annual report 2014
1
RAYMOND JAMES ANNUAL REPORT 2014 OUR MISSION
Our business is people and their financial well-being. Therefore, in the
pursuit of our goals, we will conduct ourselves in accordance with the
following precepts:
• Our clients always come first. We must
provide the highest level of service with
integrity.
• Assisting our clients in the attainment of
their financial objectives is our most worthy
enterprise.
• Continuing education is necessary to
maintain the timeliness of investment
knowledge, tax law information and
financial planning techniques.
• Innovation is requisite to our survival in
a changing world.
• We must communicate with our clients
• To emulate other members of our industry
clearly and frequently.
• Our investments and services must be of
superior quality.
• Teamwork – cooperating with and providing
assistance and support to our fellow
associates – is fundamental to sustaining
a quality work environment that nurtures
opportunities for unparalleled service,
personal growth and job satisfaction.
requires us to continue to work hard; to excel
beyond our peers requires us to provide an
even higher caliber of service to our clients.
• We must give something back to the
communities in which we live and work.
CONTENTS
2
MESSAGE FROM THE CEO
AND THE CHAIRMAN
18
BOARD OF
DIRECTORS
2
6
7
11
14
BUSINESS UNITS
PEOPLE
PLACES
POTENTIAL
20
10-YEAR FINANCIAL
SUMMARY
22
CORPORATE AND
SHAREHOLDER
INFORMATION
23
FINANCIAL REPORT
Some things never change. Other things never stop.
At Raymond James, we hold both ideas to be true.
We’ll never fix what isn’t broken,
but we’re always open to new ideas
that will serve our clients and growth
that will benefit our shareholders and
associates. We aren’t the kind of firm
to sacrifice who we are for how big
we could be; we also believe, however,
that our people-centric, values-driven
culture isn’t a function of our size but
of our attitude.
And it’s this ability – to evolve while
staying true to our philosophical roots,
to eschew the traditional trappings of
success while still pursuing ever-greater
heights, to continually attract people
who are not just exceptionally talented
but fundamentally like-minded – that
has brought us to this moment, a time
when we occupy a unique position in
our industry and stand ready to make
the most of it.
In 2014 – a record-setting year by
many measures – we proved that
our long-term focused business
model and long-held values are as
relevant and vital as ever.
We logged an excellent experienced
advisor recruiting year, up 50% over 2013.
We bolstered our presence in the West
and Northeast with key hires in our
Capital Markets and Private Client
Group businesses.
We explored ways advisors and their
clients can reinvent retirement through
continued advancements to our
Goal Planning & Monitoring platform
and fresh insights gained firsthand
from the MIT AgeLab.
We did all of this and much more
the way we always have: by focusing
steadfastly on our firm’s mission
and the people, places and potential
that will help us achieve it.
FISCAL YEAR FINANCIAL HIGHLIGHTS
2014
2013 Change
COMPARISON OF FIVE-YEAR
CUMULATIVE TOTAL RETURN
Total Revenues
Net Revenues
Net Income
$4,965,460,000
$4,595,798,000
$4,861,369,000
$4,485,427,000
8.0%
8.4%
$480,248,000
$367,154,000
30.8%
Earnings per Share (Diluted)
$3.32
$2.58
28.7%
Adjusted Net Income (Non-GAAP)
$480,248,000
$419,166,000
(1)
14.6%
Non-GAAP Earnings
per Share (Diluted)
$3.32
$2.95
(1)
12.5%
Total Equity Attributable to RJF
$4,141,236,000
$3,662,924,000
Shares Outstanding
Book Value per Share
140,836,000
138,750,000
$29.40
$26.40
13.1%
1.5%
11.4%
$300
$250
$200
$150
$100
$50
$0
SEP
2009
SEP
2010
SEP
2011
SEP
2012
SEP
2013
SEP
2014
(1) There are no non-GAAP adjustments in the year ended September 30, 2014. For information
regarding the prior year’s non-GAAP adjustments, refer to the reconciliation of the GAAP
results to the non-GAAP measures that can be found on page 38 of the September 30, 2014,
Form 10-K, which is included herein.
Raymond James Financial, Inc.
S&P 500
Dow Jones U.S. Investment Services Index
Assumes initial investment of $100. Assumes reinvestment of dividends.
Prepared by Zacks Investment Research.
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RAYMOND JAMES ANNUAL REPORT 2014 MESSAGE FROM THE CHAIRMAN AND CEO
Welcome
Executive Chairman Tom James and CEO Paul Reilly
DEAR FELLOW SHAREHOLDER,
In the 2013 annual report, we celebrated the integration of
Morgan Keegan with record net revenues and net income.
Most importantly, we had become one firm, which was
greater than the sum of its two parts. We are pleased to
report that fiscal 2014 results confirmed our expectations
for the expanded platform. Raymond James capitalized on
the investment in Morgan Keegan and the hard work of our
combined associates by generating record net revenues
and net income once again because we were able to totally
focus on our mission and execute our operating segments’
business plans as one firm.
As a result, net revenues grew to a new record $4.86 billion,
up 8.4% from last year. Since non-interest expenses grew by
only 7%, we had positive operating leverage and net income
grew 31% to a record $480 million. Furthermore, fiscal 2013
included $74 million in revenue from our private equity
investment in Albion, which was sold in 2013. Consequently,
the 8.4% revenue growth is understated on a comparable
operating basis. Net income per diluted common share
was $3.32, up from $2.58 last year. Even after excluding
acquisition-related expenses and other non-GAAP
adjustments incurred in 2013 to reflect comparable
operating results, net income increased a healthy 15%.
The pretax margin on net revenues for 2014 was 15.4%,
a material increase from 12.6% in 2013. The after-tax return
on average equity for the 2014 year was 12.3% contrasted
to 10.6% in 2013. Shareholders’ equity increased to $4.14
billion, or $29.40 per share, from $3.66 billion, or $26.40 per
share, at the end of fiscal 2013. The tangible book value per
share (a non-GAAP measure) was $26.98 on September 30,
2014. Although one might not relate to some of these
statistics, the condensed version is that Raymond James
is very well capitalized and possesses substantial liquidity
to take advantage of opportunities, as well as navigate
any unexpected challenges to the financial industry.
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All four core business segments produced increased
net revenues in 2014 compared to the prior year. Only
Raymond James Bank generated a smaller pretax income,
which resulted from a lower 2014 net interest spread than
in 2013.
The Private Client Group’s 2014 net revenues of $3.27 billion
surpassed last year’s record by 12% and, quite obviously,
remained our largest segment. Pretax income from the
segment grew a remarkable 43% to $330 million. Recruiting
was vibrant. In fact, it was our second best recruiting year
in history, only surpassed by 2009 when the iconic images
of many of Wall Street’s largest firms were shattered.
Raymond James increased its count of financial advisors
by 68 to 6,265, despite some attrition related to death,
retirement and the Morgan Keegan consolidation. More
importantly, the average production of the new recruits
was much greater than those that departed. Importantly,
Private Client Group assets under administration of
$451 billion on September 30, 2014, were up 11.9% over
last year. We were also encouraged by the utilization of
Raymond James’ fee-based asset management programs
by many legacy Morgan Keegan advisors.
The Capital Markets segment generated a 3% increase in
net revenues during 2014 to a record $966 million, which
yielded a record $131 million in pretax profit, up 28% over
last year. Although the Fixed Income division experienced
a 10% drop in net revenues during the year, due to very low
interest rates and low bond price volatility, pretax profits
only decreased 10% because of better-than-anticipated
trading results. Moreover, Equity Capital Markets increased
net revenues by 13% and pretax income by 56%, driven
by excellent M&A activity and a moderate increase in
institutional commissions.
Asset Management’s 2014 net revenues increased 26%
to a record $370 million, reflecting net asset inflows and
market appreciation. Consequently, financial assets under
management grew 15.4% during fiscal 2014 to $64.6 billion,
and pretax income increased at an even higher rate of 33%
to a record $128 million due to favorable operating leverage.
To enhance organic growth in the segment, management
continues to review candidates for acquisition. This is a
tedious process, as it is imperative to obtain quality portfolio
management teams with good historical performance as well
as products that appear to have favorable market prospects.
In spite of declining net interest margins, Raymond James
Bank produced a marginal increase in net revenues as a
result of a 24% increase in net loans to $11 billion in 2014.
However, pretax profits decreased 9% to $243 million due
to the lower net interest margin, which declined to 2.98%
from 3.25% in 2013. As a result of the large increase in total
net loans, the allowance for loan losses for the year grew
by $11 million to $148 million, as loan-loss provisions are
provided for new loans at the time of origination. Due to
improvements in the quality of the loan portfolio, the
allowance for loan losses as a percentage of loans decreased
from 1.52% to 1.33%. Total non-performing loans decreased
from $102 million to $81 million during the year.
Not all of what occurred during the year can be appreciated
by perusing financial data and operating segment reports.
Below, we recount some of the significant achievements,
accolades and events which transpired in the 2014 fiscal year:
• In the first fiscal quarter, we declared the integration
of Morgan Keegan complete.
• Two Raymond James financial advisors were selected
among the five named to Research magazine’s 2013
Advisors Hall of Fame in December, joining the 10 other
Raymond James advisors who have already earned this
prestigious designation.
• Seven financial advisors affiliated with the Raymond
James Financial Institutions Division were named to
Bank Investment Consultant magazine’s list of the Top
50 Bank Advisors.
• In December 2013, Raymond James was named a
winner of the Tampa Bay Business Journal Corporate
Philanthropy Awards. On a national level, the firm
also achieved a new record level of $2.4 million in
contributions to the 2013 United Way campaign.
In conjunction with the corporate match, we committed
over $4 million to the communities in which we operate,
a 14% increase over the prior year. We salute our
associates, who participate in over 1,000 such charitable
campaigns throughout North America and who
consider sharing a necessary part of their daily lives.
• We significantly invested in our new financial advisor
training program, the Advisor Mastery Program (AMP),
and materially expanded its annual classes to offset
attrition from an aging sales force, which is an
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RAYMOND JAMES ANNUAL REPORT 2014 6
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NET REVENUE
$Billions
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NET INCOME
$Millions
industrywide challenge. In addition, we increased our efforts to assist our financial
advisors in succession planning to ensure that our clients have multigenerational
professional service.
• In February, we introduced two new directors, Jeffrey N. Edwards and Benjamin C. Esty,
to our shareholders. Their pictures and backgrounds are presented later in this annual
report and in the proxy. This reflects the board’s concern for its succession planning
as we replace directors who have completed or are nearing the end of their term
guidelines. Based on our experience this year, we can assure you that their high
levels of business experience, intellect and wisdom are already being reflected in
board deliberations.
• Our IT and Operations departments’ new state-of-the-art data center in Denver is
now functioning as our primary processing facility, reflecting years of hard work
and testing. The transition was essentially seamless, due to the effort of the project
team led by Tim Eitel. In addition, our IT and Operations departments, under the
leadership of Bella Allaire, executive vice president of technology and operations,
was recently recognized as Raymond James received the Bank Insurance and
Securities Association (BISA) Technology Innovation Award for the firm’s Client
Center. A new release, which will further improve client reporting for our customers
and financial advisors, is being rolled out currently.
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• For the fourth consecutive year, Fortune magazine named Raymond James Financial
among its most admired companies in the Asset Management/Securities firm category.
In fact, we were the only securities firm in the top five.
• In February, Barron’s recognized 35 Raymond James financial advisors among
its list of 1,200 Top Advisors. In March, 10 Raymond James financial advisors
were named to the Financial Times “FT 400” list of top financial advisors.
• In May, four of our Financial Institutions Division advisors were included in Bank
Investment Consultant magazine’s Top 20 Program Managers list.
• In May, Raymond James Bank celebrated its 20th anniversary. Since its virtual
inception, its assets have grown to over $12 billion at the end of fiscal 2014 and
it has become one of our four core business units.
• In June, three Raymond James advisors were named to Barron’s 2014 list of the
Top 100 Women Financial Advisors.
• In July, Raymond James employee and independent advisor divisions ranked second
and third, respectively, in J.D. Power’s 2014 U.S. Financial Advisor Satisfaction
survey, which confirms the rationale for our recruiting results reported earlier.
• Acquisition International announced in July that it selected Raymond James’
Investment Banking practice the Investment Services Provider of the Year – USA.
• In August, two Raymond James-affiliated advisors were named to Barron’s Top 100
Independent Wealth Advisors list.
• In September, the Raymond James Research department received 13 awards
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RETURN ON EQUITY
Percent
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MARKET CAPITALIZATION
$Billions
ALL DATA AS OF FISCAL
YEAR-ENDED SEPTEMBER 30, 2014
in the StarMine Analyst Awards, earning the firm a tie for second among all broker/
dealers, many of which are much larger, for the second consecutive year.
4
has just passed 80%, which suggests that total capital
expenditures should still grow, even if they decline in
the oil industry. Bank loan data is also encouraging, and
unemployment claim data suggest that employment will
continue to increase. Furthermore, our economy gives
every indication that it should outperform the rest of the
world for some time.
We are more concerned about the high costs of excessive
regulation for business and the ongoing difficulty of our
political system to deliver solutions that will address
Social Security, healthcare and immigration. These four
issues must be dealt with in the near term by motivated
politicians who are willing to compromise, but they have
been in short supply. Whatever your party affiliation,
it’s in the best interests of the American public to
demand collaborative action.
We are convinced that we remain well positioned to continue
to deliver good results for our clients, shareholders,
employees and communities as long as we continue to
strive to follow our Mission Statement and practice the
values listed on the inside cover of this annual report.
Best wishes for a happy, healthy and prosperous New Year!
Thomas A. James
Executive Chairman
Paul C. Reilly
CEO
December 15, 2014
In mid-December, as we write this annual report, in which
we chronicle much of the 2014 fiscal year, we are reminded
once again that stock and oil prices don’t always go up. In
rapid fashion, oil prices plummeted from over $100 to less
than $58 a barrel. Based upon more production and reserve
additions enabled by revolutionary new fracing (fracking or
fracturing) technology, our energy analysts predicted much
lower prices over two years ago. As they now know, they were
early as it took time to drill wells, build pipelines, construct
storage facilities and complete the rest of the necessary
industry infrastructure to increase supply. Then, recently,
energy market conditions and global slowdowns in economic
growth converged to trigger a massive price decline almost
overnight. The good news is that consumers will benefit
from much lower gas and fuel oil prices and that the
United States will become energy independent over the
next five to 10 years, as long as prices support more drilling.
The bad news is that energy stocks, which make up 9 to 10%
of the market’s valuation, have been in freefall. Hence, stock
market indices are dropping, abetted by the notion that
slower foreign economic growth and a higher U.S. relative
dollar value will also depress corporate earnings and
imperil our improved balance of trade. In fact, some
leveraged energy companies may even fail.
Even if the economy of the United States continues to
improve from increasing employment, a pickup in housing
and an extension of the Federal Reserve Board’s low interest
rate policy, the dramatic five-and-a-half-year stock market
rally since the spring of 2009 also makes the market
vulnerable. But concerns about the volatility of stock
and commodity prices aren’t really anything new for us.
Although oil prices may decline further in the near term,
we don’t expect they will remain depressed below $65 to $75
per barrel for very long as that approximates production
costs. History also indicates that large declines in oil prices
don’t necessarily interrupt economic growth. Moreover,
there is additional evidence that U.S. economic growth
should be able to survive these negative influences. Both
retail sales and industrial production are increasing at a 6%
rate. In fact, the operating rate of manufacturing capacity
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RAYMOND JAMES ANNUAL REPORT 2014 2014 TOTAL REVENUE
$4,965,460,000
2014 TOTAL PRETAX INCOME
$748,045,000
66%
20%
7%
7%
17%
44%
17%
32%
$981,572,000
PRIVATE CLIENT GROUP $3,276,566,000
CAPITAL MARKETS
ASSET MANAGEMENT
$369,690,000
RAYMOND JAMES BANK $360,317,000
$42,203,000
OTHER
INTERSEGMENT
($64,888,000)
66%
20%
7%
7%
1%
(1%)
PRIVATE CLIENT GROUP $330,278,000
CAPITAL MARKETS
$130,565,000
ASSET MANAGEMENT
$128,286,000
RAYMOND JAMES BANK $242,834,000
OTHER
($83,918,000)
44%
17%
17%
32%
(10%)
PRIVATE CLIENT GROUP
ASSET MANAGEMENT
More than 6,200 financial advisors – affiliated as traditional
employees, independent contractors, independent registered
investment advisors or financial institution-based advisors –
provide financial planning, investment advisory and
securities transaction services to more than 2.5 million
client accounts through the branch office systems of
Raymond James & Associates, Inc., Raymond James
Financial Services, Inc., Raymond James Financial
Services Advisors, Inc., Raymond James Ltd. in Canada,
and Raymond James Investment Services Limited in the
United Kingdom.
CAPITAL MARKETS
Investment Banking, Public Finance, Institutional Sales
and Trading, and Syndicate serve corporate, institutional,
nonprofit and municipal clients throughout North America,
Latin America and Europe. This group also provides research
on more than 1,200 companies globally, market-making in
more than 1,400 common stocks, and trading primarily in
municipal, government agency, mortgage-backed and
corporate bonds. In addition, Raymond James Tax Credit
Funds syndicates limited partnership investments in real
estate project entities to help banks and other institutions
meet their Community Reinvestment Act obligations as
well as stimulate the development of low-income housing.
Through Eagle Asset Management, we serve as a
discretionary manager for institutional equity and fixed
income portfolios and our internally sponsored mutual
funds. Through Raymond James Institutional Consulting
Services, we provide investment management and
implementation of appropriate investment strategies for
individual institutions, including nonprofits, foundations,
endowments, corporations, family offices and insurance
companies. We also have operations that provide a single
source for managed accounts and fee-based platforms
for Raymond James financial advisors. Managed strategies,
offering institutional-quality portfolio management, include
Raymond James Consulting Services and the Freedom
portfolios. Fee-based alternatives offer the advantage of
helping to align incentives while providing the flexibility to
pursue a wide range of investment strategies and include
the Passport and Ambassador programs.
RAYMOND JAMES BANK
A national bank, Raymond James Bank provides a
comprehensive array of personal and corporate banking
services including residential, securities and commercial
lending products, as well as FDIC-insured deposit accounts
that serve as one of the primary sweep options for client
brokerage accounts. The bank is active in corporate loan
syndications and participations.
OTHER
Includes the firm’s principal capital and private equity
activities, as well as various corporate overhead costs of
Raymond James Financial including the interest cost on
our public debt.
6
“We are in a people business,
inside as well as out.” BOB JAMES, FOUNDER
At Raymond James, people have always been our greatest asset –
the source of our strength and the engine of our growth. And in 2014,
some of our firm’s biggest investments were made in human capital.
From a near-record number of
experienced advisors joining our
Private Client Group to a continued
emphasis on ensuring the success
of the next generation, we found ways
to grow while working to sustain the
things that make us who we are.
Preserving the culture of Raymond
James has long been a priority for
our leaders, one they share with our
associates and advisors. And a firm’s
culture is rarely, if ever, defined by
one thing alone. It’s a culmination of
shared values, principled management
and collective action. Which is why
recruiting new associates – a critical
factor for any company – has always
been of particular importance to us.
Our approach is never about
numbers, however, but about
finding the right fit – professionals
whose skills and experience are
matched by a common belief in the
core values that define Raymond
James – independence, integrity,
conservative risk management
and always putting clients first.
And this past year, we found “fits”
in abundance.
The Private Client Group (PCG)
enjoyed one of its most successful
recruiting years to date – up 50% over
the previous year and similar to results
achieved in 2009, when advisors
eagerly sought solid ground in the
wake of the financial crisis. We hosted
more than 433 visits to our international
headquarters for advisors and advisor
groups interested in joining our firm
over the course of the year, with many
more scheduled for 2015.
And PCG’s steady growth wasn’t
confined to new advisors. Existing
advisors set new asset, income and
revenue records throughout 2014,
accounting, as they historically
have, for the majority of the firm’s
overall revenue.
But despite impressive numbers and
an influx of experienced, like-minded
professionals, our management team
recognized that asset growth and
recruiting alone won’t be enough to
ensure the firm’s continued progress
in the long term. The “graying” of
the financial advisor population –
the average advisor is 55 years old –
is an industrywide reality, and one
we’ve met head on.
A NEW GENERATION
The Advisor Mastery Program (AMP) enables us not only to shape the next
generation of advisors, but to ensure that we employ a broad, diverse and,
most important, capable group. Leveraging our longtime relationship with
INROADS, an internship program dedicated to corporate ethnic diversity,
we have been identifying promising AMP candidates from the ranks of current
INROADS interns throughout our headquarters and at advisor branches
across the country.
7
RAYMOND JAMES ANNUAL REPORT 2014 The Advisor Mastery Program (AMP),
an evolution of our New Advisor
Training Program launched in 2011,
is a two-year branch residency course
that enables our experienced advisors
to play a formative role in preparing
the next generation of financial
professionals. Combining education
with real-world experience, AMP gives
qualified candidates the opportunity
to gain broad advisory knowledge,
earn licenses, receive specialized
training and work one on one with
mentor advisors to develop their
skills. And that last element –
building apprenticeship relationships
between experienced advisors and
trainees – is central to the program’s
current and future success in an
environment where, according to
research and consulting firm CBM
Group, fewer than 20% of rookie
advisors complete traditional
four-year training programs.
On the reverse side of the “graying”
coin, advisor succession continued
to be a priority in 2014. Our employee
broker/dealer, Raymond James
& Associates, introduced
RetirementChoice, which offers
advisors flexible approaches to
retirement and succession planning.
On the independent side, Raymond
James Financial Services expanded its
Succession Planning & Acquisitions
group, adding new team members
and dedicating resources, including
financing support, to more directly
assist advisors through the process of
buying or selling a practice and beyond.
But even in a year where our most
apparent growth came in the form of
new faces, we also made progress in
very familiar territory: giving back.
Raymond James has a strong history
of corporate philanthropy – from our
longstanding work with United Way
to the support we offer, monetarily
and otherwise, to the organizations
in which our associates serve as
leaders. And in the latter months of
2014, we redoubled our commitment to
one such organization: the American
Heart Association. Several events
were held in support of the cause,
including a campus-wide field day at our
St. Petersburg, Florida, headquarters
to benefit the association and its
annual Tampa Bay Heart Walk.
Ultimately, teams raised approximately
$295,000 and 793 walkers crossed the
finish line with CEO Paul Reilly on
November 15.
2014 also marked the third annual
Raymond James Cares Month. In
August, more than 1,400 professionals
in 27 states and four provinces across
North America donated 4,785 hours and
thousands of pounds of goods to 120
organizations. In the United States alone,
the number of participants increased
13% and the number of volunteer
hours increased 39% over 2013.
For us, these numbers were proof
that even as we grow, if we stay
committed to our principles, we will
remain the same rooted, reliable
firm we’ve always been.
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LEFT TO RIGHT: Investment Banking Vice
Chairman Jim McDaniel, Head of Investment
Banking Jim Bunn, Investment Banking Vice
Chairman Dav Mosby
TAKING THE LEAD
In 2014, our investment in succession planning wasn’t just on behalf of advisors as some of our longtime leaders
made the decision to retire or relinquish their management duties. This provided the opportunity for new leaders to
emerge – their transitions supported at every step by the experience and, in many cases, continued presence
of their predecessors. Jim Bunn was named co-head of Investment Banking, succeeding Jim McDaniel. Fellow
co-head Dav Mosby helped to smooth the transition before announcing his own plans to step into the role of vice
chairman. Tom Walrond was named chief operating officer and senior vice president of Raymond James & Associates,
and Angela Gingras became vice president of operations and administration for Raymond James Financial Services.
We also welcomed Stan Duncan as our new chief human resources officer.
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RAYMOND JAMES ANNUAL REPORT 2014 LEFT TO RIGHT: Senior Vice President of Investments
Shelly Church, CFP®, and Vice President of Investments
Ilona Box, WMS, of the Church & Box Planning Group of
Raymond James
PAYING – AND PLANNING – IT FORWARD
Shelly Church’s son, Kyle, was 6 years old when her family took part in its first American Heart Association
(AHA) Heart Walk in Naples, Florida. Born with a congenital heart defect, Kyle would inspire Shelly to
become deeply involved with the AHA, and after his passing in 2005, Shelly’s commitment only grew.
When the organization was looking for a strong leader for its efforts in the Tampa Bay area, it turned to
Shelly, who in turn shared her story with Paul Reilly.
Thanks in large part to her efforts, Raymond James was
a leading sponsor of the 2014 Tampa Bay Heart Walk,
setting a firmwide goal of registering 60 teams and 750
walkers and raising $200,000 – a goal that was easily
exceeded thanks to the generosity of our associates.
“The awareness we created around our campus was just
tremendous, and it’s going to impact so many people’s
lives,” said Shelly of the experience. “That’s what’s so
touching. I think we created something really special.”
In addition to the legacy of giving back inspired by
her son, Shelly has also been a longtime advocate
for her own professional legacy. Her succession plan
began more than 17 years ago when she hired Ilona Box.
Starting as a service associate, Ilona expressed early
interest in becoming an advisor and Shelly began
mentoring her, giving her a hands-on introduction to
the business and helping her develop a rapport with
clients. According to Shelly, the process has been a
natural progression – with Ilona playing an increasingly
prominent role – that “turned out beautifully.” The two
have formalized their partnership with a written plan,
which they’ve shared openly with their team and clients.
“It’s a relief knowing our clients are going to be well
taken care of. And, ultimately, our goal is for Ilona to
find the person who will succeed her and begin that
mentoring process all over again.”
10
“ There’s no limit to the places we
can go if we remember where we
came from.” PAUL REILLY, CHIEF EXECUTIVE OFFICER
For more than 52 years, Raymond James has proved that you don’t need
a famous address to be a pioneering force in financial services. This rang
especially true in 2014 as we invested in strengthening our roots even as
we continued our geographic expansion.
Our firm has grown substantially, yet
soundly, since its founding in 1962, far
removed from the gilded towers and
rapid-fire reactions often associated
with our industry. And we owe much
of that success not only to our client-
centered approach and long-term
focus, but also to our commitment
to the place we came from and the
places into which we’ve grown.
In 2014, as in the year before it,
we continued to build on our
burgeoning presence in the West,
with the Private Client Group adding
more advisors in California, Oregon
and Washington, hiring new managers
in San Diego and Seattle, and extending
hours to better serve West Coast
associates and clients. The Public
Finance team continued expanding
its own Western footprint with the
addition of Anastasia Beckett to
its San Francisco office. One of 12
strategic hires Public Finance made
overall in 2014, Anastasia is advancing
the group’s work with school and
community college districts.
But even as we fed these new
“branches,” we were careful not
to neglect our roots.
2014 saw the Private Client Group
expand on long-established
businesses in the Northeast.
Seasoned managers Peter Alberding
and Warren Wright joined Raymond
James & Associates to open a new
branch in the heart of downtown
Boston and build on our presence in
the Washington, D.C., area, respectively.
Additionally, a number of new branch
offices were opened throughout the
region, including several in New York.
We maintained our commitment to
quality over quantity at every stage
of this growth, welcoming successful
advisors who, combined with the talent
already found within the firm, helped
raise average production per advisor
by more than 10% during the year.
But growing in familiar places didn’t
mean there wasn’t room for new
territory. Our Northeastern presence
was also bolstered by an initiative
for Raymond James Equity Capital
Markets. Seeking to further develop
its consumer investment banking
business, the group opened an office
in Baltimore and placed sector veterans
Mark Goodman and Jay Eastman at
the helm, forming one of the most
experienced consumer teams serving
the middle market. And, in a move to
complement the newly expanded
GOLDEN OPPORTUNITIES
After slowly building its presence in California over the past several years, our Public Finance team, headed up
by Senior Managing Director Robert Baird, was ready to take its ideas and capabilities on the road. The California
Public Finance Roadshow included stops in San Diego, Los Angeles, Sacramento and San Francisco and featured
Public Finance leaders discussing the economy, short-term and long-term municipal bonds, and reinvestment
strategies with representatives from debt issuers, rating agencies and other finance professionals from across
the state.
11
RAYMOND JAMES ANNUAL REPORT 2014 consumer business, the group also
welcomed consumer staples analyst
Joe Altobello to its New York office.
In total, Equity Capital Markets
welcomed more than 100 new
professionals in 2014.
In addition to acting locally, the Capital
Markets team was also thinking globally
in 2014, making moves to unify its equity
research teams across Europe and
Latin America and to expand coverage
of high-profile international stocks.
Raymond James has long championed
the role international equities play in a
well-balanced portfolio – our Investment
Strategy Committee currently
recommends that up to 20% of a
portfolio’s total equity allocation
be international – and by aligning its
international research, Capital Markets
not only strengthened its reach and
reputation in the space, but also made
an even stronger case for these
securities with the firm’s advisors
and their clients.
Eagle Asset Management was another
group working to shore up its
presence beyond our borders in 2014.
With the addition of Aaron Ochstein
as senior vice president and global
head of institutional consulting,
Eagle reaffirmed and reinvigorated
its commitment to developing new
business beyond North America.
In this newly established position,
Aaron works closely with Eagle’s
U.S.-based institutional clients that
have a significant global presence
and oversees a team of institutional
sales consultants based in Europe.
In addition, Eagle’s reputation in Europe
was reinforced when the portfolio
team of Ed Cowart, David Blount,
John Pandtle, Harald Hvideberg and
Jeff Vancavage received their second
consecutive Sauren Golden Award
for the management of Nordic-based
partner firm Nordea’s North American
all-cap fund.
But even in a year that saw Raymond
James cover more ground – literally
and professionally – than ever
before, we remained grounded in the
communities that have supported our
firm from the start.
BIG DATA
One of the biggest moves Raymond James made in 2014 was largely digital. Our new 40,000-square-foot, world-class
Denver data center is home to a staff of dedicated technology professionals, leading-edge equipment and multiple
power grids. The center is the culmination of planning that began in mid-2012 to help ensure business continuity,
given Florida’s vulnerability to natural disasters. Several potential locations were eyed, but the Mile High City with
its limited exposure to most natural threats came out on top, to complement our other IT and operations centers.
12
LEFT TO RIGHT: Miami Branch Manager
Joel Burstein and South Florida Complex
Managing Director Frank Amigo
FINDING FRESH OPPORTUNITIES ON FAMILIAR GROUND
Florida is a big state, which means that despite a 52-year history of growth and a substantial presence
statewide, there are still markets where the Raymond James name isn’t as well known, where there’s still
plenty of room to grow. Ten years ago, Miami was one of them.
“Today, our logo is at the top of one of the most visible
buildings in the heart of Coral Gables, but 10 years ago,
Raymond James had a smaller presence. Advisors knew
us by name, but they didn’t know us,” says Frank Amigo,
managing director of the South Florida Complex of
Raymond James.
Frank joined the firm in 2001, taking over a small office
and working to build not only that team, but awareness
of the firm in and around Miami – an effort that truly
gained momentum when Frank brought Joel Burstein
on board in 2004. “I needed a strong operations manager,
and I thought Joel would be a great candidate. It turned
out we work very, very well together, and it really gave
me the opportunity to focus on growth.”
That focus and the partnership have paid off. Since 2004,
the South Florida Complex has grown from two offices
to six, from 16 advisors to 54, and from $543 million in client
assets to $5.7 billion. And the momentum has picked up
even more in recent years. According to Frank, “Of the
28 advisors we’ve recruited since 2001, 18 have joined us
in the past five years. We’re attracting larger groups
and higher quality advisors.”
In addition to the hard work of his team, Frank attributes
much of the region’s success to Raymond James leaders
for empowering him to take the lead in the city he knows
so well. “I’m from Miami. It’s a unique market – things that
work in other places might not work here and vice versa.
The firm recognized that from the beginning. I remember
Ira [Federer, director of the Private Client Group’s Eastern
Division], telling me that I was like a franchisee. And
that they would rely on me to help figure out a plan that
made sense.”
Adds Joel, who now manages three locations within the
complex, “While Miami is different, we still approach
growth with the same long-term focus Raymond James
always has. We don’t say, ‘Where do we want to be next
year?’ We say, ‘Where do we want to be 10 years from
now?’ And there’s still a lot of room to grow.”
13
RAYMOND JAMES ANNUAL REPORT 2014 “If you want to know where we have
the potential to be in 10 years, look
at how far we’ve come in the past
10 years.”DENNIS ZANK, CHIEF OPERATING OFFICER
While we know that the past is not always a reliable indicator of the future,
when you’ve come from more than five decades of steadily building,
carefully managed growth and thoughtful innovation, it’s possible to
envision where you might be headed.
2014 was a year of milestones
and new records for many areas
of the firm, but it was also a year
for reflection – for taking stock of
our strengths, assessing opportunities
and imagining new ways to move
forward. And one theme that emerged
as we considered ways to grow the
firm was the changing attitudes
toward growing old.
The average American will live well
into his or her 70s, with a great many
making it into their 80s and 90s. How
can we in the financial industry, and
in society at large, help to ensure that
all those years are well spent? The MIT
AgeLab, a multidisciplinary research
program created in 1999, is on the
forefront of answering that question.
And in 2014, Raymond James worked
with the group, in conjunction with
Hartford Funds, to explore the impact
of increasing longevity on our industry
and how we might reimagine one
element of our core financial planning
discipline: retirement.
Much of the AgeLab’s research
indicates that while big questions
like financial security and long-term
health factor heavily into the
retirement equation, day-to-day
concerns like handling household tasks,
getting around and maintaining an
active social life are also key. And that
means investors increasingly want
not only financial advice but life
advice, which opens the door to
deeper relationships and greater
potential for our financial advisors
and their clients.
As a result of the collaboration, we
launched a new longevity planning
initiative that built not only upon the
collective research and insight of the
AgeLab, Raymond James and our
partners in the financial industry,
but also upon the strides we’d already
made toward a more holistic approach
to financial planning at every stage of
life with Goal Planning & Monitoring,
our collaborative financial planning
software. Through a series of six
actionable campaigns, the initiative is
providing advisors with innovative
resources to help them guide their
clients through vital issues like
housing, transportation, healthcare
and caregiving.
And just as Goal Planning &
Monitoring – a system that has
LIGHT BULBS, ICE CREAM CONES AND LUNCH DATES
Who will change my light bulbs? How will I go get an ice cream cone? Who will I have lunch with? These questions
are changing the way we think about aging and life in retirement thanks to our partnership with the MIT AgeLab,
headed up by Dr. Joe Coughlin. The collaboration, facilitated through Hartford Funds and initiated by Tash Elwyn,
president of Raymond James & Associates, has seen multiple groups of home office associates and successful
financial advisors make the trip to Cambridge, Massachusetts, to explore AgeLab’s research firsthand and help
determine how these ideas can be applied across the firm.
14
enabled our advisors to identify more
than $40 billion in client assets held
outside the firm – is helping to facilitate
longevity planning discussions, we’ve
used ideas born from the AgeLab
initiative to continue improving the
software. Those improvements were
part of a larger firmwide effort to push
the potential of our technology offerings
in 2014. We increased our investment
to a record $212 million and rolled out
several new and upgraded systems,
including Client Center, Client
Reporting and Money Movement.
The idea of maximizing our internal
potential by continuing our efforts to
refine programs and practices and
leverage existing synergies was felt
across all of our business units.
Raymond James Bank, which
celebrated its 20th anniversary
with another impressive year that
saw loans in its securities-based
lending area hit $1 billion, joined
forces with our Cash Solutions and
Capital Access areas to create a more
complete cash and lending discipline.
Faced with a difficult market
environment, the Capital Markets
group continued to perform well and
find new ways to build on its strengths.
Fixed Income Capital Markets worked
to deepen its relationships with
depository institutions, while
Investment Banking continued
expanding its presence in real estate
private placements with the addition
of Peter Fish as managing director of
the Real Estate Investment Banking
group. And while these areas sought to
expand certain offerings or disciplines,
the Private Client Group was seeking
a certain kind of financial advisor.
Just over 15% of our advisor force is
female – a far from perfect figure, but
still one of the highest in the industry.
In 2014, we invested in taking that
percentage much higher. Our Network
for Women Advisors marked its
20th anniversary by working to raise
its profile and its efforts to reach top
women advisors by sponsoring industry
events and launching a handful of
highly targeted recruiting campaigns.
And this year’s Women’s Symposium,
the network’s flagship event, was
the biggest yet, with advisors from
across the United States and Canada
in attendance.
LEFT TO RIGHT: Network for Women Advisors Director Nicole Spinelli, Raymond James Financial Services President Scott Curtis,
Raymond James Financial Chief Operating Officer Dennis Zank, Raymond James & Associates President Tash Elwyn
20 YEARS OF INSPIRING WOMEN
It started in 1994 with a handful of women advisors who believed that by coming together to share their unique
perspectives and experiences, they could unlock even greater potential in their businesses. From that spark, the
Raymond James Network for Women Advisors has grown to become a force more than 800-women strong, offering
education and collaboration designed to inform, inspire and ignite professional and personal growth.
15
RAYMOND JAMES ANNUAL REPORT 2014 But perhaps the most important way
we maximized potential in 2014 was
by recommitting to the one thing
on which we’ve always relied to
differentiate our firm and generate
growth: remarkable service.
Service 1st, a credo introduced in the
1990s as a way to articulate the culture
that has defined our firm from its
earliest days, was brought to the
fore again. We renewed our emphasis
on recognizing our colleagues’
outstanding acts of service and
deepened our understanding of
the collective and individual role
each of us plays in preserving the
Raymond James culture – a culture
that fosters our growth while
keeping us grounded.
Founder and President
Gerry Klingman of
Klingman & Associates
WHEN DOING LESS AMOUNTS TO MUCH MORE
Gerry Klingman had been consulting on corporate retirement plans for more than 30 years, not necessarily
typical of an advisor widely known for his work with high-net-worth individuals and families. “We usually
handled plans for the companies of our CEO and executive clients,” he says. “They trusted us, and they’d ask,
‘Would you handle our retirement plan, too?’” However, as the retirement plan environment grew increasingly
complex, Gerry knew perhaps it was time for his firm, Klingman & Associates, to take a step back from the
space – and help create a new firm exclusively dedicated to serving retirement plans.
“Given the growing legal and regulatory intricacies
I’d been looking for some time for the right partner to
give our firm the same depth of expertise in the
retirement plan business that we have in the high-net-
worth segment.”
So Gerry approached him with the idea of a partnership,
and the “marriage” began. In April 2014, Bob opened the
doors of Ridge Retirement Consultants, LLC, of which
Gerry is partial owner and Klingman & Associates serves
as investment sub-advisor.
He found that partner in Bob Scherzer. Bob was a 25-year
veteran of Principal Financial Group in New York City,
where he ran the firm’s largest retirement sales and
service office. He was also a client.
“By early 2015, we will have gone from 10 plans to nearly
40, and $150 million under advisory to $1 billion. Now, we
refer our clients to Ridge, and we’re starting to see clients
who only know the Ridge name interested in personal
planning from Klingman & Associates. It really is 1 + 1 = 3.”
16
“Through remaining true to our values and our
mission, ‘Our business is you and your financial
well-being,’ as well as following a controlled growth
strategy while hiring the best people available,
our future has never been brighter.”
TOM JAMES, EXECUTIVE CHAIRMAN
Our business has always been people and their financial well-being.
And in 2014, we proved again that it always will be. It was a year of
intentional action and steady growth, supported by the people who
make us stronger, the places we call home and the potential that will
carry us forward.
We thank our associates, our advisors and their clients for their
contributions to a great year and for the promise of even more.
17
RAYMOND JAMES FINANCIAL, INC. BOARD OF DIRECTORS
Jeffrey N. Edwards
COO, New Vernon
Advisers, LLC
A registered
investment advisor
H. William Habermeyer Jr.
Retired, Former President
and CEO
Progress Energy Florida
Gordon L. Johnson
President
Highway Safety
Devices, Inc.
A specialty contractor
for municipal roadway
projects
Thomas A. James
Executive Chairman
of the Board
Raymond James
Financial
Paul C. Reilly
Chief Executive Officer
Raymond James
Financial
RAYMOND JAMES FINANCIAL, INC. EXECUTIVE COMMITTEE
Bella Loykhter Allaire
Executive Vice President
of Technology and Operations
Raymond James & Associates
Scott A. Curtis
President
Raymond James Financial
Services
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
Executive Vice President
Raymond James Financial
Tash S. Elwyn
President
Raymond James & Associates
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
18
Jeffrey E. Trocin
President
Global Equities
and Investment Banking
Raymond James & Associates
Dennis W. Zank
Chief Operating Officer
Raymond James Financial
Chief Executive Officer
Raymond James & Associates
Robert P. Saltzman
Retired, Former
President and CEO
Jackson National Life
Insurance Company
Shelley G. Broader
Executive
Vice President
Walmart Europe,
Middle East, Africa
and Canada
Francis S. Godbold
Vice Chairman
Raymond James
Financial
Benjamin C. Esty
Professor of Business
Administration,
Head of the Finance
Department
Harvard Graduate
School of Business
Administration
Susan N. Story
President and CEO
American Water Works
Company, Inc.
A publicly traded water
and wastewater utility
holding company
Wick Simmons
Retired, Former Chairman
and CEO
The NASDAQ Stock Market
Former President and CEO
Prudential Securities
OTHER EXECUTIVE OFFICERS
Jennifer C. Ackart
Senior Vice President
Controller
Raymond James Financial
George Catanese
Senior Vice President
Chief Risk Officer
Raymond James Financial
Paul L. Matecki
Senior Vice President
General Counsel
Corporate Secretary
Raymond James Financial
19
RAYMOND JAMES ANNUAL REPORT 2014 0
1
2
6 6
1
2
5
,
,
4
5
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,
5
5
6
2
6
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7
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0
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4
1
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2
FINANCIAL ADVISORS
PRIVATE CLIENT GROUP
BRANCH LOCATIONS
PRIVATE CLIENT GROUP
CLIENT ASSETS
PRIVATE CLIENT GROUP
$Billions
FINANCIAL ASSETS
UNDER MANAGEMENT
$Billions
10-YEAR FINANCIAL SUMMARY YEAR ENDED SEPTEMBER 30
2005
2006
2007
2008
RESULTS
Total Revenues
$ 2,168,196,000
$ 2,645,578,000
$ 3,109,579,000
$ 3,204,932,000
Net Revenues
Net Income
Net Income per Share (a)
Basic
Diluted
2,050,407,000
2,348,908,000
2,609,915,000
2,812,703,000
151,046,000
214,342,000
250,430,000
235,078,000
1.37
1.33
1.86
(b)
1.83
(b)
2.10
(b)
2.07
(b)
1.95
(b)
1.93
(b)
Weighted Average Common Shares
Outstanding – Basic (a)
Weighted Average Common and Common Equivalent Shares
Outstanding – Diluted (a)
110,217,000
112,211,000
(b)
115,268,000
(b)
116,110,000
(b)
113,048,000
114,238,000
(b)
117,011,000
(b)
117,140,000
(b)
Cash Dividends Declared per Common Share (a)
0.21
0.32
0.40
0.44
FINANCIAL
CONDITION
Total Assets
8,365,158,000
(c)
11,505,415,000
(c)
16,228,797,000
(c)
20,709,616,000
(c,d)
Equity Attributable to RJF
1,241,823,000
1,463,869,000
1,757,814,000
1,883,905,000
Shares Outstanding (a)
113,394,000
114,064,000
116,649,000
116,434,000
Shareholders’ Equity per Share at End of Period (a)
10.95
12.83
15.07
16.18
(a) Excludes non-vested shares and gives effect to the three-for-two stock split paid on March 22, 2006.
(b) Effective October 1, 2009, we implemented new accounting guidance that changes the manner in which earnings per share is 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 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 accounting 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 borrowings (repaid October 1, 2008) to meet point-in-time regulatory
balance sheet composition requirements related to Raymond James Bank qualifying as a thrift institution.
20
.
0
6
5
4 9
8
2
8
.
8
.
1
2
7
.
0
2
2
6
.
8
0
4
3 3
8
8
2
.
6
.
1
8
9
2
.
1
5
2
.
6
3
2
2
.
0
5
6
1
5
1 6
6
.
.
.
8
0 8
8
.
0
.
1
1
(1)
.
8
0
1
.
5
2
1
5
0
7 1
.
.
0 9
9
.
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
TOTAL CAPITAL
MARKETS REVENUE
$Millions
TOTAL INVESTMENT
BANKING REVENUE
$Millions
TOTAL BANK LOANS
$Billions
TOTAL BANK ASSETS(2)
$Billions
(1) Includes $3.5 billion excess
for regulatory reasons.
(2) Includes affiliate deposits.
2009
2010
2011
2012
2013
2014
$ 2,602,519,000
$ 2,979,516,000
$ 3,399,886,000
$ 3,897,900,000
$ 4,595,798,000
$ 4,965,460,000
2,545,566,000
2,916,665,000
3,334,056,000
3,806,531,000
4,485,427,000
4,861,369,000
152,750,000
228,283,000
278,353,000
295,869,000
367,154,000
480,248,000
1.25
(b)
1.25
(b)
1.83
1.83
2.20
2.19
2.22
2.20
2.64
2.58
3.41
3.32
117,188,000
(b)
119,335,000
122,448,000
130,806,000
137,732,000
139,935,000
117,288,000
(b)
119,592,000
122,836,000
131,791,000
140,541,000
143,589,000
0.44
0.44
0.52
0.52
0.56
0.64
18,226,728,000
(e)
17,883,081,000
(f)
18,006,995,000
21,160,265,000
23,186,122,000
23,325,652,000
2,032,463,000
2,302,816,000
2,587,619,000
3,268,940,000
3,662,924,000
4,141,236,000
118,799,000
121,041,000
123,273,000
136,076,000
138,750,000
140,836,000
17.11
19.03
20.99
24.02
26.40
29.40
(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 borrowings (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 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
qualifying as a thrift institution.
21
RAYMOND JAMES ANNUAL REPORT 2014
CORPORATE AND SHAREHOLDER INFORMATION
NUMBER OF SHAREHOLDERS
ELECTRONIC DELIVERY
PRINCIPAL SUBSIDIARIES
At December 16, 2014, there were
If you are interested in electronic delivery
Raymond James & Associates, Inc.
approximately 21,000 beneficial and
of future copies of this report, please see
Securities broker/dealer
registered shareholders.
the proxy voting instructions.
Member New York Stock Exchange
10-K; CERTIFICATIONS
TRANSFER AGENT AND REGISTRAR
A copy of the annual report to the Securities
Computershare Inc.
Member Financial Industry Regulatory
Authority
and Exchange Commission on Form 10-K
P.O. Box 30170
Raymond James Financial Services, Inc.
is available, without charge, at sec.gov,
College Station, TX 77842-3170
Securities broker/dealer
upon request in writing to Corporate
800.837.7596
Member Financial Industry Regulatory
Secretary, Raymond James Financial, Inc.,
computershare.com/investor
Authority
880 Carillon Parkway, St. Petersburg,
Florida 33716, or by emailing
investorrelations@raymondjames.com.
Raymond James has included, as exhibits
to its 2014 Annual Report on Form 10-K,
certifications of its chief executive officer
and chief financial officer as to the quality
of the company’s public disclosure.
Raymond James’ chief executive officer
has also submitted to the New York Stock
Exchange a certification that he is not
aware of any violations by the company
of the NYSE corporate listing standards.
ANNUAL MEETING
INDEPENDENT AUDITORS
Raymond James Financial Services
KPMG LLP
NEW YORK STOCK EXCHANGE
SYMBOL
RJF
COVERING ANALYSTS
Christopher Allen
Evercore
Alexander Blostein
Goldman Sachs & Co.
Christian Bolu
Credit Suisse
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
The annual meeting of shareholders will
be conducted at Raymond James Financial’s
Steven J. Chubak, CFA
Nomura
headquarters in The Raymond James
Christopher Harris
Financial Center, 880 Carillon Parkway,
Wells Fargo Securities, LLC
St. Petersburg, Florida, on February 19,
2015, at 4:30 p.m.
Joel Jeffrey
Keefe, Bruyette and Woods
The meeting will be broadcast live via
William R. Katz
streaming audio on raymondjames.com
Citigroup Global Markets, Inc.
under “Our Company – Investor Relations
– Shareholders’ Meeting.”
Andrew Del Medico, CFA
Autonomous Research US LP
Notice of the annual meeting, proxy
Hugh Miller
statement and proxy voting instructions
Macquarie Capital (USA) Inc.
accompany this report to shareholders.
Quarterly reports are made available to
shareholders in February, May, August
and November.
James Mitchell
The Buckingham Research Group
Devin Ryan
JMP Securities
Douglas Sipkin
Susquehanna Financial Group, LLLP
22
RAYMOND JAMES ANNUAL REPORT 2014
Annual Report
ON FORM 10-K FOR FISCAL YEAR ENDED
SEPTEMBER 30, 2014
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, 2014
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, 2014, 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 $6,988,823,309.
The number of shares outstanding of the registrant’s common stock as of November 21, 2014 was 141,552,219.
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 19, 2015 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 and financial statement schedules
Signatures
PAGE
3
15
28
28
29
30
32
33
77
91
190
190
193
193
193
193
193
193
193
197
2
Index
Item 1. BUSINESS
PART I
Raymond James Financial, Inc. (“RJF” or the “Company”) is a leading diversified financial services company headquartered
in St. Petersburg, Florida providing private client, capital markets, asset management, banking and other services to individuals,
corporations and municipalities predominantly in the United States of America (“U.S.”) and Canada. 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.”
Established in 1962 and public since 1983, RJF has been listed on the New York Stock Exchange since 1986 under the symbol
“RJF”. 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 one of
the largest 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. RJ&A is a member of the New
York Stock Exchange Euronext (“NYSE”) and most regional exchanges in the U.S. It is also a member of the Financial Industry
Regulatory Authority (“FINRA”) and the Securities Investors Protection Corporation (“SIPC”).
RJFS is one of the largest independent contractor brokerage firms in the U.S., is a member of FINRA and SIPC, but is not a
member of any exchanges. Financial advisors affiliated with RJFS may offer their clients all products and services offered through
RJ&A including investment advisory products and services which are offered through its affiliated registered investment advisor,
RJFSA. Both RJFS and RJFSA clear all of their business on a fully disclosed basis through RJ&A.
RJ Ltd. is a 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, tax-
exempt loans, as well as securities based loans (“SBL”), all of which are funded primarily by cash balances swept from the
investment accounts of our broker-dealer subsidiaries’ clients.
We currently operate through five reportable segments: “Private Client Group” or “PCG”; “Capital Markets”; “Asset
Management”; RJ Bank and the “Other” segment.
REPORTABLE SEGMENTS
PRIVATE CLIENT GROUP
We provide securities transaction and financial planning services to more than 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 2014, 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 72% of the Private Client Group’s total revenues.
3
Index
Revenues of this segment are correlated with total client assets under administration. As of September 30, 2014, client assets
under administration of our Private Client Group amounted to approximately $451 billion.
We 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, 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 client balances, predominantly the earnings on margin loans
and assets segregated pursuant to regulations, less interest paid on client cash balances (the “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 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.
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 43. RJ&A financial advisors are employees and their compensation includes commission payments, bonuses,
and participation in the firm’s benefit plans. Experienced financial advisors are hired from a wide variety of competitors. As a
part of their agreement to join us we may make loans to financial advisors and to certain key revenue producers, primarily for
recruiting and/or retention purposes. In addition, individuals are trained each year to become financial advisors at the Robert A.
James National Training Center in St. Petersburg, Florida.
4
Index
Raymond James Financial Services
RJFS is a broker-dealer that supports independent contractor and bank-affiliated 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, which 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.
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 client 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, Denver, Colorado,
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
5
Index
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 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.
CAPITAL MARKETS
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., (“RJFI”) 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 115 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 nearly 1,430 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.
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
RJ&A, and to a much lesser extent RJ Ltd. and RJFI, each trade both taxable and tax-exempt fixed income securities primarily
for the purpose of facilitating sales to clients. 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.
RJ&A, through its fixed income public finance operations, enters into forward commitments to purchase Government National
Mortgage Association (“GNMA”), or Federal National Mortgage Association (“FNMA”), mortgage back securities (“MBS”).
The MBS securities are issued on behalf of various state and local housing finance agencies (“HFA”) clients and consist of the
mortgages originated through their lending programs. RJ&A’s forward GNMA or FNMA MBS purchase commitments arise 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 or FNMA 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.
RJ Capital Services, Inc. (“RJCS”), 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 clients, or to a limited extent for its own account. RJCS
also purchases pools of interest-only SBA loan strips (“I/O Strips”) that result from RJ Bank’s SBA loan purchase and securitization
process, and sells these I/O Strips as part of our fixed income operations.
Trading equity securities involves the purchase and sale of securities from and to our clients or other dealers. Trading profits
and losses are derived from the spreads between bid and asked prices, as well as the change in market prices for the individual
securities during the period we hold them. Similar to the equity research department described in the following section, this
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Index
operation serves to support both our institutional equity capital markets 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 160 TSX listed common stocks.
Equity Research
The more than 50 analysts in RJ&A’s domestic 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 16 analysts who publish research on approximately 230 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 more than 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 30 professionals who
reside in various locations within Canada and provide equity financing and financial advisory services to corporate clients. Our
investment banking activities provide a comprehensive range of strategic and financial advisory services tailored to our clients’
business life cycles and backed by our strategic industry focus.
RJ&A’s fixed income investment banking services include public finance and debt underwriting activities. More than 180
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, MBS, whole loans, 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 client, 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.
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 2014, RJTCF
invested nearly $665 million for large institutional investors in more than 80 real estate transactions for properties located throughout
the U.S. Since inception, RJTCF has sold, inclusive of unfunded commitments, over $5.4 billion of tax credit fund partnership
interests and has sponsored nearly 100 tax credit funds, with investments in over 1,650 tax credit apartment properties in nearly
all 50 states and one U.S. Territory.
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Index
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.
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 (“RJ Trust”), 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-discretionary asset-based 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 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. (“EBIM”)
and ClariVest Asset Management, LLC (“ClariVest”). Eagle and its subsidiaries have approximately $28.8 billion in assets under
management and approximately $2.4 billion in assets under advisement (non-discretionary advised assets) as of September 30,
2014. 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, Small Cap Stock Fund, Mid Cap Stock Fund,
and Investment Grade Bond Fund are managed by Eagle. The Capital Appreciation Fund and International Stock Fund utilize
ClariVest as a sub-advisor, and the Eagle Smaller Company Fund is managed by EBIM.
Eagle class shares of both a taxable and a tax-exempt money market fund are available to clients of Eagle Funds through an
unrelated third party.
AMS
AMS provides a range of offerings to our PCG clients including: managing 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 on asset balances, a portion of which are paid to predominately
independent investment managers and Eagle and affiliates 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. For separately managed account models a portion of the fees earned may be
paid to the investment managers who provide the models. At September 30, 2014, these managed programs had approximately
$40.6 billion in assets under management, including approximately $4.8 billion managed by Eagle and affiliates.
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AMS also provides certain services for their non-discretionary asset-based programs (known as Passport, Ambassador or
other non-discretionary asset-based 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. 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, 2014, these programs
had approximately $78.9 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, 2014, IMPAC had approximately $12.8 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
RJ Trust is a nationally chartered trust company regulated by the Office of the Comptroller of the Currency (“OCC”), that
has been serving the clients of our financial advisors since 1991. With nearly 90 trust associates and six offices across the U.S.,
RJ Trust administers approximately $3.4 billion in personal and charitable trust assets as of September 30, 2014, which includes
$247 million in the Raymond James Charitable Endowment Fund. The Raymond James Charitable Endowment Fund is a certified
501(c)(3) public charity where RJ Trust serves as trustee.
In addition to acting as a sole-trustee or co-trustee, under its federal charter RJ Trust may also act as custodian, personal
representative or agent for trustee in a wide variety of trust and estate situations in all 50 states. RJ Trust also serves as trustee in
living trusts, charitable trusts, life insurance trusts, specialty trusts, Individual Retirement Account (“IRA”) rollover trusts and
others.
RJ BANK
RJ Bank is a national bank regulated by the OCC that provides corporate, SBL and residential 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 net interest 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 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, tax-exempt loans,
as well as 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 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 report).
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, and the acquisition and integration costs associated with our acquisitions including,
most significantly in fiscal years 2013 and 2012, Morgan Keegan (as hereinafter defined below, see Note 3 of the Notes to
Consolidated Financial Statements in this Form 10-K for additional information regarding this acquisition).
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.
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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, 2014, 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.
On April 2, 2012 (the “Closing Date”), RJF completed its acquisition of all of the issued and outstanding shares of Morgan
Keegan & Company, Inc. (“MK & Co.”), and MK Holding, Inc. and certain of its affiliates (collectively referred to hereinafter as
“Morgan Keegan”) from Regions Financial Corporation (“Regions”). In mid-February 2013, we completed the transfer of all of
the active businesses of 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 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. MK & Co. has had no operations throughout fiscal year 2014.
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 clients, customers, 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.
The financial services industry in the U.S. is subject to extensive regulation under federal and state laws.
New rules and regulations resulting from the Dodd-Frank Act
In July 2010, the U. S. government enacted financial services reform legislation known as the Dodd-Frank Wall Street Reform
& Consumer Protection Act (“Dodd-Frank Act”). 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 greater protections to individual consumers and investors. Certain elements of the Dodd-Frank Act became
effective immediately; however the details of some provisions remain subject to implementing regulations that are yet to be adopted
by various applicable regulatory agencies. Furthermore, many provisions of the Dodd-Frank Act are still subject to further rule
making procedures and studies and will take effect over several years.
The Dodd-Frank Act instructs U.S. federal banking and other regulatory agencies to conduct hundreds of rule-makings, studies
and reports. These regulatory agencies include the Commodity Futures Trading Commission; the SEC; the Fed; the OCC; the
FDIC; the Consumer Financial Protection Bureau (the “CFPB”); and the Financial Stability Oversight Council (the “FSOC”). As
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a result of Dodd-Frank Act rule-making and other regulatory reforms, we are currently experiencing a period of unprecedented
change in regulation and these changes could have a significant impact on how we conduct certain aspects of our business. Given
the current status of the regulatory developments, we cannot currently quantify the possible effects on our business and operations
of all of the significant changes that are currently underway (see Item 1A, “Risk Factors,” within this report for further discussion
of the potential future impact on our operations). Certain of the changes enacted under the Dodd-Frank Act thus far, include the
following:
•
•
•
Since RJ Bank provides deposits 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 became effective for RJ Bank beginning with the December 2013 assessment period.
In July 2011, pursuant to the Dodd-Frank Act, the 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
federal consumer protection laws. The CFPB has supervisory and enforcement powers under such laws as the Equal
Credit Opportunity Act, the Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair
Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes.
At the beginning of fiscal year 2014, the CFPB assumed regulatory authority over RJ Bank for its compliance with various
federal consumer protection laws. The CFPB has proposed and finalized many rules since its establishment; the majority
of those became effective in early fiscal year 2014. The CFPB has authority to promulgate regulations and issue orders,
policy statements, conduct examinations, and bring enforcement actions. The creation of the CFPB has led to enhanced
enforcement of consumer protection laws. The ultimate impact of this heightened scrutiny is uncertain but could result
in changes to pricing, practices, products and procedures. It could also result in increased costs related to regulatory
oversight, supervision and examination, remediation efforts and possible penalties.
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 provides each year. These
new rules required RJF to conduct its first stress test by March 31, 2014. We submitted our initial stress testing results,
utilizing data as of September 30, 2013, to the Federal Reserve Board (“FRB”) on March 31, 2014. In addition, RJF will
be required to begin publicly disclosing a summary of certain stress test results no later than June 30, 2015 for the stress
test cycle beginning on October 1, 2014.
• The Volcker Rule:
Under the provisions of the Dodd-Frank Act, Congress adopted a ban on proprietary trading and restricted investment in
hedge funds and private equity funds by commercial banks and their affiliates (the “Regulated Entities”), the so-called
“Volcker Rule.” In December 2013, the CFTC, the OCC, the Fed, the FDIC, and the SEC adopted a final version of the
Volcker Rule. We continue to review the details contained in the final Volcker Rule to assess its impact on our operations.
Based upon our latest analysis and understandings of these regulations, we do not anticipate that it will have a material
impact on our results of operations.
The final Volcker Rule prohibits Regulated Entities from engaging in “proprietary trading” and imposes limitations on
the extent to which Regulated Entities are permitted to invest in certain “covered funds” (i.e. hedge funds and private
equity funds) and requires that such investments be fully deducted from Tier 1 Capital. It limits a Regulated Entity’s
aggregate ownership in hedge funds and private equity funds to three percent of Tier I capital, although the impact of
such limit to RJF’s investment portfolio is subject to further analysis. Additionally, Regulated Entities are prohibited from
owning three percent or more of any single fund. Congress provided an exemption for certain permitted activities of
Regulated Entities, such as underwriting, market making, hedging, and risk management.
The final Volcker Rules became effective as of April 1, 2014 and conformance is required by July 21, 2015. However,
the conformance period may be subject to two additional one-year extensions by the Fed. Furthermore, Regulated Entities
can apply for an additional five-year extension for certain qualifying investments. We currently maintain investments in
selected private equity and merchant banking entities, some of which may meet the definition of “covered funds” and
therefore be subject to certain limitations. The amount of future investments of this nature that we may make may be
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•
•
limited in order to maintain compliance levels specified by the regulation. Further, subsequent interpretations of what
constitutes “covered funds” under the final Volcker Rule may adversely impact our operations.
In July 2013, the OCC, the 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 report
for more information.
In July 2014, the SEC adopted amendments to the rules that govern money market mutual funds. The amendments make
structural and operational reforms to address risks of excessive withdraws over relatively short time frames by investors
from money market funds, while preserving the benefits of the funds. We do not sponsor any money market funds. We
utilize such funds to a small extent for our own investment purposes, and offer to our clients money market funds that
are sponsored by third parties as one of several cash sweep alternatives.
• Effective July 1, 2014, certain final rules issued by the SEC regarding the mandatory registration of municipal advisors
became effective. These rules specify which activities will be covered by the Dodd-Frank Act imposed fiduciary duty
of a municipal advisor to its government client, may result in the need for new written representations by issuers, and
may limit the manner in which we, in our capacity as an underwriter or in our other professional roles, interact with
municipal issuers. We registered as a municipal advisor and by virtue of such registration are now subject to additional
regulation and oversight in respect of our municipal finance business. The SEC recently announced that it will undertake
a two-year review of municipal advisors. Additionally, forthcoming rulemaking by the Municipal Securities Rulemaking
Board may cause further changes to the manner in which state and local government are able to interact with the outside
finance professionals. Although these new rules impact the nature of our interactions with public finance clients, and
may have a negative short-term impact on the volume of public finance financing transactions while the industry adapts
to the new rules, we do not expect these new rules to have a materially adverse impact on our public finance results of
operations (which are included in our Capital Markets segment).
Other regulations applicable to our operations
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. Pursuant to the Dodd-Frank Act, the SEC was charged with considering whether
broker-dealers should be subject to a standard of care similar to the fiduciary standard applicable to registered investment advisors.
It is not clear whether the SEC will determine that a heightened standard of conduct should be applicable to broker-dealers.
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 cash and securities held in client accounts up to $500,000 per client, with a limitation of $250,000 on claims for cash balances.
We have purchased excess SIPC coverage through various syndicates of Lloyd’s, a London-based firm that holds an “A+” rating
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from Standard and Poor’s and Fitch Ratings. Excess SIPC is fully protected by the Lloyd’s trust funds and Lloyd’s Central Fund
(“Excess SIPC Insurer”). For RJ&A, the additional protection currently provided has an aggregate firm limit of $750 million for
cash and securities, including a sub-limit of $1.9 million per client for cash above basic SIPC. Account protection applies when
a SIPC member fails financially and is unable to meet obligations to clients. This coverage does not protect against market
fluctuations. RJF has provided an indemnity to the Excess SIPC Insurer against any and all losses they may incur associated with
the excess SIPC policies.
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 26 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.
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, the FDIC and the CFPB. 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.
RJ Bank is subject to the Community Reinvestment Act (“CRA”). The CRA is intended to encourage banks to help meet the
credit needs of their service areas, including low and moderate income neighborhoods, consistent with safe and sound bank
operations. The regulators examine and assign each bank a public CRA rating. These facts are also considered in evaluating
mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could impose additional
requirements and limitations on RJ Bank.
RJF as a financial holding company, and RJ Bank, are subject to various capital requirements. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on our 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 Item 7, “Regulatory”
in this report and Note 26 of the Notes to Consolidated Financial Statements in this Form 10-K, for further information.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the registrant (which includes officers of certain significant subsidiaries) who are not Directors of the
registrant are as follows:
Jennifer C. Ackart
50
Senior Vice President since August, 2009 and Controller since February,
1995
Bella Loykhter Allaire
61 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
John C. Carson, Jr.
George Catanese
Scott A. Curtis
Jeffrey A. Dowdle
58 Chairman, President and CEO - Raymond James Ltd. since January,
2009; Co-President and Co-CEO - Raymond James Ltd., August, 2008 -
January, 2009
58
55
52
President 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
Senior Vice President since October, 2005 and Chief Risk Officer since
February, 2006
President - Raymond James Financial Services, Inc., since January, 2012;
Senior Vice President - Private Client Group - Raymond James &
Associates, Inc., July, 2005 - December 2011
50 Executive Vice President - Asset Management Group, since February,
2014; President - Asset Management Services - Raymond James &
Associates, Inc., January, 2005 - February 2014; Senior Vice President -
Raymond James & Associates, Inc., January, 2005 - February, 2014
Tashtego S. Elwyn
43
President - Private Client Group - Raymond James & Associates, Inc.,
since January, 2012; Regional Director - Raymond James & Associates,
Inc., October, 2006 - December, 2011
Jeffrey P. Julien
58 Executive Vice President - Finance since August, 2009, Chief Financial
Officer since April, 1987 and Treasurer since February, 2011; Director
and/or officer of several RJF subsidiaries
Paul L. Matecki
58
Senior Vice President since February, 2000, General Counsel since
February, 2005 and Secretary since February, 2006
Steven M. Raney
49
President and CEO - Raymond James Bank, N.A. since January, 2006
Jeffrey E. Trocin
55
President - Global Equities and Investment Banking - Raymond James &
Associates, Inc. since July, 2013; Executive Vice President - Equity
Capital Markets - Raymond James & Associates, Inc., February 2001 -
July, 2013
Dennis W. Zank
60 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.
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EMPLOYEES AND INDEPENDENT CONTRACTORS
Our employees and independent contractors (collectively referred to hereinafter as “associates”), are vital to our success in
the financial services industry. As of September 30, 2014, we had approximately 10,300 employees. As of September 30, 2014,
we had more than 3,600 independent contractor financial advisors with whom we are affiliated.
OTHER INFORMATION
Our Internet address is www.raymondjames.com. We make available on our website, free of charge, 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, as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the SEC.
Factors affecting “forward-looking statements”
Certain statements made in this report on Form 10-K may constitute “forward-looking statements” under the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include information concerning future strategic objectives, business
prospects, anticipated savings, financial results (including expenses, earnings, liquidity, cash flow and capital expenditures),
industry or market conditions, demand for and pricing of our products, acquisitions and divestitures, anticipated results of litigation
and regulatory developments or general economic conditions. In addition, words such as “believes,” “expects,” “anticipates,”
“intends,” “plans,” “estimates,” “projects,” “forecasts,” and future or conditional verbs such as “will,” “may,” “could,” “should,”
and “would,” as well as any other statement that necessarily depends on future events, are intended to identify forward-looking
statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. Although we
make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will
not differ materially from those expressed in the forward-looking statements. We caution investors not to rely unduly on any
forward-looking statements and urge you to carefully consider the risks described in Item 1A, “Risk Factors,” in this report. We
expressly disclaim any obligation to update any forward-looking statement in the event it later turns out to be inaccurate, whether
as a result of new information, future events or otherwise.
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 attracting and maintaining clients, customers, investors and associates. If we fail to
deal with, or appear to fail to deal with, 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 maintain appropriate standards
of service and quality, or a failure or perceived failure to treat customers and clients fairly, can result in client 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 harm our future business prospects.
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 trading levels, 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.
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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.
U.S. markets may also be impacted by political and civil unrest occurring in the Middle East and in Eastern Europe and Russia.
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 of 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 these 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, foreign governments, and domestic 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. We may also be indirectly impacted by fiscal and monetary
policy enacted in various global markets.
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.
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 is 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 for our 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
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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.
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, 2014).
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 (through 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 report 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.
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 have an adverse effect on our
business results, financial condition and liquidity.
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 report for additional information regarding
our exposure to and approaches to managing market risk.
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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-dealers market
making and underwriting 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, loans and derivatives in our trading accounts. Deterioration in the actual or perceived credit quality of the
underlying issuers of securities or loans, 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, tax-exempt 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.
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 report 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, fees earned from the management of
client accounts by our asset management subsidiaries and on advisory fees.
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
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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 primarily in connection with our market making or underwriting activities.
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.
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. 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 effect on our
results of operations.
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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.
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 Consolidated Financial Statements in this Form 10-K for further information regarding these
indemnification agreements.
Growth of our business could increase costs and regulatory and integration 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.
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 effect 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 report 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
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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 senior professionals, 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 senior professionals, particularly our managing directors, and the members of our executive committees, as well as
employees and financial advisors. To compete effectively we must attract, retain and motivate qualified professionals, including
successful financial advisors, investment bankers, trading professionals, portfolio managers and other revenue producing or
specialized personnel. The reputations and relationships of our senior professionals with our clients are a critical element in
obtaining and executing client engagement. Competitive pressures we experience could have an adverse effect on our business,
results of operations, financial condition and liquidity.
Turnover in the financial services industry is high. 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 not 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. If we were to lose the services of any of our investment bankers, senior equity research, sales and trading
professionals, asset managers, or executive officers to a new or existing competitor or otherwise, we may not be able to retain
valuable relationships and some of our clients could choose to use the services of a competitor instead of our services. If we are
unable to retain our senior professionals or recruit additional professionals, our reputation, business, results of operations and
financial condition will be adversely affected. Further, new business initiatives and efforts to expand existing businesses generally
require that we incur compensation and benefits expense before generating additional revenues.
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.
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
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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 report for additional information regarding
our exposure to and approaches to managing operational risk.
Associate misconduct, which is difficult to detect and deter, could harm us by impairing our ability to attract and retain
clients and subjecting us to significant legal liability and reputational harm.
There have been a number of highly-publicized cases involving fraud or other misconduct by associates in the financial
services industry, and there is a risk that our associates could engage in misconduct that adversely affects our business. For example,
our banking business often requires that we deal with confidential matters of great significance to our clients. If our associates
were to improperly use or disclose confidential information provided by our clients, we could be subject to regulatory sanctions
and suffer serious harm to our reputation, financial position, current client relationships and ability to attract future clients. We
are also subject to a number of obligations and standards arising from our asset management business and our authority over the
assets managed by our asset management business. In addition our financial advisors may act in a fiduciary capacity, providing
financial planning, investment advice and discretionary asset management. The violation of these obligations and standards by
any of our associates would adversely affect our clients and us. It is not always possible to deter associate misconduct, and the
precautions we take to detect and prevent this activity may not be effective in all cases. If our associates engage in misconduct,
our business would be adversely affected.
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.
Client and 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.
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In providing services to clients, we may manage, utilize and store sensitive or confidential client or employee data, including
personal data. As a result, we may be subject to numerous laws and regulations designed to protect this information, such as the
U.S. federal and state laws governing the protection of personally identifiable information and international laws. These laws and
regulations are increasing in complexity and number. If any person, including any of our associates, negligently disregards or
intentionally breaches our established controls with respect to client or employee data, or otherwise mismanages or misappropriates
that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution.
In addition, unauthorized disclosure of sensitive or confidential client or employee data, whether through systems failure, employee
negligence, fraud or misappropriation, could damage our reputation and cause us to lose clients and their related revenue in the
future. Potential liability in the event of a security breach of client data could be significant and depending on the circumstances
giving rise to the breach, this liability may not be subject to a contractual limit of liability or an exclusion of consequential or
indirect damages.
See Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in this report 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 our information
systems processing is conducted out of our new information technology data center in the Denver, Colorado area (see Item 2,
“Properties” in this report 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 associates 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 clients or improperly advise
them, we could be found liable for losses suffered by such clients, 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.
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 report for a discussion of our legal matters and Item 7A, “Quantitative and Qualitative
Disclosures about Market Risk,” in this report for discussion regarding our approach to managing legal risk.
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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 report 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 in this report, and Note 2 of the Notes to Consolidated Financial
Statements, in this Form 10-K.
In December, 2012 the FASB issued a proposed standard on accounting for credit losses. The standard would replace multiple
existing impairment models, including replacing an “incurred loss” model for loans with an “expected loss” model. The FASB
announced it will establish the effective date when it issues the final standard. We cannot predict whether or when a final standard
will be issued, when it will be effective, what its final provisions will be, or the potential impact its eventual adoption may have
on our retained earnings.
Our risk management and conflicts of interest 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. Our banking and trading processes seek to balance our ability to profit from banking and trading
positions with our exposure to potential losses. While we employ limits and other risk mitigation techniques, those techniques
and the judgments that accompany their application cannot anticipate economic and financial outcomes or the specifics and timing
of such outcomes.
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,
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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 report.
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.
RISKS RELATED TO OUR REGULATORY ENVIRONMENT
Financial services firms have been subject to increased scrutiny over the last several years, increasing the risk of financial
liability and reputational harm resulting from adverse regulatory actions.
Firms in the financial services industry have been operating in a difficult regulatory environment which we expect will become
even more stringent in light of recent well-publicized failures of regulators to detect and prevent fraud. The industry has experienced
increased scrutiny from a variety of regulators, including the SEC, the NYSE, FINRA, the OCC, the CFPB, the Fed, and state
attorneys general. Penalties and fines sought by regulatory authorities have increased substantially over the last several years. We
may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental
authorities and self-regulatory organizations. Each of the regulatory bodies with jurisdiction over us has regulatory powers dealing
with many aspects of financial services, including, but not limited to, the authority to fine us and to grant, cancel, restrict or
otherwise impose conditions on the right to carry on particular businesses. For example, a failure to comply with the obligations
imposed by the Exchange Act on broker-dealers and the Investment Advisers Act on investment advisers, including record-keeping,
advertising and operating requirements, disclosure obligations and prohibitions on fraudulent activities, or by the Investment
Company Act of 1940, could result in investigations, sanctions and reputational damage. We also may be adversely affected as a
result of new or revised legislation or regulations imposed by the SEC, other U.S. or foreign governmental regulatory authorities
or FINRA or other self-regulatory organizations that supervise the financial markets. Substantial legal liability or significant
regulatory action against us could have adverse financial effects on us or cause reputational harm to us, which could harm our
business prospects.
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
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Index
U.S. and abroad. The Dodd-Frank Act enacted sweeping changes in the supervision and regulation of the financial industry (see
Item 1, Regulation, in this report for a discussion of such changes including the Volcker Rule). The ultimate impact that the Dodd-
Frank Act will have on us, the financial industry and the economy cannot be known until all of the implementing regulations called
for under the legislation have been finalized and implemented. These legislative and regulatory changes could affect our revenue,
limit our ability to pursue business opportunities, impact the value of assets that we hold, require us to change certain of our
business practices, impose additional costs on us, or otherwise adversely affect our businesses.
The Dodd-Frank Act impacts 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. The CFPB has been active in investigating products, services and operations of credit providers, including banks,
for compliance with various laws such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting
Act, and the Real Estate Settlement Procedures Act. Any actions taken by the CFPB could result in requirements to alter or cease
offering affected products and services, make them less attractive, restrict our ability to offer them, or increase our regulatory and
compliance costs. 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.
In December, 2013, the final version of the Volcker Rule was adopted (see Item 1, Regulation, in this report for discussion
of the Volcker Rule). Although we have not historically engaged in significant levels of trading for our own account, due to our
underwriting and market making activities, the Volcker Rule will likely increase our operational and compliance costs, and may
reduce our trading revenues, require a change in our principal capital private equity investments, and as a result adversely affect
our results of operations.
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.
Such impact could have an adverse effect on certain of our broker-dealer subsidiaries.
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 various federal 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.
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As more fully discussed in Item 1, Regulation, in this report, RJF is required to perform annual stress tests using certain
scenarios provided by the Fed. While we believe that both the quality and magnitude of our capital base is sufficient to support
our current operations given our risk profile, the results of the stress testing process may affect our approach to managing and
deploying capital.
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 26 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 clients’ 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.
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 in this report 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 pay fees to cover the costs of selling and marketing
their shares. The staff of the Office of Compliance, Inspections and Examinations has indicated that it is reviewing use of fund
assets to pay for fees to sub-transfer agents and sub-administrators for services that may be deemed to be distribution-related. 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.
Asset management businesses have experienced a number of highly publicized regulatory inquiries which have resulted in
increased scrutiny within the industry and new rules and regulations for mutual funds, investment advisors and broker-dealers.
Some of our wholly owned subsidiaries are registered as an investment advisor with the SEC and the regulatory scrutiny and
rulemaking initiatives may result in an increase in operational and compliance costs or the assessment of significant fines or
penalties against our asset management business, and may otherwise limit our ability to engage in certain activities. It is impossible
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to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the
proposals will become law. Compliance with any new laws or regulations could make compliance more difficult and expensive
and affect the manner in which we conduct business. Pursuant to the Dodd-Frank Act, the SEC was charged with considering
whether broker-dealers should be subject to a standard of care similar to the fiduciary standard applicable to registered investment
advisors. It is not clear whether the SEC will determine that a heightened standard of conduct should be applicable to broker-
dealers; however, any such standard, if mandated, would likely require us to review our product and service offerings and result
in changes to these, and require that we incur additional regulatory costs in order to ensure compliance.
In addition, in recent years, the U.S. and other governments have taken actions, and may continue to take further actions,
including expanding current or enacting new standards, requirements and rules that may be applicable to us and our subsidiaries
and in particular our investment management business. For example, several states and municipalities in the United States have
recently adopted “pay-to-play” rules, which could limit our ability to charge advisory fees, and could therefore affect the profitability
of that portion of our business. In addition, the use of “soft dollars,” where a portion of commissions paid to broker-dealers in
connection with the execution of trades also pays for research and other services provided to advisors, is periodically reexamined
and may in the future be limited or modified. Although a substantial portion of the research relied on by our investment management
business in the investment decision making process is generated internally by our investment analysts, external research, including
external research paid for with soft dollars, is important to the process. This external research generally is used for information
gathering or verification purposes, and includes broker-provided research, as well as third party provided databases and research
services. If the use of soft dollars is limited, we may have to bear some of these costs. Furthermore, new regulations regarding the
management of hedge funds and the use of certain investment products may impact our investment management business and
result in increased costs. For example, many regulators around the world adopted disclosure and reporting requirements relating
to the hedge fund businesses or other businesses, and changes to the laws, rules and regulations in the U.S. related to the over-
the-counter swaps and derivatives markets require additional registration, recordkeeping and reporting obligations.
See the section entitled “Business - Regulation” within Item 1 in this report for additional information regarding our regulatory
environment and Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in this report 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 effect on our business, financial condition or results of operations.
RJ Bank is subject to the CRA and fair lending laws, and failure to comply with these laws could lead to penalties.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act, and other fair lending laws and regulations impose
nondiscriminatory lending requirements on financial institutions. The U.S. Department of Justice and other federal agencies,
including the CFPB, are responsible for enforcing these laws and regulations. A successful challenge to an institution’s performance
under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of
damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity, and restrictions
on expansion activity. Private parties may also have the ability to challenge an institution’s performance under fair lending laws
in private class action litigation.
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 2. PROPERTIES
The RJF headquarters is located on approximately 55 acres of land 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 44,000 square foot two-story building, and two five-story parking garages.
At this St. Petersburg, Florida location, we also have the rights necessary to add approximately 490,000 square feet of new office
space. We also utilize 30,000 square feet of leased warehouse space near the headquarters complex. During fiscal year 2011, we
entered into an agreement to purchase approximately 65 acres of land located in Pasco County, Florida. As of September 30,
2014, the completion of this purchase transaction is subject to the satisfactory resolution of certain permitting matters. We conduct
certain operations from our 85,000 square-foot office building located on 13 acres of land we own in Southfield, Michigan, and
we operate a 40,000 square foot information technology data center on land we own in the Denver, Colorado area. We also conduct
certain operations in approximately 237,000 square feet of leased office space in the 21-story Raymond James Tower located in
downtown Memphis, Tennessee.
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.
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We conduct branch office operations 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.
See Note 21 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.
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 information regarding the Morgan Keegan acquisition in Note 3 of the Notes to Consolidated
Financial Statements in this Form 10-K). 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 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. Civil actions were brought by certain investors of the bonds beginning
in March 2012, seeking a return of their investment and unspecified compensatory and punitive damages. A punitive class action
was brought on behalf of purchasers of the bonds on September 4, 2012, seeking unspecified compensatory and punitive damages.
This action was certified as a class action representing all purchasers of the bonds between July 23, 2010 and September 30, 2011.
These actions are in various stages of litigation.
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.
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Indemnification from Regions
As more fully described in Note 3 of the Notes to 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 21 of the Notes to 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.
See Note 21 of the Notes to 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 19, 2014, there were approximately 21,000
holders of our common stock. Our transfer agent is Computershare Inc. whose address is P.O. Box 30170, College Station, TX
77842-3170.
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
2014
2013
High
Low
High
Low
$
$
$
$
52.47
56.31
56.32
56.61
$
$
$
$
40.01
48.13
47.49
48.91
$
$
$
$
39.99
48.22
46.73
45.55
$
$
$
$
36.26
39.23
39.31
41.11
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
2014
2013
$
$
$
$
0.14
0.16
0.16
0.16
$
$
$
$
0.13
0.14
0.14
0.14
On August 20, 2014, our Board of Directors declared a quarterly dividend of $0.16 in cash per share of common stock which
was paid on October 15, 2014. Additionally, on November 20, 2014, our Board of Directors declared a quarterly dividend of $0.18
in cash per share of common stock, to be paid January 15, 2015 to shareholders of record on January 2, 2015.
See Note 26 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.
30
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, 2014:
October 1, 2013 – October 31, 2013
November 1, 2013 – November 30, 2013
December 1, 2013 – December 31, 2013
First quarter
January 1, 2014 – January 31, 2014
February 1, 2014 – February 28, 2014
March 1, 2014 – March 31, 2014
Second quarter
April 1, 2014 – April 30, 2014
May 1, 2014 – May 31, 2014
June 1, 2014 – June 30, 2014
Third quarter
July 1, 2014 – July 31, 2014
August 1, 2014 – August 31, 2014
September 1, 2014 – September 30, 2014
Fourth quarter
Fiscal year total
Number of
shares
purchased (1)
Average price
per share
11,890
68,503
24,774
105,167
1,427
16,423
2,631
20,481
8,602
22,160
277
31,039
273
8,505
4,150
12,928
169,615
$
$
$
$
$
$
$
$
$
43.16
48.38
48.48
47.82
52.18
52.06
51.39
51.98
55.31
49.32
49.71
50.98
50.54
54.60
54.82
54.58
49.41
(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, 2014, there is $49.4 million remaining on the current authorization
of our Board of Directors for open market share repurchases (the “Share Repurchase Authorization”). Under the Share Repurchase
Authorization, our Board of Directors has authorized specific dollar amounts for repurchases of our own stock 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 shares under the Share Repurchase Authorization during the year ended September 30, 2014.
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
17,668 shares for a total of $850 thousand, for the fiscal year ended September 30, 2014. These share purchases are not subject to the
Share Repurchase Authorization.
We also repurchase shares when employees surrender shares as payment for option exercises or withholding taxes. During the fiscal
year ended September 30, 2014, there were 151,947 shares surrendered to us by employees for a total of $7.5 million as payment for
option exercises or withholding taxes. These share purchases are not subject to the Share Repurchase Authorization.
31
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 obligations:
2014
Year ended September 30,
2013
2011
2012
(in thousands, except per share data)
2010
$ 4,965,460
$ 4,595,798
$ 3,897,900
$ 3,399,886
$ 2,979,516
$ 4,861,369
$ 4,485,427
$ 3,806,531
$ 3,334,056
$ 2,916,665
$
$
$
$
480,248
3.41
3.32
$
$
$
367,154
2.64
2.58
$
$
$
295,869
2.22
2.20
$
$
$
278,353
2.20
2.19
$
$
$
228,283
1.83
1.83
139,935
137,732
130,806
122,448
119,335
143,589
140,541
131,791
122,836
119,592
0.64
$
0.56
$
0.52
$
0.52
$
0.44
$ 23,325,652
$ 23,186,122
$ 21,160,265
$ 18,006,995
$ 17,883,081 (1)
Non-current portion of other borrowings (2)
Non-current portion of loans payable of consolidated
variable interest entities (3)
$
$
500,216
25,928
$
$
5,000
43,877
$
$
Non-current portion of corporate debt
$ 1,186,750
$ 1,190,978
$ 1,322,576
Total long-term debt
$ 1,712,894
$ 1,239,855
$ 1,385,514
— $
— $
—
62,938
$
$
$
78,650
602,127
680,777
$
$
$
63,660
352,709
416,369
Equity attributable to Raymond James Financial, Inc.
Shares outstanding (4)
Book value per share at end of year
Tangible book value per share at end of year (a non-GAAP
measure) (5)
$ 4,141,236
$ 3,662,924
$ 3,268,940
$ 2,587,619
$ 2,302,816
140,836
29.40
26.98
$
$
138,750
26.40
23.86
$
$
136,076
24.02
21.42
$
$
123,273
20.99
20.45
$
$
121,041
19.03
18.49
$
$
(1) Total assets at September 30, 2010 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.
(2) At September 30, 2014, the outstanding balance is primarily comprised of RJ Bank’s borrowings from the Federal Home Loan Bank
(“FHLB”).
(3) Loans payable of consolidated variable interest entities (“VIE”) are non-recourse to us.
(4) Excludes non-vested shares.
(5) 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 $13 million, $9 million, $8 million and $6 million as of September 30, 2014, 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.
32
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, 2014 compared with the year ended September 30, 2013
For the fifth consecutive year, we achieved record net revenues of $4.9 billion, a $376 million or 8%, increase compared to
the prior year. The increase generated by our on-going operations is even greater than that amount after factoring in the $74 million
of revenue reflected in the prior year that was associated with a private equity investment we sold last year. All four operating
segments achieved record levels of net revenues, the fifth straight year for our Private Client Group and Capital Markets segments.
Total client assets under administration increased to $475 billion at September 30, 2014, a 12% increase over the prior year level.
We also achieved a record level of net income, to $480 million, an increase of $113 million, or 31%, compared to the prior
year. Three of our four operating segments achieved record levels of profitability. Fully diluted earnings per share of $3.32,
increased $0.74, or 29%, over the prior year amount. After excluding the acquisition related and other one-time expenses we
incurred in the prior year, our adjusted net income increased $61 million, or 15%, compared to the prior year period (a non-GAAP
measure).(1) The increase in net income over the prior year level is even more significant given that the prior year net income
included $14 million (after the attribution to noncontrolling interests) arising from our indirect investment in Albion Medical
Holdings, Inc. (“Albion”), a private equity holding which was sold during the prior year.
Non-interest expenses increased $254 million, or 7%, compared to the prior year. The increase is primarily due to the increase
in compensation, commissions and benefits expenses which were partially offset by the decrease in acquisition related expenses.
Acquisition and integration related expenses in fiscal year 2014 are no longer material for separate reporting since our integration
of Morgan Keegan was substantially complete as of September 30, 2013. The combination of increasing net revenues and overall
expense control in fiscal year 2014 helped us achieve a 15.4% pre-tax margin on net revenues.
A summary of the most significant items impacting our financial results as compared to the prior year are as follows:
• Our Private Client Group segment generated record net revenues of $3.3 billion, a 12% increase, while pre-tax income
increased $100 million, or 43%, to a record $330 million. The increase in revenues is primarily attributable to increased
securities commissions and fee revenues, predominately arising from fee-based accounts, as well as an increase in mutual
fund and annuity service fee revenues. Commission expenses increased in proportion to the increase in corresponding
commission revenues while all other components of non-interest expense increased by only 1%. Client assets under
administration of the Private Client Group increased 12% over the prior year level, to $450.6 billion at September 30,
2014. Net inflows of client assets have been positively impacted by successful recruiting of financial advisors, among
other favorable factors.
(1) Refer to the discussion and reconciliation of the GAAP results to the non-GAAP results in the “Reconciliation of the GAAP results to
the non-GAAP measures” section of this MD&A.
33
Index
• The Capital Markets segment generated record net revenues of $966 million, a 3% increase, while pre-tax income increased
$28 million, or 28%, to a record $131 million. Increases in trading profits, merger and acquisition fee revenues, equity
underwriting fee revenues and institutional sales commissions on equity products more than offset a decline in institutional
sales commissions on fixed income products. The decline in institutional fixed income commission revenues results from
challenging fixed income market conditions during the fiscal year due to economic uncertainty, historically low interest
rates, relatively low volatility of benchmark interest rates, and decreased customer trading volumes.
• Our Asset Management segment generated record net revenues of $370 million, a 26% increase, while pre-tax income
increased $32 million, or 33%, to a record $128 million. Financial assets under management increased 15% from the
prior year, to $64.6 billion as of September 30, 2014. Both strong net inflows of client assets and market appreciation
contributed to the increase. We also earned nearly $10 million in performance fees in the current year (compared to
nearly $2 million in the prior year) as a result of positive net performance from certain of our managed funds (a portion
of which are attributable to noncontrolling interests), which contributed to the increase in revenues and pre-tax income.
• RJ Bank generated record net revenues of $352 million, a 1% increase, while pre-tax income decreased $25 million, or
9%, to $243 million. Net interest income increased due to growth in average loans outstanding, offset in large part by a
lower net interest margin. The provision for loan losses increased primarily as the result of significant loan portfolio
growth, partially offset by decreases resulting from improved credit characteristics of the loan portfolio reflecting the
positive impact from improved economic conditions. Non-interest expenses (excluding the provision for loan losses)
increased $19 million.
• Activities in our Other segment resulted in a pre-tax loss that is $48 million less than the prior year. Our non-interest
expenses decreased substantially as we are no longer incurring acquisition and integration related costs since our
integration of Morgan Keegan was substantially complete as of September 30, 2013. In addition, the prior year included
significant revenues and pre-tax income associated with our indirect investment in Albion, which was sold in April 2013,
thus having a significant impact on comparisons to the prior year.
• Our fiscal year 2014 effective tax rate is 35.8%, up from the 34.9% in fiscal year 2013. Our fiscal year 2013 effective
tax rate included a nonrecurring tax benefit resulting from a change in management’s repatriation strategy of certain
foreign earnings. Both years included significant non-taxable gains in the value of our company-owned life insurance
portfolio.
The regulatory environment in which we operate our businesses continues to produce changes that result from new rules and
additional regulations that could impact our businesses in the future. That being the case, our current view of the potential impact
to us of future regulations remains substantially unchanged by the regulatory activities that occurred during the year. Based on
our continuing 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 either have yet to be adopted, have yet to become effective, or are under further analysis by various
regulatory agencies, the specific impact on some of our businesses remains uncertain.
34
Index
Year ended September 30, 2013 compared with the year ended September 30, 2012
We achieved record net revenues of $4.5 billion in fiscal year 2013, a $679 million, or 18%, increase compared to the prior
year. All four operating segments achieved record net revenues and pre-tax earnings. 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 in fiscal year 2013, or 20%, compared to the prior year, to $564 million. Excluding
the acquisition related expenses primarily resulting from the Morgan Keegan acquisition, in fiscal year 2013 we generated adjusted
pre-tax income of $644 million (a non-GAAP measure)(1), a 21% increase over the prior year. Earnings per share in fiscal year
2013 increased 17% over the prior year, to $2.58 per share. Excluding the acquisition related expenses mentioned above, fiscal
year 2013 adjusted earnings per share (a non-GAAP measure)(1) increased 18%, to $2.95 per share.
All of our operating segments performed well during fiscal year 2013, 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 in fiscal year 2013 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
fiscal year 2013, 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.
A summary of the most significant items impacting our financial results in fiscal year 2013 compared to the prior year, in
addition to the impact of twelve months of Morgan Keegan operations in fiscal year 2013 compared to six months in the prior
year, are as follows:
• Our Private Client Group segment generated net revenues of $2.9 billion in fiscal year 2013, 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 in fiscal year 2013 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 $938 million in fiscal year 2013, 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 were uneven throughout fiscal year 2013, 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 in fiscal year 2013, 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.
(1) Refer to the discussion and reconciliation of the GAAP results to the non-GAAP results in the “Reconciliation of the GAAP results to
the non-GAAP measures” section of this MD&A.
35
Index
• RJ Bank generated $268 million in pre-tax income in fiscal year 2013, an 11% increase over the prior year. 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 fiscal year 2013 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 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.
36
Index
Segments
The following table presents our consolidated and segment gross revenues, net revenues and pre-tax income (loss), the latter
excluding noncontrolling interests, for the years indicated:
2014
2013
Year ended September 30,
% change
(in thousands)
2012
% change
Total company
Revenues
Net revenues
Pre-tax income excluding noncontrolling
interests
$
4,965,460
4,861,369
$
4,595,798
4,485,427
8 % $
8 %
3,897,900
3,806,531
748,045
564,187
33 %
471,525
3,276,566
3,266,946
330,278
2,930,603
2,918,978
230,315
981,572
966,152
130,565
369,690
369,666
128,286
360,317
351,770
242,834
955,955
937,886
102,171
292,817
292,809
96,300
356,130
346,906
267,714
12 %
12 %
43 %
3 %
3 %
28 %
26 %
26 %
33 %
1 %
1 %
(9)%
2,484,670
2,473,631
215,091
828,435
812,146
75,755
237,224
237,137
67,241
345,693
336,034
240,158
18 %
18 %
20 %
18 %
18 %
7 %
15 %
15 %
35 %
23 %
23 %
43 %
3 %
3 %
11 %
Private Client Group
Revenues
Net revenues
Pre-tax income
Capital Markets
Revenues
Net revenues
Pre-tax income
Asset Management
Revenues
Net revenues
Pre-tax income
RJ Bank
Revenues
Net revenues
Pre-tax income
Other
Revenues
Net revenues
Pre-tax loss
42,203
(35,253)
(83,918)
126,401
45,923
(132,313)
(67)%
(177)%
37 %
58,412
(3,937)
(126,720)
116 %
NM
(4)%
Intersegment eliminations
Revenues
Net revenues
(64,888)
(57,912)
(66,108)
(57,075)
(56,534)
(48,480)
Reconciliation of the GAAP results to the non-GAAP measures
We believe that the non-GAAP measures provide useful information by excluding material items that may not be indicative
of our core operating results and that the GAAP and the non-GAAP measures should be considered together. There are no non-
GAAP adjustments in the year ended September 30, 2014, as we no longer separately report acquisition and integration related
costs since our integration of Morgan Keegan was substantially complete as of September 30, 2013. The non-GAAP adjustments
for the prior year periods presented 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
following table for further explanation of each non-recurring item.
37
Index
The following table provides a reconciliation of the GAAP basis to the non-GAAP measures:
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)
Pre-tax non-GAAP adjustments
Tax effect of non-GAAP adjustments (5)
Adjusted net income attributable to RJF, Inc. - Non-GAAP basis
Non-GAAP adjustments to common shares outstanding:
Effect of the February 2012 share issuance on weighted average common shares
outstanding (6)
Non-GAAP earnings per common share:
Non-GAAP basic
Non-GAAP diluted
Average equity - GAAP basis (7)
Average equity - non-GAAP basis (8)
Return on equity
Return on equity - non-GAAP basis (9)
Year ended September 30,
2013
2012
($ in thousands, except per share amounts)
$
367,154
$
295,869
73,454
4,564
1,902
—
79,920
(27,908)
419,166
$
—
3.01
2.95
3,465,323
3,483,531
10.6%
12.0%
$
$
$
$
59,284
—
—
1,738
61,022
(22,731)
334,160
(1,396)
2.53
2.51
3,037,789
3,027,259
9.7%
11.0%
$
$
$
$
$
(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 fiscal year.
(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.
(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 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.
(6) 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.
(7) Computed by adding the total equity attributable to RJF, Inc. as of each quarter-end date during the indicated fiscal year, plus the
beginning of the year total, divided by five.
(8) 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 year.
(9) Computed by utilizing the adjusted net income attributable to RJF, Inc.-non-GAAP basis and the average equity-non-GAAP basis, for
each respective year. See footnotes (7) and (8) above for the calculation of average equity-non-GAAP basis.
38
Index
Net interest analysis
We have certain assets and liabilities, not only held in our RJ Bank segment but also held in our PCG, Capital Markets and
Other 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
report, 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 the asset/liability model applied by RJ Bank).
Based upon our latest analysis performed as of September 30, 2014, we estimate that a 100 basis point instantaneous rise in
short-term interest rates would result in an increase in our pre-tax income of approximately $150 million over a twelve month
period. Approximately half of such an increase would be reflected in account and service fee revenues (resulting from an increase
in the fees generated in lieu of interest income from our multi-bank sweep program with unaffiliated banks and the discontinuance
of money market fee waivers) which are reported in the PCG segment, and the remaining portion of the increase would be reflected
in net interest income reported primarily in our PCG and RJ Bank segments. This estimate is based on static balances as of
September 30, 2014 and a conservative assumption related to interest credited to our clients on their cash balances in such an
interest rate environment. The actual amount of any increase we would realize in the future will ultimately be based on a number
of factors including, but not limited to, the actual change in balances, the rapidity and magnitude of the increase in interest rates,
the competitive landscape at such time, and the returns on comparable investments which will factor into the interest rates we pay
on client cash balances. The vast majority of any incremental benefit to pre-tax income from a rise in short-term interest rates
would be expected to arise from the first 100 basis point increase, as we presume that a significant portion of any further incremental
increase in short-term interest rates would be passed along to clients, and thus such additional interest revenues and interest sensitive
fees would be offset by increases of similar amounts in our interest expense.
39
Index
The following table presents our consolidated average interest-earning asset and liability balances, interest income and expense
balances, and the average yield/cost, for the years indicated:
2014
Average
balance(1)
Interest
inc./exp.
Average
yield/
cost
Year ended September 30,
2013
2012
Average
balance(1)
Interest
inc./exp.
($ in thousands)
Average
yield/
cost
Average
balance(1)
Interest
inc./exp.
Average
yield/
cost
$ 1,764,305
$ 68,454
3.88% $ 1,775,251
$ 60,931
3.43% $ 1,695,197
$ 60,104
3.55%
2,783,598
15,441
0.55%
3,554,917
17,251
0.49%
3,236,290
16,050
0.50%
10,048,719
343,942
3.39%
8,605,013
335,964
3.90%
7,501,832
319,211
4.26%
648,515
630,295
423,466
6,560
17,883
8,731
1.01%
2.84%
2.06%
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%
413,600
6,427
1.55%
421,645
6,510
1.54%
342,858
4,797
1.40%
2,113,313
$18,825,811
13,448
$480,886
0.64%
3,076,912
2.55% $19,265,990
16,578
$473,599
0.54%
2,415,466
2.46% $17,192,940
13,933
$453,258
0.58%
2.64%
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
$ 3,967,811
10,119,433
1,269
7,959
0.03% $ 4,866,091
9,133,260
0.09%
$
2,049
9,032
0.04% $ 4,258,197
8,032,768
0.10%
$
2,213
9,484
0.05%
0.12%
243,737
114,404
259,568
1,148,947
4,327
2,869
3,939
76,038
1.78%
2.51%
1.52%
6.62%
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
51,518
319,328
$16,224,746
2,900
4,790
$104,091
$376,795
70,325
5.63%
1.50%
336,226
0.64% $16,282,819
3,959
8,741
$110,371
$363,228
88,762
5.63%
2.60%
282,359
0.68% $14,190,847
5,032
5,789
$ 91,369
$361,889
1.40%
1.21%
1.88%
6.67%
5.67%
2.05%
0.64%
(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.
40
Index
Year ended September 30, 2014 compared with the year ended September 30, 2013 – Net Interest Analysis
Net interest income increased $14 million, or 4%, compared to the prior year. Net interest income is earned primarily by our
PCG and RJ Bank segments, which are discussed separately below.
Net interest income in the PCG segment increased $4 million, or 5%, primarily resulting from the increase in margin interest
rates we implemented as of October 1, 2013, offset by a slight decrease in average client margin balances outstanding.
The RJ Bank segment’s net interest income increased $8 million, or 2%, primarily as a result of an increase in loans outstanding
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 the available for sale securities portfolio decreased $1 million, or 18%, from the prior year due to
lower investment balances primarily resulting from sales and redemptions within the portfolio, and a slight decrease in yields (see
Note 7 of our Notes to Consolidated Financial Statements in this Form 10-K for additional information on our available for sale
securities).
Interest income earned on our trading instruments decreased $2 million, or 11%, compared to the prior year due to lower
average trading security inventory levels (see Note 6 of our Notes to Consolidated Financial Statements in this Form 10-K for
additional information on our trading instruments).
Year ended September 30, 2013 compared with the year ended September 30, 2012 – Net Interest Analysis
Net interest income was relatively unchanged in fiscal year 2013 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 in fiscal year 2013 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 in fiscal year 2013 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 in fiscal year 2013 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 in fiscal year 2013 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 $250 million 5.625% senior notes. Both
of the March 2012 debt offerings were part of our acquisition financing activities and other transactions associated with the Morgan
Keegan acquisition.
41
Index
Results of Operations – Private Client Group
The following table presents consolidated financial information for our PCG segment for the years indicated:
2014
% change
% change
2012
Year ended September 30,
2013
($ 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
Pre-tax income
$
297,535
3 % $
289,395
10 % $
263,578
78,082
678,577
1,261,267
354,629
88,341
2,758,431
99,147
162,057
212,342
17,124
3,022
293
394,838
24,150
3,276,566
(9,620)
3,266,946
2,002,831
490,453
153,076
118,503
80,950
90,855
2,936,668
(21)%
9 %
24 %
5 %
(3)%
12 %
2 %
—
26 %
1 %
(1)%
4 %
13 %
(12)%
12 %
(17)%
12 %
13 %
2 %
(6)%
4 %
23 %
(8)%
9 %
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
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
(11,625)
2,918,978
5 %
18 %
(11,039)
2,473,631
1,765,933
481,253
163,125
113,573
65,679
99,100
2,688,663
18 %
14 %
43 %
19 %
—
38 %
19 %
1,491,286
420,553
113,931
95,551
65,505
71,714
2,258,540
$
330,278
43 % $
230,315
7 % $
215,091
Margin on net revenues
10.1%
7.9%
8.7%
Revenues of the PCG segment are correlated with total PCG client assets under administration, which include assets in fee-
based accounts, and the overall U.S. equities markets. PCG client asset balances are as follows as of the dates indicated:
As of September 30,
2014
% change
2013
($ in billions)
% change
2012
Total PCG assets under administration
PCG assets in fee-based accounts
$
$
450.6
167.7
12% $
20% $
402.6
139.9
9% $
21% $
367.7
115.7
Total PCG assets under administration increased 12% over September 30, 2013 primarily as a result of favorable equity
markets and an increase net client inflows during fiscal year 2014. Total PCG assets in fee-based accounts increased 20% compared
42
Index
to September 30, 2013. Increased client assets under administration typically result in higher fee-based account revenues and
mutual fund and annuity service fees. Improved equity markets not only result in increased assets under administration, but also
generally lead to more client activity and therefore improved financial advisor productivity. Higher client cash balances generally
lead to increased interest income and account fee revenues, depending upon the interest rates realized in our Client Interest Program
and RJBDP.
The following table presents a summary of PCG financial advisors and the total number of PCG branch locations as of the
periods indicated:
RJ&A
RJFS
RJ Ltd.
RJIS
Total financial advisors
Total branch locations
Employees
Independent
contractors
September 30, 2014
total
September 30, 2013
total
2,462
—
172
—
2,634
—
3,329
219
83
3,631
2,462
3,329
391
83
6,265
2,569
2,443
3,275
406
73
6,197
2,518
Year ended September 30, 2014 compared with the year ended September 30, 2013 – Private Client Group
Net revenues increased $348 million, or 12%, to a record $3.3 billion while pre-tax income increased $100 million, or 43%,
to a record $330 million. PCG’s pre-tax margin on net revenues increased to 10.1% as compared to 7.9% in fiscal year 2013.
Securities commissions and fees increased $303 million, or 12%. The increase results predominately from growth in client
assets under administration. The year over year increase in client assets was driven by the equity market conditions in the U.S.,
which were generally improved as compared to the prior year, and increased financial advisor productivity. The most significant
increases in these revenues arose from revenues earned on fee-based accounts, which increased $245 million, or 24%, and
commission revenues on mutual fund products which increased $57 million, or 9% (primarily due to increases in trailing
commissions on mutual fund products), partially offset by a $21 million, or 21%, decrease in commissions on fixed income
products. Commission earnings on fixed income products decreased primarily due to historically low interest rates and a general
lack of volatility of benchmark interest rates. Securities commissions and fee revenues generated by our Canadian operations
increased 5% over the prior year.
Total account and service fee revenues increased $44 million, or 13%, over the prior year. Mutual fund and annuity service
fees increased $44 million, or 26%, primarily as a result of an increase in mutual fund omnibus fees and education and marketing
support (“EMS”) fees (which include no-transaction-fee (“NTF”) program revenues), all of which are paid to us by the mutual
fund companies whose products we distribute. We continue to implement 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. During fiscal year 2014, we implemented technology changes in our EMS
program and standardized tiered service levels provided to many mutual fund companies, resulting in increased fees earned from
EMS arrangements. In addition, effective with our mid-February 2013 platform integration, the former Morgan Keegan client
mutual fund investments became eligible for our omnibus and EMS programs resulting in an increase in this fee revenue.
PCG net interest increased $4 million, or 5%, primarily resulting from an increase in margin interest rates despite a slight
decrease in average margin balances. Growth in margin loans in fiscal year 2014 has been negatively impacted by the popularity
of our securities based lending product offered by RJ Bank. As a result of the extremely low rate interest environment that existed
during fiscal year 2014 and the related low net interest spreads earned, there was only a nominal impact on our net interest revenues
resulting from changes in client cash balances. 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.
Total segment revenues increased 12%. The portion of total segment revenues that we consider to be recurring is approximately
72% at September 30, 2014, as contrasted to 68% at September 30, 2013. 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.
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Index
Non-interest expenses increased $248 million, or 9%, over the prior year. Sales commission expense increased $237 million,
or 13%, consistent with the 12% increase in commission and fee revenues. Business development expenses increased $15 million,
or 23%, due to increases in advertising, recruiting, incoming account transfer fee expenses, and conference costs.
Year ended September 30, 2013 compared with the year ended September 30, 2012 – Private Client Group
Net revenues in fiscal year 2013 increased $445 million, or 18%, over the prior year, 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 fiscal year 2013 results as compared to six months
in fiscal year 2012. Therefore, comparisons of our legacy private client group operations to our fiscal year 2013 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 in fiscal year 2013 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 in fiscal year 2013 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.
Mutual fund and annuity service fees in fiscal year 2013 increased $32 million, or 23%, primarily as a result of an increase
in mutual fund omnibus fees, EMS fees, and 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
fiscal year 2013 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 in fiscal year
2013 decreased $5 million, or 21%, primarily as a result of certain mutual fund relationships converting during fiscal year 2013
to a NTF program and an April 2012 reduction in transaction fees associated with certain non-discretionary asset-based
programs. 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 in fiscal year 2013 increased by $5 million, or 21%, primarily as a result of spreads earned on cross-currency
transactions within our Canadian operations.
Total segment revenues in fiscal year 2013 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 $139.9 billion (a majority of which is included in our asset management programs) an
increase of 21% as compared to the $115.7 billion of assets in fee-based accounts at September 30, 2012.
The amount of net interest in the PCG segment in fiscal year 2013 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
44
Index
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.
Non-interest expenses in fiscal year 2013 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 in fiscal year 2013 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 in fiscal year 2013 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 in fiscal year 2013 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
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
Merger and acquisitions fees
Fixed income investment banking revenues
Tax credit funds syndication fees
$
Investment advisory fees
Net 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 and non-interest expenses of real estate
partnerships held by consolidated VIEs
Impairment of goodwill associated with RJES
Clearance and all other
Total non-interest expenses
Income before taxes and including noncontrolling
interests
Noncontrolling interests
2014
260,934
246,131
507,065
100,091
151,000
55,275
34,473
22,966
59,701
20,746
30,255
981,572
(15,420)
966,152
192,774
453,190
67,835
34,859
40,409
41,072
—
50,060
880,199
85,953
(44,612)
% change
Year ended September 30,
2013
($ in thousands)
% change
6 % $
(25)%
(12)%
14 %
19 %
15 %
40 %
20 %
112 %
(6)%
16 %
3 %
(15)%
3 %
(13)%
6 %
3 %
(4)%
3 %
57 %
(100)%
12 %
1 %
26 %
246,588
326,792
573,380
87,466
126,864
48,133
24,656
19,202
28,117
22,145
25,992
955,955
(18,069)
937,886
222,424
428,215
65,728
36,435
39,308
26,083
6,933
44,774
869,900
67,986
(34,185)
7 % $
22 %
15 %
14 %
61 %
30 %
(22)%
52 %
(44)%
(3)%
20 %
15 %
11 %
15 %
22 %
10 %
13 %
14 %
3 %
27 %
100 %
(9)%
13 %
57 %
Pre-tax income excluding noncontrolling interests $
130,565
28 % $
102,171
35 % $
2012
230,080
266,884
496,964
76,446
78,761
36,987
31,693
12,644
50,426
22,930
21,584
828,435
(16,289)
812,146
181,809
388,755
58,305
31,865
38,019
20,579
—
49,435
768,767
43,379
(32,376)
75,755
Year ended September 30, 2014 compared with the year ended September 30, 2013 – Capital Markets
Net revenues increased $28 million, or 3%, while pre-tax income increased $28 million, or 28%.
Institutional equity sales commissions increased $14 million, or 6%, resulting from both favorable equity markets throughout
the year, and an active new issue market environment at certain times during fiscal year 2014. The active new issue market resulted
in a 14% increase in equity underwriting fee revenues to $100 million. Underwriting fee revenues increased in both our domestic
as well as our Canadian equity capital markets operations. The sectors in which we generated the most significant amounts of
underwriting fee revenues in fiscal year 2014 were real estate, financial services and energy.
Institutional fixed income sales commissions decreased $81 million, or 25%, primarily due to the challenging fixed income
market conditions throughout fiscal year 2014 resulting from economic uncertainty, the continuation of historically low interest
rates, periods of relatively low volatility of benchmark interest rates, and the resulting decreased customer trading volumes. Despite
such conditions, trading results were solid and steady during the year, resulting in a $32 million, or 112%, improvement over the
46
Index
prior year, which included a quarter (the third quarter of fiscal year 2013) which was particularly negative. These trading profits
are generated primarily from fixed income securities. These favorable trading results in fiscal year 2014 were achieved even as
we continued to maintain relatively lower average balances of trading securities in response to the market uncertainty (refer to the
table of average interest earning asset and liability balances in the net interest section of this MD&A for information on our average
levels of trading instruments held during each respective year).
Merger and acquisitions and advisory fee revenues increased $24 million, or 19%, compared to the prior year. The current
year includes increases in revenues in both our domestic and Canadian operations. The sectors in which we generated the most
significant amounts of such fee revenues in fiscal year 2014 were technology services, healthcare, energy, financial services,
technology, and general industrials.
Tax credit fund syndication fee revenues increased by $10 million, or 40%, due to a 16% increase in the volume of tax credit
fund partnership interests sold during the current year and current year recognition of certain revenues that were associated with
partnership interests sold in prior years which had been deferred in those years. Current year recognition of these previously
deferred revenues result from the favorable resolution of certain conditions associated with the partnership interests which, once
favorably resolved, result in the recognition of previously deferred revenues.
Non-interest expenses increased $10 million, or 1%, compared to the prior year. Administrative and incentive compensation
and benefit expense increased $25 million, or 6%, compared to the prior year offset by a decrease in sales commission expense
of $30 million, or 13%, which is directly correlated with the 12% decrease in overall institutional sales commission revenues.
Incentive compensation expense increases are primarily the result of higher volumes of underwriting, mergers & acquisitions and
advisory fees, investment banking and tax credit fund syndication fee revenues, as well as to a lesser extent, annual salary increases
applicable to all of our operations. The prior year included goodwill impairment expense of $7 million related to our RJES
operations which did not recur in the current year.
Losses of real estate partnerships held by consolidated VIEs result directly from the consolidation of certain low-income
housing tax credit funds, and reflect an increase of $15 million, or 57%, over the prior year. 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 includes the impact of consolidating certain low-income housing tax credit funds, which impacts
other revenue, interest expense, and the losses of real estate partnerships held by consolidated VIEs (as described in the preceding
paragraph), and RJES for the first six months of the prior year period (thereafter, we acquired the interests previously held by
others), and reflects the portion of these consolidated entities which we do not own. Total segment expenses attributable to others
increased by $10 million compared to the prior year. The increase in expenses associated with noncontrolling interests resulting
from losses of real estate partnerships held by consolidated VIEs discussed above, are offset by the impact of the prior year
consolidation of RJES. As a result of our April 2013 acquisition of the RJES interest previously held by others, there is no
comparable noncontrolling interest impact from the consolidation of RJES in the current year.
Year ended September 30, 2013 compared with the year ended September 30, 2012 – Capital Markets
Pre-tax income in fiscal year 2013 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 fiscal year
2013 results, as compared to only six months in fiscal year 2012, impacting comparisons of our legacy capital markets results,
especially fixed income operations, to fiscal year 2013 results.
Our fixed income revenues in fiscal year 2013 were significantly higher 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 in fiscal year 2013 increased by $126 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
47
Index
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 fiscal year
2013 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 fiscal year 2013, 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 fiscal year 2013,
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 in fiscal year 2013 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 in fiscal year 2013 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 fiscal year 2013 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 fiscal year 2013, while positive overall, were unfavorably impacted by adverse conditions in the municipal fixed income
market. This market was impacted during fiscal year 2013 by a number of factors. Municipal fixed income markets were negatively
impacted during the 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.
Non-interest expenses in fiscal year 2013 increased $101 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 $5 million, or 9%. 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 of fiscal year 2013, 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.
48
Index
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 in fiscal year 2013 increased by $2 million as compared to the prior year in part as a result
of the portions of the RJES goodwill impairment expense attributable to others as well as the increase in losses of real estate
partnerships held by VIEs.
Results of Operations – Asset Management
The following table presents consolidated financial information for our Asset Management segment for the years indicated:
Revenues:
Investment advisory fees
Other
Total revenues
Expenses:
Admin & incentive compensation and benefit costs
Communications and information processing
Occupancy and equipment
Business development
Investment sub-advisory fees
Other
Total expenses
Income before taxes and including noncontrolling
interests
Noncontrolling interests
2014
% change
% change
2012
Year ended September 30,
2013
($ in thousands)
$
318,244
29% $
247,162
25% $
198,369
51,446
369,690
102,674
21,861
4,587
9,208
46,674
49,495
234,499
135,191
6,905
13%
26%
12%
15%
5%
11%
41%
33%
21%
37%
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
43% $
67,241
Pre-tax income excluding noncontrolling interests
$
128,286
33% $
Managed Programs
As of September 30, 2014, approximately 81% of investment advisory fees recorded in this segment are earned from assets
held in managed programs. Of these revenues, approximately 60% of our investment advisory fees recorded each quarter are
determined based on balances at the beginning of a quarter, approximately 25% are based on balances at the end of the quarter
and the remaining 15% are computed based on average assets throughout the quarter.
On December 24, 2012, Eagle acquired a 45% interest in ClariVest, an acquisition that bolstered our platform in the large-
cap investment objective. See Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information
regarding the ClariVest acquisition.
49
Index
The following table reflects fee-billable financial assets under management in managed programs at the dates indicated:
Assets under management:
Eagle Asset Management, Inc. (1)
Raymond James Consulting Services
Unified Managed Accounts (“UMA”)
Freedom Accounts & other managed programs
Sub-total assets under management
Less: Assets managed for affiliated entities
Sub-total net assets under management
MK & Co. managed fee-based assets (2)
2014
September 30,
2013
(in millions)
2012
$
28,752
$
27,886
$
13,085
7,587
19,944
69,368
(4,811)
64,557
—
11,385
4,962
16,555
60,788
(4,799)
55,989
—
Total financial assets under management
$
64,557
$
55,989
$
19,986
9,443
2,855
11,884
44,168
(4,185)
39,983
2,801
42,784
(1) September 30, 2014 and 2013 amounts include the assets under management of ClariVest, which Eagle acquired 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.
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 MK & Co. accounts to the RJ&A platform) for the periods indicated:
Year ended September 30,
2014
2013
2012
(in millions)
Assets under management at beginning of year
$
60,788
$
44,168
$
35,648
Net inflows of client assets
Net market appreciation 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)
4,688
3,892
—
—
4,873
6,233
3,113
2,401
2,999
5,521
—
—
Assets under management at end of year
$
69,368
$
60,788
$
44,168
(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-discretionary asset-based programs
As of September 30, 2014, approximately 19% of investment advisory fees revenue recorded in this segment are earned for
administrative services on assets held in non-discretionary asset-based programs. Such assets totaled $81.3 billion and $64.7
billion as of September 30, 2014 and 2013, respectively. Including the MK & Co. assets held in non-discretionary asset-based
programs prior to the fiscal year 2013 conversion of MK & Co. accounts to the RJ&A platform, assets held in these programs as
of September 30, 2012 totaled $55.1 billion. All investment advisory fees associated with these programs are determined based
on balances at the beginning of the quarter.
50
Index
The following table summarizes the activity impacting the fee-billable financial assets in non-discretionary asset-based
programs (excluding activity in MK & Co. non-discretionary asset-based programs for the periods prior to the conversion of MK
& Co. accounts to the RJ&A platform) for the periods indicated:
Year ended September 30,
2014
2013
2012(1)
(in millions)
Assets in non-discretionary asset-based programs at beginning of year
$
64,681
$
48,368
$
37,601
Net inflows of client assets
Net market appreciation in asset values
Inflows resulting from the conversion of MK & Co. accounts to the RJ&A platform (2)
10,442
6,178
—
6,421
3,265
6,627
6,264
4,503
—
Assets in non-discretionary asset-based programs at end of year
$
81,301
$
64,681
$
48,368
(1) Excludes the activity of MK & Co. non-discretionary asset-based programs. Such programs held $6.8 billion of assets as of September
30, 2012.
(2) In mid-February 2013, the client accounts of MK & Co. were converted onto the RJ&A platform.
Year ended September 30, 2014 compared with the year ended September 30, 2013 – Asset Management
Pre-tax income in the Asset Management segment increased $32 million, or 33%, over the prior year.
Investment advisory fee revenue increased by $71 million, or 29%, primarily generated by an increase in assets under
management and increased performance fees from certain managed funds. Performance fees, which are earned by managed funds
for exceeding certain performance targets, increased $8 million over the amount earned in the prior year. Assets in both managed
and non-discretionary asset-based programs have increased substantially since the prior year. Refer to the tables above for
information regarding the increases in the balances of assets held in our programs.
Other revenue increased by $6 million, or 13%, primarily resulting from an increase in fee income generated by our RJ Trust
subsidiary reflecting a 16% increase in RJ Trust client assets compared to the prior year, to $3.38 billion as of September 30, 2014.
Expenses increased by approximately $40 million, or 21%, primarily resulting from a $13 million, or 41%, increase in
investment sub-advisory fees, a $12 million, or 33%, increase in other expenses. and an $11 million, or 12%, increase in
administrative and performance based incentive compensation. The increase in investment sub-advisory fee expense is directly
related to the increase in assets in programs managed by external managers. Such assets are included within the UMA and Raymond
James Consulting Services program asset under management balances. 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 expenses of RJ Trust resulting from the increase in client assets. The increase in administrative and
performance based incentive compensation is a result of: the combination of increases in performance compensation which is
directly related to the increase in investment advisory fee revenues and the performance fees earned during the year; increases in
salary and related expenses resulting from the addition of ClariVest on December 24, 2012; and annual salary increases and certain
additions to staff associated with our operations.
Noncontrolling interests includes the impact of the consolidation of certain subsidiary investment advisors and other
subsidiaries (including ClariVest). Total segment net income attributable to others increased by $5 million as compared to the prior
year since certain of the current year performance fees were earned by certain of these subsidiaries, and therefore a portion is
attributable to others.
Year ended September 30, 2013 compared to the year ended September 30, 2012 – Asset Management
Pre-tax income in the Asset Management segment in fiscal year 2013 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 at September 30, 2013 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.
51
Index
Assets in non-discretionary asset-based programs at September 30, 2013 increased $9.6 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 in fiscal year 2013 increased by $7 million, or 18%, primarily resulting from an increase in fee income generated
by RJ Trust reflecting a 19% increase in RJ Trust client assets as compared to the prior year, to $2.92 billion as of September 30,
2013.
Expenses in fiscal year 2013 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 $3 million, or 16%, increase in communications and information processing
expense. The increase in administrative and incentive compensation expense is a result of the combination of increases in salary
expenses resulting from the addition of ClariVest, annual increases and additions to staff associated with our legacy operations,
as well as an increase in performance compensation which is directly related to the increase in investment advisory fee revenues.
The increase in investment sub-advisory fee expense is directly related to the increase in advisory fees paid to the external managers
associated with certain assets included within the UMA and Raymond James Consulting Services programs. The increase in other
expense is primarily due to increases in the costs incurred so that certain funds sponsored by Eagle are available as investment
choices on the platforms of other broker-dealers and increases in the expenses of RJ Trust resulting from the increase in client
assets. The increase in communication and information processing expense is primarily a result of the addition of ClariVest
operations and costs associated with the implementation of a new back-office system supporting this segment.
Results of Operations – RJ Bank
The following table presents consolidated financial information for RJ Bank for the years indicated:
% change
Year ended September 30,
2013
($ in thousands)
% change
2 % $
(7)%
2 %
(38)%
1 %
16 %
39 %
9 %
429 %
75 %
14 %
36 %
38 %
(9)% $
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
5 % $
(5)%
5 %
(42)%
3 %
18 %
7 %
28 %
(90)%
5 %
10 %
(2)%
(17)%
11 % $
2012
331,683
(9,659)
322,024
14,010
336,034
18,432
2,835
912
25,894
5,435
26,852
15,516
95,876
240,158
Revenues:
Interest income
Interest expense
Net interest income
Other income
Net revenues
Non-interest expenses:
Compensation and benefits
Communications and information processing
Occupancy and equipment
Loan loss provision
FDIC insurance premiums
Affiliate deposit account servicing fees
Other
Total non-interest expenses
Pre-tax income
2014
355,304
(8,547)
346,757
5,013
351,770
25,430
4,234
1,274
13,565
10,026
33,758
20,649
108,936
242,834
$
$
52
Index
The tables below present certain credit quality trends for corporate loans and residential/consumer loans:
2014
Year ended September 30,
2013
(in thousands)
2012
(1,829) $
64
(17)
35
(1,747) $
(696) $
(7,919)
(4,472)
(222)
(13,309) $
(10,486)
(926)
(12,727)
(75)
(24,214)
2014
As of September 30,
2013
(in thousands)
2012
103,179
1,594
25,022
1,380
14,350
2,049
147,574
$
$
— $
18,876
61,391
398
80,665
—
5,380
5,380
86,045
$
95,994
1,000
19,266
—
19,126
1,115
136,501
89
25,512
75,889
468
101,958
—
2,434
2,434
104,392
$
$
$
$
92,409
739
27,546
—
26,138
709
147,541
19,517
8,404
78,372
367
106,660
4,902
3,316
8,218
114,878
0.69%
0.99%
1.18%
45,988
$
110,292
$
160,515
6,422,347
94,195
1,689,163
122,218
1,751,747
1,023,748
(37,533)
11,065,885
11,111,873
$
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
$
$
$
$
$
$
$
$
Net loan (charge-offs)/recoveries:
C&I loans
Commercial real estate (“CRE”) loans
Residential mortgage loans
SBL
Total
Allowance for loan losses:
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
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
Total other real estate owned
Total nonperforming assets
Total nonperforming assets, net as a % of RJ Bank total assets
Total loans:
Loans held for sale, net(1)
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Net unearned income and deferred expenses
Total loans held for investment
Total loans
(1) Net of unearned income and deferred expenses.
53
Index
The following table presents RJ Bank’s allowance for loan losses by loan category:
2014
Loan
category as
a % of total
loans
receivable
Allowance
As of September 30,
2013
Loan
category as
a % of total
loans
receivable
Allowance
($ in thousands)
2012
Loan
category as
a % of total
loans
receivable
Allowance
$
$
—
87,551
1,307
21,061
1,380
14,340
2,044
19,891
147,574
— $
49%
1%
13%
1%
16%
9%
11%
100% $
—
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%
As of September 30,
2011
2010
Loan
category as
a % of total
loans
receivable
Loan
category as
a % of total
loans
receivable
Allowance
($ in thousands)
2% $
59%
—
11%
26%
—
2%
100% $
23
59,744
4,473
47,771
34,283
56
734
147,084
—
51%
1%
15%
32%
—
1%
100%
Allowance
$
$
5
79,687
490
30,752
33,194
20
1,596
145,744
Loans held for sale
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Foreign loans
Total
Loans held for sale
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
SBL
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,
2014
2013
2012
2011
2010
(in thousands)
Allowance for loan losses attributable to foreign loans,
beginning of year:
$
17,299
$
7,955
$
1,596
$
Provision for loan losses - foreign loans
3,337
9,696
6,242
Foreign loan charge-offs:
C&I loans
Foreign exchange translation adjustment
Allowance for loan losses attributable to foreign loans, end of
year
$
734
862
—
—
568
166
—
—
—
(745)
(56)
(296)
—
117
$
19,891
$
17,299
$
7,955
$
1,596
$
734
54
Index
Cross-border outstandings represent loans (including accrued interest), interest-bearing deposits with other banks, and any
other monetary assets which are cross-border claims according to bank regulatory guidelines for the country exposure report. 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
CRE loans
(in thousands)
Residential
mortgage
loans
SBL
Total cross-
border
outstandings (1)
64,363
$
397,743
$
— $
112,325
$
586
$
37
$
575,054
44,196
$
352,221
$
8,093
$
63,456
$
1,013
$
48
$
469,027
20,706
$
155,503
$
— $
25,099
$
1,032
$
179
$
202,519
September 30, 2014:
Canada
September 30, 2013:
Canada
September 30, 2012:
Canada
$
$
$
(1) Excludes any hedged, non-U.S. currency amounts.
Year ended September 30, 2014 compared with the year ended September 30, 2013 – RJ Bank
Pre-tax income in the RJ Bank segment decreased $25 million, or 9%, compared to the prior year. The decrease in pre-tax
income was primarily attributable to a $19 million, or 24%, increase in non-interest expenses (excluding the provision for loan
losses) and an increase of $11 million, or 429%, in the provision for loan losses, offset by a $5 million increase in net revenues.
The increase in net revenues was attributable to an $8 million increase in net interest income offset by a $3 million decrease in
other income.
Net interest income increased $8 million as a result of a $1.2 billion increase in average interest-earning banking assets offset
by a decrease in the net interest margin. The increase in average interest-earning banking assets was driven by a $1.4 billion
increase in average loans with average corporate loans increasing $1.1 billion, or 17%, and average SBL increasing $337 million,
or 76%. The net interest margin decreased to 2.98% from 3.25% primarily as a result of the decrease in the yield of the average
interest-earning assets. The yield on interest-earning banking assets decreased to 3.04% from 3.34% due to a decline in the loan
portfolio yield. The loan portfolio yield decreased primarily due to a reduction in the corporate loan portfolio yield resulting from
lower yields on new loans and refinancings as well as lower corporate loan fee income. The residential mortgage loan portfolio
yield declined due to adjustable rate loans resetting at lower rates.
Corresponding to the increase in average interest-earning banking assets, average interest-bearing banking liabilities increased
$1.2 billion to $10.5 billion.
The decrease in other income as compared to the prior year was primarily due to a $3 million decline in gains from the sale
of held for sale loans due to lower residential mortgage loan originations, and a $2 million increase in foreign currency losses,
which were partially offset by a $2 million increase in bank-owned life insurance valuation gains.
The increase in provision for loan losses resulted from significant loan portfolio growth, which was partially offset by 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 reduction in delinquent residential mortgage loans. These credit characteristics
reflected the positive impact from improved economic conditions, which have resulted in a decline in the criticized loan balance
and nonperforming assets as a percentage of total assets. In addition, net loan charge-offs decreased $12 million, or 87%, to $2
million, which was primarily attributable to improved credit characteristics within both the CRE and residential mortgage loan
portfolios.
The $19 million increase in non-interest expenses (excluding the provision for loan losses) as compared to the prior year was
primarily attributable to a $4 million, or 14%, increase in affiliate deposit account servicing fees related to increased deposit
balances, a $4 million or 75% increase in FDIC insurance premiums due to higher deposit balances and assessment rates, a $4
million, or 16%, increase in compensation and benefits related to staff additions, a $2 million increase in SBL affiliate fees, and
a $1 million, or 39%, increase in communications and information processing expense.
55
Index
Year ended September 30, 2013 compared to the year ended September 30, 2012 – RJ Bank
Pre-tax income generated by the RJ Bank segment in fiscal year 2013 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 in fiscal year 2013 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 in fiscal year 2013, average interest-bearing banking liabilities
increased $1.2 billion to $9.3 billion.
The decrease in other income in fiscal year 2013 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 in fiscal year 2013 resulted from improved credit quality in the loan
portfolio including a decrease in corporate criticized loans, the favorable resolution of corporate problem loans, lower 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.
The $7 million increase in non-interest expenses in fiscal year 2013 (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 $1 million increase in affiliate fee expenses related to our securities based lending business.
56
Index
The following table presents average balance, interest income and expense, the related interest yields and rates, and interest
spreads for RJ Bank for the years indicated:
2014
2013
2012
Year ended September 30,
Average
balance
Interest
inc./exp.
Average
yield/
cost
Average
balance
Interest
inc./exp.
($ in thousands)
Average
yield/
cost
Average
balance
Interest
inc./exp.
Average
yield/
cost
$
107,898
$
2,705
2.51% $
155,901
$
3,519
2.26% $
127,594
$
2,878
2.25%
Interest-earning banking
assets:
Loans, net of unearned income (1)
Loans held for sale - all
domestic
Loans held for investment:
Domestic:
C&I loans
4,854,911
176,820
CRE construction loans
CRE loans
Tax-exempt loans (2)
51,361
1,249,124
44,150
Residential mortgage loans
1,751,584
SBL
Foreign:
779,872
2,346
37,156
1,454
51,409
21,843
C&I loans
945,799
38,778
CRE construction loans
CRE loans (4)
Residential mortgage loans
SBL
42,594
217,461
2,099
1,866
2,763
8,537
64
67
Total loans, net
10,048,719
343,942
Agency MBS
297,933
2,622
127,022
979,978
3,164
2,558
Non-agency collateralized
mortgage obligations
Cash and cash equivalents
FHLB stock, FRB stock, and
other
Total interest-earning
banking assets
Non-interest-earning banking
assets:
3.61%
4.50%
2.93%
5.07%
2.90%
2.76%
4.04%
6.40%
3.87%
3.00%
3.57%
3.39%
0.88%
2.49%
0.28%
4,520,070
190,910
41,928
935,058
—
1,711,968
443,042
623,554
21,240
148,768
1,869
1,615
2,140
30,515
—
52,285
13,143
31,799
1,488
10,036
66
63
8,605,013
335,964
346,665
2,902
154,933
1,109,857
4,155
2,812
4.19%
5.03%
3.22%
—
3.01%
2.93%
5.01%
6.91%
6.65%
3.49%
3.88%
3.86%
0.84%
2.68%
0.25%
4,342,000
192,277
16,314
708
776,908
25,832
—
1,732,498
87,906
—
57,220
2,668
324,320
23,571
21,488
70,866
1,534
404
4,392
9,590
59
16
7,501,832
319,211
266,768
2,211
180,246
997,877
5,527
2,453
4.36%
4.27%
3.27%
—
3.25%
2.98%
7.15%
20.10% (3)
13.31%
3.79%
3.90%
4.20%
0.83%
3.07%
0.24%
95,806
3,018
3.15%
85,811
2,235
2.60%
125,587
2,281
1.81%
11,549,458
$355,304
3.04% 10,302,279
$ 348,068
3.34%
9,072,310
$331,683
3.61%
Allowance for loan losses
(140,544)
Unrealized loss on available for
sale securities
Other assets
Total non-interest-earning
banking assets
(9,338)
289,322
139,440
Total banking assets
$11,688,898
(146,474)
(11,723)
268,471
110,274
$10,412,553
(continued on next page)
(146,263)
(38,863)
247,805
62,679
$ 9,134,989
57
Index
Interest-bearing banking
liabilities:
Deposits:
2014
Year ended September 30,
2013
2012
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
$
329,176
$
6,126
1.86% $
305,293
$
6,239
2.04% $
296,674
$
6,501
2.19%
Money market, savings,
and NOW accounts (5)
FHLB advances and other
Total interest-bearing
banking liabilities
9,790,257
337,603
1,833
588
0.02%
0.17%
8,827,966
129,144
2,793
192
0.03%
0.15%
7,736,094
51,834
3,060
98
0.04%
0.19%
10,457,036
$
8,547
0.08%
9,262,403
$
9,224
0.10%
8,084,602
$
9,659
0.12%
Non-interest-bearing banking
liabilities
36,827
Total banking liabilities
10,493,863
Total banking
shareholder’s equity
1,195,035
57,604
9,320,007
1,092,546
76,000
8,160,602
974,387
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
$ 11,688,898
$10,412,553
$ 9,134,989
$ 1,092,422
$ 346,757
$ 1,039,876
$ 338,844
$
987,708
$ 322,024
2.97%
2.98%
110.45%
1.35%
13.21%
10.22%
3.24%
3.25%
111.23%
1.63%
15.49%
10.49%
3.49%
3.50%
112.22%
1.69%
15.84%
10.67%
(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, 2014, 2013 and 2012 was $34 million, $48 million, and $51 million, respectively.
(2) The yield is presented on a tax-equivalent basis utilizing the federal statutory tax rate of 35%.
(3) The CRE Construction yield was positively impacted by a loan payoff with a significant unearned discount.
(4) The CRE yield for the year ended September 30, 2014 as compared to prior years was negatively impacted by lower fee income.
(5) Negotiable Order of Withdrawal (“NOW”) account.
58
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,
Interest revenue:
Interest-earning banking assets:
Loans, net of unearned income:
Loans held for sale - all domestic
Loans held for investment:
Domestic:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Foreign:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
SBL
Agency MBS
Non-agency collateralized mortgage obligations
Cash and cash equivalents
FHLB stock, FRB 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
$
2014 compared to 2013
Increase (decrease) due to
Rate
Total
Volume
2013 compared to 2012
Increase (decrease) due to
Rate
Total
Volume
(in thousands)
$
(1,084) $
270
$
(814) $
638
$
3
$
641
14,142
482
10,249
1,454
1,210
9,992
16,433
1,496
4,634
8
9
(408)
(748)
(329)
260
57,800
(28,232)
(276)
(3,608)
—
(2,086)
(1,292)
(9,454)
(221)
(6,133)
(10)
(5)
128
(243)
75
523
(50,564)
(14,090)
206
6,641
1,454
(876)
8,700
6,979
1,275
(1,499)
(2)
4
(280)
(991)
(254)
783
7,236
7,886
1,112
5,258
—
(678)
10,778
21,748
(51)
10,542
13
47
662
(776)
275
(722)
56,732
(9,253)
320
(575)
—
(4,257)
(303)
(13,520)
(2,853)
(10,096)
(6)
—
29
(596)
84
676
(40,347)
(1,367)
1,432
4,683
—
(4,935)
10,475
8,228
(2,904)
446
7
47
691
(1,372)
359
(46)
16,385
488
304
310
1,102
56,698
(601)
(1,264)
86
(1,779)
$ (48,785) $
(113)
(960)
396
(677)
7,913
$
189
432
146
767
55,965
(451)
(699)
(52)
(1,202)
$ (39,145) $
(262)
(267)
94
(435)
16,820
59
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
Total non-interest expenses
Loss before taxes and including noncontrolling
interests:
Noncontrolling interests
Pre-tax loss excluding noncontrolling interests
$
2014
12,549
—
1,340
28,314
42,203
77,456
(35,253)
43,055
—
43,055
(78,308)
5,610
(83,918)
% change
Year ended September 30,
2013
($ in thousands)
% change
(19)% $
(100)%
6 %
(73)%
(67)%
(4)%
(177)%
—
(100)%
(63)%
(11)%
15,404
3,000
1,262
106,735
126,401
80,478
45,923
43,164
73,454
116,618
(70,695)
61,618
43 % $
555 %
1 %
132 %
116 %
29 %
NM
21 %
24 %
23 %
28 %
2012
10,763
458
1,248
45,943
58,412
62,349
(3,937)
35,577
59,284
94,861
(98,798)
27,922
37 %
(132,313)
(4)%
(126,720)
Among the items impacting this segment, as more fully described in Item 1 in this report, the Other segment results include
our principal capital and private equity activities.
Year ended September 30, 2014 compared to the year ended September 30, 2013 – Other
The pre-tax loss generated by this segment decreased by approximately $48 million, or 37%, compared to the prior year.
Net revenues in this segment decreased $81 million, or 177%. The decrease is primarily attributable to a decrease in revenues
in the current year arising from our private equity portfolio investments. Approximately $74 million of prior year revenues were
associated with our indirect investment in Albion, an investment which was sold in April 2013 and therefore such revenues did
not recur in the current year. Revenues associated with the remainder of our private equity portfolio have decreased $6 million
compared to the prior year. Offsetting these decreases, we realized a $6 million increase in the current year from gains on
redemptions or sales of ARS, most notably arising from the current year redemption of Jefferson County Alabama Sewer Revenue
Refunding Warrants ARS.
Non-interest expenses decreased $74 million, or 63%. The decrease is primarily a result of a decrease in acquisition related
expenses since our integration of Morgan Keegan was substantially complete as of September 30, 2013. The acquisition related
expenses incurred in the prior year were primarily comprised of expenses associated with the integration of Morgan Keegan’s
operations into our own (see Note 3 of our Notes to Consolidated Financial Statements in this Form 10-K for additional information
on the components of the prior year expense).
The portion of revenue attributable to noncontrolling interests decreased by nearly $56 million compared to the prior year.
Of the prior year Albion revenues received, approximately $51 million related to the portion of that investment which we did not
own.
Year ended September 30, 2013 compared to the year ended September 30, 2012 – Other
The pre-tax loss generated by this segment in fiscal year 2013 increased by approximately $6 million, or 4%.
Total revenues in fiscal year 2013 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
60
Index
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 in fiscal year 2013 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 Note 15 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 in fiscal year 2013 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).
Compensation and other expenses in fiscal year 2013 increased $8 million, or 21%, over the prior year 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 in fiscal year 2013 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%.
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 SEC’s Industry Guide 3. Certain of those disclosures are as follows for the fiscal year indicated:
RJF return on average assets (1)
RJF return on average equity (2)
Average equity to average assets (3)
Dividend payout ratio(4)
2014
2.1%
12.3%
18.1%
19.3%
Year ended September 30,
2013
1.7%
10.6%
17.3%
21.7%
2012
1.5%
9.7%
16.8%
23.6%
(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 fiscal year. Average equity
is computed by adding the total equity attributable to RJF, Inc. as of each quarter-end date during the indicated fiscal 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 fiscal year, divided by two), divided by average
assets (the sum of total assets at the beginning and end of the fiscal year, divided by two).
(4) Computed as dividends declared per common share during the fiscal 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
61
Index
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, 2014 was $508 million. Cash generated by
successful operating results over the period resulted in a $586 million increase in cash. Significant changes in various other asset
and liability balances which impact cash include: a $1.58 billion decrease in assets segregated pursuant to regulations and other
segregated assets, which results in an increase in cash. Brokerage client payables and other accounts payable decreased $1.8 billion
which results in an offsetting decrease in cash. Both of these activities are largely the result of a decrease in client cash deposits,
refer to the discussion of the impact of an increase in the capacity to re-deposit client cash with unaffiliated banks who participate
in our RJBDP, as described in the statement of financial condition analysis that follows within this Item 7, for more information
regarding these activities. Other significant activities that impacted operating cash include: a decrease in securities purchased
under agreements to resell, net of securities sold under agreements to repurchase, resulted in a $207 million increase in operating
cash. RJ Ltd. significantly reduced the balances in secured call loans receivable during the fiscal year, and instead invested such
balances in depository accounts with third party Canadian financial institutions. Accrued compensation, commissions and benefits
balances increased resulting in a $72 million increase in operating cash. The increased accrual primarily results from the significant
increase in both revenues and profits over the prior year. An increase in the stock loaned, net of stock borrowed balances resulted
in a $51 million increase in operating cash. Proceeds from sales of loans held for sale, net of purchases, resulted in a $46 million
increase in operating cash. Partially offsetting these activities which resulted in increases of cash, decreases in cash resulted from
the following activities: brokerage client receivables increased $160 million primarily due to an increase in end of year client
margin balances (end of year client margin balances increased, however as noted in the analysis of net interest within this Item 7,
average client margin balances outstanding decreased this fiscal year). Trading instruments held increased $47 million. We used
$34 million in cash to fund loans provided to financial advisors, net of repayments. All other components of operating activities
combined to net an $12 million source of cash.
Investing activities resulted in the use of $2.10 billion of cash during the year ended September 30, 2014. The primary
investing activity was the use of $2.21 billion in cash to fund an increase in bank loans, net of proceeds from sales of loans held
for investment. We received proceeds from the maturation, repayment, redemption or sale of securities in our available for sale
security portfolio of $153 million, net of purchases of additional securities. All other components of investing activities combined
to net a $42 million use of cash.
Financing activities provided $1.22 billion of cash during the year ended September 30, 2014. Increases in RJ Bank deposits
provided $734 million. Proceeds from borrowed funds, net of repayments, have resulted in a $567 million increase in cash. RJ
Bank’s advances from the FHLB are the primary source of these borrowings (see Note 15 of the Notes to Consolidated Financial
Statements in this Form 10-K for additional information regarding these borrowings). We used $88 million in payment of dividends
to our shareholders. All other components of financing activities combined to net an $11 million source 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.
62
Index
Sources of Liquidity
Approximately $1.21 billion of our total September 30, 2014 cash and cash equivalents (a portion of which is invested on
behalf of the parent company by RJ&A, and a portion of which is maintained in a deposit account at RJ Bank) was available to
us without restrictions. The cash and cash equivalents held were as follows:
Cash and cash equivalents:
September 30, 2014
(in thousands)
RJF (1)
RJ&A(2)
RJ Bank (1)
RJ Ltd.
Other subsidiaries
$
Total cash and cash equivalents
$
778,855
561,594
313,364
265,857
279,393
2,199,063
(1) RJF maintains a depository account at RJ Bank which has a balance of $500 million as of September 30, 2014. This cash balance is
reflected in the RJF total, and is excluded from the RJ Bank total, since this balance is available to RJF on-demand and without
restriction.
(2) RJF has loaned $458 million to RJ&A as of September 30, 2014, 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 items arising from client
transactions. Covenants in RJ&A’s committed secured financing facilities require its net capital to be a minimum of 10% of
aggregate debit items. At September 30, 2014, RJ&A significantly exceeded both the minimum regulatory and its financing
covenants net capital requirements. At that date, RJ&A had excess net capital of approximately $406 million, of which approximately
$168 million is available for dividend while still maintaining the targeted 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. At September 30, 2014, RJ Bank was operating at 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.
63
Index
Borrowings and Financing Arrangements
The following table presents our 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, 2014:
Committed secured(1)
Financing
amount
Outstanding
balance
Uncommitted secured (1)(2) Uncommitted unsecured (1)(2)
Outstanding
Financing
balance
amount
Outstanding
balance
Financing
amount
Total
Financing
amount
Outstanding
balance
RJ&A
RJ Ltd.(3)
RJ Securities,
Inc. (4)
RJF
Total
Total number of
agreements
$
300,000
$
35,000
$ 1,750,000
$
($ in thousands)
$
201,194
375,000
—
—
39,714
—
—
92,387
—
392,387
$
$
5,000
—
40,000
—
—
$ 1,789,714
$
—
—
201,194
$
4
7
—
100,000
475,000
8
$
$
— $ 2,425,000
$
236,194
—
39,714
—
92,387
—
—
100,000
— $ 2,657,101
$
5,000
—
241,194
19
(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) This financing arrangement is primarily denominated in Canadian currency, amounts presented in the table have been converted to
U.S. dollars at the currency exchange rate in effect as of September 30, 2014.
(4) RJ Securities, Inc. is the borrower under the “Regions Credit Facility,” 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
$12 million. Of the aggregate amount, one settlement line for $9 million is guaranteed by RJF. Borrowings outstanding on these
lines of credit as of September 30, 2014 amounted to approximately $310 thousand.
RJ Bank had $500 million in FHLB advances outstanding at September 30, 2014, comprised of two $250 million floating-
rate advances, both of which are secured by a blanket lien on RJ Bank’s residential loan portfolio (see Note 15 of the Notes to
Consolidated Financial Statements in this Form 10-K for additional information regarding these borrowings). The interest rate
applicable to the FHLB advances resets on either a monthly or a quarterly basis. RJ Bank has the option to prepay each advance
without penalty on each interest reset date. RJ Bank has $641 million in immediate credit available from the FHLB as of
September 30, 2014 and total available credit of 30% of total assets, with the pledge of additional collateral to the FHLB. On
October 9, 2013, RJ Bank entered into a forward-starting advance transaction with the FHLB to borrow $25 million on October 13,
2015. Once funded, this borrowing will bear interest at the rate of 3.4%, and will mature on October 13, 2020.
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, may be terminated or
reduced at the discretion of the Fed, and would be secured by pledged C&I loans.
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, 2014, collateralized financings outstanding in the amount of $244 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 financing arrangements above)
were $35 million and $51 million, respectively, as of September 30, 2014. 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.
64
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, 2014
June 30, 2014
March 31, 2014
December 31, 2013
September 30, 2013
$
238,841
371,573
316,581
328,867
267,984
$
260,323
420,327
377,677
363,845
300,933
(in thousands)
$
244,495
286,924
377,677
345,701
300,933
$
458,158
556,806
685,402
642,940
643,422
$
495,286
707,170
674,694
658,244
709,120
446,016
508,005
637,486
638,893
709,120
At September 30, 2014, 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 $42 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
Stable
Stable
The S&P rating and outlook reflected above are as presented in their December, 2013 report.
The Moody’s rating and outlook reflected above are as presented in their July, 2014 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. One of our committed secured financing agreements having a maximum borrowing in the
amount of $100 million, 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 $220 million as
of September 30, 2014 and we are able to borrow up to 90%, or $198 million of the September 30, 2014 total, without
restriction. There are no borrowings outstanding against any of these policies as of September 30, 2014.
65
Index
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.
See the “contractual obligations” section below for information regarding our contractual obligations.
Potential impact of Morgan Keegan matters subject to indemnification by Regions on our liquidity
As more fully described in Note 3 in the Notes to Consolidated Financial Statements in this Form 10-K, the SPA provides
that in addition to customary indemnity for breaches of representations and warranties and covenants, 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 21 of the Notes to Consolidated Financial Statements in this Form 10-K, and Part I Item 3
- Legal Proceedings, in this report for further information regarding the indemnifications and the nature of the pre-Closing Date
matters).
Potential impact of on our liquidity from the scheduled maturity of corporate debt
One of our senior note issuances, the 4.25% senior notes with an aggregate principal amount of $250 million, matures in
April, 2016. At the present time, we do not intend to refinance this offering on or prior to its maturity date. Should we ultimately
elect not to refinance, the repayment of the principal on the maturity date would reduce our excess 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 clients), 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 $23.3 billion at September 30, 2014 are approximately $140 million, or 1% more than our total assets as of
September 30, 2013. Net bank loans receivable increased $2.1 billion due to significant growth of RJ Bank’s net loan portfolio
during the year. Offsetting this increase, segregated assets pursuant to federal regulations at September 30, 2014 decreased $1.58
billion compared to September 30, 2013, resulting from an increase during the current year in the capacity of the unaffiliated banks
who participate in our RJBDP to accept client cash balances under the program. With the increase in RJBDP capacity, we increased
the client cash balances re-deposited with such unaffiliated banks, which reduces the amount of brokerage client liabilities carried
on our financial statements. Securities purchased under agreements to resell and other collateralized financings decreased $263
million, as RJ Ltd. reduced its amount of secured call loans receivable (which is considered to be an other collateralized financing),
and redirected such short-term investments to cash deposits with large Canadian financial institutions (which are included in our
cash balance). The investment balance associated with our available for sale securities portfolio decreased $137 million primarily
as a result of redemptions, maturations, or sales of certain securities in the portfolio. Receivables from brokers-dealers and clearing
organizations decreased $136 million as certain receivable balances associated with our broker-dealer subsidiaries in the normal
course of their businesses which were outstanding as of September 30, 2013 were settled during the year and did not recur. Cash
and cash equivalents decreased $398 million, refer to the discussion of the various sources and uses of cash during the period in
the preceding liquidity and capital resources section of this MD&A.
Our liabilities at September 30, 2014 of $18.9 billion are $295 million, or 2% less than our liabilities as of September 30,
2013. The decrease in liabilities at September 30, 2014 compared to September 30, 2013 is primarily due to the following: a $1.99
billion decrease in brokerage client payables, which occurred due to the increase in capacity with unaffiliated banks in our RJBDP
program and the resultant increase in client cash balances that were re-deposited with unaffiliated banks, which reduces the amount
of brokerage client payable balances carried on our financial statements (refer to the related decrease in segregated assets pursuant
to federal regulations discussed in the preceding paragraph). Offsetting the decrease, bank deposit liabilities increased $734 million,
reflecting increased deposits at RJ Bank, and our net borrowings increased by $571 million, primarily resulting from $500 million
in borrowings RJ Bank made from the FHLB during the current year (refer to Note 15 of the Notes to Consolidated Financial
Statements in this Form 10-K for information regarding these borrowings).
66
Index
Contractual obligations
The following table sets forth our contractual obligations:
Total
2015
2016
2017
2018
2019
Thereafter
Year ended September 30,
(in thousands)
$ 1,190,836
$
4,086
$ 254,171
$
4,578
$
4,846
$ 305,105
$
618,050
Long-term debt obligations:
Corporate debt (1)
Loans payable of consolidated variable
interest entities(2)
Long-term portion of other borrowings(3)
Committed borrowing by RJ Bank (4)
43,877
505,216
—
17,949
5,000
13,331
8,240
—
500,000
—
(25,000)
—
3,668
216
—
689
—
—
—
—
25,000
643,050
Sub-total long-term debt obligations
1,739,929
27,035
242,502
512,818
8,730
305,794
Estimated interest on long-term debt (5)
973,030
77,929
78,528
67,651
66,391
66,108
616,423
Operating lease obligations (6)
Purchase obligations (7)
Long-term liabilities:
Time deposits (8)
Deferred compensation programs (9)
Legal liabilities associated with matters
subject to indemnification (10)
Low income housing tax credit
guarantee obligation (11)
Sub-total long-term liabilities
398,031
77,309
71,073
61,187
49,093
40,176
99,193
134,164
62,015
45,333
21,734
1,023
650
3,409
344,703
315,477
77,438
44,282
61,088
48,810
79,371
62,974
46,663
52,308
80,143
55,343
—
51,760
154,364
51,455
51,455
51,454
—
—
—
28,421
3,969
3,910
4,757
5,247
5,388
842,965
177,144
165,263
198,556
104,218
140,874
5,150
56,910
Total contractual obligations
$ 4,088,119
$ 421,432
$ 602,699
$ 861,946
$ 229,455
$ 553,602
$ 1,418,985
(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) RJ Bank entered into a forward-starting advance transaction with the FHLB to borrow $25 million on October 13, 2015.
(5) Interest computation includes scheduled interest on our senior notes, the mortgage note payable, RJ Bank’s FHLB advances (assuming
no change in the variable interest rate from that as of September 30, 2014), and RJ Bank’s committed borrowing from the FHLB, see
Note 15 and Note 17 of the Notes to Consolidated Financial Statements in this Form 10-K for information regarding the borrowings.
(6) Primarily comprised of outstanding obligations on long-term leases for office space.
(7) In the normal course of our business, we enter into contractual arrangements whereby we commit to future purchases of products or
services from unaffiliated parties. Purchase obligations for purposes of this table, include amounts associated with agreements to
purchase goods or services that are enforceable and legally binding and that specify all significant terms including: minimum quantities
to be purchased, fixed, minimum or variable price provisions, and the approximate timing of the transaction. Our most significant
purchase obligations are vendor contracts for communication services, processing services and software contracts. Most of our contracts
have provisions for early termination, for purposes of this table we have assumed we would not pursue early termination of such
contracts.
(8) See Note 14 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information.
See the following page for the continuation of the explanations to the footnotes in the above table.
67
Index
Continuation of the footnote explanations pertaining to the table on the previous page:
(9) Includes obligations, presented on a gross basis, of our Long-Term Incentive Plan, our Wealth Accumulation Plan, our Voluntary
Deferred Compensation Program, and certain historic deferred compensation plans of MK & Co. See Notes 24 and 25 of the Notes
to Consolidated Financial Statements in this Form 10-K for additional information regarding such plans. We own life insurance policies
that are not presented in this table which are utilized to fund certain of these obligations. See Note 10 of the Notes to Consolidated
Financial Statements in this Form 10-K for information regarding our investments in company-owned life insurance. We also hold
other investments that are not presented in this table to fund obligations of the historic deferred compensation plans of MK & Co., see
Note 5 of the Notes to Consolidated Financial Statements in this Form 10-K for information regarding the fair value of such investments.
(10) Regions has provided an indemnification to RJF for losses incurred in connection with Morgan Keegan legal proceedings pending as
of the closing date of our Morgan Keegan acquisition, or commenced after the closing date and related to pre-closing date matters.
See Note 21 of the Notes to Consolidated Financial Statements in this Form 10-K for further discussion. Amounts presented in this
table represent the gross liabilities for such matters, and do not reflect the related and offsetting indemnification asset. See Note 10
of the Notes to Consolidated Financial Statements in this Form 10-K for information regarding the indemnification asset. These
liabilities do not have defined maturity dates, however since we expect that all such matters will be resolved within three years, we
have assigned an equal amount of such liability balance to each of the following three years as our estimate of the timing associated
with the resolution of such matters.
(11) RJTCF has provided a guaranteed return on investment to a third party investor in one of its fund offerings, see Note 21 of the Notes
to Consolidated Financial Statements in this Form 10-K for further discussion. Amounts presented in this table represent the gross
liability associated with this guarantee obligation, and do not reflect the related and offsetting financing asset. See Note 10 of the
Notes to Consolidated Financial Statements in this Form 10-K for information regarding the offsetting financing asset.
We have made a number of investment commitments, either as commitments to fund low income housing tax credit (“LIHTC”)
project partnerships, or to venture capital or private equity partnerships. We have also made commitments to provide loans to
prospective financial advisors who have either accepted our offer, or recently recruited advisors, which have not yet been funded.
See Note 21 of the Notes to Consolidated Financial Statements in this Form 10-K for further information on these and other
commitments.
RJ Bank has entered into commitments to extend credit such as unfunded loan commitments, standby letters of credit, open
end consumer and commercial lines of credit. See Note 27 of the Notes to Consolidated Financial Statements in this Form 10-K
for further information on these and other outstanding off-balance credit-related commitments.
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, 2014 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.
Regulatory
Refer to the discussion of the regulatory environment in which RJF and its subsidiaries operate, and the potential impact on
our operations the various new rules and regulations arising from the Dodd-Frank Act, which include the Volcker Rule and the
Basel III regulatory capital rules, may have on our business, in the Item 1 Business, Regulation section in this report.
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, 2014.
RJ Ltd. is subject to the Minimum Capital Rule (Dealer Member Rule No. 17 of IIROC and the Early Warning System (Dealer
Member Rule No. 30 of IIROC)). See the discussion in Note 26 where each of these rules is described. RJ Ltd. is not in Early
Warning Level 1 or Level 2 at September 30, 2014.
RJF and RJ Bank are subject to various regulatory and 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, 2014. 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, 2014,
this RJ Bank subsidiary met the capital adequacy guideline requirements.
68
Index
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 the strong capital position of RJF and its regulated subsidiaries, we do not anticipate
these capital requirements will have any negative impact on our future business activities.
See Note 26 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, which require us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during
any reporting period in our consolidated financial statements. Management has established detailed policies and control procedures
intended to ensure the appropriateness of such estimates and assumptions and their consistent application from period to period.
For a description of our significant accounting policies, see Note 2 of the Notes to Consolidated Financial Statements in this Form
10-K.
We believe that of our accounting estimates and assumptions, those described below involve a high degree of judgment and
complexity. 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 certain 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 total comprehensive income, depending on the underlying purpose of the instrument.
We measure the fair value of our financial instruments in accordance with GAAP, which defines fair value, establishes a
framework that we use to measure fair value and provides for certain disclosures we provide about our fair value measurements
included in our financial statements. Refer to Notes 5 and 6 in our Notes to Consolidated Financial Statements in this Form 10-
K for these disclosures.
Fair value is defined by GAAP as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market
participants on the measurement date. We determine the fair values of our financial instruments and any other assets and liabilities
required by GAAP to be recognized at fair value in the financial statements as of the close of business of each financial statement
reporting period. These fair value determination processes also apply to any of our impairment tests or assessments performed for
nonfinancial instruments such as goodwill, identifiable intangible assets, certain real estate owned and other long-lived assets.
In determining 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”),
69
Index
certain collateralized mortgage obligations (“CMOs”), certain MBS, our derivative instruments, corporate loans 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 principal capital activities, certain non-
agency ABS, 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.
See Notes 5, 6, 7 and 18 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information on
our financial instruments.
Level 3 assets and liabilities
As of September 30, 2014, 9% of our total assets and 3% of our total liabilities are instruments measured at fair value on a
recurring basis, which are nearly unchanged from such measures as of September 30, 2013.
Financial instruments measured at fair value on a recurring basis categorized as Level 3 amount to $417 million as of
September 30, 2014 and represent 21% of our assets measured at fair value. Of the Level 3 assets as of September 30, 2014, our
private equity investments comprise $212 million, or 51% of the total, and our ARS positions comprise $201 million, or 48% of
the total. Our Level 3 assets decreased $52 million, or 11% as compared to the September 30, 2013 level, primarily as a result of
sales and redemptions of ARS which generated proceeds of $51.2 million and a gain of $7.1 million in the year ended September
30, 2014 (see Note 7 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information). Level 3
assets represent 9.4% of total equity as of September 30, 2014, reflecting a decrease from the 11.7% of total equity measure as of
September 30, 2013.
Financial instruments which are liabilities categorized as Level 3 amount to $58 thousand as of September 30, 2014 and
represent less than 1% of liabilities measured at fair value, which is unchanged from such measure at September 30, 2013.
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, 2014 and 2013. 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 certain financial instruments with the most significant
carrying values that are presented in our Consolidated Statements of Financial Condition as of September 30, 2014 are described
below.
70
Index
Trading instruments and trading instruments sold but not yet purchased
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. As of September 30, 2014,
7% our gross trading security assets and 70% of our gross trading securities sold but not yet purchased, are classified as Level 1
of the fair value hierarchy.
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. As of September 30, 2014, 93% our gross trading security assets and 30% of our gross trading
securities sold but not yet purchased, are classified as Level 2 of the fair value hierarchy.
Positions in illiquid trading 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. As of September 30,
2014, less than 1% of our gross trading security assets, and none of our trading instruments sold but not yet purchased, are classified
as Level 3 of the fair value hierarchy.
We enter into derivatives contracts as part of our fixed income operations in either over-the-counter market activities, or
through “matched book” activities. 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 over-the-counter market activities 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.
Fair value for our matched book derivatives are 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. We record the value of each matched book 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.
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 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.
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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”). Of the RJF AFS Securities, 64% of the portfolio is classified as Level 2 and 36% is classified as Level 3, of
the fair value hierarchy.
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 (loss) income and thereafter presented in shareholders’ equity as a component
of accumulated other comprehensive (loss) 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 more representative of fair value under the current market conditions. The fair values
for most senior non-agency securities at September 30, 2014 were based on the respective primary third party pricing service bid
quotation. Securities measured using these valuation techniques are generally classified within Level 2 of the fair value hierarchy.
ARS are long-term variable rate securities tied to short-term interest rates that were intended to be reset through a “Dutch
auction” process, which generally occurs every seven to 35 days. Holders of ARS were previously able to liquidate their holdings
to prospective buyers by participating in the auctions. During 2008, the Dutch auction process failed and holders were no longer
able to liquidate their holdings through the auction process. The fair value of the ARS holdings is estimated based on internal
pricing models. The pricing model takes into consideration the characteristics of the underlying securities, as well as multiple
inputs including the issuer and its credit quality, data from any recent trades, the expected timing of redemptions and an estimated
yield premium that a market participant would require over otherwise comparable securities to compensate for the illiquidity of
the ARS. These inputs require significant management judgment and, accordingly, these securities are classified within Level 3
of the fair value hierarchy.
For any RJF 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 (loss) 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.
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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 and comprise 51% of all of our Level 3 assets as of September 30, 2014. 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.
Goodwill impairment
Goodwill, under GAAP, must be allocated to reporting units and tested for impairment at least annually. The annual goodwill
impairment testing involves the application of significant management judgment, especially when estimating the fair value of its
reporting units.
We perform goodwill testing on an annual basis or when an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying value. We have elected December 31 as our annual goodwill
impairment evaluation date. During the quarter ended March 31, 2014, we performed a qualitative assessment evaluating the
balances as of December 31, 2013 for each reporting unit that includes an allocation of goodwill to determine whether it is more
likely than not that the carrying value of such reporting unit, including the recorded goodwill, is in excess of the fair value of the
reporting unit. In any instance in which we are unable to qualitatively conclude that it is more likely than not that the fair value
of the reporting unit exceeds the reporting unit carrying value including goodwill, a quantitative analysis of the fair value of the
reporting unit would be performed. Based upon the outcome of our qualitative assessment, we determined that no quantitative
analysis of the fair value of any reporting unit as of December 31, 2013 was required, and we concluded that none of the goodwill
allocated to any of our reporting units as of December 31, 2013 was impaired. No events have occurred since December 31, 2013
that would cause us to update our latest annual impairment testing.
Of our total September 30, 2014 goodwill balance of $295 million: $230 million arose from our fiscal year 2012 acquisition
of Morgan Keegan (now part of RJ&A, see Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K for further
information regarding the Morgan Keegan acquisition), $33 million arose from our fiscal year 2001 acquisition of Goepel
McDermid, Inc. (now RJ Ltd.), $30 million arose from our fiscal year 1999 acquisition of Roney & Co. (now part of RJ&A), and
$2 million arose from our fiscal year 2011 acquisition of Howe Barnes Hoefer & Arnett (now a part of RJ&A). This goodwill
was allocated to reporting units; $174.6 million is included in the PCG segment and $120.9 million is included in the Capital
Markets segment.
Deterioration in economic market conditions, especially those impacting revenues reported in our PCG and Capital Markets
segments, as well as increased costs arising from the effects of recent regulatory or legislative changes, may result in declines in
reporting unit performance beyond management’s current expectations. Declines in reporting unit performance, increases in equity
capital requirements, or increases in the estimated cost of equity, could cause the estimated fair values of our reporting units or
their associated goodwill to decline, which could result in a material impairment charge to earnings in a future period related to
some portion of the associated goodwill.
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Loss provisions
Loss provisions arising from legal proceedings
The recorded amount of liabilities related to legal proceedings is subject to significant management judgment. For a description
of the significant estimates and judgments associated with establishing legal liabilities, see the “Legal liabilities” section of Note
2 of the Notes to Consolidated Financial Statements in this Form 10-K.
Loss provisions arising from operations of our Broker-Dealers
The recorded amount of liabilities associated with brokerage client receivables and loans to financial advisors and certain key
revenue producers, is subject to significant management judgment. For a description of the significant estimates and judgments
associated with establishing these broker-dealer related liabilities, see the “Brokerage client receivables, loans to financial advisors
and allowance for doubtful accounts” section of Note 2 of the Notes to Consolidated Financial Statements in this Form 10-K.
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 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 Consolidated Financial Statements in this
Form 10-K for quantitative information regarding the allowance balances as of September 30, 2014.
The provision for loan losses in fiscal year 2014 includes $1.6 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 83% 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 provision for loan losses in fiscal year 2013 included $5.6 million resulting from the impact of the respective period’s
annual SNC exam. This prior year exam included a review which which represented 80% of the total held for investment corporate
loan portfolio at such time.
At September 30, 2014, the amortized cost of all RJ Bank loans was $11.1 billion and an allowance for loan losses of $147.6
million was recorded against that balance. The total allowance for loan losses is equal to 1.33% of the amortized cost of the loan
portfolio.
The uncertainty of the real estate and credit markets continues to influence the complexity involved in estimating the losses
inherent in RJ Bank’s loan portfolio. If our underlying assumptions and judgments prove to be inaccurate, the allowance for loan
losses could be insufficient to cover actual losses. In such an event, any losses would result in a decrease in our net income as well
as a decrease in the level of regulatory capital at RJ Bank.
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Income taxes
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year.
We utilize the asset and liability method to provide income taxes on all transactions recorded in the consolidated financial statements.
This method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying
amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference
is determined based on the tax rates that we expect to be in effect when the underlying items of income and expense are realized.
Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or
tax returns, 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 20 of the Notes
to Consolidated Financial Statements in this Form 10-K for further information on our uncertain tax positions.
Effects of recently issued accounting standards, and accounting standards not yet adopted
In 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 in a foreign entity. This new guidance is first effective for our financial report covering the quarter ended 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. Through September 30, 2014, we did not have any transactions with our foreign entities that fell
within the scope of this clarifying guidance, therefore we did not adopt 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 do not anticipate
that the adoption of this new guidance will have any material impact on our financial position, results of operations or disclosures.
In January 2014, the FASB issued new guidance which allows investors in Low Income Housing Tax Credit programs that
meet specified conditions to present the net tax benefits (net of amortization of the cost of the investment) within income tax
expense. The cost of the investments that meet the specified conditions will be amortized in proportion to (and over the same
period as) the total expected tax benefits, including tax credits and other tax benefits as they are realized on the tax return. This
new guidance is first effective for our financial report covering the quarter ending December 31, 2015, early adoption is permitted.
Based upon the nature of our current investments in LIHTC programs, we do not expect to meet the specified conditions which
allow for election of this accounting treatment and thus this new guidance is not anticipated to have any impact on our financial
position and results of operations.
In January 2014, the FASB issued new guidance which clarifies when banks and similar institutions (creditors) should reclassify
mortgage loans collateralized by residential real estate properties from the loan portfolio to OREO. This guidance defines when
an in-substance repossession or foreclosure has occurred and when a creditor is considered to have received physical possession
of residential real estate property collateralizing a consumer mortgage loan. This new guidance is first effective for our financial
report covering the quarter ending December 31, 2015, early adoption is permitted. We do not anticipate that this new guidance
will have any material impact on our financial position and results of operations, however, depending on the materiality upon the
adoption of this new guidance, it may impact certain of our OREO disclosures.
In April 2014, the FASB issued new guidance which changes the prior guidance regarding the requirements for reporting
discontinued operations. Under the new guidance, a disposal of a component of an entity or a group of components of an entity,
are required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major
effect on an entity’s operations and financial results when any of the following occurs: 1) the component of an entity or group of
components of an entity meets certain criteria to be classified as held for sale. 2) The component of an entity or group of components
of an entity is disposed of by sale. 3) The component of an entity or group of components of an entity is disposed of other than
by sale (for example by abandonment or in a distribution to owners in a spinoff). The new guidance requires additional disclosures
about discontinued operations that meet the above criteria. This new guidance is first effective prospectively, for all disposals of
components of an entity that occur commencing with the beginning of our fiscal year 2016, however early adoption is permitted
in certain circumstances. To the extent that we have any disposals of an entity or a group of components of an entity that fall
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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 impact, if any, this new guidance may have on our financial
position or results of operations.
In May 2014, the FASB issued new guidance regarding revenue recognition. The new guidance is a comprehensive new
revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer
at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This new guidance is
first effective for our financial report covering the quarter ending December 31, 2017, early adoption is not permitted. Upon
adoption, we may use either a full retrospective or a modified retrospective approach with respect to presentation of comparable
periods prior to the effective date, we are currently evaluating which transition approach to use. In addition, we are currently
evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.
In June 2014, the FASB issued amended guidance regarding “repo-to-maturity” transactions, as well as repurchase agreements
and securities lending agreements accounted for as secured borrowings. The new guidance requires a transferor to disclose more
information about certain transactions, including those in which it retains substantially all of the exposure to the economic returns
of the underlying transferred asset over the transaction’s term. This new guidance is first effective for our interim financial report
covering the quarter ending March 31, 2015, early adoption is not permitted. We are currently evaluating the impact the adoption
of this new guidance will have on our financial position and results of operations.
In June 2014, the FASB issued amended guidance for the accounting for share-based payments when the terms of an award
provide that a performance target could be achieved after the requisite service period. The new guidance requires that a performance
target that affects vesting of an award and that could be achieved after the requisite service period be treated as a performance
condition. This new guidance is first effective for our interim financial report covering the quarter ending December 31, 2016,
early adoption is permitted. We are currently evaluating the impact the adoption of this new guidance will have on our financial
position and results of operations.
In August 2014, the FASB issued amended guidance that requires an entity’s management to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going
concern. The new guidance: (1) provides for a definition of substantial doubt, (2) requires an evaluation every reporting period
including interim periods, (3) provides principles for considering the mitigating effect of management’s plans, (4) require certain
disclosures when substantial doubt is alleviated as a result of consideration of managements plans, (5) require an express statement
and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date
that the financial statements are issued (or available to be issued). This new guidance is first effective for our interim financial
report covering the quarter ending after December 31, 2016, with early adoption permitted. The adoption of this guidance is not
anticipated to have any impact on our consolidated financial statements or related disclosures.
In November 2014, the FASB issued amended guidance regarding the accounting for hybrid financial instruments (which in
this context would apply to any shares of RJF stock that include embedded derivative features such as conversion rights, redemption
rights, voting rights, and liquidation and dividend payment preferences) issued in the form of a share. The new guidance clarifies
how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial
instrument that is issued in the form of a share. This new guidance is first effective for our interim financial report covering the
quarter ending December 31, 2016, early adoption is permitted. We are currently evaluating the impact the adoption of this new
guidance will have on our financial position and results of operations.
In November 2014, the FASB issued guidance that provides an acquired entity with an option to apply pushdown accounting
in its separate financial statements in the reporting period in which a change-in-control event occurs. This new guidance is effective
on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-
in-control events. The adoption of this guidance is not anticipated to have any impact on our consolidated financial statements
or related disclosures, but could impact certain separately issued financial statements of our subsidiaries.
Off-Balance Sheet arrangements
Information concerning our off-balance sheet arrangements is included in Note 27 of the Notes to Consolidated Financial
Statements in this Form 10-K.
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Effects of inflation
Our assets are primarily liquid in nature and are not significantly affected by inflation. However, the rate of inflation affects
our expenses, including employee compensation, communications and occupancy, which may not be readily recoverable through
charges for services we provide to our clients.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK MANAGEMENT
Risks are an inherent part of our business and activities. Management of these risks is critical to our fiscal soundness and
profitability. Our risk management processes are multi-faceted and require communication, judgment and knowledge of financial
products and markets. We have a formal Enterprise Risk Management (“ERM”) program to assess and review aggregate risks
across the firm. Our management takes an active role in the ERM process which requires specific administrative and business
functions to participate in the identification, assessment, monitoring and control of various risks. The results of this process are
extensively documented and reported to executive management and the RJF Audit 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 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 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.
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We monitor, on a daily basis, the Value-at-Risk (“VaR”) for all of our trading portfolios. VaR is an appropriate statistical
technique for estimating potential losses in trading portfolios due to typical adverse market movements over a specified time
horizon with a suitable confidence level.
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.
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 regulatory-defined daily trading losses, which excludes fees, commissions, reserves, net interest income, and intraday
trading, as required by the MRR. We then verify that the number of times that regulatory-defined daily trading losses exceed VaR
is consistent with our expectations at a 99% confidence level. During the year ended September 30, 2014, the reported regulatory-
defined daily loss in our trading portfolios did not exceed the predicted VaR on any trading day.
Should markets suddenly become more volatile, actual trading losses may exceed 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
$
2,647
$
464
$
1,449
$
565
$
1,471
Year ended September 30, 2014
Low
Daily Average
High
VaR at September 30,
2013
2014
(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 as
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 GNMA or FNMA
MBS which are issued on behalf of various state and local HFA (see further description of these activities in the Item 1 Business,
Capital Markets, Trading section in this report). These activities result in exposure to interest rate risk. 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,
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 Notes 2 and 21 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, 2014.
See Note 18 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information regarding our
derivative financial instruments.
78
Index
Banking operations
RJ Bank maintains an earning asset portfolio that is comprised of C&I loans, tax-exempt loans, SBL, and commercial and
residential real estate loans, as well as deposits at other banks, other investments, MBS, CMOs, SBA loan securitizations and a
trading portfolio of corporate loans. Those earning assets are primarily 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 and economic value of equity (“EVE”).
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 estimates 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 may 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
-25
Net interest income
($ in thousands)
$389,430
$386,727
$385,480
$360,117
$350,009
Projected change in
net interest income
8.14%
7.39%
7.04%
—
(2.81)%
Refer to the Net Interest section of MD&A, in Item 7 of this report, 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 EVE analysis is a point in time analysis of current interest-earning assets and interest-bearing liabilities, which incorporates
all cash flows over their estimated remaining lives, discounted at current rates. The EVE approach is based on a static balance
sheet and provides an indicator of future earnings and capital levels as the changes in EVE indicate the anticipated change in the
value of future cash flows. RJ Bank monitors sensitivity to changes in EVE utilizing board approved limits. These limits set a
risk tolerance to changing interest rates and assist RJ Bank in determining strategies for mitigating this risk as it approaches these
limits.
The following table presents an analysis of RJ Bank’s estimated EVE sensitivity based on instantaneous shifts in interest rates
(expressed in basis points) using RJ Bank’s own internal asset/liability model:
Instantaneous changes in rate
Projected change in EVE
+300
+200
+100
0
-25
(7.02)%
(2.39)%
2.71%
—
(2.13)%
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Index
The following table shows the contractual maturities of RJ Bank’s loan portfolio at September 30, 2014, 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
Tax-exempt 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)
— $
148
$
41,864
$
42,012
38,278
28,961
152,752
—
2,731
1,018,711
1,241,433
1,241,433
$
3,542,103
47,772
1,257,298
—
15,094
4,991
4,867,258
4,867,406
$
2,841,966
17,462
279,113
122,218
1,733,922
46
4,994,727
5,036,591
$
6,422,347
94,195
1,689,163
122,218
1,751,747
1,023,748
11,103,418
11,145,430
$
$
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, 2014:
Loans held for sale
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
Consumer loans
Interest rate type
Fixed
Adjustable
Total(1)
(in thousands)
$
4,622
$
37,390
$
42,012
8
—
39,127
122,218
253,009
5,037
419,399
424,021
$
6,384,061
65,234
1,497,284
—
1,496,007
(2)
—
9,442,586
9,479,976
$
6,384,069
65,234
1,536,411
122,218
1,749,016
5,037
9,861,985
9,903,997
Total loans held for investment
Total loans
$
(1) Excludes any net unearned income and deferred expenses.
(2) See the “Credit risk” discussion within Item 7A of this report 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 of equity securities held for proprietary trading by RJ Ltd. during the year ended September 30,
2014 was CDN $8.7 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 certain loans held by RJ Bank denominated in Canadian currency, cash or
financial instruments denominated in either euro’s or pound sterling that are held by one of our subsidiaries domiciled in Europe,
and our investments in various foreign subsidiaries.
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Index
We have foreign exchange risk in our investment in RJ Ltd., of approximately CDN $248 million at September 30, 2014,
which is not hedged. Foreign exchange gains/losses related to this investment are primarily reflected in other comprehensive
(loss) income (“OCI”) on our Consolidated Statements of Income and Comprehensive Income.
To mitigate a portion of our risk associated with certain net investments in foreign subsidiaries, RJ Bank’s U.S. subsidiaries
hedge the foreign exchange risk related to their 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 and
thus have no financial impact. See Note 18 of the Notes to Consolidated Financial Statements in this Form 10-K for further
information regarding these derivative contracts.
During most of fiscal year 2014, we had foreign exchange risk associated with Canadian currency denominated loans held
by RJ Bank, which were not hedged. Refer to the discussion of foreign currency gains/losses in Item 7: “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in the RJ Bank segment discussion, in this report. During September
2014, RJ Bank transferred these Canadian currency denominated loans to its Canadian subsidiary, whose investment is hedged as
described in the preceding paragraph. Accordingly, RJ Bank has only an insignificant exposure to foreign exchange risk as of
September 30, 2014.
We have foreign exchange risk associated with our investment in subsidiaries located in the UK, Europe and South America.
These investments are not hedged and are not material individually or in the aggregate.
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 results from client 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 offer loans to financial advisors and certain key revenue producers, primarily for recruiting and retention purposes. We
have credit risk and may incur a loss in the event that such borrower declares bankruptcy or is no longer affiliated with us.
Historically, such losses have not been significant due to our strong advisor retention and successful collection efforts.
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
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Index
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 Consolidated Financial Statements in this Form 10-K for more information.
RJ Bank has substantial corporate, SBL 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.
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 SBL 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 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 and residential mortgage 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 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. For its SBL and residential mortgage loans, RJ Bank utilizes the credit risk rating system used by bank
regulators in measuring the credit quality of each homogeneous class of loans.
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 Consolidated Financial Statements in this Form 10-K. As RJ Bank’s loan portfolio is segregated into
six 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.
Tax-exempt: Loans in this segment are made to governmental and nonprofit entities and are generally secured by a pledge
of revenue, and in some cases, by a security interest in or a mortgage on the asset being financed. For loans to governmental
entities, repayment is expected from a pledge of certain revenues or taxes. For nonprofit entities, repayment is expected from
revenues which may include fundraising proceeds. These loans are subject to demographic risk therefore, much of the credit
assessment of tax-exempt loans is driven by the entity’s revenue base and general economic environment. Adverse
developments in either of these areas may have a negative effect on the credit quality of 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.
SBL: Loans in this segment are 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
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Index
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 2014 corporate profit levels continued to improve 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. The volatility in residential home values in certain geographies has continued to have an impact on
residential mortgage loan performance. All of these factors have a potentially negative impact on loan performance and net
charge-offs. However, during fiscal year 2014, corporate borrowers have continued to access the markets for new equity and debt.
Several factors were taken into consideration in evaluating the allowance for loan losses at September 30, 2014, 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
Charge-offs:
C&I loans
CRE loans
Residential mortgage loans
SBL
Total charge-offs
Recoveries:
C&I loans
CRE loans
Residential mortgage loans
SBL
Total recoveries
Net charge-offs
Foreign exchange translation adjustment
Allowance for loan losses, end of year
2014
$
136,501
13,565
(1,845)
(16)
(2,015)
—
(3,876)
16
80
1,998
35
2,129
(1,747)
(745)
147,574
$
For the year ended September 30,
2011
2012
2013
($ in thousands)
$ 145,744
25,894
$ 147,541
2,565
$
147,084
33,655
2010
$
150,272
80,413
(813)
(9,599)
(6,771)
(254)
(17,437)
(10,486)
(2,000)
(15,270)
(96)
(27,852)
117
1,680
2,299
32
4,128
(13,309)
(296)
$ 136,501
—
1,074
2,543
21
3,638
(24,214)
117
$ 147,541
$
(458)
(15,204)
(22,501)
(255)
(38,418)
—
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
Allowance for loan losses to total bank loans
outstanding
1.33%
1.52%
1.81%
2.18%
2.36%
The primary factors impacting the provision for loan losses during the year were significant loan portfolio growth, which was
partially offset by a decrease in corporate criticized loans including the favorable resolution of corporate problem loans, lower
LTV ratios in the residential mortgage loan portfolio, and a reduction in delinquent residential mortgage loans. The allowance
for loan losses of $147.6 million as of September 30, 2014 increased $11.1 million from the prior year due to significant loan
growth, yet reflected the positive impact from improved economic conditions as the allowance for loan losses to total bank loans
outstanding declined to 1.33% at September 30, 2014 from 1.52% at September 30, 2013.
The current year’s provision for loan loss also includes $1.6 million resulting from the impact of the banking regulators’
annual SNC exam. The prior year’s provision for loan losses included $5.6 million resulting from the impact of the respective
period’s annual SNC exam (see the “loan loss provisions arising from operations of RJ Bank” section of the Critical Accounting
Estimates in this Item 7, for additional information regarding the annual SNC exam).
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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:
2014
For the year ended September 30,
2013
2012
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
$
$
(1,829)
64
(17)
35
(1,747)
($ in thousands)
0.03% $
—
—
—
0.02% $
(696)
(7,919)
(4,472)
(222)
(13,309)
0.01% $
0.73%
0.26%
0.05%
0.15% $
(10,486)
(926)
(12,727)
(75)
(24,214)
0.22%
0.11%
0.73%
0.08%
0.32%
For the year ended September 30,
2010
2011
Net loan
charge-off
amount
% of avg.
outstanding
loans
Net loan
charge-off
amount
% of avg.
outstanding
loans
$
$
(458)
(13,534)
(20,757)
(246)
(34,995)
($ in thousands)
0.01% $
1.70%
1.12%
3.55%
0.56% $
—
(54,053)
(29,548)
—
(83,601)
—
5.56%
1.34%
—
1.30%
C&I loans
CRE loans
Residential mortgage loans
SBL
Total
C&I loans
CRE loans
Residential mortgage loans
SBL
Total
The level of charge-off activity is a factor that is considered in evaluating the potential for and severity of future credit losses.
The 87% decline in net charge-offs compared to the prior year was primarily attributable to reductions in net charge-offs within
the CRE and residential mortgage loan portfolios. The net charge-offs in the residential mortgage loan portfolio in fiscal year
2014 reflect recoveries of $2 million, which are becoming prevalent in the residential mortgage loan portfolio as home price
appreciation over the past several quarters has resulted in loan balances being collected through sale or refinance proceeds that
exceed written down balances.
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Index
The table below presents nonperforming loans and total allowance for loan losses:
September 30, 2014
September 30, 2013
September 30, 2012
Nonperforming
loan balance
Allowance
for
loan losses
balance
Nonperforming
loan balance
Allowance
for
loan losses
balance
Nonperforming
loan balance
Allowance
for
loan losses
balance
(in thousands)
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total
Total nonperforming loans
as a % of RJ Bank total
loans
$
$
— $
—
18,876
—
61,789
—
80,665
$
(103,179) $
(1,594)
(25,022)
(1,380)
(14,350)
(2,049)
(147,574) $
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)
0.73%
1.14%
1.31%
September 30, 2011
September 30, 2010
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
SBL
Total
$
$
Total nonperforming loans as a % of RJ Bank total loans
1.99%
— $
(in thousands)
(5) $
— $
(23)
25,685
—
15,842
91,796
—
133,323
(81,267)
(490)
(30,752)
(33,210)
(20)
(145,744) $
$
—
—
67,901
86,082
—
153,983
2.47%
$
(60,464)
(4,473)
(47,771)
(34,297)
(56)
(147,084)
The level of nonperforming loans is another indicator of potential future credit losses. The amount of nonperforming loans
decreased 21% during the year ended September 30, 2014. This decrease was primarily due to a $15 million reduction in
nonperforming residential mortgage loans and a $7 million reduction in nonperforming CRE loans. Included in nonperforming
residential mortgage loans are $51 million in loans for which $27.9 million in charge-offs were previously recorded, resulting in
less exposure within the remaining balance.
The nonperfoming loans above excludes $13.5 million, $10.2 million, $12.9 million, $10.3 million, and $8.2 million as of
September 30, 2014, 2013, 2012, 2011 and 2010 respectively, of residential troubled debt restructurings (“TDR”) which were
returned to accrual status in accordance with our policy.
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:
SBL and residential mortgage 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 80% is for their primary residences. Approximately 20% of the first lien residential
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Index
mortgage loans are ARMs with interest-only payments based on a fixed rate for an initial period of the loan, typically five to seven
years, then become fully amortizing, subject to annual and lifetime interest rate caps. A high percentage of our originated 15 or
30-year fixed-rate mortgage loans are sold in the secondary market. RJ Bank’s SBL portfolio is comprised of loans fully
collateralized by client’s marketable securities and represents approximately 9% of RJ Bank’s total loan portfolio. The underwriting
policy for RJ Bank’s SBL 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 comprised of approximately 420 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’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, and tax-exempt 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
C&I, CRE and CRE construction loans in the portfolio, there is no additional credit risk with syndicated loans as compared to any
other C&I, CRE and CRE construction loan in RJ Bank’s corporate loan portfolio. RJ Bank’s tax-exempt loans are long-term
loans to governmental and nonprofit entities. These loans generally have lower overall credit risk, but are subject to other risks
that are not usually present with corporate clients including the risk associated with the constituency served by a local government
and the risk in ensuring an obligation has appropriate tax treatment. The remainder of the corporate loan portfolio is comprised
of smaller participations and direct loans. There are no subordinated loans or mezzanine financings in the corporate loan portfolio.
Regardless of the source, all corporate 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, municipality demographics, 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, in some instances are secured by mortgages on specific real estate, and with respect to tax-exempt
loans, are generally secured by a pledge of revenue. In a limited number of transactions, loans in the portfolio are extended on
an unsecured basis. In addition, all corporate loans are subject to RJ Bank’s regulatory review.
Risk monitoring process
Another component of the credit risk strategy at RJ Bank is the ongoing risk monitoring and review processes for all residential,
SBL and corporate credit exposures. There are various other factors included in these processes, depending on the loan portfolio.
SBL and residential mortgage loans
We track and review many factors to monitor credit risk in RJ Bank’s SBL and residential mortgage 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
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Index
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.
The current average estimated LTV is approximately 60% for the total residential mortgage loan portfolio. Residential
mortgage loans with estimated LTVs between 100% and 120% represent only 2% of the residential mortgage loan portfolio and
residential mortgage loans with estimated LTVs in excess of 120% represent less than 1% of the 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 SBL is monitored on a daily basis. Collateral adjustments are made by the
borrower as necessary to ensure RJ Bank’s loans are adequately secured, resulting in minimizing its credit risk.
Residential mortgage loan delinquency levels are elevated by historical standards at RJ Bank due to the economic downturn
and the high level of unemployment, however, the levels have improved during fiscal year 2014. Our SBL portfolio, however, has
not experienced high levels of delinquencies to date. At September 30, 2014 and September 30, 2013, there were no delinquent
SBL.
At September 30, 2014, loans over 30 days delinquent (including nonperforming loans) decreased to 2.34% of residential
mortgage loans outstanding, compared to 2.87% over 30 days delinquent at September 30, 2013. Additionally, our September 30,
2014 percentage compares favorably to the national average for over 30 day delinquencies of 7.31% as most recently reported by
the Fed. RJ Bank’s significantly lower delinquency rate as compared to its peers is the result of both our uniform underwriting
policies and the lack of non-traditional loan products and subprime loans.
The following table presents a summary of delinquent residential mortgage loans:
Delinquent residential loans (amount)
90 days or
more
Total(1)
30-89 days
Delinquent residential loans as a percentage
of outstanding loan balances
90 days or
more
30-89 days
Total(1)
($ in thousands)
September 30, 2014
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
$
Total residential mortgage loans $
September 30, 2013
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
$
Total residential mortgage loans $
4,756
57
4,813
6,824
—
6,824
$
$
$
$
35,803
398
36,201
43,004
372
43,376
$
$
$
$
40,559
455
41,014
49,828
372
50,200
0.27%
0.28%
0.27%
0.40%
—
0.39%
2.07%
1.96%
2.06%
2.49%
1.66%
2.48%
2.34%
2.24%
2.34%
2.89%
1.66%
2.87%
(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 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 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.
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Credit risk is also managed by diversifying the residential mortgage loan portfolio. The geographic concentrations (top five
states) of RJ Bank’s one-to-four family residential mortgage loans are as follows:
September 30, 2014
September 30, 2013
($ outstanding as a % of RJ Bank total assets)
2.9%
2.0%
0.9%
0.7%
0.6%
FL
CA (1)
NY
NJ
TX
3.0%
2.4%
1.2%
0.8%
0.7%
FL
CA (1)
NY
NJ
VA
(1) The concentration ratio for the state of California excludes 1.0% for September 30, 2014 and 1.4% for September 30, 2013 for loans
purchased from a large investment grade institution that have full repurchase recourse for any delinquent loans.
Loans where borrowers may be subject to payment increases include adjustable rate mortgage loans with terms that initially
require payment of interest only. Payments may increase significantly when the interest-only period ends and the loan principal
begins to amortize. At September 30, 2014 and September 30, 2013, these loans totaled $307 million and $363 million, respectively,
or approximately 20% of the residential mortgage loan portfolio during both time periods. At September 30, 2014, the balance
of amortizing, former interest-only, loans totaled $313.6 million. The weighted average number of years before the remainder of
the loans, which were still in their interest-only period at September 30, 2014, begins amortizing is 2.6 years. 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, 2014
(in thousands)
$
$
195,347
9,365
7,219
23,863
22,119
49,160
307,073
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, 2014
66%/754
September 30, 2013
66%/754
(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,
municipality demographics, 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 in this
report, for additional information on RJ Bank’s corporate loan portfolio and allowance for loan loss policies.
At September 30, 2014, other than loans classified as nonperforming, there was one government-guaranteed loan totaling
$124 thousand that was delinquent greater than 30 days.
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Credit risk is also managed by diversifying the corporate loan portfolio. RJ Bank’s corporate loan portfolio does not contain
a significant concentration in any single industry. The industry concentrations (top five categories) of RJ Bank’s corporate loans
are as follows:
September 30, 2014
September 30, 2013
($ outstanding as a % of RJ Bank total assets)
3.9% Pharmaceuticals
3.6% Office
3.2% Automotive/transportation
3.2% Retail real estate
3.0% Hospitality
3.5% Media communications
3.4% Business systems and services
3.3% Automotive/transportation
3.1% Pharmaceuticals
3.1% Retail real estate
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 report 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 including cyber security incidents (see the section entitled “Our
businesses depend on technology” in Item 1A, Risk Factors in this report for a discussion of certain cyber security risks). 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.
We have established an Operational Risk Management Committee, which is chaired by our Chief Operating Officer and is
comprised of senior managers, to review and address operational risks across our businesses. The committee establishes risk
appetite levels for major operational risks, monitors operating unit performance for adherence to defined risk tolerances, and
establishes policies for risk management at the enterprise level.
Regulatory and legal risk
We have comprehensive procedures addressing regulatory capital requirements, sales and trading practices, use of and
safekeeping of client 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.
A Compliance and Standards Committee comprised of senior executives meets monthly to consider policy issues. The
committee reviews material client or 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
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Index
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.
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.
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 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 report.
Legal risk includes the risk of PCG client 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
in this report and Note 21 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 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” in this report and in Note 2 of our Notes to Consolidated Financial Statements within this Form 10-
K.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Table of Contents
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Note 1 - Introduction and basis of presentation
Note 2 - Summary of significant accounting policies
Note 3 - Acquisitions
Note 4 - Cash and cash equivalents, assets segregated pursuant to regulations, and deposits with clearing
organizations
Note 5 - Fair value
Note 6 - Trading instruments and trading instruments sold but not yet purchased
Note 7 - Available for sale securities
Note 8 - Receivables from and payables to brokerage clients
Note 9 - Bank loans, net
Note 10 - Prepaid expenses and other assets
Note 11 - Variable interest entities
Note 12 - Property and equipment
Note 13 - Goodwill and identifiable intangible assets
Note 14 - Bank deposits
Note 15 - Other borrowings
Note 16 - Loans payable of consolidated variable interest entities
Note 17 - Corporate debt
Note 18 - Derivative financial instruments
Note 19 - Disclosure of offsetting assets and liabilities, collateral and encumbered assets
Note 20 - Income taxes
Note 21 - Commitments, contingencies and guarantees
Note 22 - Other comprehensive (loss) income
Note 23 - Interest income and interest expense
Note 24 - Employee share-based and other compensation
Note 25 - Non-employee share-based and other compensation
Note 26 - Regulations and capital requirements
Note 27 - Financial instruments with off-balance sheet risk
Note 28 - Earnings per share
Note 29 - Segment information
Note 30 - Condensed financial information (parent company only)
Supplementary data
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93
95
96
97
99
100
118
120
121
132
133
138
138
147
147
150
150
154
155
156
157
157
161
163
166
170
172
172
176
178
181
183
183
186
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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” or “Raymond James”) as of September 30, 2014 and 2013, 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, 2014. 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 as of September 30, 2014 and 2013, and the results of its operations and its cash flows for each of the years
in the three-year period ended September 30, 2014, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Raymond James’ internal control over financial reporting as of September 30, 2014, based on criteria established in Internal
Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and
our report dated November 25, 2014 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
/s/ KPMG LLP
Tampa, Florida
November 25, 2014
Certified Public Accountants
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
2014
2013
(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)
$
2,199,063
$
2,489,264
446,016
679,393
562,289
211,666
215,751
323,337
2,126,804
158,988
10,964,299
107,116
424,928
544,180
150,457
655,256
235,858
245,401
231,325
354,261
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
$
23,325,652
$
23,186,122
See accompanying Notes to Consolidated Financial Statements.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(continued from previous page)
September 30,
2014
2013
($ in thousands)
Liabilities and equity:
Trading instruments sold but not yet purchased, at fair value
$
238,400
$
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 21)
Equity
244,495
323,337
3,956,104
417,383
10,028,924
216,530
763,235
654,916
814,359
43,877
1,190,836
18,892,396
220,656
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
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 146,103,658 at
September 30, 2014 and 144,559,772 at September 30, 2013
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 4,900,266 common shares at September 30, 2014 and
5,002,666 common shares at September 30, 2013
Accumulated other comprehensive (loss) income
Total equity attributable to Raymond James Financial, Inc.
Noncontrolling interests
Total equity
Total liabilities and equity
1,444
1,239,046
3,023,845
(121,211)
(1,888)
4,141,236
292,020
4,433,256
1,429
1,136,298
2,635,026
(120,555)
10,726
3,662,924
335,413
3,998,337
$
23,325,652
$
23,186,122
See accompanying Notes to Consolidated Financial Statements.
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Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Year ended September 30,
2013
(in thousands, except per share amounts)
2012
2014
Revenues:
Securities commissions and fees
Investment banking
Investment advisory fees
Interest
Account and service fees
Net trading profit
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
Other
Total non-interest expenses
Income including noncontrolling interests and before provision for income taxes
Provision for income taxes
Net income including noncontrolling interests
Net (loss) income 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 (loss) 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 recognized in other comprehensive (loss) income
Net impairment losses recognized in other revenue
$
$
$
$
$
$
$
$
3,241,525
340,821
362,362
480,886
407,707
64,643
67,516
4,965,460
(104,091)
4,861,369
3,312,635
252,694
161,683
39,875
139,672
52,412
13,565
—
172,885
4,145,421
715,948
267,797
448,151
(32,097)
480,248
3.41
3.32
139,935
143,589
$
3,007,711
288,251
282,755
473,599
363,531
34,069
145,882
4,595,798
(110,371)
4,485,427
3,054,027
257,366
157,449
40,253
124,387
37,112
2,565
73,454
144,904
3,891,517
593,910
197,033
396,877
29,723
367,154
2.64
2.58
137,732
140,541
$
$
$
2,535,484
223,579
223,850
453,258
319,718
55,538
86,473
3,897,900
(91,369)
3,806,531
2,620,058
195,895
134,199
39,422
118,712
29,210
25,894
59,284
115,936
3,338,610
467,921
175,656
292,265
(3,604)
295,869
2.22
2.20
130,806
131,791
$
480,248
$
367,154
$
295,869
6,021
(18,635)
467,634
4,966
(4,993)
$
$
15,042
(13,763)
368,433
3,755
(4,391)
$
$
(27) $
(636) $
12,886
6,166
314,921
17,144
(22,419)
(5,275)
$
$
$
(1) All components of other comprehensive (loss) income, net of tax, are attributable to Raymond James Financial, Inc.
See accompanying Notes to Consolidated Financial Statements.
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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
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 from share-based payments
Purchase of additional equity interest in subsidiary
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
Balance, end of year
Accumulated other comprehensive (loss) income: (2)
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 translations and net investment hedges, net of tax
Balance, end of year
Total equity attributable to Raymond James Financial, Inc.
Noncontrolling interests:
Balance, beginning of year
Net (loss) income attributable to noncontrolling interests
Capital contributions
Distributions
Consolidation of acquired entity
Consolidation of private equity partnerships
Derecognition resulting from acquisition of additional interests
Other
Balance, end of year
Total equity
Year ended September 30,
2014
2013
2012
(in thousands, except per share amounts)
$
$
1,429
—
15
1,444
$
1,404
—
25
1,429
1,271
111 (1)
22
1,404
1,136,298
—
20,234
8,780
65,410
7,437
—
887
1,239,046
2,635,026
480,248
(91,133)
(296)
3,023,845
(120,555)
(2,173)
1,517
(121,211)
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)
2,635,026
(118,762)
(8,214)
6,421
(120,555)
565,135
362,712 (1)
16,150
23,181
52,538
2,613
1,224
6,735
1,030,288
2,125,818
295,869
(70,286)
(4,838)
2,346,563
(95,000)
(19,416)
(4,346)
(118,762)
10,726
9,447
(9,605)
6,021
(18,635)
(1,888)
4,141,236
335,413
(32,097)
22,565
(27,093)
—
—
—
(6,768)
292,020
4,433,256
$
$
$
15,042
(13,763)
10,726
3,662,924
411,342
29,723
30,052
(148,871)
7,592 (3)
—
4,126
1,449
335,413
3,998,337
$
$
$
12,886
6,166
9,447
3,268,940
324,226
(3,604)
38,073
(18,294)
—
78,394
(665)
(6,788)
411,342
3,680,282
$
$
$
(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) All components of other comprehensive (loss) income are attributable to Raymond James Financial, Inc.
(3) 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.
96
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income attributable to Raymond James Financial, Inc.
Net (loss) income 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,
2014
2013
2012
(in thousands)
$
480,248
$
367,154
$
295,869
(32,097)
448,151
29,723
396,877
(3,604)
292,265
64,163
(35,171)
66,359
(31,789)
51,445
2,044
(22,804)
(80,631)
(35,462)
26,414
69,609
—
35,343
13,944
61,862
6,933
32,013
32,605
55,729
—
26,342
Assets segregated pursuant to regulations and other segregated assets
1,575,563
(1,280,628)
889,684
Securities purchased under agreements to resell and other collateralized financings, net of securities
sold under agreements to repurchase
Stock loaned, net of stock borrowed
(Loans provided to) repayment of loans, to financial advisors, net
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 bank loans, net
(Purchases) redemptions of Federal Home Loan Bank/Federal Reserve Bank stock, net
Proceeds from sales of loans held for investment
Sales (purchases) of private equity and other investments, net
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
206,666
50,767
(34,067)
(159,562)
(46,526)
19,330
(191,207)
(15,731)
11,486
88,162
252,101
(66,448)
(209,656)
(357,956)
(229,259)
144,047
102,876
12,914
(1,800,957)
1,307,607
(424,867)
72,294
50,318
59,987
45,811
(7,437)
41,167
(2,590)
507,587
659,805
(18,836)
(2,613)
391,289
(60,149)
(72,879)
(77,515)
(2,391,311)
(1,063,301)
(1,523,071)
(22,161)
183,279
42,832
(1,305)
104,407
49,937
(286)
(2,007)
1,067
198,676
229,136
(62,102)
117,435
4,793
1,651
31,049
71,640
(82,707)
(249,379)
173,189
—
(800)
(6,450)
(1,073,621)
$ (2,096,764) $
(651,974) $ (2,731,215)
(continued on next page)
See accompanying Notes to Consolidated Financial Statements.
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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
Year ended September 30,
2014
2013
2012
(in thousands)
$
596,167
$
258,776
$
1,256,459
(29,187)
(309,597)
(550,564)
Proceeds from issuance of shares in registered public offering
—
—
Repayments of borrowings by consolidated variable interest entities which are real estate partnerships
(21,839)
(22,613)
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 financing activities
Currency adjustment:
Effect of exchange rate changes on cash
Net (decrease) increase 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 paid for income taxes
Non-cash transfers of loans to other real estate owned
726
—
33,633
733,553
(8,427)
(88,102)
7,437
23,485
(553)
55,997
695,658
(11,718)
(76,593)
2,590
362,823
(23,145)
30,546
(4,017)
33,811
860,391
(20,860)
(68,782)
2,613
1,223,961
615,432
1,879,275
(32,337)
(397,553)
(6,667)
616,596
976
(459,675)
2,596,616
1,980,020
2,439,695
$
2,199,063
$
2,596,616
$
1,980,020
$
$
$
101,090
319,279
6,213
$
$
$
106,818
189,730
3,072
$
$
$
91,453
176,539
12,653
See accompanying Notes to Consolidated Financial Statements
98
Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2014
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 accompanying 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.
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 certain 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.
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 bolstered 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
expanded 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.
Significant subsidiaries
As of September 30, 2014, 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”) a registered investment
advisor, and Raymond James Bank, N.A. (“RJ Bank”) a national bank.
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Index
Adoption of new accounting guidance
In December 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance requiring additional disclosures
regarding the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative
instruments. This guidance was further amended in January 2013. Specifically, this new guidance requires additional information
about derivatives, repurchase agreements, reverse repurchase agreements, and securities borrowing and securities lending
transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement. This guidance
was first effective for our quarter ended December 31, 2013. See Note 19 for these additional disclosures.
In February 2013, the FASB issued new guidance intended to improve the reporting of reclassifications out of accumulated
other comprehensive (loss) income (“AOCI”). The new guidance requires us 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, we are required to cross-reference other disclosures required under GAAP that provide additional
detail about those amounts. This new guidance was first effective for our quarter ended December 31, 2013. See Note 22 for
these additional disclosures.
Reclassifications
Certain 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 clients 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.
The revenue recognition and related expense policies associated with the generation of advisory fees from each of these
affiliation alternatives are as follows:
i.
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.
ii.
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
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Index
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, syndication
fees on the sale of low-income housing tax credit fund interests, 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 clients participating in both our managed and non-discretionary
asset-based 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-discretionary asset-based 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.
We may earn performance fees from various funds and separate accounts we manage, when their performance exceeds certain
specified rates of return. We record performance fee revenues in the period they are specifically quantifiable and are earned. Once
realized, such fees are not subject to clawback or reversal.
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 $39.6 million, $35.5 million, and $33.5 million and
commissions remitted totaled $36.9 million, $32.6 million, and $31.2 million for the years ended September 30, 2014, 2013, and
2012 respectively.
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Index
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, as a broker-dealer carrying client accounts,
is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive
benefit of its clients. In addition, RJ Ltd. is required to hold client Registered Retirement Savings Plan funds in trust. Segregated
assets 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.
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, corporate loans 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:
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Index
equity securities with unobservable inputs such as those investments made in our principal capital activities, 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, 2014 and 2013. As a result, the valuation of these financial instruments included significant
management judgment in determining the relevance and reliability of market information available. We considered the inactivity
of the market to be evidenced by several factors, including a continued decreased price transparency caused by decreased volume
of trades relative to historical levels, stale transaction prices and transaction prices that varied significantly either over time or
among market makers.
The specific valuation techniques utilized for the categorization of financial instruments presented in our Consolidated
Statements of Financial Condition are described below:
Trading instruments and trading instruments sold but not yet purchased
Trading instruments are comprised primarily of the financial instruments held by our broker-dealer subsidiaries. These
instruments are recorded at fair value with realized and 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.
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Index
RJ Bank maintains a trading portfolio of certain corporate loans, that it originates through the primary syndication market.
These trading instruments are recognized as of the trade date and are carried at fair value with the related unrealized and realized
gains and losses reflected in net trading profit. These trading instruments are valued using quotes from a third party pricing service.
These third party pricing service quotes are based on current market data provided by multiple dealers. The instruments are
classified within Level 2 of the fair value hierarchy as the market inputs utilized by the third party pricing service are based upon
observable inputs.
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.
Included within trading instruments (or trading instruments sold but not yet purchased) are 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’s are entered into by RJ&A as a component of a hedging strategy, to hedge interest rate risk that it would otherwise be exposed
to as part of a program its fixed income public finance operations offers to certain state and local housing finance agencies (“HFA”).
Under this program, RJ&A enters into forward commitments to purchase Government National Mortgage Association (“GNMA”)
or Federal National Home Mortgage Association (“FNMA”) MBS. The MBS securities are issued on behalf of various HFA clients
and consist of the mortgages originated through their lending programs. RJ&A’s forward GNMA or FNMA MBS purchase
commitments arise 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 or FNMA
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. 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.” These TBA securities are accounted for at fair value and are classified within Level 1 of
the fair value hierarchy. The TBA securities may aggregate to either a net asset or net liability at any reporting date, depending
upon market conditions. The offsetting purchase commitment is accounted for at fair value and is included in either other assets,
or other liabilities, depending upon whether the TBA securities aggregate to a net asset or net liability. The fair value of the purchase
commitment is classified within 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.
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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 (loss) income and are thereafter presented in equity as a component of 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 more representative of fair value under the current market conditions. 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 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.
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Derivative contracts
We enter into interest rate swaps and futures contracts either as part of our fixed income business to facilitate client 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 clients of RJ&A. For every derivative transaction RJSS enters into with a client, it enters into
an offsetting transaction with terms that mirror the client 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 client 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.
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
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(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. 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 other revenue on 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 accrued
compensation, commissions and benefits 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.
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 (see Note 19 for additional information regarding this collateral).
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
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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 related to former employees
or independent contractors, management primarily considers our historical collection experience as well as other factors including:
any amounts due at termination, the reasons for the terminated relationship, and the former financial advisor’s overall financial
position. 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. 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. 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 $2.5 million and $2.8 million at
September 30, 2014 and 2013, respectively. Of the September 30, 2014 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 $4.6 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 (see Note 19 for additional information regarding this collateral).
.
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, tax-exempt loans, as well as loans which are fully collateralized by the borrower’s
marketable securities. The 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 six portfolio segments, C&I, commercial real estate (“CRE”), CRE construction,
tax-exempt, residential mortgage and securities based loans (“SBL”). These portfolio segments also serve as the portfolio loan
classes for purposes of credit analysis, except for residential mortgage loans which are further disaggregated into residential first
mortgage and residential home equity classes.
Loans held for sale
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, which include C&I, CRE, CRE construction and tax-exempt, 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.
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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. The potential credit loss
associated with these off-balance sheet loan commitments is accrued and reflected in other liabilities within the Consolidated
Statements of Financial Condition. Refer to the allowance for loan losses and reserve for unfunded lending commitments section
that follows for a discussion of the reserve calculation methodology.
RJ Bank recognizes the revenue associated with corporate syndicated standby letters of credit, which is generally received
quarterly, on a cash basis, the effect of which does not differ materially from recognizing in the period the fee is earned. Unused
corporate line fees are accounted for on an accrual basis.
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 SBL and residential (first mortgage and home equity) loans and the cost recovery method for corporate
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.
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
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risk made to another borrower in similar financial circumstances. Other concessions for corporate 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. Corporate 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, tax-exempt, residential first mortgage, residential
home equity, and SBL.
The loans within the corporate 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 SBL 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.
The qualitative and quantitative factors taken into consideration when assigning the loan grades and allowance percentages
to the loans within the corporate 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 corporate 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 internal
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historical loss data or historical long-term industry loss rates where RJ Bank has limited loss history, are considered in combination
with certain management adjustments to derive the final corporate 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 SBL, residential first mortgage loan and residential home equity loan classes, the qualitative factors considered when
assigning allowance percentages include loan performance trends, loan product parameters and qualification requirements, whether
the loan is originated or purchased, 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 SBL, residential first
mortgage loans and residential home equity 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, as adjusted by management, 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.
Loan charge-off policies
Corporate 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 and tax-exempt 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
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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 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 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 loan losses 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.
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 24 and 25 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 fund VIEs which require consolidation. Additional information is presented below and in Note 11.
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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, and 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.
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).
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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 on our Consolidated Statements of Financial
Condition. 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. Any change in the liability amount is recorded
in the consolidated financial statements and is recognized as either a charge, or a credit, to net income in that period. The actual
costs of resolving legal proceedings may be substantially higher or lower than the recorded liability amounts for those matters.
We expense our cost of defense related to such matters in the period they are incurred.
Share-based compensation
We account for share-based awards through the measurement and recognition of compensation expense for all share-based
payment awards made to employees and directors based on estimated fair values. The compensation cost is recognized over the
requisite service period of the awards and is calculated as the market value of the awards on the date of the grant. See Note 24
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. 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 25 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 company-owned life insurance and other 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 24 and 25 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 on our 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
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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 either at an average exchange rate for the period, or in the case of foreign subsidiaries of RJ Bank, at the
exchange rate in effect on the date which transactions occur. The gains or losses resulting from translating foreign currency
financial statements into U.S. dollars are included in other comprehensive (loss) income and are thereafter presented in equity as
a component of AOCI. The translation gains or losses related to RJ Bank’s U.S. subsidiaries’ net investment in their Canadian
subsidiary are tax affected to the extent the Canadian subsidiary’s earnings will be repatriated to the U.S.
Income taxes
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year.
We utilize the asset and liability method to provide income taxes on all transactions recorded in the consolidated financial statements.
This method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying
amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference
is determined based on the tax rates that we expect to be in effect when the underlying items of income and expense are realized.
Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or
tax returns, 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 20 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. Other than for the Managed Funds whose process is
discussed separately, 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.
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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 involvement 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, resulting in a conclusion of shared power with the limited partner. Therefore RJTCF, as managing member or general partner
of such funds, is not the one party with power over such activities and resultantly 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 member or limited partner, 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
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significant to the fund. RJTCF is deemed to be the primary beneficiary, and therefore consolidates, any multi-investor fund for
which it concludes that such benefits are potentially significant to the fund.
Among the LIHTC Fund entities evaluated, RJTCF determined that some of the LIHTC Funds it sponsors are not VIEs. These
funds are either: (1) 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.
Direct investments in LIHTC project partnerships
RJ Bank is the investor member of a LIHTC fund in which a subsidiary of RJTCF is the managing member. This LIHTC
fund is an investor member in certain LIHTC project partnerships. We evaluate the appropriate accounting for these investments
after aggregating RJ Bank and RJTCF’s interests and roles in the LIHTC fund. Since unrelated third parties are the managing
member of the investee project partnerships, we have determined that consolidation of these project partnerships is not required;
we account for these investments under the equity method. The carrying value of these project partnerships is included in other
assets on our Consolidated Statements of Financial Condition.
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.
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. 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.
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
The Managed Funds are VIEs in which one of our subsidiaries serves as the general partner. The Managed Funds satisfy the
conditions for deferral of the determination of who is the primary beneficiary that is performed based upon the assessment of who
has the power to direct the activities of the entity that most significantly impact the entity’ s economic performance and the obligation
to absorb losses of the entity that could potentially be significant to the entity. The deferral criteria which the Managed Funds
meet are: 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.
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For the Managed Funds, our primary beneficiary assessment applies prior accounting guidance which assesses who will absorb
a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. Based upon the
outcome of our assessments, we have determined that we are not required to consolidate the Managed Funds.
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. During fiscal year 2014,
we performed an “earn-out” computation based upon the actual earnings of ClariVest during the one year period since the ClariVest
Acquisition Date and paid additional cash consideration of approximately $2 million to the sellers.
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 our Eagle subsidiary 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 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.
Acquisition during fiscal year 2012
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, commenced 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 24 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.
118
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, after which RJF is entitled to receive the full amount of all such losses
incurred in excess of $2 million, for the three years after the Closing Date.
On the Closing Date, certain subsidiaries of RJF entered into a credit agreement (the “Regions Credit Agreement”) with
Regions Bank, an Alabama banking corporation (the “Regions Bank”). On November 14, 2012, the outstanding balance on the
Regions Credit Agreement was repaid, and a new credit agreement was executed with Regions Bank. See Note 15 for information
regarding this borrowing.
Acquisition related expenses
Acquisition related expenses are recorded in the Consolidated Statement of Income and Comprehensive Income and include
certain incremental expenses arising from our acquisitions. Acquisition related expenses in fiscal year 2014 are no longer material
for separate disclosure since our integration of Morgan Keegan was substantially complete as of September 30, 2013. In prior
years, 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.
119
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,
2014
2013
(in thousands)
$
$
2,195,683
3,380
2,199,063
2,489,264
150,457
4,838,784
$
$
2,593,890
2,726
2,596,616
4,064,827
126,405
6,787,848
(1) The total amounts presented include cash and cash equivalents of $1.21 billion and $1.02 billion as of September 30, 2014 and 2013,
respectively, which are either held directly by RJF in depository accounts at third party financial institutions, held in a depository account
at RJ Bank, or are otherwise invested by one of our subsidiaries on behalf of RJF, all of which are available without restrictions.
(2) Consists of cash maintained in accordance with Rule 15c3-3 under the Securities Exchange Act of 1934. RJ&A as a broker-dealer carrying
client accounts, is subject to requirements related to maintaining cash or qualified securities in segregated reserve accounts for the exclusive
benefit of its’ 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.
120
Index
NOTE 5 – FAIR VALUE
Assets and liabilities measured at fair value on a recurring and nonrecurring basis are presented below:
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
Significant
other
observable
inputs
(Level 2) (1)
Significant
unobservable
inputs
(Level 3)
(in thousands)
Netting
adjustments (2)
Balance as of
September 30,
2014
11,407
1,989
7,376
247
—
21,019
—
28,834
—
566
50,419
—
—
1,916
—
—
1,916
—
212,753
—
—
—
—
265,088
$
$
192,482
109,939
93,986
127,172
58,364
581,943
89,923
5,264
990
10,208
688,328
267,720
91,918
—
—
—
359,638
—
1,267
323,337
2,462
—
2,462
$
—
—
—
—
11
11
—
44
—
2,309
2,364
—
—
—
(3)
86,696
114,039
200,735
211,666 (4)
1,731
—
(6)
—
787
787
— $
—
—
—
—
—
(61,718)
—
—
—
(61,718)
—
—
—
—
—
—
—
—
—
—
—
—
203,889
111,928
101,362
127,419
58,375
602,973
28,205
34,142
990
13,083
679,393
267,720
91,918
1,916
86,696
114,039
562,289
211,666
215,751
323,337
2,462
787
3,249
$
1,375,032
$
417,283
$
(61,718) $
1,995,685
September 30, 2014
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
Corporate loans
Other
Total trading instruments
Available for sale securities:
Agency MBS and CMOs
Non-agency CMOs
Other securities
ARS:
Municipals
Preferred securities
Total available for sale securities
Private equity investments
Other investments (5)
Derivative instruments associated with
offsetting matched book positions
Other assets:
Derivative contracts
Other assets
Total other assets
Total assets at fair value on a recurring basis
$
Assets at fair value on a nonrecurring
basis:
Bank loans, net:
Impaired loans
Loans held for sale (7)
Total bank loans, net
OREO (8)
Total assets at fair value on a nonrecurring
basis
$
$
— $
—
—
—
— $
$
34,799
22,611
57,410
768
$
55,528
—
55,528
—
— $
—
—
—
90,327
22,611
112,938
768
58,178
$
55,528
$
— $
113,706
(continued on next page)
121
Index
September 30, 2014
Liabilities at fair value on a recurring
basis:
Trading instruments sold but not yet
purchased:
Municipal and provincial obligations
Corporate obligations
Government obligations
Agency MBS and CMOs
Total debt securities
Derivative contracts
Equity securities
Total trading instruments sold but not
yet purchased
Derivative instruments associated with
offsetting matched book positions
Other liabilities
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,
2014
(continued from previous page)
$
$
11,093
29
187,424
738
199,284
—
10,884
210,168
—
—
$
554
15,304
—
—
15,858
75,668
2
91,528
323,337
—
$
210,168
$
414,865
$
—
—
—
—
—
—
—
—
—
58
58
$
— $
—
—
—
—
(63,296)
—
11,647
15,333
187,424
738
215,142
12,372
10,886
(63,296)
238,400
—
—
323,337
58
$
(63,296) $
561,795
(1) We had $800 thousand in transfers of financial instruments from Level 1 to Level 2 during the year ended September 30, 2014. 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 $1.3 million in transfers of financial instruments from Level 2 to Level 1 during the year ended September 30, 2014. 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. See Note 19 for additional information regarding offsetting financial instruments.
(3) Includes $58 million of Jefferson County, Alabama Limited Obligation School Warrants ARS.
(4) The portion of these investments we do not own is approximately $55 million as of September 30, 2014 and are included as a component of
noncontrolling interest in our Consolidated Statements of Financial Condition. The weighted average portion we own is approximately $157
million or 74% of the total private equity investments of $212 million included in our Consolidated Statements of Financial Condition.
(5) Other investments include $144 million of financial instruments that are related to MK & Co.’s obligations to perform under certain of its
historic deferred compensation plans (see Note 2 and Note 24 for further information regarding these plans).
(6) Includes forward commitments to purchase GNMA or FNMA MBS arising from our fixed income public finance operations (see Note 21 for
additional information regarding these commitments) and to a much lesser extent, other certain commitments.
(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.
122
Index
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
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
—
—
1,287,247
$
$
—
—
—
—
14
14
—
35
3,956
4,005
—
78
—
(3)
130,934
110,784
241,796
216,391
(4)
4,607
—
2,778 (6)
15
$
469,592
$
— $
—
—
—
—
—
(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
—
(61,524) $
15
1,996,586
— $
33,187
$
59,868
$
— $
—
—
—
28,119
61,306
209
—
59,868
—
—
—
—
93,055
28,119
121,174
209
— $
61,515
$
59,868
$
— $
121,383
(continued on next page)
123
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
Total debt securities
Derivative contracts
Equity 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
$
—
—
—
—
—
—
—
—
—
—
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
$
204,230
$
336,760
$
60
$
(69,279) $
471,771
(1) We had $860 thousand 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. See Note 19 for additional information regarding offsetting financial instruments.
(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) The portion of these investments we do not own is approximately $63 million as of September 30, 2013 and are included as a component of
noncontrolling interest in our Consolidated Statements of Financial Condition. The weighted average portion we own is approximately $153
million or 71% of the total private equity investments of $216 million included in our Consolidated Statements of Financial Condition.
(5) Other investments include $176 million of financial instruments that are related to MK & Co.’s obligations to perform under certain of its
historic deferred compensation plans (see Note 2 and Note 24 for further information regarding these plans).
(6) Primarily comprised of forward commitments to purchase GNMA MBS arising from our fixed income public finance operations (see Note
21 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.
(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.
124
Index
The adjustment to fair value of the nonrecurring fair value measures for the year ended September 30, 2014 resulted in $467
thousand in additional provision for loan losses and $203 thousand in other losses. 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.
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, 2014
Level 3 assets at fair value
(in thousands)
Financial assets
Trading instruments
Available for sale securities
Private equity, other investments and other assets
Financial
liabilities
Payables-
trade
and
other
Non-
agency
CMOs
&
ABS
Equity
securities
Other
Non-
agency
CMOs
ARS –
municipals
ARS -
preferred
securities
Private
equity
investments
Other
investments
Other
receivables
Other
assets
Other
liabilities
$
14
$
35
$
3,956 $
78
$
130,934
$ 110,784
$
216,391
$
4,607
$
2,778
$
15
$
(60)
Fair value
September 30,
2013
Total gains (losses) for the
year:
Included in
earnings
Included in other
comprehensive
(loss) income
Purchases and
contributions
Sales
Redemptions by
issuer
Distributions
Transfers: (2)
Into Level 3
Out of Level 3
Fair value
September 30,
2014
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)
—
—
—
—
(2)
—
—
6
—
—
103
18,628
(98)
(19,904)
—
—
—
(2)
—
—
—
—
(371)
(27)
7,046
44
(1)
15,883
174
(2,778)
772
22
—
(38)
—
(35)
—
—
(403)
3,536
—
—
(23,355)
(27,526)
—
—
—
—
—
(325)
—
—
—
16,192
(7,076)
—
(39,053)
(3)
(4)
11,924
(2,595)
—
63
(2,698)
(64)
(351)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
$
11
$
44
$
2,309 $ — $
86,696
$ 114,039
$
211,666
$
1,731
$
— $ 787
$
(58)
$
20
$
6
$
(7) $ — $
(403) $
3,536
$
15,883
$
267
$
— $ 772
$
—
(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 $12.2 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 $3.7 million.
(2) Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are
recognized.
(3) The transfers into Level 3 were comprised of transfers of balances previously included in other receivables on our Consolidated Statements
of Financial Condition.
(4) The transfers out of Level 3 were comprised of transfers of cash and cash equivalent balances previously included in private equity investments
on our Consolidated Statements of Financial Condition.
125
Index
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
$
Total gains (losses) for the year:
Included in earnings
Included in other
comprehensive
(loss) 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)
—
—
6
1
—
63
—
—
2
—
$
5,850 $
249
$
123,559
$ 110,193
$
336,927
$
4,092
$
— $
— $
(98)
(140)
(396)
439
1,164
70,688 (1)
1,390
2,778
—
281
13,212
7,504
—
(37)
(9,234)
9,885
—
—
—
—
—
(4,971)
(1,305)
25
(90)
(8,012)
(2,390)
(56)
—
(15)
—
—
—
—
—
—
—
—
20,416
(165,878) (2)
—
(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.
126
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:
Included in earnings
Included in other
comprehensive (loss)
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
(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
(7,651)
(1,528)
—
—
—
—
(41)
—
—
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).
As of September 30, 2014, 8.6% of our assets and 3% 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, 2014 represent 21% of our
assets measured at fair value. In comparison as of September 30, 2013, 8.6% and 2.5% of our assets and liabilities, respectively, represented
instruments measured at fair value on a recurring basis. Instruments measured at fair value on a recurring basis categorized as Level 3
as of September 30, 2013 represented 24% of our assets measured at fair value. The balances of our level 3 assets have decreased
compared to September 30, 2013, primarily as a result of distributions received from, and sales of, certain investments in our private
equity portfolio, as well as the sale or redemption of a portion of our ARS portfolio. Accordingly, Level 3 instruments as a percentage
of total financial instruments have decreased by 3% as compared to September 30, 2013.
127
Index
Gains and losses included in earnings are presented in net trading profit and other revenues in our Consolidated Statements of Income
and Comprehensive Income as follows:
For the year ended September 30, 2014
Total (losses) gains included in revenues
Change in unrealized gains for assets held at the end of the year
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 year
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 year
Net trading
profits
Other
revenues
(in thousands)
(366) $
$
19
21,116
20,055
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
$
$
$
$
$
$
128
Index
Quantitative information about level 3 fair value measurements
The significant assumptions used in the valuation of level 3 financial instruments are as follows (the table that follows includes
the significant majority of the financial instruments we hold that are classified as level 3 measures):
Level 3 financial
instrument
Recurring measurements:
Available for sale securities:
ARS:
Municipals
Municipals
Municipals
Preferred
securities
Private equity
investments:
Nonrecurring
measurements:
Impaired loans:
residential
Impaired loans: corporate
$
$
$
$
$
$
$
$
Fair value at
September 30,
2014
(in thousands)
Valuation technique(s)
Unobservable input
Range
(weighted-
average)
57,728
Recent trades
Observed trades (in inactive markets) of in-
portfolio securities
88% of par - 88%
of par (88% of par)
11,025
Income or market approach:
Scenario 1 - recent trades
Scenario 2 - discounted cash flow
17,943
Discounted cash flow
114,039
Discounted cash flow
46,402
Income or market approach:
Scenario 1 - income approach -
discounted cash flow
Scenario 2 - market approach -
market multiple method
165,264
Transaction price or other
investment-specific events(e)
Observed trades (in inactive markets) of in-
portfolio 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 scenario1/
scenario 2
Average discount rate(a)
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)
Discount rate(a)
Terminal growth rate of cash flows
70% of par - 70%
of par (70% of par)
4.44% - 6.82%
(5.63%)
1.68% - 4.31%
(3.00%)
2017 - 2024 (2021)
20%/80%
3.08% - 5.82%
(3.77%)
1.44% - 5.74%
(1.81%)
2017 - 2024 (2019)
3.69% - 5.08%
(4.35%)
2.41% - 4.03%
(2.54%)
2015 - 2019 (2019)
13.0% - 17.5%
(15.9%)
3% - 3% (3%)
Terminal year
EBITDA Multiple(d)
2016 - 2018 (2017)
4.75 - 7.50 (6.30)
Weighting assigned to outcome of scenario 1/
scenario 2
Not meaningful(e)
72%/28%
Not meaningful(e)
25,982
29,546
Discounted cash flow
Appraisal, discounted cash flow,
or distressed enterprise value(f)
Prepayment rate
Not meaningful(f)
7 yrs. - 12 yrs.
(10.3 yrs.)
Not meaningful(f)
The text of the footnotes in the above table are on the following page.
129
Index
The text of the footnotes to the table on the previous page are as follows:
(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 path, 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) Represents amounts used when we have determined that market participants would use such multiples when pricing the investments.
(e) 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, when any of which indicate that a change in the carrying values of these investments is appropriate.
(f) The valuation techniques used for the impaired corporate loan portfolio as of September 30, 2014 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 multiple applied to a defined short-term 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.
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, 2014 and 2013, we have elected not to choose the fair
value option for any of our financial assets or liabilities not already recorded at fair value.
130
Index
Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated Statements of Financial
Condition at fair value
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, 2014 and 2013 is not carried at fair
value, as computed in accordance with the GAAP definition of fair value (an exit price concept, refer to Note 2 for further discussion),
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. Under the fair value hierarchy, cash and cash equivalents and assets segregated pursuant to federal regulations and other
segregated assets are classified as Level 1. Securities either purchased or sold under agreements to resell and other collateralized financings
are classified as Level 2 under the fair value hierarchy because they are generally variable rate instruments collateralized by U.S.
government or agency securities.
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, tax-exempt loans, as well as SBL intended to be held until maturity or payoff, and
are recorded at amounts that result from the application of the loans held for investment methodologies summarized in Note 2. 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, loans to financial advisors, net, other receivables, and certain other assets are recorded at amounts that approximate
fair value and are classified as Level 2 and 3 under the fair value hierarchy. As specified under GAAP, the FHLB and FRB stock are
recorded at cost, which we have determined to approximate their estimated fair value, and are classified as Level 2 under the fair value
hierarchy.
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. Due to their demand or short-term nature, the demand deposits and variable rate money
market and savings accounts are classified as Level 2 under the fair value hierarchy. 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. These fixed rate certificate accounts are classified as Level 3 under the fair value hierarchy.
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 and are classified as Level 2 under the fair value hierarchy.
Other borrowings: The carrying amount of other borrowings approximate their fair value due to the relative short-term nature of
such borrowings, some of which are day-to-day. The portion of other borrowings which are not “day-to-day” are primarily comprised
of RJ Bank’s borrowings from the FHLB which, by their nature, reflect terms that approximate current market rates for similar loans.
Under the fair value hierarchy, our other borrowings are classified as Level 2.
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 classified as Level 3 under the fair value hierarchy. See
Note 27 for further discussion of off-balance sheet financial instruments.
131
Index
The estimated fair values by level within the fair value hierarchy and the carrying amounts of certain of our financial instruments
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
— $
23,678
$
10,738,136
$
10,761,814
$
10,857,662
— $
$
366,100
9,684,221
955,170
$
$
344,234
$
— $
10,028,455
1,321,270
$
$
10,028,924
1,190,836
— $
83,012
$
8,614,755
$
8,697,767
$
8,700,027
— $
$
352,520
8,981,996
951,628
$
$
320,196
$
— $
9,302,192
1,304,148
$
$
9,295,371
1,194,508
September 30, 2014
Financial assets:
Bank loans, net(1)
Financial liabilities:
Bank deposits
Corporate debt
September 30, 2013
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, 2014 and 2013, respectively.
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
Corporate loans
Other
Total
September 30, 2014
September 30, 2013
Trading
instruments
Instruments
sold but not
yet purchased
Trading
instruments
Instruments
sold but not
yet purchased
$
$
203,889
111,928
101,362
127,419
58,375
602,973
28,205
34,142
990
13,083
679,393
$
$
$
(in thousands)
11,647
15,333
187,424
738
—
215,142
12,372
10,886
—
—
238,400
$
202,826
60,406
113,396
93,149
16,971
486,748
28,109
53,015
—
11,833
579,705
$
$
1,777
9,111
169,816
3,068
—
183,772
5,641
31,243
—
—
220,656
(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, and see Note 19
for additional information regarding offsetting financial instruments.
Included in net trading profit on our Consolidated Statements of Income and Comprehensive Income are net unrealized (losses)
gains related to trading instruments held as of September 30, 2014, 2013, and 2012 of $(4.8) million, $(4) million, and $576
thousand, respectively.
See Note 5 for additional information regarding the fair value of trading instruments and trading instruments sold but not yet
purchased.
132
Index
NOTE 7 – AVAILABLE FOR SALE SECURITIES
Available for sale securities are comprised of MBS and CMOs owned by RJ Bank and ARS owned by one of our non-broker-
dealer subsidiaries.
Certain of the non-agency CMOs held within the available for sale securities portfolio owned by RJ Bank were sold during
the year ended September 30, 2014. The sales resulted in proceeds of $26.6 million and a gain of $264 thousand which is included
in other revenues on our Consolidated Statements of Income and Comprehensive Income. There were no sales of available for
sale securities owned by RJ Bank in either the year ended September 30, 2013 or the year ended September 30, 2012.
Certain securities in the ARS portion of the available for sale securities portfolio have been redeemed by their issuer or sold
in market transactions. Sale or redemption activities within the ARS portion of the portfolio resulted in aggregate proceeds of
$51.2 million and a gain of $7.1 million in the year ended September 30, 2014 which is included in other revenues on our
Consolidated Statements of Income and Comprehensive Income. During the year ended September 30, 2013, sales or redemption
activities within the ARS portion of the available for sale securities portfolio resulted in proceeds of $14.4 million and a gain of
$1.6 million. During the year ended September 30, 2012, redemptions of ARS by their issuers resulted in proceeds of $75 million
and a gain of $360 thousand.
133
Index
The amortized cost and fair values of available for sale securities are as follows:
September 30, 2014
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, 2013
Available for sale securities:
Agency MBS and CMOs
Non-agency CMOs (2)
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 (3)
Total RJ Bank available for sale securities
Auction rate securities:
Municipal obligations (4)
Preferred securities (5)
Total auction rate securities
Other securities
Total available for sale securities
Cost basis
Gross
unrealized gains
Gross
unrealized
losses
Fair value
(in thousands)
$
$
$
$
$
$
$
$
$
267,927
98,946
1,575
368,448
81,535
104,526
186,061
554,509
326,858
142,169
1,575
470,602
125,371
104,808
230,179
$
$
$
822
56
341
1,219
6,240
9,513
15,753
16,972
707
4
501
1,212
6,831
5,976
12,807
(1,029) $
(7,084)
—
(8,113)
(1,079)
—
(1,079)
(9,192) $
(1,536) $
(13,152)
—
(14,688)
(1,268)
—
(1,268)
267,720
91,918
1,916
361,554
86,696
114,039
200,735
562,289
326,029
129,021
2,076
457,126
130,934
110,784
241,718
700,781
$
14,019
$
(15,956) $
698,844
$
350,568
166,339
516,907
131,208
111,721
242,929
1,938
23
1,961
870
232
1,102
$
(203) $
(18,555)
(18,758)
(8,519)
(1,760)
(10,279)
3
759,839
$
9
3,072
$
—
(29,037) $
352,303
147,807
500,110
123,559
110,193
233,752
12
733,874
(1) As of September 30, 2014, the non-credit portion of OTTI recorded in AOCI was $6.1 million (before taxes).
(2) As of September 30, 2013, the non-credit portion of OTTI recorded in AOCI was $11.1 million (before taxes).
(3) As of September 30, 2012, the non-credit portion of OTTI recorded in AOCI was $15.5 million (before taxes).
(4) As of September 30, 2012, the non-credit portion of OTTI recorded in AOCI was $7.6 million (before taxes).
(5) As of September 30, 2012, the non-credit portion of OTTI recorded in AOCI was $1.5 million (before taxes).
See Note 5 for additional information regarding the fair value of available for sale securities.
134
Index
The contractual maturities, amortized cost, carrying values and current yields for our available for sale securities are as
presented below. Since RJ Bank’s available for sale securities are backed by mortgages, actual maturities will differ from
contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties. Expected
maturities of ARS may differ significantly from contractual maturities, as issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Within one year
After one but
within five
years
September 30, 2014
After five but
within ten
years
($ 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
$
$
$
— $
—
—
— $
—
—
— $
—
—
$
9,992
10,019
0.27%
$
10,451
10,513
0.24%
247,484
247,188
1.02%
— $
—
—
— $
—
—
— $
—
—
— $
—
—
98,946
91,918
2.49%
1,575
1,916
—
Sub-total agency MBS & CMOs, non-agency CMOs and other securities:
$
Amortized cost
Carrying value
Weighted-average yield
— $
—
—
9,992
10,019
0.27%
$
$
10,451
10,513
0.24%
348,005
341,022
1.41%
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
$
$
$
$
— $
—
—
— $
—
—
— $
—
—
— $
—
—
— $
—
—
— $
—
—
— $
—
—
— $
—
—
— $
—
—
— $
—
—
81,535
86,696
0.38%
104,526
114,039
0.20%
186,061
200,735
0.28%
$
9,992
10,019
0.27%
$
10,451
10,513
0.24%
534,066
541,757
0.99%
135
$
$
$
$
$
$
$
$
267,927
267,720
0.96%
98,946
91,918
2.49%
1,575
1,916
—
368,448
361,554
1.35%
81,535
86,696
0.38%
104,526
114,039
0.20%
186,061
200,735
0.28%
554,509
562,289
0.97%
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, 2014
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
Total
$
$
$
$
18,062
5,506
—
23,568
$
$
(53) $
(357)
—
(410) $
$
(in thousands)
71,688
69,970
12,072
153,730
$
(976) $
(6,727)
(1,079)
(8,782) $
89,750
75,476
12,072
177,298
$
$
(1,029)
(7,084)
(1,079)
(9,192)
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
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)
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
FNMA, the Federal Home Loan Mortgage Corporation (“FHLMC”), as well GNMA, guarantee the contractual cash flows
of the agency MBS and CMOs. At September 30, 2014, of the 11 of our U.S. government-sponsored enterprise MBS and CMOs
in an unrealized loss position, three were in a continuous unrealized loss position for less than 12 months and eight 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 it 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.
136
September 30, 2014
Range
0% - 10.9%
0% - 74.4%
5% - 34.2%
Weighted-
average (1)
4.31%
39.84%
10.42%
Index
At September 30, 2014, 14 of the 19 non-agency CMOs were in a continuous unrealized loss position. Of these, 13 were in
that position for 12 months or more and one was 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, 2014 reflect the uncertainty in the markets for these instruments.
ARS
The cost basis in the ARS we hold is the fair value of the securities in the period in which we acquired them. The par value
of the ARS we hold as of September 30, 2014 is $221.8 million. 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. All of our ARS securities are evaluated for OTTI on a quarterly basis.
Within our ARS preferred securities, we analyze the credit ratings associated with each security as an indicator of potential
credit impairment. As of September 30, 2014, and including subsequent ratings changes, all of the ARS preferred securities were
rated investment grade by at least one rating agency and there is no potential impairment since the fair values of these securities
exceed their cost basis.
Within our municipal ARS holdings as of September 30, 2014, there are two municipal ARS securities with a fair value less
than their cost basis, indicating potential impairment. We analyzed the credit ratings associated with these securities as an indicator
of potential credit impairment, and including subsequent ratings changes, determined that these securities maintained investment
grade ratings by at least one rating agency. We have the ability and intent to hold these securities to maturity and expect to recover
their entire cost basis and therefore concluded that none of the OTTI within our municipal ARS portfolio is related to potential
credit loss.
We hold Jefferson County, Alabama Limited Obligation School Warrants ARS (“Jeff Co. Schools ARS”) within our municipal
ARS holdings. As of September 30, 2013, we also held Jefferson County, Alabama Sewer Revenue Refunding Warrants ARS
(“Jeff Co. Sewers ARS”). During the first quarter ended December 31, 2013, the Jefferson County, Alabama 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 was resolved.
As a result of the resolution of this matter, Jefferson County redeemed the Jeff Co. Sewers ARS during our first quarter, and we
received $26.5 million in proceeds from their redemption and realized a $5.5 million gain, which is included in other revenues on
our Consolidated Statements of Income and Comprehensive Income for the year ended September 30, 2014. The Jeff Co. Schools
ARS were not affected by the resolution of the Jefferson County, Alabama bankruptcy matter and remain in our ARS portfolio as
of September 30, 2014. The fair value of the Jeff Co. Schools ARS exceed their cost basis as of September 30, 2014.
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, as of September 30, 2014 we do not expect to recover the entire amortized cost basis of certain
securities within our non-agency CMO portfolio.
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
$
$
137
2014
Year ended September 30,
2013
(in thousands)
27,581
$
$
28,217
—
(9,541)
—
—
27
18,703
$
636
28,217
$
2012
22,306
1,409
—
3,866
27,581
Index
NOTE 8 - RECEIVABLES FROM AND PAYABLES TO BROKERAGE CLIENTS
The information presented below is exclusive of the transactions and balances that arise between RJ Bank and clients of our
broker-dealer subsidiaries. Such transactions include those arising from the RJBDP program (as hereinafter defined in Note 14)
and securities that serve as collateral under RJ Bank’s SBL program (see Note 9 for additional information).
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 included within any balances
reflected on our Consolidated Statements of Financial Condition (see Note 19 for information regarding our use of a portion of
this collateral in certain borrowing transactions). 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,
2014
2013
(in thousands)
$
$
2,127,078
(274)
2,126,804
$
$
1,983,402
(62)
1,983,340
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,
2014
2013
(in thousands)
$
$
3,578,101
378,003
3,956,104
$
$
5,457,107
485,736
5,942,843
Bank client receivables are comprised of loans originated or purchased by RJ Bank and include C&I loans, tax-exempt loans, SBL,
as well as commercial and residential real estate loans. These receivables are collateralized by first or second mortgages on residential
or other real property, other assets of the borrower, a pledge of revenue or are unsecured.
We segregate our loan portfolio into six loan portfolio segments: C&I, CRE, CRE construction, tax-exempt, residential mortgage,
and SBL. 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.
138
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
Tax-exempt loans
Residential mortgage loans
SBL
Foreign:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
SBL
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
SBL
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)
Total loans held for sale and investment
Allowance for loan losses
Bank loans, net
September 30, 2014
%
Balance
September 30, 2013
Balance
%
($ in thousands)
September 30, 2012
%
Balance
$
45,988
— $
110,292
1% $
160,515
2%
49%
1%
13%
1%
16%
9%
9%
—
2%
—
—
5,378,592
76,733
1,415,093
122,218
1,749,513
1,021,358
1,043,755
17,462
274,070
2,234
2,390
11,103,418
(37,533)
11,065,885
11,111,873
(147,574)
10,964,299
$
100%
$
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%
September 30, 2011
%
Balance
September 30, 2010
%
Balance
102,236
($ in thousands)
2% $
6,114
—
59%
—
11%
26%
—
2%
—
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
$
100%
$
51%
1%
15%
32%
—
1%
—
100%
3,173,093
65,512
937,669
2,013,681
23,940
59,630
1,650
6,275,175
(39,276)
6,235,899
6,242,013
(147,084)
6,094,929
(1) Net of unearned income and deferred expenses, which includes purchase premiums, purchase discounts, and net deferred origination fees and
costs.
At September 30, 2014, the FHLB had a blanket lien on RJ Bank’s residential mortgage loan portfolio as security for the repayment
of certain borrowings. See Note 15 for more information regarding borrowings from the FHLB.
139
Index
Loans held for sale
RJ Bank originated or purchased $1 billion, $1.3 billion and $903 million of loans held for sale during the years ended September 30,
2014, 2013 and 2012, respectively. Proceeds from the sale of held for sale loans amounted to $189 million, $300 million and $184 million
for the years ended September 30, 2014, 2013 and 2012, respectively. Net gains resulting from such sales amounted to $790 thousand,
$3.6 million and $1.7 million for the years ended September 30, 2014, 2013 and 2012, 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 $385 thousand, $2.9 million and $1.2 million for the years ended September 30, 2014, 2013 and 2012, respectively.
Purchases and sales of loans held for investment
The following table presents purchases and sales of any loans held for investment by portfolio segment:
C&I loans
CRE construction loans
CRE loans
Residential mortgage loans
SBL
Total
Year ended September 30,
2014
2013
2012
Purchases
Sales
Purchases
Sales
Purchases
Sales
$
$
536,167
—
5,000
29,667
—
570,834
$ 219,914
—
—
—
—
$ 219,914
$
$
(in thousands)
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
(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.
140
Index
Aging analysis of loans held for investment
The following table presents an analysis of the payment status of loans held for investment by portfolio segment:
As of September 30, 2014:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
SBL
Total 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
SBL
30-89
days and
accruing
90 days
or more and
accruing
Total
past due
and
accruing
Nonaccrual (1)
Current and
accruing
Total loans
held for
investment (2)
(in thousands)
$
124
$
— $
124
$
— $
6,422,223
$
6,422,347
—
—
—
1,648
57
—
—
—
—
—
—
—
—
—
—
1,648
57
—
—
18,876
—
94,195
1,670,287
122,218
94,195
1,689,163
122,218
61,391
1,668,724
1,731,763
398
—
19,529
19,984
1,023,748
1,023,748
1,829
$
— $
1,829
$
80,665
$
11,020,924
$
11,103,418
135
$
— $
135
$
—
—
3,753
—
—
—
—
—
—
—
—
—
3,753
—
—
89
—
$
5,245,781
$
5,246,005
60,840
60,840
25,512
1,257,534
1,283,046
75,889
1,643,805
1,723,447
468
—
21,735
555,805
22,203
555,805
$
$
Total loans held for investment
$
3,888
$
— $
3,888
$
101,958
$
8,785,500
$
8,891,346
(1) Includes $41.4 million and $55.5 million of nonaccrual loans at September 30, 2014 and 2013, respectively, which are performing pursuant
to their contractual terms.
(2) Excludes any net unearned income and deferred expenses.
Nonperforming loans represent those loans on nonaccrual status, troubled debt restructurings, and accruing loans which are 90 days
or more past due and in the process of collection. The gross interest income related to these nonperforming loans reflected in the previous
table, which would have been recorded had these loans been current in accordance with their original terms, totaled $3.7 million, $3.2
million and $4.3 million for the years ended September 30, 2014, 2013 and 2012, respectively. The interest income recognized on
nonperforming loans was $1.3 million, $1.5 million and $1.8 million for the years ended September 30, 2014, 2013 and 2012, respectively.
Other real estate owned, included in other assets on our Consolidated Statements of Financial Condition was $5.4 million and $2.4
million at September 30, 2014 and 2013, respectively.
141
Index
Impaired loans and troubled debt restructurings
The following table provides a summary of RJ Bank’s impaired loans:
Gross
recorded
investment
September 30, 2014
Unpaid
principal
balance
Allowance
for losses
Gross
recorded
investment
September 30, 2013
Unpaid
principal
balance
Allowance
for losses
(in thousands)
Impaired loans with allowance for loan losses:(1)
$
C&I loans
CRE loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total
Impaired loans without allowance for loan losses:(2)
C&I loans
CRE loans
Residential - first mortgage loans
Total
Total impaired loans
$
$
11,959
—
$
12,563
—
$
1,289
—
— $
17
— $
26
43,806
—
55,765
—
18,876
21,987
40,863
96,628
61,372
—
73,935
—
39,717
32,949
72,666
146,601
$
$
5,012
—
6,301
—
—
—
—
6,301
$
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
$
$
—
1
6,646
4
6,651
—
—
—
—
6,651
(1) Impaired loan balances have had reserves established based upon management’s analysis.
(2) When the discounted cash flow, collateral value or market value equals or exceeds the carrying value of the loan, then the loan does not require
an allowance. These are generally loans in process of foreclosure that have already been adjusted to fair value.
The preceding table includes $18.9 million CRE, $12 million C&I, and $36.6 million residential first mortgage TDRs at September 30,
2014 and $2.2 million CRE and $36.6 million residential first mortgage TDRs at September 30, 2013.
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
2014
Year ended September 30,
2013
(in thousands)
2012
$
$
$
$
6,183
23,416
70,370
21
99,990
1,592
—
1,592
$
$
$
$
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
142
Index
During the years ended September 30, 2014, 2013, and 2012, RJ Bank granted concessions to borrowers having financial difficulties,
for which the resulting modification was deemed a TDR. The concessions granted for first mortgage residential and corporate loans were
generally interest rate reductions, interest capitalization, interest forbearance, amortization and maturity date extensions, or release of
liability ordered under Chapter 7 bankruptcy not reaffirmed by the borrower. The table below presents the TDRs that occurred during
the respective periods presented:
Year ended September 30, 2014:
C&I loans
CRE loans
Residential – first mortgage loans
Total
Year ended September 30, 2013:
Residential – first mortgage loans
Year ended September 30, 2012:
Residential – first mortgage loans
Number of
contracts
Pre-
modification
outstanding
recorded
investment
($ in thousands)
Post-
modification
outstanding
recorded
investment
1
2
14
17
$
$
$
$
19,200
22,291
3,599
45,090
$
$
$
$
15,035
22,291
3,892
41,218
56
$
13,270
$
13,551
20
5,875
6,283
During the years ended September 30, 2014, 2013, and 2012, there were three, two, and five residential first mortgage TDRs,
respectively, with recorded investments of $852 thousand, $291 thousand, and $1.2 million, 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, 2014, RJ Bank had one outstanding commitment on a C&I TDR in the amount $560 thousand. As of
September 30, 2013, RJ Bank had no outstanding commitments on TDRs.
Credit quality indicators
The credit quality of RJ Bank’s loan portfolio is summarized monthly by management using the standard asset classification system
utilized by bank regulators for the SBL and residential mortgage loan portfolios and internal risk ratings, which correspond to the same
standard asset classifications for the corporate loan portfolios. These classifications are divided into three groups: Not Classified (Pass),
Special Mention, and Classified or Adverse Rating (Substandard, Doubtful and Loss). These terms are defined as follows:
Pass – Loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the
fair value, less costs to acquire and sell, of any underlying collateral in a timely manner.
Special Mention – Loans which have potential weaknesses that deserve management’s close attention. These loans are not adversely
classified and do not expose RJ Bank to sufficient risk to warrant an adverse classification.
Substandard – Loans which are inadequately protected by the current sound worth and paying capacity of the obligor or by the
collateral pledged, if any. Loans with this classification are characterized by the distinct possibility that RJ Bank will sustain some
loss if the deficiencies are not corrected.
Doubtful – Loans which have all the weaknesses inherent in loans classified as substandard with the added characteristic that the
weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions
and values.
Loss – Loans which are considered by management to be uncollectible and of such little value that their continuance on 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 because, 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.
143
Index
The credit quality of RJ Bank’s held for investment loan portfolio is as follows:
C&I
CRE
construction
CRE
Tax-
exempt
Residential mortgage
Home
equity
First
mortgage
SBL
Total
$ 6,321,662
83,101
17,584
—
$ 6,422,347
$ 5,012,786
139,159
94,060
—
$ 5,246,005
$
$
$
$
94,195
—
—
—
94,195
$ 1,669,897
191
18,167
908
$ 1,689,163
60,840
—
—
—
60,840
$ 1,257,130
195
23,524
2,197
$ 1,283,046
$
$
$
$
(in thousands)
122,218
—
—
—
122,218
$ 1,647,325
15,346
69,092
—
$ 1,731,763
— $ 1,627,090
18,912
—
77,446
—
—
—
— $ 1,723,448
$
$
$
$
19,572
—
412
—
19,984
$ 1,023,748
—
—
—
$ 1,023,748
$ 10,898,617
98,638
105,255
908
$ 11,103,418
21,582
150
470
—
22,202
$ 555,805
—
—
—
$ 555,805
$ 8,535,233
158,416
195,500
2,197
$ 8,891,346
September 30, 2014:
Pass
Special mention (1)
Substandard (1)
Doubtful (1)
Total
September 30, 2013:
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 segregates all of its performing residential first mortgage loan portfolio with higher reserve percentages allocated to the
higher LTV loans. Current LTVs are updated using the most recently available information (generally on a one quarter lag) and are
estimated based on the initial appraisal obtained at the time of origination, adjusted using relevant market indices for housing price
changes that have occurred since origination. The value of the homes could vary from actual market values due to changes in the condition
of the underlying property, variations in housing price changes within current valuation indices, and other factors.
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
(1) Excludes loans that have full repurchase recourse for any delinquent loans.
Balance(1)
(in thousands)
$
$
454,703
816,055
184,512
32,222
5,169
—
1,492,661
144
Index
Allowance for loan losses
Changes in the allowance for loan losses of RJ Bank by portfolio segment are as follows:
Loans
held
for sale
C&I
CRE
construction
CRE
Tax-
exempt
Residential
mortgage
SBL
Total
Loans held for investment
(in thousands)
— $
95,994
$
1,000
$
19,266
$
— $
19,126
$
1,115
$ 136,501
—
—
—
—
9,560
625
5,860
1,380
(4,759)
899
13,565
(1,845)
16
(1,829)
—
—
—
(16)
80
64
—
—
—
(2,015)
1,998
(17)
—
35
35
(3,876)
2,129
(1,747)
—
(546)
— $ 103,179
$
(31)
1,594
$
(168)
25,022
$
—
1,380
$
—
14,350
$
—
2,049
(745)
$ 147,574
— $
92,409
$
739
$
27,546
$
— $
26,138
$
709
$ 147,541
—
—
—
—
4,505
273
(301)
(813)
117
(696)
—
—
—
(9,599)
1,680
(7,919)
—
—
—
—
(2,540)
628
2,565
(6,771)
2,299
(4,472)
(254)
32
(222)
(17,437)
4,128
(13,309)
—
— $
(224)
95,994
$
(12)
1,000
$
(60)
19,266
$
—
— $
—
19,126
$
—
1,115
(296)
$ 136,501
5
$
81,267
$
490
$
30,752
$
— $
33,210
$
20
$ 145,744
(5)
21,543
242
(2,305)
—
—
—
(10,486)
—
(10,486)
—
—
—
(2,000)
1,074
(926)
—
—
—
—
5,655
764
25,894
(15,270)
2,543
(12,727)
(96)
21
(75)
(27,852)
3,638
(24,214)
—
— $
85
7
25
92,409
$
739
$
27,546
$
—
— $
—
26,138
$
—
709
117
$ 147,541
Year ended September 30, 2014:
Balance at beginning of year:
Provision (benefit) for loan
$
losses
Net (charge-offs)/recoveries:
Charge-offs
Recoveries
Net (charge-offs)/recoveries
Foreign currency translation
adjustment
Balance at September 30, 2014
Year ended September 30, 2013:
Balance at beginning of year:
Provision (benefit) for loan
losses
Net (charge-offs)/recoveries:
Charge-offs
Recoveries
Net charge-offs
Foreign currency 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)/recoveries:
Charge-offs
Recoveries
Net charge-offs
Foreign currency translation
adjustment
$
$
$
$
Balance at September 30, 2012
$
145
Index
The following table presents, by loan portfolio segment, RJ Bank’s recorded investment and related allowance for loan losses:
C&I
CRE
construction
Loans held for investment
CRE
Tax-exempt
(in thousands)
Residential
mortgage
SBL
Total
September 30, 2014:
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
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
Collectively evaluated for
impairment
Total recorded
investment
$
1,289
$
— $
— $
— $
5,012
101,890
1,594
25,022
1,380
9,338
$
103,179
$
1,594
$
25,022
$
1,380
$
14,350
$
$
— $
6,301
2,049
141,273
2,049
$
147,574
$
11,959
$
— $
18,876
$
— $
65,793
$
— $
96,628
6,410,388
94,195
1,670,287
122,218
1,685,954
1,023,748
11,006,790
$ 6,422,347
$
94,195
$ 1,689,163
$
122,218
$ 1,751,747
$ 1,023,748
$ 11,103,418
$
$
$
— $
— $
1
$
— $
6,650 (2) $
— $
6,651
95,994
1,000
19,265
—
12,476 (2)
1,115
129,850
95,994
$
1,000
$
19,266
$
— $
19,126
$
1,115
$
136,501
89
$
— $
25,512
$
— $
74,105 (2) $
— $
99,706
5,245,916
60,840
1,257,534
—
1,671,545 (2)
555,805
8,791,640
$ 5,246,005
$
60,840
$ 1,283,046
$
— $ 1,745,650
$
555,805
$
8,891,346
(1) Excludes any net unearned income and deferred expenses.
(2) The amounts presented have been revised from those reported in the prior year in order to present such prior year balances in a manner that
is consistent with the current year computational method.
The reserve for unfunded lending commitments was $10 million and $9.3 million at September 30, 2014 and 2013, respectively.
146
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,
2014
2013
(in thousands)
$
$
287,144
32,636
22,950
83,509
28,421
154,681
45,915
655,256
$
$
244,921
12,125
21,300
77,765
33,670
171,135
50,509
611,425
(1) As of September 30, 2014, we own life insurance policies with a cumulative face value of $797.2 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 $28.4 million and $33.7 million is included in trade and other payables on our Consolidated
Statements of Financial Condition as of September 30, 2014 and 2013, respectively. See Note 21 for further discussion of our obligations
under the guarantee.
(3) The indemnification asset 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 21 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.
147
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 VIEs we
consolidate are provided in the table below.
September 30, 2014
LIHTC Funds
Guaranteed LIHTC Fund (2)
Restricted Stock Trust Fund
EIF Funds
Total
September 30, 2013
LIHTC Funds
Guaranteed LIHTC Fund (2)
Restricted Stock Trust Fund
EIF Funds
Total
Aggregate
assets (1)
Aggregate
liabilities (1)
(in thousands)
$
$
$
$
179,050
74,798
6,608
6,041
266,497
208,634
81,712
13,075
7,588
311,009
$
$
$
$
60,180
—
6,608
—
66,788
78,055
—
6,710
—
84,765
(1) Aggregate assets and aggregate liabilities differ from the consolidated carrying value of assets and liabilities due to the elimination of
intercompany assets and liabilities held by the consolidated VIE.
(2) In connection with one of the multi-investor tax credit funds in which RJTCF is the managing member, RJTCF has provided one
investor member with a guaranteed return on their investment in the fund. See Note 10 for information regarding the financing asset
associated with this fund, and see Note 21 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 which 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,
2014
2013
(in thousands)
10,887
5,812
235,858
6,607
5,728
264,892
10,157
6,608
43,877
60,642
6,165
198,085
204,250
264,892
$
$
$
$
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
$
$
$
$
(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).
148
Index
The following table presents information about the net (loss) income 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 represents
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 (loss) income attributable to RJF
Low-income housing tax credit funds
2014
Year ended September 30,
2013
(in thousands)
2012
$
$
1
1,334
1,335
(2,900)
(1,565)
40,819
(42,384)
(42,374)
$
(10) $
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
RJTCF is the managing member or general partner in 91 separate low-income housing tax credit funds having one or more
investor members or limited partners, 81 of which are determined to be VIEs and ten of which are determined not to be VIEs. RJTCF
has concluded that it is the primary beneficiary of eight non-guaranteed LIHTC Fund VIEs and accordingly, consolidates these
funds. In addition, RJTCF consolidates the one Guaranteed LIHTC Fund VIE it sponsors. See Note 21 for further discussion of
the guarantee obligation as well as other RJTCF commitments. RJTCF also consolidates four of the funds it determined not to
be VIEs.
VIEs where we hold a variable interest but 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
One of our affiliates is the managing member of seven NMTC Funds, and, as discussed in Note 2, this affiliate is not deemed
to be the primary beneficiary of these NMTC Funds. These NMTC Funds are therefore 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. 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.
149
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 as to which
we have concluded we are not the primary beneficiary, are provided in the table below.
Aggregate
assets
September 30, 2014
Aggregate
liabilities
Our risk
of loss
Aggregate
assets
September 30, 2013
Aggregate
liabilities
Our risk
of loss
LIHTC Funds
NMTC Funds
Other Real Estate Limited Partnerships
and LLCs
Total
$
$
2,988,224
83,474
30,202
3,101,900
$
$
899,586
2
36,262
935,850
$
$
(in thousands)
48,915
13
$
2,532,457
140,499
183
49,111
$
30,240
2,703,196
$
$
762,346
278
35,512
798,136
$
$
14,387
13
212
14,612
VIEs where we hold a variable interest but we are not required to consolidate
Managed Funds
As described in Note 2, we have subsidiaries which serve as the general partner of the Managed Funds, which we have
concluded we are not required to consolidate.
The aggregate assets, liabilities, and our exposure to loss from Managed Funds are provided in the table below:
Aggregate
assets
September 30, 2014
Aggregate
liabilities
Our risk
of loss
Aggregate
assets
(in thousands)
September 30, 2013
Aggregate
liabilities
Our risk
of loss
Managed Funds
$
103,618
$
11
$
94
$
56,321
$
1,415
$
202
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,
2014
2013
$
(in thousands)
20,104
3,295
151,590
234,104
176,564
585,657
(340,256)
245,401
$
20,104
707
131,115
235,239
200,055
587,220
(342,804)
244,416
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
150
September 30,
2014
2013
(in thousands)
$
$
295,486
$
58,775
354,261
$
295,486
65,978
361,464
Index
Goodwill
Our goodwill as of September 30, 2014 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 Hoefer
& Arnett, and our April 2, 2012 acquisition of Morgan Keegan (see Note 3 for additional information regarding this acquisition).
The goodwill that arose from our April 4, 2011 acquisition of a controlling interest in Raymond James European Securities, S.A.S
(“RJES”) was determined to be completely impaired in fiscal year 2013.
The following summarizes our goodwill by segment, along with the balance and activity for the years indicated:
Goodwill at September 30, 2012
Additions (1)
Impairment losses (2)
Goodwill at September 30, 2013
Impairment losses
Goodwill at September 30, 2014
Segment
Private client
group
Capital
markets
(in thousands)
Total
$
$
$
173,317
$
126,794
$
300,111
1,267
—
1,041
(6,933)
2,308
(6,933)
174,584
$
120,902
$
295,486
—
—
—
174,584
$
120,902
$
295,486
(1) The goodwill adjustment in the prior fiscal year arose 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.
(2) The impairment expense in the prior fiscal 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 fiscal year 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.
As described in Note 2, 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 during the quarter ended March 31, 2014, evaluating the balances as
of December 31, 2013. We performed a qualitative assessment for each reporting unit that includes an allocation of goodwill to
determine whether it is more likely than not that the carrying value of such reporting unit, including the recorded goodwill, is in
excess of the fair value of the reporting unit. In any instance in which we are unable to qualitatively conclude that it is more likely
than not that the fair value of the reporting unit exceeds the reporting unit carrying value including goodwill, a quantitative analysis
of the fair value of the reporting unit would be performed. Based upon the outcome of our qualitative assessment, we determined
that no quantitative analysis of the fair value of any reporting unit as of December 31, 2013 was required, and we concluded that
none of the goodwill allocated to any of our reporting units as of December 31, 2013 was impaired. No events have occurred
since December 31, 2013 that would cause us to update our latest annual impairment testing.
In the prior fiscal year, we performed our annual goodwill impairment testing as of December 31, 2012. For this testing, we
did not choose to exercise the option to perform a qualitative assessment, but instead chose 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
151
Index
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.
The following summarizes certain key assumptions utilized in our quantitative analysis performed in the prior fiscal year:
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 prior year quantitative assessments, 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 as of December 31, 2012
was primarily due to the economic slowdown experienced in Europe which was having a negative impact on the financial services
entities operating therein at such time, as well as certain management decisions that were made during the quarter ended March
31, 2013 which impacted 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 fiscal year 2013.
152
Index
Identifiable intangible assets, net
The following table sets forth 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, 2011 $
210
$
833
$
Additions(1)
Amortization expense
Impairment losses
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
—
(638)
—
—
(7,832)
—
$
$
—
—
—
—
—
13,329 (2)
(1,000)
—
Net identifiable intangible assets as of September 30, 2013 $
9,191
$
43,474
$
12,329
$
Additions
Amortization expense
Impairment losses
—
(580)
—
—
(5,499)
—
—
(1,333)
—
—
—
—
—
—
1,085 (3)
(101)
—
984
408 (3)
(199)
—
$
1,043
65,000
(4,908)
—
$
61,135
14,414
(9,571)
—
$
65,978
408
(7,611)
—
Net identifiable intangible assets as of September 30, 2014 $
8,611
$
37,975
$
10,996
$
1,193
$
58,775
(1) The fiscal year 2012 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) This fiscal year 2013 addition is 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.
(3) The additions are the result of mortgage servicing rights held by RJ Bank. The estimated useful life associated with these additions
is approximately 10 years.
Identifiable intangible assets by type are presented below:
Customer relationships
Trade name
Developed technology
Non-compete agreements
Mortgage servicing rights
Total
September 30, 2014
September 30, 2013
Gross
carrying
value
Accumulated
amortization
Gross
carrying
value
Accumulated
amortization
(in thousands)
$
$
65,957
2,000
11,000
1,000
1,493
81,450
$
$
(13,875)
(2,000)
(5,500)
(1,000)
(300)
(22,675)
$
$
65,957
2,000
11,000
1,000
1,085
81,042
$
$
(8,663)
(2,000)
(3,300)
(1,000)
(101)
(15,064)
153
Index
Projected amortization expense by fiscal year associated with the identifiable intangible assets as of September 30, 2014 is
as follows:
Fiscal year ended September 30,
2015
2016
2017
2018
2019
Thereafter
$
$
NOTE 14 – BANK DEPOSITS
(in thousands)
7,469
7,289
6,177
5,065
5,056
27,719
58,775
Bank deposits include Negotiable Order of Withdrawal (“NOW”) accounts, demand deposits, savings and money market
accounts and certificates of deposit of RJ Bank. The following table presents a summary of bank deposits including the weighted-
average rate:
September 30, 2014
September 30, 2013
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)
$
$
5,792
8,386
9,670,043
344,703
10,028,924
($ in thousands)
0.01% $
—
0.02%
1.81%
0.09% $
7,003
8,555
8,966,439
313,374
9,295,371
0.01%
—
0.02%
1.96%
0.09%
(1) Weighted-average rate calculation is based on the actual deposit balances at September 30, 2014 and 2013, respectively.
(2) Bank deposits exclude affiliate deposits of approximately $509 million (which includes $500 million held in a deposit account on
behalf of RJF, see Note 30) at September 30, 2014, and $6 million at September 30, 2013.
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, 2014
September 30, 2013
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)
9,482
10,317
21,002
27,722
33,529
11,301
24,587
137,940
$
7,343
5,908
9,459
31,123
33,404
47,822
36,574
171,633
$
$
8,540
6,264
13,976
37,918
27,873
35,270
11,900
141,741
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
$
$
11,761
9,067
15,809
33,366
45,842
35,362
55,556
206,763
$
$
154
Index
Interest expense on deposits is summarized as follows:
Certificates of deposit
Money market, savings and NOW accounts
Total interest expense on deposits
NOTE 15 – OTHER BORROWINGS
The following table details the components of other borrowings:
Other borrowings:
FHLB advances
Borrowings on secured lines of credit (2)
Borrowings on ClariVest revolving credit facility
Borrowings on unsecured lines of credit (4)
Total other borrowings
2014
Year ended September 30,
2013
(in thousands)
2012
$
$
6,126
1,833
7,959
$
$
6,239
2,793
9,032
$
$
6,501
2,983
9,484
September 30,
2014
2013
(in thousands)
$
$
500,000 (1) $
154,700
216 (3)
—
654,916
$
—
84,076
—
—
84,076
(1) Borrowings from the FHLB at September 30, 2014 are comprised of two $250 million floating-rate advances. The weighted average
interest rate on these advances is 0.20% at September 30, 2014. These advances are secured by a blanket lien granted to the FHLB
on RJ Bank’s residential loan portfolio and mature in September 2017. The interest rate resets on a monthly basis for one of the
advances, and a quarterly basis for the other. RJ Bank has the option to prepay each advance without penalty on each interest reset
date.
(2) Other than a $5 million borrowing outstanding on the Regions Credit Facility (as hereinafter defined) as of both September 30, 2014
and 2013, any borrowings on secured lines of credit are day-to-day and are generally utilized to finance certain fixed income securities.
A subsidiary of RJF (the “Borrower”) is a party to a Revolving Credit Agreement (the “Regions Credit Facility”) with Regions Bank.
The Regions Credit Facility provides for a revolving line of credit from Regions Bank to the Borrower and is subject to a guarantee
in favor of Regions Bank provided by RJF. The proceeds from any borrowings under the line are used for working capital and general
corporate purposes. The obligations under the Regions Credit Facility 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 Regions Credit Facility cannot
exceed the lesser of 70% of the value of the Pledged ARS, or $100 million. The maximum amount available to borrow was $92.4
million and the outstanding borrowings were $5 million as of September 30, 2014. The Regions Credit Facility bears interest at a
variable rate which is 2.75% over LIBOR. The facility expires on April 2, 2015.
(3) The outstanding balance on the revolving line of credit provided to ClariVest by a third party lender (the “ClariVest Facility”). The
maximum amount available to borrow under ClariVest Facility is $500 thousand, bearing interest at a variable rate which is 1% over
the lenders prime rate. The ClariVest Facility expires on September 10, 2018.
(4) 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, a lenders prime rate, or the Canadian prime rate, as applicable. For the fiscal year ended September 30,
2014, interest rates on the U.S. facilities, other than the ClariVest Facility and the Regions Credit Facility, which were utilized
during the year ranged from 0.19% to 2.25% (on a 360 days per year basis). The interest rate on the ClariVest Facility during the
fiscal year ended September 30, 2014 was 4.25% (on a 360 days per year basis). The interest rate on the Canadian facility which
was utilized from time-to-time throughout fiscal year 2014 was 2.25% (on a 360 days per year basis).
155
Index
Our other borrowings as of September 30, 2014, mature as follows based on their contractual terms:
Fiscal year ended September 30,
2015
2016
2017
2018
Total
$
$
(in thousands)
154,700
—
500,000
216
654,916
There were other collateralized financings outstanding in the amount of $244 million and $301 million as of September 30,
2014 and 2013, respectively. 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. See Note 19 for additional information regarding offsetting asset and liability balances as well as additional information
regarding the collateral.
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:
September 30,
2014
2013
Current portion of loans payable
Long-term portion of loans payable
Total loans payable
$
$
$
(in thousands)
17,949
25,928
43,877
$
19,061
43,877
62,938
The principal amount of the VIEs’ borrowings as of September 30, 2014, mature as follows based on their contractual terms:
Fiscal year ended September 30,
2015
2016
2017
2018
2019
Total
$
$
(in thousands)
17,949
13,331
8,240
3,668
689
43,877
156
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 $154 thousand and $255 thousand
at September 30, 2014 and 2013, respectively (2)
8.60% senior notes, due 2019, net of unamortized discount of $25 thousand and $30 thousand at
September 30, 2014 and 2013, respectively (3)
5.625% senior notes, due 2024, net of unamortized discount of $787 thousand and $869 thousand
at September 30, 2014 and 2013, respectively (4)
6.90% senior notes, due 2042 (5)
Total corporate debt
September 30,
2014
2013
(in thousands)
41,802
$
249,846
299,975
249,213
350,000
1,190,836
$
45,662
249,745
299,970
249,131
350,000
1,194,508
$
$
(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 $50.5 million at September 30, 2014. 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.
Our corporate debt as of September 30, 2014, matures as follows based on its contractual terms:
Fiscal year ended September 30,
2015
2016
2017
2018
2019
Thereafter
Total
$
$
(in thousands)
4,086
254,171
4,578
4,846
305,105
618,050
1,190,836
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.
157
Index
Derivatives arising from our fixed income business operations
We enter into derivatives contracts as part of our fixed income operations in either over-the-counter market activities, or
through “matched book” activities. Each of these activities are described further below.
We enter into interest rate swaps and futures contracts either as part of our fixed income business to facilitate client transactions,
to hedge a portion of our trading inventory, or to a limited extent for our own account. The majority of these derivative positions
are executed in the over-the-counter market with financial institutions (the “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.
RJSS enters into derivative transactions (primarily interest rate swaps) with clients. For every derivative transaction RJSS
enters into with a customer, RJSS enters into an offsetting transaction, on terms that mirror the customer transaction, with a credit
support provider which 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. 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.
In these activities, we do not use derivative instruments for trading or hedging purposes. 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 client 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 $7 million and $8 million at September 30, 2014
and 2013, 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.
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 by 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 allows 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. Refer to Note 19 for additional information
regarding offsetting asset and liability balances.
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 $21 million and
$13 million at September 30, 2014 and 2013, respectively. 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 $23 million and $22 million at September 30,
2014 and September 30, 2013, respectively. Our maximum loss exposure under the interest rate swap contracts arising from our
OTC Derivatives Operations at September 30, 2014 is $29 million.
158
Index
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. As of September 30, 2014, all of RJ Bank’s forward foreign exchange contracts are
assets, therefore we consider there to be no significant exposure to loss under these contracts.
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, 2014
Notional
amount
Asset derivatives
Fair
value(1)
Balance sheet
location
(in thousands)
September 30, 2013
Notional
amount
Fair
value(1)
Derivatives designated as
hedging instruments:
Forward foreign exchange
contracts
Derivatives not designated
as hedging instruments:
Interest rate contracts(2)
Interest rate contracts(3)
Forward foreign exchange
contracts
Prepaid
expenses and
other assets
Trading
instruments
Derivative
instruments
associated with
offsetting
matched book
positions
Prepaid
expenses and
other assets
$
609,018
$
2,101 Prepaid
expenses and
other assets
$
$
2,198,357
1,796,288
$
$
89,923 Trading
instruments
323,337 Derivative
instruments
associated with
offsetting
matched book
positions
$
105,179
$
361 Prepaid
expenses and
other assets
$
$
$
$
— $
—
2,407,387
1,944,408
$
$
89,633
250,341
— $
—
Balance sheet
location
September 30, 2014
Notional
amount
Liability derivatives
Fair
value(1)
Balance sheet
location
(in thousands)
September 30, 2013
Notional
amount
Fair
value(1)
Derivatives designated as
hedging instruments:
Forward foreign exchange
contracts
Derivatives not designated
as hedging instruments:
Interest rate contracts(2)
Interest rate contracts(3)
Forward foreign exchange
contracts
Trade and other
payables
Trading
instruments
sold
Derivative
instruments
associated with
offsetting
matched book
positions
Trade and other
payables
$
$
$
$
— $
— Trade and other
payables
2,185,085
$
75,668 Trading
1,796,288
$
— $
instruments
sold
323,337 Derivative
instruments
associated with
offsetting
matched book
positions
— Trade and other
payables
$
$
$
655,828
$
637
2,420,531
$
74,920
1,944,408
$
250,341
$
79,588
$
77
(1)
(2)
(3)
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. See Note 19 for additional information regarding offsetting asset and liability balances.
These contracts arise from our OTC Derivatives Operations.
These contracts arise from our Offsetting Matched Book Derivatives Operations.
159
Index
Gains recognized on forward foreign exchange derivatives in AOCI totaled $29 million and $14 million net of income taxes
for the years ended September 30, 2014 and 2013, respectively. Losses recognized on forward foreign exchange derivatives in
AOCI totaled $10 million net of income taxes, for the year ended September 30, 2012 (see Note 22 for additional
information). There was no hedge ineffectiveness and no components of derivative gains or losses were excluded from the
assessment of hedge effectiveness for any of the years ended September 30, 2014, 2013 or 2012.
The table below sets forth 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)
Forward foreign exchange contracts
Net trading profit
Other revenues
Other revenues
Amount of gain (loss) on derivatives
recognized in income
Year ended September 30,
2014
2013
(in thousands)
2012
$
$
$
1,554
712
5,694
$
$
$
993
225
1,577
$
$
$
(116)
835
(591)
(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, 2014 is $3.7 million, for which we have
posted collateral of $3.8 million in the normal course of business. If the credit-risk-related contingent features underlying these
agreements were triggered on September 30, 2014, we would not have been required to post any additional 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.
160
Index
NOTE 19 – DISCLOSURE OF OFFSETTING ASSETS AND LIABILITIES, COLLATERAL AND ENCUMBERED
ASSETS
The following table presents information about the financial and derivative instruments that are offset or subject to an
enforceable master netting arrangement or other similar agreement as of the dates indicated:
Gross amounts not offset in the
Statements of Financial Condition
Gross amounts
of recognized
assets
(liabilities)
Gross amounts
offset in the
Statements of
Financial
Condition
Net amounts
presented in
the Statements
of Financial
Condition
Financial
instruments
Cash
collateral
received
(paid)
Net amount
(in thousands)
$
446,016
$
— $
446,016
$
(446,016)
(1)
$
— $
—
$
$
89,923
323,337
2,462
158,988
(61,718)
—
—
—
28,205
323,337
(3,877)
(323,337)
(3)
2,462
—
158,988
(153,261)
1,020,726
$
(61,718) $
959,008
$
(926,491)
(244,495) $
— $
(244,495) $
244,495
(75,668)
63,296
(12,372)
—
(323,337)
(417,383)
—
—
(323,337)
323,337
(417,383)
402,180
970,012
$
709,120
$
— $
709,120
$
(709,120)
89,633
250,341
146,749
(61,524)
—
—
28,109
250,341
(6,409)
(250,341)
(3)
146,749
(143,108)
1,195,843
$
(61,524) $
1,134,319
$
(1,108,978)
(300,933) $
— $
(300,933) $
300,933
(74,920)
(250,341)
(714)
69,279
—
—
(5,641)
(250,341)
—
250,341
(714)
—
(5)
(3)
(354,377)
(981,285) $
—
69,279
$
(354,377)
(912,006) $
342,096
893,370
$
$
$
(5)
(3)
(1)
—
—
—
—
— $
24,328
—
2,462
5,727
32,517
— $
—
—
—
—
— $
(12,372)
—
(15,203)
(27,575)
— $
—
—
—
—
— $
21,700
—
3,641
25,341
— $
—
—
—
—
—
— $
(5,641)
—
(714)
(12,281)
(18,636)
$
$
$
$
$
$
$
As of September 30, 2014:
Assets
Securities purchased under
agreements to resell and other
collateralized financings
Derivatives - interest rate contracts(2)
Derivative instruments associated
with offsetting matched book
positions
Derivatives - forward foreign
exchange contracts(4)
Stock borrowed
Total assets
Liabilities
Securities sold under agreements to
repurchase
Derivatives - interest rate contracts(2)
Derivative instruments associated
with offsetting matched book
positions
Stock loaned
As of September 30, 2013:
Assets
Securities purchased under
agreements to resell and other
collateralized financings
Derivatives - interest rate contracts(2)
Derivative instruments associated
with offsetting matched book
positions
Stock borrowed
Total assets
Liabilities
Securities sold under agreements to
repurchase
Derivatives - interest rate contracts(2)
Derivative instruments associated
with offsetting matched book
positions
Derivatives - forward foreign
exchange contracts(6)
Stock loaned
Total liabilities
Total liabilities
$
(1,060,883) $
63,296
$
(997,587) $
The text of the footnotes in the above table are on the following page.
161
Index
The text of the footnotes to the table on the previous page are as follows:
(1) We are over-collateralized since the actual amount of financial instruments pledged as collateral for securities purchased under
agreements to resell and other collateralized financings amounts to $463.7 million and $725.9 million as of September 30, 2014 and
2013, respectively.
(2) Derivatives - interest rate contracts are included in Trading instruments on our Consolidated Statements of Financial Condition. See
Note 18 for additional information.
(3) Although these derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the nature
of the agreement with the third party intermediary include terms that are similar to a master netting agreement, thus we present the
offsetting amounts net in the table above. See Note 18 for further discussion of the “pass through” structure of the derivative instruments
associated with Offsetting Matched Book Derivatives Operations.
(4) As of September 30, 2014, the fair value of the forward foreign exchange contract derivatives are in an asset position, and are included
in prepaid expenses and other assets on our Consolidated Statements of Financial Condition. See Note 18 for additional information.
(5) We are over-collateralized since the actual amount of financial instruments pledged as collateral for securities sold under agreements
to repurchase amounts to $253.7 million and $313.5 million as of September 30, 2014 and 2013, respectively.
(6) As of September 30, 2013, the fair value of the forward foreign exchange contract derivatives are in a liability position, and are included
in trade and other payables on our Consolidated Statements of Financial Condition. See Note 18 for additional information.
For financial statement purposes, we do not offset our repurchase agreements or securities borrowing, securities lending
transactions and certain of our derivative instruments because the conditions for netting as specified by GAAP are not met. Our
repurchase agreements, securities borrowing and securities lending transactions, and certain of our derivative instruments, are
transacted under master agreements that are widely used by counterparties and that may allow for net settlements of payments in
the normal course as well as offsetting of all contracts with a given counterparty in the event of bankruptcy or default of one of
the two parties to the transaction. Although not offset on the Consolidated Statements of Financial Condition, these transactions
are included in the preceding table.
Collateral
We receive cash and securities as collateral, primarily in connection with Reverse Repurchase Agreements, securities borrowed,
derivative transactions, client margin loans arising from our domestic operations (see Note 8 for additional information), and the
secured call loans that are held by RJ Ltd. The cash collateral we receive is primarily associated with our OTC Derivative Operations
(see Note 18 for additional information). The collateral we receive reduces our credit exposure to individual counterparties.
In many cases, we are permitted to deliver or repledge financial instruments we have received as collateral, for our own use
in our repurchase agreements, securities lending agreements, other secured borrowings, satisfaction of deposit requirements with
clearing organizations, or otherwise meeting either our, or our clients, settlement requirements.
The table below presents financial instruments at fair value, that we received as collateral, are not included on our Consolidated
Statements of Financial Condition, and that were available to be delivered or repledged, along with the balances of such instruments
that were used to deliver or repledge, to satisfy one of our purposes described above:
September 30, 2014
September 30, 2013
(in thousands)
Collateral we received that is available to be delivered or repledged
$
2,178,868
$
2,315,701
Collateral that we delivered or repledged
879,071 (1)
897,879 (2)
(1) The collateral delivered or repledged as of September 30, 2014, includes client margin securities which we pledged with a clearing
organization in the amount of $138.8 million which were applied against our requirement of $116.5 million.
(2) The collateral delivered or repledged as of September 30, 2013, includes client margin securities which we pledged with a clearing
organization in the amount of $189.4 million which were applied against our requirement of $128.5 million.
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Index
Encumbered assets
We pledge certain of our trading instrument assets to collateralize either Repurchase Agreements, other secured borrowings,
or to satisfy our settlement requirements, with counterparties who may or may not have the right to deliver or repledge such
securities.
The table below presents information about the fair value of our assets that have been pledged for one of the purposes described
above:
September 30, 2014
September 30, 2013
(in thousands)
Financial instruments owned, at fair value, pledged to counterparties that:
Had the right to deliver or repledge
Did not have the right to deliver or repledge
$
394,746
50,983 (1)
$
332,079
91,320 (2)
(1) Assets delivered or repledged as of September 30, 2014, includes securities which we pledged with a clearing organization in the
amount of $18.9 million which were applied against our requirement of $116.5 million (client margin securities we pledged which are
described in the preceding table constitute the remainder of the assets pledged to meet the requirement).
(2) Assets delivered or repledged as of September 30, 2013, includes securities which we pledged with a clearing organization in the
amount of $18 million which were applied against our requirement of $128.5 million (client margin securities we pledged which are
described in the preceding table constitute the remainder of the assets pledged to meet the requirement).
NOTE 20 – INCOME TAXES
Total income taxes are allocated as follows:
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 and net investment
hedges
Equity, for available for sale securities
Total
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
2014
Year ended September 30,
2013
(in thousands)
2012
267,797
$
197,033
$
175,656
(7,437)
(2,590)
(2,613)
15,142
3,694
279,196
$
6,861
8,986
210,290
$
(5,741)
7,611
174,913
2014
Year ended September 30,
2013
(in thousands)
2012
260,504
29,904
12,560
302,968
(35,262)
(410)
501
(35,171)
267,797
$
$
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
$
$
$
$
163
Index
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 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
$
$
2014
Amount
%
Year ended September 30,
2013
Amount
($ in thousands)
%
2012
Amount
%
261,816
18,826
(2,146)
35 % $
2.5 %
(0.3)%
197,466
21,662
(2,074)
35 % $
3.8 %
(0.4)%
165,034
19,566
(2,291)
35 %
4.1 %
(0.5)%
(6,365)
(0.8)%
(7,809)
(1.3)%
(8,318)
(1.8)%
(3,910)
5,691
(0.5)%
0.8 %
(1,056)
4,920
(0.2)%
0.9 %
(1,830)
3,752
(0.4)%
0.8 %
2,681
—
(8,796)
267,797
0.4 %
—
(1.3)%
35.8 % $
2,471
(10,676)
(7,871)
197,033
0.4 %
(1.9)%
(1.4)%
34.9 % $
2,843
—
(3,100)
175,656
0.6 %
—
(0.5)%
37.3 %
(1) Prior to fiscal year 2013, we had historically provided deferred taxes for the presumed repatriation to the U.S. of earnings from certain
foreign subsidiaries. In fiscal year 2013, management changed its assertion related to the earnings of one of our Canadian subsidiaries
resulting in a prior year decrease in deferred tax liabilities related to undistributed foreign earnings.
U.S. and foreign components of income excluding noncontrolling interests and before provision for income taxes are as
2014
Year ended September 30,
2013
(in thousands)
550,113
$
14,074
564,187
$
$
$
705,878
42,167
748,045
2012
456,175
15,350
471,525
follows:
U.S.
Foreign
$
Income excluding noncontrolling interest and before provision for income taxes $
164
Index
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
Fixed assets
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
Other
Total deferred tax liabilities
Net deferred tax assets
September 30,
2014
2013
(in thousands)
$
$
150,392
59,078
9,230
32,633
3,708
1,204
1,885
23,037
281,167
(9)
281,158
(19,295)
(16,925)
(11,197)
—
(2,416)
(49,833)
231,325
$
$
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
We have a net deferred tax asset at September 30, 2014 and 2013. This asset includes net operating losses that will expire
between 2015 and 2030. A valuation allowance for the fiscal year ended September 30, 2014 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 $231.3 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 $11.2 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, 2014, we have approximately $224 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.
As of September 30, 2014, the current tax receivable included in other receivables is $11 million, and a current tax payable
of $30 million is included in trade and other payables on our Consolidated Statements of Financial Condition. 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.
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, 2014, accrued interest expense related to unrecognized tax benefits increased
by approximately $151 thousand. During the year ended September 30, 2014, penalty expense related to unrecognized tax benefits
decreased by approximately $351 thousand. As of September 30, 2014 and 2013, accrued interest and penalties were approximately
$4.9 million and $5.1 million, respectively.
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Index
The aggregate changes in the balances for unrecognized tax benefits are as follows:
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 (2)
Decreases for tax positions related to prior years
Decreases due to lapsed statute of limitations
Decreases related to settlements
Balance for unrecognized tax benefits at end of year
2014
Year ended September 30,
2013 (1)
(in thousands)
2012 (1)
$
$
13,663
3,228
2,455
(1,642)
(1,218)
(682)
15,804
$
$
9,473
2,020
3,107
(284)
(653)
—
13,663
$
$
3,408
1,434
5,327
(256)
(440)
—
9,473
(1) The amounts presented have been revised from those reported in the prior year to exclude interest and penalties for fiscal years ending
September 30, 2013 and 2012 in the amounts of $5.1 million and $3.2 million, respectively. The revised amounts more clearly reflect
changes in unrecognized tax benefits in each respective period shown.
(2) The increases are 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 $10.3 million and
$9.5 million at September 30, 2014 and 2013, 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 2010 for state and local tax returns and fiscal year 2009 for foreign tax
returns. Certain transactions from our fiscal year 2014 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 2015.
NOTE 21 – COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments and contingencies
In the normal course of business we enter into underwriting commitments. As of September 30, 2014, RJ&A had one open
transaction involving such commitments which was subsequently settled in open market transactions at amounts which
approximated the carrying value of this commitment in our Consolidated Statements of Financial Condition as of September 30,
2014. Transactions of RJ Ltd. involving such commitments that were recorded and open at September 30, 2014, were
approximately $14.4 million in Canadian currency (“CDN”).
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. As of
September 30, 2014 we had made commitments, to either prospects that had accepted our offer, or recently recruited producers,
of approximately $44.6 million that had not yet been funded.
As of September 30, 2014, RJ Bank had not settled purchases of $160.2 million in syndicated loans. These loan purchases
are expected to be settled within 90 days.
A subsidiary of RJ Bank has committed $45.5 million as an investor member in a low-income housing tax credit fund in which
a subsidiary of RJTCF is the managing member (see the discussion of “direct investments in LIHTC project partnerships” in Note
2 for information regarding the accounting policies governing these investments). As of September 30, 2014, the RJ Bank subsidiary
has invested $16.3 million of the committed amount.
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Index
RJ Bank has a committed limited partner investment of $3 million to a limited partnership, $735 thousand of this committed
amount has been invested as of September 30, 2014.
During fiscal year 2014, RJ Bank entered into a forward-starting advance transaction with the FHLB to borrow $25 million
on October 13, 2015. Once funded, this borrowing will bear interest at the rate of 3.4% and will mature on October 13, 2020.
See Note 27 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 unfunded commitments to various venture capital or private equity partnerships, which aggregate to approximately
$61 million as of September 30, 2014. Of the total, we have unfunded commitments to internally-sponsored private equity limited
partnerships in which we control the general partner of approximately $20 million.
RJF has committed to lend to RJTCF, or to guarantee obligations in connection with RJTCF’s low-income housing
development/rehabilitation and syndication activities, in amounts aggregating up to $175 million upon request, subject to certain
limitations and to annual review and renewal. At September 30, 2014, RJTCF has $53 million in outstanding cash borrowings and
$20 million in unfunded commitments outstanding against this commitment. RJTCF borrows from RJF in order to make
investments in, or fund loans or advances to, either partnerships that 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, and LIHTC Funds.
Long-term lease agreements expire at various times through fiscal year 2026. Minimum annual rental payments under such
agreements for the succeeding five fiscal years are approximately: $77.3 million in fiscal year 2015, $71.1 million in fiscal year
2016, $61.2 million in fiscal year 2017, $49.1 million in fiscal year 2018, $40.2 million in fiscal year 2019 and $99.2 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 $90.8 million, $90.5
million and $73.9 million in fiscal years 2014, 2013 and 2012, respectively.
As a part of our fixed income public finance operations, RJ&A enters into forward commitments to purchase GNMA or FNMA
MBS (see the discussion of these activities within “financial instruments owned, financial instruments sold but not purchased and
fair value” in Note 2). At September 30, 2014, RJ&A had approximately $323 million principal amount of outstanding forward
MBS purchase commitments which are expected to be purchased over the following 90 days. 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, RJ&A
enters into 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, 2014 aggregate to a net liability having a
fair value of $770 thousand. The estimated fair value of the purchase commitment is a $770 thousand asset balance as of
September 30, 2014.
As a result of extensive regulation of financial holding companies, banks, broker-dealers and investment advisory entities,
RJF and certain of its subsidiaries are subject to regular reviews and inspections by regulatory authorities and self-regulatory
organizations. The 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, regulatory agencies and
self-regulatory organizations institute investigations from time to time into industry practices, which can also result in the imposition
of sanctions. See Note 26 for additional information regarding regulatory capital requirements applicable to RJF and certain of
its 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, 2014, the exposure under these guarantees is $3.7 million, which was underwritten as part of
RJ Bank’s corporate credit relationship with such borrowers. The outstanding interest rate swaps at September 30, 2014 have
maturities ranging from January 2015 through July 2021. 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, 2014. The estimated total potential exposure
under these guarantees is $10.5 million at September 30, 2014.
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Index
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, 2014, 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 Regions Credit Facility. See further discussion of this borrowing
in Notes 3 and 15.
RJF guarantees the existing mortgage debt of RJ&A of approximately $41.8 million. See Notes 15, 16 and 17 for information
regarding our financing arrangements.
Our U.S. broker-dealer subsidiaries are required by federal law to be members of the Securities Investors Protection Corporation
(“SIPC”). The SIPC fund provides protection for securities held in client accounts up to $500,000 per client, with a limitation of
$250,000 on claims for cash balances. We have purchased excess SIPC coverage through various syndicates of Lloyd’s (the
“Excess SIPC Insurer”). For RJ&A, our clearing broker-dealer, the additional protection currently provided has an aggregate firm
limit of $750 million for cash and securities, including a sub-limit of $1.9 million per client for cash above basic SIPC. Account
protection applies when a SIPC member fails financially and is unable to meet obligations to clients. This coverage does not
protect against market fluctuations. RJF has provided an indemnity to the Excess SIPC Insurer against any and all losses they
may incur associated with the excess SIPC policies.
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 approximately $1.6 million as of September 30, 2014.
RJTCF has provided a guaranteed return on investment to a third party investor in one of its fund offerings (“Fund 34”),
and RJF has guaranteed RJTCF’s performance under the arrangement. Under the terms of the performance guarantee, should the
underlying LIHTC project partnerships held by Fund 34 fail to deliver a certain amount of tax credits and other tax benefits to
this investor over the next eight years, RJTCF is obligated to pay the investor an amount that results in the investor achieving a
minimum specified return on their investment. A $28.4 million financing asset is included in prepaid expenses and other assets
(see Note 10 for additional information), and a related $28.4 million liability is included in trade and other payables on our
Consolidated Statements of Financial Condition as of September 30, 2014 related to this obligation. The maximum exposure to
loss under this guarantee is approximately $35 million at September 30, 2014, which represents the undiscounted future payments
due the investor.
Legal matter contingencies
Indemnification from Regions
On the Closing Date RJF completed its acquisition of all of the issued and outstanding shares of Morgan Keegan. The terms
of the stock purchase agreement 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 (see Note 3 for a discussion of the indemnifications provided to RJF by Regions). All of the Morgan Keegan
matters described below 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 $15 million to $210 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,
2014, a receivable from Regions of approximately $1 million is included in other receivables, an indemnification asset of
approximately $154.7 million is included in other assets, and a liability for potential losses of approximately $154.4 million is
included within trade and other payables, all of which are reflected on our Consolidated Statements of Financial Condition pertaining
to the matters described below and the related indemnification from Regions. The amount included within trade and other payables
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Index
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.
Morgan Keegan matters subject to indemnification
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 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. Civil actions were brought by certain investors of the bonds beginning
in March 2012, seeking a return of their investment and unspecified compensatory and punitive damages. A punitive class action
was brought on behalf of purchasers of the bonds on September 4, 2012, seeking unspecified compensatory and punitive damages.
This action was certified as a class action representing all purchasers of the bonds between July 23, 2010 and September 30, 2011.
These actions are in various stages of litigation.
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 as
summarized above.
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, 2014, management currently estimates the aggregate
range of possible loss is from $0 to an amount of up to $9 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.
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Index
NOTE 22 - OTHER COMPREHENSIVE (LOSS) INCOME
Other comprehensive (loss) income
The activity in other comprehensive (loss) income and related tax effects are as follows:
Net unrealized gain on available for sale securities, (net of tax effect of $3.7 million in
fiscal year 2014, $9 million in fiscal year 2013, and $7.6 million in fiscal year 2012)
Net change in currency translations and net investment hedges (net of a tax effect of $15.1
million in fiscal year 2014, $6.9 million in fiscal year 2013 and ($5.7) million in fiscal
year 2012)
Other comprehensive (loss) income
$
$
Accumulated other comprehensive (loss) income
2014
Year ended September 30,
2013
(in thousands)
2012
6,021
$
15,042
$
12,886
(18,635)
(12,614) $
(13,763)
1,279
$
6,166
19,052
As described in Note 1, the FASB issued new accounting guidance for reporting reclassifications out of AOCI that are effective
for our fiscal year 2014. However, this new accounting guidance provides for it’s application on a prospective basis, and does
not require the periods prior it’s effective date to be presented in a similar manner. Accordingly, the tables below present the
relevant information for fiscal year 2014 presented in accordance with the new guidance, while the prior years are presented in
accordance with the preceding accounting guidance.
The following table presents the after-tax changes in each component of accumulated other comprehensive (loss) income for
the fiscal year ended September 30, 2014:
Year ended September 30, 2014
Unrealized
gain (loss) on
available for
sale
securities
Net currency
translations
and net
investment
hedges (1)
(in thousands)
Total
Accumulated other comprehensive income as of September 30, 2013
$
(1,276) $
12,002
$
10,726
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive (loss) income
Net other comprehensive (loss) income for the year
9,004
(2,983)
6,021
(18,635)
—
(9,631)
(2,983)
(18,635)
(12,614)
Accumulated other comprehensive (loss) income as of September 30, 2014
$
4,745
$
(6,633) $
(1,888)
(1) Includes net gains recognized on forward foreign exchange derivatives associated with hedges of RJ Bank’s foreign currency exposure
due to its non-U.S. dollar net investments (see Note 18 for additional information on these derivatives).
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Index
Reclassifications out of AOCI
The following table presents the income statement line items impacted by reclassifications out of accumulated other
comprehensive (loss) income during the year ended September 30, 2014:
Accumulated other comprehensive (loss) income
components:
Available for sale securities: (1)
Auction rate securities (2)
RJ Bank available for sale securities (3)
Total reclassifications for the period
$
$
Increase (decrease) in amounts
reclassified from accumulated
other comprehensive (loss)
income
Year ended September 30, 2014
(in thousands)
Affected line items in income statement
(4,614) Other revenue
(235) Other revenue
(4,849) Total before tax
1,866 Provision for income taxes
(2,983) Net of tax
(1) See Note 7 for additional information regarding the available for sale securities, and Note 5 for additional fair value information
regarding these securities.
(2) For the year ended September 30, 2014, other revenues include realized gains on the redemption or sale of ARS in the amount of $7.1
million, (see Note 7 for further information). The amounts presented in the table represent the reversal out of AOCI associated with
such ARS’ redeemed or sold. The net of such realized gain and this reversal out of AOCI represents the net effect of such redemptions
and sales activities on other comprehensive (loss) income (“OCI”) for each respective period, on a pre-tax basis.
(3) For the year ended September 30, 2014, other revenues include realized gains on the sale of certain available for sale securities held
by RJ Bank in the amount of $264 thousand (see Note 7 for further information). The amounts presented in the table represent the
reversal out of AOCI associated with such securities sold. The net of such realized gain and this reversal out of AOCI represents the
net effect of such sales activities on OCI for each respective period, on a pre-tax basis.
All of the components of other comprehensive (loss) income described above, net of tax, are attributable to RJF.
Fiscal year 2013
The components of accumulated other comprehensive income, net of income taxes, as of September 30, 2013 are as follows:
Net unrealized loss on available for sale securities, (net of tax effects of ($700) thousand at September 30, 2013)
Net currency translations and net investment hedges (net of a tax effect of $1.1 million at September 30, 2013) (1)
Accumulated other comprehensive income
September 30, 2013
(in thousands)
$
$
(1,276)
12,002
10,726
(1) Includes net gains recognized on forward foreign exchange derivatives of $14 million for the year ended September 30, 2013 (see Note
18 for additional information).
All of the components of other comprehensive income described above, net of tax, are attributable to RJF.
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Index
NOTE 23 – 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
$
2014
Year ended September 30,
2013
(in thousands)
2012
68,454
15,441
343,942
6,560
17,883
8,731
6,427
13,448
480,886
1,269
7,959
4,327
2,869
3,939
76,038
2,900
4,790
104,091
376,795
(13,565)
363,230
$
$
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
NOTE 24 - EMPLOYEE SHARE-BASED AND OTHER COMPENSATION
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, 2014 and
2013 was approximately 4,814,000 and 5,872,000, respectively. The market value of our common stock held by the ESOP at
September 30, 2014 was approximately $258 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 75% of the first $1,000 and 25%
of the next $1,000 of eligible 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 (see Note 10 for additional information) to earn a competitive rate of return for participants and to provide a source
of funds available to satisfy our obligations under this plan (the “Deferral Plan Funding Structure”).
Contributions to the qualified plans and the LTIP, are approved annually by the Board of Directors or a committee thereof.
We have a Voluntary Deferred Compensation Plan (the “VDCP”), a non-qualified and voluntary opportunity for certain highly
compensated employees to defer compensation. Eligible participants must have annual compensation of $300,000 or more, and
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Index
may elect to defer a percentage or specific dollar amount of their compensation into the VDCP. The Deferral Plan Funding Structure
is a source of funding for this plan.
We also maintain non-qualified deferred compensation plans for the benefit of certain employees that provide a return to the
participating employees based upon the performance of various referenced investments. 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, 2014, and 2013). We are no longer awarding contributions for these plans.
Compensation expense associated with all of the qualified and non-qualified plans described above totaled $111.3 million,
$98.7 million and $83.1 million for the fiscal years ended September 30, 2014, 2013 and 2012, 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, in some instances, 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:
2014
Year ended September 30,
2013
(in thousands)
8,382
$
596
9,068
667
$
2012
9,623
701
Total share-based expense
Income tax benefits related to share-based expense
$
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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 the fiscal years ended September 30, 2014, 2013 and 2012:
Dividend yield
Expected volatility
Risk-free interest rate
Expected lives (in years)
Year ended September 30,
2013
2012
2014
1.33%
39.84%
1.43%
5.5
1.37%
39.38%
0.67%
5.5
1.84%
45.17%
0.91%
4.6
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, 2014 is presented below:
Outstanding at October 1, 2013
Granted
Exercised
Forfeited
Outstanding at September 30, 2014
Weighted-
average
exercise
price ($)
Weighted-
average
remaining
contractual
term (years)
Aggregate
intrinsic
value ($)
Options
for shares
3,842,809 $
947,350
(617,969)
(110,730)
4,061,460
28.92
48.26
24.91
33.91
33.90
3.28 $ 79,921,605
Exercisable at September 30, 2014
510,623 $
26.14
0.83 $ 14,010,265
As of September 30, 2014, there was $20 million of total unrecognized pre-tax compensation cost, net of estimated forfeitures,
related to stock option awards. These costs are expected to be recognized over a weighted-average period of approximately 3.2
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,
2013
(in thousands, except per option amounts)
2014
2012
Weighted-average grant date fair value per option
Total intrinsic value of stock options exercised
Total grant date fair value of stock options vested
$
$
16.21
15,570
5,004
$
12.06
14,240
11,598
9.67
3,222
3,965
Cash received from stock option exercises during the fiscal year ended September 30, 2014 was $14 million. There was a
$674 thousand tax benefit realized during the fiscal year ended September 30, 2014 resulting from the exercise of option awards
during the fiscal year.
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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 $250,000. The
determination of the number of units or shares to be granted is determined by the Corporate Governance, Nominating and
Compensation Committee of the Board of Directors. Under the plan, the awards are generally restricted for a three to five year
period, during which time the awards are forfeitable in the event of termination other than for death, disability or retirement. The
following activity occurred during the fiscal year ended September 30, 2014:
Non-vested at October 1, 2013
Granted
Vested
Forfeited
Non-vested at September 30, 2014
Weighted-
average
grant date
fair value ($)
Shares/Units
5,917,411 $
1,038,882
(1,200,285)
(167,181)
5,588,827 $
31.66
48.80
27.77
34.17
35.61
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
$
2014
Year ended September 30,
2013
(in thousands)
48,621
$
16,607
$
54,666
19,105
2012
39,588
13,186
For the fiscal year ended September 30, 2014, we realized $8.2 million of excess tax benefits related to our restricted stock
awards.
As of September 30, 2014, there was $82.7 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 2.68 years. The total fair value of shares and unit awards vested under this plan during the fiscal year
ended September 30, 2014 was $33.4 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 average high and low market price on the day prior to the purchase date. Under the plan we sold approximately 397,000,
436,000 and 480,000 shares to employees during the years ended September 30, 2014, 2013 and 2012, respectively. The
compensation cost is calculated as the value of the 15% discount from market value and was $3 million, $2.7 million and $2.4
million during the fiscal years ended September 30, 2014, 2013 and 2012, 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.
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Index
We have 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 25 - 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 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, in some instances,
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.
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
2014
$
Year ended September 30,
2013
(in thousands)
1,282
$
487
$
2,523
959
2012
2,033
773
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 the fiscal years ended September 30, 2014, 2013 and 2012:
Dividend yield
Expected volatility
Risk-free interest rate
Expected lives (in years)
Year ended September 30,
2013
2012
2014
1.19%
40.27%
1.78%
3.43
1.34%
39.88%
1.16%
3.32
1.52%
43.84%
0.73%
3.27
The dividend yield assumption is based on our declared dividend as a percentage of the stock price at each point in time the
options are valued. 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.
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Index
A summary of independent contractor financial advisors option activity for the fiscal year ended September 30, 2014 is
presented below:
Outstanding at October 1, 2013
Granted
Exercised
Forfeited
Outstanding at September 30, 2014
Exercisable at September 30, 2014
Weighted-
average
exercise
price ($)
Weighted-
average
remaining
contractual
term (years)
Aggregate
intrinsic
value ($)
Options
for shares
228,250 $
61,925
(48,750)
(1,800)
239,625 $
27.88
48.58
21.79
38.20
34.37
3.26 $
4,604,000
7,000 $
18.18
0.15 $
248,000
As of September 30, 2014, there was $1.7 million 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 $24.02 per share at that date. These costs are expected to be recognized over a weighted-average period of approximately
3.29 years. The following activity for our independent contractor financial advisors occurred:
Total intrinsic value of stock options exercised
Total fair value of stock options vested
$
2014
Year ended September 30,
2013
(in thousands)
985
$
347
1,329
715
$
2012
783
1,116
Cash received from stock option exercises for the fiscal year ended September 30, 2014 was $1.1 million. There were $225
thousand excess tax benefits realized for the tax deductions from option exercise of awards to our independent contractor financial
advisors for the fiscal year ended September 30, 2014.
Restricted stock awards
Under the 2012 Plan we may grant restricted shares of common stock or restricted stock units to our independent contractor
financial advisors. The 2012 Plan is the successor the prior plan under which restricted stock or restricted stock units have been
issued to independent contractors. We issue new shares under this plan as it was approved by shareholders. Under the plan the
awards are generally restricted for a five year period, during which time the awards are forfeitable in the event the independent
contractor financial advisors are no longer associated with us, other than for death, disability or retirement. The following activity
for our independent contractor financial advisors occurred during the fiscal year ended September 30, 2014:
Non-vested at October 1, 2013
Granted
Vested
Forfeited
Non-vested at September 30, 2014
Weighted-
average
reporting date
fair value ($)
Shares/Units
26,184 $
—
(9,392)
(1,886)
14,906 $
41.67
53.58
The weighted-average fair value of share and unit awards vested during the fiscal year ended September 30, 2014 was $49.64
per share. The weighted-average fair value of share and unit awards forfeited during the fiscal year ended September 30, 2014
was $42.98 per share.
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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
2014
$
Year ended September 30,
2013
(in thousands)
829
$
315
317
121
$
2012
2,062
783
As of September 30, 2014, there was $107 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 $53.58 per share at that date. These costs are expected to be recognized over a weighted-average period of approximately
1.46 years. The total fair value of share and unit awards vested during the fiscal years ended September 30, 2014, 2013 and 2012
was $466 thousand, $3.1 million and $1.6 million, respectively.
Other compensation
We offer non-qualified deferred compensation plans that provide benefits to our independent contractor financial advisors
who meet certain production requirements. The Deferral Plan Funding Structure is a source of funding for this plan. The
contributions are made in amounts approved annually by management.
Certain independent contractor financial advisors are eligible to participate in our VDCP. Eligible participants must have
annual compensation of $300 thousand or more, and may elect to defer a percentage or specific dollar amount of their compensation
into the VDCP. The Deferral Plan Funding Structure is a source of funding for this plan.
NOTE 26 – REGULATIONS AND CAPITAL REQUIREMENTS
RJF, as a financial holding company, and RJ Bank, are subject to various capital requirements. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on our 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.
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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
RJF as of September 30, 2014:
Total capital (to risk-weighted assets) $
Tier I capital (to risk-weighted assets)
Tier I capital (to adjusted assets)
3,940,516
3,775,385
3,775,385
20.6% $
19.7%
16.4%
1,531,178
765,589
919,546
8.0% $
4.0%
4.0%
1,913,973
1,148,384
1,149,433
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)
3,445,136
3,294,595
3,294,595
19.8% $
18.9%
14.5%
1,391,974
697,269
908,854
8.0% $
4.0%
4.0%
1,739,968
1,045,903
1,136,067
10.0%
6.0%
5.0%
10.0%
6.0%
5.0%
The increase in RJF’s Total capital (to risk-weighted assets) and Tier I capital (to risk-weighted assets) at September 30, 2014
compared to September 30, 2013 is the result of positive earnings during the year ended September 30, 2014 offset by an increase
in the corporate loan portfolio. The increase in RJF’s Tier I capital (to adjusted assets) ratio at September 30, 2014 compared to
September 30, 2013 is primarily due to earnings during the year ended September 30, 2014 as well as a decrease in average
segregated assets offset by an increase in the average corporate loan portfolio.
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
RJ Bank as of September 30, 2014:
Total capital (to risk-weighted assets) $
Tier I capital (to risk-weighted assets)
Tier I capital (to adjusted assets)
1,460,895
1,314,374
1,314,374
12.5% $
11.2%
10.7%
935,852
467,926
492,186
8.0% $
4.0%
4.0%
1,169,815
701,889
615,232
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)
1,234,268
1,115,113
1,115,113
13.0% $
11.8%
10.4%
758,996
379,498
430,154
8.0% $
4.0%
4.0%
948,745
569,247
537,692
10.0%
6.0%
5.0%
10.0%
6.0%
5.0%
The decrease in RJ Bank’s Total capital and Tier I capital (to risk-weighted assets) ratios at September 30, 2014 compared to
September 30, 2013 is primarily due to growth in the corporate loan portfolio during the year ended September 30, 2014.
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.
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 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
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Index
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 and RJFS have each elected. Regulations require that minimum net capital,
as defined, be equal to the greater of $1 million, ($250 thousand for RJFS as of September 30, 2014) or two percent of aggregate
debit items arising from client transactions. FINRA may require a member firm to reduce its business if its net capital is less than
four percent of Aggregate Debit Items and may prohibit a member firm from expanding its business and declaring cash dividends
if its net capital is less than five percent of aggregate debit items.
The net capital position of our wholly owned broker-dealer subsidiary RJ&A is as follows:
Raymond James & Associates, Inc.:
(Alternative Method elected)
Net capital as a percent of aggregate debit items
Net capital
Less: required net capital
Excess net capital
As of September 30,
2014
2013
($ in thousands)
24.14%
442,866
(36,694)
406,172
$
$
23.14%
435,343
(37,625)
397,718
$
$
The net capital position of our wholly owned broker-dealer subsidiary RJFS is as follows:
Raymond James Financial Services, Inc.:
(Alternative Method elected)
Net capital
Less: required net capital
Excess net capital
As of September 30,
2014
2013
(in thousands)
$
$
23,748
(250)
23,498
$
$
18,103
(250)
17,853
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, 2014 or 2013.
The risk adjusted capital of RJ Ltd. is as follows (in Canadian currency):
Raymond James Ltd.:
Risk adjusted capital before minimum
Less: required minimum capital
Risk adjusted capital
As of September 30,
2014
2013
(in thousands)
$
$
107,645
(250)
107,395
$
$
52,777
(250)
52,527
Raymond James Trust, N.A., (“RJ Trust”) is regulated by the OCC and is required to maintain sufficient capital and meet
capital and liquidity requirements. As of September 30, 2014 and 2013, RJ Trust met the requirements.
At September 30, 2014, all of our other active regulated domestic and international subsidiaries are in compliance with and
met all capital requirements.
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Index
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 27 – 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.
In a number of instances in the discussions that follow, reference is made to collateral. Note 19 provides additional information
regarding the recorded balances in the Consolidated Statements of Financial Condition and the collateral balances related thereto.
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 $113.3 million and securities
loaned was $61 million at September 30, 2014, and the market value of securities borrowed was $64.6 million and securities
loaned was $42.7 million at September 30, 2013. The contract value of securities borrowed and securities loaned was $117.7
million and $67.3 million, respectively, at September 30, 2014 and the contract value of securities borrowed and securities loaned
was $66.4 million and $49.5 million, respectively, at September 30, 2013. Additional cash is obtained as necessary to ensure such
transactions are adequately collateralized. If another party to the transaction fails to perform as agreed (for example, failure to
deliver a security or failure to pay for a security), we may incur a loss if the market value of the security is different from the
contract amount of the transaction.
We have also loaned, to broker-dealers and other financial institutions, securities owned by clients and others for which we
have received cash or other collateral. The market value of securities loaned was $341.2 million and $299.1 million at September 30,
2014 and 2013, respectively. The contract value of securities loaned was $350 million and $305.1 million at September 30, 2014
and 2013, 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 $238.4 million and $220.7 million at September 30, 2014 and 2013, 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.
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Index
RJ Ltd. is subject to foreign exchange risk primarily due to financial instruments denominated 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, 2014, forward contracts outstanding to buy and
sell U.S. dollars totaled CDN $17 million and CDN $40.9 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.
RJ Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments outstanding are as
follows:
Standby letters of credit
Open end consumer lines of credit
Commercial lines of credit
Unfunded loan commitments
As of September 30,
2014
2013
(in thousands)
$
$
100,582
1,585,717
1,692,896
248,931
122,672
829,923
1,743,594
216,918
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, 2014, $101 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 primarily represent the unfunded amounts of RJ Bank loans to customers that are secured
by marketable securities at advance rates consistent with industry standards. The proceeds from repayment or, if necessary, the
liquidation of collateral, which is monitored daily, are expected to satisfy the amounts drawn against these existing lines of credit.
Because many of RJ Bank’s 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 or FNMA
MBS. See Note 2 and Note 21 for information on these commitments. We utilize TBA security contracts to hedge our interest
rate risk associated with these commitments. We are subject to loss if the timing of, or the actual amount of, the MBS securities
differs significantly from the term and notional amount of the TBA security contracts we enter into.
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Index
NOTE 28 – 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,
2014
2012
2013
(in thousands, except per share amounts)
$
$
$
$
$
$
$
$
$
$
480,248
(3,007)
477,241
480,248
(2,946)
477,302
139,935
3,654
143,589
$
$
$
$
367,154
(4,164)
362,990
367,154
(4,100)
363,054
137,732
2,809
140,541
3.41
3.32
$
$
2.64
2.58
$
$
1,503
1,153
295,869
(5,958)
289,911
295,869
(5,926)
289,943
130,806
985
131,791
2.22
2.20
1,928
(1) Represents dividends paid during the year 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 887 thousand, 1.6 million and 2.7 million for the years ended September 30, 2014, 2013 and 2012, respectively.
Dividends paid to participating securities amounted to $532 thousand, $800 thousand and $1.4 million for the years ended September 30,
2014, 2013, and 2012 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
NOTE 29 – SEGMENT INFORMATION
Year ended September 30,
2013
2012
2014
$
$
0.64
0.62
$
$
0.56
0.55
$
$
0.52
0.52
We currently operate through the following five business segments: “Private Client Group;” “Capital Markets;” “Asset
Management;” RJ Bank; and the “Other” segment.
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 results include charges allocating corporate overhead and benefits to each segment. Intersegment
revenues, expenses, receivables and payables are eliminated upon consolidation.
The Private Client Group segment includes the retail branches of our broker-dealer subsidiaries located throughout the U.S.,
Canada and the United Kingdom. These branches provide securities brokerage services including the sale of equities, mutual
funds, fixed income products and insurance products to their individual clients. The segment includes net interest earnings on
client margin loans and cash balances and certain fee revenues generated by the multi-bank aspect of the RJBDP. Additionally,
this segment includes the 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.
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Index
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 RJ Trust, and other fee-based asset management programs.
RJ Bank originates and purchases C&I loans, tax-exempt loans, SBL, as well as commercial and residential real estate 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 and acquisition and integration costs (see
Note 3 for additional information).
Information concerning operating results in these segments are 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 (2)
Pre-tax income excluding noncontrolling interests
Add: net (loss) income attributable to noncontrolling interests
Income including noncontrolling interests and before provision for income
taxes
2014
Year ended September 30,
2013
(in thousands)
2012
$
$
$
$
$
$
3,276,566
981,572
369,690
360,317
42,203
(64,888)
4,965,460
330,278
130,565
128,286
242,834
(83,918)
748,045
(32,097)
$
$
$
2,930,603
955,955
292,817
356,130
126,401
(66,108)
4,595,798
230,315
102,171
96,300
267,714
(132,313)
564,187
29,723
2,484,670
828,435
237,224
345,693
58,412
(56,534)
3,897,900
215,091
75,755
67,241
240,158
(126,720)
471,525
(3,604)
$
715,948
$
593,910
$
467,921
(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 (primarily related to our Morgan Keegan
acquisition, see Note 3 for additional information) in the amount of $73.5 million and $59.3 million for the years ended September 30,
2013 and 2012, respectively. For the year ended September 30, 2014, acquisition related expenses are no longer material for separate
disclosure as our Morgan Keegan integration activities were substantially complete as of September 30, 2013.
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Index
Net interest income (expense):
Private Client Group
Capital Markets
Asset Management
RJ Bank
Other
Net interest income
The following table presents our total assets on a segment basis:
Total assets:
Private Client Group (1)
Capital Markets (2)
Asset Management
RJ Bank
Other
Total
Year ended September 30,
2014
2013
2012
(in thousands)
$
$
89,527
5,326
92
346,757
(64,907)
376,795
$
$
85,301
4,076
81
338,844
(65,074)
363,228
$
$
84,827
6,641
(17)
322,024
(51,586)
361,889
September 30,
2014
2013
(in thousands)
$
$
6,255,176
2,645,926
186,170
12,036,945
2,201,435
23,325,652
$
$
7,649,030
2,548,663
149,436
10,489,524
2,349,469
23,186,122
(1) Includes $174.6 million of goodwill at September 30, 2014 and 2013.
(2) Includes $120.9 million of goodwill at September 30, 2014 and 2013.
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 (loss) excluding noncontrolling interests:
United States
Canada
Europe
Other
Total
2014
Year ended September 30,
2013
(in thousands)
2012
$
$
$
$
4,512,808
323,038
95,865
33,749
4,965,460
706,366
37,947
(1,546)
5,278
748,045
$
$
$
$
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
185
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
Other
Total
September 30,
2014
2013
(in thousands)
$
$
21,469,999
1,773,703
39,872
42,078
23,325,652
$
$
21,154,293
1,965,648
26,415
39,766
23,186,122
(1) Includes $262.5 million of goodwill at September 30, 2014 and 2013.
(2) Includes $33 million of goodwill at September 30, 2014 and 2013.
NOTE 30 - 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, 2014, each of these
brokerage subsidiaries far exceeded their minimum net capital requirements, see Note 26 for further information.
Subsidiary net assets of approximately $1.7 billion are restricted under regulatory or other restrictions, from being transferred
from certain subsidiaries to the Parent without prior approval of the respective entities’ regulator, as of September 30, 2014.
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, 21 and 26 for more information regarding borrowings, commitments, contingencies and guarantees, and
capital and regulatory requirements of the Parent and it’s subsidiaries.
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Index
The following table presents the Parent’s statements of financial condition:
September 30,
2014
2013
(in thousands)
Assets:
Cash and cash equivalents
Intercompany receivables from subsidiaries:
Bank subsidiary
Non-bank subsidiaries (2)
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
$
778,855
(1)
$
—
710,318
1,310,097
2,302,128
10,320
31,954
619,616
5,763,288
$
274,747
44
920,827
1,106,742
2,393,035
10,546
31,954
634,446
5,372,341
78,994
66,159
45
109,396
284,584
1,149,033
1,622,052
4,141,236
5,763,288
$
—
217,497
276,916
1,148,845
1,709,417
3,662,924
5,372,341
$
$
(1) Of the Parent’s total cash and cash equivalents at September 30, 2014, $500 million is held in a deposit account at RJ Bank.
(2) Of the total receivable from non-bank subsidiaries, $458 million and $760 million at September 30, 2014 and 2013, respectively, is
invested in cash and cash equivalents by the subsidiary on behalf of the Parent.
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Index
The following table presents the Parent’s statements of income:
Revenues:
Dividends from non-bank subsidiaries
Dividends from bank subsidiary
Interest from subsidiaries
Interest
Other, net
Total revenues
Interest expense
Net revenues
Non-interest expenses:
Compensation and benefits
Communications and information processing
Occupancy and equipment costs
Business development
Other
Intercompany allocations and charges
Total non-interest expenses
Income before income tax benefit and equity in undistributed net income of
subsidiaries
Income tax benefit
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
2014
Year ended September 30,
2013
(in thousands)
2012
$
253,218
25,000
5,779
2,050
1,613
287,660
(76,662)
210,998
41,482
5,036
892
15,497
8,252
(38,148)
33,011
$
822,996
100,000
1,966
2,510
6,017
933,489
(78,244)
855,245
43,673
5,029
1,005
16,506
9,608
(33,115)
42,706
177,987
(37,170)
215,157
265,091
480,248
$
812,539
(54,047)
866,586
(499,432)
367,154
$
433,643
75,000
1,876
322
7,391
518,232
(61,122)
457,110
38,027
4,624
1,188
12,613
26,716
(25,360)
57,808
399,302
(48,575)
447,877
(152,008)
295,869
—
—
2
480,248
$
367,154
$
295,871
$
$
$
188
Index
The following table presents the Parent’s statements of cash flows:
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on investments
Gain 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:
Distributions from (investments in and advances to) subsidiaries, net
Sales (purchases) of investments, net
Purchase of investments in company-owned life insurance, net
Acquisition of subsidiary
Net cash provided by (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 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:
(Distributions from) investments in subsidiaries, net
Year ended September 30,
2013
2012
2014
(in thousands)
$
480,248
$
367,154
$
295,869
(10,245)
(17,989)
(265,091)
75,725
45,656
44,360
(108,056)
12,835
7,668
265,111
321,127
6,347
(25,581)
—
301,893
—
—
33,633
(8,427)
(88,102)
(62,896)
(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)
504,108
274,747
778,855
$
15,618
259,129
274,747
$
(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
76,661
$
(59,552) $
78,439
$
(100,179) $
49,155
(74,501)
(132,117) $
457,048
$
153,854
$
$
$
$
189
Index
SUPPLEMENTARY DATA:
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
Fiscal year 2014
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
Revenues
Net revenues
Non-interest expenses
Income including noncontrolling interests and before provision
for income taxes
Net income attributable to Raymond James Financial, Inc.
Net income per share - basic
Net income per share - diluted
Dividends declared per share
Fiscal year 2013
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)
1,208,774 $
1,204,625 $
1,241,283 $
1,310,778
1,183,402 $
1,178,645 $
1,214,231 $
1,285,091
1,004,590 $
1,025,646 $
1,035,298 $
1,079,887
178,812 $
116,633 $
152,999 $
104,560 $
178,933 $
122,689 $
205,204
136,366
0.83 $
0.81 $
0.16 $
0.74 $
0.72 $
0.16 $
0.87 $
0.85 $
0.16 $
0.97
0.94
0.16
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
(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
(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.
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)
190
Index
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, 2014 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We intend to implement
the new “Internal Control - Integrated Framework,” issued in May 2013 by the Committee of Sponsoring Organizations of the
Treadway Commission, during our fiscal year 2015.
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 (1992) 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, 2014. 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, 2014 (included
below).
191
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” or “Raymond James”) internal control over financial reporting
as of September 30, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. 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 maintained, in all material respects, effective internal control over financial reporting as of
September 30, 2014, based on criteria established in Internal Control - Integrated Framework (1992) 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 as of September 30, 2014 and 2013, 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, 2014, and our report dated November 25, 2014 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Tampa, Florida
November 25, 2014
Certified Public Accountants
192
Index
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
A list of our executive officers appears in Part I, Item 1 of this report. The balance of the information required by Item 10 is
incorporated herein by reference to the registrant’s definitive proxy statement for the 2015 Annual Meeting of Shareholders which
will be filed with the SEC no later than 120 days after the close of the fiscal year ended September 30, 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 2015 Annual Meeting of Shareholders which will be filed with the SEC no later than 120 days after the close of
the fiscal year ended September 30, 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.
193
Index
Exhibit
Number
3.1
3.2
4.1
4.2.1
4.2.2
4.2.3
4.2.4
4.2.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
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 to the Company’s Annual Report on Form 10-K, filed with
the Securities and Exchange Commission on November 28, 2008.
Amended and Restated By-Laws of Raymond James Financial, Inc., reflecting amendments adopted by the Board of
Directors on February 23, 2014, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K,
filed with the Securities and Exchange Commission on February 26, 2014.
Description of Capital Stock, incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q,
filed with the Securities and Exchange Commission 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 to the Company’s Quarterly Report on
Form 10-Q, filed with the Securities and Exchange Commission 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 to the
Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission 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 to the
Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission 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 to the
Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission 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 to the
Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March 26, 2012.
* Raymond James Financial, Inc. 2002 Incentive Stock Option Plan effective February 14, 2002, incorporated by reference to
Exhibit 4.1 to the Company’s Registration Statement on Form S-8, No. 333-98537, filed with the Securities and Exchange
Commission on August 22, 2002.
Mortgage Agreement for $75 million dated as of December 13, 2002 incorporated by reference to Exhibit No. 10 to the
Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on December 23, 2002.
* Raymond James Financial, Inc. Stock Option Plan for Key Management Personnel effective November 21, 1996,
incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8, No. 333-103277, filed with
the Securities and Exchange Commission on February 18, 2003.
Form of Indemnification Agreement with Directors, incorporated by reference to Exhibit 10.18 to the Company’s Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on December 8, 2004.
* Raymond James Financial, Inc. Amended Stock Option Plan for Outside Directors, incorporated by reference to Exhibit 10 to
the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on February 9, 2006.
The 2007 Raymond James Financial, Inc. Stock Option Plan for Independent Contractors effective February 15, 2007,
incorporated by reference to Appendix C to the Company’s Definitive Proxy Statement for the Annual Meeting of
Shareholders held February 15, 2007, filed with the Securities and Exchange Commission on January 16, 2007.
* Composite Version of 2003 Raymond James Financial, Inc. Employee Stock Purchase Plan, as amended and restated,
incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement for the Annual Meeting of
Shareholders held February 19, 2009, filed with the Securities and Exchange Commission 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 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on March 3, 2009.
10.9
10.10.1
10.10.2
10.10.3
10.11.1
* 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 to the
Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on February 9, 2010.
* Amended and Restated 2007 Raymond James Financial, Inc. Stock Bonus Plan (as amended and restated effective December
10, 2010), incorporated by reference to Exhibit 10.16.1 to the Company’s Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission on February 8, 2011.
* Form of Notice of Restricted Stock Unit Award and associated Restricted Stock Unit Agreement under Amended and
Restated 2007 Raymond James Financial, Inc. Stock Bonus Plan, incorporated by reference to Exhibit 10.16.2 to the
Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on February 8, 2011.
* Form of Amendment to Restricted Stock Grant Agreements outstanding under 2007 Raymond James Financial, Inc. Stock
Bonus Plan, incorporated by reference to Exhibit 10.16.3 to the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on November 30, 2010.
* Composite Version of 2005 Raymond James Financial, Inc. Restricted Stock Plan (as amended on December 10, 2010),
incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for the Annual Meeting of
Shareholders held February 24, 2011, filed with the Securities and Exchange Commission on January 18, 2011.
194
Index
Exhibit
Number
10.11.2
Description
* 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 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on
November 30, 2010.
10.11.3
* Form of Amendment to Restricted Stock Grant Agreements outstanding under 2005 Raymond James Financial, Inc.
10.12.1
10.12.2
10.12.3
10.12.4
10.12.5
Restricted Stock Plan, incorporated by reference to Exhibit 10.17.3 to the Company’s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on November 30, 2010.
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 to the Company’s Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on November 23, 2011.
Fifth Third Bank Uncommitted Line of Credit Agreement Extension Letter dated September 25, 2012, incorporated by
reference to Exhibit 10.16.2 to the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange
Commission 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 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on
May 9, 2013.
Fifth Third Bank Uncommitted Line of Credit Agreement Extension Letter dated March 24, 2014, incorporated by reference
to Exhibit 10.13.4 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on
May 9, 2014.
Fifth Third Bank Uncommitted Line of Credit Agreement Extension Letter dated June 19, 2014, incorporated by reference to
Exhibit 10.13.5 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on
August 8, 2014.
10.13
* Amended and Restated Raymond James Financial Long-Term Incentive Plan, as further amended and restated effective
10.14
August 22, 2013, incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on November 26, 2013.
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 to the Company’s Current
Report on Form 8-K, filed with the Securities and Exchange Commission on January 12, 2012.
10.15.1
* Raymond James Financial, Inc. 2012 Stock Incentive Plan, incorporated by reference to Appendix A to the Company’s
Definitive Proxy Statement for the Annual Meeting of Shareholders held February 23, 2012, filed with the Securities and
Exchange Commission January 25, 2012.
10.15.2
* Form of Contingent Stock Option Agreement under 2012 Stock Incentive Plan, incorporated by reference to Exhibit 10.22 to
the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 9, 2012.
10.15.3
* Form of Stock Option Agreement under 2012 Stock Incentive Plan, as revised and approved on August 21, 2013,
incorporated by reference to Exhibit 10.16.3 to the Company’s Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on November 26, 2013.
10.15.4
* 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, incorporated by reference to Exhibit 10.16.4 to the Company’s
Annual Report on Form 10-K, filed with the Securities and Exchange Commission on November 26, 2013.
10.15.5
10.15.6
10.15.7
* Form of Restricted Stock Unit Agreement for Non-Employee Director under 2012 Stock Incentive Plan, incorporated by
reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange
Commission on May 9, 2012.
* Form of Restricted Stock Unit Agreement for Stock Bonus Award under 2012 Stock Incentive Plan, as revised and approved
on August 21, 2013, incorporated by reference to Exhibit 10.16.6 to the Company’s Annual Report on Form 10-K, filed with
the Securities and Exchange Commission on November 26, 2013.
* 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 to the Company’s Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission on May 9, 2012.
10.15.8
* Form of Restricted Stock Unit Agreement for Performance Based Restricted Stock Unit Award under 2012 Stock Incentive
10.15.9
10.15.10
10.15.11
Plan, incorporated by reference to Exhibit 10.20.8 to the Company’s Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission on February 8, 2013.
Raymond James Financial, Inc. 2012 Stock Incentive Plan Sub-Plan for French Employees with Form of Restricted Stock
Unit Agreement, adopted and approved on February 20, 2014, incorporated by reference to Exhibit 10.16.9 to the Company’s
Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 9, 2014.
* Form of Restricted Stock Unit Award Notice and Agreement (time-based vesting) which amends and restates Mr. Reilly’s
award agreement issued in 2012 and will also be used for his subsequent award agreements, incorporated by reference to
Exhibit 10.21.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on
December 20, 2013.
* Form of Restricted Stock Unit Award Notice and Agreement (performance-based vesting) which amends and restates Mr.
Reilly’s award agreement issued in 2012 and will also be used for his subsequent award agreements, incorporated by
reference to Exhibit 10.21.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on December 20, 2013.
10.15.12
* Form of Restricted Stock Unit Award Notice and Agreement (time-based vesting), incorporated by reference to Exhibit
10.22.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December
20, 2013.
195
Index
Exhibit
Number
10.15.13
Description
* Form of Restricted Stock Unit Award Notice and Agreement (performance-based vesting), incorporated by reference to
Exhibit 10.22.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on
December 20, 2013.
10.15.14
* Form of Stock Option Agreement under 2012 Stock Incentive Plan, as revised and approved on November 20, 2013,
incorporated by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on February 7, 2014.
10.15.15
* Form of Restricted Stock Unit Agreement for Non-Bonus Award under 2012 Stock Incentive Plan, as revised and approved
on November 20, 2013, incorporated by reference to Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q, filed
with the Securities and Exchange Commission on February 7, 2014.
10.16.1
* 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 to the Company’s Current Report on
Form 8-K, filed with the Securities and Exchange Commission on April 25, 2012.
10.16.2
10.17.1
10.17.2
10.18
10.19
* Amendment to Employment Agreement, dated as of December 2, 2013, by and between Raymond James Financial, Inc. and
John C. Carson, Jr., incorporated by reference to Exhibit 10.17.2 to the Company’s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on December 4, 2013.
Revolving Credit Agreement, dated as of November 14, 2012, by Regions Bank and RJ Securities, Inc., incorporated by
reference to Exhibit 10.23 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on November 16, 2012.
First Amendment to Revolving Credit Agreement, dated as of April 1, 2014, by Regions Bank and RJ Securities, Inc.,
incorporated by reference to Exhibit 10.18.2 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on August 8, 2014.
* 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 to the Company’s Quarterly
Report on Form 10-Q, filed with the Securities and Exchange Commission on February 8, 2013.
* Form of Raymond James Financial, Inc. Restricted Cash Agreement dated as of March 31, 2013, incorporated by reference to
Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on March
20, 2013.
10.20
* Letter Agreement, dated January 9, 2014, between Raymond James Financial, Inc. and Chester B. Helck regarding his
10.21
11
12
21
23
31.1
31.2
32
retirement and transition of service and employment matters, incorporated by reference to Exhibit 10.25 to the Company’s
Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 9, 2014.
Amended and Restated Master Promissory Note, dated June 19, 2014 by Raymond James Financial, Inc., in favor of the
Bank of New York Mellon, incorporated by reference to Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q,
filed with the Securities and Exchange Commission on August 8, 2014.
Statement re Computation of per Share Earnings (the calculation of per share earnings is included in Part II, Item 8, Note 28
in the Notes to Consolidated Financial Statements (Earnings Per Share) and is omitted here in accordance with Section (b)
(11) of Item 601 of Regulation S-K).
Statement of Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
List of Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Certification of Paul C. Reilly pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Jeffrey P. Julien pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Paul C. Reilly and Jeffrey P. Julien pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
* Indicates a management contract or compensatory plan or arrangement in which a director or named executive officer participates.
196
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 25th day of November, 2014.
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
/s/ SHELLEY G. BROADER
Shelley G. Broader
/s/ JEFFREY N. EDWARDS
Jeffrey N. Edwards
/s/ BENJAMIN C. ESTY
Benjamin C. Esty
Chief Executive Officer and Director
November 25, 2014
Executive Chairman and Director
November 25, 2014
Director
Director
Director
November 25, 2014
November 25, 2014
November 25, 2014
/s/ FRANCIS S. GODBOLD
Vice Chairman and Director
November 25, 2014
Francis S. Godbold
/s/ H. WILLIAM HABERMEYER, JR
Director
November 25, 2014
H. William Habermeyer, Jr.
/s/ GORDON L. JOHNSON
Gordon L. Johnson
/s/ ROBERT P. SALTZMAN
Robert P. Saltzman
/s/ HARDWICK SIMMONS
Hardwick Simmons
/s/ SUSAN N. STORY
Susan N. Story
/s/ JEFFREY P. JULIEN
Jeffrey P. Julien
Director
Director
Director
Director
November 25, 2014
November 25, 2014
November 25, 2014
November 25, 2014
Executive Vice President - Finance,
November 25, 2014
Chief Financial Officer and Treasurer
/s/ JENNIFER C. ACKART
Senior Vice President and Controller
November 25, 2014
Jennifer C. Ackart
(Principal Accounting Officer)
197
EXHIBIT 12
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(in thousands, except ratio of earnings to fixed charges and preferred stock dividends)
Year ended September 30,
2014
2013
2012
2011
2010
Earnings:
Pre-tax income excluding noncontrolling interests
$
748,045
$
564,187
$
471,525
$
461,247
$
361,908
Fixed charges
Less: preferred stock dividends
Earnings
Fixed charges:
Interest expense
Estimated interest portion within rental expense
Amortization of debt issuance cost
Preferred stock dividends
Total fixed charges
$
$
134,366
140,708
115,992
—
—
—
84,557
—
81,250
—
882,411
$
704,895
$
587,517
$
545,804
$
443,158
102,878
$
109,159
$
90,389
$
65,351
$
30,275
1,213
—
30,337
1,212
—
24,623
18,727
980
—
479
—
62,564
18,399
287
—
$
134,366
$
140,708
$
115,992
$
84,557
$
81,250
Ratio of earnings to fixed charges and preferred stock
dividends
6.57
5.01
5.07
6.45
5.45
We calculated our ratio of earnings to fixed charges and preferred stock dividends by adding pre-tax income excluding
noncontrolling interests, plus fixed charges minus preferred stock dividends and dividing that sum by our fixed charges. Our fixed
charges for this ratio consist of interest expense, the portion of our rental expense deemed to represent interest (calculated as one
third of rental expense), amortization of debt issuance costs and preferred stock dividends.
198
EXHIBIT 21
RAYMOND JAMES FINANCIAL, INC.
LIST OF SUBSIDIARIES
The following listing includes all of the registrant's subsidiaries as of September 30, 2014, which are included in the
consolidated financial statements:
Entity Name
Clarivest Asset Management, LLC
Eagle Asset Management, Inc.
EB Management I, LLC
Eagle Boston Investment Management, Inc.
Eagle Fund Distributors, Inc.
Eagle Fund Services, Inc.
Former WT, Inc.
Gateway Institutional Tax Credit Fund Ltd.
Gateway Tax Credit Fund II, Ltd.
HBI Investment Funds, LLC
Heritage International Limited
Howe Barnes Capital Management, Inc.
Howe Barnes Hoefer & Arnett, Inc.
Merchant Bankers, Inc.
MK Holding, Inc.
MK Investment Management, Inc.
MK Mezzanine Management, LLC
MK Preferred Employee Securities Fund, LLC
MOR Associates, LP
Morgan Keegan & Company, LLC
Morgan Keegan & Associates, LLC
Morgan Keegan Capital Services, LLC
Morgan Keegan Employee Investment Fund, LP
Morgan Keegan Financial Services, LLC
Morgan Keegan Fund Management, Inc.
Morgan Keegan Investment Partners Fund, LP
Morgan Keegan Mezzanine Fund, LP
Morgan Keegan Municipal Products, Inc.
State/Country of
Incorporation
Subsidiary or Joint Venture of
Delaware
Eagle Asset Management, Inc.
Florida
Florida
Florida
Florida
Florida
Raymond James Financial, Inc.
Eagle Asset Management, Inc.
Eagle Asset Management, Inc.
Eagle Asset Management, Inc.
Eagle Asset Management, Inc.
Tennessee
MK Holding, Inc.
Florida
Florida
Illinois
Mauritius
Illinois
Delaware
Tennessee
Alabama
Delaware
Delaware
Delaware
Tennessee
Tennessee
Delaware
Delaware
Delaware
Delaware
Tennessee
Delaware
Delaware
Delaware
Raymond James Tax Credit Funds, Inc.
Raymond James Tax Credit Funds, Inc.
Howe Barnes Hoefer & Arnett, Inc.
Raymond James International Holdings, Inc.
Howe Barnes Hoefer & Arnett, Inc.
Raymond James Financial, Inc.
MK Holding, Inc.
Raymond James Financial, Inc.
MK Holding, Inc.
Morgan Properties, LLC
Morgan Keegan Fund Management, Inc.
Merchant Bankers, Inc.
Raymond James Financial, Inc.
MK Holding, Inc.
MK Holding, Inc.
Merchant Bankers, Inc.
MK Holding, Inc.
MK Holding, Inc.
MK Investment Management, Inc.
MK Mezzanine Management, LLC
MK Holding, Inc.
Morgan Keegan Private Equity Employee Fund of Funds II, LP
Delaware
MK Investment Management, Inc.
Morgan Keegan Private Equity Fund of Funds II, LP
Delaware
MK Investment Management, Inc.
Morgan Keegan Private Equity Fund of Funds II Blocker, LLC
Delaware
Morgan Keegan Private Equity Fund of Funds II Holdings, LP
Delaware
Morgan Keegan Private Equity QP Fund of Funds II, LP;
Morgan Keegan Private Equity Fund of Funds II, LP;
Morgan Keegan Private Equity Employee Fund of Funds II,
LP
Morgan Keegan Private Equity QP Fund of Funds II, LP;
Morgan Keegan Private Equity Fund of Funds II, LP;
Morgan Keegan Private Equity Employee Fund of Funds II,
LP;Morgan Keegan Private Equity Fund of Funds II
Blocker, LLC
Morgan Keegan Private Equity QP Fund of Funds II, LP
Morgan Properties, LLC
Preferred Fund of Funds, LLC
Raymond James & Associates, Inc.
Raymond James (USA) Ltd.
Raymond James Affordable Housing Fund 1, LP
Delaware
Tennessee
Delaware
Florida
Canada
Delaware
MK Investment Management, Inc.
Raymond James Investments, LLC
Morgan Keegan Fund Management, Inc.
Raymond James Financial, Inc.
Raymond James Ltd.
Raymond James Tax Credit Funds, Inc.
199
Entity Name
State/Country of
Incorporation
Subsidiary or Joint Venture of
Raymond James Argentina Sociedad De Bolsa, S.A.
Argentina
Raymond James South American Holdings, Inc.
Raymond James Asset Management International, S.A.
Raymond James Bank, National Association
Raymond James Canada, LLC
Raymond James Canadian Acquisition, Inc.
Raymond James Canadian Holdings, LLC
Raymond James Capital Inc.
Raymond James Capital Funding, Inc.
Raymond James Capital Partners, LP
Raymond James Community Reinvestment Fund 1, LLC
Raymond James Development Tax Credit Fund, LLC
Raymond James Employee Investment Fund I, L.P.
Raymond James Employee Investment Fund II, L.P.
Raymond James Euro Equities
Raymond James European Holdings, Inc.
Raymond James European Securities S.A.S.
Raymond James Finance Company of Canada, Ltd.
Raymond James Financial International, Ltd. (U.K.)
Raymond James Financial Management Ltd.
Raymond James Financial Planning Ltd.
Raymond James Financial Products, Inc.
Raymond James Financial Services Advisors, Inc.
Raymond James Financial Services, Inc.
France
U.S.A.
Florida
Florida
Florida
Delaware
Florida
Delaware
Florida
Delaware
Delaware
Delaware
France
Florida
France
Canada
U.K.
Canada
Canada
Tennessee
Florida
Florida
Raymond James International Holdings, Inc.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James Bank, National Association
Raymond James Canadian Acquisition, Inc.
Raymond James Financial, Inc.
Raymond James Bank, National Association
RJC Partners, LP
Raymond James Bank, National Association
Raymond James Tax Credit Funds, Inc.
RJEIF, Inc.
RJEIF, Inc.
Raymond James European Securities S.A.S.
Raymond James International Holdings, Inc.
Raymond James International Holdings, Inc.
Raymond James Canadian Holdings, LLC
Raymond James International Holdings, Inc.
Raymond James Ltd.
Raymond James Ltd.
MK Holding, Inc.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James Global Securities, Limited
British Virgin Islands
Raymond James International Holdings, Inc.; Raymond
James South American Holdings, Inc.
Raymond James Indian Country Tax Credit Fund I, LLC
Delaware
Raymond James Tax Credit Funds, Inc.
Raymond James Insurance Group, Inc.
Raymond James International Holdings, Inc.
Raymond James Investments, LLC
Raymond James Investment Services Limited
Florida
Florida
Florida
U.K.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James Latin Advisors Limited
British Virgin Islands
Raymond James Global Securities, Limited
Raymond James Latin America S.A.
Raymond James Latin Fund Advisors S.A.
Raymond James Ltd.
Raymond James Management, LLC
Raymond James Management-Forensics, LLC
Raymond James Management-EPG, LLC
Raymond James Mortgage Company, Inc.
Raymond James Multifamily Finance, Inc.
Raymond James Partners, Inc.
Raymond James Research Services, LLC
Raymond James South American Holdings, Inc.
Raymond James Structured Products, Inc.
Raymond James Tax Credit Fund 32 - A, LLC
Raymond James Tax Credit Fund 32 - B, LLC
Raymond James Tax Credit Fund 33, LLC
Raymond James Tax Credit Fund 34, LLC
Raymond James Tax Credit Fund XXII, LLC
Raymond James Tax Credit Fund XXV - A, LLC
Raymond James Tax Credit Fund XXV - B, LLC
Raymond James Tax Credit Funds, Inc.
Raymond James Trust, National Association
Raymond James South American Holdings, Inc.
Raymond James South American Holdings, Inc.
Raymond James Canada, LLC
Raymond James Investments, LLC
Raymond James Investments, LLC
Raymond James Investments, LLC
MK Holding, Inc.
Raymond James Tax Credit Funds, Inc.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James International Holdings, Inc.
MK Holding, Inc.
Raymond James Tax Credit Funds, Inc.
Raymond James Tax Credit Funds, Inc.
Raymond James Tax Credit Funds, Inc.
Raymond James Tax Credit Funds, Inc.
Raymond James Tax Credit Funds, Inc.
Raymond James Tax Credit Funds, Inc.
Raymond James Tax Credit Funds, Inc.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Uruguay
Uruguay
Canada
Delaware
Delaware
Delaware
Tennessee
Florida
Florida
Florida
Florida
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Florida
U.S.A.
200
Subsidiary or Joint Venture of
Raymond James Global Securities, Limited
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James South American Holdings, Inc.
Raymond James South American Holdings, Inc.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Residual Partners
RJ Specialist Corp.
Raymond James Financial, Inc.
Raymond James Investments, LLC
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James Investments, LLC
Raymond James Investments, LLC
RJC Partners, Inc.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James Financial, Inc.
Raymond James Tax Credit Funds, Inc.
Raymond James Tax Credit Funds, Inc.
SLG Partners GP, LLC
Raymond James Investments, LLC; Raymond James
Management, LLC
Raymond James Tax Credit Funds, Inc.
Entity Name
State/Country of
Incorporation
Raymond James Uruguay, S.A.
Residual Partners
RJ Capital Services, Inc.
RJ Delta Capital S.A.
RJ Delta Fund Management S.A.
RJ Equities, Inc.
RJ Government Securities, Inc.
RJ Holdings, Ltd.
RJ-Contrarian, LLC
RJ Partners, Inc.
RJ Securities, Inc.
R J Specialist Corp.
RJA Structured Finance, Inc.
RJC Event Photos, LLC
RJC Forensics, LLC
RJC Partners LP
RJC Partners, Inc.
RJEIF, Inc.
RJF Capital Trust I
RJF Capital Trust II
RJF Capital Trust III
RJTCF Disposition Corporation
RJTCF Disposition Fund, LLC
SLG Partners, LP
SLG Partners GP, LLC
Value Partners, Inc.
Uruguay
Florida
Delaware
Argentina
Argentina
Florida
Florida
Florida
Delaware
Florida
Florida
Florida
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Florida
Florida
Delaware
Delaware
Florida
201
EXHIBIT 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Raymond James Financial, Inc.:
We consent to the incorporation by reference in the registration statements (Nos. 333-103280, 333-103277, 333-98537,
333-125214, 333-141998, 333-141999, 333-142000, 333-157516, 333-157519, 333-179683) on Form S-8 and (Nos.
333-159583, 333-181663) on Form S-3 ASR of Raymond James Financial, Inc. and subsidiaries of our reports dated
November 25, 2014, with respect to the consolidated statements of financial condition of Raymond James Financial,
Inc. and subsidiaries as of September 30, 2014 and 2013, 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, 2014, and the effectiveness of internal control over financial reporting as of September 30, 2014,
which reports appear in the September 30, 2014 annual report on Form 10-K of Raymond James Financial, Inc.
/s/ KPMG LLP
Tampa, Florida
November 25, 2014
Certified Public Accountants
202
EXHIBIT 31.1
I, Paul C. Reilly, certify that:
CERTIFICATIONS
1. I have reviewed this annual report on Form 10-K of Raymond James Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: November 25, 2014
/s/ PAUL C. REILLY
Paul C. Reilly
Chief Executive Officer
203
EXHIBIT 31.2
CERTIFICATIONS
I, Jeffrey P. Julien, certify that:
1. I have reviewed this annual report on Form 10-K of Raymond James Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: November 25, 2014
/s/ JEFFREY P. JULIEN
Jeffrey P. Julien
Executive Vice President - Finance,
Chief Financial Officer and Treasurer
204
Exhibit 32
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
In connection with the Annual Report of Raymond James Financial, Inc. (the “Company”) on Form 10-K for the year ended
September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we hereby certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
/s/ PAUL C. REILLY
Paul C. Reilly
Chief Executive Officer
November 25, 2014
/s/ JEFFREY P. JULIEN
Jeffrey P. Julien
Executive Vice President - Finance,
Chief Financial Officer and Treasurer
November 25, 2014
205
3
RAYMOND JAMES ANNUAL REPORT 2014 International Headquarters: The Raymond James Financial Center
880 Carillon Parkway St. Petersburg, FL 33716 800.248.8863
raymondjames.com
4
©2014 Raymond James Financial Raymond James® is a registered trademark of Raymond James Financial, Inc.