non-credit portion of other-
than-temporary impairment losses (5)
Net change in currency transactions and net investment hedges (5)
Balance, end of year
Total equity attributable to Raymond James Financial, Inc.
Noncontrolling interests:
Balance, beginning of year
Net loss attributable to noncontrolling interests
Capital contributions
Distributions
Deconsolidation of previously consolidated low income housing tax credit funds
Consolidation of low income housing tax credit funds not previously consolidated
Consolidation of private equity partnerships
Other
Balance, end of year
Total equity
$
$
(1)
1,271
111
22
1,404
$
1,244
—
27
1,271
(2)
—
—
—
(1)
565,135
362,712
16,150
23,181
52,538
2,613
—
7,959
1,030,288
2,125,818
295,869
(70,286)
(4,838)
2,346,563
(95,000)
(19,416)
(4,346)
—
—
(118,762)
3,119
(3,119)
(2)
—
476,359
—
10,699
32,675
38,551
(374)
4,011
3,214
565,135
(2)
1,909,865
278,353
(65,808)
3,408
2,125,818
(81,574)
(22,710)
5,220
4,291
(227)
(95,000)
1,227
—
17
1,244
3,198
(79)
3,119
416,662
—
9,775
5,220
39,860
2,280
—
2,562
476,359
1,737,591
228,283
(56,009)
—
1,909,865
(84,412)
(3,537)
6,375
—
—
(81,574)
(9,605)
(6,197)
(41,803)
12,886
6,166
9,447
3,268,940
324,226
(3,604)
38,073
(18,294)
—
—
78,394
(7,453)
411,342
3,680,282
$
$
$
2,621
(6,029)
(9,605)
2,587,619
294,052
(10,502)
33,633
(9,971)
(6,789)
14,635
—
9,168
324,226
2,911,845
$
$
$
30,147
5,459
(6,197)
2,302,816
200,676
(5,764)
100,863
(3,276)
—
—
—
1,553
294,052
2,596,868
$
$
$
(1) During the year ended September, 2012, in a registered public offering, 11,075,000 common shares were issued generating approximately $363 million in net proceeds (after consideration
of the underwriting discount and direct expenses of the offering).
(2) During the year ended September 30, 2011, approximately 243,000 exchangeable shares were exchanged for common stock on a one-for-one basis.
(3)
(4) The components of other comprehensive income are attributable to Raymond James Financial, Inc. None of the components of other comprehensive income are attributable to noncontrolling
In April, 2011, we acquired Howe Barnes, Hoefer & Arnett (“Howe Barnes”) by exchanging RJF shares for all issued and outstanding shares of Howe Barnes.
interests.
(5) Net of tax.
See accompanying Notes to Consolidated Financial Statements.
96
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income attributable to Raymond James Financial, Inc.
Net loss attributable to noncontrolling interests
Net income including noncontrolling interests
Adjustments to reconcile net income including noncontrolling interests to net cash
provided by (used in) operating activities:
Depreciation and amortization
Deferred income taxes
Premium and discount amortization on available for sale securities and unrealized/
realized gain on other investments
Provisions for loan losses, legal proceedings, bad debts and other accruals
Share-based compensation expense
Other
Net change in:
Assets segregated pursuant to regulations and other segregated assets
Securities purchased under agreements to resell and other collateralized financings,
net of securities sold under agreements to repurchase
Stock loaned, net of stock borrowed
Loans to financial advisors, brokerage client receivables and other accounts
receivable, net
Trading instruments, net
Prepaid expenses and other assets
Brokerage client payables and other accounts payable
Accrued compensation, commissions and benefits
Purchase and origination of loans held for sale, net of proceeds from sale of
securitizations and loans held for sale
Excess tax benefits from share-based payment arrangements
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Additions to property and equipment
(Increase) decrease in loans, net
Redemptions (purchases) of Federal Home Loan Bank/Federal Reserve Bank stock, net
(Purchases) sales of private equity and other investments, net
Decrease in securities purchased under agreements to resell
Acquisition of controlling interest in subsidiary
Purchases of available for sale securities
Available for sale securities maturations, repayments and redemptions
Proceeds from sales of available for sale securities
Investments in real estate partnerships held by consolidated variable interest entities, net
of other investing activity
Business acquisition, net of cash acquired (see Note 3 for the components of net assets
acquired)
Net cash (used in) provided by investing activities
2012
Year ended September 30,
2011
(in thousands)
2010
$
$
295,869
(3,604)
292,265
$
278,353
(10,502)
267,851
228,283
(5,764)
222,519
51,445
2,044
(35,462)
32,605
55,729
11,114
40,337
(6,008)
(13,001)
52,639
40,978
45,951
39,527
(25,829)
(14,969)
109,324
41,845
9,699
889,684
(116,231)
(1,120,454)
(209,656)
(357,956)
(69,984)
102,876
12,914
(424,867)
59,987
(18,836)
(2,613)
391,289
(77,515)
(1,451,431)
31,049
(82,707)
—
—
(249,379)
173,189
—
(98,196)
153,248
(82,163)
80,740
(13,418)
1,312,192
34,187
(138,559)
(2,106)
1,558,441
(37,200)
(336,314)
61,508
26,210
—
(6,354)
(238,768)
130,063
13,761
92,122
362,504
(220,476)
(134,857)
(79,969)
(461,604)
89,678
71,827
(2,280)
(1,021,393)
(22,287)
369,370
(67,275)
(23,437)
2,000,000
—
(29,977)
149,961
—
(800)
(13,049)
(10,134)
(1,073,621)
$ (2,731,215) $
—
(400,143) $
—
2,366,221
(continued on next page)
See accompanying Notes to Consolidated Financial Statements.
97
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
Cash flows from financing activities:
Proceeds from borrowed funds, net
Repayments of borrowed funds, net
Proceeds from issuance of shares in registered public offering
Repayments of borrowings by consolidated variable interest entities which are real estate
partnerships
Proceeds from capital contributed to and borrowings of consolidated variable interest
entities which are real estate partnerships
Purchase of additional equity interest in subsidiary
Exercise of stock options and employee stock purchases
Increase (decrease) in bank deposits
Purchase of treasury stock
Dividends on common stock
Excess tax benefits from share-based payment arrangements
2012
Year ended September 30,
2011
(in thousands)
2010
$
$
1,256,459
(550,564)
362,823
249,498
(2,561,324)
—
$
1,607,000
(33,075)
—
(23,145)
(23,679)
(16,995)
30,546
(4,017)
33,811
860,391
(20,860)
(68,782)
2,613
33,229
—
47,383
659,604
(23,111)
(63,090)
2,106
111,910
—
19,917
(2,343,669)
(3,537)
(56,009)
2,280
Net cash provided by (used in) financing activities
1,879,275
(1,679,384)
(712,178)
Currency adjustment:
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Increase in cash resulting from the consolidation of an acquired entity and the acquisition of
a controlling interest in a subsidiary
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
976
(459,675)
(824)
(521,910)
1,116
633,766
—
18,366
3,388
2,439,695
2,943,239
2,306,085
$
1,980,020
$
2,439,695
$
2,943,239
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes
Non-cash transfers of loans to other real estate owned
$
$
$
91,453
176,539
12,653
$
$
$
55,332
194,233
14,198
$
$
$
59,584
161,345
41,233
See accompanying Notes to Consolidated Financial Statements.
98
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
NOTE 1 – INTRODUCTION AND BASIS OF PRESENTATION
Description of business
Raymond James Financial, Inc. (“RJF”) is a financial holding company headquartered in Florida whose broker-dealer
subsidiaries are engaged in various financial service businesses, including the underwriting, distribution, trading and brokerage
of equity and debt securities and the sale of mutual funds and other investment products. In addition, other subsidiaries of RJF
provide investment management services for retail and institutional clients, corporate and retail banking, and trust services. As
used herein, the terms “we,” “our” or “us” refer to RJF and/or one or more of its subsidiaries.
Basis of presentation
The 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 in the
section titled, “Evaluation of VIEs to determine whether consolidation is required” and in Note 11. 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.
In the prior year, we implemented new Financial Accounting Standards Board (“FASB”) guidance regarding the consolidation
of VIEs. This new guidance changed the approach to determine a VIE's primary beneficiary from a quantitative assessment to a
qualitative assessment designed to identify a controlling financial interest. Upon adoption of this new guidance, we deconsolidated
two low-income housing tax credit (“LIHTC”) funds where we determined we are no longer the primary beneficiary, and
consolidated two other LIHTC funds where we determined we are the primary beneficiary under the new guidance. See the “prior
year impact of the adoption of new accounting consolidation guidance” within Note 2, “Evaluation of VIEs to determine whether
consolidation is required,” for further information.
Acquisitions
On April 2, 2012 (the “Closing Date”) RJF completed its acquisition of all of the issued and outstanding shares of Morgan
Keegan & Company, Inc. (a broker-dealer hereinafter referred to as “MK & Co.”) and MK Holding, Inc. and certain of its affiliates
(collectively referred to hereinafter as “Morgan Keegan”) from Regions Financial Corporation (“Regions”). This acquisition
expands both our private client and our capital markets businesses. See Note 3 for further discussion of our acquisition of Morgan
Keegan and Note 25 for information regarding the capital position of MK & Co. as of September 30, 2012. The results of operations
of Morgan Keegan have been included in our results prospectively from April 2, 2012.
As of April 1, 2011, we completed our acquisition of Howe Barnes Hoefer & Arnett (“Howe Barnes”). The Howe Barnes
stockholders received 217,088 shares of our common stock valued at $8.3 million in exchange for all of the outstanding Howe
Barnes shares. We accounted for this acquisition under the acquisition method of accounting with the assets and liabilities of
Howe Barnes recorded as of the acquisition date at their respective fair value and consolidated in our financial statements. Howe
Barnes' results of operations have been included in our results prospectively from April 1, 2011.
As of April 4, 2011, one of our wholly owned subsidiaries increased its pre-existing share of ownership in Raymond James
European Securities, S.A.S. (“RJES”) by contributing $6.4 million in cash in exchange for additional RJES shares. As a result of
this acquisition of incremental RJES shares, effective with this transaction we hold a controlling interest in RJES. Accordingly,
we applied the acquisition method of accounting to our interest in RJES as of the date we acquired the controlling interest, with
the assets and liabilities of RJES recorded at their respective fair value and consolidated in our financial statements, and the portion
we do not own included in noncontrolling interests. RJES results of operations have been included in our results prospectively
from April 4, 2011.
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Index
Significant subsidiaries
Our significant regulated wholly owned subsidiaries include: Raymond James & Associates, Inc. (“RJ&A”) and MK & Co.,
which are domestic broker-dealers carrying client accounts, Raymond James Financial Services, Inc. (“RJFS”) a domestic broker-
dealer, Raymond James Ltd. (“RJ Ltd.”) a broker-dealer headquartered in Canada, and Raymond James Bank, N.A. (“RJ Bank”),
a national bank.
Accounting estimates and assumptions
The preparation of consolidated financial statements in conformity with United States of America (“U.S.”) generally accepted
accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates and could have a material
impact on the consolidated financial statements.
Reporting period
Our quarters end on the last day of each calendar quarter.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recognition of revenues
Securities Commissions & Fees
Securities transactions and related commission revenues and expenses are recorded on a trade date basis. Commission revenues
are recorded at the amount charged to the customer which, in certain cases, may include varying discounts. Insurance commission
revenue and expense are recognized when the delivery of the insurance contract is confirmed by the carrier, the premium is remitted
to the insurance company and the contract requirements are met. Annuity commission revenue and expense are recognized when
the signed contract and premium are submitted to the annuity carrier.
Fee revenues include certain asset-based fees. These include mutual fund and annuity trailing commissions. Revenues are
recorded ratably over the period earned.
Investment Banking
Investment banking revenues are recorded at the time a transaction is completed and the related income is reasonably
determinable. Investment banking revenues include management fees and underwriting fees, net of reimbursable expenses, earned
in connection with the distribution of the underwritten securities, merger and acquisition fees, private placement fees and limited
partnership distributions. Securities received in connection with investment banking transactions are carried at fair value.
We distribute our proprietary equity research products to our client base of institutional investors at no charge.
Investment Advisory Fees
We provide advice, research and administrative services for customers participating in both our managed and non-managed
investment programs. We earn investment advisory fees based on the value of clients' portfolios. These fees are recorded ratably
over the period earned.
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Index
Account and Service Fees
Account and service fees primarily include transaction fees, annual account fees, service charges, exit fees, servicing fees,
money market processing and distribution fees and correspondent clearing fees. The annual account fees such as IRA fees, and
distribution fees are recognized into income as earned over the term of the contract. The transaction fees are earned and collected
from clients as trades are executed. Servicing fees are collected from mutual funds and insurance companies for marketing and
administrative services and are recognized as earned. Under clearing agreements, we clear trades for unaffiliated correspondent
brokers and retain a portion of commissions as a fee for our services. Correspondent clearing revenues are recorded net of
commissions remitted. Total commissions generated by correspondents were $33.5 million, $39.3 million, and $36.4 million and
commissions remitted totaled $31.2 million, $36.1 million, and $33.2 million for the years ended September 30, 2012, 2011, and
2010 respectively.
Cash and cash equivalents
Our cash equivalents include money market funds or highly liquid investments with original maturities of 90 days or less,
other than those used for trading purposes.
Assets segregated pursuant to regulations and other segregated assets
In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, RJ&A and MK & Co., as broker-dealers carrying
client accounts, are subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for
the exclusive benefit of their clients. In addition, RJ Ltd. is required to hold client Registered Retirement Savings Plan funds in
trust. Segregated assets at September 30, 2012 and 2011 consist of cash and cash equivalents.
RJ Bank maintains interest-bearing bank deposits that are restricted for pre-funding letter of credit draws related to certain
syndicated borrowing relationships in which RJ Bank is involved and occasionally pledged as collateral for Federal Home Loan
Bank of Atlanta (“FHLB”) advances. In addition, RJ Bank maintains cash in an interest-bearing pass-through account at the
Federal Reserve Bank in accordance with Regulation D of the Federal Reserve Act, which requires depository institutions to
maintain minimum average reserve balances against its deposits.
Repurchase agreements and other collateralized financings
We purchase securities under short-term agreements to resell (“Reverse Repurchase Agreements”). Additionally, we sell
securities under agreements to repurchase (“Repurchase Agreements”). Both Reverse Repurchase Agreements and Repurchase
Agreements are accounted for as collateralized financings and are carried at contractual amounts plus accrued interest. Our policy
is to obtain possession of collateral with a market value equal to or in excess of the principal amount loaned under the Reverse
Repurchase Agreements. To ensure that the market value of the underlying collateral remains sufficient, the securities are valued
daily, and cash is obtained from or returned to the counterparty when contractually required. These Reverse Repurchase Agreements
generally mature on the next business day, and may result in credit exposure in the event the counterparty to the transaction is
unable to fulfill its contractual obligations. Other collateralized financings include secured call loans receivable held by RJ Ltd.
These financings represent loans of excess cash to financial institutions which are fully collateralized by Canadian treasury bills
or provincial obligations and bear interest at call loan rates.
Financial instruments owned, financial instruments sold but not yet purchased and fair value
Financial instruments owned and financial instruments sold, but not yet purchased are recorded at fair value. Fair value is
defined by GAAP as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants on
the measurement date.
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Index
In determining the fair value of our financial instruments in accordance with GAAP, we use various valuation approaches,
including market and/or income approaches. Fair value is a market-based measure considered from the perspective of a market
participant. As such, even when assumptions from market participants are not readily available, our own assumptions reflect those
that we believe market participants would use in pricing the asset or liability at the measurement date. GAAP provides for the
following three levels to be used to classify our fair value measurements:
Level 1-Financial instruments included in Level 1 are highly liquid instruments with quoted prices in active markets for
identical assets or liabilities. These include equity securities traded in active markets and certain U. S. Treasury securities,
other governmental obligations, or publicly traded corporate debt securities.
Level 2-Financial instruments reported in Level 2 include those that have pricing inputs that are other than quoted prices in
active markets, but which are either directly or indirectly observable as of the reporting date (i.e., prices for similar instruments).
Instruments that are generally included in this category are equity securities that are not actively traded, corporate obligations
infrequently traded, certain government and municipal obligations, interest rate swaps, certain asset-backed securities (“ABS”),
certain collateralized mortgage obligations (“CMOs”), certain mortgage-backed securities (“MBS”), and our derivative
instruments.
Level 3-Financial instruments reported in Level 3 have little, if any, market activity and are measured using our best estimate
of fair value, where the inputs into the determination of fair value are both significant to the fair value measurement and
unobservable. These valuations require significant judgment or estimation. Instruments in this category generally include:
equity securities with unobservable inputs such as those investments made in our proprietary capital segment, certain non-
agency CMOs, certain non-agency ABS, pools of interest-only Small Business Administration (“SBA”) loan strips (“I/O
Strips”) and certain municipal and corporate obligations which include auction rate securities (“ARS”).
GAAP requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when performing
our fair value measurements. The availability of observable inputs can vary from instrument to instrument and in certain cases,
the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument's level
within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment
of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of
factors specific to the instrument.
We offset our long and short positions for a particular security recorded at fair value as part of our trading instruments (long
positions) and trading instruments sold but not yet purchased (short positions), when the long and short positions have identical
Committee on Uniform Security Identification Procedures numbers (“CUSIPs”).
Valuation techniques
The fair value for certain of our financial instruments is derived using pricing models and other valuation techniques that
involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of
judgment involved in determining the fair value of our financial instruments. Financial instruments for which actively quoted
prices or pricing parameters are available will generally have a higher degree of price transparency than financial instruments that
are thinly traded or not quoted. In accordance with GAAP, the criteria used to determine whether the market for a financial
instrument is active or inactive is based on the particular asset or liability. For equity securities, our definition of actively traded
is based on average daily volume and other market trading statistics. We have determined the market for certain other types of
financial instruments, including certain CMOs, ABS, certain collateralized debt obligations and ARS, to be volatile, uncertain or
inactive as of both September 30, 2012 and 2011. As a result, the valuation of these financial instruments included significant
management judgment in determining the relevance and reliability of market information available. We considered the inactivity
of the market to be evidenced by several factors, including a continued decreased price transparency caused by decreased volume
of trades relative to historical levels, stale transaction prices and transaction prices that varied significantly either over time or
among market makers.
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The specific valuation techniques utilized for the categorization of financial instruments presented in our Consolidated
Statements of Financial Condition are described below:
Trading instruments and trading instruments sold but not yet purchased
Trading instruments are comprised primarily of the financial instruments held by our broker-dealer subsidiaries. These
instruments are recorded at fair value with unrealized gains and losses reflected in current period net income.
When available, we use quoted prices in active markets to determine the fair value of our trading securities. Such instruments
are classified within Level 1 of the fair value hierarchy. Examples include exchange traded equity securities and liquid government
debt securities.
When instruments are traded in secondary markets and quoted market prices do not exist for such securities, we utilize valuation
techniques including matrix pricing to estimate fair value. Matrix pricing generally utilizes spread-based models periodically re-
calibrated to observable inputs such as market trades or to dealer price bids in similar securities in order to derive the fair value
of the instruments. Valuation techniques may also rely on other observable inputs such as yield curves, interest rates and expected
principal repayments and default probabilities. Instruments valued using these inputs are typically classified within Level 2 of the
fair value hierarchy. Examples include certain municipal debt securities, corporate debt securities, agency MBS, and restricted
equity securities in public companies. We utilize prices from independent services to corroborate our estimate of fair value.
Depending upon the type of security, the pricing service may provide a listed price, a matrix price or use other methods including
broker-dealer price quotations.
Positions in illiquid securities that do not have readily determinable fair values require significant judgment or estimation.
For these securities we use pricing models, discounted cash flow methodologies or similar techniques. Assumptions utilized by
these techniques include estimates of future delinquencies, loss severities, defaults and prepayments or redemptions. Securities
valued using these techniques are classified within Level 3 of the fair value hierarchy. For certain CMOs, where there has been
limited activity or less transparency around significant inputs to the valuation, such as assumptions regarding performance of the
underlying mortgages, these securities are currently classified within Level 3 of the fair value hierarchy.
I/O Strip securities do not trade in an active market with readily observable prices. Accordingly, we use valuation techniques
that consider a number of factors including: (a) the original cost of the pooled underlying SBA loans from which the I/O Strip
securities were created, and any changes from the original to the hypothetical cost of buying similar loans under current market
conditions; (b) seasoning of the underlying SBA loans in the pool that back the I/O strip securities; (c) the type and nature of the
pooled SBA loans backing the I/O Strip securities; (d) actual and assumed prepayment rates on the underlying pools of SBA loans;
and (e) market data for past trades in comparable I/O Strip securities. Prices from independent sources are used to corroborate
our estimates of fair value. Our I/O Strip securities are recorded in “other securities” within our trading instruments on our
Consolidated Statements of Financial Condition. These fair value measurements use significant unobservable inputs and
accordingly, we classify them as Level 3 of the fair value hierarchy.
Available for sale securities
Available for sale securities are comprised primarily of MBS, CMOs or other mortgage-related debt securities held
predominately by RJ Bank (the “RJ Bank AFS Securities”) and ARS held by a non-broker-dealer subsidiary of RJF (collectively
referred to as the “RJF AFS Securities”).
Interest on the RJF AFS Securities is recognized in interest income on an accrual basis. For the RJ Bank AFS Securities,
discounts are accreted and premiums are amortized as an adjustment to yield over the contractual term of the security. A combination
of the level factor and straight-line methods is used for such securities, the effect of which does not differ materially from the
effective interest method. When a principal reduction occurs on a RJ Bank AFS Security, any related premium or discount is
recognized as an adjustment to yield in the results of operations in the period in which the principal reduction occurs.
Realized gains and losses on sales of any RJF AFS Securities are recognized using the specific identification method and
reflected in other revenue in the period they are sold.
Unrealized gains or losses on any RJF AFS Securities, except for those that are deemed to be other-than-temporary, are
recorded through other comprehensive income and are thereafter presented in equity as a component of accumulated other
comprehensive income (“AOCI”).
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For any RJF AFS Securities in an unrealized loss position at a reporting period end, we make an assessment whether such
securities are impaired on an other-than-temporary basis. In order to evaluate our risk exposure and any potential impairment of
these securities, on at least a quarterly basis, we review the characteristics of each security owned such as, where applicable,
collateral type, delinquency and foreclosure levels, credit enhancement, projected loan losses, collateral coverage, the presence
of U.S. government or government agency guarantees, and issuer credit rating. The following factors are considered in order to
determine whether an impairment is other-than-temporary: our intention to sell the security, our assessment of whether it is more
likely than not that we will be required to sell the security before the recovery of its amortized cost basis, and whether the evidence
indicating that we will recover the amortized cost basis of a security in full outweighs evidence to the contrary. Evidence considered
in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent
to period end, recent events specific to the issuer or industry, forecasted performance of the security and any changes to the rating
of the security by a rating agency.
We intend and have the ability to hold the RJF AFS Securities to maturity. We have concluded that it is not more likely than
not that we will be required to sell these available for sale securities before the recovery of their amortized cost basis.Those
securities whose amortized cost basis we do not expect to recover in full are deemed to be other-than-temporarily impaired and
are written down to fair value with the credit loss portion of the write-down recorded as a realized loss in other revenue and the
non-credit portion of the write-down recorded, net of deferred taxes, in shareholders' equity as a component of AOCI. The credit
loss portion of the write-down is the difference between the present value of the cash flows expected to be collected and the
amortized cost basis of the security.
For any RJF AFS Securities, we estimate the portion of loss attributable to credit using a discounted cash flow model. For
RJ Bank AFS Securities, our discounted cash flow model utilizes relevant assumptions such as prepayment rate, default rate, and
loss severity on a loan level basis. These assumptions are subject to change depending on a number of factors such as economic
conditions, changes in home prices, delinquency and foreclosure statistics, among others. Events that may trigger material declines
in fair values or additional credit losses for these securities in the future would include, but are not limited to, deterioration of
credit metrics, significantly higher levels of default and severity of loss on the underlying collateral, deteriorating credit
enhancement and loss coverage ratios, or further illiquidity. Expected principal and interest cash flows on the impaired debt
security are discounted using the effective interest rate implicit in the security at the time of acquisition or at the current yield used
to accrete the beneficial interest for those securities that are not of high credit quality at acquisition date. The previous amortized
cost basis of the security less the other-than-temporary impairment (“OTTI”) recognized in earnings establishes the new cost basis
for the security.
The fair value of agency and senior non-agency securities included within the RJ Bank AFS Securities is determined by
obtaining third party pricing service bid quotations from two independent pricing services. Third party pricing service bid quotations
are based on either current market data, or for any securities traded in markets where the trading activity has slowed significantly
such as the CMO market, the most recently available market data. The third party pricing services provide comparable price
evaluations utilizing available market data for similar securities. The market data the third party pricing services utilize for these
price evaluations includes observable data comprised of benchmark yields, reported trades, broker-dealer quotes, issuer spreads,
two-sided markets, benchmark securities, bids, offers, reference data including market research publications, and loan performance
experience. In order to validate that the pricing information used by the primary third party pricing service is observable, we
request, on a quarterly basis, some of the key market data available for a sample of senior securities and compare this data to that
which we observed in our independent accumulation of market information. Securities valued using these valuation techniques
are classified within Level 2 of the fair value hierarchy.
For senior non-agency securities within the RJ Bank AFS Securities where a significant difference exists between the primary
third party pricing service bid quotation and the secondary third party pricing service, we utilize a discounted cash flow analysis
to determine which third party price quote is most representative of fair value under the current market conditions. The fair values
for all senior non-agency securities at September 30, 2012 were based on the respective primary third party pricing service bid
quotation. Securities measured using these valuation techniques are generally classified within Level 2 of the fair value hierarchy.
For the one subordinated non-agency security in the RJ Bank AFS Securities portfolio as of September 30, 2012, we estimate
its fair value by utilizing discounted cash flow analyses, using observable market data, where available, as well as our own
unobservable inputs. The unobservable inputs utilized in our valuation reflect our own suppositions about the assumptions that
market participants would use in pricing this security, including those about future delinquencies, loss severities, defaults,
prepayments and discount rates. This security is classified within Level 3 of the fair value hierarchy.
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ARS are long-term variable rate securities tied to short-term interest rates that were intended to be reset through a “Dutch
auction” process, which generally occurs every seven to 35 days. Holders of ARS were previously able to liquidate their holdings
to prospective buyers by participating in the auctions. During 2008, the Dutch auction process failed and holders were no longer
able to liquidate their holdings through the auction process. The fair value of the ARS holdings is estimated based on internal
pricing models. The pricing model takes into consideration the characteristics of the underlying securities, as well as multiple
inputs including the issuer and its credit quality, data from any recent trades, the expected timing of redemptions and an estimated
yield premium that a market participant would require over otherwise comparable securities to compensate for the illiquidity of
the ARS. These inputs require significant management judgment and accordingly, these securities are classified within Level 3
of the fair value hierarchy.
Derivative contracts
In our pre-Morgan Keegan acquisition fixed income business, we entered into interest rate swaps and futures contracts either
as part of our fixed income business to facilitate customer transactions, to hedge a portion of our trading inventory, or to a limited
extent, for our own account. We have continued to conduct this business in a substantially similar fashion subsequent to the
Closing Date of the Morgan Keegan acquisition. These derivatives are accounted for as trading account assets or liabilities and
recorded at fair value in the Consolidated Statements of Financial Condition. Any realized or unrealized gains or losses are recorded
in net trading profits within the Consolidated Statements of Income and Comprehensive Income with any interest earned thereon
recorded in interest income. The fair value of any cash collateral exchanged as part of the interest rate swap contract is netted,
by-counterparty, against the fair value of the derivative instrument. The fair value of these interest rate derivative contracts is
obtained from internal pricing models that consider current market trading levels and the contractual prices for the underlying
financial instruments, as well as time value, yield curve and other volatility factors underlying the positions. Since our model
inputs can be observed in a liquid market and the models do not require significant judgment, such derivative contracts are classified
within Level 2 of the fair value hierarchy. We utilize values obtained from third party derivatives dealers to corroborate the output
of our internal pricing models.
Morgan Keegan facilitates derivative transactions through non-broker-dealer subsidiaries, either Morgan Keegan Financial
Products, LLC or Morgan Keegan Capital Services, LLC (collectively referred to as the Morgan Keegan swaps subsidiaries or
“MKSS”). The only difference between the MKSS entities is that they utilize different third party financial institutions to facilitate
the offsetting transaction. MKSS enters into derivative transactions (primarily interest rate swaps) with customers of MK & Co.
For every derivative transaction MKSS enters into with a customer, it enters into an offsetting transaction with terms that mirror
the customer transaction, with a credit support provider who is a third party financial institution. Any collateral required to be
exchanged under these derivative contracts is administered directly by the customer and the third party financial institution. MKSS
does not hold any collateral, or administer any collateral transactions, related to these instruments. We record the value of each
derivative position held at fair value, as either an asset or an offsetting liability, presented as “derivative instruments associated
with offsetting matched book positions”, as applicable, on our Consolidated Statements of Financial Condition. Fair value is
determined using an internal model which includes inputs from independent pricing sources to project future cash flows under
each underlying derivative contract. The cash flows are discounted to determine the present value. Since any changes in fair
value are completely offset by an opposite change in the offsetting transaction position, there is no net impact on our Consolidated
Statements of Income and Comprehensive Income from changes in the fair value of these derivative instruments. MKSS recognizes
revenue on derivative transactions on the transaction date, computed as the present value of the expected cash flows MKSS expects
to receive from the third party financial institution over the life of the derivative contract. The revenues from these derivative
transactions are included within other revenues on our Consolidated Statements of Income and Comprehensive Income.
A Canadian subsidiary of RJ Bank commenced operations during the year ended September 30, 2012 as a result of a purchase
of substantially all of a foreign bank’s Canadian corporate loan portfolio. RJ Bank enters into three-month forward foreign exchange
contracts to hedge the risk related to their investment in this Canadian subsidiary. These derivatives are recorded at fair value on
the Consolidated Statements of Financial Condition, the majority of which are designated as net investment hedges. The effective
portion of the related gain or loss is recorded, net of tax, in shareholders’ equity as part of the cumulative translation adjustment
component of AOCI with such balance impacting earnings in the event the net investment is sold or substantially liquidated. Gains
and losses on the undesignated portions of these derivative instruments as well as amounts representing hedge ineffectiveness are
recorded in earnings in the Consolidated Statements of Income and Comprehensive Income. Hedge effectiveness is assessed at
each reporting period using a method that is based on changes in forward rates. The measurement of hedge ineffectiveness is
based on the beginning balance of the foreign net investment at the inception of the hedging relationship and performed using the
hypothetical derivative method. However, as the terms of the hedging instrument and hypothetical derivative match at inception,
there is no expected ineffectiveness to be recorded in earnings. The fair value of any cash collateral exchanged as part of the
forward exchange contracts is netted, by counterparty, against the fair value of the derivative instrument.
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The fair value of RJ Bank's forward foreign exchange contracts is determined by obtaining valuations from a third party
pricing service. These third party valuations are based on observable inputs such as spot rates, foreign exchange rates and both
U.S. and Canadian interest rate curves. We validate the observable inputs utilized in the third party valuation model by preparing
an independent calculation using a secondary, third party valuation model. These forward foreign exchange contracts are classified
within Level 2 of the fair value hierarchy.
Private equity investments
Private equity investments are held primarily in our Proprietary Capital segment and consist of various direct and third party
private equity and merchant banking investments, employee investment funds, and various private equity funds which we sponsor.
Private equity investments include 66 private equity fund investments including Raymond James Employee Investment Funds I
and II (collectively, the “Private Funds”). See Note 11 for further discussion of the consolidation of the Raymond James Employee
Investment Funds I and II which are variable interest entities. These Private Funds invest in new and developing companies. Our
investments in these funds cannot be redeemed directly with the funds; our investment is monetized through distributions received
through the liquidation of the underlying assets of those funds. We estimate that the underlying assets of these funds will be
liquidated over the life of these funds (typically 10 to 15 years). Approval by the management of these funds is required for us
to sell or transfer these investments. Merchant banking investments include ownership interests in private companies with long-
term growth potential. See Note 20 for information regarding our unfunded commitments to these funds. These investments are
measured at fair value with any changes recognized in our Consolidated Statements of Income and Comprehensive Income.
The valuation of these investments requires significant management judgment due to the absence of quoted market prices,
inherent lack of liquidity and long-term nature of these assets. As a result, these values cannot be determined with precision and
the calculated fair value estimates may not be realizable in a current sale or immediate settlement of the instrument.
Direct private equity investments are valued initially at the transaction price until significant transactions or developments
indicate that a change in the carrying values of these investments is appropriate. The carrying values of these investments are
adjusted based on financial performance, investment-specific events, financing and sales transactions with third parties and
discounted cash flow models incorporating changes in market outlook. Investments in funds structured as limited partnerships
are generally valued based on the financial statements of the partnerships. Investments valued using these valuation techniques
are classified within Level 3 of the fair value hierarchy.
Other investments
Other investments consist primarily of marketable securities we hold that are associated with an MK & Co. deferred
compensation program, Canadian government bonds, term deposits with Canadian financial institutions, or investments in other
securities arising from the operations of RJ Ltd, and certain investments in limited partnerships (or funds) for which in a number
of instances, one of our affiliates serves as the managing member or general partner (see Note 11 for information regarding such
funds).
Certain MK & Co. employees participate in deferred compensation plans. The balances are invested in certain marketable
securities that are held by MK & Co. until the vesting date, typically five years from the date of the deferral. A liability associated
with these deferrals is reflected as a component of our trade and other liabilities on our Consolidated Statements of Financial
Condition. We use quoted prices in active markets to determine the fair value of these investments. Such instruments are classified
within Level 1 of the fair value hierarchy.
The Canadian government bonds are measured at fair value with any changes recognized in our Consolidated Statements of
Income and Comprehensive Income for the period. The fair value is based upon recent external market transactions. The Canadian
financial institution term deposits are recorded at cost which approximates market value. These investments are classified within
Level 1 of the fair value hierarchy. Certain other investments in financial instruments held by RJ Ltd. include non-agency ABS
that have little, if any, market activity and are measured using our best estimate of fair value, where the inputs into the determination
of fair value are both significant to the fair value measurement and unobservable. These valuations require significant judgment
or estimation and are classified within Level 3 of the fair value hierarchy.
The valuation of the investments in limited partnerships and funds requires significant management judgment due to the
absence of quoted market prices, inherent lack of liquidity and long-term nature of these assets. As a result, these values cannot
be determined with precision and the calculated fair value estimates may not be realizable in a current sale or immediate settlement
of the instrument. Such instruments are classified within Level 3 of the fair value hierarchy.
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See Notes 5 and 6 for the outcome of the application of these fair value policies and procedures.
Brokerage client receivables, loans to financial advisors and allowance for doubtful accounts
Brokerage client receivables include receivables of our asset management and broker-dealer subsidiaries. The receivables
from asset management clients are primarily for accrued asset management service fees, while the receivables from broker-dealer
clients are principally for amounts due on cash and margin transactions and are generally collateralized by securities owned by
the clients. Both the receivables from the asset management and broker-dealer clients are reported at their outstanding principal
balance, adjusted for any allowance for doubtful accounts. When a broker-dealer receivable is considered to be impaired, the
amount of the impairment is generally measured based on the fair value of the securities acting as collateral, which is measured
based on current prices from independent sources such as listed market prices or broker-dealer price quotations. Securities
beneficially owned by customers, including those that collateralize margin or other similar transactions, are not reflected in our
Consolidated Statements of Financial Condition.
We offer loans to financial advisors and certain key revenue producers, primarily for recruiting and retention purposes. These
loans are generally repaid over a five to eight year period with interest recognized as earned. There is no fee income associated
with these loans. We assess future recoverability of these loans through analysis of individual financial advisor production or
other performance standards. Based upon the nature of these financing receivables, we do not analyze this asset on a portfolio
segment or class basis. Further, the aging of this receivable balance is not a determinative factor in computing our allowance for
doubtful accounts, as concerns regarding the recoverability of these loans primarily arise in the event that the financial advisor is
no longer affiliated with us. In the event that the financial advisor is no longer affiliated with us, any unpaid balance of such loan
becomes immediately due and payable to us. In determining the allowance for doubtful accounts related to former employees or
independent contractors, management considers a number of factors including: any amounts due at termination, the reasons for
the terminated relationship, the former financial advisor's overall financial position, and our historical collection experience. When
the review of these factors indicates that further collection activity is highly unlikely, the outstanding balance of such loan is
written-off and the corresponding allowance is reduced. We present the outstanding balance of loans to financial advisors on our
Consolidated Statements of Financial Condition, net of their applicable allowances for doubtful accounts. In April 2012 in
conjunction with our acquisition of Morgan Keegan, $135.7 million of loans were made to Morgan Keegan financial advisors as
part of an employee retention program (see Note 3 for further discussion of this acquisition). The outstanding balance of those
loans at September 30, 2012 is $133.8 million. The allowance for doubtful accounts balance associated with all of our loans to
financial advisors is $2.5 million and $5.9 million at September 30, 2012 and 2011, respectively. Of the September 30, 2012 loans
to financial advisors, the portion of the balance associated with financial advisors who are no longer affiliated with us, after
consideration of the allowance for doubtful accounts, is approximately $1.9 million.
Securities borrowed and securities loaned
Securities borrowed and securities loaned transactions are reported as collateralized financings and recorded at the amount
of collateral advanced or received. In securities borrowed transactions, we are generally required to deposit cash with the lender.
With respect to securities loaned, we generally receive collateral in the form of cash in an amount in excess of the market value
of securities loaned. We monitor the market value of securities borrowed and loaned on a daily basis, with additional collateral
obtained or refunded as necessary.
Bank loans and allowances for losses
Loans held for investment
Bank loans are comprised of loans originated or purchased by RJ Bank and include commercial and industrial (“C&I”) loans,
commercial and residential real estate loans, as well as consumer loans, which are primarily comprised of securities-based loans.
Those loans, which we have the intent and the ability to hold until maturity or payoff, are recorded at their unpaid principal balance
plus any premium paid in connection with the purchase of the loan, less the allowance for loan losses and discounts received in
connection with the purchase of the loan and net of deferred fees and costs on originated loans. Syndicated loans purchased in
the secondary market are recognized as of the earlier of the settlement date or the delayed settlement compensation commencement
date. Interest income is recognized on an accrual basis.
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Loan origination fees and direct costs, as well as premiums and discounts on loans that are not revolving are capitalized and
recognized in interest income using the interest method. For revolving loans, the straight-line method is used based on the
contractual term. Prepayment estimates are factored into the calculation of the amortization of the premiums and discounts on
the residential pooled loans. These prepayment estimates are derived from both historical and estimated future prepayments for
each pool and are adjusted quarterly. Loan commitment fees are generally deferred, and when exercised, recognized as a yield
adjustment over the life of the loan.
RJ Bank segregates its loan portfolio into five portfolio segments, C&I, commercial real estate (“CRE”), CRE construction,
residential mortgage and consumer. 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.
Loans held for sale
Residential mortgage loans originated and intended for sale in the secondary market due to their fixed-rate terms are carried
at the lower of cost or estimated fair value. The fair value of loans held for sale are estimated using observable prices obtained
from counterparties for similar loans. These nonrecurring fair value measurements are classified within Level 2 of the fair value
hierarchy. Gains and losses on sales of these assets are included as a component of other revenue, while interest collected on these
assets is included in interest income. Net unrealized losses are recognized through a valuation allowance by charges to income
as a component of other revenue in the Consolidated Statements of Income and Comprehensive Income. Corporate loans are
designated as held for investment upon inception and recognized in loans receivable. If we subsequently designate a corporate
loan as held for sale, we then write down the carrying value of the loan with a partial charge-off, if necessary, to carry it at the
lower of cost or estimated fair value.
RJ Bank purchases the guaranteed portions of SBA section 7(a) loans and accounts for these loans in accordance with the
policy for loans held for sale, except that the nonrecurring fair value measurements are determined utilizing observable prices
obtained from a third party pricing service. RJ Bank then aggregates SBA loans with similar characteristics into pools for
securitization and sale to the secondary market. Individual loans may be sold prior to securitization. Once the loans are securitized
into a pool, the respective securities are classified as trading instruments and are carried at fair value based on RJ Bank's intention
to sell the securitizations within the near term. Any changes in the fair value as well as any realized gains or losses are reflected
in net trading profits. The fair value of these securitizations is determined utilizing observable prices obtained from a third party
pricing service. The instruments valued using these observable inputs are typically classified within Level 2 of the fair value
hierarchy. Transfers of the securitizations are all accounted for as sales at settlement date when RJ Bank has surrendered control
over the transferred assets. RJ Bank does not retain any interest in the securitizations once they are sold.
Off-balance sheet loan commitments
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. RJ Bank's policy is generally to require customers
to provide collateral at the time of closing. The amount of collateral obtained, if it is deemed necessary by RJ Bank upon extension
of credit, is based on RJ Bank's credit evaluation of the borrower. Collateral held varies but may include accounts receivable,
inventory, real estate, and income-producing commercial properties.
Nonperforming assets
Nonperforming assets are comprised of both nonperforming loans and other real estate owned (“OREO”). Nonperforming
loans represent those loans which have been placed on nonaccrual status and loans which have been restructured in a manner that
grant a concession to a borrower experiencing financial difficulties; loans with such restructurings are discussed further below.
Additionally, any accruing loans which are 90 days or more past due and in the process of collection are considered nonperforming
loans.
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Loans of all classes are placed on nonaccrual status when we determine that full payment of all contractual principal and
interest is in doubt, or the loan is past due 90 days or more as to contractual interest or principal unless the loan, in our opinion,
is well-secured and in the process of collection. When a loan is placed on nonaccrual status, the accrued and unpaid interest
receivable is written off against interest income and accretion of the net deferred loan origination fees cease. Interest is recognized
using the cash method for residential (first mortgage and home equity) and consumer loans and the cost recovery method for
corporate (C&I, CRE and CRE construction) loans thereafter until the loan qualifies for return to accrual status. Loans are returned
to an accrual status when the loans have been brought contractually current with the original or amended terms and have been
maintained on a current basis for a reasonable period, generally six months.
Other real estate acquired in the settlement of loans, including through, or in lieu of, loan foreclosure, is initially recorded at
the lower of cost or estimated fair value less estimated selling costs, establishing a new cost basis. Subsequent to foreclosure,
valuations are periodically performed by RJ Bank and the assets are carried at the lower of the carrying amount or fair value, as
determined by a current appraisal, or valuation less estimated costs to sell and are classified as other assets on the Consolidated
Statements of Financial Condition. These nonrecurring fair value measurements are classified within Level 2 of the fair value
hierarchy. Costs relating to development and improvement of the property are capitalized, whereas those relating to holding the
property are charged to operations. Sales of OREO are recorded as of the settlement date and any associated gains or losses are
included in other revenue on our Consolidated Statements of Income and Comprehensive Income.
Troubled debt restructurings
A loan restructuring is deemed to be a troubled debt restructuring (“TDR”) if we, for economic or legal reasons related to the
borrowers' financial difficulties, grant a concession we would not otherwise consider. In TDRs, for all classes of loans, the
concessions granted, such as interest rate reductions, generally do not reflect current market conditions for a new loan of similar
risk made to another borrower in similar financial circumstances. Other concessions for C&I, CRE and CRE construction loans
may also include the reduction of the guarantor's liability. For those restructurings of first mortgage and home equity residential
mortgage loans which may reflect current market conditions, the concessions granted by RJ Bank are generally interest capitalization
or an extension of the interest-only period. First mortgage and home equity residential mortgage TDRs may be returned to accrual
status when there has been a sustained period of six months of satisfactory performance. C&I, CRE and CRE construction TDRs
have generally been partially charged-off and, therefore, remain on nonaccrual status until the loan is fully resolved.
Impaired loans
Loans in all classes are considered to be impaired when, based on current information and events, it is probable that RJ Bank
will be unable to collect the scheduled payments of principal and interest on a loan when due according to the contractual terms
of the loan agreement. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as
impaired. RJ Bank determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal
and interest owed. For individual loans identified as impaired, impairment is measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate and taking into consideration the factors described below in relation
to the evaluation of the allowance for loan losses, except that as a practical expedient, RJ Bank measures impairment based on
the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. Impaired loans include all
corporate nonaccrual loans, all residential mortgage nonaccrual loans for which a charge-off had previously been recorded, and
all loans which have been modified in TDRs. Interest income on impaired loans is recognized consistently with the recognition
policy of nonaccrual loans.
Allowance for loan losses and reserve for unfunded lending commitments
RJ Bank maintains an allowance for loan losses to provide for probable losses inherent in RJ Bank's loan portfolio. Loan
losses are charged against the allowance when RJ Bank believes the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
RJ Bank has developed policies and procedures for assessing the adequacy of the allowance for loan losses that reflects the
assessment of risk considering all available information. In developing this assessment, RJ Bank relies on estimates and exercises
judgment in evaluating credit risk. The evaluation is inherently subjective as it requires estimates that are susceptible to significant
revision as more information becomes available. Depending on changes in circumstances, future assessments of credit risk may
yield materially different results from the prior estimates, which may require an increase or a decrease in the allowance for loan
losses.
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This allowance for loan loss is comprised of two components: allowances calculated based on formulas for homogenous
classes of loans collectively evaluated for impairment, and specific allowances assigned to certain classified loans individually
evaluated for impairment. These homogeneous classes are a result of management's disaggregation of the loan portfolio and are
comprised of the previously mentioned classes: C&I, CRE, CRE construction, residential first mortgage, residential home equity,
and consumer.
The loans within the C&I, CRE and CRE construction classes are assigned to one of several internal loan grades based upon
the respective loan's credit characteristics. The loans within the residential first mortgage, residential home equity, and consumer
classes are assigned loan grades equivalent to the loan classifications utilized by bank regulators, dependent on their respective
likelihood of loss. We assign each loan grade for all loan classes an allowance percentage based on the perceived risk associated
with that grade. The allowance for loan losses for all non-impaired loans is then calculated based on the reserve percentage
assigned to the respective loan's class and grade. The allowance for loan losses for all impaired loans (except those nonaccrual
residential first mortgage loans which have been partially charged-off) is based on an individual evaluation of impairment as
previously described in the “Impaired loans” section above.
The qualitative and quantitative factors taken into consideration when assigning the loan grades and allowance percentages
to the loans within the C&I, CRE and CRE construction loan classes include: estimates of borrower default probabilities and
collateral values; trends in delinquencies; volume and terms; changes in geographic distribution, updated loan-to-value (“LTV”)
ratios, lending policies, local, regional, and national economic conditions; concentrations of credit risk; past loss history, Shared
National Credit (“SNC”) reviews and examination results from bank regulators. Loan grades for individual C&I, CRE and CRE
construction loans are derived from analyzing two aspects of the risk factors in a particular loan, the obligor rating and the facility
(collateral) rating. The obligor rating relates to a borrower's probability of default and the facility rating is utilized to estimate the
anticipated loss in the event of default. These two ratings, which are based on RJ Bank's most recent two years historical loss data
or historical long-term industry loss rates where RJ Bank has limited loss history, are considered in combination to derive the final
C&I, CRE and CRE construction loan grades and allowance percentages.
For residential first mortgage, residential home equity and consumer loan classes, the qualitative factors considered when
assigning loan grades and allowance percentages include loan performance trends, loan product parameters and qualification
requirements, borrower credit scores at origination, occupancy (i.e., owner occupied, second home or investment property),
documentation level, loan purpose, geographic concentrations, average loan size and loan policy exceptions. These qualitative
measures, while considered and reviewed in establishing the allowance for loan losses, have generally not resulted in any
quantitative adjustments to RJ Bank's historical loss rates. In addition to historical loss rates, the quantitative factors utilized for
the performing residential mortgage loan portfolio include updated LTV ratios and expected home price changes. The allowance
percentages for residential first mortgage, residential home equity and consumer loans are derived from estimates of the probability
of default and loss given default (severity). These estimated loss rates are based on RJ Bank's historical loss data from the eight
quarters prior to the respective quarter-end. RJ Bank segregates the non-classified loans in the residential loan classes, on a
quarterly basis, based upon updated LTV data. RJ Bank obtains the most recently available information (generally on a quarter-
lag) to estimate the current LTV ratios on the individual loans in the residential mortgage loan portfolio. Current LTVs are
estimated, on a loan by loan basis, utilizing the initial appraisal obtained at the time of origination, adjusted for housing price
changes that have occurred since origination using metropolitan statistical area indices. The value of the homes could vary from
values derived from market indices due to changes in the condition of the underlying property, variations in housing price changes
within metropolitan statistical areas and other factors. The product of the default and loss severity percentages is then applied to
the balance of residential first mortgages and residential home equity loan balances, which have been further stratified by updated
LTV in order to calculate the related allowance for loan losses.
As TDRs, regardless of the loan portfolio segment or accrual status, are impaired loans, RJ Bank evaluates its credit risk on
an individual loan basis. The amount of impairment recorded on these loans is measured based on the present value of the expected
future cash flows discounted at the loan's effective interest rate, or if collateral dependent, based on the fair value of the collateral,
less costs to sell. In addition, all redefaults (60 or more days delinquent subsequent to the loan's modification date) on TDRs are
factored into each portfolio segments' allowance for loan losses. Qualitative information, such as geographic area and industry
for TDRs and redefaulted TDRs, is considered and reviewed in the determination of expected loss rates as discussed above.
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RJ Bank reserves for potential losses inherent in its unfunded lending commitments using a methodology similar to that used
for loans in the respective portfolio segment, based upon loan grade and expected funding probabilities for fully binding
commitments. This will result in some reserve variability over different periods depending upon the mix of the loan portfolio at
the time and future funding expectations. All classes of impaired loans which have unfunded lending commitments are analyzed
in conjunction with the impaired reserve process described above. This reserve for unfunded lending commitments is reflected
in other liabilities in our Consolidated Statements of Financial Condition.
Loan charge-off policies
C&I, CRE and CRE construction loans are monitored on an individual basis, and loan grades are reviewed at least quarterly
to ensure they reflect the loan's current credit risk. When RJ Bank determines that it is likely a corporate loan will not be collected
in full, the loan is evaluated for potential impairment. After consideration of the borrower's ability to restructure the loan, alternative
sources of repayment, and other factors affecting the borrower's ability to repay the debt, the portion of the loan deemed to be a
confirmed loss, if any, is charged-off. For collateral-dependent loans secured by real estate, the amount of the loan considered a
confirmed loss and charged-off is generally equal to the difference between the recorded investment in the loan and the collateral's
appraised value less estimated costs to sell. In instances where the individual loan under evaluation is agented by another bank,
and where the agent bank has not ordered a timely update of an outdated appraisal, RJ Bank may make adjustments to previous
appraised values for purposes of calculating specific reserves or taking partial charge-offs. These impaired loans are then considered
to be in a workout status and we evaluate, on an ongoing basis, all factors relevant in determining the collectability and fair value
of the loan. Appraisals on these impaired loans are obtained early in the impairment process as part of determining fair value and
are updated as deemed necessary given the facts and circumstances of each individual situation. Certain factors such as guarantor
recourse, additional borrower cash contributions or stable operations will mitigate the need for more frequent than annual appraisals.
In its ongoing evaluation of each individual loan, RJ Bank may consider more frequent appraisals in locations where commercial
property values are known to be experiencing a greater amount of volatility. For C&I loans, RJ Bank evaluates all sources of
repayment, including the estimated liquidation value of collateral, to arrive at the amount considered to be a loss and charged off.
Corporate banking and credit risk managers also hold a monthly meeting to review criticized loans (loans that are rated special
mention or worse as defined by bank regulators, see Note 9 for further discussion). Additional charge-offs are taken when the
value of the collateral changes or there is an adverse change in the expected cash flows.
The majority of RJ Bank's corporate loan portfolio is comprised of participations in either SNCs or other large syndicated
loans in the U.S. or Canada. The SNCs are U.S. loan syndications totaling over $20 million that are shared between three or more
regulated institutions. Most SNC loans are reviewed annually by the agent bank's regulator, a process in which the other participating
banks have no involvement. Once the SNC annual regulatory review process is complete, RJ Bank receives a summary of the
review of these SNC credits from the Office of the Comptroller of the Currency (“OCC”). This summary includes a synopsis of
each loan's regulatory classification, loans that are designated for nonaccrual status and directed charge-offs. RJ Bank must be at
least as critical with nonaccrual designations, directed charge-offs, and classifications as the OCC. This ensures that each bank
participating in a SNC loan rates the loan at least as critical. Any classification changes may impact RJ Bank's reserves and charge-
offs during the quarter that the SNC information is received from the OCC, however, these differences in classifications are
generally minimal given the size of the SNC loan portfolio. The amount of such adjustments depend upon the classification and
whether RJ Bank had the loan classified differently (either more or less critically) than the SNC review findings and, therefore,
could result in higher, lower, or no change in loan loss provisions than previously recorded. RJ Bank incorporates into its ratings
process any observed regulatory trends in the annual SNC exam process, but there will inherently be differences of opinion on
individual credits due to the high degree of judgment involved. RJ Bank conforms to what it believes will be the regulators' view
of individual credits in its ongoing credit evaluation process.
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Every residential mortgage and consumer loan over 60 days past due is reviewed by RJ Bank personnel monthly and
documented in a written report detailing delinquency information, balances, collection status, appraised value and other data points.
RJ Bank senior management meets monthly to discuss the status, collection strategy and charge-off/write-down recommendations
on every residential mortgage or consumer loan over 60 days past due with charge-offs considered on residential mortgage loans
once the loans are delinquent 90 days or more and then generally taken before the loan is 120 days past due. A charge-off is taken
against the allowance for the difference between the loan amount and the amount that RJ Bank estimates will ultimately be collected,
based on the value of the underlying collateral less estimated costs to sell. RJ Bank predominantly uses broker price opinions
(“BPO”) for these valuations as access to the property is restricted during the collection and foreclosure process and there is
insufficient data available for a full appraisal to be performed. BPOs contain relevant and timely sale comparisons and listings
in the marketplace and, therefore, we have found these BPOs to be reasonable determinants of market value in lieu of appraisals
and more reliable than an automated valuation tool or the use of tax assessed values. A full appraisal is obtained post-foreclosure.
RJ Bank takes further charge-offs against the owned asset if an appraisal has a lower valuation than the original BPO, but does
not reverse previously charged-off amounts if the appraisal is higher than the original BPO. If a loan remains in pre-foreclosure
status for more than six months, an updated valuation is obtained and further charge-offs are taken against the allowance for loan
losses, if necessary. In addition, these loans are reviewed in a monthly delinquency meeting jointly administered by RJ Bank's
retail banking and credit risk managers.
Other assets
Due to its conversion to a national bank during the year ended September 30, 2012, RJ Bank purchased stock in the Federal
Reserve Bank of Atlanta (the “FRB”) during the year in accordance with membership requirements. RJ Bank carries investments
in stock of the FHLB and the FRB at cost. These investments are held in accordance with certain membership requirements, are
restricted, and lack a market. FHLB and FRB stock can only be sold to the issuer or another member institution at its par value.
RJ Bank annually evaluates its holdings in FHLB and FRB stock for potential impairment based upon its assessment of the ultimate
recoverability of the par value of the stock. This annual evaluation is comprised of a review of the capital adequacy, liquidity
position and the overall financial condition of the FHLB and FRB to determine the impact these factors have on the ultimate
recoverability of the par value of the respective stock. Impairment evaluations are performed more frequently if events or
circumstances indicate there may be impairment. Any cash dividends received are recognized as interest income in the Consolidated
Statements of Income and Comprehensive Income.
We maintain investments in a significant number of company-owned life insurance policies utilized to fund certain non-
qualified deferred compensation plans and other employee benefit plans (see Notes 23 and 24 for information on the non-qualified
deferred compensation plans). The life insurance policies are carried at cash surrender value as determined by the insurer. See
Note 10 for additional information.
Investments in real estate partnerships held by consolidated variable interest entities
Raymond James Tax Credit Funds, Inc., a wholly owned subsidiary of RJF (“RJTCF”), is the managing member or general
partner in LIHTC funds, some of which require consolidation (refer to the separate discussion below of our policies regarding the
evaluation of VIEs to determine if consolidation is required). These funds invest in housing project limited partnerships or limited
liability companies (“LLCs”) which purchase and develop affordable housing properties qualifying for federal and state low-
income housing tax credits. The balance presented is the investment in project partnership balance of all of the LIHTC funds
which require consolidation. Additional information is presented below and in Note 11.
Property and equipment
Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization.
Depreciation of assets is primarily provided for using the straight-line method over the estimated useful lives of the assets, which
range from two to seven years for software, two to five years for furniture, fixtures and equipment and 10 to 31 years for buildings,
building components, building improvements and land improvements. Leasehold improvements are amortized using the straight-
line method over the shorter of the remaining lease term or the estimated useful lives of the assets.
Additions, improvements and expenditures that extend the useful life of an asset are capitalized. Expenditures for repairs and
maintenance are charged to operations in the period incurred. Gains and losses on disposals of property and equipment are reflected
in the Consolidated Statements of Income and Comprehensive Income in the period realized.
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Intangible assets
Identifiable intangible assets, which are amortized over their estimated useful lives on a straight-line method, are evaluated
for potential impairment whenever events or changes in circumstances suggest that the carrying value of an asset or asset group
may not be fully recoverable.
Goodwill
Goodwill represents the cost of acquired businesses in excess of the fair value of the related net assets acquired. Goodwill is
evaluated for impairment at least annually or whenever indications of impairment exist. In the course of our evaluation of the
potential impairment of goodwill, we may perform either a qualitative or a quantitative assessment. If we are able to conclude
based upon our qualitative evaluation that goodwill associated with a reporting unit is not impaired, then no further analysis is
performed. If we are unable to qualitatively conclude that no impairment has occurred, we perform a quantitative evaluation. In
the case of a quantitative assessment, we estimate the fair value of the reporting unit which the goodwill that is subject to the
quantitative analysis is associated (generally defined as the businesses for which financial information is available and reviewed
regularly by management) and compare it to the carrying value. If the estimated fair value of a reporting unit is less than its carrying
value, we estimate the fair value of all assets and liabilities of the reporting unit, including goodwill. If the carrying value of the
reporting unit’s goodwill is greater than the estimated fair value, an impairment charge is recognized for the excess. We have
elected December 31 as our annual goodwill impairment evaluation date.
Legal liabilities
We recognize liabilities for contingencies when there is an exposure that, when fully analyzed, indicates it is both probable
that a liability has been incurred and the amount of loss can be reasonably estimated. Whether a loss is probable, and if so, the
estimated range of possible loss, is based upon currently available information and is subject to significant judgment, a variety of
assumptions, and uncertainties. When a range of possible loss can be estimated, we accrue the most likely amount within that
range; if the most likely amount of possible loss within that range is not determinable, we accrue a minimum based on the range
of possible loss. No liability is recognized for those matters which, in managements judgment, the determination of a reasonable
estimate of loss is not possible.
We record liabilities related to legal proceedings in trade and other payables. The determination of these liability amounts
requires significant judgment on the part of management. Management considers many factors including, but not limited to: the
amount of the claim; the amount of the loss in the client's account; the basis and validity of the claim; the possibility of wrongdoing
on the part of one of our employees or financial advisors; previous results in similar cases; and legal precedents and case law.
Each legal proceeding is reviewed with counsel in each accounting period and the liability balance is adjusted as deemed appropriate
by management. Lastly, each case is reviewed to determine if it is probable that insurance coverage will apply, in which case the
liability is reduced accordingly. Any change in the liability amount is recorded in the consolidated financial statements and is
recognized as either a charge, or a credit, to net income in that period. The actual costs of resolving legal proceedings may be
substantially higher or lower than the recorded liability amounts for those matters. We expense our cost of defense related to such
matters in the period they are incurred.
Share-based compensation
We account for share-based awards through the measurement and recognition of compensation expense for all share-based
payment awards made to employees and directors based on estimated fair values. The compensation cost is recognized over the
requisite service period of the awards and is calculated as the market value of the awards on the date of the grant. See Note 23
for additional information. In addition, we account for share-based awards to our independent contractor financial advisors in
accordance with guidance applicable to accounting for equity instruments that are issued to other than employees for acquiring,
or in conjunction with selling, goods or services and guidance applicable to accounting for derivative financial instruments indexed
to, and potentially settled in, a company's own stock. Absent a specific performance commitment, share-based awards granted to
our independent contractor financial advisors are measured at their vesting date fair value and their fair value estimated at reporting
dates prior to that time. The compensation expense recognized each period is based on the most recent estimated value. Further,
we classify these non-employee awards as liabilities at fair value upon vesting, with changes in fair value reported in earnings
until these awards are exercised or forfeited. For purposes of measuring compensation expense these awards are revalued at each
reporting date. See Note 24 for additional information. Compensation expense is recognized for all share-based compensation
with future service requirements over the requisite service period using the straight-line method, and in certain instances, the
graded attribution method.
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Deferred compensation plans
We maintain various deferred compensation plans for the benefit of certain employees and independent contractors that provide
a return to the participant based upon the performance of various referenced investments. For certain of these plans, we invest
directly, as a principal in such investments, related to our obligations to perform under the deferred compensation plans (see the
“Other Investments” discussion within the financial instruments owned, financial instruments sold but not yet purchased and fair
value section of this Note 2 for further discussion of these assets). For other such plans, including our Long Term Incentive Plan
(“LTIP”) and our Wealth Accumulation Plan, we purchase and hold life insurance on the lives of certain current and former
participants to earn a competitive rate of return for participants and to provide a source of funds available to satisfy our obligations
under the plan. Compensation expense is recognized for all awards made under such plans with future service requirements over
the requisite service period using the straight-line method. Changes in the value of the investments, as well as the expenses
associated with the related deferred compensation plans, are recorded in compensation, commissions and benefits expense on our
Consolidated Statements of Income and Comprehensive Income. See Note 23 for additional information.
Leases
We lease office space and equipment under operating leases. We recognize rent expense related to these operating leases on
a straight-line basis over the lease term. The lease term commences on the earlier of the date when we become legally obligated
for the rent payments or the date on which we take possession of the property. For tenant improvement allowances and rent
holidays, we record a deferred rent liability in other liabilities in the Consolidated Statements of Financial Condition and amortize
the deferred rent over the lease term as a reduction to rent expense in the Consolidated Statements of Income and Comprehensive
Income.
Foreign currency translation
We consolidate our foreign subsidiaries and certain joint ventures in which we hold an interest. The statement of financial
condition of the subsidiaries and joint ventures we consolidate are translated at exchange rates as of the period end. The statements
of income are translated at an average exchange rate for the period. The gains or losses resulting from translating foreign currency
financial statements into U.S. dollars are included in other comprehensive income and are thereafter presented in equity as a
component of AOCI. The translation gains or losses related to RJ Bank's U.S. subsidiaries' net investment in their Canadian
subsidiary are tax affected to the extent the Canadian subsidiary's earnings will be repatriated to the U.S.
Income taxes
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year.
We utilize the asset and liability method to provide income taxes on all transactions recorded in the consolidated financial statements.
This method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying
amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference
is determined based on the tax rates that we expect to be in effect when the underlying items of income and expense are realized.
Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or
tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position,
results of operations, or liquidity. See Note 19 for further information on our income taxes.
Earnings per share (“EPS”)
Basic EPS is calculated by dividing earnings available to common shareholders by the weighted-average number of common
shares outstanding. Earnings available to common shareholders' represents Net Income Attributable to Raymond James Financial,
Inc. reduced by the allocation of earnings and dividends to participating securities. Diluted EPS is similar to basic EPS, but adjusts
for the dilutive effect of outstanding stock options by application of the treasury stock method.
Evaluation of VIEs to determine whether consolidation is required
A VIE requires consolidation by the entity's primary beneficiary. Examples of entities that may be VIEs include certain legal
entities structured as corporations, partnerships or limited liability companies.
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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. We hold variable interests in the following VIE's: Raymond James Employee Investment
Funds I and II (the “EIF Funds”), a trust fund established for employee retention purposes (“Restricted Stock Trust Fund”), certain
LIHTC funds (“LIHTC Funds”), various other partnerships and LLCs involving real estate (“Other Real Estate Limited Partnerships
and LLCs”), certain new market tax credit funds sponsored by affiliates of Morgan Keegan (“NMTC Funds”), and certain funds
formed for the purpose of making and managing investments in securities of other entities (“Managed Funds”).
Determination of the primary beneficiary of a VIE
We assess VIEs for consolidation when we hold variable interests in the entity. We consolidate the VIEs that are subject to
assessment when we are deemed to be the primary beneficiary of the VIE. The process for determining whether we are the primary
beneficiary of the VIE is to conclude whether we are a party to the VIE holding a variable interest that meets both of the following
criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE, and (2) has the
obligations to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.
Prior year impact of the adoption of new accounting consolidation guidance
In the prior year, we adopted new accounting guidance regarding the consolidation of VIEs. This new guidance enacted
changes in determining the primary beneficiary of a VIE and increased the frequency of required reassessments to determine
whether an entity is the primary beneficiary of a VIE. Prior to this new accounting guidance, our determination of whether we
were the primary beneficiary of a VIE was based upon whether we were the party to the VIE that absorbed a majority of the VIE's
expected losses, received a majority of its expected residual returns, or both. As a result of the application of the new accounting
guidance, during the year ended September 30, 2011, we:
(1) Deconsolidated two LIHTC Funds in which RJTCF had been deemed to be the primary beneficiary under the prior
accounting guidance. These two entities had consolidated assets of approximately $3.5 million and no consolidated
liabilities. Within equity (as presented on the Consolidated Statements of Financial Condition), their deconsolidation
resulted in an after-tax cumulative effect adjustment to retained earnings and noncontrolling interests of $3.3 million and
$6.8 million, respectively.
(2) Consolidated two LIHTC Funds in which RJTCF is deemed to be the primary beneficiary under the new accounting
guidance. These two entities had consolidated assets of $56.8 million and consolidated liabilities of $42.1 million, and
since we hold less than a 1% interest in these entities, the equity impact of their consolidation was a $14.7 million increase
in noncontrolling interests.
EIF Funds
The EIF Funds are limited partnerships for which we are the general partner. The EIF Funds invest in certain of our private
equity activities as well as other unaffiliated venture capital limited partnerships. The EIF Funds were established as compensation
and retention measures for certain of our key employees. We are deemed to be the primary beneficiary and, accordingly, we
consolidate the EIF Funds.
Restricted Stock Trust Fund
We utilize a trust in connection with certain of our restricted stock unit awards. This trust fund was established and funded
for the purpose of acquiring our common stock in the open market to be used to settle restricted stock units granted as a retention
vehicle for certain employees of our Canadian subsidiary. We are deemed to be the primary beneficiary and, accordingly, consolidate
this trust fund.
LIHTC Funds
RJTCF is the managing member or general partner in a number of LIHTC Funds having one or more investor members or
limited partners. These low-income housing tax credit funds are organized as LLCs or limited partnerships for the purpose of
investing in a number of project partnerships, which are limited partnerships or LLCs that in turn purchase and develop low-
income housing properties qualifying for tax credits.
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Our determination of the primary beneficiary of each tax credit fund in which RJTCF has a variable interest requires judgment
and is based on an analysis of all relevant facts and circumstances, including: (1) an assessment of the characteristics of RJTCF's
variable interest and other involvements it has with the tax credit fund, including involvement of related parties and any de facto
agents, as well as the involvement of other variable interest holders, namely, limited partners or investor members, and (2) the tax
credit funds' purpose and design, including the risks that the tax credit fund was designed to create and pass through to its variable
interest holders. In the design of tax credit fund VIEs, the overriding premise is that the investor members invest solely for tax
attributes associated with the portfolio of low-income housing properties held by the fund, while RJTCF, as the managing member
or general partner of the fund, is responsible for overseeing the fund's operations.
Non-guaranteed low-income housing tax credit funds
As the managing member or general partner of the fund, except for one guaranteed fund discussed below, RJTCF does not
provide guarantees related to the delivery or funding of tax credits or other tax attributes to the investor members or limited partners
of tax credit funds. The investor member(s) or limited partner(s) of the VIEs bear the risk of loss on their investment. Additionally,
under the tax credit funds' designed structure, the investor member(s) or limited partner(s) receive nearly all of the tax credits and
tax-deductible loss benefits designed to be delivered by the fund entity, as well as a majority of any proceeds upon a sale of a
project partnership held by a tax credit fund (fund level residuals). RJTCF earns fees from the fund for its services in organizing
the fund, identifying and acquiring the project partnership investments, ongoing asset management fees, and a share of any residuals
arising from sale of project partnerships upon the termination of the fund.
The determination of whether RJTCF is the primary beneficiary of any of the non-guaranteed LIHTC Funds in which it holds
a variable interest is primarily dependent upon: (1) the analysis of whether the other variable interest holders in the tax credit fund
hold significant participating rights over the activities that most significantly impact the tax credit funds' economic performance,
and/or (2) whether RJTCF has an obligation to absorb losses of, or the right to receive benefits from, the tax credit fund VIE which
could potentially be significant to the fund.
RJTCF sponsors two general types of non-guaranteed tax credit funds: either non-guaranteed single investor funds, or non-
guaranteed multi-investor funds. In single investor funds, RJTCF has concluded that the one single investor member or limited
partner in such funds has significant participating rights over the activities that most significantly impact the economics of the
fund and therefore RJTCF, as managing member or general partner of such funds, does not have the power over such activities.
Accordingly, RJTCF is not deemed to be the primary beneficiary of such single investor funds and these funds are not consolidated.
In multi-investor funds, RJTCF has concluded that since the participating rights over the activities that most significantly
impact the economics of the fund are not held by one single investor, RJTCF is deemed to have the power over such activities.
RJTCF then assesses whether its projected benefits to be received from the multi-investor funds, primarily from ongoing asset
management fees or its share of any residuals upon the termination of the fund, are potentially significant to the fund. RJTCF is
deemed to be the primary beneficiary, and therefore consolidates, any multi-investor fund for which it concludes that such benefits
are potentially significant to the fund.
Among the LIHTC Fund entities evaluated, RJTCF determined that some of the LIHTC Funds it sponsors are not VIEs. These
funds are either: (1) held 99% by RJTCF (one of which typically holds interests in certain tax credit limited partnerships for less
than 90 days, or until beneficial interest in the limited partnership or fund is sold to third parties), or (2) are single investor LIHTC
Funds in which RJTCF holds an interest, but the LIHTC Fund does not meet the VIE determination criteria.
See Note 20 for discussion of our commitments related to RJTCF.
Guaranteed LIHTC fund
In conjunction with one of the multi-investor tax credit funds in which RJTCF is the managing member, RJTCF has provided
the investor members with a guaranteed return on their investment in the fund (the “Guaranteed LIHTC Fund”). As a result of
this guarantee obligation, RJTCF has determined that it is the primary beneficiary of, and accordingly consolidates, this guaranteed
multi-investor fund. See Note 20 for further discussion of the guarantee obligation.
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Other real estate limited partnerships and LLCs
We have a variable interest in several limited partnerships involved in various real estate activities in which one of our
subsidiaries is either the general partner or a limited partner. In addition, RJ Bank often has a variable interest in LLCs involved
in foreclosure or obtaining deeds in lieu of foreclosure, as well as the disposal of the collateral associated with impaired syndicated
loans. Given that we do not have the power to direct the activities that most significantly impact the economic performance of
these partnerships or LLCs, we have determined that we are not the primary beneficiary of these VIEs. Accordingly, we do not
consolidate these partnerships or LLCs. The carrying value of our investment in these partnerships or LLCs represents our risk
of loss.
New market tax credit funds
An affiliate of Morgan Keegan is the managing member of a number of NMTC Funds. NMTC Funds are organized as LLC's
for the purpose of investing in eligible projects in qualified low-income areas or that serve qualified targeted populations. In return
for making a qualified equity investment into the NMTC Fund, the Fund's investor member receives tax credits eligible to apply
against their federal tax liability. These new market tax credits are taken by the investor member over a seven year period.
Each of these NMTC Funds have one investor member. We have concluded that in each of these NMTC Funds, the investor
member of such funds has significant participating rights over the activities that most significantly impact the economics of the
NMTC Fund and, therefore, the affiliate of Morgan Keegan as the managing member of the NMTC Fund does not have the power
over such activities. Accordingly, the affiliate of Morgan Keegan is not deemed to be the primary beneficiary of these NMTC
Funds and, therefore, they are not consolidated.
Managed Funds
One of our subsidiaries (a subsidiary of Howe Barnes) is the general partner in funds which we determined to be VIEs that
we are not required to consolidate. We are not required to consolidate these funds since they each satisfy the conditions for deferral
of the determination of who is the primary beneficiary and therefore, who has the obligation to consolidate. These funds meet the
deferral criteria as: 1) these funds' primary business activity involves investment in the securities of other entities not under
common management for current income, appreciation or both; 2) ownership in the funds is represented by units of investments
to which proportionate shares of net assets can be attributed; 3) the assets of the funds are pooled to avail owners of professional
management; 4) the funds are the primary reporting entities; and 5) the funds do not have an obligation (explicit or implicit) to
fund losses of the entities that could be potentially significant.
Reclassifications
Certain prior period amounts, none of which are material, have been reclassified to conform to the current presentation.
117
Index
NOTE 3 – ACQUISITION OF MORGAN KEEGAN
As of the Closing Date, we applied the acquisition method of accounting to our acquisition of Morgan Keegan (as more fully
described in Note 1).
Net assets acquired and consideration paid
The fair value of the assets acquired and liabilities assumed as of the Closing Date are reflected below (in thousands).
Cash and cash equivalents
Assets segregated pursuant to regulations and other segregated assets
Securities purchased under agreements to resell and other collateralized financings
Financial instruments:
Trading instruments
Available for sale securities
Private equity
Other investments
Derivative instruments associated with offsetting matched book positions
Receivables:
Brokerage clients
Stock borrowed
Brokers-dealers and clearing organizations
Loans to financial advisors
Other
Deposits with clearing organizations
Prepaid expenses and other assets
Property and equipment
Acquired identifiable intangible assets
Goodwill
Trading instruments sold but not yet purchased
Securities sold under agreements to repurchase
Derivative instruments associated with offsetting matched book positions
Payables:
Brokerage client payables
Stock loaned
Brokers-dealers and clearing organizations
Trade and other
Accrued compensation, commissions and benefits
Net assets acquired at fair value
$
$
114,466
125,200
166,604
504,477
122,309
46,394
198,639
402,954
365,567
16,020
281,255
71,362
28,661
51,362
244,500
34,269
65,000
228,187
(216,094)
(368,782)
(402,954)
(372,981)
(8,307)
(12,171)
(321,265)
(176,585)
1,188,087
The fair value of the consideration paid and the estimated net purchase price are as follows (in thousands):
Cash paid to Regions on the Closing Date
Purchase price adjustment, cash received from Regions subsequent to the Closing Date(1)
Final purchase price consideration
$
$
1,211,097
(23,010)
1,188,087
(1) Results from the determination of the final Closing Date tangible book value of Morgan Keegan, as discussed below.
The total cash flow impact during fiscal year 2012 of a use of cash of $1.1 billion results from the $1.2 billion cash payment
on the Closing Date offset by Morgan Keegan's Closing Date cash balance of $114 million and the $23 million purchase price
adjustment paid to RJF by Regions resulting from the determination of the Closing Date tangible book value of Morgan Keegan.
118
Index
During the fourth quarter of fiscal year 2012, we completed our initial determinations of the fair values of the net assets
acquired on the Closing Date. Accordingly, certain adjustments have been made to the fair values of net acquired assets as of the
Closing Date from those preliminary estimates reported in our June 30, 2012 Form 10-Q. Among the most significant of these
adjustments, we reduced our preliminary identifiable intangible asset valuation estimate by $19 million, a change which resulted
from the completion of our valuations of such assets. The net changes in our preliminary valuation estimates of all other components
of acquired net assets resulted in a $5.3 million increase in the value of net assets acquired. As a result of these adjustments,
goodwill increased $13.7 million from the amount reported in our June 30, 2012 Form 10-Q.
Identifiable intangible assets
Identifiable intangible assets acquired in the Morgan Keegan acquisition and their respective useful lives are as follows:
Identified intangible asset description:
Customer relationships
Developed technology
Trade names
Non-competition agreements
Total identified intangible assets
Asset amount
(in thousands)
51,000
$
11,000
2,000
1,000
65,000
$
Weighted
average useful
lives (in yrs)
13.8
5.0
1.0
1.5
See Note 13 for information regarding the amortization associated with the identifiable intangible assets.
Goodwill
The remaining consideration, after adjusting for the identified intangible assets and the net assets and liabilities recorded at
fair value, is $228.2 million, which represents synergies resulting from combining the businesses, and is allocated to goodwill.
We elected to write-up to fair value, the tax basis of the acquired assets and liabilities assumed. As a result of this tax election,
$65 million of the net deferred tax asset balance of Morgan Keegan as of the Closing Date is included in our allocation to goodwill.
The goodwill arising from this transaction is attributable to our private client group and our capital markets segments (see Note
13 for additional information). The portion of goodwill that is amortizable for tax purposes is approximately $219 million.
Selected Unaudited Pro forma financial information
The following unaudited pro forma financial information assumes the acquisition had occurred at the beginning of each period
presented. Our fiscal year 2012 results of operations include the operations of Morgan Keegan for the period from April 2, 2012
to September 30, 2012. Integration of both equity and fixed income capital markets operations of Morgan Keegan began immediately
following the Closing Date which precludes the definitive determination of legacy Morgan Keegan results in those areas. Therefore,
the results of the Morgan Keegan business, as acquired, does not exist as a discrete comparable entity within our reporting structure.
Pro forma results have been prepared by adjusting our historical results to include Morgan Keegan's results of operations
adjusted for the following: amortization expense related to the identifiable intangible assets arising from the acquisition; interest
expense to reflect the impact of senior notes issued in March 2012; incremental bonus expense resulting from the bonus agreements
made for retention purposes to certain Morgan Keegan financial advisors, incremental compensation expense related to restricted
stock units granted to certain executives and key revenue producers for retention purposes; our acquisition expenses; a $545 million
goodwill impairment charge included in Morgan Keegan's pre-Closing Date financial statements directly resulting from the
transaction; and the applicable tax effect of each adjustment described above. The weighted average common shares used in the
computation of both pro forma basic and pro forma diluted earnings per share were adjusted to reflect that the issuance of additional
RJF shares that occurred in February 2012 had been outstanding for the entirety of each respective period presented.
119
Index
The unaudited pro forma results presented do not necessarily reflect the results of operations that would have resulted had
the acquisition been completed at the beginning of the applicable periods presented, nor does it indicate the results of operations
in future periods. Additionally, the unaudited pro forma results do not include the impact of possible business model changes, nor
does it consider any potential impacts of current market conditions on revenues, reduction of expenses, asset dispositions, or other
factors. The impact of these items could alter the following unaudited pro forma results.
Year ended
Pro forma results (Unaudited):
Total net revenues
Net income
Net income per share:
Basic
Diluted
$
$
$
$
September 30, 2012
September 30, 2010
September 30, 2011
($ in thousands except per share amounts)
4,319,533
352,806
4,386,632
319,083
$
$
$
$
2.62
2.60
$
$
2.32
2.32
$
$
3,978,836
105,085
(1)
0.73 (1)
0.73 (1)
(1) The operating results of Morgan Keegan for the twelve month period ending September 30, 2010 were adversely impacted by substantial
litigation related expense.
Other items of significance
Under the terms of the Stock Purchase Agreement (the “SPA”), on the Closing Date RJF paid Regions approximately $1.2
billion in cash in exchange for the Morgan Keegan shares. This purchase price represented a $230 million premium over a
preliminary estimate of tangible book value at closing of $970 million. The SPA contemplated that Morgan Keegan would pay a
cash dividend of $250 million to Regions prior to the closing of the transaction. However, the parties subsequently decided to
defer payment of the dividend until after the closing, resulting in an increase in the book value of Morgan Keegan and therefore,
the purchase price. Following the closing, RJF received a cash dividend in the amount of $250 million from Morgan Keegan.
Subsequent to the Closing Date, the parties to the SPA determined the final closing date tangible book value and Regions paid us
approximately $23 million in settlement of the final purchase price. The SPA provided for a potential downward adjustment of
the purchase price if certain revenue retention hurdles were not met during the 90 days following closing; such revenue retention
hurdles were met as of July 2, 2012 and as a result there was no downward adjustment of the purchase price related to any revenue
retention hurdles.
During April, 2012, RJF made approximately $136 million of loans to Morgan Keegan financial advisors and issued
approximately 1.5 million of restricted stock units to certain key Morgan Keegan revenue producers as part of an employee retention
program (see Note 23 for additional information on our employee benefit plans). Concurrent with the execution of the SPA, RJF
executed employment agreements with certain key members of the Morgan Keegan management team.
In addition to customary indemnity for breaches of representations and warranties and covenants, the SPA also provides that
Regions will indemnify RJF for losses incurred in connection with legal proceedings pending as of the closing date or commenced
after the closing date and related to pre-closing matters. With respect to the indemnification pertaining to most breaches of
representations and warranties and covenants, there is no indemnification for the first $9 million of aggregate losses, and thereafter
indemnification is subject to a maximum amount equal to 15% of the purchase price. With respect to representations regarding
certain fundamental matters and with respect to legal proceedings pending as of the Closing Date, such matters are not subject to
any annual indemnification deductible or cap. Indemnification for legal proceedings commenced after the closing is subject to
an aggregate annual $2 million indemnification deductible for three years, after which RJF is entitled to receive the full amount
of all such losses incurred in excess of $2 million.
In our application of the acquisition method of accounting, we recorded an indemnification asset of approximately $198
million pertaining primarily to legal matters, which is included in other assets (see Note 10 for additional information), and the
related liability is reflected in trade and other payables on our Consolidated Statements of Financial Condition. See Note 20 for
discussion of the Morgan Keegan pre-Closing Date litigation matters.
On January 11, 2012, J.P. Morgan Chase (“JPM Chase”) entered into a commitment letter to provide RJF with a $900 million
bridge financing facility to provide financing of the purchase price. On February 16, 2012, JPM Chase and a number of other
lenders executed a $900 million bridge credit agreement (the “Bridge Financing Agreement”). As a result of the successful
completion of certain equity and debt financings during the quarter ended March 31, 2012, RJF terminated the Bridge Financing
Agreement on March 10, 2012.
120
Index
On the Closing Date, certain subsidiaries of RJF (the “Borrowers”) entered into a credit agreement (the “Regions Credit
Agreement”) with Regions Bank, an Alabama banking corporation (the “Lender”). On November 14, 2012, the outstanding
balance on the Regions Credit Agreement was repaid, and a new credit agreement was executed with the Lender. See Note 17
for information regarding these borrowings.
One or more of Morgan Keegan’s affiliates are the general partner in private equity funds. As a result of the general partner
interest, we are consolidating nine of the funds. Our share (inclusive of any related parties for purposes of this determination) of
the ownership interest in the funds we are consolidating ranges from 9% to 100%. As a result of the consolidation, funds with
total assets of approximately $116 million as of the Closing Date were consolidated. The portion of the consolidated funds equity
that is attributable to others is approximately $78 million.
Acquisition related expenses
Acquisition related expenses are recorded in the Consolidated Statement of Income and Comprehensive Income and include
certain incremental expenses arising solely as a result of our acquisition of Morgan Keegan. During the year ended September
30, 2012, we incurred the following acquisition related expenses:
Year ended
September 30, 2012
(in thousands)
$
Severance (1)
Financial advisory fees
Integration costs
Bridge Financing Agreement fees
Legal
Other
Total acquisition related expenses
$
20,939
7,040
22,419
5,684
2,267
935
59,284
(1) Represents all costs associated with eliminating positions as a result of the Morgan Keegan acquisition, partially offset by the favorable
impact arising from the forfeiture of any unvested accrued benefits.
NOTE 4 – CASH AND CASH EQUIVALENTS, ASSETS SEGREGATED PURSUANT TO REGULATIONS, AND
DEPOSITS WITH CLEARING ORGANIZATIONS
Our cash and cash equivalents, assets segregated pursuant to regulations or other segregated assets, and deposits with clearing
organization balances are as follows:
Cash and cash equivalents:
Cash in banks
Money market investments
Total cash and cash equivalents (1)
Cash and securities segregated pursuant to federal regulations and other segregated assets (2)
Deposits with clearing organizations (3)
September 30,
2012
2011
(in thousands)
$
$
1,973,897
6,123
1,980,020
2,784,199
163,848
4,928,067
$
$
2,438,249
1,446
2,439,695
3,548,683
91,482
6,079,860
(1) The total amounts presented include cash and cash equivalents of $539 million and $471 million as of September 30, 2012 and 2011,
respectively, which are either held directly by RJF, are on deposit at RJ Bank, or are otherwise invested by one of our subsidiaries on
behalf of RJF.
(2) Consists of cash maintained in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934. RJ&A and MK & Co., as a broker-
dealers carrying client accounts, are subject to requirements related to maintaining cash or qualified securities in segregated reserve
accounts for the exclusive benefit of their clients. Additionally, RJ Ltd. is required to hold client Registered Retirement Savings Plan
funds in trust.
(3) Consists of deposits of cash and cash equivalents or other short-term securities held by other clearing organizations or exchanges.
121
Index
NOTE 5 – FAIR VALUE
Assets and liabilities measured at fair value on a recurring and nonrecurring basis are presented below:
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
Significant
other
observable
inputs
(Level 2) (1)
Significant
unobservable
inputs
(Level 3)
(in thousands)
Netting
adjustments (2)
Balance as of
September 30,
2012
7
15,916
10,907
1,085
—
27,915
—
23,626
864
52,405
—
—
12
—
—
12
—
303,817
—
—
356,234
$
$
346,030
70,815
156,492
104,084
1,986
679,407
144,259
2,891
12,131
838,688
352,303
147,558
—
—
—
499,861
—
2,897
458,265
—
$
553
—
—
—
29
582
—
6
5,850
6,438
—
249
—
(3)
123,559
110,193
234,001
336,927 (4)
4,092
—
—
— $
—
—
—
—
—
(93,259)
—
—
(93,259)
—
—
—
—
—
—
—
—
—
—
346,590
86,731
167,399
105,169
2,015
707,904
51,000
26,523
18,845
804,272
352,303
147,807
12
123,559
110,193
733,874
336,927
310,806
458,265
—
$
1,799,711
$
581,458
$
(93,259) $
2,644,144
September 30, 2012
Assets at fair value on a recurring basis:
Trading instruments:
Municipal and provincial obligations
Corporate obligations
Government and agency obligations
Agency MBS and CMOs
Non-agency CMOs and ABS
Total debt securities
$
Derivative contracts
Equity securities
Other securities
Total trading instruments
Available for sale securities:
Agency MBS and CMOs
Non-agency CMOs
Other securities
ARS:
Municipals
Preferred securities
Total available for sale securities
Private equity investments
Other investments (5)
Derivative instruments associated with
offsetting matched book positions
Other assets
Total assets at fair value on a recurring basis
$
Assets at fair value on a nonrecurring
basis:
Bank loans, net:
Impaired loans(6)
Loans held for sale(7)
Total bank loans, net
OREO(8)
Total assets at fair value on a nonrecurring
basis
$
$
— $
—
—
—
— $
$
47,409
81,093
128,502
6,216
$
46,383
—
46,383
—
— $
—
—
—
93,792
81,093
174,885
6,216
134,718
$
46,383
$
— $
181,101
(continued on next page)
122
Index
September 30, 2012
Liabilities at fair value on a recurring
basis:
Trading instruments sold but not yet
purchased:
Municipal and provincial obligations
Corporate obligations
Government obligations
Agency MBS and CMOs
Non-agency MBS and CMOs
Total debt securities
Derivative contracts
Equity securities
Other securities
Total trading instruments sold but not
yet purchased
Derivative instruments associated with
offsetting matched book positions
Trade and other payables:
Derivative contracts
Other
Total trade and other payables
Total liabilities at fair value on a
recurring basis
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
Significant
other
observable
inputs
(Level 2) (1)
Significant
unobservable
inputs
(Level 3)
(in thousands)
Netting
adjustments (2)
Balance as of
September 30,
2012
(continued from previous page)
$
— $
33
199,501
556
—
200,090
—
9,636
—
209,726
—
—
—
—
$
212
12,355
587
—
121
13,275
128,081
64
6,269
147,689
458,265
1,370
—
1,370
$
209,726
$
607,324
$
—
—
—
—
—
—
—
—
—
—
—
—
98
98
98
$
— $
—
—
—
—
—
(124,979)
—
—
212
12,388
200,088
556
121
213,365
3,102
9,700
6,269
(124,979)
232,436
—
—
—
—
458,265
1,370
98
1,468
$
(124,979) $
692,169
(1) We had no transfers of financial instruments from Level 1 to Level 2 during the year ended September 30, 2012. We had $541 thousand in
transfers of financial instruments from Level 2 to Level 1 during the year ended September 30, 2012. These transfers were a result of an
increase in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. Our policy is
that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.
(2) Where permitted, we have elected to net derivative receivables and derivative payables and the related cash collateral received and paid when
a legally enforceable master netting agreement exists.
(3) Includes $48 million of Jefferson County, Alabama Limited Obligation School Warrants ARS and $22 million of Jefferson County, Alabama
Sewer Revenue Refunding Warrants ARS.
(4) Includes $224 million in private equity investments of which the weighted-average portion we own is approximately 28%. Effectively, the
economics associated with the portions of these investments we do not own become a component of noncontrolling interests on our Consolidated
Statements of Financial Condition, and amounted to approximately $161 million of that total as of September 30, 2012.
(5) Other investments include $185.3 million of financial instruments we hold that are related to MK & Co.'s obligations to perform under certain
of its deferred compensation plans (see Note 23 for further information regarding these plans).
(6) During the year ended September 30, 2012, we initially transferred $55 million of impaired loans from Level 3 to Level 2. The transfer was
a result of the increase in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. Our
analysis indicates that comparative sales data is a reasonable estimate of fair value, therefore, more consideration was given to this observable
input.
(7) Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.
(8) Represents the fair value of foreclosed properties which were measured at a fair value subsequent to their initial classification as OREO. The
recorded value in the Consolidated Statements of Financial Condition is net of the estimated selling costs.
123
Index
September 30, 2011
Assets at fair value on a recurring basis:
Trading instruments:
Municipal and provincial obligations
Corporate obligations
Government and agency obligations
Agency MBS and CMOs
Non-agency CMOs and ABS
Total debt securities
Derivative contracts
Equity securities
Other securities
Total trading instruments
Available for sale securities:
Agency MBS and CMOs
Non-agency CMOs
Other securities
ARS:
Municipals
Preferred securities
Total available for sale securities
Private equity investments
Other investments
Other assets
Total assets at fair value on a recurring basis
Assets at fair value on a nonrecurring
basis:
Bank loans, net (5)
OREO(6)
Total assets at fair value on a nonrecurring
basis
$
$
$
$
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
Significant
other
observable
inputs
(Level 2) (1)
Significant
unobservable
inputs
(Level 3)
(in thousands)
Netting
adjustments (2)
Balance as of
September 30,
2011
$
8
4,137
22,620
31
—
26,796
—
17,908
816
45,520
—
—
10
—
—
10
—
123,421
—
168,951
$
— $
—
— $
$
$
$
164,019
23,470
13,486
147,726
49,069
397,770
126,867
3,274
7,463
535,374
178,732
145,024
—
—
—
323,756
—
63
2,696
861,889
39,621
11,278
$
375
—
—
—
50
425
—
15
—
440
—
851
—
(3)
79,524
116,524
196,899
168,785
(4)
2,087
—
368,211
$
— $
—
—
—
—
—
(88,563)
—
—
(88,563)
—
—
—
—
—
—
164,402
27,607
36,106
147,757
49,119
424,991
38,304
21,197
8,279
492,771
178,732
145,875
10
79,524
116,524
520,665
—
—
—
168,785
125,571
2,696
(88,563) $ 1,310,488
111,941 (7) $
—
— $
—
151,562
11,278
50,899
$
111,941
$
— $
162,840
(continued on next page)
124
Index
September 30, 2011
Liabilities at fair value on a recurring
basis:
Trading instruments sold but not yet
purchased:
Municipal and provincial obligations
Corporate obligations
Government obligations
Agency MBS and CMOs
Total debt securities
Derivative contracts
Equity securities
Total trading instruments sold but not
yet purchased
Trade and other payables:
Other liabilities
Total trade and other payables
Total liabilities at fair value on a
recurring basis
$
$
$
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
Significant
other
observable
inputs
(Level 2) (1)
Significant
unobservable
inputs
(Level 3)
(in thousands)
Netting
adjustments (2)
Balance as of
September 30,
2011
(continued from previous page)
— $
—
56,472
159
56,631
—
6,488
63,119
—
— $
607
5,625
—
—
6,232
112,457
211
118,900
20
20
63,119
$
118,920
$
$
$
—
—
—
—
—
—
—
—
40
40
40
$
$
$
— $
—
—
—
—
(105,869)
—
(105,869)
—
— $
607
5,625
56,472
159
62,863
6,588
6,699
76,150
60
60
(105,869) $
76,210
(1) We had no significant transfers of financial instruments between Level 1 and Level 2 during the period ended September 30, 2011. Our policy
is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.
(2) Where permitted, we have elected to net derivative receivables and derivative payables and the related cash collateral received and paid when
a legally enforceable master netting agreement exists.
(3) Includes $53 million of Jefferson County, Alabama Limited Obligation School Warrants ARS and $19 million of Jefferson County, Alabama
Sewer Revenue Refunding Warrants ARS.
(4) Includes $88 million in private equity investments of which the weighted-average portion we own is approximately 20%. Effectively, the
economics associated with the portions of these investments we do not own become a component of noncontrolling interests on our Consolidated
Statements of Financial Condition, and amounted to approximately $70 million of that total as of September 30, 2011.
(5) Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.
(6) Represents the fair value of foreclosed properties which were measured at a fair value subsequent to their initial classification as OREO. The
recorded value in the Consolidated Statements of Financial Condition is net of the estimated selling costs.
(7) At September 30, 2011, Level 3 assets include residential first mortgage nonaccrual loans for which a charge-off had been recorded.
125
Index
The adjustment to fair value of the nonrecurring fair value measures for the year ended September 30, 2012 resulted in $21
million in additional provision for loan losses and $2 million in other losses.
Changes in Level 3 recurring fair value measurements
The realized and unrealized gains and losses for assets and liabilities within the Level 3 category presented in the tables below
may include changes in fair value that were attributable to both observable and unobservable inputs.
Additional information about Level 3 assets and liabilities measured at fair value on a recurring basis is presented below:
Year ended September 30, 2012
Level 3 assets at fair value
(in thousands)
Financial assets
Trading instruments
Available for sale securities
Private equity and other
investments
Financial
liabilities
Payables-
trade
and
other
Municipal
&
provincial
obligations
Non-
agency
CMOs &
ABS
Equity
securities
Other
securities
Non-
agency
CMOs
ARS –
municipals
ARS -
preferred
securities
Private
equity
investments
Other
investments
Other
liabilities
Fair value
September 30, 2011
$
375
$
50
$
15
$
—
$
851
$
79,524
$ 116,524
$
168,785
$
2,087
$
(40)
Total gains (losses) for the year:
Included in earnings
Included in other
comprehensive
income
Purchases and
contributions
Sales
Redemptions by issuer
Distributions
Transfers:
Into Level 3
Out of Level 3(3)
Fair value
September 30, 2012
Change in unrealized
gains (losses) for
the year included in
earnings (or
changes in net
assets) for assets
held at the end of
the year
11
—
18
89
—
553
(320)
—
—
—
(144)
(3)
—
—
—
—
(18)
—
—
(1,034)
(691)
(1,487)
(75)
(1)
36,098
—
130
(7,651)
(1,528)
—
16,268
(16)
(14,251)
—
—
—
(1,710)
156
(178)
(2)
6,577
—
—
—
—
(41)
—
—
56,344
66,915
162,795
(4)
—
—
(3,214)
(71,600)
—
—
—
43
—
—
(30,751)
—
(43)
—
—
296
—
2,276
—
—
(567)
—
—
(58)
—
—
—
—
—
—
—
$
553
$
29
$
6
$
5,850
$
249
$
123,559
$ 110,193
$
336,927
$
4,092
$
(98)
$
— $
9
$
(5) $ (1,034)
$ (691) $
(9,060) $
(1,528) $
36,098 (1) $
172
$
—
(1) Primarily results from valuation adjustments of certain private equity investments. Since we only own a portion of these investments, our
share of the net valuation adjustments resulted in a gain of $15.2 million which is included in net income attributable to RJF (after noncontrolling
interests). The noncontrolling interests' share of the net valuation adjustments was a gain of approximately $20.9 million.
(2) During the year ended September 30, 2012, we transferred certain non-agency CMOs and ABS securities which were previously included in
Level 2, into Level 3, due to a decrease in the availability and reliability of the observable inputs utilized in the respective instruments’ fair
value measurement.
(3) The transfers out of Level 3 were a result of an increase in availability and reliability of the observable inputs utilized in the respective
instruments’ fair value measurement.
(4) Includes private equity investments of approximately $46 million arising from the Morgan Keegan acquisition and $97 million of other
investments arising from the consolidation of certain of Morgan Keegan's private equity funds (see Note 3 for further information regarding
the Morgan Keegan acquisition and the consolidation of some of the private equity funds they sponsor).
126
Index
Year ended September 30, 2011
Level 3 assets at fair value
(in thousands)
Financial assets
Trading instruments
Available for sale securities
Private equity and other
investments
Financial
liabilities
Payables-
trade
and other
Municipal
&
provincial
obligations
Non-
agency
CMOs &
ABS
Equity
securities
Non-
agency
CMOs
ARS –
municipals
ARS -
preferred
securities
Private
equity
investments
Other
investments
Other
liabilities
$
6,275
$
3,930
$
3,025
$
1,011
$
— $
— $
161,230
$
45
$
(46)
Fair value
September 30, 2010
Total gains (losses) for the year:
Included in earnings
(397)
1,318
(176)
Included in other comprehensive
income
Purchases,and contributions
Sales
Redemptions by issuer
Distributions
Transfers:
Into Level 3 (2)
Out of Level 3 (2)
Fair value
September 30, 2011
Change in unrealized gains (losses)
for the year included in earnings
(or changes in net assets) for
assets held at the end of the year
$
$
—
1,050
(305)
—
—
—
(6,248)
—
12
(5,210)
—
—
—
—
—
688
(1,225)
(1,125)
—
—
(1,172)
121
155
—
(436)
—
—
—
—
—
73,213
131,255
—
—
—
(15,925)
—
—
6,311
—
1,194
—
10,683 (1)
—
14,027
—
—
(16,694)
—
(461)
(160)
—
1,932
(191)
—
—
461
—
6
—
—
—
—
—
—
375
$
50
$
15
$
851
$
79,524
$ 116,524
$
168,785
$
2,087
$
(40)
203
$
(99) $
(23) $
(81) $
— $
— $
(8)
$
(143) $
—
(1) Primarily results from valuation adjustments of certain private equity investments. Since we only own a portion of these investments, our
share of the net valuation adjustments resulted in a gain of $6 million which is included in net income attributable to RJF (after noncontrolling
interests). The noncontrolling interests' share of the net valuation adjustments was a gain of approximately $4.7 million.
(2) During fiscal year 2011, ARS positions we held in trading instruments which were repurchased from clients in individual settlements prior to
the June, 2011 ARS settlement were transferred into available for sale securities. In addition, certain investments held by our Canadian
subsidiary were reclassified from private equity investments to other investments. In all periods presented, these positions were considered
Level 3 assets in the fair value hierarchy.
127
Index
Year ended September 30, 2010
Level 3 assets at fair value
(in thousands)
Financial assets
Trading instruments
Available
for sale
securities
Private equity and other
investments
Financial
liabilities
Payables-
trade
and other
Municipal
&
provincial
obligations
Non-
agency
CMOs &
ABS
Derivative
contracts
Equity
securities
Other
securities
Non-
agency
CMOs
Private
equity
investments
Other
investments
Other
liabilities
$
5,316
$
10,915
$
222
$
— $
919
$
2,596
$
142,671
$
227
$
(59)
Fair value
September 30, 2009
Total gains (losses) for the year:
Included in earnings
1,929
(547)
(222)
720
(2,844)
13,652 (1)
Included in other comprehensive
income
Purchases, issuances and
settlements
Transfers:
Into Level 3
Out of Level 3
Fair value
September 30, 2010
Change in unrealized gains (losses)
for the year included in earnings
(or changes in net assets) for
assets held at the end of the year
—
—
(6,545)
(6,438)
5,575
—
—
—
—
—
—
—
(44)
—
2,669
400
—
—
7
—
(1,646)
243
—
1,652
—
(393)
4,907
(425)
—
—
—
—
—
—
13
—
—
—
—
$
6,275
$
3,930
$
— $
3,025
$
— $
1,011
$
161,230
$
45
$
(46)
$
— $
174
$
— $
5
$
720
$ (2,844) $
13,652
$
(5) $
—
(1) Primarily results from valuation adjustments of certain private equity investments. Since we only own a portion of these investments, our
share of the net valuation adjustments resulted in a gain of $3.5 million which is included in net income attributable to RJF (after noncontrolling
interests). The noncontrolling interests' share of the net valuation adjustments was a gain of approximately $10.2 million.
As of September 30, 2012, 12.5% of our assets and 4.0% of our liabilities are instruments measured at fair value on a recurring
basis. Instruments measured at fair value on a recurring basis categorized as Level 3 as of September 30, 2012 represent 22% of our
assets measured at fair value. In comparison as of September 30, 2011, 7.3% and 0.5% of our assets and liabilities, respectively, represented
instruments measured at fair value on a recurring basis. Instruments measured at fair value on a recurring basis categorized as Level 3
as of September 30, 2011 represented 28% of our assets measured at fair value. Although the balances of our level 3 assets have increased
compared to September 30, 2011, primarily as a result of increases in ARS and private equity investments resulting from our acquisition
of Morgan Keegan (see Note 3 for further information on this acquisition), level 3 instruments as a percentage of total financial instruments
decreased as compared to September 30, 2011. Total financial instruments, primarily trading instruments, derivative instruments
associated with offsetting matched book positions, and other investments which are not level 3 financial instruments also increased as a
result of the Morgan Keegan acquisition, favorably impacting the percentage calculation.
128
Index
Gains and losses included in earnings are presented in net trading profits and other revenues in our Consolidated Statements of
Income and Comprehensive Income as follows:
For the year ended September 30, 2012
Total (losses) gains included in revenues
Change in unrealized (losses) gains for assets held at the end of the reporting period
For the year ended September 30, 2011
Total gains included in revenues
Change in unrealized (losses) gains for assets held at the end of the reporting period
For the year ended September 30, 2010
Total gains included in revenues
Change in unrealized (losses) gains for assets held at the end of the reporting period
Net trading
profits
Other
revenues
(in thousands)
(937) $
(1,030) $
34,083
24,991
Net trading
profits
Other
revenues
(in thousands)
745
81
$
$
10,650
(232)
Net trading
profits
Other
revenues
(in thousands)
2,056
897
$
$
10,844
10,805
$
$
$
$
$
$
129
Index
Quantitative information about level 3 fair value measurements
The significant assumptions used in the valuation of level 3 financial instruments are as follows (the table that follows includes the
significant majority of the financial instruments we hold that are classified as level 3 measures):
Fair value at
September 30,
2012
(in thousands)
Level 3 financial
instrument
Recurring measurements:
Available for sale securities:
ARS:
Municipals
$
48,078
Valuation technique(s)
Unobservable input
Range
(weighted-average)
Probability weighted
internal scenario model:
Scenario 1 - recent
trades
Scenario 2 - scenario of
potential outcomes
21,824
Recent trades
Observed trades (in inactive markets) of in-
portfolio securities as well as observed trades
(in active markets) of other comparable
securities
Par value of scenario based possible outcomes(a)
Weighting assigned to weighted
average of scenario 1
Weighting assigned to weighted
average of scenario 2
Observed trades (in inactive markets) of in-
portfolio securities as well as
observed trades of
other comparable securities
(in inactive markets)
Comparability adjustments(b)
$
$
53,657
Discounted cash flow
Average discount rate(c)
Preferred securities
$
110,193
Discounted cash flow
Average interest rates applicable to future
interest income on the securities(d)
Prepayment year(e)
Average discount rate(c)
Average interest rates applicable to future
interest income on the securities(d)
60% of par - 60% of
par (60% of par)
70% of par - 99% of
par (87% of par)
40% - 60% (50%)
60% - 40% (50%)
56% of par - 106%
of par (65% of par)
+/- 5% of par (+/-
5% of par)
2.98% of par -
7.21% of par
(4.57% of par)
0.33% of par -
5.69% of par
(2.49% of par)
2014 - 2039 (2021)
3.77% of par -
5.69% of par
(4.84% of par)
1.46% of par -
2.78% of par
(2.01% of par)
Private equity
investments:
Nonrecurring
measurements:
Impaired loans:
residential
Impaired loans: corporate
$
$
$
$
$
103,620
39,194
194,113
Market comparable
companies
Discounted cash flow
Transaction price or
other investment-
specific events(h)
23,694
Discounted cash flow
22,689
Appraisal, discounted
cash flow, or distressed
enterprise value(i)
The explanations to the footnotes in the above table are on the following page.
130
Prepayment year(e)
EBITDA multiple(f)
2013 - 2021 (2018)
6.5 - 6.5 (6.5)
Projected EBITDA growth(g)
Discount rate
Terminal growth rate of cash flows
Terminal year
Not meaningful(h)
5.2% - 5.2% (5.2%)
14% - 15% (14%)
3% - 3% (3%)
2014 - 2015 (2014)
Not meaningful(h)
Prepayment rate
Not meaningful(i)
7 yrs. - 12 yrs.
(10.7 yrs.)
Not meaningful(i)
Index
Footnote explanations pertaining to the table on the previous page:
(a) Management utilizes an internal model which projects the outcome of various scenarios which management believes market participants are
evaluating as likely possible outcomes impacting the value of the security. Values presented represent the range of fair values associated with
the various potential scenarios.
(b) Management estimates that market participants apply this range of either discount or premium, as applicable, to the limited observable trade
data in order to assess the value of the securities within this portfolio segment.
(c) Represents amounts used when we have determined that market participants would take these discounts into account when pricing the
investments.
(d) Future interest rates are projected based upon a forward interest rate curve, plus a spread over such projected base rate that is applicable to
each future period for each security within this portfolio segment. The interest rates presented represent the average interest rate over all
projected periods for securities within the portfolio segment.
(e) Assumed year of at least a partial redemption of the outstanding security by the issuer.
(f) Represents amounts used when we have determined that market participants would use such multiples when pricing the investments.
(g) Represents the projected growth in earnings before interest, taxes, depreciation and amortization (“EBITDA”) utilized in the valuation as
compared to the prior periods reported EBITDA.
(h) Certain direct private equity investments are valued initially at the transaction price until significant transactions or developments indicate
that a change in the carrying values of these investments is appropriate.
(i) The valuation techniques used for the impaired corporate loan portfolio as of September 30, 2012 were appraisals less selling costs for the
collateral dependent loans, and either discounted cash flows or distressed enterprise value for the remaining impaired loans that are not collateral
dependent.
Qualitative disclosure about unobservable inputs
For our recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value
measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs are described below:
Auction rate securities:
One of the significant unobservable inputs used in the fair value measurement of auction rate securities presented within our available
for sale securities portfolio relates to judgments regarding whether the level of observable trading activity is sufficient to conclude markets
are active. Where insufficient levels of trading activity are determined to exist as of the reporting date, then management’s assessment
of how much weight to apply to trading prices in inactive markets versus management’s own valuation models could significantly impact
the valuation conclusion. The valuation of the securities impacted by changes in management’s assessment of market activity levels
could be either higher or lower, depending upon the relationship of the inactive trading prices compared to the outcome of management’s
internal valuation models.
The future interest rate and maturity assumptions impacting the valuation of the auction rate securities are directly related. As short-
term interest rates rise, due to the variable nature of the penalty interest rate provisions imbedded in most of these securities in the event
auctions fail to set the security’s interest rate, then a penalty rate that is specified in the security increases. These penalty rates are based
upon a stated interest rate spread over what is typically a short-term base interest rate index. Management estimates that at some level
of increase in short-term interest rates, issuers of the securities will have the economic incentive to refinance (and thus prepay) the
securities. Therefore, the short-term interest rate assumption directly impacts the input related to the timing of any projected
prepayment. The faster and steeper short-term interest rates rise, the earlier prepayments will likely occur and the higher the fair value
of the security.
131
Index
Private equity investments:
The significant unobservable inputs used in the fair value measurement of private equity investments 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. Significant increases (or decreases) in our investment entities’ future economic performance will have a directly proportional
impact on the valuation results. The value of our investment moves inversely with the market’s expectation of returns from such
investments. Should the market require higher returns from industries in which we are invested, all other factors held constant, our
investments will decrease in value. Should the market accept lower returns from industries in which we are invested, all other factors
held constant, our investments will increase in value.
Fair value option
The fair value option is an accounting election that allows the reporting entity to apply fair value accounting for certain financial
assets and liabilities on an instrument by instrument basis. As of September 30, 2012 and 2011, we have elected not to choose the fair
value option for any of our financial assets or liabilities not already recorded at fair value.
Other fair value disclosures
Many, but not all, of the financial instruments we hold are recorded at fair value in the Consolidated Statements of Financial Condition.
The following represent financial instruments in which the ending balance at September 30, 2012 and 2011 are not carried at fair
value on our Consolidated Statements of Financial Condition:
Short-term financial instruments: The carrying value of short-term financial instruments, including cash and cash equivalents, assets
segregated pursuant to federal regulations and other segregated assets, securities either purchased or sold under agreements to resell and
other collateralized financings are recorded at amounts that approximate the fair value of these instruments. These financial instruments
generally expose us to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate
market rates.
Bank loans, net: These financial instruments are primarily comprised of loans originated or purchased by RJ Bank and include C&I
loans, commercial and residential real estate loans, as well as consumer loans intended to be held until maturity or payoff. In addition,
these financial instruments consist of loans held for sale, which are carried at the lower of cost or market value. A portion of these loans
held for sale are included in the nonrecurring fair value measurements in addition to any impaired loans held for investment.
Fair values for both variable and fixed-rate loans held for investment are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers of similar credit quality. This methodology for estimating the fair
value of loans does not consider other market variables and, therefore, is not based on an exit price concept. The fair value of loans held
for sale is estimated using current market prices for loans with similar terms and borrowers of similar credit quality.
Receivables and other assets: Brokerage client receivables, receivables from broker-dealers and clearing organizations, stock
borrowed receivables, other receivables, FHLB and FRB stock and certain other assets are recorded at amounts that approximate fair
value. Cost was determined to be the estimated fair value of the FHLB and FRB stock. In addition, RJ Bank holds a small Community
Reinvestment Act investment for which cost approximates fair value.
Bank deposits: The fair values for demand deposits are equal to the amount payable on demand at the reporting date (that is, their
carrying amounts). The carrying amounts of variable-rate money-market and savings accounts approximate their fair values at the
reporting date as these are short-term in nature. Fair values for fixed-rate certificate accounts are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates to a schedule of expected monthly maturities on time deposits.
Payables: Brokerage client payables, payables due to broker-dealers and clearing organizations, stock loaned payables, and trade
and other payables are recorded at amounts that approximate fair value.
Corporate debt: The fair value of the mortgage note payable associated with the financing of our home office complex is based
upon an estimate of the current market rates for similar loans. The fair value of our senior notes is based upon recent trades of those or
other similar debt securities in the market.
132
Index
Off-balance sheet financial instruments: The fair value of unfunded commitments to extend credit is based on a methodology similar
to that described above for loans and further adjusted for the probability of funding. The fair value of these unfunded lending commitments
in addition to the fair value of other off-balance sheet financial instruments are not material and, therefore, are excluded from the table
below. See Note 26 for further discussion of off-balance sheet financial instruments.
For those financial instruments where the fair value is not reflected on the Consolidated Statements of Financial Condition, we have
estimated their fair value in part based upon our assumptions, the estimated amount and timing of future cash flows and estimated discount
rates. Different assumptions could significantly affect these estimated fair values. Accordingly, the net realizable values could be materially
different from the estimates presented below. In addition, the estimates are only indicative of the value of individual financial instruments
and should not be considered an indication of the fair value of RJF as a whole. We are not required to disclose either the fair value of
nonfinancial instruments including property, equipment and leasehold improvements, nor are we required to disclose the fair value of
intangible assets including identifiable intangible assets and goodwill.
The estimated fair values by level within the fair value hierarchy and the carrying amounts of our financial instruments that are not
carried at fair value are as follows:
September 30, 2012
Financial assets:
Bank loans, net(1)
Financial liabilities:
Bank deposits
Corporate debt
$
$
$
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
(in thousands)
Total estimated
fair value
Carrying
amount
— $
80,227
$
7,803,328
$
7,883,555
$
7,816,627
— $
$
384,440
8,280,834
962,610
$
$
329,966
$
— $
8,610,800
1,347,050
$
$
8,599,713
1,329,093
(1) Excludes all impaired loans and loans held for sale which have been recorded at fair value in the Consolidated Statement of Financial Condition
at September 30, 2012.
The estimated fair values and the carrying amounts of our financial instruments that are not carried at fair value as of September 30,
2011 are as follows:
September 30, 2011
Financial assets:
Bank loans, net
Financial liabilities:
Bank deposits
Corporate debt
Estimated
fair value
Carrying
amount
(in thousands)
$
$
$
6,596,439
7,745,607
675,509
$
$
$
6,547,914
7,739,322
611,968
133
Index
NOTE 6 – TRADING INSTRUMENTS AND TRADING INSTRUMENTS SOLD BUT NOT YET PURCHASED
Municipal and provincial obligations
Corporate obligations
Government and agency obligations
Agency MBS and CMOs
Non-agency CMOs and ABS
Total debt securities
Derivative contracts (1)
Equity securities
Other securities
Total
September 30, 2012
September 30, 2011
Trading
instruments
Instruments
sold but not
yet purchased
Trading
instruments
Instruments
sold but not
yet purchased
$
$
346,590
86,731
167,399
105,169
2,015
707,904
51,000
26,523
18,845
804,272
$
$
(in thousands)
212
12,388
200,088
556
121
213,365
3,102
9,700
6,269
232,436
$
$
164,402
27,607
36,106
147,757
49,119
424,991
38,304
21,197
8,279
492,771
$
$
607
5,625
56,472
159
—
62,863
6,588
6,699
—
76,150
(1) Represents the derivative contracts held for trading purposes. For the year ended September 30, 2012, this balance does not include
all derivative instruments since the derivative instruments associated with offsetting matched book positions arising from Morgan
Keegan's business operations are included in separate line items on our Consolidated Statements of Financial Condition. See Note 18
for further information regarding all of our derivative transactions.
See Note 5 for additional information regarding the fair value of trading instruments and trading instruments sold but not yet
purchased.
NOTE 7 – AVAILABLE FOR SALE SECURITIES
Available for sale securities are comprised of MBS and CMOs owned by RJ Bank, ARS and certain equity securities owned
by our non-broker-dealer subsidiaries.
During the year ended September 30, 2012, as a component of the Morgan Keegan acquisition (see Note 3 for further
information), we acquired additional ARS on the Closing Date which had a fair value of $122.3 million.
During the fiscal year ended September 30, 2011, as a result of the resolution of certain ARS matters, $245 million of par
value ARS were purchased from current or former clients as a result of a settlement agreement; $16 million of the repurchased
ARS were redeemed at par by the issuer subsequent to their purchase and prior to September 30, 2011. The fair value of the ARS
repurchased was $205 million; the $40 million excess of the par value over the fair value of the ARS repurchased was accounted
for as a component of the loss on auction rate securities repurchased on our Consolidated Statements of Income and Comprehensive
Income for the year ended September 30, 2011.
No available for sale securities were sold during the year ended September 30, 2012. There were proceeds of $13.8 million
from the sale of available for sale securities during the year ended September 30, 2011, which resulted in total losses of $209
thousand.
During the year ended September 30, 2012, ARS with an aggregate par value of approximately $75 million were redeemed
by their issuer at par, resulting in a gain of $360 thousand.
134
Index
The amortized cost and fair values of available for sale securities are as follows:
September 30, 2012
Available for sale securities:
Agency MBS and CMOs
Non-agency CMOs (1)
Total RJ Bank available for sale securities
Auction rate securities:
Municipal obligations (2)
Preferred securities (3)
Total auction rate securities
Other securities
Total available for sale securities
September 30, 2011
Available for sale securities:
Agency MBS and CMOs
Non-agency CMOs (4)
Total RJ Bank available for sale securities
Auction rate securities:
Municipal obligations
Preferred securities
Total auction rate securities
Other securities
Total available for sale securities
September 30, 2010
Available for sale securities:
Agency MBS and CMOs
Non-agency CMOs (5)
Other securities
Total RJ Bank available for sale securities
Other securities
Total available for sale securities
Cost basis
Gross
unrealized gains
Gross
unrealized
losses
Fair value
(in thousands)
$
$
$
$
$
$
$
350,568
166,339
516,907
131,208
111,721
242,929
3
759,839
178,120
192,956
371,076
79,524
116,524
196,048
3
567,127
217,516
252,522
5,000
475,038
$
$
$
$
3
475,041
$
1,938
23
1,961
813
12,226
13,039
9
15,009
639
—
639
—
—
—
7
646
559
16
3
578
6
584
$
(203) $
(18,555)
(18,758)
(8,462)
(13,754)
(22,216)
—
(40,974) $
(27) $
(47,081)
(47,108)
—
—
—
—
(47,108) $
(196) $
(50,968)
—
(51,164)
—
(51,164) $
$
$
$
$
$
352,303
147,807
500,110
123,559
110,193
233,752
12
733,874
178,732
145,875
324,607
79,524
116,524
196,048
10
520,665
217,879
201,570
5,003
424,452
9
424,461
(1) As of September 30, 2012, the non-credit portion of OTTI recorded in AOCI was $15.5 million (before taxes).
(2) As of September 30, 2012, the non-credit portion of OTTI recorded in AOCI was $7.6 million (before taxes).
(3) As of September 30, 2012, the non-credit portion of OTTI recorded in AOCI was $1.5 million (before taxes).
(4) As of September 30, 2011, the non-credit portion of OTTI recorded in AOCI was $37.9 million (before taxes).
(5) As of September 30, 2010, the non-credit portion of OTTI recorded in AOCI was $36.1 million (before taxes).
See Note 5 for additional information regarding the fair value of available for sale securities.
135
Index
The contractual maturities, amortized cost, carrying values and current yields for our available for sale securities are as
presented below. Since RJ Bank’s available for sale securities are backed by mortgages, actual maturities will differ from
contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. Expected
maturities of ARS and other securities may differ significantly from contractual maturities, as issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Within one year
After one but
within five
years
September 30, 2012
After five but
within ten
years
($ in thousands)
After ten years
Total
Agency MBS & CMOs:
Amortized cost
Carrying value
Weighted-average yield
Non-agency CMOs:
Amortized cost
Carrying value
Weighted-average yield
$
$
— $
—
—
— $
—
—%
$
69
69
0.34%
$
83,981
84,312
0.44%
— $
—
—%
— $
—
—
Sub-total agency MBS & CMOs and non-agency CMOs:
— $
—
—
Amortized cost
Carrying value
Weighted-average yield
$
$
69
69
0.34%
83,981
84,312
0.44%
Auction rate securities:
Municipal obligations
Amortized cost
Carrying value
Weighted-average yield
Preferred securities:
Amortized cost
Carrying value
Weighted-average yield
Sub-total auction rate securities:
Amortized cost
Carrying value
Weighted-average yield
Other securities:
Amortized cost
Carrying value
Total available for sale securities:
Amortized cost
Carrying value
Weighted-average yield
$
$
$
$
$
— $
—
—
— $
—
—
— $
—
—
— $
—
— $
—
—
— $
—
—
— $
—
—
— $
—
—
— $
—
266,518
267,922
0.99%
166,339
147,807
3.07%
432,857
415,729
1.73%
122,555
115,773
0.66%
$
$
8,653
7,786
0.44%
— $
—
—
111,721
110,193
0.44%
$
8,653
7,786
0.44%
234,276
225,966
0.56%
— $
—
3
12
$
$
$
$
$
$
$
$
350,568
352,303
0.86%
166,339
147,807
3.07%
516,907
500,110
1.51%
131,208
123,559
0.65%
111,721
110,193
0.44%
242,929
233,752
0.55%
3
12
759,839
733,874
1.20%
$
69
69
0.34%
$
92,634
92,098
0.44%
667,136
641,707
1.32%
136
Index
The gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities
have been in a continuous unrealized loss position, are as follows:
Less than 12 months
September 30, 2012
12 months or more
Total
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
Agency MBS and CMOs
Non-agency CMOs
ARS municipal obligations
ARS preferred securities
Total
Agency MBS and CMOs
Non-agency CMOs
Total
$
$
$
$
43,792
—
85,526
92,439
221,757
$
$
(193) $
—
(8,462)
(13,754)
(22,409) $
$
(in thousands)
4,362
146,591
—
—
150,953
$
(10) $
(18,555)
—
—
(18,565) $
48,154
146,591
85,526
92,439
372,710
$
$
(203)
(18,555)
(8,462)
(13,754)
(40,974)
Less than 12 months
September 30, 2011
12 months or more
Total
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
23,366
1,345
24,711
$
$
(6) $
(93)
(99) $
(in thousands)
17,702
144,530
162,232
$
$
(21) $
(46,988)
(47,009) $
41,068
145,875
186,943
$
$
(27)
(47,081)
(47,108)
The reference point for determining when securities are in a loss position is the reporting period end. As such, it is possible
that a security had a fair value that exceeded its amortized cost on other days during the period.
Agency MBS and CMOs
The Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), as well
as the Government National Mortgage Association (“GNMA”), guarantee the contractual cash flows of the agency MBS and
CMOs. At September 30, 2012, of the 11 of our U.S. government-sponsored enterprise MBS and CMOs in an unrealized loss
position, seven were in a continuous unrealized loss position for less than 12 months. Four were for 12 months or more. We do
not consider these securities other-than-temporarily impaired due to the guarantee provided by FNMA, FHLMC, and GNMA as
to the full payment of principal and interest, and the fact that we have the ability and intent to hold these securities to maturity.
Non-agency CMOs
All individual non-agency securities are evaluated for OTTI on a quarterly basis. Only those non-agency CMOs whose
amortized cost basis we do not expect to recover in full are considered to be other than temporarily impaired as we have the ability
and intent to hold these securities to maturity. To assess whether the amortized cost basis of non-agency CMOs will be recovered,
RJ Bank performs a cash flow analysis for each security. This comprehensive process considers borrower characteristics and the
particular attributes of the loans underlying each security. Loan level analysis includes a review of historical default rates, loss
severities, liquidations, prepayment speeds and delinquency trends. In addition to historical details, home prices and economic
outlook are considered to derive the assumptions utilized in the discounted cash flow model to project security specific cash flows,
which factors in the amount of credit enhancement specific to the security. The difference between the present value of the cash
flows expected and the amortized cost basis is the credit loss and is recorded as OTTI.
The significant assumptions used in the cash flow analysis of non-agency CMOs are as follows:
Default rate
Loss severity
Prepayment rate
(1) Represents the expected activity for the next twelve months.
137
September 30, 2012
Range
0% - 29.4%
15.5% - 64.9%
0% - 30.5%
Weighted-
average (1)
12.28%
43.90%
7.15%
Index
At September 30, 2012, 24 of the 25 non-agency CMOs were in a continuous unrealized loss position and all were in that
position for 12 months or more. As of September 30, 2012 and including subsequent ratings changes, $33 million of the non-
agency CMOs were rated investment grade by at least one rating agency, and $114.8 million were rated less than investment grade,
which ranged from B to D. Given the comprehensive analysis process utilized, these ratings are not a significant factor in the
overall OTTI evaluation process.
Based on the expected cash flows derived from the model utilized in our analysis, we expect to recover all unrealized losses
not already recorded in earnings on our non-agency CMOs. However, it is possible that the underlying loan collateral of these
securities will perform worse than current expectations, which may lead to adverse changes in the cash flows expected to be
collected on these securities and potential future OTTI losses. As residential mortgage loans are the underlying collateral of these
securities, the unrealized losses at September 30, 2012 reflect the lack of liquidity and uncertainty in the markets.
ARS
Our cost basis in the ARS we hold is the fair value of the securities in the period in which we acquired them. Only those
ARS whose amortized cost basis we do not expect to recover in full are considered to be other-than-temporarily impaired as we
have the ability and intent to hold these securities to maturity.
Within our municipal ARS holdings, we hold Jefferson County, Alabama Limited Obligation School Warrants ARS (“Jeff
Co. Schools ARS”) and Jefferson County, Alabama Sewer Revenue Refunding Warrants ARS (“Jeff Co. Sewers ARS”). During
fiscal year 2012, Jefferson County, Alabama filed a voluntary petition for relief under Chapter 9 of the U.S. Bankruptcy Code in
the U.S. District Court for the Northern District of Alabama; this proceeding is on-going. During the year ended September 30,
2012, unrealized losses arose for both the Jeff Co. Schools ARS and the Jeff Co. Sewers ARS based upon a decrease in the fair
values of these securities. Based upon the available information as of September 30, 2012, we prepared cash flow forecasts for
the purpose of determining the amount of any OTTI related to credit losses. Refer to the following section for the amount of OTTI
related to credit losses which we determined regarding these ARS holdings.
Within our ARS preferred securities, we analyze the credit ratings associated with each security as an indicator of potential
credit impairment. As of September 30, 2012 and including subsequent ratings changes, all of the ARS preferred securities were
rated investment grade by at least one rating agency. Given that these ARS are by their design variable rate securities tied to short-
term interest rates, decreases in projected future short-term interest rates have a negative impact on projected cash flows, and
potentially a negative impact on the fair value. The unrealized losses at September 30, 2012 were primarily due to a decrease in
projected future short-term interest rates, which resulted in a lower fair value. We expect to recover the entire amortized cost basis
of the ARS preferred securities we hold. At September 30, 2012, we concluded that none of the OTTI within our portfolio of ARS
preferred securities related to credit losses.
Other-than-temporarily impaired securities
Although there is no intent to sell either our ARS or our non-agency CMOs and it is not more likely than not that we will be
required to sell these securities, we do not expect to recover the entire amortized cost basis of certain securities within these
portfolios.
Changes in the amount of OTTI related to credit losses recognized in other revenues on available for sale securities are as
follows:
Amount related to credit losses on securities we held at the beginning of the year
Additions to the amount related to credit loss for which an OTTI was not previously
recognized
Decreases to the amount related to credit loss for securities sold during the year
Additional increases to the amount related to credit loss for which an OTTI was
previously recognized
Decreases to the amount related to credit losses for worthless securities
Amount related to credit losses on securities we held at the end of the year
$
$
138
2012
Year ended September 30,
2011
(in thousands)
18,816
$
$
22,306
1,409
—
3,866
—
27,581
$
240
(6,744)
9,994
—
22,306
$
2010
17,762
5,166
—
6,864
(10,976)
18,816
Index
With respect to certain non-agency CMO's for the year ended September 30, 2012 credit losses for which an OTTI was
previously recognized were primarily due to high loss severities on individual loan collateral and the expected continuation of
high default levels and collateral losses into calendar year 2013.
With respect to the municipal ARS for the year ended September 30, 2012, credit losses related to securities for which an
OTTI was not previously recognized arise from Jeff Co. Sewers ARS and Jeff Co. Schools ARS, and reflect the portion of our
amortized cost basis that we do not expect to receive based upon the present value of our projected cash flows for each security.
NOTE 8 - RECEIVABLES FROM AND PAYABLES TO BROKERAGE CLIENTS
Receivables from brokerage clients
Receivables from brokerage clients include amounts arising from normal cash and margin transactions and fees receivable.
Margin receivables are collateralized by securities owned by brokerage clients. Such collateral is not reflected in the accompanying
consolidated financial statements. The amount receivable from clients is as follows:
Brokerage client receivables
Allowance for doubtful accounts
Brokerage client receivables, net
Payables to brokerage clients
September 30,
2012
2011
(in thousands)
$
$
2,067,207
(90)
2,067,117
$
$
1,719,008
(2,180)
1,716,828
Payables to brokerage clients include brokerage client funds on deposit awaiting reinvestment. The following table presents
a summary of such payables:
Brokerage client payables:
Interest bearing
Non-interest bearing
Total brokerage client payables
NOTE 9 – BANK LOANS, NET
September 30,
2012
2011
(in thousands)
$
$
4,299,640
285,016
4,584,656
$
$
4,420,283
270,131
4,690,414
Bank client receivables are comprised of loans originated or purchased by RJ Bank and include C&I loans, commercial and residential
real estate loans, as well as consumer loans. These receivables are collateralized by first or second mortgages on residential or other real
property, other assets of the borrower, or are unsecured.
We segregate our loan portfolio into five loan portfolio segments: C&I, CRE, CRE construction, residential mortgage and consumer.
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.
139
Index
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(1)
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Total loans held for investment
Net unearned income and deferred expenses
Total loans held for investment, net(1)
Total loans held for sale and investment
Allowance for loan losses
Bank loans, net
$
Loans held for sale, net(1)
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Total loans held for investment
Net unearned income and deferred expenses
Total loans held for investment, net(1)
September 30, 2012
%
Balance
September 30, 2011
Balance
%
($ in thousands)
September 30, 2010
%
Balance
$
160,515
2% $
102,236
2% $
6,114
—
5,018,831
49,474
936,450
1,691,986
352,495
8,049,236
(70,698)
7,978,538
8,139,053
(147,541)
7,991,512
61%
1%
11%
21%
4%
100%
$
4,100,939
29,087
742,889
1,756,486
7,438
6,636,839
(45,417)
6,591,422
6,693,658
(145,744)
6,547,914
61%
—
11%
26%
—
100%
$
3,232,723
65,512
937,669
2,015,331
23,940
6,275,175
(39,276)
6,235,899
6,242,013
(147,084)
6,094,929
52%
1%
15%
32%
—
100%
September 30, 2009
%
Balance
September 30, 2008
%
Balance
40,484
($ in thousands)
1% $
524
—
46%
2%
16%
36%
—
3,079,916
163,951
1,080,160
2,396,995
22,816
6,743,838
(40,077)
6,703,761
47%
5%
12%
36%
—
100%
3,411,963
346,691
842,766
2,599,042
23,778
7,224,240
(41,382)
7,182,858
7,183,382
(88,155)
7,095,227
Total loans held for sale and investment
Allowance for loan losses
Bank loans, net
6,744,245
(150,272)
6,593,973
$
100%
$
(1) Net of unearned income and deferred expenses, which includes purchase premiums, purchase discounts, and net deferred origination fees and
costs.
RJ Bank originated or purchased $903.2 million, $354.9 million and $251.8 million of loans held for sale for the years ended
September 30, 2012, 2011 and 2010, respectively . There were proceeds from the sale of held for sale loans of $183.6 million, $93.2
million and $121.4 million for the years ended September 30, 2012, 2011 and 2010, respectively, resulting in net gains of $1.7 million,
$830 thousand and $356 thousand, respectively. Unrealized losses recorded in the Consolidated Statements of Income and Comprehensive
Income to reflect the loans held for sale at the lower of cost or market value were $1.2 million, $719 thousand and $85 thousand for the
years ended September 30, 2012, 2011 and 2010.
140
Index
The following table presents purchases and sales of any loans held for investment by portfolio segment:
Year ended September 30,
2012
Purchases
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Total
$
$
470,859 (1) $
31,074 (1)
121,245 (1)
38,220
185,026 (2)
846,424
$
2011
Purchases
$
Sales
(in thousands)
85,090
—
—
—
—
85,090
$
156,475
—
2,630
91,745
—
250,850
Sales
$
$
57,209
—
—
—
—
57,209
(1) Includes a total of $367 million for a Canadian loan portfolio purchased during the year ended September 30, 2012, which was comprised of
$219 million C&I, $31 million of CRE construction and $117 million of CRE loans.
(2) Represents loans primarily secured by marketable securities.
The following table presents the comparative data for nonperforming loans held for investment and total nonperforming assets:
Nonaccrual loans:
C&I loans
CRE loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total nonaccrual loans
Accruing loans which are 90 days past due:
CRE loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total accruing loans which are 90 days past due
Total nonperforming loans
Real estate owned and other repossessed assets, net:
CRE
Residential:
First mortgage
Home equity
Total
2012
2011
As of September 30,
2010
($ in thousands)
2009
2008
$
19,517
8,404
$
25,685
15,842
$
— $
— $
67,071
73,961
78,372
367
106,660
90,992
67
132,586
80,754
71
147,896
54,986
111
129,058
—
37,462
14,571
—
52,033
—
—
830
12,461
—
—
—
—
106,660
690
47
737
133,323
5,098
159
6,087
153,983
16,863
—
29,324
158,382
4,902
3,316
—
8,218
7,707
19,486
6,852
13
14,572
8,439
—
27,925
4,646
4,045
—
8,691
6,113
18
6,131
58,164
1,928
2,216
—
4,144
Total nonperforming assets, net
$ 114,878
$ 147,895
$ 181,908
$ 167,073
$
62,308
Total nonperforming assets, net as a % of RJ Bank total
assets
1.18%
1.64%
2.48%
2.10%
0.66%
The table of nonperforming assets above excludes $12.9 million, $10.3 million, $8.2 million and $1.3 million as of September 30,
2012, 2011, 2010 and 2009 respectively, of residential TDRs which were returned to accrual status in accordance with our policy. There
were no TDRs excluded from the table above for the year ended September 30, 2008.
As of September 30, 2012 and September 30, 2011, RJ Bank had no outstanding commitments on nonperforming loans.
141
Index
The gross interest income related to the nonperforming loans reflected in the previous table, which would have been recorded had
these loans been current in accordance with their original terms, totaled $4.3 million, $5.1 million and $7.9 million for the years ended
September 30, 2012, 2011 and 2010 respectively. The interest income recognized on nonperforming loans was $1.8 million, $1.2 million
and $1.3 million for the years ended September 30, 2012, 2011 and 2010.
The following table presents an analysis of the payment status of loans held for investment:
$
As of September 30, 2012:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Consumer loans
Total loans held for investment, net
$
30-59
days
60-89
days
90 days
or more
Total
past due
Current
(in thousands)
Total loans
held for
investment (1)
222
—
—
7,239
88
—
7,549
$
$
— $
—
—
3,037
250
—
3,287
$
— $
—
4,960
49,476
—
—
54,436
$
222
—
4,960
59,752
338
—
65,272
$
$
5,018,609
49,474
931,490
1,607,156
24,740
352,495
7,983,964
$
$
5,018,831
49,474
936,450
1,666,908
25,078
352,495
8,049,236
(1) Excludes any net unearned income and deferred expenses.
As of September 30, 2011:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Consumer loans
Total loans held for investment, net
30-59
days
60-89
days
90 days
or more
Total
past due
Current
Total loans
held for
investment (1)
(in thousands)
$
$
— $
—
—
6,400
88
—
6,488
$
— $
—
—
6,318
—
—
6,318
$
— $
—
5,053
61,870
114
—
67,037
$
— $
—
5,053
4,100,939
29,087
737,836
74,588
202
—
79,843
1,651,181
30,515
7,438
6,556,996
$
$
$
4,100,939
29,087
742,889
1,725,769
30,717
7,438
6,636,839
(1) Excludes any net unearned income and deferred expenses.
142
Index
The following table provides a summary of RJ Bank’s impaired loans:
Gross
recorded
investment
September 30, 2012
Unpaid
principal
balance
Allowance
for losses
Gross
recorded
investment
September 30, 2011
Unpaid
principal
balance
Allowance
for losses
(in thousands)
Impaired loans with allowance for loan losses:(1)
C&I loans
CRE loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total
$
$
19,517
18
$
30,314
26
$
5,232
1
$
25,685
6,122
$
26,535
6,131
70,985
128
90,648
106,384
128
136,852
9,214
42
14,489
83,471
128
115,406
123,202
128
155,996
Impaired loans without allowance for loan losses:(2)
CRE loans
Residential - first mortgage loans
Total
Total impaired loans
$
8,386
9,247
17,633
108,281
$
18,440
15,354
33,794
170,646
$
—
—
—
14,489
$
9,720
6,553
16,273
131,679
$
20,648
10,158
30,806
186,802
$
8,478
1,014
10,226
20
19,738
—
—
—
19,738
(1) Impaired loan balances have had reserves established based upon management’s analysis.
(2) When the discounted cash flow, collateral value or market value equals or exceeds the carrying value of the loan, then the loan does not require
an allowance. These are generally loans in process of foreclosure that have already been adjusted to fair value.
The table above includes $1.7 million C&I, $3.4 million CRE, $26.7 million residential first mortgage and $128 thousand residential
home equity TDRs at September 30, 2012. In addition, the table above includes $12 million C&I, $4.7 million CRE, $23.3 million
residential first mortgage and $128 thousand residential home equity TDRs at September 30, 2011.
The average balance of the total impaired loans and the related interest income recognized in the Consolidated Statements of Income
and Comprehensive Income are as follows:
Average impaired loan balance:
C&I loans
CRE loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total
Interest income recognized:
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total
2012
Year ended September 30,
2011
(in thousands)
2010
$
$
$
$
10,196
11,902
86,854
138
109,090
1,397
4
1,401
$
$
$
$
8,673
38,542
85,863
(1)
142
133,220
(1)
955
5
960
$
$
$
$
—
58,266
64,540
129
122,935
1,234
4
1,238
(1)
(1)
(1) In order to enhance the comparability of amounts presented, the September 30, 2011 and 2010 amounts include nonaccrual loans, or related
interest income, as applicable, for which a charge-off had been recorded. The amounts originally reported for these periods did not include
such loans.
143
Index
During the years ended September 30, 2012 and 2011, RJ Bank granted concessions to borrowers having financial difficulties, for
which the resulting modification was deemed a TDR. The concessions granted for the C&I and CRE loans were generally interest rate
reductions and the release of guarantor liabilities. The concessions granted for first mortgage residential loans were generally interest
rate reductions and interest capitalization. The table below presents the impact that TDRs which occurred during the respective periods
presented had on our consolidated financial statements:
Year ended September 30, 2012:
Residential – first mortgage loans
Year ended September 30, 2011:
C&I loans
CRE loans
Residential – first mortgage loans
Total
Number of
contracts
Pre-
modification
outstanding
recorded
investment
($ in thousands)
Post-
modification
outstanding
recorded
investment
20
$
5,875
$
6,283
1
1
25
27
$
$
12,450
9,226
8,027
29,703
$
$
12,034
9,226
8,457
29,717
During the years ended September 30, 2012 and 2011, there were five and two residential first mortgage TDRs with a recorded
investment of $1.2 million and $559 thousand, respectively, for which there was a payment default and for which the respective loan
was modified as a TDR within the 12 months prior to the default.
As of September 30, 2012 and 2011, RJ Bank had no outstanding commitments on TDRs.
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 residential mortgage and consumer loan portfolios and internal risk ratings, which correspond to the
same standard asset classifications for the C&I, CRE construction, and CRE loan portfolios. These classifications are divided into three
groups: Not Classified (Pass), Special Mention, and Classified or Adverse Rating (Substandard, Doubtful and Loss) and are defined as
follows:
Pass – Loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the
fair value, less costs to acquire and sell, of any underlying collateral in a timely manner.
Special Mention – Loans which have potential weaknesses that deserve management’s close attention. These loans are not adversely
classified and do not expose RJ Bank to sufficient risk to warrant an adverse classification.
Substandard – Loans which are inadequately protected by the current sound worth and paying capacity of the obligor or by the
collateral pledged, if any. Loans with this classification are characterized by the distinct possibility that RJ Bank will sustain some
loss if the deficiencies are not corrected.
Doubtful – Loans which have all the weaknesses inherent in loans classified as substandard with the added characteristic that the
weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions
and values.
Loss – Loans which are considered by management to be uncollectible and of such little value that their continuance on RJ Bank’s
books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. RJ Bank does not have
any loan balances within this classification as in accordance with its accounting policy, loans, or a portion thereof considered to be
uncollectible, are charged-off prior to the assignment of this classification.
144
Index
RJ Bank’s credit quality of its held for investment loan portfolio is as follows:
C&I
CRE
construction
CRE
Residential mortgage
Home
First
equity
mortgage
(in thousands)
Consumer
Total
$
$
$
$
4,777,738
179,044
60,323
1,726
5,018,831
3,906,358
88,889
93,658
12,034
4,100,939
$
$
$
$
49,474
—
—
—
49,474
29,087
—
—
—
29,087
$
$
$
$
806,427
59,001
67,578
3,444
936,450
572,124
76,021
90,058
4,686
742,889
$
$
$
$
1,564,257
22,606
80,045
—
1,666,908
1,607,327
23,684
94,758
—
1,725,769
$
$
$
$
24,505
206
367
—
25,078
30,319
170
228
—
30,717
$
$
$
$
352,495
—
—
—
352,495
7,438
—
—
—
7,438
$
$
$
$
7,574,896
260,857
208,313
5,170
8,049,236
6,152,653
188,764
278,702
16,720
6,636,839
September 30, 2012:
Pass
Special mention (1)
Substandard (1)
Doubtful (1)
Total
September 30, 2011:
Pass
Special mention (1)
Substandard (1)
Doubtful (1)
Total
(1) Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.
The credit quality of RJ Bank’s performing residential first mortgage loan portfolio is additionally assessed utilizing updated LTV
ratios. RJ Bank further segregates all of its performing residential first mortgage loan portfolio with higher reserve percentages allocated
to the higher LTV loans. Current LTVs are updated using the most recently available information (generally on a one quarter lag) and
are estimated based on the initial appraisal obtained at the time of origination, adjusted using relevant market indices for housing price
changes that have occurred since origination. The value of the homes could vary from actual market values due to change in the condition
of the underlying property, variations in housing price changes within metropolitan statistical areas and other factors.
The table below presents the most recently available update of the performing residential first mortgage loan portfolio summarized
by current LTV:
LTV range:
LTV less than 50%
LTV greater than 50% but less than 80%
LTV greater than 80% but less than 100%
LTV greater than 100%, but less than 120%
LTV greater than 120% but less than 140%
LTV greater than 140%
Total
Balance(1)
(in thousands)
$
$
306,076
483,823
247,684
242,630
79,727
32,482
1,392,422
(1) Excludes loans that have full repurchase recourse for any delinquent loans.
During the last week of October, 2012, Hurricane Sandy and related storms caused destruction within the mid-Atlantic and Northeast
regions of the U.S., which caused major flooding and wind damage and resulted in significant disruptions to individuals and businesses
as well as substantial damage to homes and communities in the affected regions. We are currently assessing the impact to our loan
portfolio as a result of Hurricane Sandy and related storms. We anticipate that the most significant financial impact to us, if any, will
relate to our residential mortgage, C&I and CRE loan portfolios. The magnitude of the financial impact will depend on a number of
factors including: the amount of credit extended to affected individuals and businesses; the extent of the damage to our collateral; the
insurance proceeds and government assistance available to our borrowers; and whether the borrowers' ability to repay their loans has
been diminished. Given the nature of these factors, we are currently unable to reasonably estimate the range of loss, if any, we may incur
as a result of these storms.
145
Index
Changes in the allowance for loan losses of RJ Bank by portfolio segment are as follows:
Loans held
for sale
C&I
CRE
construction
CRE
(in thousands)
Residential
mortgage
Consumer
Total
Loans held for investment
Year ended September 30, 2012:
$
Balance at beginning of year:
Provision for loan losses
Net charge-offs:
Charge-offs
Recoveries
Net charge-offs
Foreign exchange translation
adjustment
Balance at September 30, 2012 $
$
5
(5)
$
81,267
21,543
$
490
242
$
30,752
(2,305)
$
33,210
5,655
$
20
764
145,744
25,894
—
—
—
(10,486)
—
(10,486)
—
—
—
(2,000)
1,074
(926)
(15,270)
2,543
(12,727)
(96)
21
(75)
(27,852)
3,638
(24,214)
—
— $
85
92,409
$
7
739
$
25
27,546
$
—
26,138
$
—
709
$
117
147,541
Loans held
for sale
C&I
CRE
construction
CRE
(in thousands)
Residential
mortgage
Consumer
Total
Loans held for investment
$
23
(18)
$
60,464
21,261
$
4,473
(3,983)
$
47,771
(3,485)
$
34,297
19,670
$
56
210
147,084
33,655
Year ended September 30, 2011:
$
Balance at beginning of year:
Provision for loan losses
Net charge-offs:
Charge-offs
Recoveries
Net charge-offs
Balance at September 30, 2011 $
—
—
—
5
Loans held
for sale
Year ended September 30, 2010:
Balance at beginning of year:
$
Provision for loan losses
Net charge-offs:
Charge-offs
Recoveries
Net charge-offs
Balance at September 30, 2010 $
7
16
—
—
—
23
(458)
—
(458)
81,267
$
—
—
—
490
$
(15,204)
1,670
(13,534)
30,752
$
(22,501)
1,744
(20,757)
33,210
$
(255)
9
(246)
20
$
(38,418)
3,423
(34,995)
145,744
Loans held for investment
C&I
CRE
construction
CRE
Residential
mortgage
Consumer
Total
(in thousands)
84,841
(24,377)
$
$
3,237
1,236
$
34,018
67,806
$
28,081
35,764
$
88
(32)
150,272
80,413
—
—
—
60,464
$
—
—
—
4,473
$
(56,402)
2,349
(54,053)
47,771
$
(30,837)
1,289
(29,548)
34,297
$
—
—
—
56
$
(87,239)
3,638
(83,601)
147,084
$
$
$
146
Index
The following table presents, by loan portfolio segment, RJ Bank’s recorded investment and related allowance for loan losses:
Loans held
for sale
C&I
CRE
construction
CRE
(in thousands)
Residential
mortgage
Consumer
Total
Loans held for investment
September 30, 2012
Allowance for loan losses:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Total allowance for loan
losses
Loan category as a % of total
recorded investment
Recorded investment:(1)
Individually evaluated for
impairment
Collectively evaluated for
impairment
Total recorded
investment
September 30, 2011:
Allowance for loan losses:
Individually evaluated for
impairment
Collectively evaluated for
impairment
Total allowance for loan
losses
Loan category as a % of total
recorded investment
Recorded investment:(1)
Individually evaluated for
impairment
Collectively evaluated for
impairment
Total recorded
investment
$
$
$
— $
5,232
$
— $
1
$
3,157
$
— $
8,390
—
87,177
739
27,545
22,981
709
139,151
— $
92,409
$
739
$
27,546
$
26,138
$
709
$
147,541
2%
61%
1%
11%
21%
4%
100%
— $
19,517
$
— $
8,404
$
26,851
$
— $
54,772
147,032
4,999,314
49,474
928,046
1,665,135
352,495
8,141,496
$
147,032
$ 5,018,831
$
49,474
$
936,450
$ 1,691,986
$
352,495
$ 8,196,268
$
$
$
— $
8,478
$
— $
1,014
$
2,642
$
— $
12,134
5
5
2%
72,789
490
29,738
30,568
$
81,267
$
490
$
30,752
$
33,210
$
61%
—
11%
26%
20
20
—
133,610
$
145,744
100%
— $
25,685
$
— $
15,842
$
23,453
$
— $
64,980
92,748
4,075,254
29,087
727,047
1,733,033
7,438
6,664,607
$
92,748
$ 4,100,939
$
29,087
$
742,889
$ 1,756,486
$
7,438
$ 6,729,587
(1) Excludes any net unearned income and deferred expenses.
RJ Bank had no recorded investment in loans acquired with deteriorated credit quality as of either September 30, 2012 or 2011.
The reserve for unfunded lending commitments, included in trade and other payables on our Consolidated Statements of Financial
Condition, was $9.3 million and $10.4 million at September 30, 2012 and 2011, respectively.
147
Index
NOTE 10 - PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets include the following:
Investments in company-owned life insurance (1)
Investment in FHLB stock
Investment in FRB stock
Prepaid expenses
Low-income housing tax credit fund financing asset (2)
Indemnification asset (3)
Other assets
Prepaid expenses and other assets
September 30,
2012
2011
(in thousands)
$
$
188,631
13,192
21,300
97,033
41,588
197,898
45,924
605,566
$
$
148,658
65,541
—
69,589
41,629
—
37,804
363,221
(1) As of September 30, 2012, we own 1,362 life insurance policies with a cumulative face value of $706.1 million.
(2) In a prior year, we sold an investment in a low-income housing tax credit fund and we provided a guaranteed return on investment to
the purchaser. As a result of this guarantee obligation, we are the primary beneficiary of the fund (see Note 11 for further information
regarding the consolidation of this fund) and we have accounted for this transaction as a financing. As a financing transaction, we
continue to account for the asset transferred to the purchaser, and maintain a related liability corresponding to our obligations under
the guarantee. As the benefits are delivered to the purchaser of the investment, this financing asset and the related liability decrease.
A related financing liability in the amount of $41.7 million is included in trade and other payables on our Consolidated Statements of
Financial Condition as of September 30, 2012 and 2011. See Note 20 for further discussion of our obligations under the guarantee.
(3) The indemnification asset primarily pertains to legal matters for which Regions has indemnified RJF in connection with our acquisition
of Morgan Keegan. The liabilities related to such matters are included in trade and other payables on our Consolidated Statements of
Financial Condition. See Notes 3 and 20 for additional information.
NOTE 11 – VARIABLE INTEREST ENTITIES
On October 1, 2010, we adopted new accounting guidance regarding the consolidation of VIEs. See the “Evaluation of VIEs
to determine whether consolidation is required” section of Note 2 for a discussion of the impact the adoption of this new accounting
guidance had on our September 30, 2011 Consolidated Statements of Financial Condition, as well as a discussion of our accounting
policies regarding our evaluation of variable interest entities.
148
Index
VIEs where we are the primary beneficiary
Of the VIEs in which we hold an interest, we have determined that the EIF Funds, the Restricted Stock Trust Fund and certain
LIHTC Funds require consolidation in our financial statements as we are deemed the primary beneficiary of those VIEs (see Note
2 for discussion of our accounting policies governing these determinations). The aggregate assets and liabilities of the entities we
consolidate are provided in the table below.
September 30, 2012
LIHTC Funds
Guaranteed LIHTC Fund (2)
Restricted Stock Trust Fund
EIF Funds
Total
September 30, 2011
LIHTC Funds
Guaranteed LIHTC Fund (2)
Restricted Stock Trust Fund
EIF Funds
Total
Aggregate
assets (1)
Aggregate
liabilities (1)
(in thousands)
$
$
$
$
234,592
85,332
15,387
15,736
351,047
257,631
87,811
8,099
16,223
369,764
$
$
$
$
97,217
2,208
7,508
—
106,933
121,908
10,424
4,630
—
136,962
(1) Aggregate assets and aggregate liabilities differ from the consolidated carrying value of assets and liabilities due to the elimination of
intercompany assets and liabilities held by the consolidated VIE.
(2) In connection with one of the multi-investor tax credit funds in which RJTCF is the managing member, RJTCF has provided the
investor members with a guaranteed return on their investment in the fund (the “Guaranteed LIHTC Fund”). See Note 10 for information
regarding the financing asset associated with this fund, and see Note 20 for additional information regarding this commitment.
The following table presents information about the carrying value of the assets, liabilities and equity of the VIEs which we
consolidate and are included within our Consolidated Statements of Financial Condition. The noncontrolling interests presented
in this table represent the portion of these net assets which are not ours.
Assets:
Assets segregated pursuant to regulations and other segregated assets
Receivables, other
Investments in real estate partnerships held by consolidated variable interest entities
Trust fund investment in RJF common stock (1)
Prepaid expenses and other assets
Total assets
Liabilities and equity:
Loans payable of consolidated variable interest entities (2)
Trade and other payables
Intercompany payables
Total liabilities
RJF Equity
Noncontrolling interests
Total equity
Total liabilities and equity
September 30,
2012
2011
(in thousands)
$
$
$
$
14,230
5,273
299,611
15,387
16,297
350,798
81,713
2,804
8,603
93,120
6,105
251,573
257,678
350,798
$
$
$
$
18,317
11,288
320,384
8,099
17,197
375,285
99,982
5,353
6,904
112,239
5,537
257,509
263,046
375,285
(1) Included in treasury stock in our Consolidated Statements of Financial Condition.
(2) Comprised of several non-recourse loans. We are not contingently liable under any of these loans.
149
Index
The following table presents information about the net income (loss) of the VIEs which we consolidate, and is included within
our Consolidated Statements of Income and Comprehensive Income. The noncontrolling interests presented in this table represent
the portion of the net loss from these VIEs which is not ours.
Revenues:
Interest
Other
Total revenues
Interest expense
Net revenues (expense)
Non-interest expenses
Net loss including noncontrolling interests
Net loss attributable to noncontrolling interests
Net income (loss) attributable to RJF
Low-income housing tax credit funds
2012
Year ended September 30,
2011
(in thousands)
2010
$
$
3
3,944
3,947
5,032
(1,085)
25,207
(26,292)
(26,860)
568
$
$
$
2
5,385
5,387
6,049
(662)
18,670
(19,332)
(17,988)
(1,344) $
13
5,793
5,806
4,457
1,349
15,445
(14,096)
(13,392)
(704)
RJTCF is the managing member or general partner in approximately 77 separate low-income housing tax credit funds having
one or more investor members or limited partners. RJTCF has concluded that it is the primary beneficiary of nine of the 76 non-
guaranteed LIHTC Funds it has sponsored and, accordingly, consolidates these funds. Two of the non-guaranteed LIHTC Funds
previously consolidated were liquidated during the year ended September 30, 2012. In addition, RJTCF consolidates the one
Guaranteed LIHTC Fund it sponsors. See Note 20 for further discussion of the guarantee obligation as well as other RJTCF
commitments.
VIEs where we hold a variable interest but we are not the primary beneficiary
Low-income housing tax credit funds
RJTCF does not consolidate the LIHTC Fund VIEs that it determines it is not the primary beneficiary of. Our risk of loss is
limited to our investments in, advances to, and receivables due from these funds.
New market tax credit funds
An affiliate of Morgan Keegan is the managing member of seven NMTC Funds and as discussed in Note 2, the affiliate of
Morgan Keegan is not deemed to be the primary beneficiary of these NMTC Funds and, therefore, they are not consolidated. Our
risk of loss is limited to our receivables due from these funds.
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 concluded
we are not the primary beneficiary, are provided in the table below.
Aggregate
assets
September 30, 2012
Aggregate
liabilities
Our risk
of loss
Aggregate
assets
September 30, 2011
Aggregate
liabilities
Our risk
of loss
LIHTC Funds
NMTC Funds
Other Real Estate Limited Partnerships
and LLCs
Total
$
$
2,198,049
140,680
31,107
2,369,836
$
$
844,597
209
35,512
880,318
$
$
150
(in thousands)
22,501
13
$
1,582,764
—
1,145
23,659
$
39,344
1,622,108
$
$
533,311
—
35,467
568,778
$
$
37,733
—
8,068
45,801
Index
VIEs where we hold a variable interest but we are not required to consolidate
The aggregate assets, liabilities, and our exposure to loss from Managed Funds in which we hold a variable interest are
provided in the table below:
Aggregate
assets
September 30, 2012
Aggregate
liabilities
Our risk
of loss
Aggregate
assets
(in thousands)
September 30, 2011
Aggregate
liabilities
Our risk
of loss
Managed Funds
$
9,700
$
1,689
$
296
$
12,813
$
— $
834
NOTE 12 - PROPERTY AND EQUIPMENT
Land
Construction in process
Software
Buildings, leasehold and land improvements
Furniture, fixtures, and equipment
Less: Accumulated depreciation and amortization
$
$
September 30,
2012
2011
$
(in thousands)
19,754
6,782
117,604
204,593
182,168
530,901
(299,706)
231,195
$
18,644
2,237
77,898
180,392
156,523
435,694
(265,844)
169,850
NOTE 13 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
The following are our goodwill and net identifiable intangible asset balances as of the dates indicated:
Goodwill
Identifiable intangible assets, net
Total goodwill and identifiable intangible assets, net
Goodwill
September 30,
2012
2011
(in thousands)
$
$
$
300,111
61,135
361,246
$
$
$
71,924
1,043
72,967
Our goodwill results from our fiscal year 1999 acquisition of Roney & Co. (now part of RJ&A), our fiscal year 2001 acquisition
of Goepel McDermid, Inc. (now called RJ Ltd.), our April 1, 2011 acquisition of Howe Barnes, our April 4, 2011 acquisition of
a controlling interest in RJES, and our April 2, 2012 acquisition of Morgan Keegan (see Note 3 for additional information).
GAAP does not provide for the amortization of indefinite-life intangible assets such as goodwill. Rather, these assets are
subject to an evaluation of potential impairment on an annual basis, or more often if events or circumstances indicate there may
be impairment. Goodwill impairment is determined by comparing the estimated fair value of a reporting unit with its respective
carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not deemed to be
impaired. However, if the estimated fair value is below carrying value, further analysis is required to determine the amount of
the impairment. This further analysis involves assigning tangible assets and liabilities, identified intangible assets and goodwill
to reporting units and comparing the fair value of each reporting unit to its carrying amount.
151
Index
New accounting guidance effective for our fiscal year 2012 provides an option for us to perform a new qualitative assessment
of potential impairment which may result in the determination that a quantitative impairment analysis is not necessary. Under
this elective process, we assess qualitative factors to determine whether the existence of events or circumstances leads us to a
determination that it is more likely than not that the fair value of a reporting unit is less then its carrying amount. If after assessing
the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is greater than
its carrying amount, then performing a quantitative analysis is not required. However, if we conclude otherwise, then we are
required to perform a quantitative impairment analysis.
We performed our annual goodwill impairment testing as of December 31, 2011. We elected to perform a qualitative assessment
for each reporting unit that includes an allocation of goodwill to determine whether it is more likely than not that the carrying
value of such reporting unit including the recorded goodwill is in excess of the fair value of the reporting unit. In any instance in
which we were unable to qualitatively conclude that it is more likely than not that the fair value of the reporting unit exceeds the
reporting unit's carrying value including goodwill, a quantitative analysis of the fair value of the reporting unit was
performed. Based upon the outcome of our qualitative assessment, we determined that no quantitative analysis of the fair value
of any reporting unit as of December 31, 2011 was required, with the exception of our RJES reporting unit. For the RJES reporting
unit, an income approach valuation model was updated as of December 31, 2011 to assess the fair value of the reporting unit to
compare to the carrying value of the reporting unit including the recorded goodwill. Based upon the outcome of all the qualitative
assessments and quantitative analyses’ performed, we concluded that none of the goodwill allocated to any of our reporting units
was impaired as of December 31, 2011. No events have occurred since December 31, 2011 that would cause us to update the
annual impairment testing we performed as of that date.
Adverse market or economic events could result in impairment charges in future periods. As of December 31, 2011, other
than our RJES reporting unit, we believe that each of our other reporting units with goodwill have a fair value substantially in
excess of their carrying value. The goodwill associated with our RJES reporting unit is approximately $6.9 million.
The following summarizes our goodwill balance and activity for the years indicated:
Goodwill at September 30, 2010
Additions (1)
Impairment losses
Goodwill at September 30, 2011
Additions (2)
Impairment losses
Goodwill at September 30, 2012
Segment
Private client
group
Capital markets
(in thousands)
Total
$
$
$
45,681
2,416
—
48,097
125,220
—
173,317
$
$
$
16,894
6,933
—
23,827
102,967
—
126,794
$
$
$
62,575
9,349
—
71,924
228,187
—
300,111
(1)
Additions are directly attributable to the acquisition of Howe Barnes and a controlling interest in RJES (see Note 1 for additional
information).
(2)
Additions are directly attributable to the acquisition of Morgan Keegan (see Notes 1 and 3 for additional information).
152
Index
Identifiable intangible assets, net
The following summarizes our identifiable intangible asset balances, net of accumulated amortization, and activity for the
years indicated:
Private client
group
Segment
Capital
markets
Emerging
markets
Total
Net identifiable intangible assets as of September 30, 2009
Additions (1)
Amortization expense
Impairment losses
Net identifiable intangible assets as of September 30, 2010
Additions
Amortization expense
Impairment losses
Net identifiable intangible assets as of September 30, 2011
Additions (2)
Amortization expense
Impairment losses
Net identifiable intangible assets as of September 30, 2012
$
$
$
$
807
—
(410)
—
397
—
(187)
—
210
10,000
(381)
—
9,829
$
$
$
$
$
(in thousands)
2,268
—
(1,360)
—
908
—
(908)
—
— $
$
55,000
(4,305)
—
50,695
$
— $
1,111
—
—
1,111
—
(278)
—
833
—
(222)
—
611
$
$
$
3,075
1,111
(1,770)
—
2,416
—
(1,373)
—
1,043
65,000
(4,908)
—
61,135
(1)
Additions are directly attributable to our acquisition of a controlling interest in Raymond James Asset Management International,
S.A.
(2)
Additions are directly attributable to the acquisition of Morgan Keegan (see Note 3 for additional information).
Identifiable intangible assets by type are presented below:
September 30, 2012
September 30, 2011
Gross
carrying
value
Accumulated
amortization
Gross
carrying
value
Accumulated
amortization
Customer relationships
Trade name
Developed technology
Non-compete agreements
Total
$
$
52,628
2,000
11,000
1,000
66,628
$
$
$
(in thousands)
(3,060)
(1,000)
(1,100)
(333)
(5,493)
$
1,628
—
—
—
1,628
$
$
(585)
—
—
—
(585)
Projected amortization expense associated with the identifiable intangible assets by fiscal year is as follows:
Fiscal year ended September 30,
2013
2014
2015
2016
2017
Thereafter
$
$
(in thousands)
8,470
6,079
5,999
5,833
4,733
30,021
61,135
153
Index
NOTE 14 – BANK DEPOSITS
Bank deposits include Negotiable Order of Withdrawal (“NOW”) accounts, demand deposits, savings and money market
accounts and certificates of deposit. The following table presents a summary of bank deposits including the weighted-average
rate:
September 30, 2012
September 30, 2011
Balance
Weighted-
average rate (1)
Balance
Weighted-
average rate (1)
Bank deposits:
NOW accounts
Demand deposits (non-interest-bearing)
Savings and money market accounts
Certificates of deposit
Total bank deposits(2)
$
$
4,588
44,800
8,231,446
318,879
8,599,713
($ in thousands)
0.01% $
—
0.04%
2.13%
0.12% $
4,183
21,663
7,468,136
245,340
7,739,322
0.01%
—
0.08%
2.37%
0.15%
(1) Weighted-average rate calculation is based on the actual deposit balances at September 30, 2012 and 2011, respectively.
(2) Bank deposits exclude affiliate deposits of approximately $1 million and $250 million at September 30, 2012 and 2011, respectively.
RJ Bank’s savings and money market accounts in the table above consist primarily of deposits that are cash balances swept
from the investment accounts maintained at RJ&A. These balances are held in Federal Deposit Insurance Corporation (“FDIC”)
insured bank accounts through the Raymond James Bank Deposit Program (“RJBDP”) administered by RJ&A.
Scheduled maturities of certificates of deposit are as follows:
September 30, 2012
September 30, 2011
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
Over three through six months
Over six through twelve months
Over one through two years
Over two through three years
Over three through four years
Over four through five years
Total
$
$
9,069
4,587
12,414
16,989
32,043
34,533
50,647
160,282
$
$
Interest expense on deposits is summarized as follows:
$
(in thousands)
7,195
6,778
16,339
23,920
38,074
28,807
37,484
158,597
$
7,403
6,408
6,711
19,567
10,045
29,136
34,349
113,619
$
$
7,977
6,153
15,103
19,862
17,286
36,271
29,069
131,721
Year ended September 30,
2011
2012
2010
Certificates of deposit
Money market, savings and NOW accounts(1)
Total interest expense on deposits
$
$
6,501
2,983
9,484
$
$
6,228
6,315
12,543
$
$
6,563
9,480
16,043
(1) Interest expense associated with bank deposits for the years ended September 30, 2012, 2011 and 2010 excludes interest expense on
affiliate deposits of $76 thousand, $62 thousand and $10 thousand, respectively.
154
Index
NOTE 15 – OTHER BORROWINGS
As of September 30, 2012 and 2011, we had no borrowings outstanding on either secured or unsecured lines of credit, and
RJ Bank had no advances outstanding from the FHLB.
As of September 30, 2012, there were other collateralized financings outstanding in the amount of $348 million. As of
September 30, 2011, there were other collateralized financings outstanding in the amount of $189 million. These other collateralized
financings are included in securities sold under agreements to repurchase on the Consolidated Statements of Financial Condition.
These financings are collateralized by non-customer, RJ&A-owned securities.
NOTE 16 - LOANS PAYABLE OF CONSOLIDATED VARIABLE INTEREST ENTITIES
Certain of the VIEs that we consolidate have borrowings which are comprised of non-recourse loans. These loans have imputed
interest rates ranging from 5.17% to 6.38%. Payments on these loans are made semi-annually by the borrowing VIE directly to
the third party lender. These loans mature on dates ranging from January 2, 2015 through January 2, 2019. We are not contingently
obligated under any of these loans. See Note 11 for additional information regarding the entities determined to be VIEs, and which
of those entities we consolidate.
VIEs' loans payable are presented below:
Current portion of loans payable
Long-term portion of loans payable
Total loans payable
September 30,
2012
2011
(in thousands)
$
$
18,775
62,938
81,713
$
$
21,332
78,650
99,982
The principal amount of the VIEs' borrowing, based on their contractual terms, mature as follows:
September 30, 2012
(in thousands)
Fiscal 2013
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018 and thereafter
Total
$
$
18,775
19,061
17,949
13,331
8,240
4,357
81,713
155
Index
NOTE 17 – CORPORATE DEBT
The following summarizes our corporate debt:
RJES term loan(1)
Other borrowings from banks (2)
4.25% senior notes, due 2016, net of unamortized discount of $355 thousand and $455
thousand at September 30, 2012 and 2011, respectively (3)
8.60% senior notes, due 2019, net of unamortized discount of $35 thousand and $40
thousand at September 30, 2012 and 2011, respectively (4)
Mortgage notes payable (5)
5.625% senior notes, due 2024, net of unamortized discount of $952 thousand at
September 30, 2012 (6)
6.90% senior notes, due 2042 (7)
Total corporate debt
September 30,
2012
2011
(in thousands)
2,870
128,256
$
249,645
299,965
49,309
249,048
350,000
1,329,093
$
9,709
—
249,545
299,960
52,754
—
—
611,968
$
$
(1) RJES term loan that bears interest at a variable rate indexed to the Euro Interbank Offered Rate and is secured by certain of its assets.
The repayment terms include annual principal repayments and a September 2013 maturity.
(2) As of September 30, 2012, is comprised of the Regions Credit Agreement borrowing. On the Closing Date of the Morgan Keegan
acquisition (see Note 3 for further information regarding this acquisition), the Borrowers executed the Regions Credit Agreement
which provided for a $200 million loan made by the Lender to the Borrowers and is subject to a guarantee in favor of the Lender
provided by RJF. The proceeds from the loan were disbursed to us on the Closing Date for working capital and general corporate
purposes. The borrowings are secured by, subject to certain exceptions, all of the Borrowers’ personal property, including (i) all present
and future ARS owned by any Borrower (the “Pledged ARS”), (ii) all equity interests issued by certain subsidiaries, and (iii) all present
and future equity interests and debt securities owned by any Borrower. The loan matures on April 2, 2015 and bears interest at a monthly
variable rate equal to LIBOR plus 2.75%. Primarily as a result of redemptions by certain issuers of Pledged ARS during the year
ended September 30, 2012 and the resultant repayments to the Lender, the outstanding principal balance on the Regions Credit
Agreement as of September 30, 2012 was $128.3 million.
On November 14, 2012, the outstanding balance on the Regions Credit Agreement was repaid, and on that same date, one of the
Borrowers (the “Borrower”) entered into a Revolving Credit Agreement (the “New Regions Credit Agreement”) with the Lender.
The New Regions Credit Agreement provides for a revolving line of credit to be made available by the Lender to the Borrower and is
subject to a guarantee in favor of the Lender provided by RJF. The proceeds from any borrowings under the line will be used for
working capital and general corporate purposes. The obligations under the New Regions Credit Agreement are secured by, subject to
certain exceptions, all of the Pledged ARS. The amount of any borrowing under the New Regions Credit Agreement cannot exceed
70% of the value of the Pledged ARS. The maximum amount available under the New Regions Credit Agreement was $97.7 million
as of November 16, 2012. The New Regions Credit Agreement expires on April 2, 2015.
(3) In April 2011, we sold in a registered underwritten public offering, $250 million in aggregate principal amount of 4.25% senior notes
due April 2016. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time
prior to their maturity at a redemption price equal to the greater of (i) 100% of the principal amount of the notes to be redeemed, or
(ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption
date at a discount rate equal to a designated U.S. Treasury rate, plus 30 basis points, plus accrued and unpaid interest thereon to the
redemption date.
(4) In August 2009, we sold in a registered underwritten public offering, $300 million in aggregate principal amount of 8.60% senior notes
due August 2019. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time
prior to their maturity, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or (ii) the
sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date
at a discount rate equal to a designated U.S. Treasury rate, plus 50 basis points, plus accrued and unpaid interest thereon to the redemption
date.
(5) Mortgage notes payable pertain to mortgage loans on our headquarters office complex. These mortgage loans are secured by land,
buildings, and improvements with a net book value of $56.4 million at September 30, 2012. These mortgage loans bear interest at
5.7% with repayment terms of monthly interest and principal debt service and have a January 2023 maturity.
Footnote explanations are continued on the following page.
156
Index
Continued from the previous page.
(6) In March 2012, we sold in a registered underwritten public offering, $250 million in aggregate principal amount of 5.625% senior
notes due April 2024. Interest on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any
time prior to their maturity, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes redeemed, or
(ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption
date at a discount rate equal to a designated U.S. Treasury rate, plus 50 basis points, plus accrued and unpaid interest thereon to the
redemption date.
(7) In March 2012, we sold in a registered underwritten public offering, $350 million in aggregate principal amount of 6.90% senior notes
due March 2042. Interest on these senior notes is payable quarterly in arrears. On or after March 15, 2017, we may redeem some or
all of the senior notes at any time at the redemption price equal to 100% of the principal amount of the notes being redeemed plus
accrued interest thereon to the redemption date.
Our corporate debt matures as follows, based upon its contractual terms:
Fiscal 2013
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018 and thereafter
Total
September 30, 2012
(in thousands)
$
$
6,517
3,860
132,342
253,970
4,578
927,826
1,329,093
NOTE 18 – DERIVATIVE FINANCIAL INSTRUMENTS
The significant accounting policies governing our derivative financial instruments, including our methodologies for
determining fair value, are described in Note 2.
Derivatives arising from our fixed income business operations
In our pre-Morgan Keegan acquisition fixed income business, we entered into interest rate swaps and futures contracts either
as part of our fixed income business to facilitate customer transactions, to hedge a portion of our trading inventory, or to a limited
extent for our own account. We have continued to conduct this business in a substantially similar fashion during the period ending
September 30, 2012 (since the Closing Date of the Morgan Keegan acquisition, see Note 3 for further information).
The majority of these derivative positions are executed in the over-the-counter market with financial institutions. Cash flows
related to these fixed income interest rate contracts are included as operating activities (the “trading instruments, net” line) on the
Consolidated Statements of Cash Flows.
Matched book derivatives arising from Morgan Keegan's legacy business operations
Morgan Keegan facilitates derivative transactions through non-broker-dealer subsidiaries previously defined herein as MKSS.
Morgan Keegan does not use derivative instruments for trading or hedging purposes. MKSS enters into derivative transactions
(primarily interest rate swaps) with customers of MK & Co. For every derivative transaction MKSS enters into with a customer,
MKSS enters into an offsetting transaction with terms that mirror the customer transaction with a credit support provider who is
a third party financial institution. Due to this “pass-through” transaction structure, MKSS has completely mitigated the market
and credit risk related to these derivative contracts and therefore, the ultimate credit and market risk resides with the third party
financial institution. MKSS only has credit risk related to its uncollected derivative transaction fee revenues. As a result of the
structure of these transactions, we refer to the derivative contracts we enter into as a result of this process as our offsetting “matched
book” derivative operations.
Any collateral required to be exchanged under these matched book derivative contracts is administered directly by the customer
and the third party financial institution. MKSS does not hold any collateral, or administer any collateral transactions, related to
these instruments. We record the value of each derivative position held at fair value, as either an asset or offsetting liability,
presented as “derivative instruments associated with offsetting matched book positions,” as applicable, on our Consolidated
Statements of Financial Condition.
157
Index
The receivable for uncollected derivative transaction fee revenues of MKSS is $9.3 million at September 30, 2012 and is
included in other receivables on our Consolidated Statements of Financial Condition.
None of the derivatives described above are designated as fair value or cash flow hedges.
Derivatives arising from RJ Bank’s business operations
On February 29, 2012, a Canadian subsidiary of RJ Bank commenced operations as a result of a purchase of substantially all
of a foreign bank’s Canadian corporate loan portfolio. U.S. subsidiaries of RJ Bank utilize forward foreign exchange contracts to
hedge RJ Bank’s foreign currency exposure due to its non-U.S. dollar net investment. Cash flows related to these derivative
contracts are classified within operating activities in the Consolidated Statements of Cash Flows.
Description of the collateral we hold related to derivative contracts
Where permitted, we elect to net-by-counterparty certain derivative contracts entered into by our fixed income business group
and RJ Bank’s U.S. subsidiaries (specifically those derivative contracts which are not arising from our matched book derivatives
operations). Certain of these contracts contain a legally enforceable master netting arrangement that allows for netting of all
derivative transactions with each counterparty and, therefore, the fair value of those derivative contracts are netted by counterparty
in the Consolidated Statements of Financial Condition. The credit support annex related to the interest rate swaps and certain
forward foreign exchange contracts allow parties to the master agreement to mitigate their credit risk by requiring the party which
is out of the money to post collateral. We accept collateral in the form of cash, U.S. Treasury securities, or other marketable
securities. As we elect to net-by-counterparty the fair value of derivative contracts, we also net-by-counterparty any cash collateral
exchanged as part of the derivative agreement.
This cash collateral is recorded net-by-counterparty at the related fair value. The cash collateral included in the net fair value
of all open derivative asset positions aggregates to a net liability of $18 million at September 30, 2012 and $19 million at
September 30, 2011. The cash collateral included in the net fair value of all open derivative liability positions aggregates to a net
asset of $50 million and $37 million at September 30, 2012 and September 30, 2011, respectively. Our maximum loss exposure
under these interest rate swap contracts at September 30, 2012 is $52 million.
RJ Bank provides to counterparties for the benefit of its U.S. subsidiaries, a guarantee of payment in the event of the subsidiaries’
default for exposure under the forward foreign exchange contracts. Due to this RJ Bank guarantee and the short-term nature of
these derivatives, RJ Bank’s U.S. subsidiaries are not required to post collateral and do not receive collateral with respect to certain
derivative contracts with the respective counterparties. RJ Bank's maximum loss exposure under these forward foreign exchange
contracts at September 30, 2012 is $1.4 million.
158
Index
Derivative balances included in our financial statements
See the table below for the notional and fair value amounts of both the asset and liability derivatives.
Balance sheet
location
September 30, 2012
Notional
amount
Asset derivatives
Fair
value(1)
Balance sheet
location
(in thousands)
September 30, 2011
Notional
amount
Fair
value(1)
Derivatives not designated
as hedging instruments:
Interest rate contracts(2)
Interest rate contracts(3)
$
$
2,376,049
2,110,984
$
$
Trading
instruments
Derivative
instruments
associated with
offsetting
matched book
positions
$
$
144,259 Trading
instruments
458,265 Derivative
instruments
associated with
offsetting
matched book
positions
2,248,150
$
126,867
— $
—
(1) The fair value in this table is presented on a gross basis before netting of cash collateral and before any netting by counterparty according
to our legally enforceable master netting arrangements. The fair value in the Consolidated Statements of Financial Condition is presented
net.
(2) These contracts arise from our pre-Morgan Keegan acquisition fixed income operations.
(3) These are the matched book derivative contracts which arise from the legacy Morgan Keegan fixed income business operations.
Balance sheet
location
September 30, 2012
Notional
amount
Liability derivatives
Fair
value(1)
Balance sheet
location
(in thousands)
September 30, 2011
Notional
amount
Fair
value(1)
Derivatives designated as
hedging instruments:
Forward foreign exchange
contracts
Derivatives not designated
as hedging instruments:
Interest rate contracts(2)
Interest rate contracts(3)
Forward foreign exchange
contracts
Trade and other
payables
$
569,790
$
1,296 Trade and other
payables
2,288,450
$
128,081 Trading
$
$
Trading
instruments
sold
Derivative
instruments
associated with
offsetting
matched book
positions
Trade and other
payables
2,110,984
$
$
44,225
$
instruments
sold
458,265 Derivative
instruments
associated with
offsetting
matched book
positions
74 Trade and other
payables
$
$
$
$
— $
—
1,722,820
$
112,457
— $
—
— $
—
(1) The fair value in this table is presented on a gross basis before netting of cash collateral and before any netting by counterparty according
to our legally enforceable master netting arrangements. The fair value in the Consolidated Statements of Financial Condition is
presented net.
(2) These contracts arise from our pre-Morgan Keegan acquisition fixed income operations.
(3) These are the matched book derivative contracts which arise from the legacy Morgan Keegan fixed income business operations.
159
Index
Losses recognized on forward foreign exchange derivatives in AOCI totaled $10 million, net of income taxes, for the year
ended September 30, 2012. There was no hedge ineffectiveness and no components of derivative gains or losses were excluded
from the assessment of hedge effectiveness for the year ended September 30, 2012. We did not enter into any forward foreign
exchange derivative contracts during the year ended September 30, 2011.
See the table below for the impact of the derivatives not designated as hedging instruments on the Consolidated Statements
of Income and Comprehensive Income:
Location of gain (loss)
recognized on derivatives in the
Consolidated Statements of
Income and Comprehensive Income
Derivatives not
designated as hedging
instruments:
Interest rate contracts(1)
Interest rate contracts
Net trading profits
Other revenues
Forward foreign exchange
Other revenues
contracts
Amount of gain (loss) on derivatives
recognized in income
Year ended September 30,
2012
2011
(in thousands)
2010
$
$
$
(116)
$
835 (2) $
(591)
$
750
$
— $
— $
(3,471)
(297)
—
(1) These contracts arise from our pre-Morgan Keegan acquisition fixed income operations.
(2) These revenues arise from the matched book derivative contracts associated with the legacy Morgan Keegan fixed income business
operations.
Risks associated with, and our risk mitigation related to, our derivative contracts
We are exposed to credit losses in the event of nonperformance by the counterparties to forward foreign exchange derivative
agreements as well as the interest rate contracts associated with our legacy, pre-Morgan Keegan fixed income operations. 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. Currently, we anticipate that all of the counterparties will be able to fully satisfy their
obligations under those agreements. For our pre-Morgan Keegan fixed income operations, we may require collateral in the form
of cash deposits from counterparties 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.
We are exposed to interest rate risk related to the interest rate derivative agreements arising from our pre-Morgan Keegan
fixed income operations. We are also exposed to foreign exchange risk related to our forward foreign exchange derivative
agreements. We monitor exposure in our derivative agreements daily 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. These exposures
are monitored both on a total portfolio basis and separately for each agreement for selected maturity periods.
Certain of our derivative instruments 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, it would be in breach of these
provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and
ongoing overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative
instruments with such credit-risk-related contingent features that are in a liability position at September 30, 2012 is $37.7 million,
for which we have posted collateral of $36.1 million in the normal course of business. If the credit-risk-related contingent features
underlying these agreements were triggered on September 30, 2012, we would have been required to post an additional $1.5
million of collateral to our counterparties.
Our only exposure to credit risk in the matched book interest rate derivative positions associated with our recently acquired
Morgan Keegan fixed income operations is related to our uncollected derivative transaction fee revenues. We are not exposed to
market risk as it relates to these derivative contracts due to the “pass-through” transaction structure more fully described above.
160
Index
NOTE 19 – INCOME TAXES
Total income taxes are allocated as follows:
2012
Year ended September 30,
2011
(in thousands)
2010
Recorded in:
Income including noncontrolling interests
Equity, for compensation expense for tax purposes (in excess of) less
than amounts recognized for financial reporting purposes
Equity, for cumulative currency translation adjustments
Equity, for available for sale securities
Total
$
$
175,656
$
182,894
$
133,625
(2,613)
(5,741)
7,611
174,913
$
374
—
1,497
184,765
$
(2,280)
—
17,020
148,365
Our provision (benefit) for income taxes consists of the following:
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Total provision for income tax
2012
Year ended September 30,
2011
(in thousands)
2010
$
$
133,890
29,141
10,581
173,612
3,939
372
(2,267)
2,044
175,656
$
$
148,266
29,387
11,249
188,902
(6,279)
(3,887)
4,158
(6,008)
182,894
$
140,482
15,592
3,380
159,454
(23,190)
(2,778)
139
(25,829)
133,625
Our income tax expense differs from the amount computed by applying the statutory federal income tax rate of 35% due to
the following:
Provision calculated at statutory rate
State income tax, net of federal benefit
Tax-exempt interest income
(Income)/loss on COLI which are not subject to tax
Business tax credits including low income housing tax
credits
Business expenses which are not tax-deductible
Incentive stock option expenses which are not tax-
deductible
Other, net
Total provision for income tax
$
$
2012
Amount
%
Year ended September 30,
2011
Amount
($ in thousands)
%
2010
Amount
%
165,034
19,566
(2,291)
(8,318)
35 % $
4.1 %
(0.5)%
(1.7)%
161,436
16,575
(1,761)
1,146
35 % $
3.6 %
(0.4)%
0.2 %
126,667
8,329
(1,549)
(3,694)
35 %
2.3 %
(0.4)%
(1.0)%
(1,830)
3,752
(0.4)%
0.8 %
(3,443)
3,072
(0.7)%
0.7 %
(4,407)
2,708
(1.2)%
0.7 %
2,843
(3,100)
175,656
0.6 %
(0.7)%
37.3 % $
2,633
3,236
182,894
0.6 %
0.7 %
39.7 % $
2,957
2,614
133,625
0.8 %
0.7 %
36.9 %
161
Index
U.S. and foreign components of income excluding noncontrolling interests and before provision for income taxes are as
follows:
U.S.
Foreign
$
Income excluding noncontrolling interest and before provision for income taxes $
2012
Year ended September 30,
2011
(in thousands)
421,662
$
39,585
461,247
$
$
$
456,175
15,350
471,525
2010
356,067
5,841
361,908
The cumulative effects of temporary differences that give rise to significant portions of the deferred tax asset (liability) items
are as follows:
Deferred tax assets:
Deferred compensation
Allowances for loan losses and reserves for unfunded commitments
Unrealized loss associated with certain available for sale securities
Accrued expenses
Acquisition expense
Net operating loss and credit carryforwards
Other
Total gross deferred tax assets
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Leveraged lease
Undistributed earnings of foreign subsidiaries
Goodwill and other intangibles
Other
Total deferred tax liabilities
Net deferred tax assets
September 30,
2012
2011
(in thousands)
$
87,666
60,779
16,324
12,211
3,802
4,390
28,185
213,357
(9)
213,348
(4,668)
(19,373)
(6,467)
(14,653)
(45,161)
168,187
$
79,192
63,061
26,381
16,018
—
4,126
24,629
213,407
(2,536)
210,871
(5,716)
(16,517)
(6,492)
(10,235)
(38,960)
171,911
$
$
We have a net deferred tax asset at September 30, 2012 and 2011. This asset includes net operating loss and foreign tax credit
carryforwards that will expire between 2016 and 2030. A valuation allowance for the fiscal year ended September 30, 2012 has
been established for certain state net operating losses due to management's belief that, based on our historical operating income,
projection of future taxable income, scheduled reversal of taxable temporary differences, and implemented tax planning strategies,
it is more likely than not that the tax carryforwards will expire unutilized. We believe that the realization of the remaining net
deferred tax asset of $168.2 million is more likely than not based on the ability to carry back losses against prior year taxable
income and expectations of future taxable income.
We have provided for U.S. deferred income taxes in the amount of $19.4 million on undistributed earnings not considered
permanently reinvested in our non-U.S. subsidiaries. To the extent that the cumulative undistributed earnings of non-U.S.
subsidiaries are considered to be permanently invested, no deferred U.S. federal income taxes have been provided. As of
September 30, 2012, we have approximately $133.6 million of cumulative undistributed earnings attributable to foreign subsidiaries
for which no provisions have been recorded for income taxes that could arise upon repatriation. Because the time or manner of
repatriation is uncertain, we cannot determine the impact of local taxes, withholding taxes and foreign tax credits associated with
the future repatriation of such earnings, and therefore cannot quantify the tax liability that would be payable in the event all such
foreign earnings are repatriated.
162
Index
As of September 30, 2012, the current tax receivable included in other receivables is $48.8 million, and a current tax payable
of $17.5 million is included in trade and other payables on our Consolidated Statements of Financial Condition. As of September 30,
2011 the current tax receivable included in other receivables is $14.9 million.
Liabilities associated with unrecognized tax benefits
We recognize the accrual of interest and penalties related to income tax matters in interest expense and other expense,
respectively. During the year ended September 30, 2012, accrued interest expense related to unrecognized tax benefits increased
by approximately $1.2 million. During the year ended September 30, 2012, penalty expense related to unrecognized tax benefits
increased by approximately $595 thousand. As of September 30, 2012 and 2011, accrued interest and penalties included in the
unrecognized tax benefits liability were approximately $3.2 million and $1.3 million, respectively.
The aggregate changes in the liability for unrecognized tax benefits including interest and penalties are as follows:
2012
Year ended September 30,
2011
(in thousands)
2010
Liability for unrecognized tax benefits at beginning of year
Increases for tax positions related to the current year
Increases for tax positions related to prior years
Decreases for tax positions related to prior years
Decreases due to lapsed statute of limitations
Decreases related to settlements
Liability for unrecognized tax benefits at end of year
$
$
(1)
4,730
2,420
6,559
(196)
(841)
—
12,672
$
$
4,308
1,199
551
(44)
(1,284)
—
4,730
$
$
4,565
1,108
353
(70)
(1,433)
(215)
4,308
(1) The increase is due to tax positions taken in previously filed tax returns with certain states. We continue to evaluate these positions
and intend to contest the proposed adjustments made by taxing authorities.
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $6.4 million and
$3.8 million at September 30, 2012 and 2011, respectively. We anticipate that the unrecognized tax benefits will not change
significantly over the next twelve months.
We file U. S. federal income tax returns as well as returns with various state, local and foreign jurisdictions. With few exceptions,
we are generally no longer subject to U.S. federal, state and local, or foreign income tax examination by tax authorities for years
prior to fiscal year 2012 for federal tax returns, fiscal year 2008 for state and local tax returns and fiscal year 2007 for foreign tax
returns. Certain transactions from our fiscal year 2012 are currently being examined under the Internal Revenue Service (“IRS”)
Compliance Assurance Program. This program accelerates the examination of key issues in an attempt to resolve them before the
tax return is filed. Certain state and local returns are also currently under various stages of audit. Various state audits in process
are expected to be completed in fiscal year 2013.
NOTE 20 – COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments and contingencies
In the normal course of business we enter into underwriting commitments. As of September 30, 2012, neither RJ&A nor MK
& Co. had open transactions involving such commitments. Transactions involving such commitments of RJ Ltd. that were recorded
and open at September 30, 2012, were approximately $9 million in Canadian dollars (“CDN”).
We utilize client marginable securities to satisfy deposits with clearing organizations. At September 30, 2012, we had client
margin securities valued at $178 million pledged with a clearing organization to meet our requirement of $110.2 million.
163
Index
As part of our recruiting efforts, we offer loans to prospective financial advisors and certain key revenue producers primarily
for recruiting and/or retention purposes (see Note 2 for a discussion of our accounting policies governing these transactions).
These commitments are contingent upon certain events occurring, including, but not limited to, the individual joining us and, in
most circumstances, require them to meet certain production requirements. As of September 30, 2012 we had made commitments,
to either prospects that have accepted our offer, or recently recruited producers, of approximately $25.6 million that have not yet
been funded.
As of September 30, 2012, RJ Bank had not settled purchases of $46.5 million in syndicated loans. These loan purchases are
expected to be settled within 90 days.
RJ Bank has committed $2 million to a small business investment company which provides capital and long-term loans to
small businesses. As of September 30, 2012, RJ Bank has invested $1.3 million of the committed amount and the distributions
received have been insignificant.
See Note 26 for additional information regarding RJ Bank’s commitments to extend credit and other credit-related off-balance
sheet financial instruments such as standby letters of credit and loan purchases.
We have committed a total of $129.5 million, in amounts ranging from $200 thousand to $12.5 million, to 53 different
independent venture capital or private equity partnerships. As of September 30, 2012, we have invested $95.7 million of the
committed amounts and have received $65.2 million in distributions. We also control the general partner in eight internally
sponsored private equity limited partnerships to which we have committed $69.7 million. As of September 30, 2012, we have
invested $47.5 million of the committed amounts and have received $18.6 million in distributions.
RJF has committed to lend to RJTCF, or guarantee obligations in connection with RJTCF’s low-income housing development/
rehabilitation and syndication activities, amounts aggregating up to $150 million upon request, subject to certain limitations as
well as annual review and renewal. At September 30, 2012, RJTCF has $30 million in outstanding cash borrowings and $40.5
million in unfunded commitments outstanding against this aggregate commitment. RJTCF borrows from RJF in order to make
investments in, or fund loans or advances to, either partnerships which purchase and develop properties qualifying for tax credits
(“Project Partnerships”) or LIHTC Funds. Investments in Project Partnerships, are sold to various LIHTC Funds, which have
third party investors and for which RJTCF serves the managing member or general partner. RJTCF typically sells investments in
Project Partnerships to LIHTC Funds within 90 days of their acquisition, and the proceeds from the sales are used to repay RJTCF’s
borrowings from RJF. RJTCF may also make short-term loans or advances to Project Partnerships, or to LIHTC Funds.
Long-term lease agreements expire at various times through fiscal year 2026. Minimum annual rental payments under such
agreements for the succeeding five fiscal years are approximately: $75.3 million in fiscal 2013, $66.6 million in fiscal 2014, $60.5
million in fiscal 2015, $53.6 million in fiscal 2016, $42.3 million in fiscal 2017 and $111.4 million thereafter. Certain leases contain
rent holidays, leasehold improvement incentives, renewal options and/or escalation clauses. Rental expense incurred under all
leases, including equipment under short-term agreements, aggregated to $73.9 million, $56.2 million and $55.2 million in fiscal
years 2012, 2011 and 2010, respectively.
At September 30, 2012, the approximate market values of collateral received that we can repledge were:
Securities purchased under agreements to resell and other collateralized financings
Securities received in securities borrowed vs. cash transactions
Collateral received for margin loans
Securities received as collateral related to derivative contracts
Total
Sources of collateral
(in thousands)
$
$
430,760
195,177
1,669,658
10,829
2,306,424
164
Index
Certain collateral was repledged. At September 30, 2012, the approximate market values of this portion of collateral and
financial instruments that we own and pledged were:
Securities sold under agreements to repurchase
Securities delivered in securities loaned vs. cash transactions
Securities pledged as collateral under secured borrowing arrangements
Collateral used for cash loans
Collateral used for deposits at clearing organizations
Total
Uses of collateral
and trading securities
(in thousands)
$
$
240,231
409,037
226,321
16,746
195,833
1,088,168
As a result of the extensive regulation of the financial services industry, our broker-dealer and investment advisory subsidiaries
are subject to regular reviews and inspections by regulatory authorities and self-regulatory organizations, which can result in the
imposition of sanctions for regulatory violations, ranging from non-monetary censure to fines and, in serious cases, temporary or
permanent suspension from conducting business. In addition, from time to time regulatory agencies and self-regulatory
organizations institute investigations into industry practices, which can also result in the imposition of such sanctions.
Guarantees
RJ Bank provides to its affiliate, Raymond James Capital Services, Inc. (“RJ Cap Services”), on behalf of certain corporate
borrowers, a guarantee of payment in the event of the borrower’s default for exposure under interest rate swaps entered into with
RJ Cap Services. At September 30, 2012, the exposure under these guarantees is $14.7 million, which was underwritten as part
of RJ Bank's corporate credit relationship with such borrowers. The outstanding interest rate swaps at September 30, 2012 have
maturities ranging from July 2013 through May 2019. RJ Bank records an estimated reserve for its credit risk associated with the
guarantee of these client swaps, which was insignificant as of September 30, 2012. The estimated total potential exposure under
these guarantees is $16.7 million at September 30, 2012.
RJ Bank guarantees the forward foreign exchange contract obligations of its U.S. subsidiaries. See Note 18 for additional
information regarding these derivatives.
RJF guarantees interest rate swap obligations of RJ Cap Services. See Note 18 for additional information regarding interest
rate swaps.
We have from time to time authorized performance guarantees for the completion of trades with counterparties in Argentina.
At September 30, 2012, there were no such outstanding performance guarantees.
In March, 2008, RJF guaranteed an $8 million letter of credit issued for settlement purposes that was requested by the Capital
Markets Board (“CMB”) for a joint venture we were at one time affiliated with in the country of Turkey. While our Turkish joint
venture ceased operations in December, 2008, the CMB has not released this letter of credit. The issuing bank has instituted an
action seeking payment of its fees on the underlying letter of credit and to confirm that the guarantee remains in effect.
RJF has guaranteed the Borrowers performance under the Regions Credit Agreement. See further discussion of this borrowing
in Note 3 and Note 17.
RJF guarantees the existing mortgage debt of RJ&A of approximately $49.3 million. See Notes 15, 16 and 17 for information
regarding our financing arrangements.
RJTCF issues certain guarantees to various third parties related to project partnerships whose interests have been sold to one
or more of the funds in which RJTCF is the managing member or general partner. In some instances, RJTCF is not the primary
guarantor of these obligations which aggregate to a cumulative maximum obligation of approximately $2.4 million as of
September 30, 2012.
165
Index
RJF has guaranteed RJTCF’s performance to various third parties on certain obligations arising from RJTCF’s sale and/or
transfer of units in one of its fund offerings (“Fund 34”). Under such arrangements, RJTCF has provided either: (1) certain specific
performance guarantees including a provision whereby in certain circumstances, RJTCF will refund a portion of the investors’
capital contribution, or (2) a guaranteed return on their investment. Under the performance guarantees, the conditions which
would result in a payment by RJTCF under the guarantees have been satisfied, neither RJF nor RJTCF funded any obligations
under such guarantees nor do either have any further obligations under such guarantees. Further, based upon its most recent
projections and performance of Fund 34, RJTCF does not anticipate that any payments will be made to any of these third parties
under the guarantee of the return on investment. Under the guarantee of returns, should the underlying LIHTC project partnerships
held by Fund 34 fail to deliver a certain amount of tax credits and other tax benefits over the next 10 years, RJTCF is obligated
to provide the investor with a specified return. A $41.6 million financing asset is included in prepaid expenses and other assets
(see Note 10 for additional information), and a related $41.6 million liability is included in trade and other payables on our
Consolidated Statements of Financial Condition as of September 30, 2012. The maximum exposure to loss under this guarantee
represents the undiscounted future payments due to investors for the return on and of their investment, and approximates $49.8
million at September 30, 2012.
Legal matter contingencies
Pre- Closing Date Morgan Keegan matters (all of which are subject to indemnification by Regions)
In July 2006, MK & Co. and a former MK & Co. analyst were named as defendants in a lawsuit filed by a Canadian insurance
and financial services company, Fairfax Financial Holdings, and its American subsidiary in the Circuit Court of Morris County,
New Jersey. Plaintiffs made claims under a civil Racketeer Influenced and Corrupt Organizations (“RICO”) statute, for commercial
disparagement, tortious interference with contractual relationships, tortious interference with prospective economic advantage
and common law conspiracy. Plaintiffs alleged that defendants engaged in a multi-year conspiracy to publish and disseminate
false and defamatory information about plaintiffs to improperly drive down plaintiff's stock price, so that others could profit from
short positions. Plaintiffs alleged that defendants' actions damaged their reputations and harmed their business relationships.
Plaintiffs alleged a number of categories of damages they sustained, including lost insurance business, lost financings and increased
financing costs, increased audit fees and directors and officers insurance premiums and lost acquisitions, and have requested
monetary damages. These claims were never considered to be meritorious by MK & Co., but some of the claims survived an
extended motion practice and discovery process. On May 11, 2012, the trial court ruled that New York law applied to plaintiff's
RICO claims, therefore the claims were not subject to treble damages. On June 27, 2012, the trial court dismissed plaintiffs' tortious
interference with prospective relations claim, but allowed other claims to go forward. A jury trial was set to begin on September 10,
2012. Prior to its commencement the court dismissed the remaining claims with prejudice. Plaintiffs have appealed the court's
rulings.
Certain of the Morgan Keegan entities, along with Regions, have been named in class-action lawsuits filed in federal and
state courts on behalf of shareholders of Regions and investors who purchased shares of certain mutual funds in the Regions
Morgan Keegan Fund complex (the “Regions Funds”). The Regions Funds were formerly managed by Morgan Asset Management
(“MAM”), an entity which was at one time a subsidiary of one of the Morgan Keegan affiliates, but an entity which was not part
of our Morgan Keegan acquisition (see further information regarding the Morgan Keegan acquisition in Note 3). The complaints
contain various allegations, including claims that the Regions Funds and the defendants misrepresented or failed to disclose material
facts relating to the activities of the Funds. No class has been certified. Certain of the shareholders in the Funds and other interested
parties have entered into arbitration proceedings and individual civil claims, in lieu of participating in the class action lawsuits.
In March 2009, MK & Co. received a Wells Notice from the SEC's Atlanta Regional Office related to ARS indicating that
the SEC staff intended to recommend that the SEC take civil action against the firm. On July 21, 2009, the SEC filed a complaint
in the United States District Court for the Northern District of Georgia (the “Court”) against MK & Co. alleging violations of the
federal securities laws in connection with ARS that MK & Co. underwrote, marketed and sold. On June 28, 2011, the Court
granted MK & Co.'s Motion for Summary Judgment, dismissing the case brought by the SEC. On May 2, 2012, the United States
Court of Appeals for the Eleventh Circuit reversed the Court's decision and remanded the case, which is scheduled for trial beginning
November 26, 2012. Beginning in February 2009, MK & Co. commenced a voluntary program to repurchase ARS that it underwrote
and sold to MK & Co. customers, and extended that repurchase program on October 1, 2009, to include certain ARS that were
sold by MK & Co. to its customers but were underwritten by other firms. On July 21, 2009, the Alabama Securities Commission
issued a “Show Cause” order to MK & Co. arising out of the ARS matter that is the subject of the SEC complaint described above.
The order requires MK & Co. to show cause why its registration as a broker-dealer should not be suspended or revoked in the
State of Alabama and also why it should not be subject to disgorgement, repurchasing all ARS sold to Alabama residents and
payment of costs and penalties.
166
Index
Prior to the Closing Date, Morgan Keegan was involved in other litigation arising in the normal course of its business. On
all such matters, RJF is subject to indemnification from Regions pursuant to the terms of the SPA and summarized below.
Indemnification from Regions
As more fully described in Note 3, the SPA provides that Regions will indemnify RJF for losses incurred in connection with
legal proceedings pending as of the closing date or commenced after the closing date and related to pre-closing matters as well as
any cost of defense pertaining thereto. All of the pre-Closing Date Morgan Keegan matters described above are subject to such
indemnification provisions. Management estimates the range of potential liability of all such matters subject to indemnification,
including the cost of defense, to be from $30 million to $400 million. Any loss arising from such matters, after consideration of
the applicable annual deductible, if any, will be borne by Regions. As of September 30, 2012, an indemnification asset of
approximately $198 million is included in other assets (see Note 10 for additional information), and a liability for potential losses
of approximately $221 million is included within trade and other payables on our Consolidated Statements of Financial Condition
pertaining to the above matters and the related indemnification, such amount representing the amount within the range of potential
liability related to such matters which management estimates is more likely than any other amount within such range.
Other matters
We are a defendant or co-defendant in various lawsuits and arbitrations incidental to our securities business as well as other
corporate litigation. We are contesting the allegations in these cases and believe that there are meritorious defenses in each of these
lawsuits and arbitrations. In view of the number and diversity of claims against us, the number of jurisdictions in which litigation
is pending and the inherent difficulty of predicting the outcome of litigation and other claims, we cannot state with certainty what
the eventual outcome of pending litigation or other claims will be. Refer to Note 2 for a discussion of our criteria for establishing
a range of possible loss related to such matters. Excluding any amounts subject to indemnification from Regions related to pre-
Closing Date Morgan Keegan matters discussed above, as of September 30, 2012, management currently estimates the aggregate
range of possible loss is from $0 to an amount of up to $7 million in excess of the accrued liability (if any) related to these
matters. In the opinion of management, based on current available information, review with outside legal counsel, and consideration
of the accrued liability amounts provided for in the accompanying consolidated financial statements with respect to these matters,
ultimate resolution of these matters will not have a material adverse impact on our financial position or cumulative results of
operations. However, resolution of one or more of these matters may have a material effect on the results of operations in any
future period, depending upon the ultimate resolution of those matters and upon the level of income for such period.
167
Index
NOTE 21 - OTHER COMPREHENSIVE INCOME
The activity in other comprehensive income and related tax effects are as follows:
2012
Year ended September 30,
2011
(in thousands)
2010
Net unrealized gain on available for sale securities, (net of tax effect of $7.6
million in fiscal year 2012, $1.5 million in fiscal year 2011 and $17 million in
fiscal year 2010)
Net change in currency translations and net investment hedges (net of a tax effect
of ($5.7) million in fiscal year 2012)(1)
Other comprehensive income (loss)
$
$
12,886
$
2,621
$
30,147
6,166
19,052
$
(6,029)
(3,408) $
5,459
35,606
The components of accumulated other comprehensive income, net of income taxes, are as follows:
September 30,
2012
2011
(in thousands)
Net unrealized loss on available for sale securities, (net of tax effects of ($9.7) million
at September 30, 2012 and ($17.3) million at September 30, 2011)
Net currency translations and net investment hedges (net of a tax effect of ($5.7)
million at September 30, 2012) (1)
Accumulated other comprehensive income
$
$
(16,318) $
(29,204)
25,765
9,447
$
19,599
(9,605)
All of the components of other comprehensive income described above, net of tax, are attributable to RJF. None of the
components of other comprehensive income are attributable to noncontrolling interests.
(1) Includes net losses recognized on forward foreign exchange derivatives of $10 million for the year ended September 30, 2012. We did
not enter into any forward foreign exchange derivative contracts during the years ended September 30, 2011 and 2010.
168
Index
NOTE 22 – INTEREST INCOME AND INTEREST EXPENSE
The components of interest income and interest expense are as follows:
Interest income:
Margin balances
Assets segregated pursuant to regulations and other segregated assets
Bank loans, net of unearned income
Available for sale securities
Trading instruments
Stock loan
Other
$
Total interest income
Interest expense:
Brokerage client liabilities
Retail bank deposits
Trading instrument sold but not yet purchased
Stock borrow
Borrowed funds
Senior notes
Interest expense of consolidated VIEs
Other
Total interest expense
Net interest income
Less: provision for loan losses
Net interest income after provision for loan losses
$
NOTE 23 - EMPLOYEE BENEFIT PLANS
2012
Year ended September 30,
2011
(in thousands)
2010
60,104
7,900
319,211
9,076
20,977
9,110
26,880
453,258
2,213
9,484
2,437
1,976
5,915
58,523
5,032
5,789
91,369
361,889
(25,894)
335,995
$
$
52,361
8,424
270,057
10,815
20,549
6,035
24,077
392,318
3,422
12,543
3,621
1,807
3,969
31,320
6,049
3,099
65,830
326,488
(33,655)
292,833
$
$
46,650
7,685
257,988
17,846
18,146
8,448
14,129
370,892
3,688
16,053
2,176
3,530
6,099
26,091
4,457
757
62,851
308,041
(80,413)
227,628
Our profit sharing plan and employee stock ownership plan (“ESOP”) provide certain death, disability or retirement benefits
for all employees who meet certain service requirements. The plans are noncontributory. Our contributions, if any, are determined
annually by our Board of Directors on a discretionary basis and are recognized as compensation cost throughout the year. Benefits
become fully vested after six years of qualified service.
All shares owned by the ESOP are included in earnings per share calculations. Cash dividends paid to the ESOP are reflected
as a reduction of retained earnings. The number of shares of our common stock held by the ESOP at September 30, 2012 and
2011 was approximately 6,038,000 and 6,279,000, respectively. The market value of our common stock held by the ESOP at
September 30, 2012 was approximately $221 million, of which approximately $2.8 million is unearned (not yet vested) by ESOP
plan participants.
We also offer a plan pursuant to section 401(k) of the Internal Revenue Code, which provides for us to match 100% of the
first $500 and 50% of the next $500 of compensation deferred by each participant annually.
Our LTIP is a non-qualified deferred compensation plan that provides benefits to employees who meet certain compensation
or production requirements. We have purchased and hold life insurance on the lives of certain current and former employee
participants to earn a competitive rate of return for participants and to provide a source of funds available to satisfy our obligations
under this plan.
Contributions to the qualified plans, as well as the LTIP contribution for management, are each made in amounts approved
annually by the Compensation Committee of our Board of Directors.
169
Index
MK & Co. maintains deferred compensation plans for the benefit of certain employees that provides a return to the participating
employees based upon the performance of various referenced investments. Under these plans, MK & Co. invests directly, as a
principal, in such investments related to its obligations to perform under the deferred compensation plans (see Note 5 for the fair
value of these investments as of September 30, 2012).
Compensation expense includes aggregate contributions to these plans of $57.8 million, $54.1 million and $45.4 million for
fiscal years 2012, 2011 and 2010, respectively.
Share-based compensation plans
On February 23, 2012, the 2012 Stock Incentive Plan (the “2012 Plan”) was approved by our shareholders. The 2012 Plan
serves as the successor to our 1996 Stock Option Plan for Key Management Personnel, 2007 Stock Option Plan for Independent
Contractors, 2002 Incentive Stock Option Plan, Stock Option Plan for Outside Directors, 2005 Restricted Stock Plan and 2007
Stock Bonus Plan (the “Predecessor Plans”). Upon approval of the 2012 Plan by our shareholders, the Predecessor Plans terminated
(except with respect to awards previously granted under the Predecessor Plans that remain outstanding). Under the 2012 Plan, we
may grant 15,400,000 new shares in addition to the shares available for grant under the Predecessor Plans as of February 23,
2012. The 1992 Incentive Stock Option Plan is not a Predecessor Plan and terminated on the date our shareholders approved the
2012 Plan. The 2012 Plan permits us to grant share-based and cash-based awards designed to be exempt from the limitation on
deductible compensation under Section 162(m) of the Internal Revenue Code.
We have issued new shares under the 2012 Plan and also are permitted to reissue our treasury shares. In addition, we recognize
the resulting realized tax benefit or deficit that exceeds or is less than the previously recognized deferred tax asset for share-based
awards (the excess tax benefit) as additional paid-in capital.
Stock option awards
Options are granted to key administrative employees and employee financial advisors who achieve certain gross commission
levels. Options granted before August 21, 2008 are exercisable in the 36th to 72nd months following the date of grant and only in
the event that the grantee is an employee of ours at that time, disabled, deceased or recently retired. Options granted on or after
August 21, 2008 are exercisable in the 36th to 72nd months following the date of grant and only in the event that the grantee is an
employee of ours or has terminated within 45 days, disabled, deceased or recently retired. Options are granted with an exercise
price equal to the market price of our stock on the grant date.
Options granted to the members of our Board of Directors vest over a three year period from grant date provided that the
director is still serving on our Board. Prior to February 2011, non-employee directors were granted options for shares annually.
Starting in February 2011, restricted stock units are being issued annually to our outside directors in lieu of stock options. Option
terms are specified in individual agreements and expire on a date no later than the tenth anniversary of the grant date.
Expense and income tax benefits related to our stock options awards granted to employees and members of our Board of
Directors are presented below:
2012
Year ended September 30,
2011
(in thousands)
2010
Total share-based expense
Income tax benefits related to share-based expense
$
9,623 $
701
7,319 $
319
8,460
310
170
Index
These amounts may not be representative of future share-based compensation expense since the estimated fair value of stock
options is amortized over the requisite service period using the straight-line method, and in certain instances, the graded vesting
attribution method and additional options may be granted in future years. The fair value of each fixed option grant is estimated
on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for stock
option grants in fiscal years 2012, 2011 and 2010:
Year ended September 30,
2011
2010
2012
Dividend yield
Expected volatility
Risk-free interest rate
Expected lives
1.84%
45.17%
0.91%
4.6
1.80%
43.74%
1.41%
4.9
1.81%
54.44%
2.57%
5.0
The dividend yield assumption is based on our current declared dividend as a percentage of the stock price. The expected
volatility assumption is based on our historical stock price and is a weighted average combining (1) the volatility of the most recent
year, (2) the volatility of the most recent time period equal to the expected lives assumption, and (3) the annualized volatility of
the price of our stock since the late 1980s. The risk-free interest rate assumption is based on the U.S. Treasury yield curve in effect
at the time of grant of the options. The expected lives assumption is based on the average of (1) the assumption that all outstanding
options will be exercised at the midpoint between their vesting date and full contractual term and (2) the assumption that all
outstanding options will be exercised at their full contractual term.
A summary of option activity for grants to employees and members of our Board of Directors for the fiscal year ended
September 30, 2012 is presented below:
Outstanding at October 1, 2011
Granted
Exercised
Forfeited
Expired
Outstanding at September 30, 2012
Weighted-
average
exercise
price ($)
Weighted-
average
remaining
contractual
term (years)
Aggregate
intrinsic
value ($)
27.06
27.76
28.64
26.74
26.77
27.14
2.81 $ 41,776,000
Options
for shares
3,557,836 $
1,539,017
(497,913)
(204,820)
(1,850)
4,392,270 $
Exercisable at September 30, 2012
671,482 $
29.79
0.60 $
4,605,000
As of September 30, 2012, there was $16 million of total unrecognized pre-tax compensation cost, net of estimated forfeitures,
related to stock option awards. These costs are expected to be recognized over a weighted-average period of approximately 3.1
years.
The following stock option activity occurred under the 2012 Plan available for grants to employees and members of our
Board of Directors:
2012
Year ended September 30,
2011
(in thousands, except per option amounts)
10.83
$
2,323
2,784
9.67 $
3,222
3,965
10,553
9,206
9.62 $
2010
Weighted-average grant date fair value per option
Total intrinsic value of stock options exercised
Total grant date fair value of stock options vested
171
Index
Cash received from stock option exercises for the fiscal year ended September 30, 2012 was $11.6 million. There was
approximately $28,000 tax deficiency realized during the fiscal year ended September 30, 2012 resulting from the exercise of
option awards during the fiscal year.
Restricted stock awards
We may grant awards under the 2012 Plan in connection with initial employment or under various retention programs for
individuals who are responsible for a contribution to the management, growth, and/or profitability. Through our Canadian
subsidiary, we established a trust fund. This trust fund was established and funded to enable the trust fund to acquire our common
stock in the open market to be used to settle restricted stock units granted as a retention vehicle for certain employees of the
Canadian subsidiary (see Note 11 for discussion of our consolidation of this trust fund, which is a VIE). We may also grant awards
to officers and certain other employees in lieu of cash for 10% to 50% of annual bonus amounts in excess of $250,000. During
the three months ended December 31, 2010, our Board of Directors approved the granting of restricted stock unit awards rather
than restricted stock awards after reviewing certain income tax consequences to retirement eligible participants associated with
the restricted stock awards. Our intention is to issue restricted stock units rather than restricted stock awards in the future. The
determination of the number of units or shares to be granted is determined by the compensation committee of the Board of Directors.
Under the plan, the awards are generally restricted for a three to five year period, during which time the awards are forfeitable in
the event of termination other than for death, disability or retirement. The following employee related activity occurred during
the fiscal year ended September 30, 2012:
Non-vested at October 1, 2011
Granted
Vested
Forfeited
Non-vested at September 30, 2012
Weighted-
average
grant date
fair value ($)
Shares/Units
4,355,474 $
3,420,605
(1,391,992)
(333,298)
6,050,789 $
26.64
31.82
24.76
28.36
29.87
Expense and income tax benefits related to our restricted stock awards are presented below:
Total share-based expense
Income tax benefits related to share-based expense
$
39,588 $
13,186
30,179 $
11,468
29,159
10,949
2012
Year ended September 30,
2011
(in thousands)
2010
For the twelve months ended September 30, 2012, we realized $2.6 million of excess tax benefits related to our restricted
stock awards.
As of September 30, 2012, there was $106.9 million of total unrecognized pre-tax compensation cost, net of estimated
forfeitures, related to restricted stock shares and restricted stock units. These costs are expected to be recognized over a weighted-
average period of approximately 3.38 years. The total fair value of shares and unit awards vested under this plan during the fiscal
year ended September 30, 2012 was $34.5 million.
Employee stock purchase plan
Under the 2003 Employee Stock Purchase Plan, we are authorized to issue up to 7,375,000 shares of common stock to our
full-time employees, nearly all of whom are eligible to participate. Under the terms of the plan, employees can choose each year
to have up to 20% of their annual compensation specified to purchase our common stock. Share purchases in any calendar year
are limited to the lesser of 1,000 shares or shares with a fair market value of $25,000. The purchase price of the stock is 85% of
the market price on the day prior to the purchase date. Under the plan we sold approximately 480,000, 337,000 and 382,000 shares
to employees during the years ended September 30, 2012, 2011 and 2010, respectively. The compensation cost is calculated as
the value of the 15% discount from market value and was $2.4 million, $1.6 million and $1.5 million during the fiscal years ended
September 30, 2012, 2011 and 2010 respectively.
172
Index
Employee investment funds
Certain key employees participate in the EIF Funds, which are limited partnerships that invest in certain of our merchant
banking and venture capital activities and other unaffiliated venture capital limited partnerships (see Notes 2 and 11 for further
information on our consolidation of the EIF Funds, which are VIEs). We made non-recourse loans to these key employees for
two-thirds of the purchase price per unit. All of these loans have been repaid.
As part of the Morgan Keegan acquisition, we acquired various employee investment funds. Certain key employees participate
in these funds, which are limited partnerships that invest in certain unaffiliated venture capital limited partnerships. These funds
had a fair value of approximately $105 million at the Closing Date.
NOTE 24 - NON-EMPLOYEE SHARE-BASED AND OTHER COMPENSATION
Share-based compensation plans
On February 23, 2012, as more fully described in Note 23, the 2012 Plan was approved by our shareholders. The 2012 Plan
serves as the successor to the 2007 Stock Option Plan for Independent Contractors. Upon approval of the 2012 Plan by our
shareholders, the 2007 Stock Option Plan for Independent Contractors terminated (except with respect to awards previously granted
under the 2007 Stock Option Plan for Independent Contractors that remain outstanding). The 2007 plan was established to replace
on substantially the same terms and conditions, the 1990 plan. As of September 30, 2012, the 1990 plan still has options outstanding.
Stock option awards
Under the 2012 Plan, we may grant stock options to our independent contractor financial advisors. We have issued new shares
under the 2012 Plan and also are permitted to reissue our treasury shares. Options granted prior to August 21, 2008 are exercisable
five years after grant date provided that the financial advisors are still associated with us, disabled, deceased or recently retired.
Options granted on or after August 21, 2008 are exercisable five years after grant date provided that the financial advisors are still
associated with us or have terminated within 45 days, disabled, deceased or recently retired. Option terms are specified in individual
agreements and expire on a date no later than the sixth anniversary of the grant date. Options are granted with an exercise price
equal to the market price of our stock on the grant date.
Absent a specific performance commitment, share-based awards granted to our independent contractor financial advisors are
measured at their vesting date fair value and their fair value estimated at reporting dates prior to that time. The compensation
expense recognized each period is based on the most recent estimated value. Further, we classify these non-employee awards as
liabilities at fair value upon vesting, with changes in fair value reported in earnings until these awards are exercised or forfeited.
Expense and income tax benefits related to stock option grants to our independent contractor financial advisors are presented
below:
Total share-based expense
Income tax benefits related to share-based expense
$
2,033 $
773
952 $
362
1,899
713
2012
Year ended September 30,
2011
(in thousands)
2010
173
Index
The fair value of each option grant awarded to an independent contractor financial advisor is estimated on the date of grant
and periodically revalued using the Black-Scholes option pricing model with the following weighted-average assumptions used
for fiscal years ended 2012, 2011 and 2010:
Dividend yield
Expected volatility
Risk-free interest rate
Expected lives
Year ended September 30,
2011
2010
2012
1.52%
43.84%
0.73%
3.27
1.62%
44.14%
0.65%
2.54
1.73%
51.84%
0.88%
2.24
The dividend yield assumption is based on our current declared dividend as a percentage of the stock price. The expected
volatility assumption is based on our historical stock price and is a weighted average combining (1) the volatility of the most recent
year, (2) the volatility of the most recent time period equal to the expected lives assumption, and (3) the annualized volatility of
the price of our stock since the late 1980s. The risk-free interest rate assumption is based on the U.S. Treasury yield curve in effect
at each point in time the options are valued. The expected lives assumption is based on the difference between the option's vesting
date plus 90 days (the average exercise period) and the date of the current reporting period.
A summary of independent contractor financial advisors option activity for the fiscal year ended September 30, 2012 is
presented below:
Outstanding at October 1, 2011
Granted
Exercised
Forfeited
Expired
Outstanding at September 30, 2012
Weighted-
average
exercise
price ($)
Weighted-
average
remaining
contractual
term (years)
Aggregate
intrinsic
value ($)
Options
for shares
474,750 $
47,200
(188,850)
(12,350)
—
320,750 $
29.45
27.10
31.53
29.98
—
27.87
—
—
—
—
—
2.21 $
2,815,000
Exercisable at September 30, 2012
103,600 $
31.78
0.16 $
505,000
As of September 30, 2012, there was $805 thousand of total unrecognized pre-tax compensation cost, net of estimated
forfeitures, related to unvested stock options granted to our independent contractor financial advisors based on an estimated
weighted-average fair value of $14.30 per share at that date. These costs are expected to be recognized over a weighted-average
period of approximately 2.96 years. The following activity for our independent contractor financial advisors occurred as follows:
2012
Year ended September 30,
2011
(in thousands)
2010
Total intrinsic value of stock options exercised
Total fair value of stock options vested
$
783 $
1,116
3,300 $
1,448
2,676
—
Cash received from stock option exercises for the fiscal year ended September 30, 2012 was $5.9 million. There were $14
thousand excess tax benefits realized for the tax deductions from option exercise of awards to our independent contractor financial
advisors for the fiscal year ended September 30, 2012.
174
Index
Restricted stock awards
Under the 2012 Plan we may grant restricted shares of common stock or restricted stock units to employees and independent
contractor financial advisors. We issue new shares under this plan as it was approved by shareholders. During the three months
ended December 31, 2010, our Board of Directors approved the granting of restricted stock unit awards rather than restricted stock
awards after reviewing certain income tax consequences to retirement eligible participants associated with the restricted stock
awards. Our intention is to issue restricted stock units rather than restricted stock awards in the future. Under the plan the awards
are generally restricted for a five year period, during which time the awards are forfeitable in the event the independent contractor
financial advisors are no longer associated with us, other than for death, disability or retirement. The following activity for our
independent contractor financial advisors occurred during the fiscal year ended September 30, 2012:
Non-vested at October 1, 2011
Granted
Vested
Forfeited
Non-vested at September 30, 2012
Weighted-
average
reporting date
fair value ($)
Shares/Units
152,330 $
2,586
(47,075)
(1,896)
105,945 $
25.96
36.65
The weighted-average fair value of share and unit awards vested during the fiscal year ended September 30, 2012 was $34.09
per share. The weighted-average fair value of share and unit awards forfeited during the fiscal year ended September 30, 2012
was $36.53 per share.
Expense and income tax benefits related to our restricted stock awards granted to our independent contractor financial advisors
are presented below:
Total share-based expense
Income tax benefits related to share-based expense
$
2,062 $
783
923 $
351
858
322
2012
Year ended September 30,
2011
(in thousands)
2010
As of September 30, 2012, there was $671 thousand of total unrecognized pre-tax compensation cost, net of estimated
forfeitures, related to unvested restricted stock granted to our independent contractor financial advisors based on an estimated fair
value of $36.65 per share at that date. These costs are expected to be recognized over a weighted-average period of approximately
1.79 years. The total fair value of share and unit awards vested during the years ended September 30, 2012, 2011 and 2010 was
$1.6 million, $49 thousand and $317 thousand, respectively.
Other compensation
We offer non-qualified deferred compensation plans that provide benefits to our independent contractor financial advisors
who meet certain production requirements. We have purchased and hold life insurance on employees, to earn a competitive rate
of return for participants and to provide the source of funds available to satisfy our obligations under some of these plans. The
contributions are made in amounts approved annually by management.
175
Index
NOTE 25 – REGULATIONS AND CAPITAL REQUIREMENTS
RJF, as a financial holding company, and RJ Bank, are subject to various regulatory capital requirements administered by
bank regulators. 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 and RJ Bank’s financial results. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, RJF and RJ Bank must meet specific capital
guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. 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.
Effective with its February, 2012 conversion to a financial holding company, quantitative measures established by regulation
to ensure capital adequacy require RJF, as a financial holding company, and RJ Bank to maintain minimum amounts and ratios
of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital to average assets
(as defined).
To be categorized as “well capitalized,” RJF must maintain total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as
set forth in the table below.
Actual
Amount
Ratio
Requirement for capital
adequacy purposes
Ratio
Amount
($ in thousands)
To be well capitalized under
prompt
corrective action
provisions
Amount
Ratio
RJF as of September 30, 2012:
Total capital (to risk-weighted assets) $
Tier I capital (to risk-weighted
assets)
Tier I capital (to adjusted assets)
3,056,794
18.9% $
1,293,881
8.0% $
1,617,351
10.0%
2,896,279
2,896,279
17.9%
14.0%
647,213
827,508
4.0%
4.0%
970,820
1,034,385
6.0%
5.0%
To be categorized as “well capitalized,” RJ Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table below.
Actual
Amount
Ratio
Requirement for capital
adequacy purposes
Ratio
Amount
($ in thousands)
To be well capitalized under
prompt
corrective action
provisions
Amount
Ratio
1,158,139
13.4% $
694,275
8.0% $
867,844
10.0%
1,049,060
1,049,060
12.1%
10.9%
347,137
386,245
4.0%
4.0%
520,706
482,807
6.0%
5.0%
1,018,858
13.7% $
595,165
8.0% $
743,956
10.0%
925,212
925,212
12.4%
10.3%
297,582
360,961
4.0%
4.0%
446,374
451,202
6.0%
5.0%
RJ Bank as of September 30, 2012:
Total capital (to risk-weighted assets) $
Tier I capital (to risk-weighted
assets)
Tier I capital (to adjusted assets)
RJ Bank as of September 30, 2011:
Total capital (to risk-weighted assets) $
Tier I capital (to risk-weighted
assets)
Tier I capital (to adjusted assets)
RJ Bank calculates the Total Capital and Tier I Capital ratios in order to assess its compliance with both regulatory requirements
and its internal capital policy in addition to providing a measure of underutilized capital should these ratios become
excessive. Capital levels are continually monitored to assess RJ Bank’s capital position. At current capital levels, RJ Bank was
categorized as “well capitalized” under the regulatory framework for prompt corrective action.
176
Index
The decrease in RJ Bank’s Total and Tier 1 Capital (to risk-weighted assets) ratios at September 30, 2012 compared to
September 30, 2011 were primarily due to an increase in risk-weighted assets during the year ended September 30, 2012, resulting
from our utilization of low risk-weighted excess cash balances available at September 30, 2011 to fund significant corporate loan
growth. The increase in RJ Bank’s Tier I Capital (to adjusted assets) ratio at September 30, 2012 compared to September 30, 2011
was primarily due to earnings and a change from using period-end total assets to average total assets in the calculation as a result
of RJ Bank’s conversion to reporting under the Consolidated Reports of Condition and Income (“Call Report”) during the year
ended September 30, 2012.
Our intention is to maintain RJ Bank's “well capitalized” status. RJ Bank maintains a total capital to risk-weighted assets
ratio of at least 12% in accordance with the minimum established in its internal policy. In the unlikely event that RJ Bank failed
to maintain its “well capitalized” status, the consequences could include a requirement to obtain a waiver prior to acceptance,
renewal, or rollover of brokered deposits and higher FDIC premiums, but would not have a significant impact on our operations.
RJ Bank may pay dividends to the parent company without prior approval by its regulator as long as the dividend does not
exceed the sum of RJ Bank's current calendar year and the previous two calendar years' retained net income, and RJ Bank maintains
its targeted capital to risk-weighted assets ratios.
Prior to its conversion to a national bank, RJ Bank was subject to certain restrictions that would have become applicable to
RJ Bank had it failed to meet an annual qualified thrift lender (“QTL”) test established by federal law, which required RJ Bank
to make qualifying investments to meet this point-in-time test. On September 30, 2011, RJ Bank was granted an exception to the
QTL requirement until September 29, 2012. With RJ Bank's February 1, 2012 conversion to a national bank, it is no longer subject
to the QTL requirement.
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. RJ&A and MK & Co., each member firms of the Financial Industry Regulatory Authority
(“FINRA”), are subject to the rules of FINRA, whose capital requirements are substantially the same as Rule 15c3-1. Rule 15c3-1
requires that aggregate indebtedness, as defined, not exceed 15 times net capital, as defined. Rule 15c3-1 also provides for an
“alternative net capital requirement,” which RJ&A, MK & Co. and RJFS have elected. Regulations require that minimum net
capital, as defined, be equal to the greater of $1 million, ($250 thousand for RJFS) or two percent of aggregate debit items arising
from client transactions. FINRA may require a member firm to reduce its business if its net capital is less than four percent of
Aggregate Debit Items and may prohibit a member firm from expanding its business and declaring cash dividends if its net capital
is less than five percent of aggregate debit items.
The net capital position of our wholly owned broker-dealer subsidiary RJ&A is as follows:
Raymond James & Associates, Inc.:
(Alternative Method elected)
Net capital as a percent of aggregate debit items
Net capital
Less: required net capital
Excess net capital
As of September 30,
2012
2011
($ in thousands)
17.22%
264,315
(30,696)
233,619
$
$
27.02%
409,869
(30,340)
379,529
$
$
The net capital position of our wholly owned broker-dealer subsidiary MK & Co. is as follows:
Morgan Keegan & Company, Inc.:
(Alternative Method elected)
Net capital as a percent of aggregate debit items
Net capital
Less: required net capital
Excess net capital
177
As of
September 30, 2012
($ in thousands)
$
$
58.48%
270,413
(9,680)
260,733
Index
At September 30, 2012 and 2011, RJFS had no aggregate debit items and, therefore, the minimum net capital of $250
thousand was applicable. The net capital position of our wholly owned broker-dealer subsidiary RJFS is as follows:
Raymond James Financial Services, Inc.:
(Alternative Method elected)
Net capital
Less: required net capital
Excess net capital
As of September 30,
2012
2011
(in thousands)
$
$
11,689
(250)
11,439
$
$
17,829
(250)
17,579
RJ Ltd. is subject to the Minimum Capital Rule (Dealer Member Rule No. 17 of the Investment Industry Regulatory
Organization of Canada (“IIROC”)) and the Early Warning System (Dealer Member Rule No. 30 of the IIROC). The Minimum
Capital Rule requires that every member shall have and maintain at all times risk-adjusted capital greater than zero calculated in
accordance with Form 1 (Joint Regulatory Financial Questionnaire and Report) and with such requirements as the Board of
Directors of the IIROC may from time to time prescribe. Insufficient risk-adjusted capital may result in suspension from
membership in the stock exchanges or the IIROC.
The Early Warning System is designed to provide advance warning that a member firm is encountering financial difficulties.
This system imposes certain sanctions on members who are designated in Early Warning Level 1 or Level 2 according to their
capital, profitability, liquidity position, frequency of designation or at the discretion of the IIROC. Restrictions on business activities
and capital transactions, early filing requirements, and mandated corrective measures are sanctions that may be imposed as part
of the Early Warning System. RJ Ltd. is not in Early Warning Level 1 or Level 2 at either September 30, 2012 or 2011.
The risk adjusted capital of RJ Ltd. is as follows (in Canadian dollars):
Raymond James Ltd.:
Risk adjusted capital before minimum
Less: required minimum capital
Risk adjusted capital
As of September 30,
2012
2011
(in thousands)
$
$
77,871
(250)
77,621
$
$
70,855
(250)
70,605
Raymond James Trust, N.A., (“RJT”) is regulated by the OCC and is required to maintain sufficient capital and meet capital
and liquidity requirements. As of September 30, 2012 and 2011, RJT met the requirements.
At September 30, 2012, all of our other active regulated domestic and international subsidiaries are in compliance with and
met all capital requirements.
RJF expects to continue paying cash dividends. However, the payment and rate of dividends on our common stock is subject
to several factors including our operating results, financial requirements, and the availability of funds from our subsidiaries,
including our broker-dealer and bank subsidiaries, which may be subject to restrictions under the net capital rules of the SEC,
FINRA and the IIROC. The availability of funds from subsidiaries may also be subject to restrictions contained in loan covenants
of certain broker-dealer loan agreements; dividends to the parent from RJ Bank may be subject to restrictions by bank regulators.
None of these restrictions have ever limited our past dividend payments.
178
Index
NOTE 26 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, we purchase and sell securities as either principal or agent on behalf of our clients. If either
the client or counterparty fails to perform, we may be required to discharge the obligations of the nonperforming party. In such
circumstances, we may sustain a loss if the market value of the security or futures contract is different from the contract value of
the transaction.
We also act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from
one broker-dealer and then lend them to another. Securities borrowed and securities loaned are carried at the amounts of cash
collateral advanced and received in connection with the transactions. We measure the market value of the securities borrowed
and loaned against the cash collateral on a daily basis. The market value of securities borrowed was $93.1 million and securities
loaned was $81.8 million at September 30, 2012, and the market value of securities borrowed was $113 million and securities
loaned was $110.3 million at September 30, 2011. The contract value of securities borrowed and securities loaned was $96.3
million and $91.5 million, respectively, at September 30, 2012 and the contract value of securities borrowed and securities loaned
was $120.5 million and $133.4 million, respectively, at September 30, 2011. Additional cash is obtained as necessary to ensure
such transactions are adequately collateralized. If another party to the transaction fails to perform as agreed (for example, failure
to deliver a security or failure to pay for a security), we may incur a loss if the market value of the security is different from the
contract amount of the transaction.
We have also loaned, to broker-dealers and other financial institutions, securities owned by clients and others for which we
have received cash or other collateral. The market value of securities loaned was $334.1 million at September 30, 2012. The
contract value of securities loaned was $339.6 million at September 30, 2012. If a borrowing institution or broker-dealer does
not return a security, we may be obligated to purchase the security in order to return it to the owner. In such circumstances, we
may incur a loss equal to the amount by which the market value of the security on the date of nonperformance exceeds the value
of the collateral received from the financial institution or the broker-dealer.
We have sold securities that we do not currently own, and will, therefore, be obligated to purchase such securities at a future
date. We have recorded $232.4 million and $76.2 million at September 30, 2012 and 2011, respectively, which represents the
market value of such securities (see Notes 5 and 6 for further information). We are subject to loss if the market price of those
securities not covered by a hedged position increases subsequent to fiscal year-end. We utilize short positions on government
obligations and equity securities to economically hedge long proprietary inventory positions.
We enter into security transactions on behalf of our clients and other brokers involving forward settlement. Forward contracts
provide for the delayed delivery of the underlying instrument. The contractual amounts related to these financial instruments
reflect the volume and activity and do not reflect the amounts at risk. The gain or loss on these transactions is recognized on a
trade date basis. Transactions involving future settlement give rise to market risk, which represents the potential loss that can be
caused by a change in the market value of a particular financial instrument. Our exposure to market risk is determined by a number
of factors, including the duration, size, composition and diversification of positions held, the absolute and relative levels of interest
rates, and market volatility. The credit risk for these transactions is limited to the unrealized market valuation gains recorded in
the Consolidated Statements of Financial Condition.
The majority of our transactions and, consequently, the concentration of our credit exposure, is with clients, broker-dealers
and other financial institutions in the U.S. These activities primarily involve collateralized arrangements and may result in credit
exposure in the event that the counterparty fails to meet its contractual obligations. Our exposure to credit risk can be directly
impacted by volatile securities markets, which may impair the ability of counterparties to satisfy their contractual obligations. We
seek to control our credit risk through a variety of reporting and control procedures, including establishing credit limits based
upon a review of the counterparties' financial condition and credit ratings. We monitor collateral levels on a daily basis for
compliance with regulatory and internal guidelines and request changes in collateral levels as appropriate.
RJ Ltd. is subject to foreign exchange risk primarily due to financial instruments held in U.S. dollars that may be impacted
by fluctuation in foreign exchange rates. In order to mitigate this risk, RJ Ltd. enters into forward foreign exchange contracts. The
fair value of these contracts is not significant. As of September 30, 2012, forward contracts outstanding to buy and sell U.S. dollars
totaled CDN $1.4 million and CDN $3.5 million, respectively. RJ Bank is also subject to foreign exchange risk related to its net
investment in a Canadian subsidiary. See Note 18 for information regarding how RJ Bank utilizes net investment hedges to mitigate
a significant portion of this risk.
179
Index
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 credit control 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 RJ Bank’s
exposure is limited to the replacement value of those commitments. A summary of commitments to extend credit and other credit-
related off-balance sheet financial instruments outstanding follows:
As of September 30,
2012
2011
(in thousands)
Standby letters of credit
Open end consumer lines of credit
Commercial lines of credit
Unfunded loan commitments
$
$
140,688
480,304
1,804,771
101,077
216,004
31,471
1,900,925
115,562
In the normal course of business, RJ Bank issues, or participates in the issuance of, financial standby letters of credit whereby
it provides an irrevocable guarantee of payment in the event the letter of credit is drawn down by the beneficiary. These standby
letters of credit generally expire in one year or less. As of September 30, 2012, $141 million of such letters of credit were
outstanding. In the event that a letter of credit is drawn down, RJ Bank would pursue repayment from the party under the existing
borrowing relationship, or would liquidate collateral, or both. The proceeds from repayment or liquidation of collateral are expected
to satisfy the amounts drawn down under the existing letters of credit. The credit risk involved in issuing letters of credit is
essentially the same as that involved with extending loan commitments to clients and, accordingly, RJ Bank uses a credit evaluation
process and collateral requirements similar to those for loan commitments.
Open end consumer lines of credit represent the unfunded amounts of loans primarily secured by marketable securities at
advance rates consistent with industry standards. The proceeds from repayment or liquidation of collateral, which is monitored
daily, are expected to satisfy the amounts drawn against the existing lines of credit.
Because many lending commitments expire without being funded in whole or part, the contract amounts are not estimates of
RJ Bank’s actual future credit exposure or future liquidity requirements. RJ Bank maintains a reserve to provide for potential
losses related to the unfunded lending commitments. See Note 9 for further discussion of this reserve for unfunded lending
commitments.
Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely
to perform as contracted. The credit risk amounts are equal to the contractual amounts, assuming that the amounts are fully
advanced and that the collateral or other security is of no value. RJ Bank uses the same credit approval and monitoring process
in extending loan commitments and other credit-related off-balance sheet instruments as it does in making loans.
180
Index
NOTE 27 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per share:
Income for basic earnings per common share:
Net income attributable to RJF
Less allocation of earnings and dividends to participating securities (1)
Net income attributable to RJF common shareholders
Income for diluted earnings per common share:
Net income attributable to RJF
Less allocation of earnings and dividends to participating securities (1)
Net income attributable to RJF common shareholders
Common shares:
Average common shares in basic computation
Dilutive effect of outstanding stock options and certain restricted stock units
Average common shares used in diluted computation
Earnings per common share:
Basic
Diluted
Stock options and certain restricted stock units excluded from weighted-
average diluted common shares because their effect would be antidilutive
$
$
$
$
$
$
Year ended September 30,
2012
2010
2011
(in thousands, except per share amounts)
$
$
$
$
295,869
(5,958)
289,911
295,869
(5,926)
289,943
130,806
985
131,791
$
$
$
$
278,353
(8,777)
269,576
278,353
(8,756)
269,597
122,448
388
122,836
2.22
2.20
$
$
2.20
2.19
$
$
1,928
2,136
228,283
(9,607)
218,676
228,283
(9,592)
218,691
119,335
257
119,592
1.83
1.83
3,549
(1) 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 restricted stock units and amounted to weighted-
average shares of 2.7 million, 4 million and 5.3 million for the years ended September 30, 2012, 2011 and 2010, respectively. Dividends
paid to participating securities amounted to $1.4 million, $1.9 million and $2.2 million for the years ended September 30, 2012, 2011,
and 2010 respectively. 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 as follows:
Dividends per common share - declared
Dividends per common share - paid
$
$
0.52
0.52
$
$
0.52
0.50
$
$
0.44
0.44
Year ended September 30,
2011
2010
2012
181
Index
NOTE 28 – SEGMENT ANALYSIS
We currently operate through the following eight business segments: “Private Client Group;” “Capital Markets;” “Asset
Management;” RJ Bank; “Emerging Markets;” “Securities Lending;” “Proprietary Capital” and various corporate activities
combined in the “Other” segment. The business segments are 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. The financial results of our segments are presented using the same policies as those described in Note 2, “Summary
of Significant Accounting Policies.” Segment data includes charges allocating corporate overhead and benefits to each segment.
Intersegment revenues, charges, receivables and payables are eliminated upon consolidation.
The Private Client Group segment includes the retail branches of our broker-dealer subsidiaries located throughout the U.S.,
Canada and the United Kingdom. These branches provide securities brokerage services including the sale of equities, mutual
funds, fixed income products and insurance products to their individual clients. The segment includes net interest earnings on
client margin loans and cash balances and certain fee revenues generated by the multi-bank aspect of the RJBDP. Additionally,
this segment includes the correspondent clearing services that we provide to other broker-dealer firms.
The Capital Markets segment includes institutional sales and trading in the U.S., Canada and Europe. We provide securities
brokerage, trading, and research services to institutions with an emphasis on the sale of U.S. and Canadian equities and fixed
income products. This segment also includes our management of and participation in underwritings, merger and acquisition
services, public finance activities, and the operations of RJTCF.
The Asset Management segment includes the operations of Eagle Asset Management, Inc. (“Eagle”), the Eagle Family of
Funds, the asset management operations of RJ&A, trust services of Raymond James Trust, N.A., and other fee-based asset
management programs.
RJ Bank originates and purchases C&I loans, commercial and residential real estate loans, as well as consumer loans, all of
which are funded primarily by cash balances swept from the investment accounts of our broker-dealer subsidiaries' clients.
The Emerging Markets segment includes interests in operations in Latin America including Argentina, Uruguay, and Brazil.
Through these entities, we operate securities brokerage, investment banking, asset management businesses and equity research.
The Securities Lending segment involves the borrowing and lending of securities from and to other broker-dealers, financial
institutions and other counterparties, generally as an intermediary. However, we will also loan customer marginable securities
held in a margin account containing a debit to counterparties. Additionally, securities are borrowed to facilitate RJ&A's clearance
and settlement obligations.
The Proprietary Capital segment consists of our principal capital and private equity activities including various direct and
third party private equity and merchant banking investments (including Raymond James Capital, Inc., a captive private equity
business); employee investment funds including the EIF Funds; and various private equity funds which we sponsor including
Raymond James Capital Partners, L.P.
The Other segment includes various corporate overhead costs of RJF including the interest cost on our public debt, the
acquisition and integration costs associated with our acquisition of Morgan Keegan, and the loss associated with the securities
repurchased in the prior year as a result of the ARS settlement.
182
Index
Information concerning operations in these segments of business is as follows:
Revenues:
Private Client Group
Capital Markets
Asset Management
RJ Bank
Emerging Markets
Securities Lending
Proprietary Capital
Other
Intersegment eliminations
Total revenues(1)
Income (loss) excluding noncontrolling interests and before
provision for income taxes:
Private Client Group
Capital Markets
Asset Management
RJ Bank
Emerging Markets
Securities Lending
Proprietary Capital
Other
Pre-tax income excluding noncontrolling interests
Add: net loss attributable to noncontrolling interests
Income including noncontrolling interests and before
provision for income taxes
$
$
$
2012
Year ended September 30,
2011
(in thousands)
2010
$
$
$
2,475,190
796,941
237,224
345,693
23,911
9,480
48,875
11,800
(51,214)
3,897,900
210,432
82,805
67,241
240,158
(7,050)
4,659
15,232
(141,952)
471,525
(3,604)
(2)
$
$
$
2,185,990
664,276
226,511
281,992
43,184
6,432
16,805
10,524
(35,828)
3,399,886
218,811
77,990
66,176
172,993
4,531
1,488
4,391
(85,133)
461,247
(10,502)
(3)
1,903,101
591,949
196,817
276,770
16,639
8,837
17,029
8,056
(39,682)
2,979,516
160,470
84,236
46,981
112,009
(5,446)
2,721
1,728
(40,791)
361,908
(5,764)
$
467,921
$
450,745
$
356,144
(1) No individual client accounted for more than ten percent of total revenues in any of the periods presented with the exception of our
Emerging Markets segment. For the years ended September 30, 2012 and 2011, one client accounted for approximately 12% and 34%
of the Emerging Markets' total revenues, respectively.
(2) The Other segment for the year ended September 30, 2012 includes $59.3 million in acquisition and integration expenses and certain
interest expense related to the acquisition of Morgan Keegan (see Note 3 for further information regarding the Morgan Keegan
acquisition).
(3) The Other segment for the year ended September 30, 2011 includes a $41 million loss provision for auction rate securities (see the
discussion of the prior year ARS settlement in Note 7).
183
Index
Year ended September 30,
2012
2011
2010
(in thousands)
Net interest income (expense):
Private Client Group
Capital Markets
Asset Management
RJ Bank
Emerging Markets
Securities Lending
Proprietary Capital
Other
Net interest income
$
$
77,693
5,541
(17)
322,024
1,100
7,134
888
(52,474)
361,889
$
$
67,496
4,967
107
271,306
1,199
4,228
473
(23,288)
326,488
$
$
55,934
5,377
45
259,565
93
4,918
1,953
(19,844)
308,041
The following table presents our total assets on a segment basis:
Total assets:
Private Client Group (1)
Capital Markets (2)
Asset Management
RJ Bank
Emerging Markets
Securities Lending
Proprietary Capital
Other
Total
September 30,
2012
2011
(in thousands)
$
$
6,484,878
2,514,527
81,838
9,701,996
43,616
432,684
355,350
1,545,376
21,160,265
$
$
5,581,214
1,478,974
61,793
8,741,975
74,362
817,770
176,919
1,073,988
18,006,995
(1) Includes $173 million and $48 million of goodwill at September 30, 2012 and 2011, respectively.
(2) Includes $127 million and $24 million of goodwill at September 30, 2012 and 2011, respectively.
We have operations in the United States, Canada, Europe and joint ventures in Latin America. Substantially all long-lived
assets are located in the United States. Revenues and income before provision for income taxes and excluding noncontrolling
interests, classified by major geographic areas in which they are earned, are as follows:
Revenues:
United States
Canada
Europe
Other
Total
Pre-tax income excluding noncontrolling interests:
United States
Canada
Europe
Other
Total
2012
Year ended September 30,
2011
(in thousands)
2010
$
$
$
$
3,500,982
297,348
78,221
21,349
3,897,900
450,731
29,593
(1,839)
(6,960)
471,525
$
$
$
$
2,947,633
339,067
63,665
49,521
3,399,886
416,955
42,333
(2,312)
4,271
461,247
$
$
$
$
2,653,174
256,105
54,037
16,200
2,979,516
356,249
12,826
(1,812)
(5,355)
361,908
184
Index
Our total assets, classified by major geographic area in which they are held, are presented below:
Total assets:
United States (1)
Canada(2)
Europe(3)
Other
Total
September 30,
2012
2011
(in thousands)
$
$
19,296,197
1,788,883
42,220
32,965
21,160,265
$
$
16,456,892
1,436,505
50,666
62,932
18,006,995
(1) Includes $260 million and $32 million of goodwill at September 30, 2012 and September 30, 2011, respectively.
(2) Includes $33 million of goodwill at September 30, 2012 and 2011.
(3) Includes $7 million of goodwill at September 30, 2012 and 2011.
NOTE 29 - CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
As more fully described in Note 1, RJF (or the “Parent”), is a financial holding company whose subsidiaries are engaged in
various financial services businesses. The Parent's primary activities include investments in subsidiaries and corporate investments,
including cash management, company-owned life insurance and private equity investments. The primary source of operating cash
available to the Parent is provided by dividends from its subsidiaries.
Three principal domestic broker-dealer subsidiaries of the Parent, RJ&A, MK & Co. and RJFS, are required by regulations
to maintain a minimum amount of net capital (other non-bank subsidiaries of the Parent are also required by regulations to maintain
a minimum amount of net capital, but those other subsidiaries are relatively insignificant). RJ&A is further required by certain
covenants in its borrowing agreements to maintain net capital equal to 10% of aggregate debit balances. At September 30, 2012,
each of these brokerage subsidiaries far exceeded their minimum net capital requirements. See Note 25 for further information.
RJ Bank has net assets of approximately $1 billion as of September 30, 2012.
Subsidiary net assets of approximately $1.3 billion are restricted from being transferred from certain subsidiaries to the Parent
as of September 30, 2012, under regulatory or other restrictions.
Liquidity available to the Parent from its other subsidiaries, other than broker-dealer subsidiaries and RJ Bank, is not limited
by regulatory or other restrictions, but is relatively insignificant. The Parent regularly receives a portion of the profits of subsidiaries,
other than RJ Bank, as dividends.
See Notes 15, 17, 20 and 25 for more information regarding borrowings, commitments, contingencies and guarantees, and
capital and regulatory requirements of the Parent's subsidiaries.
185
Index
The following table presents the Parent's statement of financial condition:
Assets:
Cash and cash equivalents
Intercompany receivables from subsidiaries:
Bank subsidiary
Nonbank subsidiaries (2)
Investments in consolidated subsidiaries:
Bank subsidiary
Nonbank subsidiaries
Property and equipment, net
Goodwill and identifiable intangible assets, net
Other assets
Total assets
Liabilities and equity:
Trade and other
Intercompany payables to subsidiaries:
Bank subsidiary
Nonbank subsidiaries
Accrued compensation and benefits
Corporate debt
Total liabilities
Equity
Total liabilities and equity
September 30,
2012
2011
(in thousands)
$
259,129
$
252,601
(1)
—
558,051
1,038,449
2,515,223
14,398
274,309
241,716
4,901,275
$
188
285,326
896,004
1,506,008
9,938
31,751
274,630
3,256,446
91,628
34,108
39
263,717
128,294
1,148,657
1,632,335
3,268,940
4,901,275
$
—
1,077
84,138
549,504
668,827
2,587,619
3,256,446
$
$
(1) The balance as of September 30, 2011 includes $250 million of cash on deposit at RJ Bank.
(2) Of the total receivable from nonbank subsidiaries, $446 million and $221 million at September 30, 2012 and 2011, respectively, is
invested in cash and cash equivalents by the subsidiary on behalf of the Parent.
186
Index
The following table presents the Parent's statement of income:
Revenues:
Dividends from nonbank subsidiaries
Dividends from bank subsidiary
Interest from subsidiaries
Interest
Other, net
Total revenues
Expenses:
Compensation and benefits
Communications and information processing
Occupancy and equipment costs
Business development
Interest
Other
Intercompany allocations and charges
Total expenses
Income before income tax benefits and equity in undistributed net
income of subsidiaries
Income tax benefits
Income before equity in undistributed net income of subsidiaries
Equity in undistributed net income of subsidiaries
Net income
Other comprehensive income, net of tax:
Change in unrealized gain (loss) on available for sale securities and
non-credit portion of other-than-temporary impairment losses
Total comprehensive income
2012
Year ended September 30,
2011
(in thousands)
2010
433,643
75,000
1,876
322
7,391
518,232
38,027
4,624
1,188
12,613
61,122
26,716
(25,360)
118,930
399,302
(48,575)
447,877
(152,008)
295,869
$
$
164,121
100,000
1,068
240
7,762
273,191
28,214
3,821
1,112
11,684
31,309
5,894
(28,757)
53,277
219,914
(11,037)
230,951
47,402
278,353
$
$
199,644
—
1,558
93
3,178
204,473
26,225
3,723
1,768
7,409
26,020
5,017
(23,170)
46,992
157,481
(25,947)
183,428
44,855
228,283
2
—
1
295,871
$
278,353
$
228,284
$
$
$
187
Index
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on investments
(Gain) loss on company-owned life insurance
Equity in undistributed net income of subsidiaries
Other, net
Net change in:
Intercompany receivables
Other
Intercompany payables
Trade and other
Accrued compensation and benefits
Net cash provided by operating activities
Cash flows from investing activities:
Investments in and advances to subsidiaries, net
Purchases of investments, net
Purchase of investments in company-owned life insurance, net
Acquisition of subsidiary
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowed funds, net
Proceeds from issuance of shares in registered public offering
Exercise of stock options and employee stock purchases
Purchase of treasury stock
Dividends on common stock
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash (received) paid for income taxes
Supplemental disclosures of noncash investing activity:
Investments in subsidiaries
2012
Year ended September 30,
2011
2010
(in thousands)
$
295,869
$
278,353
$
228,283
(6,286)
(22,848)
152,008
57,221
(35,456)
(266,467)
239,669
22,034
44,156
479,900
(278,590)
3,258
(18,271)
(1,073,621)
(1,367,224)
586,860
362,823
33,811
(20,860)
(68,782)
893,852
6,528
252,601
259,129
49,155
(74,501)
153,854
$
$
$
$
$
$
$
$
(6,758)
3,208
(47,402)
40,917
(254,735)
12,406
(6,090)
12,093
5,144
37,136
(264,000)
(5,859)
(12,224)
—
(282,083)
249,498
—
47,383
(23,111)
(63,090)
210,680
(34,267)
286,868
252,601
25,800
(15,613)
40,359
$
$
$
$
(3,416)
(10,290)
(44,855)
24,001
152,103
(19,425)
5,354
7,599
21,735
361,089
(15,650)
(8,926)
(13,293)
—
(37,869)
—
—
19,917
(3,537)
(56,009)
(39,629)
283,591
3,277
286,868
25,442
20,919
—
188
Index
SUPPLEMENTARY DATA:
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
Fiscal year 2012
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
Revenues
Net revenues
Non-interest expenses
Income including noncontrolling interests and before
provision for income taxes
Net income attributable to Raymond James Financial, Inc.
Net income per share - basic
Net income per share - diluted (1)
Dividends declared per share
Fiscal year 2011
Revenues
Net revenues
Non-interest expenses
Income including noncontrolling interests and before
provision for income taxes
Net income attributable to Raymond James Financial, Inc.
Net income per share - basic
Net income per share - diluted (1)
Dividends declared per share
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(in thousands, except per share data)
798,817 $
782,777 $
678,129 $
889,853 $
1,115,762 $
1,093,468
871,937 $
1,086,208 $
1,065,609
764,035 $
948,217 $
948,229
104,648 $
107,902 $
137,991 $
67,325 $
68,869 $
76,350 $
0.53 $
0.53 $
0.13 $
0.52 $
0.52 $
0.13 $
0.55 $
0.55 $
0.13 $
117,380
83,325
0.60
0.60
0.13
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
(in thousands, except per share data)
830,333 $
813,829 $
687,083 $
866,744 $
852,057 $
727,819 $
126,746 $
124,238 $
81,723 $
80,917 $
0.65 $
0.65 $
0.13 $
0.64 $
0.64 $
0.13 $
868,212 $
850,387 $
769,308 $
81,079 $
46,786 $
0.37 $
0.37 $
0.13 $
834,597
817,783
699,101
118,682
68,927
0.54
0.54
0.13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls are procedures designed to ensure that information required to be disclosed in our reports filed under the
Exchange Act, such as this report, are recorded, processed, summarized, and reported within the time periods specified in the
SEC's rules and forms. Disclosure controls are also designed to ensure that such information is accumulated and communicated
to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of
achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and procedures.
189
Index
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b)
as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the year ended September 30, 2012 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal
control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for
external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial
reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable
assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance
that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable
assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements
would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is
not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation, management concluded that our internal control over financial reporting was
effective as of September 30, 2012. KPMG LLP, who audited and reported on our consolidated financial statements included in
this report, has issued an attestation report on our internal control over financial reporting as of September 30, 2012 (included
below).
190
Index
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Raymond James Financial, Inc.:
We have audited Raymond James Financial, Inc.'s (the Company) internal control over financial reporting as of September 30,
2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Raymond James Financial, Inc. maintained, in all material respects, effective internal control over financial reporting
as of September 30, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated statements of financial condition of Raymond James Financial, Inc. and subsidiaries as of September 30, 2012 and
2011, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity and cash
flows for each of the years in the three-year period ended September 30, 2012, and our report dated November 21, 2012 expressed
an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
November 21, 2012
Tampa, Florida
Certified Public Accountants
191
Index
Item 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
A list of our executive officers appears in Part I, Item 1 of this form 10-K. The balance of the information required by Item
10 is incorporated herein by reference to the registrant's definitive proxy statement for the 2013 Annual Meeting of Shareholders.
Such proxy statement is expected to be filed with the SEC prior to January 16, 2013.
ITEMS 11, 12, 13 AND 14.
The information required by Items 11, 12, 13 and 14 is incorporated herein by reference to the registrant's definitive proxy
statement for the 2013 Annual Meeting of Shareholders. Such proxy statement is expected to be filed with the SEC prior to January
16, 2013.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Schedules
PART IV
The financial statements are set forth under Item 8 of this Annual Report on Form 10-K. Financial statement schedules
have been omitted since they are either not required, not applicable, or the information is otherwise included.
(b) Exhibit listing
192
Index
Exhibit
Number
3.1
3.2
4.1
4.2.1
4.2.2
4.2.3
4.2.4
4.2.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Description
Restated Articles of Incorporation of Raymond James Financial, Inc. as filed with the Secretary of State of Florida on
November 25, 2008, incorporated by reference to Exhibit 3(i).1 as filed with Form 10-K on November 28, 2008.
Amended and Restated By-Laws of Raymond James Financial, Inc. reflecting amendments adopted by the Board of Directors
on April 20, 2012, incorporated by reference to Exhibit 3(ii) as filed with Form 8-K on April 25, 2012.
Description of Capital Stock, incorporated by reference to Exhibit 4.1 as filed with Form 10-Q on August 10, 2009.
Indenture, dated as of August 10, 2009 (for senior debt securities) between Raymond James Financial, Inc. and The Bank of
New York Mellon Trust Company, N.A., incorporated by reference to Exhibit 4.2 as filed with Form 10-Q on August 10, 2009.
First Supplemental Indenture, dated as of August 20, 2009 (for senior debt securities) between Raymond James Financial, Inc.
and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 as filed with
Form 8-K on August 20, 2009.
Second Supplemental Indenture, dated as of April 11, 2011 (for senior debt securities) between Raymond James Financial, Inc.
and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 as filed with
Form 8-K on April 11, 2011.
Third Supplemental Indenture, dated as of March 7, 2012 (for senior debt securities), between Raymond James Financial, Inc.
and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 as filed with
Form 8-K on March 7, 2012.
Fourth Supplemental Indenture, dated as of March 26, 2012 (for senior debt securities), between Raymond James Financial,
Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.1 as filed with
Form 8-K on March 26, 2012.
Raymond James Financial, Inc. 2002 Incentive Stock Option Plan effective February 14, 2002, incorporated by reference to
Exhibit 4.1 to Registration Statement on Form S-8, No. 333-98537, filed August 22, 2002.
*
Mortgage Agreement for $75 million dated as of December 13, 2002 incorporated by reference to Exhibit No. 10 as filed with
Form 10-K on December 23, 2002.
Raymond James Financial, Inc. Stock Option Plan for Key Management Personnel effective November 21, 1996, incorporated
by reference to Exhibit 4.1 to Registration Statement on Form S-8, No. 333-103277, filed February 18, 2003.
*
Form of Indemnification Agreement with Directors, incorporated by reference to Exhibit 10.18 as filed with Form 10-K on
December 8, 2004.
Raymond James Financial, Inc. Amended Stock Option Plan for Outside Directors, incorporated by reference to Exhibit 10 as
filed with Form 10-Q on February 9, 2006.
The 2007 Raymond James Financial, Inc. Stock Option Plan for Independent Contractors effective February 15, 2007,
incorporated by reference to Appendix C to Definitive Proxy Statement for the Annual Meeting of Shareholders held February
15, 2007, filed January 16, 2007.
Composite Version of 2003 Raymond James Financial, Inc. Employee Stock Purchase Plan, as amended and restated,
incorporated by reference to Appendix B to Definitive Proxy Statement for the Annual Meeting of Shareholders held February
19, 2009, filed on January 12, 2009.
Letter agreement dated February 25, 2009 between us and Paul Reilly, incorporated by reference to Exhibit No. 10.14 as filed
with Form 8-K on March 3, 2009.
*
*
*
* Indicates a management contract or compensatory plan or arrangement in which a director or named executive officer participates.
193
Index
Exhibit
Number
10.9
10.10.1
10.10.2
10.10.3
10.11.1
10.11.2
10.11.3
10.12
10.13
10.14
10.15
Description
Agreement dated December 23, 2009, between Raymond James Financial, Inc. and Thomas A. James regarding service as
Chairman of the Board after his retirement as Chief Executive Officer, incorporated by reference to Exhibit 10.15 as filed with
Form 10-Q on February 9, 2010.
Amended and Restated 2007 Raymond James Financial, Inc. Stock Bonus Plan (as amended and restated effective December
10, 2010), incorporated by reference to Exhibit 10.16.1 as filed with Form 10-Q on February 8, 2011.
Form of Notice of Restricted Stock Unit Award and associated Restricted Stock Unit Agreement under Amended and Restated
2007 Raymond James Financial, Inc. Stock Bonus Plan, incorporated by reference to Exhibit 10.16.2 as filed with Form 10-Q
on February 8, 2011.
Form of Amendment to Restricted Stock Grant Agreements outstanding under 2007 Raymond James Financial, Inc. Stock
Bonus Plan, incorporated by reference to Exhibit 10.16.3 as filed with Form 8-K on November 30, 2010.
Composite Version of 2005 Raymond James Financial, Inc. Restricted Stock Plan (as amended on December 10, 2010),
incorporated by reference to Appendix A to the Definitive Proxy Statement for the Annual Meeting of Shareholders held
February 24, 2011, filed on January 18, 2011.
Form of Notice of Restricted Stock Unit Award and associated Restricted Stock Unit Agreement (employee/independent
contractor) under 2005 Raymond James Financial, Inc. Restricted Stock Plan, as amended, incorporated by reference to
Exhibit 10.17.2 as filed with Form 8-K on November 30, 2010.
*
*
*
*
*
*
* Form of Amendment to Restricted Stock Grant Agreements outstanding under 2005 Raymond James Financial, Inc. Restricted
Stock Plan, incorporated by reference to Exhibit 10.17.3 as filed with Form 8-K on November 30, 2010.
SEC Order Instituting Administrative and Cease-and-Desist Proceedings dated June 29, 2011, incorporated by reference to
Exhibit 10.18 as filed with Form 10-Q on August 9, 2011.
State of Florida Office of Financial Regulation Administrative Consent Agreement to Final Order dated June 29, 2011,
incorporated by reference to Exhibit 10.19 as filed with Form 10-Q on August 9, 2011.
Texas State Securities Board Consent Order dated June 29, 2011, incorporated by reference to Exhibit 10.20 as filed with Form
10-Q on August 9, 2011.
Master Promissory Note (Demand Loans), dated September 27, 2011, by Raymond James Financial, Inc., in favor of The Bank
of New York Mellon, incorporated by reference to Exhibit 10.16 as filed with Form 10-K on November 23, 2011.
10.16.1
Uncommitted Line of Credit Agreement, dated as September 27, 2011, between Raymond James Financial, Inc. and Fifth
Third Bank, incorporated by reference to Exhibit 10.17 as filed with Form 10-K on November 23, 2011.
10.16.2
Fifth Third Bank Uncommitted Line of Credit Agreement Extension Letter dated September 25, 2012, filed herewith.
10.17
10.18
10.19
10.20.1
10.20.2
* Amended and Restated Raymond James Financial Long-Term Incentive Plan dated as of December 31, 2007, incorporated by
reference to Exhibit 10.18 as filed with Form 10-K on November 23, 2011.
Stock Purchase Agreement, dated January 11, 2012, between Raymond James Financial, Inc. and Regions Financial
Corporation (excluding certain exhibits and schedules), incorporated by reference to Exhibit 10.19 as filed with Form 8-K on
January 12, 2012.
Employment Separation Agreement, Waiver and Release dated as of January 20, 2012 between Raymond James Financial, Inc.
and Richard K. Riess, incorporated by reference to Exhibit 10.20 as filed with Form 10-Q on May 9, 2012.
Raymond James Financial, Inc. 2012 Stock Incentive Plan, incorporated by reference to Appendix A to Definitive Proxy
Statement for the Annual Meeting of Shareholders held February 23, 2012, filed January 25, 2012.
Form of Contingent Stock Option Agreement under 2012 Stock Incentive Plan, incorporated by reference to Exhibit 10.22 as
filed with Form 10-Q on May 9, 2012.
*
*
*
* Indicates a management contract or compensatory plan or arrangement in which a director or named executive officer participates.
194
Index
Exhibit
Number
10.20.3
10.20.4
10.20.5
*
*
*
Description
Form of Stock Option Agreement under 2012 Stock Incentive Plan, incorporated by reference to Exhibit 10.23 as filed with
Form 10-Q on May 9, 2012.
Form of Restricted Stock Unit Agreement for Non-Bonus Award (Employee/Independent Contractor) under 2012 Stock
Incentive Plan, incorporated by reference to Exhibit 10.24 as filed with Form 10-Q on May 9, 2012.
Form of Restricted Stock Unit Agreement for Non-Employee Director under 2012 Stock Incentive Plan, incorporated by
reference to Exhibit 10.25 as filed with Form 10-Q on May 9, 2012.
10.20.6
* Form of Restricted Stock Unit Agreement for Stock Bonus Award under 2012 Stock Incentive Plan, incorporated by reference
to Exhibit 10.26 as filed with Form 10-Q on May 9, 2012.
*
*
*
10.20.7
10.21
10.22
10.23
11
12
14.1
14.2
21
23
31.1
31.2
32
99.(i).1
99.(i).2
Form of Restricted Stock Unit Agreement for John C. Carson, Jr. (Performance-based Retention Award) under 2012 Stock
Incentive Plan, incorporated by reference to Exhibit 10.27 as filed with Form 10-Q on May 9, 2012.
Letter Agreement dated January 31, 2012 between Raymond James Financial, Inc. and Richard G. Averitt, III regarding
transition of services and employment matters, incorporated by reference to Exhibit 10.28 as filed with Form 10-Q on May 9,
2012.
Employment Agreement, dated January 11, 2012, as amended and restated as of April 20, 2012, by and between Raymond
James Financial, Inc. and John C. Carson, Jr., incorporated by reference to Exhibit 10.1 as filed with Form 8-K on April 25,
2012.
Revolving Credit Agreement, dated as of November 14, 2012, by Regions Bank and RJ Securities, Inc., incorporated by
reference to Exhibit 10.23 as filed with Form 8-K on November 16, 2012.
Computation of Earnings per Share is set forth in Note 27 of the Notes to Consolidated Financial Statements in this Form 10-
K.
Statement of Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends, filed herewith.
Code of Ethics for Senior Financial Officers as amended on August 23, 2007, incorporated by reference to Exhibit 14.1 as
filed with Form 10-K on November 28, 2008.
Business Ethics and Corporate Policy as amended on November 27, 2007, incorporated by reference to Exhibit 14.2 as filed
with Form 10-K on November 29, 2007.
List of Subsidiaries, filed herewith.
Consent of KPMG LLP, filed herewith.
Certification by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), filed herewith.
Certification by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), filed herewith.
Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.
Charter of the Audit Committee of the Board of Directors as revised on November 21, 2011, incorporated by reference to
Exhibit 99.(i).1 as filed with Form 10-Q on February 8, 2012.
Charter of the Corporate Governance, Nominating and Compensation Committee as revised on November 24, 2009,
incorporated by reference to Exhibit (99).(i).2 as filed with Form 10-K on November 25, 2009.
* Indicates a management contract or compensatory plan or arrangement in which a director or named executive officer participates.
195
Index
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Petersburg, State of Florida,
on the 21st day of November, 2012.
SIGNATURES
RAYMOND JAMES FINANCIAL, INC.
By /s/ PAUL C. REILLY
Paul C. Reilly, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ PAUL C. REILLY
Paul C. Reilly
/s/ THOMAS A. JAMES
Thomas A. James
Chief Executive Officer and Director
November 21, 2012
Executive Chairman and Director
November 21, 2012
/s/ SHELLEY G. BROADER
Director
November 21, 2012
Shelley G. Broader
/s/ FRANCIS S. GODBOLD
Vice Chairman and Director
November 21, 2012
Francis S. Godbold
/s/ H. WILLIAM HABERMEYER, JR
Director
November 21, 2012
H. William Habermeyer, Jr.
/s/ CHET B. HELCK
Chet B. Helck
Executive Vice President and Director
November 21, 2012
/s/ GORDON L. JOHNSON
Director
November 21, 2012
Gordon L. Johnson
/s/ ROBERT P. SALTZMAN
Director
November 21, 2012
Robert P. Saltzman
/s/ HARDWICK SIMMONS
Director
November 21, 2012
Hardwick Simmons
/s/ SUSAN N. STORY
Susan N. Story
/s/ JEFFREY P. JULIEN
Jeffrey P. Julien
Director
November 21, 2012
Executive Vice President - Finance,
November 21, 2012
Chief Financial Officer and Treasurer
/s/ JENNIFER C. ACKART
Senior Vice President and Controller
November 21, 2012
Jennifer C. Ackart
(Principal Accounting Officer)
196
None of the exhibits listed on pages 193, 194 and 195 of the Annual Report on Form 10-K are contained
herein. The Company will furnish a copy of any exhibit listed on those pages upon request to Corporate Secretary,
Raymond James Financial, Inc. 880 Carillon Parkway, St. Petersburg, Florida 33716.
197