s t a n d i n g t h e t e s t o f
a n n u a l r e p o r t 2 0 1 3
Raymond James professionals help people plan for the long term –
the really long term, with one generation giving way to the next and
onward into the future. Their approach has grown from the firm’s
own roots in financial planning.
Our long-held principles and values are designed to perpetuate the
independent existence of Raymond James, helping us to meet the
challenges of each new day and stand strong for years to come.
Contents
2
6
10
12
16
Message from the
CEO and the chairman
The next big thing
is more of the same.
To go forward,
we went back to basics.
We expanded our horizons
by heading west.
To plan our next step,
we looked far beyond it.
20
22
24
25
10-year financial
summary
Executive committee
and officers
Corporate and
shareholder information
Financial report
Comparison of Five-Year Cumulative Total Return
Assumes initial investment of $100. (Assumes reinvestment of dividends.)
S&P 500
Raymond James Financial
Dow Jones U.S. Investment
Services Index
Prepared by Zacks Investment Research.
Presidents Day 2013 was an especially
auspicious occasion for Raymond James.
It was a brand new day for the firm, but
one rooted in the planning and hard work
that have always defined us.
Every finish line is a fresh start.
February 18 was the last day of the technology conversion
that marked the complete integration of Raymond James
and Morgan Keegan. Over the holiday weekend, hundreds
of associates and trainers across the country worked together
to execute a plan that was months in the making.
It signaled the culmination of more than a year of
planning and hard work, which has produced a better firm,
more capable of serving its clients.
2013 might not have been as exciting as the year before.
There were no milestone anniversaries or precedent-setting
acquisitions. But it was a year that truly represented who we
are as a firm. We approached our business – people and
their financial well-being – with renewed vigor. We pressed
forward with fresh initiatives, aiming to develop new strength
in familiar places. And we made plans, as we always have, that
will serve our clients and our firm well in all the years ahead.
Year-End Financial Highlights
2013
2012
Change
Total Revenues
$4,595,798,000
$3,897,900,000
Net Revenues
$4,485,427,000
$3,806,531,000
Net Income
$367,154,000
$295,869,000
Earnings per Share
(Diluted)
$2.58
$2.20
Non-GAAP Net Income (1)
$419,166,000
$334,160,000
Non-GAAP Earnings (1)
per Share (Diluted)
$2.95
$2.51
Shareholders’ Equity
$3,662,924,000
$3,268,940,000
Shares Outstanding
138,750,000
136,076,000
Shareholders’ Equity
per Share
$26.40
$24.02
17.9%
17.8%
24.1%
17.3%
25.4%
17.5%
12.1%
2.0%
9.9%
(1) A reconciliation of the GAAP results to the non-GAAP measures can be found
on page 39 of the September 30, 2013, Form 10-K, which is included herein.
2013 Total Revenue
$4,595,798,000
21%
64%
6%
8%
1%
Private Client Group
$2,930,603,000
Capital Markets
$945,477,000
Asset Management
$292,817,000
Raymond James Bank $356,130,000
Other
$70,771,000
2013 Total Pretax Earnings
$564,187,000
17%
18%
47%
41%
(23%)*
Private Client Group
$230,315,000
Capital Markets
$102,171,000
Asset Management
$96,300,000
Raymond James Bank $267,714,000
Other*
($132,313,000)
1
RAYMOND JAMES ANNUAL REPORT 2013 CEO Paul Reilly and
Executive Chairman Tom James
Dear Fellow Shareholder,
Most people measure the completion of a merger by the
execution of a contract or the actual closing. In the case of the
combination of Raymond James and Morgan Keegan, many in
the home office would probably measure it by Morgan Keegan’s
move to our processing platform on February 18. This is a
reasonable conclusion as so much work by personnel on both
sides was necessary to accomplish that task. Many associates in
all parts of the firm, especially Information Technology,
Operations, Capital Markets and the Private Client Group,
worked long hours, traveled extensively and suffered through
dealing with the numerous challenges that arose during the
process before the exhilaration associated with an almost
seamless integration. The event itself was remarkable in light of
the almost interminable issues encountered by other firms in
past integrations.
But that’s really not the end. The training, development of
enhancements for new members of our family, who joined
from Morgan Keegan, and the continuing efforts by everyone
to acculturate to the “New Raymond James,” as well as the
extraordinary expenses of the integration, persisted until after
year-end, when our CEO, Paul Reilly, declared the integration
essentially over. We must also remember that mergers aren’t all
about working hard and then celebrating. We had a number of
very good associates that were severed from the recently
combined entity because some of our businesses overlapped.
That certainly was management’s most difficult task to effect a
successful combination. However, we all know that it’s really
never totally over. It’s management’s duty to earn the respect
and allegiance of all our associates and to continue to improve
our systems every day.
Bolstered by the inclusion of Morgan Keegan for a full year,
as contrasted to six months last year, net revenues rose to a new
record of $4.5 billion in 2013, up 18% from last year. Non-interest
expenses, which were inflated by a host of non-recurring
acquisition related expenses, were up 17%. Consequently, net
income grew 24% to a record $367 million. Net income per diluted
share increased 17% from $2.20 to $2.58. On a non-GAAP basis (1),
2013 net income, adjusted for acquisition and other non-
recurring expenses of $80 million, was $419 million, representing
an increase of 25% from last year. Accordingly, non-GAAP
diluted(1) earnings per share increased from $2.51 to $2.95. On
a GAAP basis, the pretax operating margin on net revenues was
2
12.6% and a healthy 14.4% on a non-GAAP basis(1). The after-
tax rate of return on average equity was 10.6% (12.0% non-
GAAP(1)). Shareholders’ equity increased to $3.66 billion, or
$26.40 per share, on September 30, 2013. The tangible book
value per share (a non-GAAP measure (1)) was $23.86.
Although annual comparisons of segment results are also
impacted by the addition of six more months of Morgan Keegan
revenues and pretax income, record results in all four core
segments all contributed to the material increase in revenues
and pretax income. The Private Client Group produced $2.93
billion in revenues, representing an 18% increase over last year
and a $230 million contribution to pretax income, a 7% increase,
which, like last year, was depressed by the high costs of the
integration. At year-end, our financial advisor count was down
by 13 from last year, or 0.2%, as we experienced minor attrition
related to the merger. Private Client Group assets under
administration increased by 9.5% to $403 billion ($425 billion
of total assets under administration) during 2013. As the
demands of the merger have abated, the recruiting run rate
has flourished.
The Capital Markets segment generated a revenue increase of
15% to $945 million. The pretax contribution was $102 million,
up 35%. In light of the low interest rate’s impact on institutional
commissions and trading profits in the Fixed Income sector,
a 30% decline to a still healthy contribution of half of Capital
Markets pretax profits wasn’t surprising. However, Equity
Capital Markets more than compensated for the shortfall by
increasing its pretax profit contribution by 365%. Net revenues
increased 21% to $480 million as mergers and acquisitions fees
rode the waves of increased activity fueled by high levels of
corporate liquidity.
Asset Management Group revenues grew 23% to $293 million
as financial assets under management increased 31% to $56
billion. The segment’s contribution to pretax income grew
43% to $96.3 million. Obviously, results in this sector correlate
well with market appreciation and net new sales, which have
continued to augment the favorable market gains.
More than offsetting the effects of lower gross interest rates,
Raymond James Bank’s net revenues grew 3% to $347 million.
Despite a trend to lower net interest margins during the year,
Raymond James Bank’s pretax income grew 11% to $268
million, as loans grew $830 million, or 10%, during the fiscal
year. In addition, loan quality improved and generated net
credits to the loan loss provision, which benefited net income.
Unfortunately, net spreads may continue to decline as the demand
for good quality loans is robust, causing further declines in
net spreads. Our objective is to offset that decline with net
loan growth.
4.49
3.81
3.33
2.92
2.55
2009
2010
2011
2012 2013
Net Revenue
$Billions
367
296
278
228
153
2009
2010
2011
2012 2013
Net Income
$Millions
(1) A reconciliation of the GAAP results to the non-GAAP measures can be found on page 39 of
the September 30, 2013, Form 10-K, which is included herein.
3
RAYMOND JAMES ANNUAL REPORT 2013 Notwithstanding the demands of the merger, business still
had to be conducted daily. As a result, there were significant
accomplishments, awards and events, some of which are
recorded below:
• In December, Raymond James introduced the Investor
Access mobile site application, which provides clients
with complimentary, secure access to their Raymond James
brokerage account information while they are “on the go.”
• Raymond James received a ranking of second in
REP. magazine’s annual Broker Report Card competition.
Financial advisors rated us 9.1 on a 10 point scale.
• For the second consecutive year, Raymond James was
named the top real estate investment bank by Global
Finance on its 2013 World’s Best Investment Banks list.
• In April, our Equity Capital Markets segment announced
the formation of the Institutional Strategic Options Desk,
which is housed in our institutional equities office in
New York City.
• Raymond James was recognized by Bloomberg News
in April as the best brokerage firm as measured by the
risk-adjusted return to shareholders since 2009 among
nine U.S. brokerage firms, banks and advisory firms.
• In December, 11 Raymond James advisors were recognized
by Bank Investment Consultant as members of its list of top
advisors in 2012.
• In April, the Financial Times featured 24 Raymond James
financial advisors on its inaugural FT 400 list of top advisors
in the United States.
• In the March quarter Raymond James recognized
$65 million in gains from the sale of Albion Medical
Holdings, Inc. (unadjusted for the elimination of
non-controlling interests and taxes) in Raymond James
Capital’s merchant banking fund, which inflated revenues
and profits due to consolidation. That extraordinary
event successfully completed the sale of investments in the
Raymond James Capital Partners’ fund for its investors and
increased Raymond James’ pretax profits by $22.7 million
for the year after eliminating the interests of our other
investor partners.
• In February, 21 Raymond James financial advisors were
recognized by Barron’s for being among the nation’s 1,000
top financial advisors, up from 19 last year.
• For the third consecutive time, we were named to the
Fortune World’s Most Admired Companies list, ranking
fifth in the securities/asset managers category. We were
the first securities firm on the list.
• In March, Raymond James received the Bank Insurance
and Securities Association (BISA) Technology Award
for the firm’s Goal Planning & Monitoring software.
• In March, Vin Campagnoli was promoted to
chief information officer.
• Four of our female financial advisors were included in
Barron’s 2013 list of the Top Women Financial Advisors.
• Chet Helck, our Global Private Client Group CEO,
was listed among Investment Advisor magazine’s 25 most
influential persons in our industry in 2013 as a result of
his service to our industry as chairman of the Securities
Industry and Financial Markets Association.
• In July, Peter Moores, the CEO of Raymond James
Investment Services, our private client broker/dealer in
the United Kingdom, became our UK manager, which
added UK Capital Markets oversight to his role to coordinate
all of our activities there.
• Our new Denver Information Center was completed and
has begun processing data. It will become the principal
IT processing center in 2014.
• In consonance with its long-term record of outstanding
equities research, the Raymond James Research team
received 17 awards in the 2013 Financial Times/Starmine
Analyst Awards, ranking the firm second among all
broker/dealers. Starmine measures results by the returns
on buy/sell recommendations and the accuracy of
earnings estimates.
4
Although Raymond James’ financial results combined with the
accomplishments mentioned on the previous page constitute
an outstanding year, the outlook for 2014 and beyond is even
more exciting. We have a larger, energized team of talented
associates to drive future growth. Our financial condition has
never been better. In fact, our improved earnings power
motivated our board of directors to increase our dividend rate
by $0.08 per annum. Furthermore, all of our segments are
performing well with an array of internal growth opportunities.
While the market’s recovery of over 140% since the lows in
March 2009 does pose a higher degree of market risk, the
economy’s slow climb out of the depths of the market decline
appears to be picking up speed, which could engender an
extended rally. Frankly, we are enthusiastic about the prospects
of capitalizing on the hard work invested over the last year.
Best wishes for a happy, healthy and prosperous New Year!
Thomas A. James
Executive Chairman
Paul C. Reilly
CEO
December 13, 2013
11.3
10.6
10.6
9.7
7.9
2009
2010
2011
2012 2013
Return on Equity
Percent
5.8
5.0
3.2
3.3
2.9
2009
2010
2011
2012 2013
Market Capitalization
$Billions
5
RAYMOND JAMES ANNUAL REPORT 2013 The next big thing is more of the same.
After making a move that capitalized on an opportunity created by the 2008-09
financial crisis, we refocused on managerial excellence in all of our operating segments.
We made new strides in products, performance and technology – by doing things the
way we always have: intentionally and intelligently, with a focus on the future.
Many attributed a huge portion of the conversion’s success to the on-site trainers.
Here, trainers Joseph Long (left) and Nick Landers (far right) help financial advisor
Jim Burnett with a question.
6
What’s next?
That was the question.
At least it was for Raymond James. Following the Morgan
Keegan announcement, we heard it from journalists, industry
analysts and even our own financial advisors. For many, it
seemed, one significant acquisition might be a gateway to
more. But CEO Paul Reilly was quick to remind the curious
that the combination was a “once in 20 years” opportunity.
Doing more large acquisitions wasn’t on our radar. We were
focused on doing this one right.
By the end of 2012, we were well on our way to the finish
line. The integration of our two firms – particularly in our
Private Client Group – had proceeded more successfully
than many analysts predicted. More successfully, in fact, than
our own leaders anticipated.
“ The combination has gone better than we possibly
could have expected.” CEO Paul Reilly
But there was one final piece of the integration that was
a puzzle in itself: technology. Uniting two technology
platforms – millions of client accounts, thousands of
advisors’ data, dozens of systems – was a massive undertaking.
And a vitally important one. If it seemed as though the
success of the combination was exceeding expectations, a
smooth technology conversion would be the tangible proof.
Teams were assembled, made up of key professionals
from both firms. Together, they developed a conversion plan
that was both practical and personal, oriented around
providing a clear timeline, ample preparation and dedicated
support at every step. “We wanted people to feel like this
conversion was happening not to them, but with them”, said
Dennis Zank, chief operating officer of Raymond James Financial
and chief executive officer of Raymond James & Associates.
Branch manager Tom Hirsch (standing right) with legacy
Morgan Keegan advisor Mike Lavera and Raymond James
advisors John O’Connor and Russell Cotton
Together, We’re Better
Branch manager Tom Hirsch helped ensure a smooth
transition for financial advisors in Louisville, Kentucky.
Perhaps no one got a more complete picture of the
Raymond James-Morgan Keegan integration than branch
managers like Tom Hirsch, who had a firsthand perspective
on the concerns and excitement of advisors on both sides.
“Morgan Keegan advisors had been through tremendous
uncertainty and anxiety,” Tom said. “So once the
announcement was made, I think there was a certain sense
of relief. They felt good about the Raymond James name.
But of course, there were still questions, ‘Am I going to be
encouraged to change the way I serve my clients?’ ‘Will I be
allowed to continue to operate seamlessly?’ There was also
trepidation among Raymond James advisors. ‘Did we bite
off too much?’”
And where do those concerns stand today? “I think all of
those apprehensions are gone. There’s no us vs. them. It’s all
us. We recently made dinners for the Ronald McDonald House
here in Louisville. And we were all there in our matching
T-shirts working together as one team.”
According to Tom, from the time the announcement
was made not a single Morgan Keegan financial advisor
in Louisville has chosen to move to another firm. “They are
all here. I think that speaks to the fact that the plan our
leadership team put in place to retain financial advisors
was well-thought-out, well-communicated and did what
it was supposed to do.”
Tom credits much of the transition’s success to the time
taken to explore the best both firms brought to the table.
“We did more than retain people, we retained their practices.
We modified platforms where appropriate to take advantage
of the best of what Morgan Keegan was doing, which ended
up benefiting Raymond James advisors.”
“It wasn’t easy,” he said. “There was stress and there were
hiccups. But I really tip my hat to our leadership team; this
was as flawlessly executed as it could have been. It’s really
a quantum leap in Raymond James’ efforts to be the
premier alternative to Wall Street.”
7
RAYMOND JAMES ANNUAL REPORT 2013 Over 100 trainers spent weeks working on site at our
Memphis headquarters (below) and in branches across
the country.
“ More than
500,000 client
accounts representing
$70 billion in assets
were brought over
on conversion day.”
Over the course of 10 months, educational materials
were created and distributed, a call center was established,
branch training visits were conducted, stress tests and dress
rehearsals were run, and, as the big day drew near, more
than 100 trainers were deployed to the transitioning branches.
“Based on feedback from the field, this was probably
the most important thing we did,” Dennis Zank said.
“We heard it again and again. They were very thankful to
have somebody there.”
Most trainers were associates who’d volunteered for the
job. They completed intensive training and agreed to spend
four weeks in the branches, one week ahead of the Presidents
Day “switch flipping” and three weeks after. However, due to
the success of the conversion, a third of the trainers were
able to return home a week early.
While training advisors and branch associates was a
critical step, making the transition as easy as possible for
clients was just as important. Resources such as an
integration checklist and demonstration videos ensured
that clients had the information they needed at the right
time, in a variety of formats, so that they could educate
themselves on their own terms.
8
4 weeks of on-site support
1:25 ratio of trainers to advisors
and branch associates
91% branch satisfaction with trainer
responsiveness
Ultimately, more than 500,000 client accounts represent-
ing $70 billion in assets were brought over on conversion
day – and they balanced to the penny. “What happened was
tremendous,” said Helen Rice-Devlin, senior vice president
of technology business development, who oversaw every
aspect of the conversion, from communication to education.
“That we made this transition seamlessly was so significant.
The entire firm came together and really cared about
supporting these branches – without interrupting service to
other advisors and business units, and of course, to clients.”
Service was perhaps the most important component of
the conversion – just as it’s been one of the hallmarks of
Raymond James since our founding. As Paul Reilly explained,
“Putting service first is part of our DNA.” Our commitment
to service, while omnipresent, was reinvigorated in 2013.
It drove the success of our technology conversion and brought
us together as one firm united by a common cause – giving us
a clear path forward by building on where we started.
500,000 accounts
$70 billion in assets
10 months
6,210
6,197
5,182
5,154
5,216
2009
2010
2011
2012 2013
Financial Advisors
Private Client Group(1)
2,449
2,465
2,450
2,524
2,518
2009
2010
2011
2012 2013
Branch Locations
Private Client Group(2)
403
368
249
254
223
2009
2010
2011
2012 2013
Client Assets
Private Client Group
$Billions
(1) As of September 30, 2013, we refined the criteria to determine our financial advisor
population. The prior year counts have been revised to provide consistency in the
application of our current criteria. (2) As of September 30, 2013, we no longer include
investment advisor representative branches as part of our branch count. The prior year
counts have been revised to provide consistency in the application of our current criteria.
9
RAYMOND JAMES ANNUAL REPORT 2013 Our renewed emphasis on professional development
was felt firm- and nationwide in 2013 at workshops,
seminars, training classes and conferences, like this
one in San Francisco.
To go forward, we went back to basics.
In 2013, Raymond James stood on ground more solid and fertile than ever before.
We integrated people and systems, reorganized management to satisfy the needs of
the combined firm, and concentrated on a complete realignment of the organization
to meet the challenges of the future.
Our internal strength was unprecedented in 2013. More than
advisors uncover this untapped potential also provided an
90% of the Morgan Keegan financial advisors who received
opportunity for another segment of the firm.
retention offers stayed with Raymond James. Our combined
Fixed Income area ranked among the best in the country.
We marked our 100th consecutive quarter of profitability in
January. With that kind of potential already in our arsenal, our
future growth needn’t depend on acquisitions.
Raymond James Asset Management Services had been seeking
to expand its support for advisors, and the acceptance of Goal
Planning & Monitoring presented the perfect opportunity.
AMS offered one-on-one consulting to help advisors develop the
newly uncovered assets and explore the possibilities of the
In fact, one of the year’s biggest growth stories was right under
group’s advisory accounts.
our noses, or rather, our fingertips. Several key technology
rollouts and enhancements were fast-tracked to coincide with
the Raymond James-Morgan Keegan conversion, ensuring that
our unified technology platform was as powerful as it was
seamless. Goal Planning & Monitoring, first introduced in late
summer 2012, was among them.
In addition to strengthening our internal technologies,
Raymond James continued to make strides in mobile access for
advisors and in our industry-leading social media efforts. We
partnered with Hearsay Social to provide a more comprehensive
social media management tool for our advisors, and launched
several proprietary smartphone and tablet apps over the course
By July 2013, this innovative financial planning software had
of the year, including one for mobile account access through
been adopted by 42% of our financial advisor force, helping
Investor Access, several for advisor professional development
them identify substantial new assets and opportunities, and
conferences and one for WorthWhile, our magazine for clients of
expand the services they offer to clients and prospects. Helping
Raymond James.
10
We also fostered growth in the form of new ideas and
offerings. In the early months of the year, we introduced a
hybrid registered investment advisor business model to
our AdvisorChoice® platform, providing our existing financial
advisors and prospective recruits with even more choice
in running their practices. On the Capital Markets side,
Ashon Nesbitt, Renee McCummings, Evetta Davis
we launched a Strategic Options Desk led by Dan McMahon,
senior managing director and director of Institutional
Trading. The new desk is bicoastal, managed by one team in
New York City and another in San Francisco.
Along with the system enhancements and fresh initiatives,
internal reviews also made it abundantly clear just how much
talent already resided in St. Petersburg, in Memphis, and at
Raymond James offices and branches across the country.
Developing and harnessing that talent became a priority.
On the Private Client Group side, we continued ushering in
the next generation of financial advisors by introducing the
Advisor Mastery Program, an evolution of our New Advisor
Training Program. “You can teach the technical stuff, but this is
an apprenticeship business,” said Paul Reilly. “We’ve revamped
the program around teaching candidates how to build
relationships – how to interact with clients, how to help explain
things. That’s really the most important part of this business.”
We also placed renewed emphasis on professional develop-
ment, expanding our practice management support and
developing new business-building tools for advisors. “It’s our
job to help financial advisors take best advantage of the
products and services offered by Raymond James so that they
can grow their businesses,” said Global Private Client Group
CEO Chet Helck. “We believe advisor education and practice
management are key to growing our Private Client Group as
a whole.”
To help create new leaders across the firm, we turned to
people who’ve already been leading the way within Raymond
James. Several of our employee resource groups, including
the Women’s Interactive Network, the African Heritage
Network, the Hispanic Network, the LGBT Rainbow Network
and the Veterans Network, introduced or strengthened their own
leadership programs in 2013, helping us foster new relationships
and discover new paths to growth right here at home.
Leaders, Raise Your Hands
The African Heritage Network began building a new
generation of Raymond James leaders.
When the African Heritage Network (AHN) first began
seeking candidates for the inaugural class of its Leadership
Development Program, they were looking for people who
were ready to step up. “We want candidates who are
raising their hands, who are saying, ‘I want to be a leader
here. I’m making a commitment to Raymond James,’”
said Ashon Nesbitt, AHN chair. Added fellow AHN leader
Renee McCummings, “This is really a program for folks who
are looking for an opportunity to take on more responsibility.”
While leadership development had long been on the
network’s radar, it was the addition of new AHN sponsor
Steve Raney, president of Raymond James Bank, in 2013
that galvanized the effort. “We’d been thinking about the
possibility for at least a couple of years, but Steve coming
on board was really instrumental,” said Ashon.
Based on early discussions between Ashon and Steve,
network leaders including Renee and Evetta Davis began
working with other areas of the firm to develop the formal
structure and curriculum of the program. “It’s important to
note that we didn’t do this alone. Other areas of the firm
contributed time and resources – Talent Development and
Learning and Human Resources. We had the best of the
best supporting us,” said Renee.
The 2013 class – made up of 10 associates in both
St. Petersburg and in our regional operations center in
Southfield, Michigan – participated in a two-day program
that included core leadership courses offered through
Raymond James University, as well as visits from outside
speakers and facilitators. They then transitioned into the
longer-term component of the program – one-on-one
mentoring with leaders from AHN and across the firm.
In the future, the network plans to add additional resources
and educational components, to extend the program into
Memphis, and to make enhancements based on feedback
from graduates. “We hope the individuals who complete
the program will then become part of strategically moving
it forward,” said Evetta. “It’s an exciting time – for the
network, for the firm, for anyone who will be impacted by
this program.”
11
RAYMOND JAMES ANNUAL REPORT 2013 We expanded our horizons by heading west.
Growth was not only a question of how much, but also of where in 2013. More than
ever before, Raymond James had the opportunity and the momentum to expand
geographically. But even though the territory was new, we ventured in as intentionally
and intelligently as ever.
At Raymond James, the growth we generate from within –
While there will always be fresh opportunity to add
by enhancing services and building on existing strengths –
talented professionals and establish new addresses in all of
is vitally important. But it’s also crucial that we seek to grow
the communities where we already have a presence – even
the firm itself – expanding beyond our existing borders to
in our home state of Florida – we looked to expand
become a stronger force in the United States and throughout
recruiting efforts in areas where the Raymond James name
the world. And in 2013, we were determined to do just that.
is still nascent. In short, we headed west.
“We’re very committed to organic growth, and there’s a
Our Private Client Group moved beyond its strongholds –
lot of opportunity for us to expand geographically,” said
in Florida, the Detroit area and Texas – and into places like
CEO Paul Reilly in a June interview with Reuters. “That’s the
California, Oregon and Washington. “Quite frankly, the
best way to grow – to add one professional at a time who
best market that we’re not in is the Seattle market,” said
shares our values and wants to be here. It’s better for our
John Kuklenski, the divisional director of the Raymond James
existing advisors and associates. It’s better for their clients.
& Associates north central division. “Our highest priority is
It’s served us well for 50 years, and it will serve us well for the
to establish an employee office presence to add to a number
next 50.”
of independent offices already in the region.”
12
We expanded our horizons by heading west.
Strategic hires – made deliberately –
were a key element of our geographic
expansion. Here, Public Finance
Managing Director Rob Larkins talks
with new team members Tom Innis
and Parker Colvin.
To pursue that priority, we established our first Raymond
James & Associates location in Seattle, which President
Tash Elwyn expects to be a jumping off point for additional
branches in the state and throughout the western United
States. “With local leaders in place, and our firm to support
them, we’re seeing a tremendous amount of early interest,”
he told On Wall Street magazine in July. In addition, key hires
were also made to establish and expand employee branches in
the San Diego area.
Our Public Finance team also joined our westward march,
making a handful of key hires in California, including
veteran West Coast utility banker Tom Innis and underwriter
Parker Colvin, to enhance our presence in San Francisco
under the leadership of Rob Larkins. Additionally, we moved
forward with the construction of a data center in Denver to
support business continuity in the event of any significant
disruptions at our key locations in St. Petersburg, Memphis
or Southfield, Michigan.
Though many of our growth efforts were focused on the
West, we weren’t about to ignore the wealth of potential to be
found in more familiar places.
Lewis Rosen, John Hart, Richard Rousseau
Bonjour, Quebec
Raymond James Ltd. built on its momentum, expanding its
established presence in Montréal and beyond.
While our growth plan in the United States was decidedly
focused on the West, our Canadian counterpart set its sights
back east.
One of the fastest-growing non-bank-owned securities firms
in Canada, Raymond James Ltd. had expanded considerably
since its inception in 2001. The firm, headquartered in Toronto
and Vancouver, was improving on its existing presence in key
cities – making gains as other independent firms were rolled
up into the larger banks.
But even as it made waves across the country, one leading
market was of particular interest to the firm: Quebec.
“We’ve had a strong institutional desk, led by John Hart,
serving the Montréal market for years, and we knew we had
the opportunity to build on the success and reputation of that
team. So about three years ago, we began making a concerted
effort to build our independent advisor base in Quebec,”
explained Peter Kahnert, senior vice president of the Raymond
James Ltd. Corporate Communications & Marketing group.
The firm began by establishing a corporate office of four
advisors in Montréal, including veteran advisor Lewis Rosen,
and more recent efforts have culminated in the addition
of Richard Rousseau, a senior industry executive who is
well-known throughout Quebec. And we plan to continue
building the team strategically, growing much the same way
we plan to stateside – one advisor at a time.
“Our goal is not to be in every community in the province right
away,” said Peter. “Our approach is much more tactical and
measured. We look for the right people and opportunities to
build on and out from existing strength.”
And the strategy is working. The firm is continuing to expand
its presence in Quebec, despite the province’s reputation
for being a difficult market to penetrate and the dominance
of major Canadian banks. In fact, Raymond James Ltd. is one
of the largest independent firms in the country, just behind the
big banks.
While Raymond James Ltd. isn’t a household name in Canada
yet, Peter believes the firm is on its way. “We’re certainly
building the brand. There’s a greater awareness of Raymond
James across Canada and a growing awareness in Quebec,
and that can only lead to more opportunity.”
13
RAYMOND JAMES ANNUAL REPORT 2013 Under the leadership of Peter Moores, named country manager in 2013,
our presence in the United Kingdom became more unified, more purposeful
and even more strongly aligned with our efforts in North America.
14
Raymond James Bank looked north, increasing corporate
loans in Canada and building on the loan assets acquired
from Allied Irish Bank in 2012. The bank also continued to
grow the use of products like mortgage lending and securities
based lending, which, through key hires in the Southeast,
had helped expand its geographic footprint in 2011 and 2012.
Eagle Asset Management celebrated the success of its
own recent geographic expansions, including the one-year
anniversary of its Vermont office. And in March, Eagle and
ClariVest, a San Diego-based large-cap manager of which
Eagle acquired a minority interest in 2012, came together to
launch the Eagle International Stock Fund.
Beyond North America, we worked to consolidate our
strongest businesses. In the United Kingdom, we moved to
unify our wealth management and capital markets practices.
“With strong growth in the United Kingdom in a variety of
our businesses, it was clear that the next step was to better
coordinate efforts to expose clients to the broad spectrum of
services available,” said Paul Reilly. And that “next step” was
the appointment of Raymond James Investment Services Ltd.
CEO Peter Moores as United Kingdom country manager.
Additionally, parallel to our own efforts in the United States,
Raymond James Investment Services launched a new technology
platform to support its advisors.
Along with bolstering our existing international presence,
we also explored new international partnerships to great
success. Eagle Asset Management partnered with Nordea, a
financial firm serving the Nordic and Baltic regions, to give its
clients access to a solid U.S. equity fund. The fund, managed
by Eagle’s Ed Cowart, grew from $18 million to $1 billion in
less than a year and was named U.S. Equity Fund of the Year
by German-based Sauren Golden Awards.
11.1(1)
10.8(2)
10.5
9.7
9.0
2009
2010
2011
2012 2013
Total Bank Assets $Billions
8.8
8.0
6.6
6.5
6.1
2009
2010
2011
2012 2013
Total Bank Loans $Billions
139.9
115.7
85.5
78.5
65.5
Portfolio manager Ed Cowart accepts the Sauren Golden Award on
stage in Frankfurt, Germany.
2009
2010
2011
2012 2013
Total Fee-Based Assets $Billions(3)
(1) Includes $3.2 billion excess for regulatory reasons. (2) Includes $3.5 billion excess for regulatory reasons. (3) Certain assets
in non-managed accounts are excluded from the calculation of the account value for fee billing purposes. The September 30,
2012 and 2011 assets under management balances presented have been revised from the amounts initially reported to reflect
only billable assets and to present such balances on a consistent basis with those reported as of September 30, 2013.
15
RAYMOND JAMES ANNUAL REPORT 2013 Building a stronger tomorrow is always our goal – for our associates,
for our firm and for the communities we serve. Here, healthcare bankers
Jan Blazewski and Natalie Wabich (on the left) celebrate the success
of a recent financing with Eastern Maine Healthcare System CEO
M. Michelle Hood and CFO Derrick O. Hollings (on the right).
To plan our
next step,
we looked far
beyond it.
16
Even as we continued to grow and expand
throughout the year, we kept thinking bigger –
farther. We turned our thoughts to succession,
for our advisors and for our firm, and focused
on constructing a framework today that
would carry our firm well into the future.
Today, the average financial advisor is 52 years old and
approximately 27% are over 60. It’s become increasingly
clear that our industry is approaching a changing of the
guard. And with the people who comprise our Private Client
Group – the largest part of Raymond James – reaching a
turning point in their lives and careers, it is only right that
we work to help ensure the transition goes smoothly.
In 2013, succession planning, a service we’ve long offered
financial advisors, became vital. “We’re pleased to report
that a significant number of our advisors do have a plan on
file,” Raymond James Financial Services President Scott
Curtis told ThinkAdvisor. “But anything short of 100% still
means there are too many who don’t.” To help meet the needs
of our current advisors and future recruits, we dedicated
additional resources and professionals to the succession
planning cause.
To develop the most complete solution possible – one
designed to help advisors ensure a seamless retirement
transition for themselves, their families and their clients –
several areas of the firm got involved in the effort. King
Carter, vice president of Raymond James Asset Management
Services, used his background as a professional coach to fee-
based advisors to help those same advisors consider and
plan for their legacies. And the Network for Women
Advisors, led by Nicole Spinelli, began development of a
program designed to train sales associates to become
advisors and, eventually, successor candidates.
We also thought about succession in slightly bigger terms –
our own. We continued to explore the ways we could
prepare for the eventual retirement of firm leaders and
members of our board of directors. Several key appointments
were made in 2012 – including Tash Elwyn at Raymond
James & Associates and Scott Curtis at Raymond James
Financial Services – and in 2013 we considered the opportunity
for even more appointments to help cement our own
succession plan and build momentum into the future.
As Executive Chairman Tom James told InvestmentNews
in late 2012, “I want Raymond James to be an institution
that survives.”
Alongside professional legacies, we also looked for
opportunities to strengthen our legacy of giving back.
From our founding, giving has been an intrinsic part of
Raymond James – outlined in the mission statement that
guides us: We must give something back to the communities in
which we live and work.
In our professional capacity, we facilitate giving in a variety
of ways. Through the Raymond James Charitable Endowment
Fund, Raymond James Trust administers donations and
charitable giving strategies on behalf of clients. And our Asset
Management Group offers institutional consulting to help
advisors who manage assets for foundations, endowments and
charitable organizations.
In addition, many of the deals managed by our Public
Finance group make a significant impact on organizations and
communities across the country. One such deal involved helping
a healthcare system headquartered in Brewer, Maine, expand
its facilities and extend its capacity to care.
Eastern Maine Medical Center (EMMC) has been a lifeline
for its community and the surrounding region since the 1960s.
Today, it is the flagship hospital of Eastern Maine Healthcare
Systems (EMHS) – the second largest healthcare system in the
state, comprised of nearly 30 organizations, including eight
member hospitals.
EMHS is a leader in telemedicine, surgical robotics and
comprehensive cancer care, and is gaining national recognition
for its accountable care efforts. It is one of 32 health systems in
the Centers for Medicare & Medicaid Services Pioneer Model
Accountable Care Organization program – and one of the
program’s top five performers – and one of 17 health systems
to have received a nearly $13 million federal Beacon Community
Cooperative Agreement Grant.
Due to the success of and demand for its programs, EMHS
faced an issue that isn’t typical for healthcare systems of its size:
capacity. As Senior Healthcare Banker Jan Blazewski put it,
“Eastern Maine Medical Center serves as a regional referral
center, so a number of other hospitals in Maine use some form
of EMHS’ services and capabilities. That demand left them
strapped for space.” So, EMHS leaders reached out to Jan, with
whom they’d worked closely since the late 1990s, and fellow
healthcare banker Natalie Wabich to explore their financing
options. “EMHS is critical to the communities it serves. And
this financing was critical to Eastern Maine Medical Center’s
future,” added Natalie.
For M. Michelle Hood, FACHE, president and CEO of
EMHS, the financing’s purpose was twofold. “We were looking
for affordable ways to meet our mission to care for the health
and well-being of the people of Maine, while also seeking
innovative ways to contribute to the state economy and broaden
our advocacy,” she said. “Raymond James provided critical
945.5
796.9
664.3
592.0
533.3
2009
2010
2011
2012 2013
Total Capital Markets Revenue
$Millions
187
150
119
113
78
2009
2010
2011
2012 2013
Capital Markets Underwritings
17
RAYMOND JAMES ANNUAL REPORT 2013 photo of
RJ offices in
Memphis
Visitors take in the show at RiverArtsFest
Memphis, a New Place to Call Home
In 2013, our commitment to the legacy of Morgan Keegan
became a commitment to the future of Memphis.
Raymond James gained much more than the chance to join
forces with some of the best and most dedicated professionals
in the industry when we combined with Morgan Keegan.
We also gained a new home – a vibrant, storied community
that we’re excited to be part of and to give back to.
Today, Memphis is home to more than 800 Raymond James
associates who are as committed to the work they do as they
are to their community. And together, we plan to make an even
greater impact.
Our leaders have said one of the things that made our two
firms such a natural fit was our shared culture. And a key
component of that common culture was a longstanding
belief in giving back to the communities that helped build
our firms – offering our time, our resources and our strength.
In addition to building on our collective efforts throughout
the country, we announced our first major sponsorship in
Memphis in 2013.
As a presenting sponsor of RiverArtsFest, we had the chance
to support a Memphis institution. The festival is one of the
South’s premier annual arts events and, in addition to
amazing works, features the food, the music and the energy
the city is known for. “Supporting the arts is a big component
of Raymond James’ mission to serve its communities,” Will
Deupree, manager of the Memphis Ridgeway branch, told
The Daily News. “RiverArtsFest is a perfect fit for Raymond
James and an excellent way for us to emphasize the passion
that extends from the founder to the Memphis employees.”
This may be the first and most visible foray into giving back
in Memphis, but it certainly will not be the last. In the years
ahead, we plan to become an even more active and devoted
part of the city that is already such a big part of us.
guidance as we researched the implications of this type of
investment for our system. There was a lot at stake, EMMC is
the only provider of many specialty medical services, including
trauma and advanced critical care, for the northern two-thirds
of Maine, so this modernization project is critical to ensuring
access to quality healthcare for our region.”
Ultimately, the team managed a $143.9 million bond issue to
finance a seven-story patient care tower. The tower, now under
construction, will include state-of-the-art surgical suites and
private patient rooms, which will enhance infection control,
accommodate new technology and provide a better place for
patients to recover with their families.
“Not only was the credit story behind the issue exceptional –
a great healthcare system making a real difference in its
community – the story of the issue itself was good. We hit the
market at the right time with an issue that had all of the metrics
bond buyers look for,” said Jan. “For a $143 million offering,
we had more than $1 billion in orders.”
Beyond the ways we can make a difference professionally,
Raymond James has always been deeply committed to making
a personal impact. And in 2013, we got even more organized in
our efforts. Launched firmwide in August 2012, Raymond
James Cares Month is a collective giving effort that organizes –
and galvanizes – the good we already do throughout the country.
From stocking food banks to building Habitat for Humanity
homes, 1,250 Raymond James associates volunteered more
than 2,870 hours to 76 organizations across 21 states in August
2013 – a 55% increase in participation over the previous year.
In addition, Raymond James Ltd. continued, among many
other efforts, its support of the Royal Ontario Museum’s
Ultimate Dinosaurs: Giants of Gondwana exhibit. Along with serving
as title sponsor of the exhibit, the firm, through its Raymond
James Canada Foundation, works with other organizations to
give underprivileged youth the chance to visit the museum.
On an even more individual note, there was the story of
Kathy Kinnicutt, a longtime employee of Raymond James who
bequeathed $2 million to United Way Suncoast – the largest
gift in the chapter’s history.
“It gives me great pride because she was one of my favorite
people,” Executive Chairman Tom James told the Tampa Bay Times.
“She literally helped thousands of our financial advisors and
hundreds of thousands of our clients.” In the same Times piece,
Kinnicutt’s brother, Linc Kinnicutt, said, “Truly, Kathy’s gift to
United Way is also a gift from Tom James and the organization
he created and led, as well as recognition of the example he set.”
18
Memphis, a New Place to Call Home
“ It’s not about what we do in any
single quarter. It’s about what we’re
going to do to make this a better firm
five, 10, 20 years from now.”CEO Paul Reilly
What’s next? It was a question frequently
asked and definitively answered in 2013.
What was next – what will always be next for
Raymond James – was more of the same.
We continued to uphold the core values of
conservatism, independence, integrity and client
service that have defined our firm since 1962.
We stood the test of another year – and prepared
ourselves to stand for many, many more.
19
RAYMOND JAMES ANNUAL REPORT 2013 10-Year Financial Summary
2004
2005
2006
2007
RESULTS
Total Revenues
$ 1,829,776,000
$ 2,168,196,000
$ 2,645,578,000
$ 3,109,579,000
Net Revenues
Net Income
Net Income per Share (a)
Basic
Diluted
1,781,259,000
2,050,407,000
2,348,908,000
2,609,915,000
127,575,000
151,046,000
214,342,000
250,430,000
1.16
1.14
1.37
1.33
1.86
(b)
1.83
(b)
2.10
(b)
2.07
(b)
Weighted Average Common Shares
Outstanding – Basic (a)
Weighted Average Common and Common Equivalent Shares
Outstanding – Diluted (a)
110,093,000
110,217,000
112,211,000
(b)
115,268,000
(b)
111,603,000
113,048,000
114,238,000
(b)
117,011,000
(b)
Cash Dividends Declared per Common Share (a)
0.18
0.21
0.32
0.40
FINANCIAL
CONDITION
Total Assets
Long-Term Debt (g)
Shareholders’ Equity
Shares Outstanding (a)
7,621,846,000
8,365,158,000
(c)
11,505,415,000
(c)
16,228,797,000
(c)
174,223,000
280,784,000
286,712,000
214,864,000
1,065,213,000
1,241,823,000
1,463,869,000
1,757,814,000
110,769,000
113,394,000
114,064,000
116,649,000
Shareholders’ Equity per Share at End of Period (a)
9.62
10.95
12.83
15.07
year ended 9-24-04
year ended 9-30-05
year ended 9-30-06
year ended 9-30-07
20
(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 Raymond James Bank qualifying as a thrift institution. 2008
2009
2010
2011
(h)
2012
(h)
2013
(h)
$ 3,204,932,000
$ 2,602,519,000
$ 2,979,516,000
$ 3,399,886,000
$ 3,897,900,000
$ 4,595,798,000
2,812,703,000
2,545,566,000
2,916,665,000
3,334,056,000
3,806,531,000
4,485,427,000
235,078,000
152,750,000
228,283,000
278,353,000
295,869,000
367,154,000
1.95
(b)
1.93
(b)
1.25
(b)
1.25
(b)
1.83
1.83
2.20
2.19
2.22
2.20
2.64
2.58
116,110,000
(b)
117,188,000
(b)
119,335,000
122,448,000
130,806,000
137,732,000
117,140,000
(b)
117,288,000
(b)
119,592,000
122,836,000
131,791,000
140,541,000
0.44
0.44
0.44
0.52
0.52
0.56
20,709,616,000
(c,d)
18,226,728,000
(e)
17,883,081,000
(f)
18,006,995,000
21,160,265,000
23,186,122,000
197,910,000
477,423,000
416,369,000
662,006,000
1,385,514,000
1,239,855,000
1,883,905,000
2,032,463,000
2,302,816,000
2,587,619,000
3,268,940,000
3,662,924,000
116,434,000
118,799,000
121,041,000
123,273,000
136,076,000
138,750,000
16.18
17.11
19.03
20.99
24.02
26.40
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
year ended 9-30-13
21
RAYMOND JAMES ANNUAL REPORT 2013(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 Raymond James 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 Raymond James Bank Deposit Program deposits (redirected to third party banks participating in the Raymond James Bank Deposit Program in early October 2010) to meet point-in-time regulatory balance sheet composition requirements related to Raymond James 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, Federal Reserve Bank of Atlanta, our mortgage and other borrowings.(h) A reconciliation of the GAAP results to the non-GAAP measures can be found on page 39 of the September 30, 2013, Form 10-K, which is included herein.
RAYMOND JAMES FINANCIAL, INC. EXECUTIVE COMMITTEE
a Dennis W. Zank
b Jeffrey A. Dowdle
c Bella Loykhter Allaire
d John C. Carson Jr.
e Paul C. Reilly
f Steven M. Raney
g Jeffrey E. Trocin
h Chet Helck
i Jeffrey P. Julien
j Paul D. Allison
a
b
c
d
e
f
g
h
i
j
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
CEO of the Global Private Client Group
Raymond James Financial
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
22
Wick Simmons
Retired securities industry executive
Susan N. Story
Senior Vice President and CFO
American Water Works Company, Inc.
A publicly traded water and wastewater
utility holding company
Raymond James Financial, Inc. Executive Committee
Bella Loykhter Allaire
Executive Vice President
of Technology and Operations
Raymond James & Associates
Paul D. Allison
Chairman and CEO
Raymond James Ltd.
John C. Carson Jr.
President
Raymond James Financial
Fixed Income Capital Markets
Jeffrey A. Dowdle
President, Asset Management Services
Senior Vice President
Raymond James & Associates
Other Executive Officers
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 E. Trocin
Executive Vice President
Equity Capital Markets
President, Global Equities
and Investment Banking
Raymond James & Associates
Dennis W. Zank
Chief Operating Officer
Raymond James Financial
Chief Executive Officer
Raymond James & Associates
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
23
RAYMOND JAMES ANNUAL REPORT 2013 Corporate and Shareholder Information
Number of Shareholders
At December 13, 2013, there were
Electronic Delivery
If you are interested in electronic
Principal Subsidiaries
Raymond James & Associates, Inc.
approximately 20,000 shareholders.
delivery of future copies of this report,
Securities broker/dealer
10-K; Certifications
A copy of the annual report to the
Securities and Exchange Commission on
Transfer Agent and Registrar
Computershare Shareowner Services LLC
Member Financial Industry
Regulatory Authority
please see the proxy voting instructions.
Member New York Stock Exchange
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
Form 10-K is available, without charge,
P.O. Box 43006
at sec.gov, upon request in writing to
Providence, RI 02940-3006
Corporate Secretary, Raymond James
800-837-7596
Financial, Inc., 880 Carillon Parkway,
computershare.com/investor
St. Petersburg, Florida 33716, or by
emailing investorrelations@
raymondjames.com.
Raymond James has included, as
exhibits to its 2013 Annual Report on
Form 10-K, certifications of its chief
executive officer and chief financial
officer as to the quality of the company’s
Independent Auditors
KPMG LLP
New York Stock Exchange Symbol
RJF
Covering Analysts
Alexander Blostein
public disclosure. Raymond James’ chief
Goldman Sachs & Co.
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
Christopher Harris
Wells Fargo Securities, LLC
Joel Jeffrey
Keefe, Bruyette and Woods
William R. Katz
Citigroup Global Markets, Inc.
Douglas Sipkin
Susquehanna Financial Group, LLLP
Raymond James Financial Center, 880
Steve Stelmach
Carillon Parkway, St. Petersburg, Florida,
FBR Capital Markets & Co.
on February 20, 2014, 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.
Devin Ryan
JMP Securities
Christopher Allen
Evercore
James Mitchell
The Buckingham Research Group
24
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, 2013
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, 2013, 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 $5,666,158,883.
The number of shares outstanding of the registrant’s common stock as of November 22, 2013 was 140,059,971
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 20, 2014 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
29
31
33
34
80
95
194
194
197
197
197
197
197
197
197
201
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, 2013, its principal
subsidiaries include Raymond James & Associates, Inc. (“RJ&A”), 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, with approximately 350 traditional branch and satellite offices throughout the U.S, is the
largest full service brokerage and investment firm headquartered in the state of Florida and 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 seven 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”). In mid-February 2013, we completed the transfer of all of the active businesses of Morgan Keegan &
Company, Inc. (“MK & Co.”) to RJ&A. At the time of its acquisition, MK & Co. was a clearing broker-dealer, headquartered in
Memphis, Tennessee. After the transfers of its businesses to RJ&A and effective September 2013, MK & Co. became a special
purpose broker-dealer. In the prior year on April 2, 2012 (the “Closing Date”), RJF completed its 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”). In July 2013, MK & Co. formally changed its legal form
from a corporation to a limited liability company, and is now known as Morgan Keegan & Company, LLC.
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.
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.
REPORTABLE SEGMENTS
Effective September 30, 2013 we have five reportable segments: “Private Client Group” or “PCG”; “Capital Markets”; “Asset
Management”; RJ Bank and the “Other” segment. We implemented changes in our reportable segments as a result of management’s
assessment of the usefulness and materiality of certain of our historic reportable segments. The result of the changes we implemented
is the combination of the Private Client Group and the historic securities lending segments, the Capital Markets and the historic
emerging markets segments, and the Other and the historic proprietary capital segments. Our financial information for each of the
fiscal years ended on September 30, 2013, 2012, 2011 respectively, have been presented as if the change had been in effect
throughout each year. See Note 28 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information.
3
Index
PRIVATE CLIENT GROUP
We provide securities transaction and financial planning services to approximately 2.5 million client accounts through the
branch office systems of RJ&A, RJFS, RJFSA, RJ Ltd. and in the United Kingdom (“UK”) through Raymond James Investment
Services Limited (“RJIS”). 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 2013, the
portion of securities commissions and fee revenues from this segment that we consider recurring include asset-based fees, trailing
commissions from mutual funds and variable annuities/insurance products, mutual fund services fees, fees earned on funds in our
multi-bank sweep program, and interest income, and represented approximately 68% of the Private Client Group’s total revenues.
Revenues of this segment are correlated with total client assets under administration. As of September 30, 2013, client assets
under administration of our Private Client Group amounted to approximately $403 billion.
RJ&A, RJFS and RJFSA offer investment advisory services under various financial advisor affiliation options. Fee revenues
for such services are computed as either a percentage of the assets in the client account, or a flat periodic fee charged to the client
for investment advice. RJ&A advisors operate under the RJ&A registered investment advisor (“RIA”) license while independent
contractors affiliated with RJFS may operate either under their own RIA license, or the RIA license of RJFSA. The investment
advisory fee revenues associated with these activities are recorded within securities commissions and fee revenues on our
consolidated financial statements. Refer to the securities commissions and fees section of our summary of significant accounting
policies in Note 2 of the Notes to Consolidated Financial Statements in this Form 10-K for our accounting policies on presenting
these revenues in our consolidated financial statements.
The majority of our U.S. financial advisors are also licensed to sell insurance and annuity products through our general
insurance agency which was at one time known as Planning Corporation of America (“PCA”), a wholly owned subsidiary of RJF.
In October 2013, PCA merged with another wholly owned subsidiary of RJF, and PCA, as the surviving entity, changed its name
to Raymond James Insurance Group, Inc. (“RJIG”). Through the financial advisors of our domestic broker-dealer subsidiaries,
RJIG 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
mutual funds. RJ&A 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, known as 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 (up to $250,000 per bank for individual accounts and up to $500,000 for joint
accounts) at up to 12 banks. This program enables clients to obtain up to $2.5 million in individual Federal Deposit Insurance
Corporation (“FDIC”) deposit insurance coverage ($5 million for joint accounts) while earning 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 and RJ Ltd. make margin loans to clients
that are 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 outstanding
amount of the loan.
4
Index
Typically, broker-dealers utilize bank borrowings and equity capital as the primary sources of funds to finance clients’ margin
account borrowings. RJ&A’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 staff. The number of financial advisors per office
ranges from one to 46. 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.
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 42.
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 outside of
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 provides services to financial
institutions such as banks, thrifts and credit unions, and their clients. RJFS also provides custodial, trading, research and other
back office support and 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.
5
Index
Securities Lending
RJ&A conducts its securities lending 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, RJ&A 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.
Operations and Information Technology
RJ&A operations personnel are responsible for the 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 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.
In the area of information security, we have developed and implemented a framework of principles, policies and technology
to protect both our own information assets as well as those we have pertaining to our clients. Safeguards are applied to maintain
the confidentiality, integrity and availability of information resources.
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 our
corporate office locations or one of our operations processing or data center sites.
We have also developed a business continuity plan for our PCG retail branches in the event these branches are impacted by
severe weather. RJ&A PCG 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.
CAPITAL MARKETS
Capital Markets activities consist primarily of equity and fixed income products and services. 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 fixed income department;
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”) headquartered in Paris, France. 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.
More than 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 1,350 institutional clients. Some European
and U.S. offices also provide services to high net worth clients. RJ Ltd. has over 30 institutional equity sales and trading professionals
servicing predominantly Canadian, U.S. and European institutional investors from offices in Canada and Europe.
6
Index
From offices in various locations within the U.S., RJ&A distributes 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. Similar to the equity research department, this operation serves to support both our institutional and Private
Client Group sales efforts. RJ&A also offers an options trading platform that is operated primarily on an agency basis. 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 165 TSX listed common stocks.
RJ&A trades both taxable and tax-exempt fixed income securities. 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). Relatively small amounts of proprietary
trading positions are also periodically taken by RJ&A or RJ Ltd. for various purposes and are closely monitored within well defined
limits.
In addition, RJ Capital Services, Inc., a subsidiary of RJF, 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.
Equity Research
The more than 50 domestic analysts in RJ&A’s research department support our institutional and retail sales efforts and publish
research on more than 1,000 companies. This research primarily focuses on U.S. and Canadian companies in specific industries
including consumer, energy, financial services, healthcare, industrial, mining and natural resources, real estate, technology, and
communication and transportation. Proprietary industry studies and company-specific research reports are made available to both
institutional and individual clients. RJ Ltd. has 13 analysts who publish research on approximately 270 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 a limited number of European companies
through RJES, as well as Latin American companies through a joint venture in which we hold an interest.
Investment Banking
The nearly 150 professionals of RJ&A’s equity capital markets 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 25 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.
RJ&A’s fixed income investment banking services include public finance and debt underwriting activities. Nearly 100
professionals in the RJ&A public finance group 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 acts as a consultant, underwriter or selling group member for corporate bonds, mortgage-backed securities (“MBS”),
agency bonds, preferred stock and unit investment trusts. When underwriting new issue securities, RJ&A agrees to purchase the
issue through a negotiated sale or submits a competitive bid.
Raymond James Financial Products, Inc. or Morgan Keegan Capital Services, LLC, both being non-broker-dealer subsidiaries
(collectively referred to as the Raymond James matched book swap subsidiaries or “RJSS”), enter into derivative transactions,
including interest rate swaps, options, and combinations of those instruments, primarily with government entities and not-for-
profit counterparties. For every derivative transaction RJSS enters into with a customer, RJSS enters into an offsetting derivative
transaction with a credit support provider who is a third party financial institution. Thus, we refer to RJSS’s operations as our
“matched book” derivatives business.
7
Index
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 year 2013, RJTCF
invested approximately $600 million for large institutional investors in approximately 85 real estate transactions for properties
located throughout the U.S. Since inception, RJTCF has sold, inclusive of unfunded commitments, over $5 billion of tax credit
fund partnership interests and has sponsored more than 85 tax credit funds, with investments in over 1,700 tax credit apartment
properties in nearly all 50 states and one U.S. Territory.
Emerging Markets
Raymond James International Holdings, Inc. (“RJIH”), through its subsidiaries, currently has interests in operations in Latin
American countries including Argentina and Uruguay. Through these entities we operate securities brokerage, investment banking,
asset management and equity research businesses. During fiscal year 2013, we closed our operations in Brazil.
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, National Association (“RJT”), a wholly owned subsidiary of
RJF, and other fee-based programs. Revenues for this segment are primarily generated by the investment advisory fees related to
asset management services provided for individual and institutional investment portfolios, along with mutual funds. Investment
advisory fees are earned on assets held in managed or non-managed programs. These fees are computed based on balances either
at the beginning of the quarter, the end of the quarter, or average daily 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 have historically had a positive impact on investment advisory fee
revenues 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 that offers a variety of equity and fixed income objectives managed by a number of
portfolio management teams and subsidiary investment advisors, including Eagle Boston Investment Management, Inc. and
ClariVest Asset Management (“ClariVest”). Eagle has approximately $28 billion in assets under management (which includes the
assets managed by ClariVest) and over $2 billion in assets under advisement (non-discretionary advised assets) as of September
30, 2013. Eagle’s clients include institutions, corporations, pension and profit sharing plans, foundations, endowments, issuers of
variable annuities, individuals and mutual funds. Eagle also serves as investment advisor to the Eagle Funds. Most clients are
charged fees based upon asset levels including fees on non-discretionary assets for providing Eagle account models to professional
advisors at other firms, however in some cases performance fees may be earned for outperforming respective benchmarks.
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 Stock
Fund utilize ClariVest as a sub-advisor.
8
Index
Eagle acquired a 45% interest in ClariVest in December, 2012. See Note 3 of the Notes to the Consolidated Financial Statements
in this Form 10-K for additional information regarding the ClariVest acquisition.
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 the 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 below normal program minimums, as well as providing monitoring and due diligence services. AMS
earns fees generally ranging from 0.30% 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 program known as Freedom, 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, 2013, these managed programs had approximately $33 billion in assets under management, including approximately
$5 billion managed by Eagle.
AMS also provides certain services for their non-managed fee-based programs (known as Passport, Ambassador or other non-
managed programs). AMS provides 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 1.0% to 2.5% of assets, and
the revenues are predominantly included in securities commissions and fees revenue in the PCG segment, with a lesser share of
revenue generated from these activities included in investment advisory fee revenue in this Asset Management segment. As of
September 30, 2013, these programs had approximately $63 billion in assets. RJFS and RJFSA offer a similar fee-based program
known as IMPAC (“IMPAC”). All revenues for IMPAC are reported in the PCG segment. As of September 30, 2013, IMPAC had
approximately $13 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).
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
RJT provides personal trust services primarily to existing clients of our broker-dealer subsidiaries. Under its federal charter,
RJT may act as trustee, custodian, personal representative or agent to the trustee. RJT administers approximately $2.92 billion in
trust assets at September 30, 2013, including approximately $205 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 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. RJ Bank is a national bank
regulated by the Office of the Comptroller of the Currency (“OCC”). During fiscal year 2012, RJ Bank converted from a thrift
charter to a national bank charter to facilitate RJ Bank maintaining a loan portfolio with a greater percentage of corporate loans
than were otherwise permissible under thrift regulations.
9
Index
RJ Bank operates from a single branch location adjacent to RJF’s corporate office 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
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 loans fully collateralized by marketable securities. 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” in this Form 10-K).
OTHER
This segment includes our principal capital and private equity activities as well as various corporate overhead costs of RJF
including the interest cost on our public debt, corporate settlements (including a settlement related to auction rate securities that
occurred in fiscal year 2011) and the acquisition and integration costs associated with our acquisitions including, most significantly,
Morgan Keegan (see further discussion in Note 3 of the Notes to the Consolidated Financial Statements in this Form 10-K).
Our principal capital and private equity activities include 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.
We participate in profits or losses from various investments 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. As of September 30, 2013, certain of our merchant banking investments include investments in a
manufacturer of crime investigation and forensic supplies, an event photography business, and a company pursuing a new concept
in the salon services market.
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.
10
Index
The financial services industry in the U.S. is subject to extensive regulation under federal and state laws. During our fiscal
year 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 some of the
implementing regulations have yet to be adopted by various regulatory agencies, the specific impact on some of our businesses
remains 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 and RJFS are currently
registered as broker-dealers in all 50 states. The SEC recently adopted amendments, most of which were effective October, 2013,
to its financial responsibility rules, including changes to the net capital rule, the customer protection rule, the record-keeping rules
and the notification rules applicable to our broker-dealer subsidiaries. We are currently evaluating the impact of these amendments
on our broker-dealer subsidiaries; however, based on our current analyses, we do not believe they will have a material adverse
effect on any of our broker-dealer subsidiaries. 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 be members of SIPC. 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.
When the SIPC fund falls below a certain amount, members are required to pay higher annual assessments to replenish the reserves.
During fiscal year 2013, certain of our domestic broker-dealer subsidiaries incurred expenses amounting to 0.25% of net operating
revenues as defined by SIPC, or approximately $4.6 million, to SIPC as a special assessment. 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. 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 currency (“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 in this Form 10-K 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.
11
Index
RJF is under the supervision of, and subject to the rules, regulations, and periodic examination by the Fed. Additionally, RJ
Bank is subject to the rules and regulations of the OCC, 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.
RJF as 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 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 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 July 2013, the OCC, the Federal Reserve Board (“FRB”) and the FDIC released final United States Basel III regulatory
capital rules implementing the global regulatory capital reforms of Basel III and certain changes required by the Dodd-Frank Act.
The rule increases the quantity and quality of regulatory capital, establishes a capital conservation buffer, and makes selected
changes to the calculation of risk-weighted assets. The rule becomes effective for us on January 1, 2015, subject to a transition
period for several aspects of the rule, including the new minimum capital ratio requirements, the capital conservation buffer, and
the regulatory capital adjustments and deductions. We are currently evaluating the impact of these rules on both RJF and RJ Bank;
however, based on our current analyses, we believe that RJF and RJ Bank would meet all capital adequacy requirements under
the final rules. However, the increased capital requirements could restrict our ability to grow during favorable market conditions
or require us to raise additional capital. 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.
Since RJ Bank provides products covered by FDIC insurance, generally up to $250,000 per account ownership type, RJ Bank
is subject to the Federal Deposit Insurance Act. In February 2011, under the provisions of the Dodd-Frank Act, the FDIC issued
a final rule changing its assessment base in addition to other minor adjustments. For banks with more than $10 billion in assets,
the FDIC’s new rule changed the assessment rate calculation, which relies on a scorecard designed to measure financial performance
and ability to withstand stress in addition to measuring the FDIC’s exposure should the bank fail. This new rule will become
effective for RJ Bank beginning with the December 2013 assessment period. RJ Bank is still evaluating the impact of this change
on future FDIC insurance premiums.
In July 2011, pursuant to the Dodd-Frank Act, the Consumer Financial Protection Bureau (“CFPB”) began operations and
was given rulemaking authority for a wide range of consumer protection laws that would apply to all banks and provide broad
powers to supervise and enforce consumer protection laws. RJ Bank recently exceeded $10 billion in total assets for four consecutive
quarters and as a result the CFPB has now assumed regulatory authority over RJ Bank for its compliance with various consumer
regulations. The CFPB has proposed and finalized many rules since its establishment, with the majority of those effective in early
fiscal year 2014. RJ Bank is still evaluating the impact of this additional regulator.
In October 2012, under the provisions of the Dodd-Frank Act, regulators issued final rules requiring banking organizations
with total assets of more than $10 billion but less than $50 billion to conduct annual company-prepared stress tests, report the
results to their primary regulator and the Fed and publish a summary of the results. Under the rules, stress tests must be conducted
using certain scenarios (baseline, adverse, and severely adverse), which the Fed will provide each year. These new rules require
RJF to conduct its first stress test by March 31, 2014. In addition, RJF will be required to begin publicly disclosing a summary
of certain stress test results in our fiscal year 2015.
RJT, 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.
12
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 now
named Audit and Risk 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.
13
Index
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
49
Senior Vice President, Controller
Bella Loykhter Allaire
60 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
Paul D. Allison
57 Chairman, President and CEO - Raymond James Ltd. since January,
John C. Carson, Jr.
57
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; President -
Morgan Keegan & Company, LLC, formerly known as Morgan Keegan
& Company, Inc., since July, 2013; Chief Executive Officer and
Executive Managing Director - Morgan Keegan & Company, Inc.,
March, 2008 - July, 2013; President - Fixed Income Capital Markets -
Morgan Keegan & Company, Inc., 1994 - February, 2008
George Catanese
Jeffrey A. Dowdle
54
49
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
Jeffrey P. Julien
57 Executive Vice President - Finance, Chief Financial Officer and
Treasurer
Paul L. Matecki
57
Senior Vice President - General Counsel, Secretary
Steven M. Raney
48
President and CEO - Raymond James Bank, N.A. 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
Jeffrey E. Trocin
Dennis W. Zank
54 Executive Vice President - Equity Capital Markets - Raymond James &
Associates, Inc.; President - Global Equities and Investment Banking -
Raymond James & Associates, Inc. since July, 2013
59 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,
2013, we had approximately 10,150 employees. As of September 30, 2013, we had more than 3,500 independent contractors with
whom we are affiliated.
14
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 and Risk
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, future acquisition expenses, 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 Form 10-K. 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.
15
Index
We are affected by 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.
At times over the last several years we have experienced operating cycles during weak and uncertain U.S. and global economic
conditions, including low levels of economic output, artificially maintained levels of historically low interest rates, relatively high
rates of unemployment, and significant uncertainty with regards to fiscal and monetary policy both domestically and abroad. These
conditions led to several factors in the global financial markets that from time to time negatively impacted our net revenue and
profitability. While select factors indicate signs of improvement, uncertainty remains. A period of sustained downturns and/or
volatility in the securities markets, prolonged continuation of the artificially low level of short term interest rates, a return to
increased dislocations in the credit markets, reductions in the value of real estate, and other negative market factors could
significantly impair our revenues and profitability. We could 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
could 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.
Future downgrades of the U.S. sovereign credit rating by one or more of the major credit rating agencies could have material
adverse impacts on financial markets and economic conditions in the United States and throughout the world and, in turn, could
have a material adverse effect on our business, financial condition and liquidity.
Concerns about the European Union’s (“EU”) sovereign debt in recent years has caused uncertainty and disruption for financial
markets globally. Continued uncertainties loom over the outcome the EU’s financial support programs and the possibility exists
that other EU member states may experience similar financial troubles in the future. Any negative impact on economic conditions
and global markets from further EU sovereign debt matters could adversely affect our business, financial condition and liquidity.
Our businesses and earnings are affected by the fiscal and other policies adopted by various regulatory authorities of the
United States, non-U.S. governments, and international agencies. The Fed regulates the supply of money and credit in the United
States. 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 ongoing less than optimal
economic environment, and ongoing concerns regarding municipal issuer credit quality. If these trends continue or worsen, investor
concerns could potentially reduce the number and size of transactions in which we participate and in turn reduce investment
banking revenues. In addition such factors could adversely affect the value of the municipal securities we hold in our trading
securities portfolio.
RJ Bank is particularly affected by economic conditions in North America. United States and/or Canadian factors which are
indicative of market conditions include: 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 factors 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.
16
Index
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 by 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 one of our credit agreements and 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 (see Note 18 of the Notes to Consolidated Financial Statements in this Form 10-
K for such information as of September 30, 2013).
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, the FDIC, and the SEC (via FINRA) have the authority, and under certain
circumstances the duty, to prohibit or to limit the payment of dividends by the subsidiaries to their parent, for the subsidiaries 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.
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.
17
Index
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.
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 MBS, collateralized mortgage obligations, auction rate securities, and other
municipal securities.
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.
18
Index
Declines in the real estate market or sustained economic downturns may cause us to 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 lower fee revenue 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 were to experience the loss of managed accounts, our fee revenue
would 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.
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.
19
Index
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 EU sovereign debt circumstances. 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 have a material adverse affect on
our results of operations.
We have experienced increased pricing pressures in areas of our business which may impair our future revenue and
profitability.
Our business continues to experience 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.
We may not realize cost savings or other benefits that we anticipated in connection with our acquisition of Morgan Keegan.
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 the failure to achieve anticipated synergies or to realize the
projected benefits of the transaction; potential loss of clients or key employees, and the inability to sustain revenue and earnings
growth. Even though during the year ended September 30, 2013 we successfully completed the integration of its businesses into
those of RJ&A, there is no assurance that the net results of this acquisition over time will yield all of the positive benefits anticipated.
If we are not successful in any or all of these areas, 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 continue to indemnify RJF with respect to certain
litigation as well as other matters. RJF is relying on Regions to continue 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.
Integrating acquired businesses, providing a platform for new businesses and partnering with other firms involve a number
of risks and present financial, managerial and operational challenges. 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.
20
Index
Expansion may also create a need for additional compliance, documentation, risk management and internal control 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.
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. We also compete indirectly for investment
assets with insurance companies, real estate firms, hedge funds, and others. This competition could cause our business to suffer.
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.
Our ability to attract and retain qualified financial advisors and other associates is critical to the continued success of
our business.
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.
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 significant resources to attracting and retaining
qualified personnel. To the extent we have compensation targets, we may not be able to retain our employees which could result
in increased recruiting expense or result in our recruiting additional employees at compensation levels that are within our target
range. 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 and other key personnel.
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.
21
Index
We are exposed to operational risk.
Our diverse operations expose us to risk of loss resulting from inadequate or failed internal processes, people and systems,
external events, including technological or connectivity failures either at the exchanges in which we do business or between our
data center, operations processing sites or our branches. 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, or failure to meet corporate fiduciary standards.
It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent this activity may not be
effective in all cases. If our employees engage in misconduct, our businesses would be adversely affected. Operational risk also
exists in the event of business disruption, system failures or failed transaction processing. Third parties with which we do business
could also be a source of operational risk, including with respect to breakdowns or failures of the systems or misconduct by the
employees of such parties. In addition as we change processes or introduce new products and services, we may not fully appreciate
or identify new operational risks that may arise from such changes. Increasing use of automated technology has the potential to
amplify risks from manual or system processing errors, including outsourced operations.
Our business contingency plan in place is intended to ensure we have the ability to recover our critical business functions and
supporting assets, including staff and technology, in the event of a business interruption. Despite the diligence we have applied
to the development and testing of our plans, due to unforeseen factors, our ability to conduct business may in any case be adversely
affected by a disruption involving physical site access, catastrophic events including weather related events, events involving
electrical, environmental or communications malfunctions, 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.
Our continued success depends, 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, violations of applicable privacy and other laws, and regulatory sanctions.
22
Index
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 cyber security incidents among financial services firms are on the rise, to-date we have
not experienced any material losses relating to cyber attacks or other information security breaches, however, 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 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 maintain 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 or slower system response time resulting in transactions not being
processed as quickly as our clients desire, resulting in client dissatisfaction.
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.
Certain of 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 and we are in process
of transitioning our information systems processing to our new information technology data center in the Denver, Colorado area
(see Item 2, “Properties” in this Form 10-K for further discussion), 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 in 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.
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, 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.
23
Index
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 arising prior to our acquisition
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 Auction Rate
Securities (“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.
24
Index
Our risk management and conflicts of interests 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.
25
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 several 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 some provisions remain subject to implementing regulations that are yet to be adopted 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 implementing 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 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 have or 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. There is also increased regulatory scrutiny (and related compliance costs) as we continue
to grow and surpass certain thresholds outlined in the Dodd-Frank Act. These include but are not limited to RJ Bank’s oversight
by the CFPB.
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, including
those related to market making and hedging activities, and the scope of permitted hedge fund and private equity fund investments
remain uncertain. It is unclear under the proposed rules whether some portion of our market making and related 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, could prohibit our participation and investment in certain securitization structures and could bar us from
sponsoring or investing in certain non-U.S. funds. Also, should regulators not exercise their authority to permit us to hold certain
investments, including those in illiquid private equity funds, beyond the minimum statutory divestment period, we could incur
substantial losses when we dispose of such investments. 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 and 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 SEC recently adopted amendments, most of which were effective October, 2013, to its financial responsibility rules,
including changes to the net capital rule, the customer protection rule, the record-keeping rules, and the notification rules applicable
to our broker-dealer subsidiaries. We are currently evaluating the impact of these amendments on our broker-dealer subsidiaries;
however, based on our current analyses, we do not believe they will have a material adverse effect on any of our broker-dealer
subsidiaries.
26
Index
The Basel III capital standards will impose additional capital and other requirements on us that could decrease our
competitiveness and profitability.
In July 2013, the OCC, the FRB and the FDIC released final U.S. Basel III regulatory capital rules implementing the global
regulatory capital reforms of Basel III and certain changes required by the Dodd-Frank Act. The rule increases the quantity and
quality of regulatory capital, establishes a capital conservation buffer, and makes selected changes to the calculation of risk-
weighted assets. The rule becomes effective for us January 1, 2015, subject to a transition period for several aspects of the rule,
including the new minimum capital ratio requirements, the capital conservation buffer, and the regulatory capital adjustments and
deductions. We are currently evaluating the impact of these rules on both RJ Bank and RJF. The increased capital requirements
could restrict our ability to grow during favorable market conditions or require us to raise additional capital. As a result, our
business, results of operations, financial condition or prospects could be adversely affected.
Failure to comply with regulatory capital requirements primarily applicable to RJF, RJ Bank or our broker-dealer
subsidiaries would significantly harm our business.
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 either RJF or 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. 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. 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.
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.
27
Index
We currently invest in selected private equity and merchant banking investments (see the description of this activity in the
“Other” 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.
We are subject to financial holding company regulatory reporting requirements including the maintenance of certain risk-
based regulatory capital levels that 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 level 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 regulated by the OCC, the Fed, the CFPB, and the
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 over the past several years 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 operations.
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.
28
Index
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.
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 approximately 878,000 square feet of
office space, the RJ Bank building which is a 42,000 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 warehouse space near the headquarters complex in St. Petersburg. During fiscal year 2011, we entered into
an agreement to purchase approximately 65 acres located in Pasco County, Florida, subject to the outcome of our due diligence.
Our due diligence review of this property is ongoing and we continue to consider the location for potential future expansion of
our offices in the Tampa Bay area. We also conduct operations in Michigan from our 85,000 square-foot building located on 13
acres we own in Southfield, Michigan. During fiscal year 2012, we acquired a three acre parcel of land in the Denver, Colorado
area on which we constructed a 40,000 square foot information technology data center that became operational as of July, 2013.
We also conduct operations from the former Morgan Keegan headquarters which is located in approximately 237,000 square feet
of leased office space in a 21-story office building in downtown Memphis, Tennessee.
We lease offices in various locations throughout the U.S. and in certain foreign countries. With the exception of a company-
owned RJ&A branch office building in Crystal River, Florida, and certain interests in real estate holdings held under Morgan
Properties, LLC which are insignificant in the aggregate, RJ&A branches are leased from third parties under leases that contain
various expiration dates through 2024. RJ Ltd. leases premises for its 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.
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. 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.
29
Index
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. In August 2013, the United
States District Court for the Western District of Tennessee approved the settlement of the class action and the derivative action
regarding the closed end funds for $62 million and $6 million, respectively. No other 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. A bench trial was held the week
of November 26, 2012, and on February 15, 2013, the Court ruled that MK & Co. had been negligent in a few discreet instances
and ordered it to repurchase ARS from 17 clients. The court imposed a fine of $100,500 and dismissed all other claims. 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.
The SEC and states of Missouri and Texas are investigating alleged securities law violations by MK & Co. in the underwriting
and sale of certain municipal bonds. An enforcement action was brought by the Missouri Secretary of State in April 2013, seeking
monetary penalties and other relief. In November 2013, the state dismissed this enforcement action and refiled the same claims
as a civil action in the Circuit Court for Boone County, Missouri. A civil action was brought by institutional investors of the bonds
on March 19, 2012, seeking a return of their investment and unspecified compensatory and punitive damages. A class action was
brought on behalf of retail purchasers of the bonds on September 4, 2012, seeking unspecified compensatory and punitive damages.
These actions are in the early stages.
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 stock purchase agreement.
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.
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.
30
Index
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 18, 2013 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
2013
2012
High
Low
High
Low
$
$
$
$
39.99
48.22
46.73
45.55
$
$
$
$
36.26
39.23
39.31
41.11
$
$
$
$
32.37
38.18
37.67
38.95
$
$
$
$
23.16
31.59
31.96
30.99
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
2013
2012
$
$
$
$
0.13
0.14
0.14
0.14
$
$
$
$
0.13
0.13
0.13
0.13
On August 22, 2013, our Board of Directors declared a quarterly dividend of $0.14 in cash per share of common stock which
was paid on October 15, 2013. Additionally, on November 21, 2013, our Board of Directors declared a quarterly dividend of $0.16
in cash per share of common stock, to be paid January 16, 2014 to shareholders of record on January 2, 2014.
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.
31
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, 2013:
October 1, 2012 – October 31, 2012
November 1, 2012 – November 30, 2012
December 1, 2012 – December 31, 2012
First quarter
January 1, 2013 – January 31, 2013
February 1, 2013 – February 28, 2013
March 1, 2013 – March 31, 2013
Second quarter
April 1, 2013 – April 30, 2013
May 1, 2013 – May 31, 2013
June 1, 2013 – June 30, 2013
Third quarter
July 1, 2013 – July 31, 2013
August 1, 2013 – August 31, 2013
September 1, 2013 – September 30, 2013
Fourth quarter
Fiscal year total
Number of
shares
purchased (1)
Average price
per share
48
37,482
183,115
220,645
24,328
2,050
3,208
29,586
5,928
23,532
552
30,012
9,637
17,489
282
27,408
307,651
$
$
$
$
$
$
$
$
$
36.73
36.78
37.63
37.48
39.01
41.23
35.90
38.83
44.40
41.52
41.93
42.10
43.31
42.97
39.77
43.06
38.56
(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, 2013, there is $49.4 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. We did not purchase any of our
shares in open market transactions during the year ended September 30, 2013.
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 subsidiaries (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
125,700 shares for a total of $4.7 million, for the fiscal year ended September 30, 2013.
We also repurchase shares when employees surrender shares as payment for option exercises or withholding taxes. During the fiscal
year ended September 30, 2013, there were 181,951 shares surrendered to us by employees for a total of $7.1 million as payment for
option exercises or withholding taxes.
32
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
Cash dividends per common share - declared
Financial condition:
Total assets
Long-term debt (4)
Shareholders’ equity
Shares outstanding (5)
Book value per share at end of year
Tangible book value per share at end of year (a non-
GAAP measure) (6)
Year ended September 30,
2013
2012
2011
2010
2009
(in thousands, except per share data)
$ 4,595,798
$ 3,897,900
$ 3,399,886
$ 2,979,516
$ 2,602,519
$ 4,485,427
$ 3,806,531
$ 3,334,056
$ 2,916,665
$ 2,545,566
$
$
$
$
367,154
2.64
2.58
$
$
$
295,869
2.22
2.20
$
$
$
278,353
2.20
2.19
$
$
$
228,283
1.83
1.83
137,732
130,806
122,448
119,335
140,541
131,791
122,836
119,592
0.56
$
0.52
$
0.52
$
0.44
$
$
$
$
152,750
1.25 (1)
1.25 (1)
117,188 (1)
117,288 (1)
0.44
$ 23,186,122
$ 21,160,265
$ 18,006,995
$ 17,883,081 (2)
$ 18,226,728 (3)
$ 1,239,855
$ 1,385,514
$
662,006
$
416,369
$
477,423
$ 3,662,924
$ 3,268,940
$ 2,587,619
$ 2,302,816
$ 2,032,463
138,750
26.40
23.86
$
$
136,076
24.02
21.42
$
$
123,273
20.99
20.45
$
$
121,041
19.03
18.49
$
$
118,799
17.11
16.56
$
$
(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 has been revised from the amounts initially reported, to reflect the amounts which
would have been presented had this accounting guidance been effective in that year.
(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) 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 (“VIE”) (which are non-recourse to us), Federal
Home Loan Bank (“FHLB”) advances, our mortgage loan, the minimum required outstanding balance on the New Regions Credit
Agreement (as hereinafter defined in Item 7 - Borrowings and Financing Arrangements in this Form 10-K), and the term debt of any joint
venture we consolidate.
(5) Excludes non-vested shares.
(6) 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 $9 million, $8 million and $6 million as of September 30, 2013, 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.
33
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
We operate as a financial services and bank holding company. Results in the 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 and
fixed income markets, the corporate and mortgage lending markets and commercial and residential credit trends. 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 market
participants which include investors, borrowers, and competitors, impacting their level of participation in the financial markets.
These factors also impact the level of public offerings, trading profits, interest rate volatility and asset valuations, or a combination
thereof. In turn, these decisions and factors affect our business results.
Year ended September 30, 2013 compared with the year ended September 30, 2012
We achieved record net revenues of $4.5 billion, a $679 million, or 18%, increase compared to the prior year. All four operating
segments achieved record net revenues and pre-tax earnings this fiscal year. Revenues were higher in fiscal year 2013 in part
because the results include twelve months of Morgan Keegan operations as compared to six months in fiscal year 2012. In addition,
fiscal year 2013 net revenues include a $65 million gain on a proprietary capital investment (a $22.7 million impact to RJF net
revenues after noncontrolling interests), which further elevated our revenues.
Our pre-tax income increased $93 million, or 20%, compared to the prior year, to $564 million. Excluding the acquisition
related expenses primarily resulting from the Morgan Keegan acquisition, we generated adjusted pre-tax income of $644 million
(a non-GAAP measure)(1), a 21% increase over the prior year. Earnings per share increased 17% over the prior year, to $2.58 per
share. Excluding the acquisition related expenses mentioned above, adjusted earnings per share (a non-GAAP measure)(1) increased
18%, to $2.95 per share.
All of our operating segments performed well during the year, as each achieved record levels of pre-tax income. Total client
assets under administration were a record $425.4 billion at September 30, 2013, a 10% increase over the prior year level. Non-
interest expenses increased $553 million, or 17%, primarily as a result of the inclusion of a full year of expenses from legacy
Morgan Keegan businesses. Increases in compensation related expenses, information technology expenses, and acquisition related
expenses were partially offset by a decrease in the bank loan loss provision.
Significant milestones achieved in fiscal year 2013 include the mid-February 2013 transfer of all of the Morgan Keegan
financial advisors and client accounts from the Morgan Keegan platform to the RJ&A platform. Following that conversion and
allowing time for the former Morgan Keegan financial advisors to become proficient in the use of the RJ&A platform, in the June
2013 quarter we implemented staff reductions. These reductions occurred mainly within our information technology groups where
there was significant overlap in historic Morgan Keegan and RJ&A support staffing that we had elected to maintain through the
platform conversion date in order to ensure the continued high levels of service to financial advisors and clients while we operated
on two different platforms. Retention levels remain very high for the legacy Morgan Keegan financial advisors. The Morgan
Keegan Capital Markets businesses were also integrated (primarily fixed income and public finance investment banking) during
the year, and further staff reductions were made. Given these accomplishments, as of September 30, 2013 our various Morgan
Keegan integration initiatives have been substantially and successfully completed.
(1) Refer to the discussion and reconciliation of the GAAP results to the non-GAAP results in the “Non-GAAP Reconciliation” section of
this MD&A.
34
Index
A summary of the most significant items impacting our financial results as compared to the prior year, in addition to the impact
of twelve months of Morgan Keegan operations in the current year compared to six months in the prior year, are as follows:
• Our Private Client Group segment generated net revenues of $2.9 billion, an 18% increase, while pre-tax income increased
7% to $230 million. The increase in revenues is primarily attributable to increased securities commissions and fee
revenues, predominately arising from fee-based accounts. Pre-tax income was negatively impacted by an increase in
commission expenses (driven primarily by the increase in corresponding commission revenues) as well as an increase
in communication and information processing expense. Client assets under administration of the Private Client Group
increased 9% over the prior year, to $402.6 billion at September 30, 2013.
• The Capital Markets segment generated net revenues of $927 million, a 15% increase, while pre-tax income increased
35% to $102 million. We experienced significant increases in institutional fixed income commission revenues, merger
and acquisition fees, and fixed income investment banking revenues. Equity capital markets commission levels increased
as a result of improved equity market conditions. Results from our equity capital markets investment banking business
have been uneven throughout the year, characterized by intermittent periods of significant activity, and ending the year
with strong results. Our fixed income operations improved overall, but were negatively impacted during times of adverse
fixed income market conditions. These adverse conditions resulted from medium and longer term interest rate volatility,
which negatively impacted our trading results.
• Our Asset Management segment generated revenues of $293 million, a 23% increase, while pre-tax income increased
43% to $96 million. Assets under management in managed programs increased 31% to a record $56 billion as of
September 30, 2013. Strong net inflows of client assets in managed programs, including from legacy MK & Co. branches,
market appreciation, and our acquisition of an interest in ClariVest, contributed to the increase.
• RJ Bank generated $268 million in pre-tax income, an 11%, increase. The increase resulted primarily from the significant
decrease in the loan loss provision expense and an increase in net interest income. The decrease in the loan loss provision
expense resulted from an improved credit environment, the favorable resolution of certain problem loans, and a significant
reduction in residential mortgage delinquent loans. The increase in net interest income was primarily the result of an
increase in average loans outstanding.
•
In our non-operating Other segment, our results reflect a $6 million increase in our pre-tax loss. This segment includes
certain corporate expenses, our principal capital and our private equity activities. Our results were favorably impacted
by the sale of our indirect investment in Albion Medical Holdings, Inc. (“Albion”) in April, 2013. The Albion investment
generated an increase of $18 million in pre-tax income (net of noncontrolling interests). We also experienced other less
significant increases on other investments in our private equity portfolio. Those increases were more than offset by
additional acquisition and integration related costs incurred from the Morgan Keegan acquisition, and a full year’s interest
expense associated with debt financings executed in March 2012 to finance a portion of the acquisition.
• Our earnings benefited from a favorable effective tax rate in fiscal year 2013. Our effective tax rate in fiscal year 2013
decreased to 34.9% from 37.3% in fiscal year 2012. The tax rate decrease primarily resulted from a nonrecurring tax
benefit resulting from a change in management’s repatriation strategy of certain foreign earnings as well as a significant
increase in nontaxable income associated with the change in market value of company-owned life insurance.
With regard to regulatory changes that could impact our businesses in the future, our view of the potential impact to us of
future regulations is substantially unchanged by the regulatory activities that occurred during the year. 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 direct impact on our operations as a whole. However, because some of the implementing regulations
have yet to be adopted by various regulatory agencies, the specific impact on some of our businesses remains uncertain.
35
Index
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. Regarding 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. Total client assets
under administration increased to $386 billion, a 51% 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 fiscal year 2012 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) (1) in fiscal
year 2012. After adjusting fiscal year 2011 for the effect of the nonrecurring loss on auction rate securities repurchased, we
generated adjusted pre-tax income of $503 million (a non-GAAP measure) (1), reflecting an increase in adjusted pre-tax income
(a non-GAAP measure) (1) of $30 million, or 6%, in fiscal year 2012 as compared to the prior year.
Our financial results during fiscal year 2012 were most significantly impacted by:
• Our Private Client Group segment generated net revenues of $2.5 billion in fiscal year 2012, a 13% increase over the
prior year. Pre-tax income of $215 million represents a 2% 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 19% growth in legacy RJF private client assets. Fiscal year 2012’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.
(1) Refer to the discussion and reconciliation of the GAAP results to the non-GAAP results in the “Non-GAAP Reconciliation” section of
this MD&A.
36
Index
• The Capital Markets segment realized a $7 million, or 8%, decrease in pre-tax income. After adjusting for the adverse
impact of the emerging markets businesses, the segment generated an increase in pre-tax income of $5 million, or 6%,
as compared to the prior year, this 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 equity underwriting fee revenues. A decrease in fiscal year 2012 equity capital
markets activity in Canada, which had a particularly strong prior year, also had a significant negative impact on our fiscal
year 2012 segment results.
• Our Asset Management segment generated $67 million of pre-tax income in fiscal year 2012, 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.
• 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.
•
In our non-operating Other segment, our results reflect a $127 million pre-tax loss. This segment includes our principal
capital and private equity activities which produced pre-tax income of $15 million (after consideration of the attribution
to noncontrolling interests) generated by income received and positive valuation adjustments arising from certain of our
investments in that portfolio. The segment also includes $59 million of acquisition and integration related costs we
incurred in fiscal year 2012 that were associated with the Morgan Keegan acquisition, as well as $62 million of interest
expense. The interest expense includes additional interest expense resulting from March 2012 financings to fund a portion
of the Morgan Keegan acquisition.
• Our effective tax rate in fiscal year 2012 decreased to 37.3% from the prior year rate of 39.7%, primarily resulting from
gains realized in fiscal year 2012 (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.
37
Index
Segments
Effective September 30, 2013, we implemented changes in our reportable segments. The changes are a result of management’s
assessment of the usefulness and materiality of certain of our historic reportable segments. The effect of the change is that we
now report the following five business segments: Private Client Group; Capital Markets; Asset Management; RJ Bank; and the
Other segment. Prior period amounts related to the change in reportable segments have been reclassified to conform to the current
presentation.
The following table presents our consolidated and segment gross revenues and pre-tax income, excluding noncontrolling
interests, for the years indicated:
2013
Year ended September 30,
2012
(in thousands)
2011
Total company
Revenues
Pre-tax income excluding noncontrolling interests
$
4,595,798
564,187
$
3,897,900
471,525
$
3,399,886
461,247
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
Other
Revenues
Pre-tax loss
Intersegment eliminations
Revenues
2,930,603
230,315
2,484,670
215,091
2,192,422
220,299
945,477
102,171
820,852
75,755
707,460
82,521
292,817
96,300
237,224
67,241
226,511
66,176
356,130
267,714
345,693
240,158
281,992
172,993
126,401
(132,313)
58,412
(126,720)
27,329
(80,742)
(55,630)
(48,951)
(35,828)
38
Index
Reconciliation of the GAAP results to the non-GAAP measures
We believe that the non-GAAP measures provide useful information by excluding those items that may not be indicative of
our core operating results and that the GAAP and the non-GAAP measures should be considered together.
The non-GAAP adjustments for the periods indicated are comprised of the one-time acquisition and integration costs incurred
(primarily associated with the Morgan Keegan acquisition) and other non-recurring expenses, net of applicable taxes. Refer to
the footnotes to the table below for further explanation of each non-recurring item.
The following table provides a reconciliation of the GAAP basis to the non-GAAP measures:
Year ended September 30,
2013
2012
($ in thousands, except per share amounts)
367,154
295,869
$
$
2011
278,353
Net income attributable to RJF, Inc. - GAAP basis
$
Non-GAAP adjustments :
Acquisition related expenses (1)
RJF’s share of RJES goodwill impairment expense (2)
RJES restructuring expense (3)
Interest expense (4)
Loss on auction rate securities repurchased (5)
Pre-tax non-GAAP adjustments
Tax effect of non-GAAP adjustments (6)
73,454
4,564
1,902
—
—
79,920
(27,908)
59,284
—
—
1,738
—
61,022
(22,731)
Net income attributable to RJF, Inc. - Non-GAAP basis
$
419,166
$
334,160
$
Non-GAAP adjustments to common shares outstanding:
Effect of the February 2012 share issuance on weighted average
common shares outstanding (7)
Non-GAAP earnings per common share:
Non-GAAP basic
Non-GAAP diluted
Average equity - GAAP basis (8)
Average equity - non-GAAP basis (9)
Return on equity
Return on equity - non-GAAP basis (10)
$
$
$
$
—
3.01
2.95
3,465,323
3,483,531
10.6%
12.0%
$
$
$
$
(1,396)
2.53
2.51
3,037,789
3,027,259
9.7%
11.0%
$
$
$
$
—
—
—
—
41,391
41,391
(16,412)
303,332
—
2.40
2.39
2,472,726
2,477,722
11.3%
12.2%
(1) The non-GAAP adjustment adds back to pre-tax income one-time acquisition and integration expenses associated with acquisitions that
were incurred during each respective period.
(2) The non-GAAP adjustment adds back to pre-tax income RJF’s share of the total goodwill impairment expense associated with our RJES
reporting unit. See further discussion of this impairment expense in the Goodwill section of this Item 7 and in Note 13 of the Notes to
Consolidated Financial Statements in this Form 10-K.
(3) The non-GAAP adjustment adds back to pre-tax income restructuring expenses associated with our RJES operations.
(4) The non-GAAP adjustment adds back to pre-tax income the incremental interest expense incurred during the March 31, 2012 quarter on
debt financings that occurred in March 2012, prior to and in anticipation of, the closing of the Morgan Keegan acquisition.
(5) The non-GAAP adjustment adds back to pre-tax income the loss associated with the resolution of the ARS matter.
(6) The non-GAAP adjustment reduces net income for the income tax effect of all the pre-tax non-GAAP adjustments, utilizing the effective
tax rate applicable to the respective year.
(7) The non-GAAP adjustment to the weighted average common shares outstanding in the basic and diluted non-GAAP earnings per share
computation reduces the actual shares outstanding for the effect of the 11,075,000 common shares issued by RJF in February 2012 as a
component of our financing of the Morgan Keegan acquisition.
(8) Computed by adding the total equity attributable to RJF, Inc. as of each quarter-end date during the indicated year to date period, plus the
beginning of the year total, divided by five.
(9) The calculation of non-GAAP average equity includes the impact on equity of the non-GAAP adjustments described in the table above, as
applicable for each respective period.
(10) Computed by utilizing the net income attributable to RJF, Inc.-non-GAAP basis and the average equity-non-GAAP basis, for each respective
period. See footnote (9) above for the calculation of average equity-non-GAAP basis.
39
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 (refer to the table in Item 7a - Interest Rate Risk in this
Form 10-K, which presents an analysis of RJ Bank’s estimated net interest income over a 12 month period based on instantaneous
shifts in interest rates using RJ Bank’s own internal asset/liability model).
Based upon our analysis, we estimate that a 100 basis point instantaneous rise in short-term interest rates could result in an
increase in our pre-tax income in the range of approximately $140 million to $170 million over a twelve month period.
Approximately half of such an increase would be attributable to account and service fee revenues (resulting from an increase in
the fees generated in lieu of interest income from our multi-bank sweep program with unaffiliated banks and the discontinuance
of money market fee waivers) which are reported in the PCG segment, and the remaining portion of the increase attributable to
net interest income reported in both our PCG and RJ Bank segments. This estimate is based on static balances as of September
30, 2013 and conservative assumptions related to interest rates earned by clients on their cash balances in various interest rate
environments. The actual amount of any increase we would realize in the future will ultimately be based on a number of factors
including but not limited to, the actual change in balances, the rapidity and magnitude of the increase in interest rates, the competitive
landscape at such time, and the returns on comparable investments which will factor into the interest rates we pay on client cash
balances. The vast majority of any incremental benefit to pre-tax income from a rise in short-term interest rates would be expected
to arise from the first 100 basis point increase, as we presume that a significant portion of any further incremental increase in
short-term interest rates would be passed along to clients, and thus such additional interest revenues and interest sensitive fees
would be offset by increases of similar amounts in our interest expense.
40
Index
The following table presents our consolidated average interest-earning asset and liability balances, interest income and expense
balances, and the average yield/cost, for the years indicated:
2013
Average
balance(1)
Interest
inc./exp.
Average
yield/
cost
Year ended September 30,
2012
2011
Average
balance(1)
Interest
inc./exp.
($ in thousands)
Average
yield/
cost
Average
balance(1)
Interest
inc./exp.
Average
yield/
cost
$ 1,775,251
$ 60,931
3.43% $ 1,695,197
$ 60,104
3.55% $ 1,495,931
$ 52,361
3.50%
3,554,917
17,251
0.49%
3,236,290
16,050
0.50%
2,480,244
16,343
0.66%
8,605,013
335,964
3.90%
7,501,832
319,211
4.26%
6,291,748
270,057
4.29%
739,976
742,991
349,285
8,005
20,089
8,271
1.08%
2.70%
2.37%
659,053
764,365
577,879
9,076
20,977
9,110
1.38%
2.74%
1.58%
402,229
598,155
649,529
10,815
20,549
6,035
2.69%
3.44%
0.93%
421,645
6,510
1.54%
342,858
4,797
1.40%
225,461
4,688
2.08%
3,076,912
$19,265,990
16,578
$473,599
0.54%
2,415,466
2.46% $17,192,940
13,933
$453,258
0.58%
2,129,560
2.64% $14,272,857
11,470
$392,318
0.54%
2.75%
$ 4,866,091
9,133,260
2,049
9,032
0.04% $ 4,258,197
8,032,768
0.10%
$
2,213
9,484
0.05% $ 3,456,009
6,967,727
0.12%
$
3,422
12,543
0.10%
0.18%
241,334
125,507
361,317
1,148,759
3,595
2,158
4,724
76,113
1.49%
1.72%
1.31%
6.63%
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
70,325
336,226
$16,282,819
3,959
8,741
$110,371
88,762
5.63%
2.60%
282,359
0.68% $14,190,847
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
$363,228
$361,889
$326,488
2.23%
0.81%
2.98%
6.62%
5.73%
5.02%
0.57%
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
Loans to financial
advisors (3)
Corporate cash and all
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.
41
Index
Year ended September 30, 2013 compared with the year ended September 30, 2012 – Net Interest Analysis
Net interest income was relatively unchanged as compared to the prior year level. 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 was also relatively unchanged as compared to the prior year. In the historically low
rate interest environment that existed during fiscal year 2013, we earned a historically low interest spread on client cash balances,
thus we experienced only a nominal favorable impact on our net interest revenues despite increases in client balances outstanding.
RJ Bank’s net interest income increased $17 million, or 5%, primarily as a result of an increase in average loans outstanding,
partially offset by a decrease in net interest margin. 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 from the prior year due to significantly lower
yields on the portfolio which more than offset the increase resulting from higher investment balances. The average balance of the
portfolio increased primarily as a result of the ARS we acquired halfway through the prior year as a part of the Morgan Keegan
acquisition. Given the significantly lower yields from these securities, the weighted-average yield on the total available for sale
securities portfolio declined.
Interest expense on our senior notes increased approximately $18 million over the prior year. The increase primarily results
from our March 2012 issuances of $350 million 6.9% senior notes and $250 million 5.625% senior notes. Both of the March
2012 debt offerings were part of our acquisition financing activities and other transactions associated with the Morgan Keegan
acquisition.
Year ended September 30, 2012 compared with the year ended September 30, 2011 – Net Interest Analysis
Net interest income in fiscal year 2012 increased $35 million, or 11%, as compared to the prior year.
Net interest income in the PCG segment increased $13 million, or 18%, 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 in fiscal year 2012 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 in fiscal year 2012 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 as well as the ARS we acquired in the Morgan Keegan transaction.
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 in fiscal year 2012 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 fiscal year 2012 associated with our
April 2011 issuance of $250 million 4.25% senior notes. Both of the March 2012 debt offerings were part of our financing activities
associated with funding the Morgan Keegan acquisition which closed on April 2, 2012.
42
Index
Results of Operations – Private Client Group
The following table presents consolidated financial information for our PCG segment for the years indicated:
2013
% change
% change
2011
Year ended September 30,
2012
($ in thousands)
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
$
289,395
10 % $
263,578
(5)% $
276,562
98,994
621,459
1,016,340
338,666
90,747
2,455,601
96,926
162,283
168,055
16,932
3,059
282
350,611
27,465
2,930,603
11,625
2,918,978
1,765,933
481,253
163,125
113,573
65,679
99,100
2,688,663
230,315
—
18 %
21 %
26 %
12 %
10 %
19 %
1 %
9 %
23 %
(21)%
9 %
29 %
13 %
21 %
18 %
83,698
514,146
808,361
303,628
82,811
2,056,222
95,866
148,873
136,514
21,547
2,812
219
309,965
22,617
2,484,670
39 %
12 %
18 %
16 %
10 %
13 %
17 %
20 %
24 %
(37)%
(19)%
2 %
14 %
9 %
13 %
60,193
458,555
685,672
261,045
75,590
1,817,617
82,272
123,674
110,281
34,162
3,454
215
271,786
20,747
2,192,422
5 %
18 %
11,039
2,473,631
5 %
13 %
10,548
2,181,874
18 %
14 %
43 %
19 %
—
38 %
19 %
1,491,286
420,553
113,931
95,551
65,505
71,714
2,258,540
12 %
22 %
62 %
24 %
18 %
(13)%
15 %
1,332,207
344,063
70,472
77,186
55,542
82,445
1,961,915
7 %
215,091
(2)%
219,959
—
(340)
$
230,315
7 % $
215,091
(2)% $
220,299
7.9%
8.7%
10.1%
43
Index
The following table presents a summary of PCG financial advisors as of the periods indicated:
RJ&A
MK & Co. (2)
RJFS
RJ Ltd.
RJIS
Total financial advisors
Employees
Independent
contractors
September 30, 2013
total
September 30, 2012
total(1)
2,443
—
—
176
—
2,619
—
—
3,275
230
73
3,578
2,443
—
3,275
406
73
6,197
1,594
892
3,220
438
66
6,210
(1) As of September 30, 2013 we refined the criteria to determine our financial advisor population. The prior year counts have been revised to
provide consistency in the application of our current criteria.
(2) We acquired Morgan Keegan on April 2, 2012. We successfully integrated the PCG operations of MK & Co. onto the RJ&A platform in
February 2013. At that time, 863 financial advisors of MK & Co. became RJ&A financial advisors.
The following table presents a summary of PCG branch locations as of the periods indicated:
RJ&A
MK & Co. (2)
RJFS
RJ Ltd.
RJIS
Total branch locations
Traditional
branches
Satellite
offices
Independent
contractor
branches
September 30, 2013
total
September 30, 2012
total(1)
242
—
—
12
—
254
107
—
572
24
—
703
—
—
1,433
86
42
1,561
349
—
2,005
122
42
2,518
228
139
1,996
122
39
2,524
(1) As of September 30, 2013 we no longer include investment advisor representative branches as part of our branch count. The prior year
counts have been revised to provide consistency in the application of our current criteria.
(2) We acquired Morgan Keegan on April 2, 2012. We successfully integrated the PCG operations of MK & Co. onto the RJ&A platform in
February 2013.
Year ended September 30, 2013 compared with the year ended September 30, 2012 – Private Client Group
Net revenues increased $445 million, or 18%, while pre-tax income increased $15 million, or 7%. PCG’s pre-tax margin on
net revenues decreased to 7.9% as compared to 8.7% in fiscal year 2012.
A full year of MK & Co. private client group operations are included in the current year results as compared to six months
in fiscal year 2012. Therefore, comparisons of our legacy private client group operations to our current operations are not
meaningful. As of mid-February 2013, all of the MK & Co. financial advisors and client accounts from the MK & Co. platform
were transferred to, and integrated with, the RJ&A platform.
Securities commissions and fees increased $399 million, or 19%. A significant portion of this increase resulted from our
acquisition of Morgan Keegan on April 2, 2012, which brought over 900 financial advisors into PCG, 863 of whom were retained
through the February 2013 integration of the Morgan Keegan operations into those of RJ&A. Securities commissions and fee
revenues generated by our Canadian operations increased 6% over the prior year. Despite a small decrease in the total number of
PCG financial advisors at September 30, 2013 compared to September 30, 2012, the average productivity per financial advisor
for the same comparable period has increased 9%. Client assets under administration of $402.6 billion in the PCG segment
increased $34.9 billion, or 9%, as compared to September 30, 2012, primarily resulting from equity market appreciation in the
U.S.
Client account and service fee revenues increased $13 million, or 9%, over the prior year. The increase primarily results from
an increase in the fees we receive, in lieu of interest earnings, from our multi-bank sweep program. Balances in this program
increased primarily as a result of the transfer of MK & Co. client accounts to the Raymond James program. Additional MK &
Co. client accounts also resulted in an increase in service fee income, which increased as a result of the additional client account
volume. In addition, we realized an increase in fees resulting from assets invested in alternative investment funds.
44
Index
Mutual fund and annuity service fees increased $32 million, or 23%, primarily as a result of an increase in mutual fund omnibus
fees, education and marketing support (“EMS”) fees, and no-transaction-fee (“NTF”) program revenues, all of which are paid to
us by the mutual fund companies whose products we distribute. In addition to an increase in the mutual fund assets on which
these fees are generally paid, during the past year we implemented changes in the data sharing arrangements with many mutual
fund companies, converting from a 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 offsetting increased costs we have incurred to third parties to provide the
additional information is included in communications and information processing expenses discussed below. Effective with our
mid-February 2013 platform integration, the former Morgan Keegan client mutual fund investments became eligible for our
omnibus and EMS programs, further increasing this revenue.
Partially offsetting the increases in revenues described in the preceding two paragraphs, client transaction fees decreased $5
million, or 21%, primarily as a result of certain mutual fund relationships converting over the past year to a NTF program and an
April 2012 reduction in transaction fees associated with certain non-managed fee-based accounts. Under the mutual fund NTF
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.
Other revenues increased by $5 million, or 21%, primarily as a result of spreads earned on cross-currency transactions within
our Canadian operations.
Total segment revenues increased 18%. The portion of total segment revenues that we consider to be recurring is approximately
68% at September 30, 2013, as contrasted to the September 30, 2012 level of 64%. Recurring commission and fee revenues
include asset based fees, trailing commissions from mutual funds and variable annuities/insurance products, mutual fund service
fees, fees earned on funds in our multi-bank sweep program, and interest. Assets in fee-based accounts as of September 30, 2013
were $140 billion (a majority of which is included in our asset management programs) an increase of 21% as compared to the
$116 billion of assets in fee-based accounts at September 30, 2012.
The amount of net interest in the PCG segment was nearly unchanged from the prior year level. Increases in client margin
balances and client cash balances outstanding over the year were nearly completely offset by further decreases in interest rates.
As a result of the extremely low rate interest environment that existed during fiscal year 2013, there was only a nominal impact
on our net interest revenues resulting from the client cash balance increase as the interest spread earned on client balances were
at historically low levels. Refer to the discussion of how the pre-tax income of this segment could be favorably impacted by a
100 basis point instantaneous rise in short-term interest rates, in the net interest section of this MD&A.
Non-interest expenses increased $430 million, or 19%, over the prior year. Sales commission expense increased $275 million,
or 18%, consistent with the 19% increase in commission and fee revenues. Administrative and incentive compensation expenses
increased $61 million, or 14%. This increase resulted primarily from the impact of a full year of salaries and benefits expense
associated with the increased support staff and information technology and operations headcount arising from the addition of the
Morgan Keegan associates.
Communications and information processing expense increased $49 million, or 43%. Computer software development costs
and other information technology related costs, which include consulting expenses, increased over $42 million as compared to
the prior year as a result of various information technology enhancements to existing platforms, costs associated with operating
two platforms for a portion of the year, additional reporting requirements including regulatory requirements, and expenses
associated with omnibus arrangements (refer to the increase in mutual fund and annuity service fee revenue arising from these
arrangements discussed above).
Occupancy and equipment expense increased $18 million, or 19%, primarily due to a full year’s rent and other facility related
expenses associated with the increase of approximately 140 branch office locations resulting from the Morgan Keegan acquisition.
Clearance and other expenses increased $27 million, or 38%. These expense increases can generally be attributed to clearing
and floor brokerage expenses resulting from the additional volume of client accounts and transactions arising from the Morgan
Keegan acquisition, growth in our legacy operations, and the application of differing clearing charge allocation methodologies
between segments than within the historic MK & Co. operations, which impacts prior year comparisons.
45
Index
Year ended September 30, 2012 compared with the year ended September 30, 2011 – Private Client Group
Net revenues in fiscal year 2012 increased $292 million, or 13%, over the prior year. PCG pre-tax income decreased $5
million, or 2%, as compared to the prior year. PCG’s pre-tax margin on net revenues decreased to 8.7% as compared to 10.1% in
fiscal year 2011.
The PCG business of the Morgan Keegan broker-dealer operated on its historic Morgan Keegan platform throughout fiscal
year 2012. 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 in fiscal year 2012, or 13%, over the prior year amount. A significant
portion of this increase resulted 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 September 30, 2011 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 in fiscal year 2012, 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.
Mutual fund and annuity service fees increased $26 million in fiscal year 2012, or 24%, over the prior year primarily as a
result of an increase in mutual fund networking and omnibus fees, EMS fees, and NTF 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 fiscal year 2011. 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 in fiscal year 2012,
or 37%, compared to the prior year primarily as a result of certain mutual fund relationships converting over the past year to a
NTF program and an April 2012 reduction in transaction fees associated with certain non-managed fee-based accounts. Under
the mutual fund NTF 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 year ended
September 30, 2011. 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 $115.7 billion, an increase of 35% as compared to the $85.5
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 $13 million in fiscal year 2012, or 18%, over the prior year 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.
46
Index
Non-interest expenses increased $297 million in fiscal year 2012, 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 in fiscal year 2012, or 62%, over the prior year
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 in fiscal year 2012, or 24%, over the prior year primarily due to
the increase of approximately 140 branch office locations resulting from the Morgan Keegan acquisition.
Business development expense increased $10 million in fiscal year 2012, or 18%, over the prior year 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 $11 million in fiscal year 2012, or
13%, compared to the prior year 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.
47
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
Equity underwriting fees
Fixed income investment banking revenues
Mergers & acquisitions fees
Tax credit funds syndication fees
Private placement fees
Trading profit
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
Losses of real estate partnerships held by consolidated
variable interest entities
Impairment of goodwill associated with RJES
Clearance and other
Total non-interest expenses
Income before taxes and including noncontrolling
interests
Noncontrolling interests
$
2013
246,588
326,792
573,380
84,099
48,133
115,366
25,272
14,249
28,117
22,145
34,716
945,477
18,069
927,408
222,424
428,215
65,728
36,435
39,308
26,180
6,933
34,199
859,422
67,986
(34,185)
% change
Year ended September 30,
2012
($ in thousands)
% change
7 % $
22 %
15 %
14 %
30 %
64 %
(20)%
29 %
(44)%
(3)%
30 %
15 %
11 %
15 %
22 %
10 %
13 %
14 %
3 %
27 %
NM
(18)%
13 %
57 %
230,080
266,884
496,964
73,976
36,987
70,226
31,693
11,005
50,426
22,930
26,645
820,852
16,289
804,563
181,809
388,755
58,305
31,865
38,019
20,579
—
41,852
761,184
43,379
(32,376)
75,755
(12)% $
109 %
28 %
(35)%
130 %
(16)%
(12)%
467 %
108 %
—
30 %
16 %
(3)%
16 %
34 %
15 %
27 %
29 %
5 %
20 %
—
36 %
21 %
(29)%
(8)% $
2011
261,321
127,436
388,757
113,751
16,070
83,131
36,062
1,940
24,230
22,962
20,557
707,460
16,796
690,664
135,187
339,181
46,050
24,701
36,279
17,166
—
30,694
629,258
61,406
(21,115)
82,521
Pre-tax income excluding noncontrolling interests $
102,171
35 % $
Year ended September 30, 2013 compared with the year ended September 30, 2012 – Capital Markets
Pre-tax income in the Capital Markets segment increased $26 million, or 35%, over the prior year.
Certain of the Capital Markets businesses of Morgan Keegan were immediately integrated into RJ&A’s operations on the date
of acquisition. Other Morgan Keegan Capital Markets businesses were integrated into RJ&A over time and were completed by
mid-February 2013. A full year of Morgan Keegan equity capital markets and fixed income operations are included in the current
year results, as compared to only six months in fiscal year 2012, impacting comparisons of our legacy capital markets results,
especially fixed income operations, to our current results.
48
Index
Our fixed income revenues were significantly higher for the current year as compared to the prior year primarily due to the
inclusion of a full year’s Morgan Keegan results. 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.
Net revenues increased by $123 million, or 15%. Total institutional sales commissions increased 15% over the prior year.
Equity institutional sales commissions increased $17 million, or 7%, primarily due to improved equity market conditions. The
$60 million, or 22%, increase in fixed income institutional sales commissions over the prior year is primarily due to the increased
size of our fixed income operations after the Morgan Keegan acquisition and the inclusion of twelve months of the combined
entities operations in the current year as compared to only six months in the prior year. Our significantly larger public finance
fixed income operations as a result of the Morgan Keegan acquisition favorably impacted both our investment banking revenues
and our securities commissions and fees.
The number of lead and co-managed equity underwritings, as well as merger & acquisition transactions, during the current
year increased significantly in our U.S. operations as compared to the prior year. In the latter part of the first quarter of our fiscal
2013, concerns related to the then pending fiscal cliff crisis had, at least in part, a favorable impact on our equity capital markets
business as underwriting and merger and acquisition activity improved significantly as issuers sought to complete certain equity
transactions in advance of any anticipated tax law changes. The activity levels experienced in the first quarter of fiscal year 2013
slowed considerably thereafter until a very active fourth quarter. For the year, the sectors in which we generated the most significant
amounts of merger and acquisition fees were technology services, energy, technology, financial services, healthcare, and general
industrials. Capital markets activities in our Canadian operations have remained sluggish throughout the year, continuing to reflect
the adverse market conditions which existed throughout the prior fiscal year, particularly in the businesses in which we focus such
as natural resources.
The primary contributor to our fixed income investment banking revenues is our public finance investment banking operations.
The volume of our lead and co-managed public finance underwritings increased significantly over the prior year. This favorable
comparison is in part due to the positive impact of the inclusion of the public finance operations we acquired from Morgan Keegan
in our results for an entire year.
The decrease in tax credit syndication fee revenues results from an increase in the amount of fee revenues that have been
deferred, to be recognized at later dates upon completion of certain revenue recognition criteria. The volume of tax credit fund
partnership interests sold during the current year is slightly higher than in the prior year.
Despite our increase in fixed income trading capacity resulting from the Morgan Keegan acquisition, our trading profit results
for the year, while positive overall, have been unfavorably impacted by adverse conditions in the municipal fixed income market.
This market has been impacted during the current year by a number of factors. Municipal fixed income markets were negatively
impacted during first quarter by discussions and rumors regarding potential changes in the tax laws pertaining to limits, or caps,
on the tax-exempt advantages of municipal fixed income instruments (the “fiscal cliff”). In response to these uncertainties, interest
rates on municipal securities increased during December 2012, which negatively impacted our trading results. During the third
quarter, the 10-year benchmark interest rate increased over 60 basis points in a very short period of time (May through June 30,
2013), resulting in very little demand for municipal fixed income securities in the market and valuation losses on municipal
securities held in inventory, which negatively impacted our third quarter trading results. During the fourth quarter interest rates
retreated somewhat back to their early May 2013 levels, and our trading results were strong, especially in municipal products,
during that period. All of these factors, considered in conjunction with what were strong municipal fixed income trading results
in the prior year, resulted in unfavorable trading profits in year-over-year comparisons.
49
Index
Non-interest expenses increased $98 million, or 13%, over the prior year primarily driven by the inclusion of twelve months
of the Morgan Keegan fixed income operations. Sales commission expense increased $41 million, or 22%, which is correlated
with the increase in overall institutional sales commission revenues of 15%, and includes the impact of the shift to a higher
proportion of commissions being fixed income sales which are paid higher commissions including certain retention-related expenses
implemented as part of the Morgan Keegan acquisition. Administrative and incentive compensation and benefit expense increased
$39 million, or 10%, primarily driven by the significant increase in personnel from the Morgan Keegan acquisition.
Communications and information processing expense increased $7 million, or 13%, as a result of new technology initiatives and
a full year of Morgan Keegan expenses. Goodwill impairment expense associated with RJES of $7 million (see discussion below)
and a $6 million increase in losses of real estate partnerships held by consolidated variable interest entities (discussed below)
contributed to the increase in other expense. These increases are partially offset by a decrease in clearance and other expense of
$8 million, or 18%. The decrease results primarily from the application of differing clearing charge allocation methodologies
between the Capital Markets and the PCG segments within RJ&A as compared to the historic MK & Co. operations which favorably
impact prior year comparisons (refer to the PCG results of operations herein for a discussion of an offsetting unfavorable prior
year comparison within that segment).
During the second quarter, we incurred impairment expense associated with the RJES operations of $6.9 million. However,
since we did not own 100% of RJES as of March 31, 2013, $2.3 million of this expense is attributable to others and is included
in the offsetting noncontrolling interests amount attributable to others. Therefore the net impact of this goodwill impairment on
the pre-tax results after consideration of amounts attributable to noncontrolling interests is $4.6 million. Refer to the goodwill
section of this Item 7 and Note 13 of the Notes to Consolidated Financial Statements in this Form 10-K for further information
on this goodwill impairment expense.
Losses of real estate partnerships held by consolidated VIEs result directly from the consolidation of certain low-income
housing tax credit funds. Since we only hold an insignificant interest in these consolidated funds, nearly all of these losses are
attributable to others and are therefore included in the offsetting noncontrolling interests. Refer to Note 11 of the Notes to
Consolidated Financial Statements in this Form 10-K for further information on the consolidation of VIEs.
Noncontrolling interests include the consolidation of RJES (for periods prior to April 2013, the period in which we acquired
the interests previously held by others) as well as the impact of consolidating certain low-income housing tax credit funds, which
impacts other revenue, interest expense, and losses of real estate partnerships held by consolidated VIEs (as described in the
previous paragraph) by including the portion of these consolidated entities which we do not own. Total segment expenses
attributable to noncontrolling interests increased by $2 million as compared to the prior year in part as a result of the portions of
the RJES goodwill impairment expense attributable to others as well as the increase in losses of real estate partnerships held by
VIEs.
Year ended September 30, 2012 compared with the year ended September 30, 2011 – Capital Markets
Pre-tax income in fiscal year 2012 in the Capital Markets segment decreased $7 million, or 8%, as compared to the prior year.
This segment includes the activities of our emerging markets businesses, whose operations generated a $7 million pre-tax loss in
fiscal year 2012, which is $12 million worse than the pre-tax income generated by those operations in fiscal year 2011.
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 fiscal year 2012
results, therefore, comparisons of our legacy capital markets operations, especially fixed income operations, to our current
operations, are not meaningful. Our plan is to fully integrate 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.
50
Index
Net revenues in fiscal year 2012 increased by $114 million, or 16%, primarily resulting from a $139 million, or 109%, increase
in institutional fixed income sales commissions, a $26 million, or 108%, increase in trading profits, a $21 million, or 130%, increase
in fixed income investment banking revenues and a $9 million increase in private placement fees. These revenue increases were
partially offset by a $40 million, or 35%, decrease in equity underwriting fees, a $31 million, or 12%, decrease in institutional
equity sales commissions, a $13 million, or 16%, decrease in merger and acquisitions 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 fiscal year 2012. Fixed income sales commissions increased over the prior year primarily due to the
increased size of our fixed income operations. The increase in fixed income investment banking revenues was primarily the result
of the increase in underwriting fees of $23 million which arose from the Morgan Keegan fixed income public finance operations
we acquired. Although equity market levels at the end of fiscal year 2012 finished at higher levels than the prior year, the market
for public offerings during fiscal year 2012 has been erratic. The number of lead and co-managed underwritings during the year
increased in our U.S. operations and decreased significantly in our Canadian operations. Fiscal year 2011 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 the prior year. Equity underwriting fees arising from our operations in
emerging markets decreased $15 million in fiscal year 2012 as compared to the prior year. Fiscal year 2011 revenues include fees
arising from our Argentine joint venture which acted as an advisor to institutional clients in several significant transactions during
that prior year, resulting in the unfavorable comparison to fiscal year 2012. Our tax credit fund syndication subsidiary sold
approximately $596 million in tax credit fund partnership interests to investors during fiscal year 2012, a decrease compared to
the record volume of $616 million sold in fiscal year 2011.
Trading profits for fiscal year 2012 increased $26 million, or 108%, 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 in fiscal year 2012 increased $132 million, or 21%, over the prior year primarily driven by the addition
of the Morgan Keegan fixed income operations. Sales commission expense increased $47 million, or 34%, which is directly
correlated to the increase in overall institutional sales commission revenues of 28%, and includes the shift to a higher percentage
of fixed income sales. Administrative and incentive compensation and benefit expense increased $50 million, or 15%, 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 fiscal year 2012 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 $11 million as compared to the prior year.
51
Index
Results of Operations – Asset Management
The following table presents consolidated financial information for our Asset Management segment for the years indicated:
Revenues:
Investment advisory fees
Other
Total revenues
Expenses:
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
$
Managed Programs
2013
% change
% change
2011
Year ended September 30,
2012
($ in thousands)
$
247,162
25% $
198,369
5 % $
188,817
45,655
292,817
91,994
19,056
4,364
8,288
33,183
37,342
194,227
98,590
2,290
96,300
18%
23%
13%
16%
23%
5%
25%
12%
15%
45%
38,855
237,224
81,418
16,378
3,536
7,885
26,563
33,353
169,133
68,091
850
3 %
5 %
6 %
7 %
(4)%
7 %
(4)%
17 %
6 %
1 %
43% $
67,241
2 % $
37,694
226,511
76,594
15,307
3,670
7,365
27,606
28,392
158,934
67,577
1,401
66,176
As of September 30, 2013, 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 each quarter are
determined based on balances at the beginning of a quarter, approximately 30% are based on balances at the end of the quarter
and the remaining 15% are computed based on average assets throughout the quarter.
The following table reflects fee-billable financial assets under management in managed programs at the dates indicated:
Assets under management:
Eagle Asset Management, Inc.
Raymond James Consulting Services
Unified Managed Accounts (“UMA”)
Freedom Accounts & other managed programs
ClariVest (1)
Sub-total assets under management
Less: Assets managed for affiliated entities
Sub-total net assets under management
MK & Co. managed fee-based assets (2)
Total assets under management
September 30, 2013
September 30, 2012
(in millions)
September 30, 2011
$
24,500
$
19,986
$
11,385
4,962
16,555
3,386
60,788
(4,799)
55,989
—
9,443
2,855
11,884
—
44,168
(4,185)
39,983
2,801
$
55,989
$
42,784
$
16,092
8,356
1,677
9,523
—
35,648
(3,579)
32,069
—
32,069
(1) Eagle acquired a 45% interest in ClariVest on December 24, 2012.
(2) Revenues generated from the Closing Date of the Morgan Keegan acquisition through mid-February 2013 (the platform conversion date
to RJ&A) arising from assets in what were during such time MK & Co. managed fee-based programs, were included in the PCG segment.
These assets were managed by unaffiliated portfolio managers.
52
Index
On December 24, 2012, Eagle acquired a 45% interest in ClariVest, an acquisition that bolsters our platform in the large-cap
investment objective. See Note 3 of the Notes to the Consolidated Financial Statements in this Form 10-K for additional information
regarding the ClariVest acquisition.
The following table summarizes the activity impacting the total financial assets under management in managed programs
(excluding activity in assets managed for affiliated entities and MK & Co. managed fee-based assets for the periods prior to the
conversion of Morgan Keegan accounts to the RJ&A platform) for the periods indicated:
Year ended September 30,
2013
2012
2011
(in millions)
Assets under management at beginning of period
$
44,168
$
35,648
$
Net inflows of client assets
Net market appreciation (depreciation) in asset values
Inflow resulting from the ClariVest acquisition (1)
Inflows resulting from the conversion of MK & Co. accounts to the RJ&A
platform (2)
4,873
6,233
3,113
2,401
2,999
5,521
—
—
33,551
3,261
(1,164)
—
—
Assets under management at end of period
$
60,788
$
44,168
$
35,648
(1) Eagle acquired a 45% interest in ClariVest on December 24, 2012.
(2) In mid-February 2013, the client accounts of MK & Co. were converted onto the RJ&A platform.
Non-Managed Programs
As of September 30, 2013, approximately 18% of investment advisory fees revenue recorded in this segment are earned for
administrative services on assets held in non-managed programs and all such investment advisory fees are determined based on
balances at the beginning of the quarter.
The following table reflects fee-billable assets under management in non-managed programs at the dates indicated:
September 30, 2013
September 30, 2012
September 30, 2011
(in millions)
Passport
Ambassador
Other non-managed fee-based assets
Sub-total assets under management
Less: Assets managed for affiliated entities
Sub-total net assets under management
MK & Co. non-managed fee-based assets (2)
Total assets under management
$
$
32,121
$
30,043
2,517
64,681
(173)
64,508
—
64,508
$
28,405 (1) $
16,772 (1)
3,191 (1)
48,368
(88)
48,280
6,772
55,052
$
22,674 (1)
12,713 (1)
2,214 (1)
37,601
(78)
37,523
—
37,523
(1) Certain assets in non-managed accounts, predominately comprised of cash balances, are excluded from the calculation of the account
value for fee billing purposes. The assets under management balances presented have been revised from the amounts initially reported
to reflect only billable assets and to present such balances on a consistent basis with those reported as of September 30, 2013.
(2) Revenues generated from the Closing Date of the Morgan Keegan acquisition through mid-February 2013 (the platform conversion
date to RJ&A) arising from assets in what were during such time MK & Co. non-managed fee-based programs, were included in the
PCG segment.
53
Index
The following table summarizes the activity impacting the fee-billable financial assets under management in non-managed
programs (excluding activity in MK & Co. non-managed fee-based assets for the periods prior to the conversion of MK & Co.
accounts to the RJ&A platform) for the periods indicated:
Year ended September 30,
2013
2012
2011
(in millions)
Assets under management at beginning of period
$
48,368
$
37,601 (1) $
33,309 (1)
Net inflows of client assets
Net market appreciation (depreciation) in asset values
Inflows resulting from the conversion of MK & Co. accounts to the RJ&A
platform (2)
6,421
3,265
6,627
6,264
4,503
—
6,743
(2,451)
—
Assets under management at end of period
$
64,681
$
48,368
$
37,601
(1) Certain assets in non-managed accounts, predominately comprised of cash balances, are excluded from the calculation of the account
value for fee billing purposes. The amounts presented have been revised from the amounts initially reported to reflect only billable
assets and to present such balances on a consistent basis with those reported as of September 30, 2013.
(2) In mid-February 2013, the client accounts of MK & Co. were converted onto the RJ&A platform.
Year ended September 30, 2013 compared with the year ended September 30, 2012 – Asset Management
Pre-tax income in the Asset Management segment increased $29 million, or 43%, over the prior year. Investment advisory
fee revenue increased by $49 million, or 25%, generated by an increase in assets under management.
Assets under management in managed programs have increased $13.2 billion, or 31%, over the prior year. The increase
results from a combination of net inflows, inflows resulting from our acquisition of an interest in ClariVest, inflows resulting from
the conversion of MK & Co. accounts to the RJ&A platform, and market appreciation in asset values.
Assets under management in non-managed programs have increased $9.4 billion, or 17%, over the prior year. The increase
results from a combination of net inflows, inflows resulting from the conversion of MK & Co. accounts to the RJ&A platform,
and market appreciation in asset values.
Other revenue increased by $7 million, or 18%, primarily resulting from an increase in fee income generated by our RJT
subsidiary reflecting a 19% increase in RJT client assets as compared to the prior year, to $2.92 billion as of September 30, 2013.
Expenses increased by approximately $25 million, or 15%, resulting from a $11 million, or 13%, increase in administrative
and incentive compensation and benefits costs, a $7 million, or 25%, increase in investment sub-advisory fees, a $4 million, or
12%, increase in other expenses and a $3 million, or 16%, increase in communications and information processing expense. The
increase in administrative and incentive compensation expense is a result of the combination of increases in salary expenses
resulting from the addition of ClariVest, annual increases and additions to staff associated with our legacy operations, as well as
an increase in performance compensation which is directly related to the increase in investment advisory fee revenues. The increase
in investment sub-advisory fee expense is directly related to the increase in advisory fees paid to the external managers associated
with certain assets included within the UMA and Raymond James Consulting Services programs. The increase in other expense
is primarily due to 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 increases in the expenses of RJT result from the increase in client assets. The increase
in communication and information processing expense is primarily a result of the addition of ClariVest operations and costs
associated with the implementation of a new back-office system supporting this segment.
Year ended September 30, 2012 compared to the year ended September 30, 2011 – Asset Management
Pre-tax income in the Asset Management segment in fiscal year 2012 increased $1 million, or 2%, as compared to the prior
year.
54
Index
Investment advisory fee revenue in fiscal year 2012 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 billion while asset values have increased by $5.5 billion. Despite the decrease in assets under management in
non-managed programs experienced during the fourth quarter of fiscal year 2011, resulting in lower revenue during our first quarter
of fiscal year 2012, assets in non-managed programs steadily increased during fiscal year 2012. As a result of the manner in which
our fee revenues are computed, the increase in assets under management experienced during the September 2012 quarter will have
a positive impact on our billings for the first quarter of fiscal year 2013.
Expenses increased by approximately $10 million, or 6%, in fiscal year 2012 resulting from a $5 million, or 6%, increase in
administrative and performance based incentive compensation, and a $5 million, or 17%, increase in other expenses. The increase
in other expense is primarily due to increases in various corporate overhead allocations to this segment, increases in the costs
incurred so that certain funds sponsored by Eagle are available as investment choices on the platforms of other broker-dealers,
and an increase in the third party expenses RJT incurred in the performance of certain of its obligations to clients.
Results of Operations – RJ Bank
The following table presents consolidated financial information for RJ Bank for the years indicated:
% change
Year ended September 30,
2012
($ in thousands)
% change
5 % $
(5)%
5 %
(42)%
3 %
18 %
7 %
28 %
(90)%
5 %
10 %
(2)%
(17)%
11 % $
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
17 % $
(28)%
19 %
629 %
25 %
23 %
18 %
8 %
(23)%
(39)%
30 %
9 %
—
39 % $
2011
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
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
2013
348,068
(9,224)
338,844
8,062
346,906
21,835
3,043
1,168
2,565
5,716
29,650
15,215
79,192
267,714
$
$
55
Index
The tables below present certain credit quality trends for corporate loans and residential/consumer loans:
Net loan charge-offs:
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.
2013
Year ended September 30,
2012
(in thousands)
2011
(696) $
(7,919)
(4,472)
(222)
(13,309) $
(10,486) $
(926)
(12,727)
(75)
(24,214) $
(458)
(13,534)
(20,757)
(246)
(34,995)
2013
As of September 30,
2012
(in thousands)
2011
— $
— $
5
95,994
1,000
19,266
19,126
1,115
136,501
89
25,512
75,889
468
101,958
$
$
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
—
4,902
7,707
2,434
—
2,434
104,392
$
3,316
—
8,218
114,878
$
6,852
13
14,572
147,895
110,292
$
160,515
$
102,236
5,246,005
60,840
1,283,046
1,745,650
555,805
(43,936)
8,847,410
8,957,702
$
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
$
$
$
$
$
$
$
$
56
Index
The following table presents RJ Bank’s allowance for loan losses by loan category:
2013
Loan
category as
a % of total
loans
receivable
Allowance
As of September 30,
2012
Loan
category as
a % of total
loans
receivable
Allowance
($ in thousands)
2011
Loan
category as
a % of total
loans
receivable
Allowance
—
81,733
674
16,566
19,117
1,112
17,299
136,501
1% $
50%
—
12%
20%
6%
11%
100% $
—
85,916
458
26,381
26,126
705
7,955
147,541
2% $
56%
—
10%
21%
4%
7%
100% $
5
79,687
490
30,752
33,194
20
1,596
145,744
2%
59%
—
11%
26%
—
2%
100%
As of September 30,
2010
2009
Loan
category as
a % of total
loans
receivable
Loan
category as
a % of total
loans
receivable
Allowance
Allowance
23
59,744
4,473
47,771
34,283
56
734
147,084
($ in thousands)
— $
51%
1%
15%
32%
—
1%
100% $
7
84,280
3,237
34,018
28,074
88
568
150,272
1%
45%
2%
16%
35%
—
1%
100%
Loans held for sale
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Foreign loans
Total
Loans held for sale
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Foreign loans
Total
$
$
$
$
Information on foreign assets held by RJ Bank:
Changes in the allowance for loan losses with respect to loans RJ Bank has made to borrowers who are not domiciled in the
U.S. are as follows:
Year ended September 30,
2013
2012
2011
2010
2009
( in thousands)
Allowance for loan losses attributable to foreign loans,
beginning of year:
$
7,955
$
1,596
$
Provision for loan losses - foreign loans
9,696
6,242
$
734
862
$
568
166
573
(5)
Foreign loan charge-offs:
C&I loans
Total charge-offs
Recoveries on foreign loans
Net charge-offs - foreign loans
Foreign exchange translation adjustment
Allowance for loan losses attributable to foreign loans,
end of year
(56)
(56)
—
(56)
(296)
—
—
—
—
117
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
17,299
$
7,955
$
1,596
$
734
$
568
57
Index
Cross-border outstandings represent loans (including accrued interest), interest-bearing deposits with other banks, and any
other monetary assets which are denominated in a currency other than the U.S. dollar. The following table sets forth the country
where RJ Bank’s total cross-border outstandings exceeded 1% of total RJF assets as of each respective period:
Banks
C&I loans
CRE
construction
loans
Residential
mortgage
loans
Consumer
loans
Total cross-
border
outstandings (1)
CRE loans
(in thousands)
September 30, 2013:
Canada
$
44,196
$
352,221
$
8,093
$
63,456
$
1,013
$
48
$
469,027
September 30, 2012:
Canada
$
20,706
$
155,503
$
— $
25,099
$
1,032
$
179
$
202,519
September 30, 2011:
Canada
$
1,014
$
65,543
$
— $
— $
1,069
$
— $
67,626
(1) Excludes any hedged, non-U.S. currency amounts.
Year ended September 30, 2013 compared with the year ended September 30, 2012 – RJ Bank
Pre-tax income generated by the RJ Bank segment increased $28 million, or 11%. The improvement in pre-tax income was
primarily attributable to an increase of $11 million, or 3%, in net revenues and a $23 million, or 90%, decrease in the provision
for loan losses, offset by a $7 million, or 9%, increase in non-interest expenses (excluding the provision for loan losses). The $11
million increase in net revenues was attributable to a $17 million increase in net interest income, partially offset by a $6 million
decrease in other income.
Net interest income increased $17 million, or 5%, primarily as a result of a $1.3 billion increase in average interest-earning
banking assets. This increase in average interest-earning banking assets was driven by a $1.1 billion increase in average loans as
well as increases in both average investments and cash. The significant increase in average loans resulted from a strong corporate
lending market, including our Canadian lending operation (which began in late February 2012), and growth in the recently
introduced securities based lending product. The yield on interest-earning banking assets decreased to 3.34% from 3.61% due to
declines in both the loan and investment yields. The loan portfolio yield decreased to 3.86% from 4.20% due to a reduction in
the corporate loan portfolio yield resulting from tightened credit spreads and the repricing of existing loans at lower rates. In
addition, the yield of the residential mortgage loan portfolio declined as a result of adjustable rate loans resetting at lower rates
as well as lower rates on new production. Primarily as a result of the decrease in the yield of the average interest-earning assets,
the net interest margin decreased to 3.25% from 3.50%.
Corresponding to the increase in interest-earning banking assets, average interest-bearing banking liabilities increased $1.2
billion to $9.3 billion.
The decrease in other income was primarily due to a $7 million decrease in foreign currency gains/losses from prior year
levels, a $2 million loss in the valuation of RJ Bank’s bank-owned life insurance, and a prior year gain of $2 million resulting
from a settlement with a residential mortgage loan servicer. These were partially offset by a $3 million reduction in other-than-
temporary impairment (“OTTI”) losses on our available for sale securities portfolio and a $2 million increase in income from the
sale of held for sale loans.
The significant reduction in the provision for loan losses resulted from improved credit quality in the loan portfolio including
a decrease in corporate criticized loans, the favorable resolution of corporate problem loans, lower loan-to-value (“LTV”) ratios
in the residential mortgage loan portfolio, and a significant reduction in residential mortgage delinquent loans. These credit
characteristics reflected the positive impact from improved economic conditions. Net loan charge-offs decreased $11 million, or
45%, to $13 million.
58
Index
The $7 million increase in non-interest expenses (excluding the provision for loan losses) was primarily attributable to a $3
million, or 18%, increase in compensation and benefits expenses related to staff additions to support increased loan activity, a $3
million increase in affiliate deposit account servicing fee expenses resulting from increased deposit balances, and a $1 million
increase in affiliate fee expenses related to our securities based lending business.
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 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 fiscal year 2012. 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 the provision for loan losses) as compared to the prior year was
primarily attributable to a $3 million, or 23% increase in compensation and benefits expenses related to staff additions and a $6
million increase in affiliate deposit account servicing fee expenses resulting from increased deposit balances.
The unrealized loss on our available for sale securities portfolio at September 30, 2012 was $17 million compared to $46
million as of September 30, 2011. This significant improvement was the result of higher market prices, despite the continued
uncertainty in the residential non-agency collateralized mortgage obligation (“CMOs”) market.
59
Index
The following table presents average balance, interest income and expense, the related interest yields and rates, and interest
spreads for RJ Bank for the years indicated:
2013
2012
2011
Year ended September 30,
Average
balance
Interest
inc./exp.
Average
yield/
cost
Average
balance
Interest
inc./exp.
($ in thousands)
Average
yield/
cost
Average
balance
Interest
inc./exp.
Average
yield/
cost
Interest-earning banking
assets:
Loans, net of unearned
income(1)
Loans held for
investment:
Domestic:
Loans held for sale
$
155,901
$
3,519
C&I loans
4,520,070
190,910
CRE construction
loans
CRE loans
Residential
mortgage loans
Consumer loans
Foreign:
41,928
935,058
1,711,968
443,042
2,140
30,515
52,285
13,143
2.26%
4.19%
5.03%
3.22%
3.01%
2.93%
$
127,594
$
2,878
4,342,000
192,277
16,314
776,908
1,732,498
87,906
708
25,832
57,220
2,668
2.25%
4.36%
4.27%
3.27%
3.25%
2.98%
$
33,354
$
881
3,507,554
155,519
63,650
795,841
1,740
30,369
1,849,931
79,915
6,938
126
2.64%
4.40%
2.70%
3.76%
4.25%
1.82%
C&I loans
623,554
31,799
5.01%
324,320
23,571
7.15%
32,895
1,415
4.23%
21,240
148,768
1,488
10,036
1,869
1,615
66
63
8,605,013
335,964
346,665
154,933
2,902
4,155
6.91%
6.65%
3.49%
3.88%
3.86%
0.84%
2.68%
21,488
70,866
1,534
404
4,392
9,590
59
16
7,501,832
319,211
266,768
180,246
2,211
5,527
20.10% (2)
13.31%
3.79%
3.90%
4.20%
0.83%
3.07%
—
—
1,585
—
—
—
92
—
6,291,748
270,057
182,303
219,927
1,286
9,521
—
—
5.70%
—
4.25%
0.71%
4.33%
1,109,857
2,812
0.25%
997,877
2,453
0.24%
993,167
2,619
0.26%
85,811
2,235
2.60%
125,587
2,281
1.81%
146,597
1,157
0.79%
10,302,279
$ 348,068
3.34%
9,072,310
$ 331,683
3.61%
7,833,742
$ 284,640
3.60%
CRE construction
loans
CRE loans
Residential
mortgage loans
Consumer loans
Total loans, net
Agency MBS
Non-agency CMOs
Money market funds, cash
and cash equivalents
FHLB stock, FRB of
Atlanta 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
(146,474)
(11,723)
268,471
110,274
Total banking assets
$ 10,412,553
(144,436)
(42,280)
252,211
65,495
$ 7,899,237
(146,263)
(38,863)
247,805
62,679
$ 9,134,989
(continued on next page)
60
Index
Interest-bearing banking
liabilities:
Deposits:
2013
Year ended September 30,
2012
2011
Average
balance
Interest
inc./exp.
Average
yield/
cost
Average
balance
Interest
inc./exp.
Average
yield/
cost
Average
balance
Interest
inc./ exp.
Average
yield/
cost
($ in thousands)
(continued from previous page)
Certificates of deposit
$
305,293
$
6,239
2.04% $
296,674
$
6,501
2.19% $
227,635
$
6,228
2.74%
Money market, savings,
and NOW accounts (3)
FHLB advances and other
Total interest-bearing
banking liabilities
8,827,966
129,144
2,793
192
0.03%
7,736,094
0.15%
51,834
3,060
98
0.04%
6,740,092
0.19%
31,335
6,377
729
0.09%
2.30%
9,262,403
$
9,224
0.10%
8,084,602
$
9,659
0.12%
6,999,062
$ 13,334
0.19%
Non-interest-bearing banking
liabilities
57,604
Total banking liabilities
9,320,007
Total banking
shareholder’s equity
1,092,546
76,000
8,160,602
974,387
55,649
7,054,711
844,526
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
$ 10,412,553
$ 9,134,989
$ 7,899,237
$ 1,039,876
$ 338,844
$
987,708
$ 322,024
$
834,680
$ 271,306
3.24%
3.25%
111.23%
1.63%
15.49%
10.49%
3.49%
3.50%
112.22%
1.69%
15.84%
10.67%
3.41%
3.43%
111.93%
1.39%
13.00%
10.69%
(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, 2013, 2012 and 2011 was $48 million, $51 million, and $38 million, respectively.
(2) The CRE Construction yield was positively impacted by a loan payoff with a significant unearned discount.
(3) Negotiable Order of Withdrawal (“NOW”) account.
61
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 period’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,
2013 compared to 2012
Increase (decrease) due to
Rate
Total
Volume
2012 compared to 2011
Increase (decrease) due to
Rate
Total
Volume
(in thousands)
$
638
7,886
1,112
5,258
(678)
10,778
21,748
(51)
10,542
13
47
662
(776)
275
(722)
56,732
$
$
3
(9,253)
320
(575)
(4,257)
(303)
(13,520)
(2,853)
(10,096)
(6)
—
29
(596)
84
676
(40,347)
$
641
(1,367)
1,432
4,683
(4,935)
10,475
8,228
(2,904)
446
7
47
691
(1,372)
359
(46)
16,385
2,489
36,998
(1,294)
(722)
(4,668)
1,470
12,536
4,392
9,590
(4)
16
596
(1,717)
12
(166)
59,528
$
(492) $
(240)
262
(3,815)
(11,650)
1,072
1,997
36,758
(1,032)
(4,537)
(16,318)
2,542
(1)
9,620
—
—
(29)
—
329
(2,277)
(178)
1,290
(6,108)
22,156
4,392
9,590
(33)
16
925
(3,994)
(166)
1,124
53,420
Interest revenue:
Interest-earning banking assets:
Loans, net of unearned income:
Loans held for investment:
Domestic:
Loans held for sale
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Foreign:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Agency MBS
Non-agency CMOs
Money market funds, cash and cash equivalents
FHLB stock, FRB of Atlanta stock, and other
Total interest-earning banking assets
Interest expense:
Interest-bearing banking liabilities:
Deposits:
Certificates of deposit
Money market, savings and NOW accounts
FHLB advances and other
Total interest-bearing banking liabilities
Change in net interest income
$
189
432
146
767
55,965
(451)
(699)
(52)
(1,202)
$ (39,145) $
(262)
(267)
94
(435)
16,820
$
1,889
942
477
3,308
56,220
$
(1,616)
(4,259)
(1,108)
(6,983)
875
$
273
(3,317)
(631)
(3,675)
57,095
(1) Excludes a $6 million correction made in fiscal year 2011 of an accumulated interest income understatement arising in years prior to
fiscal year 2011.
62
Index
Results of Operations – Other
The following table presents consolidated financial information for the Other segment for the years indicated:
Revenues:
Interest income
Investment banking
Investment advisory fees
Other
Total revenues
Interest expense
Net revenues
Non-interest expenses:
Compensation and other expenses
Acquisition related expenses
Loss on auction rate securities repurchased
Total non-interest expenses
Loss before taxes and including noncontrolling
interests:
Noncontrolling interests
$
2013
15,404
3,000
1,262
106,735
126,401
80,478
45,923
43,164
73,454
—
116,618
(70,695)
61,618
% change
Year ended September 30,
2012
($ in thousands)
% change
43 % $
555 %
1 %
132 %
116 %
29 %
NM
21 %
24 %
—
23 %
28 %
10,763
458
1,248
45,943
58,412
62,349
(3,937)
35,577
59,284
—
94,861
(98,798)
27,922
26 % $
NM
31 %
158 %
114 %
99 %
3 %
38 %
NM
NM
41 %
(39)%
Pre-tax loss excluding noncontrolling interests
$
(132,313)
(4)%
(126,720)
(57)%
2011
8,559
—
950
17,820
27,329
31,374
(4,045)
25,754
—
41,391
67,145
(71,190)
9,552
(80,742)
Among the items impacting this segment, as more fully described in Item 1 of this Form 10-K, the Other segment results
include our principal capital and private equity activities. Results from these activities 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 our direct merchant banking and private equity investments (the “Third Party Private Funds”).
Year ended September 30, 2013 compared to the year ended September 30, 2012 – Other
The pre-tax loss generated by this segment increased by approximately $6 million, or 4%.
Total revenues increased $68 million, or 116%. The increase primarily resulted from a $44 million increase in other revenues
associated with our indirect investment in Albion, which was sold in April 2013. Fiscal year 2013 includes $74 million of favorable
valuation adjustments and distributions received from Albion ($65 million of favorable valuation adjustments and $9 million of
dividends received), compared to $30 million of favorable valuation adjustments and dividends received on Albion in the prior
fiscal year. Revenues resulting from either distributions received or valuation adjustments related to certain private equity
investments we acquired as part of the Morgan Keegan acquisition increased $16 million over the prior year.
Interest expense increased $18 million, or 29% over the prior year. The increase primarily results from our March 2012
issuances of $350 million 6.9% senior notes and $250 million 5.625% senior notes, as well as interest expense associated with
borrowings under certain credit agreements with Regions Bank (as more fully described in Notes 15 and 17 of the Notes to
Consolidated Financial Statements in this Form 10-K). Both of the March 2012 debt offerings and the borrowings from Regions
Bank were part of our acquisition financing activities and other transactions associated with the Morgan Keegan acquisition.
Acquisition related expenses increased $14 million, or 24%, over the prior year. These expenses are almost entirely comprised
of expenses associated with our acquisition and integration of Morgan Keegan. These expenses include information systems
integration and conversion costs, other integration related costs, occupancy and equipment costs which include costs incurred to
abandon certain leased facilities that resulted from our integration activities, and severance related expenses (see Note 3 of the
Notes to Consolidated Financial Statements in this Form 10-K for additional information). In mid-February 2013, the client
accounts of MK & Co. were transferred to RJ&A pursuant to our Morgan Keegan acquisition integration strategy and at such time
we commenced operations under one information systems platform. As of September 30, 2013, we consider the integration activities
associated with the Morgan Keegan acquisition to be substantially complete.
63
Index
Compensation and other expenses increased $8 million, or 21%, in the current period primarily as a result of an increase in
incentive compensation expense.
The noncontrolling interest line item captures the pre-tax income generated from investments included in this segment of
which we do not own 100%. The income before tax attributable to noncontrolling interests increased $34 million over the prior
year. This increase primarily resulted from the increase in revenues generated from the Albion investment, which resulted in a
$26 million increase over the prior year in the attribution of pre-tax income to others. The remaining $8 million increase over the
prior year resulted from increases in the pre-tax income generated by the other investments we hold in our private equity portfolio
of which we do not own 100%.
Year ended September 30, 2012 compared to the year ended September 30, 2011 – Other
The pre-tax loss generated by this segment increased by approximately $46 million, or 57%.
In fiscal year 2012, total revenues increased $31 million, or 114% over the prior year. The increase primarily resulted from
a $22 million increase in other revenues associated with our indirect investment in Albion (comprised of both favorable valuation
adjustments and an increase in dividends received). The remaining net increase in revenues resulted from a combination of
valuation adjustments and earnings received from the balance of our private equity investment portfolio.
Interest expense in fiscal year 2012 increased $31 million, or 99%, 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 fiscal year 2012 associated with our April 2011 issuance of
$250 million 4.25% senior notes, and $2 million of interest expense associated with a credit agreement entered into with Regions
Bank (see Note 17 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information on this
borrowing). Both of the March 2012 debt offerings and the Regions Bank credit agreement were part of our acquisition financing
activities and other transactions associated with the Morgan Keegan acquisition.
Compensation and other expenses increased $10 million, or 38%, in fiscal year 2012 over the prior year primarily related to
an increase in incentive compensation.
Acquisition related expenses in fiscal year 2012, all associated with our acquisition of Morgan Keegan, include approximately
$20 million of expense associated with our information systems integration and conversion costs and other integration related
activities associated with integrating Morgan Keegan’s operations into our own, $19 million of net severance related expense, $7
million of financial advisory fee expenses, $6 million of transaction bridge financing facility expenses, $5 million of expense
related to leased facilities and equipment dispositions, and $2 million of legal expense.
Fiscal year 2011 included a non-recurring $41 million loss on ARS repurchased.
The noncontrolling interest line item captures the pre-tax income generated from investments included in this segment of
which we do not own 100%. In fiscal year 2012, the income before tax attributable to noncontrolling interests increased $18
million over the prior year. This increase primarily resulted from the increase in revenues generated from the Albion investment,
which resulted in a $17 million increase over the prior year in the attribution of pre-tax income to others.
64
Index
Certain statistical disclosures by bank holding companies
As a financial holding company, we are required to provide certain statistical disclosures by bank holding companies pursuant
to the Securities and Exchange Commission’s Industry Guide 3. Certain of those disclosures are as follows for the periods indicated:
RJF return on assets (1)
RJF return on equity (2)
Equity to assets (3)
Dividend payout ratio(4)
2013
1.7%
10.6%
17.3%
21.7%
Year ended September 30,
2012
1.5%
9.7%
16.8%
23.6%
2011
1.6%
11.3%
15.3%
23.7%
(1) Computed as net income attributable to RJF, Inc. for the year indicated, divided by average assets (the sum of total assets at the
beginning and end of the year, divided by two).
(2) Computed by utilizing the net income attributable to RJF, Inc. and the average equity for each respective year. Average equity is
computed by adding the total equity attributable to RJF, Inc. as of each quarter-end date during the indicated year, plus the beginning
of the year total, divided by five.
(3) Computed as average equity (the sum of total equity at the beginning and end of the year, divided by two), divided by average assets
(the sum of total assets at the beginning and end of the year, divided by two).
(4) Computed as dividends declared per common share during the year 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.
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 maintain 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.
Cash provided by operating activities during the year ended September 30, 2013 was $660 million. Operating cash generated
by successful operating results over the period resulted in a $457 million increase in cash. The increase in operating cash included
an increase in brokerage client payables and other accounts payable of $1.31 billion, largely the result of an increase in client cash
deposits during the period. A decrease in trading instruments held resulted in an increase of $252 million in operating cash. A
decrease in brokerage client and other receivables resulted in an increase of $88 million in operating cash. Partially offsetting
these activities which resulted in increases of cash, decreases in cash resulted from the following activities: an increase in assets
segregated pursuant to regulations and other segregated assets resulted in a $1.28 billion use of cash due to the increase in brokerage
client deposits; an increase in securities purchased under agreements to resell, net of securities sold under agreements to repurchase,
resulted in a $191 million use of operating cash; and an increase in prepaid expenses and other assets resulted in a $66 million
use of cash. All other components of operating activities combined to net a $94 million increase in operating cash.
65
Index
Investing activities resulted in the use of $652 million of cash during the year ended September 30, 2013. The primary
investing activity was the use of $865 million in cash to fund an increase in bank loans (net of proceeds received from the sale of
loans held for investment). We also invested $73 million in equipment assets which are comprised of buildings, including our
new data center in the Denver, Colorado area (see Item 2, Properties, in this Form 10-K for additional information), equipment,
and technology assets. Partially offsetting these uses of cash, we generated cash through the sale of private equity investments,
net of purchases of additional equity investments, of $229 million, driven most significantly by the sale of our indirect investment
in Albion (see the Other MD&A discussion in this Item 7 for additional information). We received proceeds from the maturation,
repayment, redemption or sale of securities in our available for sale security portfolio of $55 million, net of purchases of additional
securities. All other components of investing activities combined to net a $2 million increase in cash.
Financing activities provided $615 million of cash during the year ended September 30, 2013. Increases in deposit liabilities
of RJ Bank provided $696 million in cash. We received $56 million in cash upon the exercise of stock options and employee
stock purchases. Partially offsetting the increases, we used $77 million in payment of dividends to our shareholders and $51 million
of cash was used to repay borrowings (included in the net repayment is a $128 million repayment of a borrowing from Regions
Bank, which was subsequently converted to a secured revolving credit facility. Refer to Notes 15 and 17 of our Notes to Consolidated
Financial Statements in this Form 10-K for additional information). All other components of financing activities combined to net
a $9 million use of cash.
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.
Sources of Liquidity
Approximately $1.02 billion of our total September 30, 2013 cash and cash equivalents (a portion of which is invested on
behalf of the parent company by RJ&A) was available to us without restrictions. The cash and cash equivalents held were as
follows:
Cash and cash equivalents:
RJF
RJ&A(1)
RJ Bank
Other subsidiaries
Total cash and cash equivalents
September 30, 2013
(in thousands)
$
$
274,747
1,052,268
974,175
295,426
2,596,616
(1) RJF has loaned $760 million to RJ&A as of September 30, 2013, 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 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, 2013, 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 $398 million, of which approximately $153
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.
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, 2013, RJ Bank made $100 million in
dividend payments to RJF. RJ Bank had approximately $48 million of capital in excess of the amount it would need as of
September 30, 2013 to maintain its targeted total capital to risk-weighted assets ratio of 12.5%.
Liquidity available to us from our subsidiaries, other than RJ&A and RJ Bank, is relatively insignificant and in certain
instances may be subject to regulatory requirements.
66
Index
Borrowings and Financing Arrangements
The following table presents our domestic financing arrangements with third party lenders 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,
2013:
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
RJ Securities,
Inc. (3)
RJF
Total
Total number of
agreements
$
400,000
$
70,000
$ 1,750,000
$
($ in thousands)
$
203,933
350,000
100,000
—
500,000
$
$
5,000
—
75,000
—
—
$ 1,750,000
$
—
—
203,933
$
4
6
—
100,000
450,000
7
$
$
— $ 2,500,000
$
273,933
100,000
—
—
100,000
— $ 2,700,000
$
5,000
—
278,933
17
(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.
(3) RJ Securities, Inc. is the borrower under the “New Regions Credit Agreement,” see Note 15 of the Notes to Consolidated Financial
Statements in this Form 10-K for discussion of the terms of this committed secured borrowing facility.
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, 2013.
RJ Bank has $994 million in immediate credit available from the FHLB on September 30, 2013 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, 2013, collateralized financings outstanding in the amount of $301 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 $70 million and $129 million, respectively, as of September 30, 2013. Such financings are generally collateralized
by non-customer, RJ&A owned securities. The required market value of the collateral associated with the committed secured
facilities ranges from 102% to 133% of the amount financed.
67
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, 2013
June 30, 2013
March 31, 2013
December 31, 2012
September 30, 2012
$
267,984
335,497
287,797
377,775
346,654
$
300,933
397,398
397,712
459,567
349,495
(in thousands)
$
300,933
248,382
397,712
373,290
348,036
$
643,422
689,219
585,824
647,885
600,959
$
709,120
744,084
742,498
753,041
588,740
709,120
578,147
623,966
598,579
565,016
At September 30, 2013, in addition to the financing arrangements described above, we had corporate debt of $1.2 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, and $46 million outstanding on a mortgage loan for our home-office complex.
Our current senior long-term debt ratings are:
Rating Agency
Standard & Poor’s Ratings Services (“S&P”)
Moody’s Investors Services (“Moody’s”)
Rating
BBB
Baa2
Outlook
Negative
Stable
The S&P rating and outlook reflected above are as presented in their December, 2012 report.
The Moody’s rating and outlook reflected above are as presented in their July, 2013 report.
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, 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 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 $179 million as
of September 30, 2013 and we are able to borrow up to 90%, or $161 million of the September 30, 2013 total, without
restriction. There are no borrowings outstanding against any of these policies as of September 30, 2013.
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.
68
Index
See the “contractual obligations, commitments and contingencies” section below for information regarding our commitments.
Potential impact of Morgan Keegan matters subject to indemnification by Regions on our liquidity
On April 2, 2012, we completed the purchase of all of the issued and outstanding shares of Morgan Keegan from Regions
(for additional information, see Note 3 in the Notes to Consolidated Financial Statements in this Form 10-K). Under the terms of
the SPA, 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 Notes 3 and 20 of the Notes to Consolidated Financial Statements in this Form 10-K, 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).
As of September 30, 2013 we consider the integration activities associated with the Morgan Keegan acquisition to be
substantially complete. Accordingly, we do not anticipate any further integration activities to have a significant adverse impact
on our liquidity.
Statement of financial condition analysis
The assets on our consolidated 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 $23.2 billion at September 30, 2013 are approximately $2.0 billion, or 10%, greater than
our total assets as of September 30, 2012. The increase in total assets primarily results from the following. Segregated assets
pursuant to federal regulations increased $1.28 billion, which was prompted by an inflow of cash into client accounts during the
year ended September 30, 2013 (refer to the related increase in payables to clients discussed in the following paragraph). Net
bank loans receivable increased $830 million due to growth of RJ Bank’s net loan portfolio during the year. Cash and cash
equivalents increased $617 million, refer to the discussion of the various sources and uses of cash during the year discussed in the
preceding liquidity and capital resources section of this Item 7. Partially offsetting the increases in assets described above, compared
to September 30, 2012 trading instruments decreased $225 million as we reduced our inventory levels in fiscal year 2013 primarily
within fixed income securities. The fair value of derivative instruments associated with offsetting matched book positions decreased
by $208 million (refer to the decrease in the offsetting liability related to these derivative instruments described in the discussion
of the change in liabilities below). Private equity investments at fair value decreased by $121 million as compared to the prior
year, primarily resulting from the sale of one of our portfolio investments, our indirect investment in Albion, during fiscal year
2013 (refer to the Other section of MD&A in this item 7 for further information regarding the sale of our indirect investment in
Albion).
As of September 30, 2013, our liabilities of $19.2 billion are $1.7 billion, or 10% greater than our liabilities as of September 30,
2012. The increase in liabilities as compared to the prior year is primarily due to the following. Payables to clients increased $1.36
billion, which resulted from an inflow of client cash over the year. Bank deposit liabilities increased $696 million, reflecting
increased deposits at RJ Bank. Other borrowings increased $84 million as we borrowed under certain of our available credit
facilities at September 30, 2013, primarily to finance a portion of our inventory of fixed income securities. Partially offsetting
these increases, derivative instruments associated with offsetting matched book positions decreased by $208 million, and our
corporate debt decreased by $135 million, primarily as a result of the conversion of a loan provided by Regions Bank as of
September 30, 2012 into that of a revolving credit facility under which we had relatively minimal borrowings outstanding as of
September 30, 2013 (refer to the discussion of the New Regions Credit Agreement in Notes 15 and 17 of the Notes to Consolidated
Financial Statements in this Form 10-K).
69
Index
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, a naming rights agreement,
and facilities arrangements pertaining to future corporate conference sites. 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)
Other short-term borrowings (3)
Operating leases
Investments - private equity
partnerships
Certificates of deposit (4)
Commitments to extend credit -
RJ Bank (5)
RJ Bank loans purchased, not yet
settled
Commitments to real estate entities
Commitment to purchase real
estate in Pasco County, Florida(6)
Underwriting commitments
Naming rights for Raymond James
stadium
Commitments for company hosted
conferences
Loans and commitments to
financial advisors
Total
Total
2014
2015
$ 1,194,508
1,017,294
$
$
3,530
62,294
4,067
74,638
Year ended September 30,
2016
(in thousands)
254,050
74,638
$
2017
2018
Thereafter
$
$
4,556
64,012
$
4,823
64,012
923,482
677,700
62,938
84,076
402,830
46,795
313,374
19,061
79,076
75,050
46,795
51,490
2,913,107
2,913,107
76,391
60,274
3,500
27,476
9,183
9,797
76,391
60,274
3,500
27,476
3,988
2,555
17,949
5,000
69,678
—
69,041
—
—
—
—
—
13,331
—
62,818
—
61,277
—
—
—
—
—
4,148
4,028
1,047
1,606
8,240
—
52,552
—
83,092
—
—
—
—
—
—
1,608
3,668
—
40,887
48,474
—
—
—
689
—
101,845
—
—
—
—
—
—
—
—
—
33,340
$ 6,254,883
26,748
$ 3,451,335
$
3,446
251,995
$
2,738
471,505
$
166
214,226
$
119
161,983
123
$ 1,703,839
(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 15 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information.
(4) See Note 14 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information.
(5) See Note 26 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information.
(6) 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.
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, 2013 the unused portion of
the current authorization was $49.4 million.
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.
70
Index
Regulatory
RJ&A, RJFS, Eagle Fund Distributors, Inc. and Raymond James (USA) Ltd. all had net capital in excess of minimum
requirements as of September 30, 2013.
RJ Ltd. was not in Early Warning Level 1 or Level 2 as of or during the year ended September 30, 2013.
We currently invest in selected private equity and merchant banking investments (refer to Item 1, Reportable Segments, Other
section in this Form 10-K additional information). 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.
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.
RJF and RJ Bank are subject to various regulatory capital requirements. Under the regulatory framework for prompt corrective
action, RJF and RJ Bank met the requirements to be categorized as “well capitalized” as of September 30, 2013. See the Item 1
Business, Regulation section in this Form 10-K, for a discussion of the regulatory environment in which RJF and RJ Bank operate.
One of RJ Bank’s U.S. subsidiaries is an agreement corporation and is also subject to regulation by the Fed. As of September 30,
2013, 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 direct impact on our operations
as a whole. However, because some of the implementing regulations have yet to be adopted by various regulatory agencies, the
specific impact on some of our businesses remains 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.
71
Index
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 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 CMOs, certain MBS, and our derivative instruments and nonrecurring fair value measurements for certain loans held
for sale, impaired loans and other real estate owned (“OREO”).
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 activities, certain non-
agency CMOs, certain non-agency ABS, pools of interest-only SBA loan strips (“I/O Strips”), certain municipal and corporate
obligations which include ARS, and nonrecurring fair value measurements for certain impaired loans.
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, 2013 and 2012. 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.
72
Index
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.
The fair value for SBA loan securitizations is determined by utilizing observable prices obtained from a third party pricing
service. The third party pricing service provides comparable price evaluations utilizing observable market data for similar securities.
We substantiate the prices obtained from the third party pricing service by comparing such prices for a sample of securities to
observable market trades obtained from external sources. The instruments valued using these observable inputs are typically
classified within Level 2 of the fair value hierarchy.
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.
Derivative contracts
We enter 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. 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.
73
Index
We also facilitate matched book derivative transactions through RJSS. RJSS enters into derivative transactions (primarily
interest rate swaps) with customers of RJ&A. For every derivative transaction RJSS 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.
RJ Bank enters into three month forward foreign exchange contracts to hedge the risk related to their investment in their
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.
Available for sale securities
Available for sale securities are comprised primarily of MBS, CMOs, and other equity 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 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 most senior non-agency securities at September 30, 2013 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.
74
Index
For any RJF AFS 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, 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 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, and forecasted performance of the security. 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.
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, 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 in our Other 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.
Private equity investments are carried at estimated fair value. They 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/or discounted cash flow models incorporating changes in market outlook. Investments in funds structured
as limited partnerships are generally valued based on our proportionate share of the net assets of the partnership as provided by
the fund manager. 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 a deferred compensation program
which was formerly sponsored by MK &Co., 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 employees who were at one-time associated with MK & Co., participate in deferred compensation plans. The balances
associated with these plans are invested in certain marketable securities that are held by RJF 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 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.
75
Index
Level 3 assets and liabilities
As of September 30, 2013, 9% of our total assets and 3% 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 $470 million as of
September 30, 2013 and represent 24% of our assets measured at fair value. Our ARS positions comprise $242 million, or 51%,
and our private equity investments comprise $216 million, or 46%, of the Level 3 assets as of September 30, 2013. Level 3 assets
represent 11.7% of total equity as of September 30, 2013.
Financial instruments which are liabilities categorized as Level 3 amount to $60 thousand as of September 30, 2013 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.
Goodwill
Goodwill involves the application of significant management judgment. Of our total goodwill of $295 million: $230 million
arose from our fiscal year 2012 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) and as of September 30, 2013 is part of RJ&A,
$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, and $2 million
arose from our acquisition of Howe Barnes which occurred in April 2011 and is now a part of RJ&A. This goodwill was allocated
to reporting units; $174 million is included in the PCG segment and $121 million is included in the Capital Markets segment.
Goodwill is subject to an evaluation of potential impairment on an annual basis, or more often if events or circumstances
indicate there may be impairment. We performed our annual goodwill impairment testing as of December 31, 2012. We elected
to not exercise the option to perform a qualitative assessment, but instead to perform a quantitative assessment of the equity value
of each reporting unit that includes an allocation of goodwill. In our determination of the reporting unit fair value of equity, we
used a combination of the income approach and the market approach. Under the income approach, we used discounted cash flow
models applied to each respective reporting unit. Under the market approach, we calculated an estimated fair value based on a
combination of multiples of earnings of guideline companies in the brokerage and capital markets industry that are publicly traded
on organized exchanges, and the book value of comparable transactions. The estimated fair value of the equity of the reporting
unit resulting from each of these valuation approaches was dependent upon the estimates of future business unit revenues and
costs, such estimates were subject to critical assumptions regarding the nature and health of financial markets in future years as
well as the discount rate to apply to the projected future cash flows. In estimating future cash flows, a balance sheet as of the test
date and a statement of operations for the last twelve months of activity for each reporting unit (or for the nine month period since
the Closing Date for Morgan Keegan reporting units) were compiled. Future balance sheets and statements of operations were
then projected, and estimated future cash flows were determined by the combination of these projections. The cash flows were
discounted at the reporting units estimated cost of equity which was derived through application of the capital asset pricing model.
The valuation result from the market approach was dependent upon the selection of the comparable guideline companies and
transactions and the earnings multiple applied to each respective reporting units’ projected earnings. Finally, significant
management judgment was applied in determining the weight assigned to the outcome of the market approach and the income
approach, which resulted in one single estimate of the fair value of the equity of the reporting unit.
Based upon the outcome of our quantitative assessments as of December 31, 2012, we concluded that with the exception of
our RJES reporting unit, there was no other impairment of goodwill and the fair values of the equity of the reporting units to be
substantially in excess of their book carrying values, which include the allocated goodwill. See Note 13 of the Notes to Consolidated
Financial Statements in this Form 10-K, for a summary of certain key assumptions utilized in our quantitative analysis performed
as of December 31, 2012. The assumptions and estimates utilized in determining the fair value of reporting unit equity are sensitive
to changes, including, but not limited to, a decline in overall market conditions, adverse business trends and changes in regulations.
76
Index
We concluded the goodwill associated with the RJES reporting unit to be completely impaired. The impairment expense
recorded in the year ended September 30, 2013 of $6.9 million is included in other expense on our Consolidated Statements of
Income and Comprehensive Income. Since we did not own 100% of RJES as of the annual testing date, our share of this impairment
expense after consideration of the noncontrolling interests amounts to $4.6 million. RJES is an entity that provides research
coverage on European corporations as well as having sales and trading operations. The decline in value of RJES is primarily due
to the continuing economic slowdown experienced in Europe which has had a negative impact on the financial services entities
operating therein, as well as certain management decisions that were made during the quarter ended March 31, 2013 which impact
RJES’ operating plans on a going forward basis. In April 2013, we purchased all of the outstanding equity in RJES that was held
by others, thus we now have sole control over RJES.
In mid-February 2013, the client accounts and financial advisors of MK & Co. were transferred to RJ&A pursuant to our
Morgan Keegan acquisition integration strategies. As a result, certain RJ&A and MK & Co. reporting units, which have an
allocation of both private client group as well as capital markets goodwill, were combined. We assessed whether these transfers,
which occurred after our annual goodwill impairment testing date, could change our conclusions regarding no impairment of
goodwill in the reporting units effected by the transfers. Based upon our qualitative analysis related to those reporting units, we
concluded that it was more likely than not that the fair value of the combined reporting units equity exceeds the combined reporting
units’ carrying value including goodwill after the effect of such transfers.
The change in our reportable segments, which was effective as of September 30, 2013 (see Notes 1 and 28 of the Notes to
Consolidated Financial Statements in this Form 10-K for additional information), did not cause us to update the annual impairment
testing we performed as the reporting units which were impacted by this change do not have an allocation of goodwill.
No other events have occurred since December 31, 2012 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 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 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. 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.
77
Index
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, 2013.
The current year’s provision for loan losses includes $5.6 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 SNC exam
included a review, which represented 80% of the total held for investment corporate portfolio at such time. 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 prior year’s provision for loan losses included $4 million resulting from the impact of the respective period’s annual
SNC exam. This prior year exam included a review, which was approximately 84% of the held for investment corporate loan
portfolio.
At September 30, 2013, the amortized cost of all RJ Bank loans was $9 billion and an allowance for loan losses of $137
million was recorded against that balance. The total allowance for loan losses is equal to 1.52% 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.
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, including the repatriation of undistributed earnings of foreign subsidiaries. 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.
78
Index
Effects of recently issued accounting standards, and accounting standards not yet adopted
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 ending December 31, 2013. The adoption of this new guidance will impact
certain presentations of assets and liabilities within the notes to our consolidated financial statements, but will not impact our
determinations of asset or liability amounts presented on our consolidated statements of financial condition. These additional
disclosures will be presented in our quarterly report on Form 10-Q for the period ended December 31, 2013.
In February 2013, the FASB issued new guidance intended to improve the reporting of reclassifications out of AOCI. The
new guidance requires an entity to report the effect of significant reclassifications out of AOCI on the respective line items in net
income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts
that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required
to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. This new guidance
is first effective for our financial report covering the quarter ending December 31, 2013. The adoption of this new guidance will
result in an increase in certain financial statement disclosures, but will not have any impact on our financial position or results of
operations. These additional disclosures will be presented in our quarterly report on Form 10-Q for the period ended December
31, 2013.
In March 2013, the FASB issued new guidance intended to clarify the applicable guidance for the release of the cumulative
translation adjustment when either an entity ceases to have a controlling financial interest in a subsidiary or involving an equity
method investment that is a foreign entity. The new guidance is intended to resolve the diversity in current practice in the accounting
for the release of the cumulative translation adjustment into net income for sales or transfers of a controlling financial interest that
is a foreign entity. This new guidance is first effective for our financial report covering the quarter ending December 31, 2014,
however early adoption is permitted as long as an entity that adopts the guidance early applies the new guidance as of the beginning
of the fiscal year of adoption. To the extent that we have any future transactions with our foreign entities that fall within the scope
of this clarifying guidance, we will evaluate the option of adopting this guidance early. Given that this guidance applies to entity
specific transactions, we are unable to estimate the financial impact, if any, this clarifying guidance may have on our financial
position or results of operations.
In June 2013, the FASB issued new guidance intended to amend the scope, measurement and disclosure requirements for
investment companies. The new guidance is intended to change the approach to the investment company assessment, clarify the
characteristics of an investment company, require an investment company to measure noncontrolling ownership interests in other
investment companies at fair value and requires additional disclosures about the investment company. This new guidance is first
effective for our financial report covering the quarter ending December 31, 2014, early adoption is prohibited. We are currently
evaluating the impact of the adoption of this new guidance will have on our financial position and results of operations.
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.
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.
79
Index
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 and Risk 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 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, CMOs and other equity securities 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 2, 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.
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 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 are exposed to interest rate risk as a result of our trading inventories (primarily comprised of fixed income instruments)
in our Capital Markets segment, as well as our RJ Bank operations. We actively manage the 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 trading portfolios. VaR is an appropriate statistical technique for
estimating the potential losses in trading portfolios due to typical adverse market movements over a specified time horizon with
a suitable confidence level.
We apply 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.
80
Index
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 and equity 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 rates and equity 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. 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, 2013, the reported daily loss in our trading
portfolio exceeded the predicted VaR one time.
Should markets 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 applies
additional 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.
The following table sets forth the high, low, and daily average VaR for all of our trading portfolios, including fixed income,
equity and derivative instruments, as of the period and dates indicated:
Daily VaR
$
3,078
$
697
$
1,718
$
1,471
$
1,164
Year ended September 30, 2013
Low
Daily Average
High
VaR at September 30,
2012
2013
(in thousands)
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.
Separately, RJF provides additional market risk disclosures to comply with the “Risk-Based Capital Guidelines: Market Risk”
rule released by the Fed, the OCC and the FDIC. The results of the application of this market risk capital rule, also known Basel
2.5, are available on our website under “Our Company - Financial Reports - Market Risk Rule Disclosure” within 45 days after
the end of each of our reporting periods (the information on our website is not incorporated by reference into this report).
As a part of our fixed income public finance operations, RJ&A enters into forward commitments to purchase Government
National Mortgage Association (“GNMA”) MBS. The MBS securities are issued on behalf of various state and local housing
finance agencies (“HFA”) and consist of the mortgages originated through their lending programs. RJ&A’s forward GNMA MBS
purchase commitment arises at the time of the loan reservation for a borrower in the HFA lending program (these loan reservations
fix the terms of the mortgage, including the interest rate and maximum principal amount). The underlying terms of the GNMA
MBS purchase, including the price for the MBS security (which is dependent upon the interest rates associated with the underlying
mortgages) are also fixed at loan reservation. Upon acquisition of the MBS security, RJ&A typically sells such security in open
market transactions as part of its fixed income operations. In order to hedge the interest rate risk to which RJ&A would otherwise
be exposed between the date of the commitment and the date of sale of the MBS in the market, RJ&A enters into to be announced
(“TBA”) security contracts with investors for generic MBS securities at specific rates and prices to be delivered on settlement
dates in the future. See Note 20 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information
regarding these activities and the related balances outstanding as of September 30, 2013.
See Note 18 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information regarding our
derivative financial instruments.
81
Index
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.
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 economic value of equity. 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)
$375,819
$372,613
$370,645
$342,781
$328,108
Projected change in
net interest income
9.64%
8.70%
8.13%
—
(4.28)%
Refer to the Net Interest section of MD&A, in Item 7 of this Form 10-K, for a discussion and estimate of the potential favorable
impact on RJF’s pre-tax income that could result from a 100 basis point instantaneous rise in short-term interest rates applicable
to RJF’s entire operations.
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, 2013:
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)
$
$
7,802,622
244,926
1,049,111
9,096,659
8,979,228
28,055
9,007,283
89,376
89,376
$
$
573,637
24,825
—
598,462
—
23,435
23,435
575,027
664,403
$
$
384,415
130,365
—
514,780
—
261,884
261,884
252,896
917,299
$
$
240,964
68,911
—
309,875
—
—
—
309,875
1,227,174
82
Index
The following table shows the contractual maturities of RJ Bank’s loan portfolio at September 30, 2013, 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)
— $
100,731
$
100,731
107,454
18,959
151,704
4,208
548,870
831,195
831,195
$
3,274,484
33,881
982,199
19,995
6,883
4,317,442
4,317,442
$
1,864,067
8,000
149,143
1,721,447
52
3,742,709
3,843,440
$
5,246,005
60,840
1,283,046
1,745,650
555,805
8,891,346
8,992,077
$
$
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, 2013:
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)
$
3,575
$
97,156
$
100,731
1,572
—
71,374
268,190
52
341,188
344,763
$
5,136,979
41,881
1,059,968
1,473,252
(2)
6,883
7,718,963
7,816,119
$
5,138,551
41,881
1,131,342
1,741,442
6,935
8,060,151
8,160,882
$
(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, 2013 was CDN $8
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.
83
Index
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, 2013, RJ Ltd. held forward contracts to buy and sell U.S. dollars totaling CDN $5
million and CDN $6 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 Notes to 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. 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. In addition, 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 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.
The valuation of the 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.
84
Index
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 360 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, 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. A decline in the strength of the
economy, particularly unemployment rates and housing prices, among other factors, could have a significant effect on the
credit quality of loans in this segment.
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 for payment or the
potential sale of securities which will bring the loan current and may 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 2013 corporate profit levels have improved but have remained weak as compared to historic levels. Unemployment
rates have declined, but remain high. Retail sales continue to be 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 2013, 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.
85
Index
Several factors were taken into consideration in evaluating the allowance for loan losses at September 30, 2013, 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 mortgage 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
$
147,541
2,565
2013
For the year ended September 30,
2010
2011
2012
($ in thousands)
$ 147,084
33,655
$ 145,744
25,894
$
150,272
80,413
Charge-offs:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer
Total charge-offs
Recoveries:
C&I loans
CRE loans
Residential mortgage loans
Consumer
Total recoveries
Net charge-offs
Foreign exchange translation adjustment
Allowance for loan losses, end of year
$
(813)
—
(9,599)
(6,771)
(254)
(17,437)
117
1,680
2,299
32
4,128
(13,309)
(296)
136,501
(10,486)
—
(2,000)
(15,270)
(96)
(27,852)
(458)
—
(15,204)
(22,501)
(255)
(38,418)
—
1,074
2,543
21
3,638
(24,214)
117
$ 147,541
—
1,670
1,744
9
3,423
(34,995)
—
$ 145,744
$
—
—
(56,402)
(30,837)
—
(87,239)
—
2,349
1,289
—
3,638
(83,601)
—
147,084
2009
$
88,155
169,341
—
(3,222)
(77,317)
(27,314)
—
(107,853)
—
1
628
—
629
(107,224)
—
150,272
$
Allowance for loan losses to total bank
loans outstanding
1.52%
1.81%
2.18%
2.36%
2.23%
The primary factors impacting the provision for loan losses during the year resulted from improved credit quality in the loan
portfolio including a decrease in corporate criticized loans, a favorable resolution of corporate problem loans, lower LTV ratios
in the residential mortgage loan portfolio, and a significant reduction of residential mortgage delinquent 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 $5.6 million resulting from the impact of the banking regulators’
annual SNC exam. The prior year’s provision for loan losses included $4 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).
86
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:
2013
For the year ended September 30,
2012
2011
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
$
$
(696)
(7,919)
(4,472)
(222)
(13,309)
0.01% $
0.73%
0.26%
0.05%
0.15% $
($ in thousands)
(10,486)
(926)
(12,727)
(75)
(24,214)
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%
For the year ended September 30,
2009
2010
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
$
$
—
—
(54,053)
(29,548)
—
(83,601)
($ in thousands)
— $
—
5.56%
1.34%
—
—
(3,222)
(77,316)
(26,686)
—
1.30% $ (107,224)
—
0.96%
4.22%
0.99%
—
1.43%
87
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 45% decline in net charge-offs compared to the prior year was primarily attributable to improved credit quality in the C&I
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, 2013
September 30, 2012
September 30, 2011
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)
89
—
25,512
76,357
—
101,958
$
(95,994)
(1,000)
(19,266)
(19,126)
(1,115)
(136,501) $
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)
September 30, 2010
September 30, 2009
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)
(23) $
— $
(7)
—
—
67,901
86,082
—
153,983
$
(60,464)
(4,473)
(47,771)
(34,297)
(56)
(147,084) $
—
—
86,422
71,960
—
158,382
$
(84,841)
(3,237)
(34,018)
(28,081)
(88)
(150,272)
The level of nonperforming loans is another indicator of potential future credit losses. The amount of nonperforming loans
decreased 4% during the year ended September 30, 2013. This decrease was primarily due to a $19.4 million reduction in
nonperforming C&I loans and a $2.3 million reduction in nonperforming residential mortgage loans, offset by a $17.1 million
increase in nonperforming CRE loans. Included in nonperforming residential mortgage loans are $62 million in loans for which
$35.8 million in charge-offs were previously recorded, resulting in less exposure within the remaining balance.
88
Index
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:
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 98% 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 20% 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 loans fully collateralized by client’s marketable securities and represents
approximately 6% 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.
89
Index
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, one other quantitative factor utilized for the performing residential mortgage
loan portfolio is updated LTV ratios.
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 current valuation indices and other factors.
Residential mortgage loans with estimated LTVs between 100% and 120% represent 5% of the residential mortgage loan
portfolio and residential mortgage loans with estimated LTVs in excess of 120% represent 2% of the residential mortgage loan
portfolio. The current average estimated LTV is approximately 65% 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 significantly improved during fiscal year 2013. Our consumer loan
portfolio, however, has not experienced high levels of delinquencies to date. At September 30, 2013 and September 30, 2012,
there were no delinquent consumer loans.
At September 30, 2013, loans over 30 days delinquent (including nonperforming loans) decreased to 2.87% of residential
mortgage loans outstanding, compared to 3.55% over 30 days delinquent at September 30, 2012. Additionally, our September
30, 2013 percentage compares favorably to the national average for over 30 day delinquencies of 9.19% 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.
90
Index
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, 2013
Residential Mortgage Loans:
First mortgage loans
Home equity loans/lines
Total residential mortgage
loans
September 30, 2012
Residential Mortgage Loans:
First mortgage loans
Home equity loans/lines
Total residential mortgage
loans
$
$
$
$
($ in thousands)
$
6,824
—
$
43,004
372
49,828
372
6,824
$
43,376
$
50,200
$
10,276
338
$
49,476
—
59,752
338
10,614
$
49,476
$
60,090
0.40%
—%
0.39%
0.62%
1.33%
0.63%
2.49%
1.66%
2.48%
2.97%
—%
2.92%
2.89%
1.66%
2.87%
3.58%
1.33%
3.55%
(1) Comprised of loans which are two or more payments past due as well as loans in process of foreclosure.
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, 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. 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, 2013
September 30, 2012
($ outstanding as a % of RJ Bank total assets)
3.0%
2.4%
1.2%
0.8%
0.7%
FL
CA (1)
NY
NJ
VA
2.8%
2.7%
1.5%
0.9%
0.7%
CA (1)
FL
NY
NJ
VA
(1) The concentration ratio for the state of California excludes 1.4% for September 30, 2013 and 1.8% for September 30, 2012 for loans
purchased from a large investment grade institution that have full repurchase recourse for any delinquent loans.
91
Index
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, 2013 and September 30, 2012, these loans totaled $363 million and $428 million, respectively,
or approximately 20% and 30% of the residential mortgage portfolio, respectively. At September 30, 2013, the balance of
amortizing, former interest-only, loans totaled $344 million. The weighted average number of years before the remainder of the
loans, which were still in their interest-only period at September 30, 2013, begins amortizing is 3 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, 2013
(in thousands)
$
$
246,387
18,940
10,756
13,275
27,608
46,023
362,989
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, 2013
66%/754
September 30, 2012
66%/753
(1) At origination. Small group of local loans representing less than 1% of residential portfolio excluded.
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, 2013, other than loans classified as nonperforming, there was one government-guaranteed loan totaling
$135 thousand that was delinquent greater than 30 days.
Credit risk is also managed by diversifying the corporate loan portfolio. RJ Bank’s corporate loan portfolio does not contain
a significant concentration in any single industry. The industry concentrations (top five categories) of RJ Bank’s corporate loans
are as follows:
September 30, 2013
September 30, 2012
($ outstanding as a % of RJ Bank total assets)
3.5% Media communications
3.4% Business systems and services
3.3% Automotive/transportation
3.1% Pharmaceuticals
3.1% Retail real estate
4.1% Business systems and services
3.2% Pharmaceuticals
3.1% Media communications
2.9% Consumer products and services
2.8% Retail real estate
92
Index
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, Risk Management 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.
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.
93
Index
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.
94
This page intentionally left blank
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, 2013 and 2012, 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, 2013. 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, 2013 and 2012, and the results of their operations and
their cash flows for each of the years in the three-year period ended September 30, 2013, 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, 2013, 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 26, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.
/s/ KPMG LLP
November 26, 2013
Tampa, Florida
Certified Public Accountants
95
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
2013
2012
(in thousands)
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
(continued on next page)
$
2,596,616
$
4,064,827
709,120
579,705
698,844
216,391
248,512
250,341
1,983,340
146,749
8,821,201
243,101
409,080
407,329
126,405
611,425
272,096
244,416
195,160
361,464
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
$
23,186,122
$
21,160,265
See accompanying Notes to Consolidated Financial Statements.
96
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(continued from previous page)
September 30,
2013
2012
($ in thousands)
Liabilities and equity:
Trading instruments sold but not yet purchased, at fair value
$
220,656
$
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
Other borrowings
Accrued compensation, commissions and benefits
Loans payable of consolidated variable interest entities
Corporate debt
Total liabilities
Commitments and contingencies (see Note 20)
Equity
300,933
250,341
5,942,843
354,377
9,295,371
109,611
630,344
84,076
741,787
62,938
1,194,508
19,187,785
232,436
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
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 144,559,772 at
September 30, 2013 and 142,853,667 at September 30, 2012
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 5,002,666 common shares at September 30, 2013 and
5,117,049 common shares at September 30, 2012
Accumulated other comprehensive income
Total equity attributable to Raymond James Financial, Inc.
Noncontrolling interests
Total equity
Total liabilities and equity
1,429
1,136,298
2,635,026
(120,555)
10,726
3,662,924
335,413
3,998,337
1,404
1,030,288
2,346,563
(118,762)
9,447
3,268,940
411,342
3,680,282
$
23,186,122
$
21,160,265
See accompanying Notes to Consolidated Financial Statements.
97
This page intentionally left blank
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Year ended September 30,
2012
(in thousands, except per share amounts)
2013
2011
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 income (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 losses 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 pre-tax (recoveries) losses recognized in other comprehensive income
Net impairment losses recognized in other revenue
$
3,007,711
$
2,535,484
$
2,190,436
288,251
282,755
473,599
363,531
34,069
145,882
4,595,798
110,371
4,485,427
223,579
223,850
453,258
319,718
55,538
86,473
251,183
216,750
392,318
286,523
27,506
35,170
3,897,900
3,399,886
91,369
65,830
3,806,531
3,334,056
3,054,027
2,620,058
2,270,735
257,366
157,449
40,253
124,387
37,112
2,565
73,454
—
195,895
134,199
39,422
118,712
29,210
25,894
59,284
—
144,904
3,891,517
115,936
3,338,610
593,910
197,033
396,877
29,723
367,154
2.64
2.58
137,732
140,541
$
$
$
467,921
175,656
292,265
(3,604)
295,869
2.22
2.20
130,806
131,791
$
$
$
$
$
$
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
$
367,154
$
295,869
$
278,353
15,042
(13,763)
12,886
6,166
2,621
(6,029)
368,433
$
314,921
$
274,945
3,755
$
17,144
$
(11,977)
(4,391)
(22,419)
1,743
(636) $
(5,275) $
(10,234)
$
$
$
(1) All components of other comprehensive income, net of tax, are attributable to Raymond James Financial, Inc.
See accompanying Notes to Consolidated Financial Statements.
98
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
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
Purchase of additional equity interest in subsidiary
Issuance of stock as consideration for acquisition
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
(continued on next page)
Year ended September 30,
2013
2012
2011
(in thousands, except per share amounts)
$
1,404
$
—
25
1,429
—
—
—
1,030,288
—
18,319
30,640
58,689
2,590
(4,531)
—
303
1,136,298
2,346,563
367,154
(78,208)
(483)
1,271
111 (1)
22
1,404
—
—
—
565,135
362,712 (1)
16,150
23,181
52,538
2,613
1,224
—
6,735
1,030,288
$
1,244
—
27 (2)
1,271
3,119
(3,119) (2)
—
476,359
—
10,699
32,675
38,551
(374)
—
4,011 (3)
3,214 (2)
565,135
2,125,818
295,869
(70,286)
(4,838)
1,909,865
278,353
(65,808)
3,408
2,635,026
2,346,563
2,125,818
(118,762)
(8,214)
6,421
—
—
(95,000)
(19,416)
(4,346)
—
—
(81,574)
(22,710)
5,220
4,291 (3)
(227)
(120,555)
(118,762)
(95,000)
See accompanying Notes to Consolidated Financial Statements.
99
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(continued from previous page)
Accumulated other comprehensive income: (4)
Balance, beginning of year
Net change in unrealized losses on available for sale securities and non-credit
portion of other-than-temporary impairment losses, net of tax
Net change in currency transactions and net investment hedges, net of tax
Balance, end of year
Year ended September 30,
2013
2012
2011
(in thousands, except share amounts)
9,447
(9,605)
(6,197)
15,042
(13,763)
10,726
12,886
6,166
9,447
2,621
(6,029)
(9,605)
Total equity attributable to Raymond James Financial, Inc.
$
3,662,924
$
3,268,940
$ 2,587,619
Noncontrolling interests:
Balance, beginning of year
Net income (loss) attributable to noncontrolling interests
Capital contributions
Distributions
Consolidation of acquired entity
Consolidation of low income housing tax credit funds not previously
consolidated
Consolidation of private equity partnerships
Deconsolidation of previously consolidated low income housing tax credit
funds
Derecognition resulting from acquisition of additional interests
Other
Balance, end of year
Total equity
$
411,342
$
324,226
$
294,052
29,723
30,052
(148,871)
7,592 (5)
—
—
—
4,126
1,449
335,413
(3,604)
38,073
(18,294)
—
—
78,394
—
(665)
(6,788)
411,342
(10,502)
33,633
(9,971)
—
14,635
—
(6,789)
—
9,168
324,226
$
3,998,337
$
3,680,282
$ 2,911,845
(1) During the year ended September 30, 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) In April, 2011, we acquired Howe Barnes, Hoefer & Arnett (“Howe Barnes”) by exchanging RJF shares for all issued and outstanding shares of
Howe Barnes.
(4) All components of other comprehensive income are attributable to Raymond James Financial, Inc.
(5) On December 24, 2012, we acquired a 45% interest in ClariVest Asset Management, LLC, see Notes 1 and 3 for discussion.
See accompanying Notes to Consolidated Financial Statements.
100
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 income (loss) attributable to noncontrolling interests
Net income including noncontrolling interests
Adjustments to reconcile net income including noncontrolling interests to net cash provided
by 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
Goodwill impairment expense
Other
Net change in:
Year ended September 30,
2013
2012
2011
(in thousands)
$
367,154
$
295,869
$
278,353
29,723
396,877
(3,604)
292,265
(10,502)
267,851
66,359
(31,789)
51,445
2,044
40,337
(6,008)
(80,631)
(35,462)
(13,001)
13,944
61,862
6,933
23,158
32,605
55,729
—
17,805
52,639
40,978
—
50,250
Assets segregated pursuant to regulations and other segregated assets
(1,280,628)
889,684
(116,231)
Securities purchased under agreements to resell and other collateralized financings, net of
securities sold under agreements to repurchase
Stock loaned, net of stock borrowed
Repayments of loans (loans provided) 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
Proceeds from sales of securitizations and loans held for sale, net of purchases and
originations of loans held for sale
Excess tax benefits from share-based payment arrangements
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property and equipment
Increase in loans, net
Proceeds from sales of loans held for investment
Redemptions of Federal Home Loan Bank/Federal Reserve Bank stock, net
Sales (purchases) of private equity and other investments, net
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
Net cash used in investing activities
(191,207)
(15,731)
20,341
88,162
252,101
(66,448)
(209,656)
(357,956)
(220,722)
144,047
102,876
12,914
(98,196)
153,248
(15,963)
(70,499)
80,740
(13,418)
1,307,607
(424,867)
1,312,192
50,318
59,987
34,187
41,167
(2,590)
659,805
(18,836)
(2,613)
391,289
(138,559)
(2,106)
1,558,441
(72,879)
(77,515)
(1,063,301)
(1,523,071)
198,676
1,067
229,136
—
(62,102)
117,435
4,793
71,640
31,049
(82,707)
—
(249,379)
173,189
—
(37,200)
(384,550)
48,236
61,508
26,210
(6,354)
(238,768)
130,063
13,761
1,651
(800)
(13,049)
(6,450)
(1,073,621)
—
$
(651,974) $ (2,731,215) $
(400,143)
(continued on next page)
See accompanying Notes to Consolidated Financial Statements.
101
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 in bank deposits
Purchase of treasury stock
Dividends on common stock
Excess tax benefits from share-based payment arrangements
Net cash provided by (used in) financing activities
Currency adjustment:
Effect of exchange rate changes on cash
Net increase (decrease) 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
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
Year ended September 30,
2013
2012
2011
(in thousands)
$
258,776
$
1,256,459
$
249,498
(309,597)
(550,564)
(2,561,324)
—
362,823
—
(22,613)
(23,145)
(23,679)
23,485
(553)
55,997
695,658
(11,718)
(76,593)
2,590
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
615,432
1,879,275
(1,679,384)
(6,667)
616,596
976
(824)
(459,675)
(521,910)
—
—
18,366
1,980,020
2,439,695
2,943,239
$
2,596,616
$
1,980,020
$
2,439,695
$
$
$
106,818
189,730
3,072
$
$
$
91,453
176,539
12,653
$
$
$
55,332
194,233
14,198
See accompanying Notes to the Consolidated Financial Statements
102
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2013
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.
Fiscal Year 2013 Acquisition
On December 24, 2012, we completed our acquisition of a 45% interest in ClariVest Asset Management, LLC (“ClariVest”),
an acquisition that bolsters our platform in the large-cap investment objective. See Note 3 for additional information.
Fiscal Year 2012 Acquisition
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. We accounted for this acquisition under the acquisition method
of accounting with the assets and liabilities of Morgan Keegan recorded as of the acquisition date at their respective fair values
and consolidated in our financial statements, see Note 3 for further information regarding our acquisition of Morgan Keegan. The
results of operations of Morgan Keegan have been included in our results prospectively from April 2, 2012.
Fiscal Year 2011 Acquisitions
As of April 1, 2011, we completed our acquisition of 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.
103
Index
Significant subsidiaries
As of September 30, 2013, our significant subsidiaries, all wholly owned, include: Raymond James & Associates, Inc.
(“RJ&A”) a domestic broker-dealer carrying client accounts, Raymond James Financial Services, Inc. (“RJFS”) an introducing
domestic broker-dealer, Raymond James Financial Services Advisors, Inc. (“RJFSA”) a registered investment advisor, Raymond
James Ltd. (“RJ Ltd.”) a broker-dealer headquartered in Canada, Eagle Asset Management, Inc.(“Eagle”), and Raymond James
Bank, N.A. (“RJ Bank”), a national bank. In mid-February 2013, the client accounts of MK & Co. were transferred to RJ&A
pursuant to our Morgan Keegan acquisition integration strategy (see Note 3 for additional information regarding the Morgan
Keegan acquisition).
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.
Reclassifications
Effective September 30, 2013 we implemented changes in our reportable segments. These segment changes have no effect
on the historical financial results of operations. Prior period segment balances impacted by this change have been reclassified to
conform to the current presentation. See Note 28 for additional information related to this change.
Certain other prior period amounts, none of which are material, have been reclassified to conform to the current year’s
presentation.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recognition of revenues
Securities commissions & fees
The significant components of our securities commissions and fees revenue include the following:
a. Commission revenues and related expenses from securities transactions 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.
b. Fee revenues include certain asset-based fees. These fees include trailing commissions from mutual funds and variable
annuities/insurance products, which are recorded ratably over the period earned.
c. Fee revenues also include the fees earned by financial advisors who provide investment advisory services under various
manners of affiliation with us. These fee revenues are computed as either a percentage of the assets in the client account,
or a flat periodic fee charged to the client for investment advice. Such fees are earned from the services provided by
investment advisor representatives (“IARs”) and registered investment advisors (“RIAs”) who affiliate with us.
Financial advisors may choose to affiliate with us as either an employee of RJ&A, and thus operate under the RJ&A
registered investment advisor (“RIA”) license, or as an independent contractor affiliated with RJFS. If affiliated with
RJFS, the financial advisor may choose to provide such advisory services either under their own RIA license, or under
the RIA license of RJFSA, a wholly owned RIA that exclusively supports the investment advisory activities of financial
advisors affiliated with RJFS.
104
Index
The revenue recognition and related expense policies associated with the generation of advisory fees from each of these
affiliation alternatives are as follows:
i.
ii.
Investment advisory service fee revenues earned by employee financial advisors (IARs of RJ&A) are presented in
securities commissions and fees revenue on a gross basis. The RJ&A IARs are paid compensation which is computed
as a percentage of the revenues generated and which is recorded as a component of compensation, commissions and
benefits expense.
Investment advisory service fee revenues earned by independent contractors who are registered representatives (“RR”)
with RJFS are also registered with RJFSA and offer investment advisory services under RJFSA’s RIA license as an
IAR of RJFSA are presented in securities fees and commissions revenue on a gross basis. These financial advisors
are paid a portion of the revenues generated which is recorded as a component of compensation, commissions and
benefits expense.
iii. Independent RIA firms that are owned and operated by a financial advisor who is an independent contractor registered
as a RR with RJFS, may receive administrative and custodial services provided by RJFS as introducing broker-dealer
firm to RJ&A. These independent RIA firms operate under their own RIA license and pay a fee for services provided
to the RIA and its clients. These fees are recorded in securities commissions and fees revenue, net of the portion of
the fees that are remitted to the independent RIA firm.
iv. We may earn fees as a result of providing a custodial platform for unaffiliated independent RIA firms. These
independent RIA firms operate under their own RIA license and pay for administrative and other services provided
through RJFS. These fees are recorded in securities commissions and fees revenue, net of the portion of the fees
that are remitted to the independent RIA firm.
d.
Insurance commission revenues and related expenses 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.
e. Annuity commission revenues and related expenses are recognized when the signed annuity contract and premium is
submitted to the annuity carrier.
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. These revenues are generated by our asset management businesses for administering and managing portfolios,
funds and separate accounts. These asset management services are provided to individual investment portfolios, mutual funds and
managed programs. We earn investment advisory fees based on the value of clients’ portfolios which are held in either managed
or non-managed programs. Fees are computed based on balances either at the beginning of the quarter, the end of the quarter, or
average assets. These fees are recorded ratably over the period earned.
105
Index
Account and service fees
Account and service fees primarily include transaction fees, annual account fees, service charges, exit fees, servicing fees,
fees generated in lieu of interest income from a multi-bank sweep program with unaffiliated banks, money market processing and
distribution fees and correspondent clearing fees. The annual account fees such as IRA fees and distribution fees are recognized
as earned over the term of the contract. The transaction fees are earned and collected from clients as trades are executed. Servicing
fees such as omnibus, education and marketing support fees, and no-transaction fee program revenues are paid to us 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 $35.5 million, $33.5 million, and $39.3 million and
commissions remitted totaled $32.6 million, $31.2 million, and $36.1 million for the years ended September 30, 2013, 2012, and
2011 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 of September 30, 2012),
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, 2013 and 2012 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
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.
106
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”), our derivative
instruments and nonrecurring fair value measurements for certain loans held for sale, impaired loans and other real estate
owned (“OREO”).
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 activities, certain non-
agency CMOs, certain non-agency ABS, pools of interest-only Small Business Administration (“SBA”) loan strips (“I/O
Strips”), certain municipal and corporate obligations which include auction rate securities (“ARS”) and nonrecurring fair
value measurements for certain impaired loans.
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, 2013 and 2012. 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.
107
Index
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.
The fair value for SBA loan securitizations is determined by utilizing observable prices obtained from a third party pricing
service. The third party pricing service provides comparable price evaluations utilizing observable market data for similar securities.
We substantiate the prices obtained from the third party pricing service by comparing such prices for a sample of securities to
observable market trades obtained from external sources. The instruments valued using these observable inputs are typically
classified within Level 2 of the fair value hierarchy.
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 and other equity 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 estimated remaining life 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.
108
Index
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”).
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 and forecasted performance of the security.
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. 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 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 except three senior non-agency securities at September 30, 2013 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, 2013 and 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.
109
Index
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 at one time 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
We enter 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. 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.
We also facilitate matched book derivative transactions through non-broker-dealer subsidiaries, either Raymond James
Financial Products, LLC or Morgan Keegan Capital Services, LLC (collectively referred to as the Raymond James matched book
swap subsidiaries or “RJSS”). The only difference in the swap businesses conducted by these two subsidiary entities is that they
utilize different third party financial institutions to facilitate the offsetting transaction. RJSS enters into derivative transactions
(primarily interest rate swaps) with customers of RJ&A. For every derivative transaction RJSS 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. RJSS 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. RJSS recognizes revenue on derivative transactions on the transaction date, computed as the present
value of the expected cash flows RJSS expects to receive from the third party financial institution over the life of the derivative
contract. The difference between the present value of these cash flows at the date of inception and the gross amount potentially
received is accreted to revenue over the term of the contract. The revenue from these transactions is included within other revenues
on our Consolidated Statements of Income and Comprehensive Income.
RJ Bank enters into three-month forward foreign exchange contracts to hedge the risk related to their investment in their
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 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.
110
Index
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 Other 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 various 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 Private 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. See Note 20 for information regarding our unfunded commitments to these funds. Merchant
banking investments include ownership interests in private companies with long-term growth potential. 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.
Private equity investments are carried at estimated fair value. They 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/or discounted cash flow models incorporating changes in market outlook. Investments in funds structured
as limited partnerships are generally valued based on our proportionate share of the net assets of the partnership as provided by
the fund manager. 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 a deferred compensation program
which was formerly sponsored by MK & Co., 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 employees, who were at one-time associated with MK & Co., participate in deferred compensation plans. The balances
associated with these plans are invested in certain marketable securities that are held by RJF 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.
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.
See Notes 5 and 6 for the outcome of the application of these fair value policies and procedures.
111
Index
Brokerage client receivables, loans to financial advisors and allowance for doubtful accounts
Brokerage client receivables include receivables from the clients of our broker-dealer and asset management subsidiaries.
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. The receivables from asset management clients are primarily for accrued
investment advisory fees. 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. The allowance for
doubtful accounts balance associated with all of our loans to financial advisors is $2.8 million and $2.5 million at September 30,
2013 and 2012, respectively. Of the September 30, 2013 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
$2.4 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 loans fully collateralized
by the borrower’s marketable securities. 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 any 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 trade date. Interest income is
recognized on an accrual basis.
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. 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.
112
Index
Loans held for sale
Certain 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 the residential mortgage 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, which generally occurs as part of a loan workout situation, 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. 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. The determination of the fair value of the SBA
loans depend upon their intended disposition. The fair value of the SBA loans to be individually sold are determined based upon
their committed sales price. The fair value of loans to be aggregated into pools for securitization which are committed to be sold,
are determined based upon third party price quotes. The fair value of all other SBA loans are determined using a third party pricing
service. The prices for the SBA loans, other than those committed to be individually sold, are validated by comparing the third
party price quote or the third party pricing service prices, as applicable, for a sample of loans to observable market trades obtained
from external sources. 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 of the securitized pools as well as any realized gains or losses earned thereon are reflected in net trading profits. 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 assets such as: marketable
securities, accounts receivable, inventory, real estate, and income-producing commercial properties.
Nonperforming assets
Nonperforming assets are comprised of both nonperforming loans and 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.
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 fair value less estimated selling costs through a charge to the allowance for loan losses, thus 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.
113
Index
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, principal forbearance, release of liability ordered under Chapter 7 bankruptcy not reaffirmed by the borrower, or
an extension of the interest-only or maturity 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.
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 are collectively evaluated for impairment) is based on an individual evaluation of impairment as
previously described in the “Impaired loans” section above.
114
Index
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, experience, ability and depth of lending management and other relevant staff, local, regional, national and
international 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 given 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. Qualitative factors, while considered and reviewed in establishing the allowance for loan
losses, have generally not resulted in any significant quantitative adjustments to allowance percentages.
For residential first mortgage, residential home equity and consumer loan classes, the qualitative factors considered when
assigning 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 factors, 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.
Historical loss rates, a quantitative factor, is utilized when assigning the allowance percentages for residential first mortgage,
residential home equity and consumer loans, and 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. In addition to historical loss rates, one other quantitative factor utilized for the performing residential mortgage loan
portfolio is updated LTV ratios. RJ Bank segregates the performing 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 current valuation indices. The value of the homes could vary from actual market values due to changes in
the condition of the underlying property, variations in housing price changes within current valuation indices 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.
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.
115
Index
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. With respect to its ongoing credit evaluation process of the SNC
portfolio, RJ Bank conforms to what it believes will be the regulators’ view of individual credits.
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 nine months, an updated valuation is obtained and further charge-offs are taken against the allowance for loan losses,
if necessary.
116
Index
Other assets
RJ Bank carries investments in stock of the FHLB and the Federal Reserve Bank of Atlanta (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 low-income housing tax credit (“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.
Intangible assets
Certain identifiable intangible assets, such as customer relationships, trade names, developed technology we acquire, and non-
compete agreements, 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.
The rights to service mortgage loans, known as mortgage servicing rights (“MSRs”), are an intangible asset. Our MSRs arise
when RJ Bank sells residential mortgage loans and retains the associated mortgage servicing rights. RJ Bank records the estimated
fair value of MSRs and amortizes MSRs in proportion to, and over the period of estimated net servicing revenue. MSRs are
assessed for impairment quarterly, based on their fair value, with any impairment recognized in our Consolidated Statements of
Income and Comprehensive Income.
117
Index
Goodwill
Goodwill represents the cost of acquired businesses in excess of the fair value of the related net assets acquired. 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.
In the course of our evaluation of the potential impairment of goodwill, we may perform either a qualitative or a quantitative
assessment. Our qualitative assessment of potential impairment 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 than 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 perform a quantitative impairment analysis.
If we either choose not to perform a qualitative assessment, or we choose to perform a qualitative assessment but are unable
to qualitatively conclude that no impairment has occurred, then 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 (see Note 13 for additional information
regarding the outcome of our goodwill impairment assessments).
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.
118
Index
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.
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 (see Note 10 for information regarding the carrying value of such policies). 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 Notes 23 and 24 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. In instances where the office space or equipment under an operating lease will be abandoned prior to the expiration of
the lease term (these instances primarily result from the effects of acquisitions), we accrue an estimate of any projected loss in the
Consolidated Statements of Income and Comprehensive Income at the time such abandonment is known and any loss is estimable.
Acquisition related expense
Acquisition related expenses are recorded in the Consolidated Statement of Income and Comprehensive Income and include
certain incremental expenses associated with our acquisition transactions (predominately associated with our Morgan Keegan
acquisition), as well as incremental costs to integrate our operations and those of Morgan Keegan. These costs do not represent
recurring costs within the fully integrated combined organization.
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.
119
Index
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, including the repatriation of undistributed earnings of foreign subsidiaries. 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.
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 (“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.
Fiscal year 2011 impact of the adoption of new accounting consolidation guidance
In fiscal year 2011, 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, 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.
120
Index
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.
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.
121
Index
Among the LIHTC Fund entities evaluated, RJTCF determined that some of the LIHTC Funds it sponsors are not VIEs. These
funds are either: (1) funds which RJTCF holds a significant interest (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.
RJ Bank is an investor member in a LIHTC fund in which a subsidiary of RJTCF is the managing member. Although this
fund was determined not to be a VIE, RJ Bank is consolidating this fund through the application of other applicable accounting
guidance.
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.
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 may have 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 entity which was at one time 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 the 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, our affiliate as the managing member of the NMTC Fund does not have the power over such activities.
Accordingly, we are not deemed to be the primary beneficiary of these NMTC Funds and, therefore, they are not consolidated.
Managed Funds
We have two subsidiaries (a subsidiary of Howe Barnes and a subsidiary of ClariVest), that serve as 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.
122
Index
NOTE 3 – ACQUISITIONS
Acquisition during fiscal year 2013
On December 24, 2012, (the “ClariVest Acquisition Date”) we completed our acquisition of a 45% interest in ClariVest. On
the ClariVest Acquisition Date, we paid approximately $8.8 million in cash to the sellers for our interest. On the first anniversary
of the ClariVest Acquisition Date, a computation based upon the actual earnings of ClariVest during the one year period will be
performed and additional consideration may be owed to the sellers within 45 days thereof.
As of the ClariVest Acquisition Date, ClariVest managed more than $3.1 billion in client assets and marketed its investment
advisory services to corporate and public pension plans, foundations, endowments and Taft-Hartley clients worldwide. As a result
of certain protective rights we have under the operating agreement with ClariVest, we are consolidating ClariVest in our financial
statements as of the ClariVest Acquisition Date. In addition, a put and call agreement was entered into on the ClariVest Acquisition
Date that provides Eagle with various paths to majority ownership in ClariVest, the timing of which would depend upon the
financial results of ClariVest’s business and the tenure of existing ClariVest management. The results of operations of ClariVest
have been included in our results prospectively since December 24, 2012. For the purposes of certain acquisition related financial
reporting requirements, the ClariVest acquisition is not considered to be material to our overall financial condition.
See Note 13 for information regarding the identifiable intangible assets we recorded as a result of the ClariVest acquisition.
Prior year acquisition of Morgan Keegan
As of the Closing Date, we applied the acquisition method of accounting to our acquisition of Morgan Keegan. In February
2013, we successfully completed the transfer of client accounts from MK & Co. to RJ&A and as a result, are now operating all
of the retained historical MK & Co. operations under one (the RJ&A) platform.
Net assets acquired and consideration paid
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. 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 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.
Goodwill
The remaining consideration, after adjusting for the identified intangible assets and the net assets and liabilities recorded at
fair value, is $230 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 more information regarding the goodwill and identifiable intangible assets related to this acquisition.
Other items of significance
During April, 2012, and concurrent with the closing of the transaction, RJF made approximately $136 million of loans to
Morgan Keegan financial advisors, issued approximately 1.5 million restricted stock units to certain key Morgan Keegan revenue
producers (see Note 23 for additional information on our employee benefit plans) and RJF executed employment agreements with
certain key members of the Morgan Keegan management team as part of an employee retention program.
123
Index
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.
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 Notes 15
and 17 for information regarding these borrowings.
Acquisition related expenses
We incurred the following acquisition related expenses:
Information systems integration and conversion costs (1)
Occupancy and equipment (2)
Severance (3)
Temporary services
Financial advisory fees
Legal
Bridge financing agreement fees
Other integration costs
Year ended September 30,
2012
2013
$
(in thousands)
33,021
$
15,999
12,734
4,106
1,176
476
—
5,942
14,542
4,803
18,729
1,128
7,040
2,267
5,684
5,091
Total acquisition related expenses
$
73,454
$
59,284
(1) Includes equipment costs related to the disposition of information systems equipment, and temporary services incurred specifically
related to the information systems conversion.
(2) Includes lease costs associated with the abandonment of certain facilities resulting from the Morgan Keegan acquisition.
(3) 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.
We did not incur acquisition related expenses during the year ended September 30, 2011.
124
Index
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 and other segregated assets, and deposits with clearing
organization balances are as follows:
Cash and cash equivalents:
Cash in banks
Money market fund investments
Total cash and cash equivalents (1)
Cash segregated pursuant to federal regulations and other segregated assets (2)
Deposits with clearing organizations (3)
September 30,
2013
2012
(in thousands)
$
$
2,593,890
2,726
2,596,616
4,064,827
126,405
6,787,848
$
$
1,973,897
6,123
1,980,020
2,784,199
163,848
4,928,067
(1) The total amounts presented include cash and cash equivalents of $1.02 billion and $539 million as of September 30, 2013 and 2012,
respectively, which are either held directly by RJF or are otherwise invested by one of our subsidiaries on behalf of RJF, and are available
without restrictions.
(2) Consists of cash maintained in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934. RJ&A (and MK & Co. as of
September 30, 2012) as broker-dealers carrying client accounts as of each respective date, 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.
125
Index
NOTE 5 – FAIR VALUE
Assets and liabilities measured at fair value on a recurring and nonrecurring basis are presented below:
September 30, 2013
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 receivables
Other assets
Total assets at fair value on a recurring basis
$
Assets at fair value on a nonrecurring
basis: (7)
Bank loans, net:
Impaired loans
Loans held for sale (8)
Total bank loans, net
OREO (9)
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,
2013
10
833
6,408
155
—
7,406
—
48,749
1,413
57,568
—
—
2,076
—
—
2,076
—
241,627
—
—
—
301,271
$
$
202,816
59,573
106,988
92,994
16,957
479,328
89,633
4,231
6,464
579,656
326,029
128,943
—
—
—
454,972
—
2,278
250,341
—
—
$
—
—
—
—
14
14
—
35
3,956
4,005
—
78
—
(3)
130,934
110,784
241,796
216,391 (4)
4,607
—
(6)
2,778
15
— $
—
—
—
—
—
(61,524)
—
—
(61,524)
—
—
—
—
—
—
—
—
—
—
—
202,826
60,406
113,396
93,149
16,971
486,748
28,109
53,015
11,833
579,705
326,029
129,021
2,076
130,934
110,784
698,844
216,391
248,512
250,341
2,778
15
$
1,287,247
$
469,592
$
(61,524) $
1,996,586
— $
—
—
—
— $
$
33,187
28,119
61,306
209
$
59,868
—
59,868
—
— $
—
—
—
93,055
28,119
121,174
209
61,515
$
59,868
$
— $
121,383
(continued on next page)
126
Index
September 30, 2013
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 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,
2013
(continued from previous page)
$
$
165
30
169,816
3,068
—
173,079
—
31,151
—
204,230
—
—
—
—
$
1,612
9,081
—
—
—
10,693
74,920
92
—
85,705
250,341
714
—
714
$
204,230
$
336,760
$
—
—
—
—
—
—
—
—
—
—
—
—
60
60
60
$
— $
—
—
—
—
—
(69,279)
—
—
1,777
9,111
169,816
3,068
—
183,772
5,641
31,243
—
(69,279)
220,656
—
—
—
—
250,341
714
60
774
$
(69,279) $
471,771
(1) We had $860 thousand in transfers of financial instruments from Level 1 to Level 2 during the year ended September 30, 2013. These transfers
were a result of a decrease in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement.
We had $401 thousand in transfers of financial instruments from Level 2 to Level 1 during the year ended September 30, 2013. 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 $54 million of Jefferson County, Alabama Limited Obligation School Warrants ARS and $25 million of Jefferson County, Alabama
Sewer Revenue Refunding Warrants ARS.
(4) Of the total private equity investments, the weighted-average portion we own is approximately 41%. 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 $63 million of the total as of September 30, 2013.
(5) Other investments include $176 million of financial instruments that are related to obligations to perform under certain of MK & Co.’s historic
deferred compensation plans (see Note 2 and Note 23 for further information regarding these plans).
(6) Primarily comprised of forward commitments to purchase GNMA (as hereinafter defined) MBS arising from our fixed income public finance
operations (see Note 20 for additional information regarding these commitments).
(7) Goodwill fair value measurements are classified within Level 3 of the fair value hierarchy, which are generally determined using unobservable
inputs. See Note 13 for additional information regarding the annual impairment analysis and our methods of estimating the fair value of
reporting units that have an allocation of goodwill, including the key assumptions.
(8) Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.
(9) 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.
127
Index
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
Total assets at fair value on a recurring basis
$
Assets at fair value on a nonrecurring
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
$
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
$
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
—
356,234
$
458,265
1,799,711
$
—
581,458
$
—
(93,259) $
458,265
2,644,144
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
$
46,383
$
— $
—
—
—
81,093
128,502
6,216
—
46,383
—
—
—
—
93,792
81,093
174,885
6,216
— $
134,718
$
46,383
$
— $
181,101
(continued on next page)
128
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 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,
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
$
—
—
—
—
—
—
—
—
—
—
—
—
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
$
209,726
$
607,324
$
98
$
(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 million of financial instruments that are related to obligations to perform under certain of MK & Co.’s historic
deferred compensation plans (see Note 2 and 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.
129
Index
The adjustment to fair value of the nonrecurring fair value measures for the year ended September 30, 2013 resulted in $8.7 million
in additional provision for loan losses and $529 thousand in other losses. The adjustment to fair value of the nonrecurring fair value
measures for the year ended September 30, 2012 resulted in $20.7 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, 2013
Level 3 assets at fair value
(in thousands)
Financial assets
Trading instruments
Available for sale securities
Private equity, other investments, other receivables and
other assets
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
receivables
Other
Assets
Other
liabilities
Fair value
September 30, 2012
$
553
$
29
$
6
$
5,850 $
249
$
123,559
$ 110,193
$
336,927
$
4,092
$
— $
— $
(98)
Total gains (losses) for the year:
Included in earnings
Included in other
comprehensive
income
Purchases and
contributions
Sales
Redemptions by issuer
Distributions
Transfers: (3)
Into Level 3
Out of Level 3
Fair value
September 30, 2013
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
—
—
—
(553)
—
—
—
—
(4)
—
—
—
—
(11)
—
—
1
—
63
—
—
2
—
(140)
(396)
439
1,164
70,688
(1)
1,390
2,778
—
281
13,212
7,504
—
(37)
(9,234)
9,885
—
—
—
—
—
(4,971)
25
(90)
20,416
(165,878)
(2)
(1,305)
(8,012)
—
(2,390)
(56)
—
(15)
—
—
—
—
—
—
—
—
(45,762)
—
—
—
—
(691)
—
(315)
131
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15
—
38
—
—
—
—
—
—
—
$
— $
14
$
35
$
3,956 $
78
$
130,934
$ 110,784
$
216,391
$
4,607
$
2,778
$
15
$
(60)
$
— $
38
$
(1)
$
(140) $
(396)
$
13,212
$
7,504
$
5,354
$
1,511
$
2,778
$
— $
—
(1) Results from valuation adjustments of certain private equity investments and the April 29, 2013 sale of our indirect investment in Albion
Medical Holdings, Inc. (“Albion”). Since we only own a portion of these investments, our share of the net valuation adjustments and Albion
sale resulted in a gain of $28.4 million which is included in net income attributable to RJF (after noncontrolling interests). The noncontrolling
interests’ share of the net gain is approximately $42.3 million.
(2) Results primarily from the April 29, 2013 sale of our indirect investment in Albion. The amount is presented gross, and therefore includes
amounts pertaining to interests held by others.
(3) Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are
recognized.
130
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
Index
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:
(1,034)
(691)
(1,487)
(75)
36,098 (1)
296
(58)
89
—
553
(320)
—
—
—
(144)
(3)
—
—
—
—
(18)
—
—
11
—
18
(16)
—
—
—
16,268
(14,251)
—
(1,710)
156
(178)
6,577 (2)
—
130
—
—
—
(41)
—
—
(7,651)
(1,528)
—
56,344
66,915
—
—
162,795 (4)
—
(3,214)
(71,600)
—
—
43
—
—
(30,751)
—
(43)
—
—
—
2,276
—
—
(567)
—
—
—
—
—
—
—
—
—
$
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. Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments
between levels are recognized.
(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).
131
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
—
12
(305)
(5,210)
—
—
—
(6,248)
—
—
—
—
—
688
(1,225)
(1,125)
—
—
(1,172)
121
155
—
(436)
—
—
—
—
—
—
—
—
73,213
131,255
—
(15,925)
—
—
—
10,683 (1)
—
14,027
—
—
—
(16,694)
6,311
—
1,194
—
—
(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 the 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. Our policy is that the end of each respective quarterly reporting period determines when transfers
of financial instruments between levels are recognized.
As of September 30, 2013, 8.6% of our assets and 2.5% 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, 2013 represent 24% of our
assets measured at fair value. In comparison as of September 30, 2012, 12.5% and 4% 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, 2012 represented 22% of our assets measured at fair value. The balances of our level 3 assets have decreased
compared to September 30, 2012, primarily as a result of the sale of Albion in our private equity portfolio (partially offset by valuation
increases in that portfolio) and the sale or redemption of a portion of our ARS portfolio. Level 3 instruments as a percentage of total
financial instruments increased by 2% as compared to September 30, 2012. Total financial instruments, primarily trading instruments,
derivative instruments associated with offsetting matched book positions, and other investments which are not level 3 financial instruments
decreased compared to September 30, 2012, impacting the calculation of Level 3 assets as a percentage of total financial instruments.
132
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, 2013
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, 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 gains (losses) for assets held at the end of the reporting period
Quantitative information about level 3 fair value measurements
Net trading
profits
Other
revenues
(in thousands)
(143) $
(103) $
76,101
29,963
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)
$
$
$
$
$
$
The significant assumptions used in the valuation of level 3 financial instruments are presented in the table on the following page
(such table includes the significant majority of the financial instruments we hold that are classified as level 3 measures).
133
51,853
Discounted cash flow
Average discount rate(a)
Valuation technique(s)
Unobservable input
Range
(weighted-average)
Index
Fair value at
September 30,
2013
(in thousands)
Level 3 financial
instrument
Recurring measurements:
Available for sale securities:
ARS:
Municipals
$
54,365
Probability weighted
internal scenario model:
Scenario 1 - recent
trades
Scenario 2 - discounted
cash flow
24,716
Recent trades
$
$
Preferred securities
$
110,784
Discounted cash flow
Private equity investments:
$
37,849
Income or market
approach:
Scenario 1 - income
approach - discounted
cash flow
Scenario 2 - market
approach - market
multiple method
$
178,542
Transaction price, other
investment-specific
events, or our
proportionate share of
the net assets of the
partnership provided by
the fund manager(g)
Nonrecurring
measurements:
Impaired loans:
residential
Impaired loans: corporate
$
$
34,268
Discounted cash flow
25,600
Appraisal, discounted
cash flow, or distressed
enterprise value(h)
The explanations to the footnotes in the above table are on the following page.
134
Observed trades (in inactive markets) of in-
portfolio securities as well as observed trades (in
active markets) of other comparable securities
Average discount rate(a)
Average interest rates applicable to future interest
income on the securities(b)
Prepayment year(c)
Weighting assigned to outcome of scenario 1/
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(d)
Average interest rates applicable to future interest
income on the securities(b)
Prepayment year(c)
Average discount rate(a)
Average interest rates applicable to future interest
income on the securities(b)
Prepayment year(c)
81.9% of par - 84.0%
of par (82.75% of
par)
8.02% - 9.14%
(8.58%)
1.88% - 7.64%
(4.76%)
2016 - 2023 (2020)
90%/10%
63.8% of par - 74%
of par (73.78% of
par)
+/- 5% of par (+/-
5% of par)
3.34% - 6.33%
(4.75%)
0.88% - 7.62%
(3.32%)
2016 - 2023 (2019)
3.35% - 5.23%
(4.42%)
1.43% - 2.73%
(1.98%)
2013 - 2018 (2017)
Discount rate(a)
14% - 15% (14%)
Terminal growth rate of cash flows
3% - 3% (3%)
Terminal year
EBITDA Multiple(e)
2014 - 2015 (2014)
4.75 - 7.00 (5.39)
Projected EBITDA growth(f)
Weighting assigned to outcome of scenario 1/
scenario 2
Not meaningful(g)
16.3% - 16.3%
(16.3%)
86%/14%
Not meaningful(g)
Prepayment rate
Not meaningful(h)
0 yrs. - 12 yrs.
(7.8 yrs.)
Not meaningful(h)
Index
Footnote explanations pertaining to the table on the previous page:
(a) Represents discount rates used when we have determined that market participants would take these discounts into account when pricing the
investments.
(b) 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.
(c) Assumed year of at least a partial redemption of the outstanding security by the issuer.
(d) 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.
(e) Represents amounts used when we have determined that market participants would use such multiples when pricing the investments.
(f) 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.
(g) Certain direct private equity investments are valued initially at the transaction price until either our annual review, significant transactions
occur, new developments become known, or we receive information from the fund manager that allows us to update our proportionate share
of net assets, where any of which indicate that a change in the carrying values of these investments is appropriate.
(h) The valuation techniques used for the impaired corporate loan portfolio as of September 30, 2013 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 embedded 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.
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.
135
Index
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, 2013 and 2012, 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, 2013 and 2012 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, based on
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. Refer to Note 2 for
information regarding the fair value policies specific to loans held for sale.
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.
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.
Other borrowings: The carrying amount of other borrowings are estimated to approximate their fair value due to the relative short-
term nature of such borrowings, the majority of which are day-to-day.
Corporate debt: The fair value of the mortgage note payable associated with the financing of our Saint Petersburg, Florida corporate
offices 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.
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
that follows. See Note 26 for further discussion of off-balance sheet financial instruments.
136
Index
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 in the table 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 non-financial 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:
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
— $
83,012
$
8,614,755
$
8,697,767
$
8,700,027
— $
— $
$
352,520
8,981,996
84,076
951,628
$
$
$
320,196
$
— $
— $
9,302,192
84,076
1,304,148
$
$
$
9,295,371
84,076
1,194,508
— $
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
$
$
$
$
$
$
$
September 30, 2013
Financial assets:
Bank loans, net(1)
Financial liabilities:
Bank deposits
Other borrowings
Corporate debt
September 30, 2012
Financial assets:
Bank loans, net(1)
Financial liabilities:
Bank deposits
Corporate debt
(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, 2013 and 2012, respectively.
137
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, 2013
September 30, 2012
Trading
instruments
Instruments
sold but not
yet purchased
Trading
instruments
Instruments
sold but not
yet purchased
$
$
202,826
60,406
113,396
93,149
16,971
486,748
28,109
53,015
11,833
579,705
$
$
$
(in thousands)
1,777
9,111
169,816
3,068
—
183,772
5,641
31,243
—
220,656
$
346,590
86,731
167,399
105,169
2,015
707,904
51,000
26,523
18,845
804,272
$
$
212
12,388
200,088
556
121
213,365
3,102
9,700
6,269
232,436
(1) Represents the derivative contracts held for trading purposes. These balances do not include all derivative instruments since the
derivative instruments associated with offsetting matched book positions are included on their own line item 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, CMOs and other securities owned by RJ Bank, ARS and for certain prior
periods various equity securities owned by our non-broker-dealer subsidiaries.
During the year ended September 30, 2013, certain ARS were redeemed by their issuer at par, sold at amounts approximating
their par value pursuant to tender offers or sold in market transactions. Altogether, such transactions resulted in proceeds of $14
million and a gain of $2 million in the year ended September 30, 2013 which is recorded in other revenues on our Consolidated
Statements of Income and Comprehensive Income.
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 million. 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 for the year ended September 30, 2012, which was recorded in other revenues on our Consolidated
Statements of Income and Comprehensive Income.
During the 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 for the year ended September 30, 2011 on our Consolidated
Statements of Income and Comprehensive Income.
During the year ended September 30, 2013, the other securities, which were comprised of equity securities, and which are
not part of the other securities held within the RJ Bank available for sale securities portfolio, were sold. The sale resulted in $13
thousand in proceeds and an insignificant gain on sale during the year ended September 30, 2013. There were no proceeds from
the sale of other available for sale securities 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.
138
Index
The amortized cost and fair values of available for sale securities are as follows:
September 30, 2013
Available for sale securities:
Agency MBS and CMOs
Non-agency CMOs (1)
Other securities
Total RJ Bank available for sale securities
Auction rate securities:
Municipal obligations
Preferred securities
Total auction rate securities
Total available for sale securities
September 30, 2012
Available for sale securities:
Agency MBS and CMOs
Non-agency CMOs (2)
Total RJ Bank available for sale securities
Auction rate securities:
Municipal obligations (3)
Preferred securities (4)
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 (5)
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
Cost basis
Gross
unrealized gains
Gross
unrealized
losses
Fair value
(in thousands)
$
$
$
$
$
$
$
326,858
142,169
1,575
470,602
125,371
104,808
230,179
$
707
4
501
1,212
(1,536) $
(13,152)
—
(14,688)
6,831
5,976
12,807
(1,268)
—
(1,268)
700,781
$
14,019
$
(15,956) $
$
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
1,938
23
1,961
870
232
1,102
9
3,072
639
—
639
—
—
—
$
(203) $
(18,555)
(18,758)
(8,519)
(1,760)
(10,279)
—
(29,037) $
(27) $
(47,081)
(47,108)
—
—
—
$
$
3
567,127
$
7
646
$
—
(47,108) $
326,029
129,021
2,076
457,126
130,934
110,784
241,718
698,844
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
(1) As of September 30, 2013, the non-credit portion of OTTI recorded in AOCI was $11.1 million (before taxes).
(2) As of September 30, 2012, the non-credit portion of OTTI recorded in AOCI was $15.5 million (before taxes).
(3) As of September 30, 2012, the non-credit portion of OTTI recorded in AOCI was $7.6 million (before taxes).
(4) As of September 30, 2012, the non-credit portion of OTTI recorded in AOCI was $1.5 million (before taxes).
(5) As of September 30, 2011, the non-credit portion of OTTI recorded in AOCI was $37.9 million (before taxes).
See Note 5 for additional information regarding the fair value of available for sale securities.
139
Index
The contractual maturities, amortized cost, carrying values and current yields for our available for sale securities are as
presented below. Since the majority of RJ Bank’s available for sale securities are backed by mortgages, actual maturities will
differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment
penalties. Expected maturities of ARS and other securities may differ significantly from contractual maturities, as issuers may
have the right to call or prepay obligations with or without call or prepayment penalties.
Within one year
After one but
within five
years
September 30, 2013
After five but
within ten
years
($ 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
Other securities:
Amortized cost
Carrying value
Weighted-average yield
$
$
$
— $
—
—
— $
—
—
— $
—
—
Sub-total agency MBS & CMOs, non-agency CMOs and other securities:
$
Amortized cost
Carrying value
Weighted-average yield
— $
—
—
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
Total available for sale securities:
Amortized cost
Carrying value
Weighted-average yield
$
$
$
$
— $
—
—
— $
—
—
— $
—
—
— $
—
—
$
$
$
$
$
$
$
$
326,858
326,029
0.95%
142,169
129,021
2.68%
1,575
2,076
—
470,602
457,126
1.44%
125,371
130,934
0.50%
104,808
110,784
0.23%
230,179
241,718
0.38%
700,781
698,844
1.07%
$
12,947
12,976
0.29%
$
55,761
55,872
0.39%
— $
—
—
— $
—
—
$
$
12,947
12,976
0.29%
2,010
2,014
0.22%
— $
—
—
— $
—
—
$
$
55,761
55,872
0.39%
1,853
1,877
0.31%
258,150
257,181
1.11%
142,169
129,021
2.68%
1,575
2,076
—
401,894
388,278
1.63%
121,508
127,043
0.51%
— $
—
—
— $
—
—
104,808
110,784
0.23%
$
$
2,010
2,014
0.22%
14,957
14,990
0.28%
$
$
1,853
1,877
0.31%
57,614
57,749
0.39%
226,316
237,827
0.38%
628,210
626,105
1.16%
140
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, 2013
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
Total
Agency MBS and CMOs
Non-agency CMOs
ARS municipal obligations
ARS preferred securities
Total
$
$
$
$
157,580
4,906
771
163,257
$
$
(1,150) $
(556)
(100)
(1,806) $
$
(in thousands)
22,940
123,139
19,747
165,826
$
(386) $
(12,596)
(1,168)
(14,150) $
180,520
128,045
20,518
329,083
$
$
(1,536)
(13,152)
(1,268)
(15,956)
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
43,792
—
98,497
80,244
222,533
$
$
(193) $
—
(8,519)
(1,760)
(10,472) $
$
(in thousands)
4,362
146,591
—
—
150,953
$
(10) $
(18,555)
—
—
(18,565) $
48,154
146,591
98,497
80,244
373,486
$
$
(203)
(18,555)
(8,519)
(1,760)
(29,037)
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, 2013, of the 35 of our U.S. government-sponsored enterprise MBS and CMOs in an unrealized loss
position, 23 were in a continuous unrealized loss position for less than 12 months and 12 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 the 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.
141
September 30, 2013
Range
0% - 28.6%
0% - 76.6%
1.7% - 47.0%
Weighted-
average (1)
9.42%
43.14%
10.67%
Index
At September 30, 2013, 24 of the 25 non-agency CMOs were in a continuous unrealized loss position; 22 of which were in
that position for 12 months or more and two were in a continuous unrealized loss position for less than 12 months. 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, 2013 reflect the 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”). In the
prior fiscal year, 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. As of September 30, 2013, there is no
impairment of the Jeff Co. Schools ARS or the Jeff Co. Sewers ARS since the fair value of such securities exceed their cost.
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 table
in the following section for the amount of OTTI related to credit losses which we determined regarding these ARS holdings.
As of September 30, 2013, there is no potential impairment within the ARS preferred securities since the fair values of such
securities exceed their cost.
As of September 30, 2012, the fair value of certain ARS preferred securities were less than their cost, indicating a potential
impairment. Accordingly, we analyzed the credit ratings associated with each security as an indicator of potential credit impairment,
and including subsequent ratings changes, we determined that all of the ARS preferred securities were rated investment grade by
at least one rating agency at such time. 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 at such time, 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
Amount related to credit losses on securities we held at the end of the year
$
$
142
2013
Year ended September 30,
2012
(in thousands)
22,306
$
$
27,581
—
—
1,409
—
636
28,217
$
3,866
27,581
$
2011
18,816
240
(6,744)
9,994
22,306
Index
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,
2013
2012
(in thousands)
$
$
1,983,402
(62)
1,983,340
$
$
2,067,207
(90)
2,067,117
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,
2013
2012
(in thousands)
$
$
5,457,107
485,736
5,942,843
$
$
4,299,640
285,016
4,584,656
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.
143
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:
Domestic:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Foreign:
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:
Domestic:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Foreign:
C&I loans
Residential mortgage loans
Total loans held for investment
Net unearned income and deferred expenses
Total loans held for investment, net(1)
September 30, 2013
%
Balance
September 30, 2012
Balance
%
($ in thousands)
September 30, 2011
%
Balance
$
110,292
1% $
160,515
2% $
102,236
2%
4,439,668
38,964
1,075,986
1,743,787
554,210
806,337
21,876
207,060
1,863
1,595
8,891,346
(43,936)
8,847,410
8,957,702
(136,501)
8,821,201
50%
—
12%
20%
6%
9%
—
2%
—
—
100%
$
4,553,061
26,360
828,414
1,690,465
350,770
465,770
23,114
108,036
1,521
1,725
8,049,236
(70,698)
7,978,538
8,139,053
(147,541)
7,991,512
55%
1%
10%
21%
4%
6%
—
1%
—
—
100%
$
3,987,122
29,087
742,889
1,754,925
7,438
113,817
—
—
1,561
—
6,636,839
(45,417)
6,591,422
6,693,658
(145,744)
6,547,914
59%
—
11%
26%
—
2%
—
—
—
—
100%
September 30, 2010
%
Balance
September 30, 2009
%
Balance
($ in thousands)
— $
6,114
40,484
1%
51%
1%
15%
32%
—
1%
—
3,173,093
65,512
937,669
2,013,681
23,940
59,630
1,650
6,275,175
(39,276)
6,235,899
45%
2%
16%
35%
—
1%
—
100%
3,030,575
163,951
1,080,160
2,395,080
22,816
49,341
1,915
6,743,838
(40,077)
6,703,761
6,744,245
(150,272)
6,593,973
Total loans held for sale and investment
Allowance for loan losses
Bank loans, net
6,242,013
(147,084)
6,094,929
$
100%
$
(1) Net of unearned income and deferred expenses, which includes purchase premiums, purchase discounts, and net deferred origination fees and
costs.
144
Index
RJ Bank originated or purchased $1.3 billion, $903.2 million and $354.9 million of loans held for sale for the years ended September 30,
2013, 2012 and 2011, respectively. There were proceeds from the sale of held for sale loans of $300.2 million, $183.6 million and $93.2
million for the years ended September 30, 2013, 2012 and 2011, respectively, resulting in net gains of $3.6 million, $1.7 million and $830
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 $2.9 million, $1.2 million and $719 thousand for the years ended September
30, 2013, 2012 and 2011, respectively.
The following table presents purchases and sales of any loans held for investment by portfolio segment:
2013
Year ended September 30,
2012
2011
Purchases
Sales
Purchases
Sales
Purchases
Sales
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
Consumer loans
Total
$
$
358,309
—
5,048
26,618
—
389,975
$ 176,186
—
—
—
—
$ 176,186
$
$
470,859 (1) $
31,074 (1)
121,245 (1)
38,220
185,026 (2)
846,424
$
85,090
—
—
—
—
85,090
$
$
156,475
—
2,630
91,745
—
250,850
$
$
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 $117 million of CRE loans.
(2) Represents loans primarily secured by the borrower’s marketable securities.
145
Index
The following table presents the comparative data for nonperforming loans held for investment and total nonperforming assets:
Nonaccrual loans:
C&I loans
CRE loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total nonaccrual loans
Accruing loans which are 90 days past due:
CRE loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total accruing loans which are 90 days past due
Total nonperforming loans
Real estate owned and other repossessed assets, net:
CRE
Residential:
First mortgage
Home equity
Total
2013
2012
As of September 30,
2011
($ in thousands)
2010
2009
$
89
25,512
$
19,517
8,404
$
25,685
15,842
75,889
468
101,958
78,372
367
106,660
90,992
67
132,586
$
— $
67,071
80,754
71
147,896
—
73,961
54,986
111
129,058
—
—
—
830
12,461
—
—
—
101,958
—
—
—
106,660
690
47
737
133,323
5,098
159
6,087
153,983
16,863
—
29,324
158,382
—
2,434
—
2,434
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
Total nonperforming assets, net
$ 104,392
$ 114,878
$ 147,895
$ 181,908
$ 167,073
Total nonperforming assets, net as a % of RJ Bank total
assets
0.99%
1.18%
1.64%
2.48%
2.10%
The table of nonperforming assets above excludes $10.2 million, $12.9 million, $10.3 million, $8.2 million, and $1.3 million as of
September 30, 2013, 2012, 2011, 2010, and 2009 respectively, of residential TDRs which were returned to accrual status in accordance
with our policy.
As of September 30, 2013 and 2012, RJ Bank had no outstanding commitments to lend on nonperforming loans.
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 $3.2 million, $4.3 million and $5.1 million for the years ended
September 30, 2013, 2012 and 2011, respectively. The interest income recognized on nonperforming loans was $1.5 million, $1.8 million
and $1.2 million for the years ended September 30, 2013, 2012 and 2011, respectively.
146
Index
The following table presents an analysis of the payment status of loans held for investment:
As of September 30, 2013:
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
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 (1)
Total loans
held for
investment (2)
(in thousands)
$
$
$
$
135
—
—
4,756
—
—
4,891
222
—
—
7,239
88
—
7,549
$
$
$
$
— $
—
—
2,068
—
—
2,068
$
— $
—
—
3,037
250
—
3,287
$
— $
—
17
43,004
372
—
43,393
$
— $
—
4,960
49,476
—
—
54,436
$
135
—
17
49,828
372
—
50,352
222
—
4,960
59,752
338
—
65,272
$
$
$
$
5,245,870
60,840
1,283,029
1,673,619
21,831
555,805
8,840,994
5,018,609
49,474
931,490
1,607,156
24,740
352,495
7,983,964
$
$
$
$
5,246,005
60,840
1,283,046
1,723,447
22,203
555,805
8,891,346
5,018,831
49,474
936,450
1,666,908
25,078
352,495
8,049,236
(1) Includes $55.5 million and $48.6 million of nonaccrual loans at September 30, 2013 and 2012, respectively, which are performing pursuant
to their contractual terms.
(2) Excludes any net unearned income and deferred expenses.
The following table provides a summary of RJ Bank’s impaired loans:
Gross
recorded
investment
September 30, 2013
Unpaid
principal
balance
Allowance
for losses
Gross
recorded
investment
September 30, 2012
Unpaid
principal
balance
Allowance
for losses
(in thousands)
Impaired loans with allowance for loan losses:(1)
$
— $
17
— $
26
— $
1
$
19,517
18
$
30,314
26
C&I loans
CRE loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total
Impaired loans without allowance for loan losses:(2)
C&I loans
CRE loans
Residential - first mortgage loans
Total
Total impaired loans
$
52,624
36
52,677
89
25,495
21,445
47,029
99,706
77,240
74
77,340
94
45,229
32,617
77,940
155,280
$
$
6,646
4
6,651
—
—
—
—
6,651
70,985
128
90,648
106,384
128
136,852
—
8,386
9,247
17,633
108,281
$
—
18,440
15,354
33,794
170,646
$
$
5,232
1
9,214
42
14,489
—
—
—
—
14,489
(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.
147
Index
The preceding table includes $2.2 million CRE, and $36.6 million residential first mortgage TDRs at September 30, 2013. In addition,
the preceding table 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.
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
2013
Year ended September 30,
2012
(in thousands)
2011
$
$
$
$
15,398
13,352
77,511
93
106,354
1,644
—
1,644
$
$
$
$
10,196
11,902
86,854
138
109,090
1,397
4
1,401
$
$
$
$
8,673
38,542
85,863
142
133,220
955
5
960
During the years ended September 30, 2013, 2012, and 2011, RJ Bank granted concessions to borrowers having financial difficulties,
for which the resulting modification was deemed a TDR. All of the concessions granted for first mortgage residential loans were generally
interest rate reductions, interest capitalization, principal forbearance, amortization and maturity date extensions, and, for the current fiscal
year, release of liability ordered under chapter 7 bankruptcy not reaffirmed by the borrower. The concessions granted for the C&I and
CRE loans were generally interest rate reductions and the release of guarantor liabilities. The table below presents the TDRs that occurred
during the respective periods presented:
Year ended September 30, 2013:
Residential – first mortgage loans
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
56
$
13,270
$
13,551
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, 2013, 2012, and 2011, there were two, five, and two residential first mortgage TDRs,
respectively, with recorded investments of $291 thousand, $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, 2013 and 2012, RJ Bank had no outstanding commitments on TDRs.
148
Index
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.
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
$
$
$
$
5,012,786
139,159
94,060
—
5,246,005
4,777,738
179,044
60,323
1,726
5,018,831
$
$
$
$
60,840
—
—
—
60,840
$ 1,257,130
195
23,524
2,197
$ 1,283,046
49,474
—
—
—
49,474
$
$
806,427
59,001
67,578
3,444
936,450
$
$
$
$
1,627,090
18,912
77,446
—
1,723,448
1,564,257
22,606
80,045
—
1,666,908
$
$
$
$
21,582
150
470
—
22,202
24,505
206
367
—
25,078
$
$
$
$
555,805
—
—
—
555,805
352,495
—
—
—
352,495
$
$
$
$
8,535,233
158,416
195,500
2,197
8,891,346
7,574,896
260,857
208,313
5,170
8,049,236
September 30, 2013:
Pass
Special mention (1)
Substandard (1)
Doubtful (1)
Total
September 30, 2012:
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 by LTV ratio 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 current valuation indices and other factors.
149
Index
The table below presents the most recently available update of the performing residential first mortgage loan portfolio summarized
by current LTV. The amounts in the table represent the entire loan balance:
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)
$
$
380,480
670,647
276,525
83,970
20,469
4,070
1,436,161
(1) Excludes loans that have full repurchase recourse for any delinquent loans.
Changes in the allowance for loan losses of RJ Bank by portfolio segment are as follows:
Year ended September 30, 2013:
Balance at beginning of year:
(Benefit) provision for loan losses
Net charge-offs:
Charge-offs
Recoveries
Net charge-offs
Foreign exchange translation
adjustment
Balance at September 30, 2013
Year ended September 30, 2012:
Balance at beginning of year:
(Benefit) provision for loan losses
Net charge-offs:
Charge-offs
Recoveries
Net charge-offs
Foreign currency translation
adjustment
Balance at September 30, 2012
Year ended September 30, 2011:
Balance at beginning of year:
(Benefit) provision for loan losses
Net charge-offs:
Charge-offs
Recoveries
Net charge-offs
Balance at September 30, 2011
Loans held
for sale
C&I
CRE
construction
CRE
Residential
mortgage
Consumer
Total
Loans held for investment
(in thousands)
$
— $
92,409
$
739
$
27,546
$
26,138
$
709
$
147,541
—
—
—
—
—
—
4,505
273
(301)
(2,540)
628
2,565
(813)
117
(696)
(224)
95,994
—
—
—
(12)
1,000
(9,599)
1,680
(7,919)
(60)
19,266
(6,771)
2,299
(4,472)
—
19,126
(254)
32
(222)
—
1,115
(17,437)
4,128
(13,309)
(296)
136,501
5
$
81,267
$
490
$
30,752
$
33,210
$
20
$
145,744
(5)
21,543
—
—
—
(10,486)
—
(10,486)
—
— $
85
92,409
$
242
—
—
—
7
739
(2,305)
5,655
(2,000)
1,074
(926)
(15,270)
2,543
(12,727)
25
27,546
$
—
26,138
$
$
764
(96)
21
(75)
—
709
25,894
(27,852)
3,638
(24,214)
117
147,541
$
23
$
60,464
$
4,473
$
47,771
$
34,297
$
56
$
147,084
(18)
21,261
(3,983)
(3,485)
19,670
210
33,655
—
—
—
5
$
(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
$
$
$
$
$
150
Index
The following table presents, by loan portfolio segment, RJ Bank’s recorded investment and related allowance for loan losses:
Loans held for investment
C&I
CRE
construction
CRE
Residential
mortgage
Consumer
Total
(in thousands)
September 30, 2013:
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Total allowance for loan losses
Recorded investment:(1)
Individually evaluated for impairment
$
$
$
— $
— $
95,994
1,000
95,994
$
1,000
$
1
19,265
19,266
$
$
2,379
16,747
19,126
89
Collectively evaluated for impairment
5,245,916
Total recorded investment
$
5,246,005
September 30, 2012:
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Total allowance for loan losses
Recorded investment:(1)
Individually evaluated for impairment
Collectively evaluated for impairment
Total recorded investment
$
$
$
$
5,232
87,177
92,409
19,517
4,999,314
5,018,831
$
$
$
$
$
$
— $
25,512
$
36,648
60,840
1,257,534
1,709,002
60,840
$
1,283,046
$
1,745,650
— $
739
739
$
1
27,545
27,546
— $
8,404
49,474
49,474
$
928,046
936,450
$
$
$
$
3,157
22,981
26,138
26,851
1,665,135
1,691,986
$
$
$
$
$
$
$
$
— $
2,380
1,115
1,115
$
134,121
136,501
— $
62,249
555,805
8,829,097
555,805
$
8,891,346
— $
8,390
709
709
$
139,151
147,541
— $
54,772
352,495
7,994,464
352,495
$
8,049,236
(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, 2013 or 2012.
The reserve for unfunded lending commitments, included in trade and other payables on our Consolidated Statements of Financial
Condition was $9.3 million at each of September 30, 2013 and 2012.
151
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,
2013
2012
(in thousands)
$
$
244,921
12,125
21,300
77,765
33,670
171,135
50,509
611,425
$
$
188,631
13,192
21,300
97,033
41,588
197,898
45,924
605,566
(1) As of September 30, 2013, we own life insurance policies with a cumulative face value of $785.1 million.
(2) In a prior year, we sold an investment in a low-income housing tax credit fund and we guaranteed the 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 $33.7 million and $41.7 million is included in trade and other payables on our Consolidated
Statements of Financial Condition as of September 30, 2013 and 2012, respectively. 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
A VIE requires consolidation by the entity’s primary beneficiary. We evaluate all of the entities in which we are involved to
determine if the entity is a VIE and if so, whether we hold a variable interest and are the primary beneficiary. See the “Evaluation
of VIE’s to determine whether consolidation is required” section of Note 2 for a discussion of our principal involvement with the
VIE’s and a summary of our accounting policies regarding our evaluations of VIE’s to determine whether we hold a variable
interest and whether we are deemed to be the primary beneficiary of any VIE’s in which we hold an interest.
152
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, 2013
LIHTC Funds
Guaranteed LIHTC Fund (2)
Restricted Stock Trust Fund
EIF Funds
Total
September 30, 2012
LIHTC Funds
Guaranteed LIHTC Fund (2)
Restricted Stock Trust Fund
EIF Funds
Total
Aggregate
assets (1)
Aggregate
liabilities (1)
(in thousands)
$
$
$
$
208,634
81,712
13,075
7,588
311,009
234,592
85,332
15,387
15,736
351,047
$
$
$
$
78,055
—
6,710
—
84,765
97,217
2,208
7,508
—
106,933
(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 guaranteed the
investor members’ 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:
Trade and other payables
Intercompany payables
Loans payable of consolidated variable interest entities (2)
Total liabilities
RJF equity
Noncontrolling interests
Total equity
Total liabilities and equity
September 30,
2013
2012
(in thousands)
$
$
$
$
11,857
5,763
272,096
13,073
8,230
311,019
1,428
6,390
62,938
70,756
6,175
234,088
240,263
311,019
$
$
$
$
14,230
5,273
299,611
15,387
16,297
350,798
2,804
8,603
81,713
93,120
6,105
251,573
257,678
350,798
(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 (see Note 16 for additional
information).
153
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
2013
Year ended September 30,
2012
(in thousands)
2011
$
$
4
3,538
3,542
3,959
(417)
27,292
(27,709)
(27,779)
70
$
$
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)
RJTCF is the managing member or general partner in approximately 84 separate low-income housing tax credit funds having
one or more investor members or limited partners, 75 of which are determined to be VIEs and nine of which are determined not
to be VIEs. RJTCF has concluded that it is the primary beneficiary of eight of the 74 non-guaranteed LIHTC Fund VIEs and
accordingly, consolidates these funds. One of the non-guaranteed LIHTC Funds previously consolidated was liquidated during
the year ended September 30, 2013. In addition, RJTCF consolidates the one Guaranteed LIHTC Fund VIE it sponsors. See Note
20 for further discussion of the guarantee obligation as well as other RJTCF commitments. RJTCF also consolidates four of the
funds it determines not to be VIEs.
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.
Other real estate limited partnerships and LLCs
We have a variable interest in several limited partnerships involved in various real estate activities in which a subsidiary is
either the general partner or a limited partner. In addition, RJ Bank may have 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. As
discussed in Note 2, 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.
154
Index
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, 2013
Aggregate
liabilities
Our risk
of loss
Aggregate
assets
September 30, 2012
Aggregate
liabilities
Our risk
of loss
LIHTC Funds
NMTC Funds
Other Real Estate Limited Partnerships
and LLCs
Total
$
$
2,532,457
140,499
30,240
2,703,196
$
$
762,346
278
35,512
798,136
$
$
(in thousands)
14,387
13
$
2,198,049
140,680
212
14,612
$
31,107
2,369,836
$
$
844,597
209
35,512
880,318
$
$
22,501
13
1,145
23,659
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, 2013
Aggregate
liabilities
Our risk
of loss
Aggregate
assets
(in thousands)
September 30, 2012
Aggregate
liabilities
Our risk
of loss
Managed Funds
$
56,321
$
1,415
$
202
$
9,700
$
1,689
$
296
NOTE 12 - PROPERTY AND EQUIPMENT
Land
Construction in process
Software
Buildings, leasehold and land improvements
Furniture, fixtures, and equipment
Less: Accumulated depreciation and amortization
Total property and equipment, net
$
$
September 30,
2013
2012
$
(in thousands)
20,104
707
131,115
235,239
200,055
587,220
(342,804)
244,416
$
19,754
6,782
117,604
204,593
182,168
530,901
(299,706)
231,195
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
September 30,
2013
2012
(in thousands)
$
$
295,486
$
65,978
361,464
$
300,111
61,135
361,246
155
Index
Goodwill
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 RJ Ltd.), our April 1, 2011 acquisition of Howe Barnes, our April 4, 2011 acquisition of a controlling
interest in RJES (as discussed more fully below, this goodwill was determined to be impaired in fiscal year 2013), and our April 2,
2012 acquisition of Morgan Keegan (see Note 3 for additional information regarding this acquisition).
The following summarizes our goodwill by segment, along with the balance and activity for the years indicated:
Goodwill at September 30, 2011
Additions (1)
Impairment losses
Goodwill at September 30, 2012
Adjustments to prior year additions (2)
Impairment losses (3)
Goodwill at September 30, 2013
Segment
Private client
group
$
$
$
48,097
125,220
—
173,317
1,267
—
174,584
Capital
markets
(in thousands)
23,827
$
102,967
—
126,794
1,041
(6,933)
120,902
$
$
$
$
$
Total
71,924
228,187
—
300,111
2,308
(6,933)
295,486
(1) Additions are directly attributable to the acquisition of Morgan Keegan (see Notes 1 and 3 for additional information).
(2) The goodwill adjustment arose during the quarter ended December 31, 2012 from a change in a tax election pertaining to whether
assets acquired and liabilities assumed are written-up to fair value for tax purposes. This election is made on an entity-by-entity basis,
and during the period indicated, our assumption regarding whether we would make such election changed for one of the Morgan
Keegan entities we acquired. The offsetting balance associated with this adjustment to goodwill was the net deferred tax asset.
(3) The impairment expense in the year ended September 30, 2013 is associated with the RJES reporting unit. We concluded the goodwill
associated with this reporting unit to be completely impaired during the quarter ended March 31, 2013. Since we did not own 100%
of RJES as of the goodwill impairment testing date, for the year ended September 30, 2013 the effect of this impairment expense on
the pre-tax income attributable to Raymond James Financial, Inc. is approximately $4.6 million and the portion of the impairment
expense attributable to the noncontrolling interests is approximately $2.3 million.
Goodwill is subject to an evaluation of potential impairment on an annual basis, or more often if events or circumstances
indicate there may be impairment. We performed our annual goodwill impairment testing as of December 31, 2012. We elected
to not exercise the option to perform a qualitative assessment, but instead to perform a quantitative assessment of the equity value
of each reporting unit that includes an allocation of goodwill. In our determination of the reporting unit fair value of equity, we
used a combination of the income approach and the market approach. Under the income approach, we used discounted cash flow
models applied to each respective reporting unit. Under the market approach, we calculated an estimated fair value based on a
combination of multiples of earnings of guideline companies in the brokerage and capital markets industry that are publicly traded
on organized exchanges, and the book value of comparable transactions. The estimated fair value of the equity of the reporting
unit resulting from each of these valuation approaches was dependent upon the estimates of future business unit revenues and
costs, such estimates were subject to critical assumptions regarding the nature and health of financial markets in future years as
well as the discount rate to apply to the projected future cash flows. In estimating future cash flows, a balance sheet as of the test
date and a statement of operations for the last twelve months of activity for each reporting unit (or for the nine month period since
the Closing Date for Morgan Keegan reporting units) were compiled. Future balance sheets and statements of operations were
then projected, and estimated future cash flows were determined by the combination of these projections. The cash flows were
discounted at the reporting units estimated cost of equity which was derived through application of the capital asset pricing model.
The valuation result from the market approach was dependent upon the selection of the comparable guideline companies and
transactions and the earnings multiple applied to each respective reporting units’ projected earnings. Finally, significant
management judgment was applied in determining the weight assigned to the outcome of the market approach and the income
approach, which resulted in one single estimate of the fair value of the equity of the reporting unit.
156
Index
The following summarizes certain key assumptions utilized in our quantitative analysis as of December 31, 2012:
Segment
Private client group:
Reporting unit
MK & Co. - PCG
RJ&A - PCG
RJ Ltd. - PCG
Key assumptions
Weight assigned to
the outcome of:
Goodwill as of
the impairment
testing date
(in thousands)
126,486
$
31,954
16,144
174,584
$
Discount
rate used
in the
income
approach
14%
13%
18%
Multiple
applied to
revenue/EPS
in the market
approach
0.5x/10.0x
0.5x/13.5x
1.0x/12.0x
Income
approach
50%
50%
50%
Market
approach
50%
50%
50%
Capital markets:
RJ&A - fixed income
RJ Ltd. - equity capital markets
MK & Co. - fixed income
RJ&A - equity capital markets
$
Total
$
77,325
16,893
13,646
13,038
120,902
295,486
14%
20%
16%
15%
1.0x/9.0x
1.1x/11.0x
0.9x/8.0x
0.3x/7.0x
50%
50%
50%
50%
50%
50%
50%
50%
The assumptions and estimates utilized in determining the fair value of reporting unit equity are sensitive to changes, including,
but not limited to, a decline in overall market conditions, adverse business trends and changes in regulations.
Based upon the outcome of our quantitative assessments as of December 31, 2012, we concluded that the goodwill associated
with RJES, a joint venture based in Paris, France that we hold a controlling interest in, was completely impaired. The impairment
expense recorded in the year ended September 30, 2013 of $6.9 million is included in other expense on our Consolidated Statements
of Income and Comprehensive Income. Since we did not own 100% of RJES as of the annual testing date, our share of this
impairment expense after consideration of the noncontrolling interests amounts to $4.6 million. RJES is an entity that provides
research coverage on European corporations as well as having sales and trading operations. The decline in value of RJES is
primarily due to the continuing economic slowdown experienced in Europe which has had a negative impact on the financial
services entities operating therein, as well as certain management decisions that were made during the quarter ended March 31,
2013 which impact RJES’ operating plans on a going forward basis. In April 2013, we purchased all of the outstanding equity in
RJES that was held by others, thus we now have sole control over RJES.
There was no goodwill impairment in any other reporting unit.
In mid-February 2013, the client accounts and financial advisors of MK & Co. were transferred to RJ&A pursuant to our
Morgan Keegan acquisition integration strategies. As a result, certain RJ&A and MK & Co. reporting units which have an allocation
of both private client group as well as capital markets goodwill, were combined. We assessed whether these transfers, which
occurred after our annual goodwill impairment testing date, could change our conclusions regarding no impairment of goodwill
in the reporting units effected by the transfers. Based upon our qualitative analysis related to those reporting units, we concluded
that it was more likely than not that the fair value of the combined reporting units equity exceeds the combined reporting units’
carrying value including goodwill after the effect of such transfers.
The change in our reportable segments, which was effective as of September 30, 2013 (see Notes 1 and 28 for additional
information), did not cause us to update the annual impairment testing we performed as the reporting units which were impacted
by this change do not have an allocation of goodwill.
No other events have occurred since December 31, 2012 that would cause us to update the annual impairment testing we
performed as of that date.
157
Index
Identifiable intangible assets, net
The following summarizes our identifiable intangible asset balances by segment, net of accumulated amortization, and activity
for the years indicated:
Segment
Private
client group
Capital
markets
Asset
management
RJ Bank
Total
(in thousands)
Net identifiable intangible assets as of
September 30, 2010
Additions
Amortization expense
Impairment losses
Net identifiable intangible assets as of
September 30, 2011
Additions (1)
Amortization expense
Impairment losses
$
$
397
$
2,019
$
—
(187)
—
—
(1,186)
—
210
$
833
$
10,000
(381)
—
55,000
(4,527)
—
Net identifiable intangible assets as of
September 30, 2012
$
9,829
$
51,306
$
Additions
Amortization expense
Impairment losses
Net identifiable intangible assets as of
September 30, 2013
—
(638)
—
—
(7,832)
—
—
—
—
—
—
—
—
—
—
13,329 (2)
(1,000)
—
$
$
$
—
—
—
—
—
—
—
—
$
2,416
—
(1,373)
—
$
1,043
65,000
(4,908)
—
—
1,085 (3)
(101)
—
$
61,135
14,414
(9,571)
—
$
9,191
$
43,474
$
12,329
$
984
$
65,978
(1) The additions are directly attributable to the identified intangible assets associated with the Morgan Keegan acquisition, see Note 3
for further information regarding the acquisition.
(2) The additions are directly attributable to the customer list asset associated with our first quarter fiscal year 2013 acquisition of a 45%
interest in ClariVest (see Note 3 for additional information). Since we are consolidating ClariVest, the amount represents the entire
customer relationship intangible asset associated with the acquisition transaction; the amount shown is unadjusted by the 55% share
of ClariVest attributable to others. The estimated useful life associated with this addition is approximately 10 years.
(3) The additions are the result of mortgage servicing rights held by RJ Bank. The estimated useful life associated with this addition is
approximately 10 years.
Identifiable intangible assets by type are presented below:
September 30, 2013
September 30, 2012
Gross
carrying
value
Accumulated
amortization
Gross
carrying
value
Accumulated
amortization
Customer relationships
Trade name
Developed technology
Non-compete agreements
Mortgage servicing rights
Total
$
$
65,957
2,000
11,000
1,000
1,085
81,042
$
$
$
(in thousands)
(8,663)
(2,000)
(3,300)
(1,000)
(101)
(15,064)
$
52,628
2,000
11,000
1,000
—
66,628
$
$
(3,060)
(1,000)
(1,100)
(333)
—
(5,493)
158
Index
Projected amortization expense associated with the identifiable intangible assets by fiscal year is as follows:
Fiscal year ended September 30,
2014
2015
2016
2017
2018
Thereafter
$
$
(in thousands)
7,517
7,427
7,251
6,144
5,037
32,602
65,978
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, 2013
September 30, 2012
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)
$
$
7,003
8,555
8,966,439
313,374
9,295,371
($ in thousands)
0.01% $
—
0.02%
1.96%
0.09% $
4,588
44,800
8,231,446
318,879
8,599,713
0.01%
—
0.04%
2.13%
0.12%
(1) Weighted-average rate calculation is based on the actual deposit balances at September 30, 2013 and 2012, respectively.
(2) Bank deposits exclude affiliate deposits of approximately $6 million and $1 million at September 30, 2013 and 2012, 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, 2013
September 30, 2012
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
$
(in thousands)
8,540
6,264
13,976
37,918
27,873
35,270
11,900
141,741
$
9,069
4,587
12,414
16,989
32,043
34,533
50,647
160,282
$
$
7,195
6,778
16,339
23,920
38,074
28,807
37,484
158,597
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
$
$
7,343
5,908
9,459
31,123
33,404
47,822
36,574
171,633
$
$
159
Index
Interest expense on deposits is summarized as follows:
Certificates of deposit
Money market, savings and NOW accounts
Total interest expense on deposits
$
$
6,239
2,793
9,032
$
$
6,501
2,983
9,484
$
$
6,228
6,315
12,543
2013
Year ended September 30,
2012
(in thousands)
2011
NOTE 15 – OTHER BORROWINGS
The following table details the components of other borrowings:
September 30,
2013
2012
(in thousands)
Other borrowings:
Borrowings on secured lines of credit (1)
Borrowings on unsecured lines of credit (2)
Total other borrowings
$
$
84,076
—
84,076
$
$
—
—
—
(1) Other than a $5 million borrowing outstanding on the New Regions Credit Agreement (as hereinafter defined) as of September 30,
2013, any borrowings on secured lines of credit are day-to-day and are generally utilized to finance certain fixed income securities.
On November 14, 2012, a subsidiary of RJF (the “Borrower”) entered into a Revolving Credit Agreement (the “New Regions Credit
Agreement”) with Regions Bank, an Alabama banking corporation (the “Lender”). The New Regions Credit Agreement provides for
a revolving line of credit from 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 present and future ARS owned by the
Borrower (the “Pledged ARS”). The amount of any borrowing under the New Regions Credit Agreement cannot exceed the lesser of
70% of the value of the Pledged ARS, or $100 million. The maximum amount available to borrow under the New Regions Credit
Agreement was $100 million as of September 30, 2013, the outstanding borrowings were $5 million on such date. The New Regions
Credit Agreement bears interest at a variable rate which is 2.75% in excess of LIBOR. The New Regions Credit Agreement expires
on April 2, 2015.
Immediately preceding the execution of the New Regions Credit Agreement, all outstanding balances on the credit agreement which
had been entered into with Regions on April 2, 2012 as a result of the Morgan Keegan acquisition (the “Initial Regions Credit
Agreement”) were paid to the Lender by the Borrowers and such agreement was terminated. See Note 17 for further discussion.
(2) Any borrowings on unsecured lines of credit are day-to-day and are generally utilized for cash management purposes.
The interest rates for all of our U.S. and Canadian secured and unsecured financing facilities are variable and are based on
the Fed Funds rate, LIBOR, or Canadian prime rate, as applicable. For the fiscal year ended September 30, 2013, interest rates
on the U.S. facilities which were utilized during the year ranged from 0.21% to 2.25% (on a 360 days per year basis), and the
interest rate on the Canadian facility was 2.25% (on a 360 days per year basis) when utilized from time-to-time throughout the
year.
RJ Bank had no advances outstanding from the FHLB as of either September 30, 2013 or 2012.
As of September 30, 2013, there were other collateralized financings outstanding in the amount of $301 million. As of
September 30, 2012, there were other collateralized financings outstanding in the amount of $348 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.
160
Index
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,
2013
2012
(in thousands)
$
$
19,061
43,877
62,938
$
$
18,775
62,938
81,713
The principal amount of the VIEs’ borrowing, based on their contractual terms, mature as follows:
Fiscal year ended September 30,
2014
2015
2016
2017
2018
Thereafter
Total
$
$
(in thousands)
19,061
17,949
13,331
8,240
3,668
689
62,938
161
Index
NOTE 17 – CORPORATE DEBT
The following summarizes our corporate debt:
Mortgage notes payable (1)
4.25% senior notes, due 2016, net of unamortized discount of $255 thousand and $355
thousand at September 30, 2013 and 2012, respectively (2)
8.60% senior notes, due 2019, net of unamortized discount of $30 thousand and $35
thousand at September 30, 2013 and 2012, respectively (3)
5.625% senior notes, due 2024, net of unamortized discount of $869 thousand and $952
thousand at September 30, 2013 and 2012, respectively (4)
6.90% senior notes, due 2042 (5)
Other borrowings from banks (6)
RJES term loan(7)
Total corporate debt
September 30,
2013
2012
(in thousands)
45,662
$
249,745
299,970
249,131
350,000
—
—
1,194,508
$
49,309
249,645
299,965
249,048
350,000
128,256
2,870
1,329,093
$
$
(1) 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 $53.5 million at September 30, 2013. These mortgage loans bear interest at
5.7% with repayment terms of monthly interest and principal debt service and have a January 2023 maturity.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) The outstanding balance as of September 30, 2012, was comprised of the Initial Regions Credit Agreement. On November 14, 2012,
the outstanding balance was repaid, the Initial Regions Credit Agreement was terminated and the New Regions Credit Agreement was
executed (see Note 15 for additional information on the New Regions Credit Agreement secured line of credit).
(7) The RJES term loan was paid in full in June 2013.
162
Index
Our corporate debt matures as follows, based upon its contractual terms:
Fiscal year ended September 30,
2014
2015
2016
2017
2018
Thereafter
Total
$
$
(in thousands)
3,530
4,067
254,050
4,556
4,823
923,482
1,194,508
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 since the Closing Date
of the Morgan Keegan acquisition. The majority of these derivative positions are executed in the over-the-counter market with
financial institutions. We hereinafter refer to the derivative instruments arising from these operations as our over-the-counter
derivatives operations (or “OTC Derivatives Operations”).
Cash flows related to the interest rate contracts arising from the OTC Derivative Operations, 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
Prior to the Closing Date, Morgan Keegan facilitated derivative transactions through non-broker-dealer subsidiaries previously
defined herein as RJSS. We have continued to conduct this business in a substantially similar fashion since the Closing Date. In
these operations, we do not use derivative instruments for trading or hedging purposes. RJSS enters into derivative transactions
(primarily interest rate swaps) with customers. For every derivative transaction RJSS enters into with a customer, RJSS 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, RJSS 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.
RJSS 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 these operations as our offsetting “matched book”
derivative operations (the “Offsetting Matched Book Derivatives Operations”).
Any collateral required to be exchanged under the contracts arising from the Offsetting Matched Book Derivatives Operations
is administered directly by the customer and the third party financial institution. RJSS does not hold any collateral, or administer
any collateral transactions, related to these instruments. We record the value of each derivative position arising from the Offsetting
Matched Book Derivatives Operations 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.
The receivable for uncollected derivative transaction fee revenues of RJSS is $8 million and $9 million at September 30, 2013
and 2012, respectively, and is included in other receivables on our Consolidated Statements of Financial Condition.
None of the derivatives described above arising from either our OTC Derivatives Operations or our Offsetting Matched Book
Derivatives Operations are designated as fair value or cash flow hedges.
Derivatives arising from RJ Bank’s business operations
A Canadian subsidiary of RJ Bank conducts operations directly related to RJ 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.
163
Index
Description of the collateral we hold related to derivative contracts
Where permitted, we elect to net-by-counterparty certain derivative contracts entered into in our OTC Derivatives Operations
and RJ Bank’s U.S. subsidiaries. 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 or other marketable securities. As we
elect to net-by-counterparty the fair value of derivative contracts arising from our OTC Derivatives Operations, we also net-by-
counterparty any cash collateral exchanged as part of those derivative agreements.
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 arising from our OTC Derivatives Operations aggregates to a net liability of $13 million at
September 30, 2013 and $18 million at September 30, 2012. The cash collateral included in the net fair value of all open derivative
liability positions from our OTC Derivatives Operations aggregates to a net asset of $22 million and $50 million at September 30,
2013 and September 30, 2012, respectively. Our maximum loss exposure under the interest rate swap contracts arising from our
OTC Derivatives Operations at September 30, 2013 is $29 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 under 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 the forward foreign exchange contracts at
September 30, 2013 is $700 thousand.
164
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, 2013
Notional
amount
Asset derivatives
Fair
value(1)
Balance sheet
location
(in thousands)
September 30, 2012
Notional
amount
Fair
value(1)
Derivatives not designated
as hedging instruments:
Interest rate contracts(2)
Interest rate contracts(3)
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
$
$
2,407,387
1,944,408
$
$
Trading
instruments
Derivative
instruments
associated with
offsetting
matched book
positions
89,633 Trading
instruments
250,341 Derivative
instruments
associated with
offsetting
matched book
positions
$
$
2,376,049
2,110,984
$
$
144,259
458,265
Balance sheet
location
September 30, 2013
Notional
amount
Liability derivatives
Fair
value(1)
Balance sheet
location
(in thousands)
September 30, 2012
Notional
amount
Fair
value(1)
Trade and other
payables
$
655,828
$
637 Trade and other
payables
$
569,790
$
1,296
2,420,531
$
74,920 Trading
$
$
Trading
instruments
sold
Derivative
instruments
associated with
offsetting
matched book
positions
Trade and other
payables
1,944,408
$
$
79,588
$
instruments
sold
250,341 Derivative
instruments
associated with
offsetting
matched book
positions
77 Trade and other
payables
$
$
2,288,450
$
128,081
2,110,984
$
458,265
$
44,225
$
74
(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 OTC Derivatives Operations.
(3) These contracts arise from our Offsetting Matched Book Derivatives Operations.
Gains recognized on forward foreign exchange derivatives in AOCI totaled $14 million, net of income taxes, for the year
ended September 30, 2013. 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, 2013.
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.
165
Index
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 (2)
Net trading profits
Other revenues
Forward foreign exchange
Other revenues
contracts
Amount of gain (loss) on derivatives
recognized in income
Year ended September 30,
2013
2012
(in thousands)
2011
$
$
$
993
225
1,577
$
$
$
(116)
835
(591)
$
$
$
750
—
—
(1) These contracts arise from our OTC Derivatives Operations.
(2) These contracts arise from our Offsetting Matched Book Derivatives 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 OTC Derivatives 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 OTC Derivatives Operations, we may require collateral from counterparties in the form of cash deposits or
other marketable securities to support certain of these obligations as established by the credit threshold specified by the agreement
and/or as a result of monitoring the credit standing of the counterparties.
We are exposed to interest rate risk related to the interest rate derivative agreements arising from our OTC Derivatives
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 the derivative instruments arising from our OTC Derivatives Operations and from RJ Bank’s forward foreign
exchange contracts contain provisions that require our debt to maintain an investment grade rating from one or more of the major
credit rating agencies. If our debt were to fall below investment grade, we 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, 2013 is $5 million, for which we have
posted collateral of $4.2 million in the normal course of business. If the credit-risk-related contingent features underlying these
agreements were triggered on September 30, 2013, we would have been required to post an additional $800 thousand of collateral
to our counterparties.
Our only exposure to credit risk in the Offsetting Matched Book Derivatives 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.
166
Index
NOTE 19 – INCOME TAXES
Total income taxes are allocated as follows:
2013
Year ended September 30,
2012
(in thousands)
2011
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
$
$
197,033
$
175,656
$
182,894
(2,590)
6,861
8,986
210,290
$
(2,613)
(5,741)
7,611
174,913
$
374
—
1,497
184,765
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
2013
Year ended September 30,
2012
(in thousands)
2011
$
$
182,862
37,491
8,469
228,822
(25,673)
(5,023)
(1,093)
(31,789)
197,033
$
$
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
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 company-owned life insurance
which is 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
Reversal of deferred taxes provided on foreign
earnings (1)
Other, net
Total provision for income tax
$
$
2013
Amount
%
Year ended September 30,
2012
Amount
($ in thousands)
%
2011
Amount
%
197,466
21,662
(2,074)
35 % $
3.8 %
(0.4)%
165,034
19,566
(2,291)
35 % $
4.1 %
(0.5)%
161,436
16,575
(1,761)
35 %
3.6 %
(0.4)%
(7,809)
(1.3)%
(8,318)
(1.8)%
1,146
0.2 %
(1,056)
4,920
(0.2)%
0.9 %
(1,830)
3,752
(0.4)%
0.8 %
(3,443)
3,072
(0.7)%
0.7 %
2,471
0.4 %
2,843
0.6 %
2,633
0.6 %
(10,676)
(7,871)
197,033
(1.9)%
(1.4)%
34.9 % $
—
(3,100)
175,656
—
(0.7)%
37.3 % $
—
3,236
182,894
—
0.7 %
39.7 %
(1) We have historically provided deferred taxes for the presumed repatriation to the U.S. of earnings from certain foreign subsidiaries.
Management changed its assertion related to the earnings of one of our Canadian subsidiaries resulting in a decrease in deferred tax liabilities
related to undistributed foreign earnings.
167
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 $
2013
Year ended September 30,
2012
(in thousands)
456,175
$
15,350
471,525
$
$
$
550,113
14,074
564,187
2011
421,662
39,585
461,247
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:
Partnership investments
Goodwill and other intangibles
Undistributed earnings of foreign subsidiaries
Fixed assets
Leveraged lease
Other
Total deferred tax liabilities
Net deferred tax assets
September 30,
2013
2012
(in thousands)
$
$
128,801
55,659
15,437
28,868
3,618
1,336
14,572
248,291
(9)
248,282
(24,245)
(12,469)
(9,344)
(5,082)
—
(1,982)
(53,122)
195,160
$
$
87,666
60,779
16,324
18,759
3,802
4,390
21,637
213,357
(9)
213,348
(11,579)
(6,467)
(19,373)
(2,275)
(4,668)
(799)
(45,161)
168,187
We have a net deferred tax asset at September 30, 2013 and 2012. This asset includes net operating loss and foreign tax credit
carryforwards that will expire between 2019 and 2030. A valuation allowance for the fiscal year ended September 30, 2013 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 $195.2 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 $9.3 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, 2013, we have approximately $203.4 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.
168
Index
As of September 30, 2013, the current tax receivable included in other receivables is $25 million, and a current tax payable
of $47 million is included in trade and other payables on our Consolidated Statements of Financial Condition. 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.
Balances 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, 2013, accrued interest expense related to unrecognized tax benefits increased
by approximately $1.4 million. During the year ended September 30, 2013, penalty expense related to unrecognized tax benefits
increased by approximately $573 thousand. As of September 30, 2013 and 2012, accrued interest and penalties included in the
unrecognized tax benefits liability were approximately $5.1 million and $3.2 million, respectively.
The aggregate change in the balances for unrecognized tax benefits including interest and penalties are as follows:
2013
Year ended September 30,
2012
(in thousands)
2011
Balance 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
Balance for unrecognized tax benefits at end of year
$
$
(1)
12,672
3,118
4,484
(352)
(1,119)
18,803
$
$
(1)
4,730
2,420
6,559
(196)
(841)
12,672
$
$
4,308
1,199
551
(44)
(1,284)
4,730
(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 $9.5 million and
$6.4 million at September 30, 2013 and 2012, 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 2013 for federal tax returns, fiscal year 2009 for state and local tax returns and fiscal year 2008 for foreign tax
returns. Certain transactions from our fiscal year 2013 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 2014.
NOTE 20 – COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments and contingencies
In the normal course of business we enter into underwriting commitments. As of September 30, 2013, RJ&A had no open
transactions involving such commitments. Transactions involving such commitments of RJ Ltd. that were recorded and open at
September 30, 2013, were approximately $28 million in Canadian dollars (“CDN”).
We utilize client marginable securities to satisfy deposits with clearing organizations. At September 30, 2013, we had client
margin securities valued at $189 million pledged with a clearing organization to meet our requirement of $128 million.
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, 2013 we had made commitments,
to either prospects that have accepted our offer, or recently recruited producers, of approximately $33.3 million that have not yet
been funded.
169
Index
As of September 30, 2013, RJ Bank had not settled purchases of $76.4 million in syndicated loans. These loan purchases are
expected to be settled within 90 days.
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 $127.1 million, in amounts ranging from $200 thousand to $29.7 million, to 50 different
independent venture capital or private equity partnerships. As of September 30, 2013, we have invested $101.2 million of the
committed amounts and have received $73.9 million in distributions. We also control the general partner in seven internally
sponsored private equity limited partnerships to which we have committed $69.6 million. As of September 30, 2013, we have
invested $48.9 million of the committed amounts and have received $39.1 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, 2013, RJTCF has $31.3 million in outstanding cash borrowings and $52.7
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 as 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.
A subsidiary of RJ Bank has committed $14.3 million as an investor member in a low-income housing tax credit fund in which
a subsidiary of RJTCF is the managing member. As of September 30, 2013, the RJ Bank subsidiary has invested $3.1 million of
the committed amount.
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 million in fiscal year 2014, $69.7 million in fiscal year
2015, $62.8 million in fiscal year 2016, $52.6 million in fiscal year 2017, $40.9 million in fiscal year 2018 and $101.8 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 $90.5 million, $73.9
million and $56.2 million in fiscal years 2013, 2012 and 2011, respectively.
At September 30, 2013, 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)
$
$
725,935
143,108
1,440,250
6,409
2,315,702
Certain collateral was repledged. At September 30, 2013, 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 deposits at clearing organizations
Total
170
Uses of collateral
and trading securities
(in thousands)
$
$
313,548
342,096
116,952
207,468
980,064
Index
As a part of our fixed income public finance operations, RJ&A enters into forward commitments to purchase GNMA MBS.
The MBS securities are issued on behalf of various state and local housing finance agencies (“HFA”) and consist of the mortgages
originated through their lending programs. RJ&A’s forward GNMA MBS purchase commitment arises at the time of the loan
reservation for a borrower in the HFA lending program (these loan reservations fix the terms of the mortgage, including the interest
rate and maximum principal amount). The underlying terms of the GNMA MBS purchase, including the price for the MBS security
(which is dependent upon the interest rates associated with the underlying mortgages) are also fixed at loan reservation. At
September 30, 2013, RJ&A had approximately $199 million principal amount of outstanding forward MBS purchase commitments
which are expected to be purchased by RJ&A over the following 90 days. Upon acquisition of the MBS security, RJ&A typically
sells such security in open market transactions as part of its fixed income operations. Given that the actual principal amount of
the MBS security is not fixed and determinable at the date of RJ&A’s commitment to purchase, these forward MBS purchase
commitments do not meet the definition of a derivative instrument. In order to hedge the market interest rate risk to which RJ&A
would otherwise be exposed between the date of the commitment and the date of sale of the MBS in the market, RJ&A enters into
to be announced (“TBA”) security contracts with investors for generic MBS securities at specific rates and prices to be delivered
on settlement dates in the future. These TBA securities are accounted for at fair value and are included in Agency MBS securities
in the table of assets and liabilities measured at fair value included in Note 5, and at September 30, 2013 aggregate to a net liability
having a fair value of $3 million. The estimated fair value of the purchase commitment at September 30, 2013 is an asset of $3
million, which is included in other receivables on our Consolidated Statements of Financial Condition.
As a result of the extensive regulation of financial holding companies, banks, broker-dealers and investment advisory entities,
RJF and a number of its subsidiaries are subject to regular reviews and inspections by regulatory authorities and self-regulatory
organizations. These reviews 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. See Note 25 for additional information regarding regulatory capital requirements applicable to
RJF and certain of its broker-dealer subsidiaries.
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, 2013, the exposure under these guarantees is $7.1 million, which was underwritten as part of
RJ Bank’s corporate credit relationship with such borrowers. The outstanding interest rate swaps at September 30, 2013 have
maturities ranging from August 2014 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, 2013. The estimated total potential exposure
under these guarantees is $10.6 million at September 30, 2013.
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, 2013, 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 Borrower’s performance under the New Regions Credit Agreement. See further discussion of this
borrowing in Notes 3, 15 and 17.
RJF guarantees the existing mortgage debt of RJ&A of approximately $45.7 million. See Notes 15, 16 and 17 for information
regarding our financing arrangements.
171
Index
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 $1.7 million as of
September 30, 2013.
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 not being required to be made under the guarantees have been satisfied and neither RJF nor
RJTCF 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 future payments will be owed to 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 nine years, RJTCF is obligated to provide the investor with a
specified return. A $33.7 million financing asset is included in prepaid expenses and other assets (see Note 10 for additional
information), and a related $33.7 million liability is included in trade and other payables on our Consolidated Statements of
Financial Condition as of September 30, 2013. The maximum exposure to loss under this guarantee is the undiscounted future
payments due to investors for the return on and of their investment, and approximates $42 million at September 30, 2013.
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. 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. In August 2013, the United States District Court for the Western District of Tennessee
approved the settlement of the class action and the derivative action regarding the closed end funds for $62 million and $6 million,
respectively. 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.
The SEC and states of Missouri and Texas are investigating alleged securities law violations by MK & Co. in the underwriting
and sale of certain municipal bonds. An enforcement action was brought by the Missouri Secretary of State in April 2013, seeking
monetary penalties and other relief. In November 2013, the state dismissed this enforcement action and refiled the same claims
as a civil action in the Circuit Court for Boone County, Missouri. A civil action was brought by institutional investors of the bonds
on March 19, 2012, seeking a return of their investment and unspecified compensatory and punitive damages. A class action was
brought on behalf of retail purchasers of the bonds on September 4, 2012, seeking unspecified compensatory and punitive damages.
These actions are in the early stages. These matters are subject to the indemnification agreement with Regions.
172
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 stock purchase agreement and
summarized below.
Indemnification from Regions
As more fully described in Note 3, the terms of the stock purchase agreement governing our acquisition of Morgan Keegan,
which closed on April 2, 2012, provide 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 $250 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, 2013, a receivable from Regions of approximately $2.7 million
is included in other receivables, an indemnification asset of approximately $171 million is included in other assets (see Note 10
for additional information), and a liability for potential losses of approximately $169 million is included within trade and other
payables, all of which are reflected on our Consolidated Statements of Financial Condition pertaining to the above matters and
the related indemnification from Regions. The amount included within trade and other payables is 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.
Through September 30, 2013, Regions has reimbursed us approximately $25 million for costs we incurred in excess of the accrued
liability amounts for legal matters subject to indemnification included in the final Closing Date tangible net book value computation.
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, 2013, management currently estimates the aggregate
range of possible loss is from $0 to an amount of up to $6 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.
173
Index
NOTE 21 - OTHER COMPREHENSIVE INCOME
The activity in other comprehensive income and related tax effects are as follows:
2013
Year ended September 30,
2012
(in thousands)
2011
Net unrealized gain on available for sale securities, (net of tax effect of $9 million in fiscal
year 2013, $7.6 million in fiscal year 2012, and $1.5 million in fiscal year 2011)
Net change in currency translations and net investment hedges (net of a tax effect of $6.9
million in fiscal year 2013 and ($5.7) million in fiscal year 2012)(1)
Other comprehensive income (loss)
$
$
15,042
$
12,886
$
2,621
(13,763)
1,279
$
6,166
19,052
$
(6,029)
(3,408)
The components of accumulated other comprehensive income, net of income taxes, are as follows:
Net unrealized loss on available for sale securities, (net of tax effects of ($700) thousand at September 30,
2013 and ($9.7) million at September 30, 2012)
Net currency translations and net investment hedges (net of a tax effect of $1.1 million at September 30,
2013 and ($5.7) million at September 30, 2012) (1)
Accumulated other comprehensive income
September 30,
2013
2012
(in thousands)
$
$
(1,276) $
(16,318)
12,002
10,726
$
25,765
9,447
(1) Includes net gains (losses) recognized on forward foreign exchange derivatives of $14 million and $(10) million for the years ended
September 30, 2013 and 2012, respectively (see Note 18 for additional information). We did not enter into any forward foreign exchange
derivative contracts during the year ended September 30, 2011.
All of the components of other comprehensive income described above, net of tax, are attributable to RJF.
174
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
Loans to financial advisors
Corporate cash and all other
Total interest income
Interest expense:
Brokerage client liabilities
Retail bank deposits
Trading instruments sold but not yet purchased
Stock borrow
Borrowed funds
Senior notes
Interest expense of consolidated VIEs
Other
Total interest expense
Net interest income
Subtract: provision for loan losses
Net interest income after provision for loan losses
NOTE 23 - EMPLOYEE BENEFIT PLANS
2013
Year ended September 30,
2012
(in thousands)
2011
$
$
60,931
17,251
335,964
8,005
20,089
8,271
6,510
16,578
473,599
2,049
9,032
3,595
2,158
4,724
76,113
3,959
8,741
110,371
363,228
(2,565)
360,663
$
$
60,104
16,050
319,211
9,076
20,977
9,110
4,797
13,933
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
16,343
270,057
10,815
20,549
6,035
4,688
11,470
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
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, 2013 and
2012 was approximately 5,872,000 and 6,038,000, respectively. The market value of our common stock held by the ESOP at
September 30, 2013 was approximately $244 million, of which approximately $2.4 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 is a qualified plan that may provide for
a discretionary contribution or a matching contribution each year. Matching contributions are 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 and the LTIP, are approved annually by the compensation committee of our Board of
Directors.
175
Index
Effective January 1, 2013, we established a Voluntary Deferred Compensation Plan (the “VDCP”), a non-qualified and
voluntary opportunity for certain highly compensated employees and independent contractors to defer compensation. Eligible
participants must have annual compensation of $300,000 or more, and may elect to defer a percentage or specific dollar amount
of their compensation into the VDCP. We hold life insurance on the lives of certain current employee participants to provide a
source of funds available to satisfy our obligations under this plan.
As part of the Morgan Keegan acquisition, we maintain non-qualified 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
(see Note 3 for more information about this acquisition). Under these plans, we invest directly, as a principal, in such investments
related to our obligations to perform under the deferred compensation plans (see Note 5 for the fair value of these investments as
of September 30, 2013, and 2012). Contributions may be made quarterly as well as annually in accordance with the applicable
division’s compensation plan. Such contributions are approved by senior management.
Compensation expense includes aggregate contributions to these plans of $61.8 million, $57.8 million and $54.1 million for
fiscal years 2013, 2012 and 2011, respectively.
Share-based compensation plans
We have one share-based compensation plan for our employees, Board of Directors and non-employees (comprised of
independent contractor financial advisors). The 2012 Stock Incentive 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. Under the 2012 Plan, we may grant 15,400,000 new shares in addition to the shares available for grant under six
predecessor plans which were terminated as of February 23, 2012 (except with respect to awards previously granted under such
terminated predecessor plans which remain outstanding). The 2012 Plan is the successor to predecessor plans under which options,
restricted stock or restricted stock units have previously been issued.
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:
Total share-based expense
Income tax benefits related to share-based expense
$
2013
Year ended September 30,
2012
(in thousands)
9,623
$
701
8,382
596
$
2011
7,319
319
176
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 2013, 2012 and 2011:
Dividend yield
Expected volatility
Risk-free interest rate
Expected lives (in years)
Year ended September 30,
2012
2011
2013
1.37%
39.38%
0.67%
5.5
1.84%
45.17%
0.91%
4.6
1.80%
43.74%
1.41%
4.9
The dividend yield assumption is based on our declared dividend as a percentage of the stock price at the date of the grant.
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, (3) the implied
volatility of option contracts of RJF stock, and (4) 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, 2013 is presented below:
Outstanding at October 1, 2012
Granted
Exercised
Forfeited
Expired
Outstanding at September 30, 2013
Weighted-
average
exercise
price ($)
Weighted-
average
remaining
contractual
term (years)
Aggregate
intrinsic
value ($)
27.14
37.96
28.87
27.80
30.89
28.92
3.19 $ 49,032,000
Options
for shares
4,392,270 $
840,150
(1,262,076)
(126,635)
(900)
3,842,809 $
Exercisable at September 30, 2013
584,627 $
26.16
1.16 $
9,066,000
As of September 30, 2013, 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 2.9
years.
The following stock option activity occurred under the 2012 Plan for grants to employees and members of our Board of
Directors:
Year ended September 30,
2012
(in thousands, except per option amounts)
2011
2013
Weighted-average grant date fair value per option
Total intrinsic value of stock options exercised
Total grant date fair value of stock options vested
$
$
12.06
14,240
11,598
$
9.67
3,222
3,965
9.62
10,553
9,206
Cash received from stock option exercises for the fiscal year ended September 30, 2013 was $33 million. There was
approximately a $301 thousand tax benefit realized during the fiscal year ended September 30, 2013 resulting from the exercise
of option awards during the fiscal year.
177
Index
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 $250,000. In 2010,
our Board of Directors approved the granting of restricted stock unit awards rather than restricted stock awards after reviewing
certain income tax consequences to retirement eligible participants associated with the restricted stock awards. Our intention is
to issue restricted stock units rather than restricted stock awards in the future. The determination of the number of units or shares
to be granted is determined by the compensation committee of the Board of Directors. Under the plan, the awards are generally
restricted for a three to five year period, during which time the awards are forfeitable in the event of termination other than for
death, disability or retirement. The following activity occurred during the fiscal year ended September 30, 2013:
Non-vested at October 1, 2012
Granted
Vested
Forfeited
Non-vested at September 30, 2013
Weighted-
average
grant date
fair value ($)
Shares/Units
6,050,789 $
1,001,231
(954,805)
(179,804)
5,917,411 $
29.87
38.12
26.86
33.16
31.66
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
$
2013
Year ended September 30,
2012
(in thousands)
39,588
$
13,186
$
48,621
16,607
2011
30,179
11,468
For the twelve months ended September 30, 2013, we realized $3.6 million of excess tax benefits related to our restricted
stock awards.
As of September 30, 2013, there was $91.6 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 2.88 years. The total fair value of shares and unit awards vested under this plan during the fiscal year
ended September 30, 2013 was $25.4 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 436,000, 480,000 and 337,000 shares
to employees during the years ended September 30, 2013, 2012 and 2011, respectively. The compensation cost is calculated as
the value of the 15% discount from market value and was $2.7 million, $2.4 million and $1.6 million during the fiscal years ended
September 30, 2013, 2012 and 2011, respectively.
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.
178
Index
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.
NOTE 24 - NON-EMPLOYEE SHARE-BASED AND OTHER COMPENSATION
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. The 2012 Plan is the successor to the prior plan under
which options have previously been issued to independent contractors. 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
$
2013
Year ended September 30,
2012
(in thousands)
2,033
$
773
$
1,282
487
2011
952
362
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 2013, 2012 and 2011:
Dividend yield
Expected volatility
Risk-free interest rate
Expected lives (in years)
Year ended September 30,
2012
2011
2013
1.34%
39.88%
1.16%
3.32
1.52%
43.84%
0.73%
3.27
1.62%
44.14%
0.65%
2.54
The dividend yield assumption is based on our declared dividend as a percentage of the stock price at the date of the grant.
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, (3) the implied
volatility of option contracts of RJF stock, and (4) 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.
179
Index
A summary of independent contractor financial advisors option activity for the fiscal year ended September 30, 2013 is
presented below:
Outstanding at October 1, 2012
Granted
Exercised
Forfeited
Expired
Outstanding at September 30, 2013
Weighted-
average
exercise
price ($)
Weighted-
average
remaining
contractual
term (years)
Aggregate
intrinsic
value ($)
Options
for shares
320,750 $
47,600
(133,900)
(4,300)
(1,900)
228,250 $
27.87
37.87
31.40
26.76
31.78
27.88
—
—
—
—
—
3.05 $
3,148,000
Exercisable at September 30, 2013
13,000 $
30.44
0.16 $
146,000
As of September 30, 2013, there was $875 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 $17.68 per share at that date. These costs are expected to be recognized over a weighted-average
period of approximately 2.95 years. The following activity for our independent contractor financial advisors occurred as follows:
Total intrinsic value of stock options exercised
Total fair value of stock options vested
$
2013
Year ended September 30,
2012
(in thousands)
783
$
1,116
985
347
$
2011
3,300
1,448
Cash received from stock option exercises for the fiscal year ended September 30, 2013 was $4.2 million. There were $127
thousand excess tax benefits realized for the tax deductions from option exercise of awards to our independent contractor financial
advisors for the fiscal year ended September 30, 2013.
Restricted stock awards
Under the 2012 Plan we may grant restricted shares of common stock or restricted stock units to employees and independent
contractor financial advisors. The 2012 Plan is the successor the prior plan under which restricted stock or restricted stock units
have been issued to independent contractors. We issue new shares under this plan as it was approved by shareholders. In 2010,
our Board of Directors approved the granting of restricted stock unit awards rather than restricted stock awards after reviewing
certain income tax consequences to retirement eligible participants associated with the restricted stock awards. Our intention is
to issue restricted stock units rather than restricted stock awards in the future. Under the plan the awards are generally restricted
for a five year period, during which time the awards are forfeitable in the event the independent contractor financial advisors are
no longer associated with us, other than for death, disability or retirement. The following activity for our independent contractor
financial advisors occurred during the fiscal year ended September 30, 2013:
Non-vested at October 1, 2012
Granted
Vested
Forfeited
Non-vested at September 30, 2013
Weighted-
average
reporting date
fair value ($)
Shares/Units
105,945 $
—
(74,356)
(5,405)
26,184 $
36.65
41.67
The weighted-average fair value of share and unit awards vested during the fiscal year ended September 30, 2013 was $42.11
per share. The weighted-average fair value of share and unit awards forfeited during the fiscal year ended September 30, 2013
was $36.71 per share.
180
Index
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
$
2013
Year ended September 30,
2012
(in thousands)
2,062
$
783
829
315
$
2011
923
351
As of September 30, 2013, there was $231 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 $41.67 per share at that date. These costs are expected to be recognized over a weighted-average period of approximately
1.91 years. The total fair value of share and unit awards vested during the years ended September 30, 2013, 2012 and 2011 was
$3.1 million, $1.6 million and $49 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.
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.
RJF and RJ Bank are required to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined), and Tier 1 capital to average assets (as defined). RJF and RJ Bank each calculate the Total
Capital and Tier I Capital ratios in order to assess compliance with both regulatory requirements and their internal capital policies
in addition to providing a measure of underutilized capital should these ratios become excessive. Capital levels are continually
monitored to assess both RJF and RJ Bank’s capital position. At current capital levels, RJF and RJ Bank are each categorized as
“well capitalized” under the regulatory framework for prompt corrective action.
181
Index
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
3,445,136
19.8% $
1,391,974
8.0% $
1,739,968
10.0%
3,294,595
3,294,595
18.9%
14.5%
697,269
908,854
4.0%
4.0%
1,045,903
1,136,067
6.0%
5.0%
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%
RJF as of September 30, 2013:
Total capital (to risk-weighted assets) $
Tier I capital (to risk-weighted
assets)
Tier I capital (to adjusted assets)
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)
The increases in RJF’s Total capital (to risk-weighted assets) and Tier 1 capital (to risk-weighted assets) at September 30,
2013 compared to September 30, 2012 each resulted from the positive effect of the net income generated during the year ended
September 30, 2013 offset by the growth experienced in our loan portfolio and market risk equivalent assets. The increase in
RJF’s Tier 1 capital (to adjusted assets) ratio at September 30, 2013 compared to September 30, 2012 was primarily due to the
positive impact of the net income generated during the year ended September 30, 2013 offset by growth of average total assets.
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
1,234,268
13.0% $
758,996
8.0% $
948,745
10.0%
1,115,113
1,115,113
11.8%
10.4%
379,498
430,154
4.0%
4.0%
569,247
537,692
6.0%
5.0%
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%
RJ Bank as of September 30, 2013:
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, 2012:
Total capital (to risk-weighted assets) $
Tier I capital (to risk-weighted
assets)
Tier I capital (to adjusted assets)
The decrease in RJ Bank’s Total and Tier I Capital (to risk-weighted assets) ratios at September 30, 2013 compared to
September 30, 2012 were primarily due to an increase in risk-weighted assets during the current year resulting from RJ Bank’s
utilization of low risk-weighted excess cash balances at September 30, 2012 to fund significant loan growth. The decrease in the
Tier I capital (to adjusted assets) ratio at September 30, 2013 compared to September 30, 2012 was primarily due to an increase
in earnings and significant loan growth during the year ended September 30, 2013.
Our intention is to maintain RJ Bank’s “well capitalized” status. RJ Bank maintains a targeted total capital to risk-weighted
assets ratio of at least 12.5%. 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.
182
Index
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.
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, MK & Co., and RJFS, each being 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 each elected. Regulations require that
minimum net capital, as defined, be equal to the greater of $1 million, ($250 thousand for RJFS and MK & Co. as of September
30, 2013) or two percent of aggregate debit items arising from client transactions. FINRA may require a member firm to reduce
its business if its net capital is less than four percent of Aggregate Debit Items and may prohibit a member firm from expanding
its business and declaring cash dividends if its net capital is less than five percent of aggregate debit items.
The net capital position of our wholly owned broker-dealer subsidiary RJ&A is as follows:
Raymond James & Associates, Inc.:
(Alternative Method elected)
Net capital as a percent of aggregate debit items
Net capital
Less: required net capital
Excess net capital
As of September 30,
2013
2012
($ in thousands)
23.14%
435,343
(37,625)
397,718
$
$
17.22%
264,315
(30,696)
233,619
$
$
In mid-February 2013 the client accounts of MK & Co. were transferred to RJ&A which resulted in a significant change in
the nature of MK & Co. business operations. Subsequent to the client account transfer and as of September 30, 2013, MK & Co.
ceased operating as a self-clearing broker-dealer carrying client accounts, and became a special purpose broker-dealer. As a result
of this change in operations, MK & Co.’s, capital requirements as of September 30, 2013 are significantly different than those as
of September 30, 2012.
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
As of September 30,
2013
2012
(As amended) (1)
($ in thousands)
$
$
—
6,047
(250)
5,797
$
$
65.84%
263,366
(8,432)
254,934
(1) MK & Co.’s net capital position as of September 30, 2012 was amended for insignificant changes to conform to final regulatory filings.
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
183
As of September 30,
2013
2012
(in thousands)
$
$
18,103
(250)
17,853
$
$
11,689
(250)
11,439
Index
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, 2013 or 2012.
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,
2013
2012
(in thousands)
$
$
52,777
(250)
52,527
$
$
77,871
(250)
77,621
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, 2013 and 2012, RJT met the requirements.
At September 30, 2013, 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 regulatory capital rules. 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.
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 $64.6 million and securities
loaned was $42.7 million at September 30, 2013, and the market value of securities borrowed was $93.1 million and securities
loaned was $81.8 million at September 30, 2012. The contract value of securities borrowed and securities loaned was $66.4 million
and $49.5 million, respectively, at September 30, 2013 and the contract value of securities borrowed and securities loaned was
$96.3 million and $91.5 million, respectively, at September 30, 2012. 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.
184
Index
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 $299.1 million and $334.1 million at September 30,
2013 and 2012, respectively. The contract value of securities loaned was $305.1 million and $339.6 million at September 30,
2013 and 2012, respectively. 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 $220.7 million and $232.4 million at September 30, 2013 and 2012, 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, 2013, forward contracts outstanding to buy and sell U.S. dollars
totaled CDN $5 million and CDN $5.8 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.
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, if any, 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,
2013
2012
(in thousands)
Standby letters of credit
Open end consumer lines of credit
Commercial lines of credit
Unfunded loan commitments
$
$
122,672
829,923
1,743,594
216,918
140,688
480,304
1,804,771
101,077
185
Index
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, 2013, $123 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, if necessary, the liquidation of collateral, which
is monitored daily, are expected to satisfy the amounts drawn against these 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.
As a part of our fixed income public finance operations, RJ&A enters into forward commitments to purchase GNMA MBS.
See Note 20 for information on these commitments. We utilize TBA security contracts to hedge our interest rate risk associated
with these commitments. We incur either gains or losses, depending upon market conditions, if the timing of or the actual amount
of GNMA MBS securities differs significantly from the term and notional amount of the TBA security contracts into which we
enter.
186
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,
2011
2012
2013
(in thousands, except per share amounts)
$
$
$
$
367,154
(4,164)
362,990
367,154
(4,100)
363,054
137,732
2,809
140,541
$
$
$
$
295,869
(5,958)
289,911
295,869
(5,926)
289,943
130,806
985
131,791
2.64
2.58
$
$
2.22
2.20
$
$
1,153
1,928
278,353
(8,777)
269,576
278,353
(8,756)
269,597
122,448
388
122,836
2.20
2.19
2,136
(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 1.6 million, 2.7 million and 4 million for the years ended September 30, 2013, 2012 and 2011, respectively. Dividends
paid to participating securities amounted to $800 thousand, $1.4 million and $1.9 million for the years ended September 30, 2013,
2012, and 2011 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
$
$
0.56
0.55
$
$
0.52
0.52
$
$
0.52
0.50
Year ended September 30,
2012
2011
2013
NOTE 28 – SEGMENT ANALYSIS
Effective September 30, 2013, we implemented changes in our reportable segments. The changes are a result of management’s
assessment of the usefulness and materiality of certain of our historic reportable segments. The effect of the change is that we
now report the following five business segments: “Private Client Group;” “Capital Markets;” “Asset Management;” RJ Bank; and
the “Other” segment. Prior period segment balances impacted by this change in reportable segments have been reclassified to
conform to the current presentation.
The business segments are determined based upon factors such as the services provided and the distribution channels served
and are consistent with how we assess performance and determine how to allocate our resources throughout our subsidiaries. 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.
187
Index
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 activities associated with the borrowing and lending of securities to and from other broker-dealers,
financial institutions and other counterparties, generally as an intermediary or to facilitate RJ&A’s clearance and settlement
obligations and 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, the operations of RJTCF, and our Latin American joint ventures.
The Asset Management segment includes the operations of Eagle, the Eagle Family of Funds, the asset management operations
of RJ&A, trust services of RJT, 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 Other segment includes our principal capital and private equity activities as well as various corporate costs of RJF that
are not allocated to operating segments including the interest cost on our public debt, the acquisition and integration costs primarily
associated with our acquisition of Morgan Keegan, and the loss associated with the securities repurchased in prior years as a result
of the ARS settlement (see Note 7 for additional information).
Information concerning operations in these segments of business is as follows:
Revenues:
Private Client Group
Capital Markets
Asset Management
RJ Bank
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
Other
Pre-tax income excluding noncontrolling interests
Add: net loss attributable to noncontrolling
interests
Income including noncontrolling interests and before
provision for income taxes
2013
Year ended September 30,
2012
(in thousands)
2011
$
$
$
$
$
$
2,930,603
945,477
292,817
356,130
126,401
(55,630)
4,595,798
230,315
102,171
96,300
267,714
(132,313)
564,187
(2)
$
$
$
2,484,670
820,852
237,224
345,693
58,412
(48,951)
3,897,900
215,091
75,755
67,241
240,158
(126,720)
471,525
(2)
2,192,422
707,460
226,511
281,992
27,329
(35,828)
3,399,886
220,299
82,521
66,176
172,993
(80,742)
461,247
(3)
29,723
(3,604)
(10,502)
$
593,910
$
467,921
$
450,745
(1) No individual client accounted for more than ten percent of total revenues in any of the years presented.
(2) The Other segment includes acquisition related expenses pertaining to our acquisitions in the amount of $73.5 million and $59.3 million
for the years ended September 30, 2013 and 2012, respectively (see Note 3 for further information regarding our acquisitions).
(3) The Other segment for the year ended September 30, 2011 includes a $41 million loss provision for auction rate securities (see Note
7 for additional information).
188
Index
Year ended September 30,
2013
2012
2011
(in thousands)
Net interest income (expense):
Private Client Group
Capital Markets
Asset Management
RJ Bank
Other
Net interest income
$
$
85,301
4,076
81
338,844
(65,074)
363,228
$
$
84,827
6,641
(17)
322,024
(51,586)
361,889
$
$
71,724
6,166
107
271,306
(22,815)
326,488
The following table presents our total assets on a segment basis:
September 30,
2013
2012
(in thousands)
Total assets:
Private Client Group (1)
Capital Markets (2)
Asset Management
RJ Bank
Other
Total
$
$
7,649,030
2,548,663
149,436
10,489,524
2,349,469
23,186,122
$
$
6,917,562
2,558,143
81,838
9,701,996
1,900,726
21,160,265
(1) Includes $174 million and $173 million of goodwill at September 30, 2013 and 2012, respectively.
(2) Includes $121 million and $127 million of goodwill at September 30, 2013 and 2012, 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
2013
Year ended September 30,
2012
(in thousands)
2011
$
$
$
$
4,177,712
310,616
83,744
23,726
4,595,798
543,093
28,470
(8,032)
656
564,187
$
$
$
$
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
189
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,
2013
2012
(in thousands)
$
$
21,154,293
1,965,648
26,415
39,766
23,186,122
$
$
19,296,197
1,788,883
42,220
32,965
21,160,265
(1) Includes $262 million and $260 million of goodwill at September 30, 2013 and 2012, respectively.
(2) Includes $33 million of goodwill at September 30, 2013 and 2012.
(3) Includes $7 million of goodwill at September 30, 2012.
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.
Our principal domestic broker-dealer subsidiaries of the Parent, RJ&A 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, 2013, 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, 2013.
Subsidiary net assets of approximately $1.4 billion are restricted from being transferred from certain subsidiaries to the Parent
as of September 30, 2013, 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.
190
Index
The following table presents the Parent’s statement of financial condition:
Assets:
Cash and cash equivalents
Intercompany receivables from subsidiaries:
Bank subsidiary
Non-bank subsidiaries (1)
Investments in consolidated subsidiaries:
Bank subsidiary
Non-bank 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
Non-bank subsidiaries
Accrued compensation and benefits
Corporate debt
Total liabilities
Equity
Total liabilities and equity
September 30,
2013
2012
(in thousands)
$
274,747
$
259,129
44
920,827
1,106,742
2,393,035
10,546
31,954
634,446
5,372,341
(2)
$
—
558,051
1,038,449
2,515,223
14,398
274,309
241,716
4,901,275
66,159
91,628
—
217,497
276,916
1,148,845
1,709,417
3,662,924
5,372,341
$
39
263,717
128,294
1,148,657
1,632,335
3,268,940
4,901,275
$
$
(1) Of the total receivable from non-bank subsidiaries, $760 million and $446 million at September 30, 2013 and 2012, respectively, is
invested in cash and cash equivalents by the subsidiary on behalf of the Parent.
(2) The decrease in goodwill and identifiable intangible assets as of September 30, 2013 compared to the prior year period is primarily
the result of the mid-February 2013 transfers of the client accounts of MK & Co. to RJ&A pursuant to our Morgan Keegan acquisition
integration strategy (see Note 3 for additional information regarding the Morgan Keegan acquisition). Such transfers constitute transfers
of businesses amongst entities under common control of RJF. Accordingly, the goodwill arising from the Morgan Keegan acquisition
which had been maintained on the Parent’s statement of financial condition was pushed-down to the statement of financial condition
of the subsidiary that received the transferred businesses. There was no impact on the Consolidated Statements of Financial Condition
associated with these intercompany transfers. See Note 13 for additional information regarding goodwill and identifiable intangible
assets.
191
Index
The following table presents the Parent’s statement of income:
Revenues:
Dividends from non-bank 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 on available for sale securities and non-
credit portion of other-than-temporary impairment losses
Total comprehensive income
2013
Year ended September 30,
2012
(in thousands)
2011
822,996
100,000
1,966
2,510
6,017
933,489
43,673
5,029
1,005
16,506
78,244
9,608
(33,115)
120,950
812,539
(54,047)
866,586
(499,432)
367,154
$
$
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
—
2
—
367,154
$
295,871
$
278,353
$
$
$
192
2013
Year ended September 30,
2012
2011
(in thousands)
367,154
$
295,869
$
278,353
(11,264)
(24,907)
499,432
(120,340)
(68,635)
33,584
(214,415)
10,017
148,622
619,248
(384,622)
(171,677)
(15,017)
—
(571,316)
—
—
55,997
(11,718)
(76,593)
(32,314)
15,618
259,129
274,747
78,439
(100,179)
457,048
(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
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 (used in) provided by 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 for income taxes, net
Supplemental disclosures of noncash investing activity:
Investments in subsidiaries
$
$
$
$
193
Index
SUPPLEMENTARY DATA:
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
Fiscal year 2013
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 (1)
Net income per share - diluted
Dividends declared per share
Fiscal year 2012
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 (1)
Net income per share - diluted
Dividends declared per share
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(in thousands, except per share data)
1,137,509 $
1,170,298 $
1,137,728 $
1,150,263
1,109,488 $
1,143,095 $
1,109,536 $
1,123,308
962,321 $
983,792 $
980,639 $
964,765
147,167 $
159,303 $
128,897 $
85,874 $
79,960 $
83,862 $
0.62 $
0.61 $
0.14 $
0.57 $
0.56 $
0.14 $
0.60 $
0.59 $
0.14 $
158,543
117,458
0.84
0.82
0.14
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
(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
(1) Due to rounding the quarterly results do not sum to the total for the year.
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.
194
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, 2013 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, 2013. 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, 2013 (included
below).
195
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,
2013, 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, 2013, 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, 2013 and
2012, 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, 2013, and our report dated November 26, 2013 expressed
an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
November 26, 2013
Tampa, Florida
Certified Public Accountants
196
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 2014 Annual Meeting of Shareholders.
Such proxy statement is expected to be filed with the SEC prior to January 15, 2014.
Item 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 2014 Annual Meeting of Shareholders. Such proxy statement is expected to be filed with the SEC prior to January
15, 2014.
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
See the following pages.
197
Index
Exhibit
Number
3.1
3.2
4.1
4.2.1
4.2.2
4.2.3
4.2.4
4.2.5
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 November 29, 2012, incorporated by reference to Exhibit 3.2 as filed with Form 8-K on November 30, 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.
10.1
* 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.
10.2
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.
10.3
* 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.
10.4
Form of Indemnification Agreement with Directors, incorporated by reference to Exhibit 10.18 as filed with Form 10-K on
December 8, 2004.
10.5
* 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.
10.6
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.
10.7
* 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.
10.8
* Letter agreement dated February 25, 2009 between Raymond James Financial, Inc. and Paul Reilly, incorporated by reference
to Exhibit No. 10.14 as filed with Form 8-K on March 3, 2009.
10.9
* 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.
10.10.1
* 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.
198
Index
Exhibit
Number
10.10.2
Description
* 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.
10.10.3
* 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.
10.11.1
* 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.
10.11.2
* 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.
10.11.3
* 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.
10.12
10.13.1
10.13.2
10.13.3
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.
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.
Fifth Third Bank Uncommitted Line of Credit Agreement Extension Letter dated September 25, 2012, Bank, incorporated by
reference to Exhibit 10.16.2 as filed with Form 10-K on November 23, 2012.
Fifth Third Bank Uncommitted Line of Credit Agreement Extension Letter dated March 22, 2013, incorporated by reference
to Exhibit 10.16.3 as filed with Form 10-Q on May 9, 2013.
10.14
* Amended and Restated Raymond James Financial Long-Term Incentive Plan, as further amended and restated effective
August 22, 2013, filed herewith.
10.15
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.
10.16.1
* 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.
10.16.2
* 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.
10.16.3
* Form of Stock Option Agreement under 2012 Stock Incentive Plan, as revised and approved on August 21, 2013, filed
herewith.
10.16.4
* Form of Restricted Stock Unit Agreement for Non-Bonus Award (Employee/Independent Contractor) under 2012 Stock
Incentive Plan, as revised and approved on August 21, 2013, filed herewith.
10.16.5
* 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.
10.16.6
* Form of Restricted Stock Unit Agreement for Stock Bonus Award under 2012 Stock Incentive Plan, as revised and approved
on August 21, 2013, filed herewith.
10.16.7
* 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.
10.16.8
* Form of Restricted Stock Unit Agreement for Performance Based Restricted Stock Unit Award under 2012 Stock Incentive
Plan, incorporated by reference to Exhibit 10.20.8 as filed with Form 10-Q on February 8, 2013.
199
Index
Exhibit
Number
10.17
10.18
10.19
Description
* 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.
* Raymond James Financial, Inc. Voluntary Deferred Compensation Plan effective January 1, 2013, including the related Non-
Qualified Deferred Compensation Plan Summary, incorporated by reference to Exhibit 10.24 as filed with Form 10-Q on
February 8, 2013.
10.20
* Form of Raymond James Financial, Inc. Restricted Cash Agreement dated as of March 31, 2013, incorporated by reference to
Exhibit 99.1 as filed with Form 8-K on March 20, 2013.
11
12
14.1
14.2
21
23
31.1
31.2
32
99.(i).1
99.(i).2
99.(i).3
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 28, 2012, incorporated by reference to
Exhibit 99.(i).1 as filed with Form 10-Q on May 9, 2013.
Charter of the Corporate Governance, Nominating and Compensation Committee as revised on February 22, 2013,
incorporated by reference to Exhibit 99.(i).2 as filed with Form 10-Q on May 9, 2013.
Raymond James Financial, Inc. Corporate Governance Principles as revised on February 22, 2013, incorporated by reference
to Exhibit 99.(i).3 as filed with Form 10-Q on May 9, 2013.
* Indicates a management contract or compensatory plan or arrangement in which a director or named executive officer participates.
200
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 26th day of November, 2013.
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 26, 2013
Executive Chairman and Director
November 26, 2013
/s/ SHELLEY G. BROADER
Director
November 26, 2013
Shelley G. Broader
/s/ FRANCIS S. GODBOLD
Vice Chairman and Director
November 26, 2013
Francis S. Godbold
/s/ H. WILLIAM HABERMEYER, JR
Director
November 26, 2013
H. William Habermeyer, Jr.
/s/ CHET B. HELCK
Chet B. Helck
Executive Vice President and Director
November 26, 2013
/s/ GORDON L. JOHNSON
Director
November 26, 2013
Gordon L. Johnson
/s/ ROBERT P. SALTZMAN
Director
November 26, 2013
Robert P. Saltzman
/s/ HARDWICK SIMMONS
Director
November 26, 2013
Hardwick Simmons
/s/ SUSAN N. STORY
Susan N. Story
/s/ JEFFREY P. JULIEN
Jeffrey P. Julien
Director
November 26, 2013
Executive Vice President - Finance,
November 26, 2013
Chief Financial Officer and Treasurer
/s/ JENNIFER C. ACKART
Senior Vice President and Controller
November 26, 2013
Jennifer C. Ackart
(Principal Accounting Officer)
201
None of the exhibits listed on pages 197, 198, 199, and 200 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 written request to
Corporate Secretary, Raymond James Financial, Inc. 880 Carillon Parkway, St. Petersburg, Florida 33716 or via
email to investorrelations@raymondjames.com.
202
International Headquarters: The Raymond James Financial Center
880 Carillon Parkway St. Petersburg, FL 33716 800.248.8863
raymondjames.com
©2013 Raymond James Financial Raymond James® is a registered trademark of Raymond James Financial, Inc.