0 6160101
2016
0020
A N N U A L R E P O R T
the HUMAN
M
onnection
c
connection
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NET REVENUE
$Billions
NET INCOME
$Millions
RETURN ON EQUITY
MARKET CAPITALIZATION
% Percent
$Billions
FISCAL YEAR FINANCIAL HIGHLIGHTS
2016
2015
CHANGE
Total Revenues
Net Revenues
Net Income
Earnings per Share (Diluted)
$5,520,344,000
$5,403,267,000
$529,350,000
$3.65
$5,308,164,000
$5,200,210,000
$502,140,000
$3.43
Shareholders’ Equity Attributable to RJF
(1)
Shares Outstanding
$4,914,096,000
$4,522,031,000
141,545,000
142,751,000
Book Value per Share
$34.72
$31.68
4%
4%
5%
6%
9%
(1)%
10%
ALL DATA AS OF FISCAL YEAR ENDED SEPTEMBER 30, 2016
(1) Excludes non-vested shares
RAYMOND JAMES ANNUAL REPORT 2016
the HUMAN connection
With each new technological advancement, our industry
becomes more powerful and more accessible. In 2016, investors
had more tools at their disposal than ever before. But tools are
just that – only as effective, as transformative, as disciplined, as
the people who wield them.
Even as Raymond James embraced the critical
role technology will play in the future of our
industry and in the lives of our clients, we’ve
done so with the human element in mind.
Our work is done for people and it is done by
people, and we believe that those people –
whether behind a screen or across a desk –
are still our greatest strength. So we made
decisions driven by them.
We found powerful, practical opportunities
for growth. We saw technology for its human
applications. And we remained committed to
our time-tested, hands-on approach to advice –
one we believe is the key to our clients’ futures
as well as our own.
17
HOUSING AND HOME: THE
IMPACT OF RAYMOND JAMES
TAX CREDIT FUNDS
19
LEVERAGING OUR INNER
STRENGTH
22
BOARD OF DIRECTORS
20
24
18
25
CORPORATE AND
SHAREHOLDER INFORMATION
NURTURING RELATIONSHIPS
IN THE VALLEY OF THE SUN
10-YEAR FINANCIAL
SUMMARY
MISSION STATEMENT
AND SOCIAL RESPONSIBILITY
1
N
ME SSAG E FROM THE CEO AND THE CHAIRMANMA
AIR
DEAR FELLOW SHAREHOLDERS,
The theme for our annual report this year is the Human Connection. Raymond James’
business is based upon deep relationships – with individual investors, institutional
investors, corporations and governmental bodies. Our associates’ connections to those
clients enable us to add value to their financial planning, funding requirements and
strategic solutions for any other problems involving their finances. Later in this annual
report, we provide some anecdotal examples of how client-financial advisor
relationships contribute to resolving financial issues.
In light of the market decline and volatility during the first half of fiscal 2016, as well
as the investment uncertainty occasioned by the presidential election, we are satisfied
with Raymond James’ financial results for the fiscal year. We generated record net
revenues of $5.4 billion and record net income of $529.4 million, or $3.65 per diluted
share. The revenue growth of 4% over fiscal 2015 was driven by record revenues in all
four of our core operating segments, which was enabled by healthy organic growth.
The 6% annual increase in earnings per diluted common share reflects the realization
of operating leverage during the year despite elevated legal and regulatory expenses,
as well as the absorption of $41 million of expenses associated with three acquisitions
during the fiscal year, which we will discuss later in this letter. Our net income during
the year was also aided by higher earnings on cash balances following the increase
in the federal funds target rate in December 2015 as well as an unusually low effective
tax rate of 33.9% that was improved by several favorable tax benefits during the fiscal
year. Our return on equity for the year was 11.3%, which was acceptable given the
challenging market environment and the conservative levels of regulatory capital
we maintained throughout the year. Our shareholders’ equity on September 30, 2016,
of $4.9 billion increased 8.7% during the year, and our book value per share of $34.72
increased at a slightly higher rate of 9.6%, as we repurchased $145 million of our
shares at favorable prices during the first half of the fiscal year.
Turning to our segments’ results, the Private Client Group (PCG) generated record
revenues of $3.6 billion, up 3% over fiscal 2015, and had its second best year of pre-tax
income of $340.6 million, only $2 million less than the record set in fiscal 2015. PCG had
an exceptionally strong year for recruiting and best-in-class retention, resulting in the
net addition of 550 net financial advisors to a record 7,146. In addition to strong
organic growth, it was augmented by the completion of two strategic acquisitions in
Thomas A. James
Paul C. Reilly
2
RAYMOND JAMES ANNUAL REPORT 2016
PCG during the fiscal year: Deutsche Bank Wealth Management’s
US Private Client Services unit (rebranded “Alex. Brown,” a division
of Raymond James) and MacDougall, MacDougall & MacTier, Inc.
(“3Macs”). These acquisitions, which added 265 advisors with
approximately $50 billion in client assets, significantly enhance
our strategic positioning in both the United States and Canada.
Domestically, Alex. Brown increases our presence in the high-net-worth
and ultra-high-net-worth client segments, particularly in attractive
markets in the Mid-Atlantic and Northeast. The retention of over 90%
of the Alex. Brown advisors at closing is exceptional, especially
when compared to similar transactions in our industry. The 3Macs
acquisition increases our PCG business in Canada by over 20%
and establishes a substantial presence in Quebec, which has been
a strategic priority for several years. Despite the robust growth in
financial advisors and client assets during the year, PCG’s revenues
only increased 3% over fiscal 2015, as subdued transactional
commissions, including new issue sales credits, created
headwinds for the entire industry – in fact, many firms in our
industry experienced a decline in revenues during the same
period. Moreover, the aforementioned acquisitions both closed
at the end of the fiscal year and contributed little to fiscal 2016
revenues. PCG’s profitability also was negatively impacted by
elevated legal and regulatory expenses during fiscal 2016, which
caused its pre-tax margin to net revenues to decline from 9.8%
in fiscal 2015 to 9.4% in fiscal 2016. However, the good news is
that the robust growth in financial advisors and client assets in
2015 and the prior two years has substantially increased PCG’s
productive capacity.
The Capital Markets (CM) segment generated record annual net
revenues of $999.9 million, an increase of 4% over fiscal 2015,
and record pre-tax income of $139.2 million, a substantial 30%
improvement compared to fiscal 2015. Record results in the CM
segment were fueled by record results in the Fixed Income division
and Raymond James Tax Credit Funds, which more than offset
continued weakness in the Equity Capital Markets division.
Institutional fixed income commissions increased 11%, and the
firm’s consolidated trading profits increased 57% to a record
$92 million. Our Tax Credit Funds business, which is the leading
tax credit syndication provider in the country, generated a 33%
increase in syndication fees. Meanwhile, fiscal 2016 was another
challenging year for our Equity Capital Markets division, as the
industry’s equity underwriting revenues were down more than
40% during this period. In this difficult environment, our firm’s
equity underwriting revenues declined 27%, which weighed on
the profitability of this division. Nonetheless, we continue to make
focused investments in this business, particularly to expand our
cross-border M&A capabilities, as evidenced by the acquisition of
Mummert & Company in Germany during the year.
The Asset Management segment produced record revenues of
$404.3 million, increasing 3% over fiscal 2015, and pre-tax income
of $132.2 million, only $3 million lower than the record achieved
in the prior year. Financial assets under management increased
18% to a record $77 billion, driven by growth in the PCG segment
and the increased utilization of fee-based accounts, which we
believe will accelerate with the implementation of the Department
of Labor’s (DOL) Fiduciary Rule. However, Eagle Asset Management,
like all traditional active managers in the industry, has been
challenged by industry flows from active products to passive
products such as exchange-traded funds that track various indices.
While investment performance was generally attractive and gross
sales in Eagle were strong in fiscal 2016, large cancellations of
institutional accounts resulted in net outflows for Eagle in fiscal
2016, which contributed to a diminution of its profit margin during
the fiscal year. On the other hand, increased valuations in the
equity markets should presage improved results in fiscal 2017.
Raymond James Bank generated record net revenues of
$494 million, up 19% over fiscal 2015, and record annual pre-tax
income of $337.3 million, up 21% over fiscal 2015. These superb
results were driven by robust loan growth, as net loans at Raymond
James Bank grew 17% to a record $15.2 billion, the net interest
margin remained relatively stable and there was satisfactory credit
performance during the fiscal year. Furthermore, the bank
continued to focus on providing competitive lending solutions
to our clients in the PCG and CM segments. For example, following
the Alex. Brown acquisition, the bank launched a private wealth
mortgage solution catering to all of our high-net-worth clients.
Also, our Public Finance relationships drove more than 50%
growth in the bank’s tax-exempt loan portfolio during the year.
More importantly, the magnitude of growth in most other bank
3
results relates to acquisitions, while the growth at Raymond
James Bank is organic, which augurs well for the future as it
should be sustainable.
Just as important as the numerous records we achieved for several of
our financial and operational metrics are the diverse achievements,
accolades and milestones our associates achieved in fiscal 2016:
• Raymond James was named to the Fortune 500 list during
the fiscal year.
• In December 2015, Raymond James & Associates ranked
first for advisor satisfaction on WealthManagement.com’s
2015 Broker Report Card.
• Several of our affiliated financial advisors earned significant
distinctions during the fiscal year including but not limited to:
Judith McGee being named to Research magazine’s 2015 Advisor
Hall of Fame, joining 13 other Raymond James advisors who have
earned this recognition since 2006; 14 Raymond James & Associates
advisors were named to On Wall Street’s list of Top 25 Regional
Advisors Under 40; 24 Raymond James-affiliated advisors were
named to the Financial Times’ “FT400” list of top advisors; 36
Raymond James-affiliated advisors were named to Barron’s list
of America’s Top Advisors; five Raymond James-affiliated advisors
were named to Barron’s list of 2016 Top Women Financial Advisors;
and eight advisors affiliated with Raymond James’ Financial
Institutions Division were named to Bank Investment Consultant’s
list of the Top 50 Bank Advisors.
• Raymond James was recognized as a 2015 Greenwich Excellence
Award winner in four categories for Traditional Wealth and Retail
Investment Partners, including: overall satisfaction, likelihood to
recommend, investment advice/ideas and customer service.
• Continuing our tradition of giving back to the communities in
which we live and work, Raymond James donated $8.37 million
to charitable organizations in 2016 including $5.19 million to the
United Way and its partner agencies across the country. During the
annual Raymond James Cares Month in August, more than 3,500
advisors and associates contributed over 6,850 hours toward
volunteer projects in 31 states.
• Raymond James Network for Women Advisors’ Michelle Lynch
and Raymond James-affiliated advisor Darin Robert Shebesta
were named to Investment News’ Top 40 Under 40 List.
4
• Raymond James received the Bank Insurance & Securities
Association’s Technology Innovation Award for the fourth
consecutive year. This year, the firm was recognized for its
new Client Reporting system.
• Raymond James Investment Banking was named “Investment
Bank of the Year” and won two deal-of-the-year awards at the
2016 Americas M&A Atlas Awards, presented by the Global M&A
Network. Raymond James Investment Banking also won three
deal-of-the-year awards at The M&A Advisor’s 15th Annual M&A
Advisor Awards Gala.
• Raymond James Public Finance was once again ranked the
nation’s eighth leading municipal underwriter.
• Paul Shoukry was selected by investors and analysts as a top
investor relations professional in Institutional Investor’s 2017
All-America Executive Team rankings.
• Raymond James extended the naming rights partnership with the
Tampa Bay Buccaneers, ensuring Raymond James Stadium will
remain the name of the team’s home field through the 2027 season.
We also announced several changes to our Board of Directors during
the fiscal year as part of our deliberate succession planning process
and to facilitate our continued success as an independent firm.
During the fiscal year, Susan Story was named as lead director to
replace outgoing board member Wick Simmons. Accounting veteran
Roderick C. McGeary was appointed to the firm’s Board of Directors
and named to the Audit & Risk Committee in November 2015. In early
December, we announced that Tom James would transfer his Board
Chairman position to Paul Reilly but still remain as a member of the
board, if elected.
Fiscal 2016 was certainly a year of several profound accomplishments
for Raymond James, but more importantly, we continued planning
and investing for our continued success in the future. We made
substantial investments in additional high-quality associates as well
as in new technology. As we write this letter, the equity markets are
at record levels, domestic GDP growth and inflation are both near 2%
and generally expected to improve, and the unemployment rate has
consistently remained below 5%. Furthermore, many additional
global and national economic metrics, as well as the Trump rally,
suggest that the outlook for our economic future is brightening.
These positive economic and market factors gave the Federal Reserve
RAYMOND JAMES ANNUAL REPORT 2016
enough confidence to recently increase the federal funds target
range by another 25 basis points to a range of 50 to 75 basis points.
The consensus is currently for several more rate increases in 2017 but,
even if those expectations occur, the measured increase in rates is
unlikely to derail improving growth.
this rule under the Trump administration, we must continue to
proceed with preparations for the current April 2017 compliance date.
Fortunately, we have a fantastic team leading this effort, and we are
confident in our ability to help our advisors and clients adapt to this
rule in a timely manner, if the rule survives in its current form.
These constructive economic indicators, coupled with our strong
organic growth, give us reason to be optimistic about the future.
However, after an eight-year bull market and the heightened
uncertainty associated with a new presidential administration, we
also remain prepared for the potential for increased market volatility
or a market downturn. While many of the Trump administration’s
priorities would be beneficial to the domestic economy and the
financial services industry, including lower corporate tax rates,
increased infrastructure investments and less burdensome
regulations, we believe that effectuating these drastic changes will
prove more nuanced and difficult than many market participants
currently appreciate, and certainly could take longer than anticipated.
For example, the DOL Fiduciary Rule – which has several unintended
consequences that negatively impact investors – is an enormously
complex regulation that was intentionally fast-tracked by the current
administration to facilitate its preservation following a change in the
administration. Therefore, while many experts question the fate of
Given all the factors discussed above, our best judgment is that 2017
will be a very good year for financial institutions and Raymond James
specifically, unless a substantial adverse event intercedes. The
quality, values and experienced professionalism of our associates
give us great confidence that the Human Connections with all our
clients will deliver excellent results in the future.
Best wishes for a happy, healthy and prosperous New Year!
December 22, 2016
Thomas A. James
Executive Chairman
Raymond James Financial
Paul C. Reilly
Chief Executive Officer
Raymond James Financial
5
6
RAYMOND JAMES ANNUAL REPORT 2016
A GOL D E N ANNIVE RSARY,
an enduring connection
Seven years ago, Tom James entrusted me with the significant
responsibility of becoming only the third CEO in Raymond James’
history and the first new CEO in more than 40 years. When I accepted
the role, I did so not only because of the strong reputation and growth
potential of the firm, but because I knew Tom to be a thoughtful and
generous mentor.
In my experience, no one knows our business better than he does.
Tom’s guidance has shaped the firm’s progress and the diversity of its
businesses while affirming its fundamental purpose: people and their
financial well-being. His management principles and wisdom are
universally respected and admired, not only at Raymond James, but
throughout the financial services industry.
Just as important, Tom has been a vigilant and tireless teacher for our
associates. He has cultivated values such as conservative management
and independent decision-making that allowed Raymond James to
survive – and even thrive – during times when other firms in our
business failed. And he has instilled a client-first commitment
throughout the company, creating a truly unique culture that will
continue to be the greatest source of our success in the future.
As Tom transitions to a new role as Chairman Emeritus after almost
five decades with the firm, he assures me he isn’t done. In addition to
retaining a seat on the board, he’ll continue to have an office at our
St. Petersburg headquarters and serve as an advisor and mentor to
our management team.
But even if he decides to spend more time on his personal pursuits –
the new James Museum of Western and Wildlife Art, among others –
I am confident Tom has set the groundwork for us to continue to realize
our tremendous potential for the benefit of our clients, advisors,
associates and shareholders.
On behalf of everyone at Raymond James, I extend our deepest
gratitude and congratulations to Tom for all he has done over the
last 50 years to make our firm what it is today, and I look forward to
how he will continue to influence us for years to come.
Thank you, Tom!
Paul C. Reilly
Chief Executive Officer, Raymond James Financial
7
(1%)
1%
9%
7%
18%
66%
2016 TOTAL REVENUE $5,520,344,000
PRIVATE CLIENT GROUP
$3,626,718,000
CAPITAL MARKETS
$1,016,375,000
ASSET MANAGEMENT
RAYMOND JAMES BANK
OTHER
INTERSEGMENT
$404,421,000
$517,243,000
$46,291,000
($90,704,000)
66%
18%
7%
9%
1%
(1%)
(19%)
42%
43%
17%
17%
PRIVATE CLIENT GROUP
More than 7,100 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 2.9 million client
accounts through the 2,800 branch offices of Raymond James & Associates,
Inc. (including the Alex. Brown division), Raymond James Financial Services,
Inc., Raymond James Financial Services Advisors, Inc., Raymond James Ltd.
in Canada (including the 3Macs division), 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(cid:1)and Europe. This group also provides research on
nearly 1,300 companies globally, market-making in more than 1,932 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 low-income housing projects
to help banks and other institutions meet their Community Reinvestment Act
obligations through governmental and rent subsidies.
ASSET MANAGEMENT
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 institutions, including nonprofits, foundations,
endowments, corporations, family offices and insurance companies. Asset
Management Services also provides sales and operational support 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 with client objectives while providing the flexibility to
pursue a wide range of investment strategies and include the Passport and
Ambassador programs.
2016 TOTAL PRE-TAX INCOME* $800,643,000
PRIVATE CLIENT GROUP
CAPITAL MARKETS
ASSET MANAGEMENT
RAYMOND JAMES BANK
OTHER
$340,564,000
$139,173,000
$132,158,000
$337,296,000
($148,548,000)
43%
17%
17%
42%
(19%)
*PRE-TAX INCOME EXCLUDING NONCONTROLLING INTERESTS
RAYMOND JAMES BANK
A national bank, Raymond James Bank provides a comprehensive array of
personal and corporate banking services including residential, securities-based
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 as well as whole
loan purchases in the secondary market.
OTHER
The Other segment includes the firm’s principal capital and private equity
activities, as well as certain corporate overhead costs of Raymond James
Financial including the interest cost on our public debt, and the integration
costs associated with acquisitions.
8
RAYMOND JAMES ANNUAL REPORT 2016
New associates embrace Raymond James culture firsthand
at the home office during a group training meeting.
PRAGMATIC PROGRESS driven by, and for, people
Making responsible decisions is what we do, however, just as important is how we do it –
and never forgetting for whom we do it.
At Raymond James, our business is people and their financial
well-being. That’s why, no matter the external changes and
challenges we face, we steadfastly uphold our core values of
integrity, independence and conservatism that empower us to
put clients first.
Clients are at the heart of our company and why we must stay
rooted in those values to fortify our identity and protect our
culture, even as we grow.
When it comes to growth, we first focus on helping to develop our
existing professionals and teams so they can serve clients more fully.
In 2016, that came in the form of investing in technology to drive
functionality and efficiency. For example, our advisor mobile app
provides secure access to client information anytime from anywhere.
Furthermore, we have continued to deliver more protective security
to reduce criminality in the financial system. It came from programs
to provide broader career opportunities, such as the Registered
Associate Mentoring Program, a yearlong mentoring experience for
registered service associates who have been identified by their
managers as having potential and interest in becoming financial
advisors. And it came from diversity initiatives such as our Black
Financial Advisors Network and Women in Capital Markets Conference
that are designed to help groups that have traditionally been under-
represented in our industry build strong networks of support.
Our efforts have paid off. As a testament to both our culture and the
support we provide, our regrettable attrition of financial advisors is
consistently less than 1%, even as we remain one of the only firms in
the industry that believes client relationships are an advisor’s and that
advisors should be able to take their books of business if they choose
a home other than Raymond James and are in good standing.
Meanwhile, our associates remain extremely satisfied with
Raymond James as a place to work: Our overall employee
engagement score continues to rival top companies across all
industries. That engagement translates into service that drives client
satisfaction. Annual surveys show industry-leading scores from both
advisors and clients, with more than 90% of clients saying they are
satisfied with Raymond James and their advisor, and the vast
majority of those clients likely to recommend services to a friend.
Of course, as we continue to position for the future – a future in
which clients will be more diverse and more tech-savvy than ever –
we know that we must continue to invest in tools and resources to
serve those clients well. That investment calls for additional growth
in the form of recruiting individuals and teams to our businesses –
such as the additional 550 advisors who helped make 2016 a
near-record recruiting year in our Private Client Group, and the
numerous bankers and analysts that have helped round out their
respective businesses in terms of expertise and geographic coverage.
9
Representation from the Alex. Brown integration team (left to right)
Doug Brigman, Vice President, Planning and Strategy; Stacy Barko, Vice President, Operations, Equity Capital Markets; Lora Rodriguez, Director, Communications; Michael Tormey, Managing
Director, Alex. Brown, Private Client Group Administration; Alexandra Band, Vice President, Corporate Development; Dennis Zank, Chief Operating Officer, Raymond James Financial; Helen Rice-
Devlin, Senior Vice President, Technology, Business Systems; Lauren Pilkington-Rich, Assistant General Counsel; Tony Tuntasit, Managing Attorney; Russell Johnson, Director, Alex. Brown,
Private Client Group Administration; Meggie Ford, Corporate Business Development Analyst (Not Pictured: Jim Sickling, Chief Operating Officer, Trading Administration)
Finally, throughout our history, we have selectively used strategic
acquisitions to grow when the timing is right and, most importantly,
when there is a strong cultural fit and shared reputation for putting
clients first. This year, we proudly welcomed three firms to the
Raymond James family.
We expanded our Capital Markets presence in Europe, with Raymond
James Investment Banking joining forces with Mummert & Company,
a leading middle market mergers and acquisitions advisory firm based
in Munich, Germany, to provide access to a new platform of potential
buyers, sellers and investors. With client-first values, this strategic
partnership blended two award-winning teams to provide even
greater expertise and superior service for clients. A platform for future
international growth, the collective team expands global industry
coverage and creates strong cross-border capabilities in the mergers
and acquisitions space.
In the Private Client Group, Canadian wealth management firm
MacDougall, MacDougall and MacTier (3Macs) joined Raymond
James Ltd. (RJL), creating Canada’s leading and largest independent
investment dealer with 457 advisors managing over Cdn$31 billion
in client assets under administration.
With history dating back to 1849, 3Macs’ long-established values
further strengthen our firm, and RJL specifically, as the home for
advisors who thrive in a culture that embraces shared values and the
freedom to put their clients’ needs first, always. Strategically
establishing a more significant footprint of advisors in Quebec and
ec and
c and
adding 3Macs’ bilingual platform helped solidify RJL’s position as a
on
as a
truly national firm.
soso
ol
10
In the year’s largest combination, we welcomed nearly 190 advisors
and associates from the Private Client Services unit of Deutsche
Bank to form the new Alex. Brown division of Raymond James, a
tribute to the group’s founding as the nation’s first investment bank
and a name well-known for serving high-net-worth individuals and
institutions. More than 90% of advisors joined Alex. Brown, reflecting
our shared values, as well as our decade-long investments in wealth
solutions and our technology platform. This unprecedented
retention of legacy advisors created a larger firm footprint in 16 key
geographic areas in the Northeast and on the West Coast, delivering
on stated growth objectives for these areas.
Since these types of additions afford us the opportunity to compare
our platform to others’, we also expanded our own high-net-worth
expertise and services, augmenting our multi-currency platform,
increasing alternative investment options, and adding a Private
Institutional Clients desk to offer unique investment solutions for
ultra-high-net-worth clients, among other developments.
While these acquisitions and infrastructure progressions represent
critical change, they support a virtuous cycle of growth,
profitability, investment and improvement. We plan to continue to
invest in the right things – those that support our advisors and help
our clients – practicing thoughtful risk management and
considering the long-term effects of every decision to achieve our
vision of being the premier alternative to Wall Street.
ter
mre
lter
RAYMOND JAMES ANNUAL REPORT 2016
Investing in change, grounded by our clients
No matter the external challenges that face the economy, our industry or our firm, we’re well-positioned
to address change. That’s because of what hasn’t changed at Raymond James: our core values and
how we manage our business. Our client focus and conservative management approach defines
Raymond James and is the litmus test for everything we do.
Even as we stay grounded in those values, we continue to adapt and succeed – with regard to our
sophistication in how we protect client privacy, how we adhere to being deputized by the government to
combat money laundering, and how we apply our client-centric approach to the Department of Labor’s
changes to fiduciary requirements.
Enhancing technology
and cybersecurity
Preserving advisor and client
choice
We are vigilant when it comes to helping ensure our
advisors and clients are protected, while continuously
upgrading our technology to respond to advisors’ and
clients’ rapidly changing expectations.
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locations and providing additional security monitoring, as well as
creating a new cyber-intelligence team to track and analyze threats
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and procedures to more easily detect and prevent money-laundering
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technology solutions to monitor account activity.
Our robust advisor and client technology capabilities also continue
to expand. We’ve integrated external client assets so there is a single
location to view and manage outside accounts, giving advisors the
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two new tools have been created to give advisors the ability to better
understand client growth trends and view which relationships have
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electronically shared securely between them, and clients can store
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and their clients’ best interests as our priority.
While we are keeping a close eye on how the incoming administration
will handle the rule as it now stands, given the uncertainty around
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choice, supporting advisors’ ability to serve any client, and providing
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making materials and programs to help advisors manage their client
relationships in alignment with the rule.
“I love that I can be in a meeting with people from
all over the firm talking about a new product, service
or business change and inevitably someone will ask
the question: What does this mean to clients?”
Paul Reilly, Chief Executive Officer, Raymond James Financial
11
Institutional Consulting Services’ My Edmonds
meets with advisors Larry and Leo Goeas at an
asset management conference in New Orleans.
EXP ER IENCING THE ALOH A SP I R I T
beyond the Hawaiian Islands
In Hawaii, the aloha spirit is a way of life, encompassing warm, friendly acceptance, as well as a like-minded
reference point to accomplish goals. Larry and Leo Goeas felt that spirit from the attitude and accountability
of Raymond James’ professionals, a key reason they joined the firm.
From coast to coast and overseas, the people that uphold our firm’s
culture work together to create a personal and unique experience for
clients. One handshake with a Raymond James professional often
progresses to meaningful discussions and connections with specialized
teams spanning the firm. Here, real-life conversations begin and
continue with one question in mind: What’s best for the client?
That question is one brothers Larry and Leo Goeas heavily contemplated
prior to joining Raymond James in February 2016. As lifelong residents
of the Hawaiian Islands, they wanted to join a firm that would respect
their local culture and connections with the community, while providing
the support they needed to serve the institutional clients who have
come to depend on their expertise.
Raymond James presented that unique combination.
“We were offered the freedom to run our business, access to firm
leadership, and the type of support we need to continually provide
exceptional service to our clients,” said Senior Vice President of
Investments and Branch Manager Larry Goeas. “The client-centric
culture along with the tools and technology we need, especially related
to growing our institutional business, allows us to be more proficient in
our processes and spend more time with our clients.”
From the beginning, many hands diligently worked across time
zones to successfully support the transition of the Goeas Group’s
high-net-worth and institutionally focused clients, most of whom
are based in Hawaii or the U.S. West Coast. Further, even as some
firms have pulled away from providing home office support for the
institutional consulting business, pushing the responsibility to
advisors to build their own expertise, Raymond James offered a
dedicated team – a significant differentiator for the Goeas Group.
“We were thrilled to meet the Asset Management Services
Institutional Consulting Services (ICS) team and learn about the
support they offer. Since Hawaii is a small state surrounded by the
vastness of the Pacific Ocean, a local presence with a global support
group means a lot,” Larry said.
From streamlining contracts and fulfilling requests for proposals to
collaborating on final presentations and providing performance
reports, the ICS team customizes deliverables to the needs of the
12
Goeas Group’s clients, all while working as a fiduciary
within the governing laws of Hawaii.
A key part of that trusted team is My Edmonds, vice president
and senior institutional consultant. Not only was My’s
expertise and professionalism beneficial to solidifying the
value of Raymond James and the ICS team to current clients,
she’s also been instrumental in helping attract new clients.
“We can’t say enough about My. During a presentation to a
prospective client, she validated to the board why we made
the move to Raymond James and helped bring them on as
clients,” Larry shared. “We anticipate more stories like this
to follow, since our team’s capacity to take on new accounts
has effectively tripled – we’re not on our own anymore.”
The Goeas Group, including sales assistants Lehua Pahia-
Elliot and Sally Kihoi, now engages dedicated departments
for specialized tasks they used to administer. For example,
the institutional performance reporting team creates
performance reports customized to each client’s exact
needs. In the case of the Goeas Group, that meant
completing 22 distinct and detailed performance reporting
presentations in about eight months. “Prior to joining
Raymond James, we spent so much time looking in the
rearview mirror. For the first time in seven years, I can spend
my time looking forward because all of that history has
been taken care of,” Larry explained.
The benefit of more time also came by way of the dedicated
Retirement Plan Consulting team, which helped the group
transfer corporate 401(k) plans to Raymond James. At their
prior firm, the Goeas Group couldn’t spend time helping
individual employees understand their retirement options,
and saw that business dwindling. After meeting with Bo
Bohanan, director of Retirement Plan Consulting, they saw
that – with home office resources and support – managing
company retirement plans could be a viable way to serve
clients. Working together, they increased the number of
these accounts the group manages. “The technology and
systems are very turnkey. In addition to sharing quarterly
reports with clients, we have more time to meet with the
committees or trustees of the plans as well as with
employees, which is crucial,” Larry said.
More time for clients is a theme that has Larry signing his
emails “mahalo,” a Hawaiian word, that at its most basic
means “thank you.”
“It recently struck me that before I never mentioned
who the consultants we worked with were. Here at
Raymond James, the people are all I talk about. I
consistently bring their names into conversations with
clients because these are real people helping me.”
RAYMOND JAMES ANNUAL REPORT 2016
Bridging a gap to help investors
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to and holistically complements the larger client relationship.
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(cid:79)(cid:77)(cid:86)(cid:77)(cid:90)(cid:73)(cid:92)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:78) (cid:3)(cid:88)(cid:87)(cid:92)(cid:77)(cid:86)(cid:92)(cid:81)(cid:73)(cid:84)(cid:3)(cid:75)(cid:84)(cid:81)(cid:77)(cid:86)(cid:92)(cid:91)(cid:3)(cid:78)(cid:87)(cid:90)(cid:3)(cid:80)(cid:81)(cid:91)(cid:3)(cid:88)(cid:90)(cid:73)(cid:75)(cid:92)(cid:81)(cid:75)(cid:77)(cid:22)(cid:3)
Almost half of Freedom Foundation Portfolio clients
are millennials or part of Generation X, roughly
2.5X more than next-generation clients who hold
traditional Freedom accounts.
Advisor Jon Blahnik outlines the Freedom Foundation Portfolio with client Rick Hoyerman and his
son, Eric, as they open his first investment account.
(cid:60)(cid:80)(cid:73)(cid:92)(cid:3)(cid:85)(cid:73)(cid:97)(cid:3)(cid:74)(cid:77)(cid:3)(cid:92)(cid:80)(cid:77)(cid:3)(cid:85)(cid:87)(cid:91)(cid:92)(cid:3)(cid:78)(cid:90)(cid:77)(cid:89)(cid:93)(cid:77)(cid:86)(cid:92)(cid:3)(cid:93)(cid:91)(cid:77)(cid:20)(cid:3)(cid:74)(cid:93)(cid:92)(cid:3)(cid:50)(cid:87)(cid:86)(cid:3)(cid:73)(cid:84)(cid:91)(cid:87)(cid:3)(cid:73)(cid:88)(cid:88)(cid:90)(cid:77)(cid:75)(cid:81)(cid:73)(cid:92)(cid:77)(cid:91)(cid:3)(cid:92)(cid:80)(cid:77)(cid:81)(cid:90)(cid:3)(cid:93)(cid:92)(cid:81)(cid:84)(cid:81)(cid:92)(cid:97)(cid:3)(cid:78)(cid:87)(cid:90)(cid:3)
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(cid:75)(cid:84)(cid:81)(cid:77)(cid:86)(cid:92)(cid:91)(cid:3)(cid:90)(cid:77)(cid:92)(cid:81)(cid:90)(cid:77)(cid:20)(cid:3)(cid:92)(cid:80)(cid:77)(cid:97)(cid:3)(cid:95)(cid:73)(cid:86)(cid:92)(cid:3)(cid:77)(cid:73)(cid:91)(cid:77)(cid:3)(cid:87)(cid:78) (cid:3)(cid:85)(cid:73)(cid:86)(cid:73)(cid:79)(cid:77)(cid:85)(cid:77)(cid:86)(cid:92)(cid:20)(cid:3)(cid:95)(cid:81)(cid:92)(cid:80)(cid:3)(cid:73)(cid:84)(cid:84)(cid:3)(cid:87)(cid:78) (cid:3)(cid:92)(cid:80)(cid:77)(cid:81)(cid:90)(cid:3)(cid:81)(cid:86)(cid:78)(cid:87)(cid:90)(cid:85)(cid:73)(cid:92)(cid:81)(cid:87)(cid:86)(cid:3)
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(cid:95)(cid:73)(cid:97)(cid:3)(cid:78)(cid:87)(cid:90)(cid:3)(cid:93)(cid:91)(cid:3)(cid:92)(cid:87)(cid:3)(cid:88)(cid:93)(cid:84)(cid:84)(cid:3)(cid:81)(cid:86)(cid:3)(cid:77)(cid:94)(cid:77)(cid:86)(cid:3)(cid:92)(cid:80)(cid:77)(cid:81)(cid:90)(cid:3)(cid:91)(cid:85)(cid:73)(cid:84)(cid:84)(cid:77)(cid:90)(cid:3)(cid:73)(cid:75)(cid:75)(cid:87)(cid:93)(cid:86)(cid:92)(cid:91)(cid:20)(cid:3)(cid:88)(cid:90)(cid:87)(cid:94)(cid:81)(cid:76)(cid:81)(cid:86)(cid:79)(cid:3)(cid:77)(cid:1659)(cid:75)(cid:81)(cid:77)(cid:86)(cid:75)(cid:81)(cid:77)(cid:91)(cid:3)(cid:78)(cid:87)(cid:90)(cid:3)
(cid:85)(cid:97)(cid:3)(cid:88)(cid:90)(cid:73)(cid:75)(cid:92)(cid:81)(cid:75)(cid:77)(cid:20)(cid:3)(cid:95)(cid:80)(cid:81)(cid:84)(cid:77)(cid:3)(cid:73)(cid:84)(cid:84)(cid:87)(cid:95)(cid:81)(cid:86)(cid:79)(cid:3)(cid:85)(cid:77)(cid:3)(cid:92)(cid:87)(cid:3)(cid:76)(cid:77)(cid:84)(cid:81)(cid:94)(cid:77)(cid:90)(cid:3)(cid:73)(cid:3)(cid:85)(cid:87)(cid:90)(cid:77)(cid:3)(cid:75)(cid:87)(cid:85)(cid:88)(cid:90)(cid:77)(cid:80)(cid:77)(cid:86)(cid:91)(cid:81)(cid:94)(cid:77)(cid:3)(cid:197)(cid:86)(cid:73)(cid:86)(cid:75)(cid:81)(cid:73)(cid:84)(cid:3)
planning solution.
(cid:185)(cid:49)(cid:92)(cid:3)(cid:79)(cid:81)(cid:94)(cid:77)(cid:91)(cid:3)(cid:93)(cid:91)(cid:3)(cid:73)(cid:86)(cid:3)(cid:73)(cid:90)(cid:90)(cid:87)(cid:95)(cid:3)(cid:81)(cid:86)(cid:3)(cid:92)(cid:80)(cid:77)(cid:3)(cid:89)(cid:93)(cid:81)(cid:94)(cid:77)(cid:90)(cid:3)(cid:92)(cid:80)(cid:73)(cid:92)(cid:3)(cid:95)(cid:77)(cid:3)(cid:76)(cid:81)(cid:76)(cid:86)(cid:188)(cid:92)(cid:3)(cid:80)(cid:73)(cid:94)(cid:77)(cid:3)(cid:78)(cid:87)(cid:90)(cid:3)(cid:87)(cid:88)(cid:77)(cid:86)(cid:81)(cid:86)(cid:79)(cid:3)(cid:73)(cid:86)(cid:87)(cid:92)(cid:80)(cid:77)(cid:90)(cid:3)
small, related account.”
13
BUILDING A SENS E OF COMMUN I TY
for disabled veterans
When Raymond James Tax Credit Funds and Raymond James Bank
partnered in support of affordable housing, they leveraged key
connections to create a community far greater than the sum of its parts.
Raymond James has always recognized the power of connections.
Whether between advisor and client, banker and institution, or company
and community, the firm believes that strengthening the threads that
connect us is more than the right way to do business, it is a powerful,
strategic approach to growth.
That approach served us well in 2016 as we continued to nurture long-
running relationships and cultivate new ones that put the firm in an even
better position to pursue opportunities.
14
RAYMOND JAMES ANNUAL REPORT 2016
(Left to right) Shawn Wilson and Scott Macdonald of Blue Sky Communities, Sean Jones
of Raymond James Tax Credit Funds and Laurel Macdonald of Carteret Management
Corp. represent just three of the entities that came together to make Duval Park a reality.
15
In early 2012, a smattering of Key West-style houses – painted in
beachy greens, blues and yellows – sat empty, surrounded by graded
lots on 10 acres in Lealman just outside of the incorporated
boundaries of St. Petersburg, Florida.
A holdover from the housing bubble and subsequent real estate
market collapse, the structures were originally intended to be part
of a planned community – just like many others that had sprung up
across Tampa Bay in the months before the 2008/2009 meltdown.
To some, they might have represented the excessive exuberance that
precipitated the extreme downturn, but to Raymond James Tax
Credit Funds and its partners, they represented hope.
In 2014, the state of Florida directed a portion of its allocated
low-income housing tax credits to the development of homes for
disabled residents, issuing a first-of-its-kind request for application
(RFA) for developments that would offer permanent supportive
housing for veterans with a disabling condition.
“Shawn shared that he and his team were considering responding
to the RFA and asked what we knew about Boley. He looked to us
for expertise and, essentially, backup – What data do you have on
previous veterans projects? What do you know about the subsidy?
– as he prepared for the application process,” Sean said.
Shawn had worked with Tax Credit Funds before. In fact, his
partnership with the group on a development for low-income
seniors called 540 Town Center had connected him to fellow
affordable housing developer and future business partner Jim
Chadwick. Together the pair, along with Chief Financial Officer
Scott Macdonald, formed Blue Sky Communities, and the veterans
project would mark Shawn’s first as a company owner.
After applying for and being granted the tax credits and some funds
from the state, Blue Sky purchased the Lealman land, complete
with the four brightly hued homes still waiting to be filled.
“This is becoming more of a trend throughout the industry,” said
Sean Jones, director of acquisitions at Tax Credit Funds, “but this
was the state’s first venture into the space, so it was a pretty big
deal … for the state, for the developer, for us, for everyone
involved.”
Next up was finding the right investor to provide construction
financing and equity. Fortunately, an ideal partner was close at hand.
Just one parking lot away from the Tax Credit Funds offices, a group
at Raymond James Bank dedicated to community reinvestment was
looking for a new opportunity.
Thanks to existing relationships with Boley Centers and
ServiceSource, nonprofits whose primary missions are providing
treatment, rehabilitation and supportive services for Pinellas
County residents with disabilities, Tax Credit Funds was in a prime
position to help when another partner decided to respond to the
state’s call.
That process began when Shawn Wilson, president of Blue Sky
Communities and a longtime affordable housing developer, made
his own call to Raymond James.
“Working with the bank was like working with any other investor,”
said Steve Kropf, president of Tax Credit Funds. “They had a need,
our developer partner had a need and, ultimately, we were the
intermediary to help everyone meet their objectives.”
With the bank on board, the team broke ground on the newly
christened Duval Park on November 10, 2014, the day before Veterans
Day, accompanied by an honor guard and the sound of bagpipes.
Alongside those first four houses, 84 additional one-, two- and
three-bedroom apartments were built, each constructed with nearly
20 features for wheelchair users and those with other special needs.
16
The surrounding acreage was rounded out with a clubhouse, indoor
and outdoor fitness areas, a playground, a pool and a gazebo.
The community also employs two full-time case managers who
provide an array of resident services including financial and credit
counseling, and employment counseling and placement.
“It’s not just housing,” said Laurel Macdonald, president of Carteret
Management, “It’s housing and the services these residents need to
live independently and have successful lives going forward.”
“We actually have a few veterans on our team, including Ted Long at
the bank, who worked on this deal,” said Sean. “To see how excited
they were to be part of something that was helping fellow veterans
was pretty powerful.”
Completed in December 2015 for a total development cost of
$17 million, the project reached stabilization in February 2016.
Beyond Tax Credit Funds, Raymond James Bank, Blue Sky and Boley,
a handful of other key players helped make Duval Park a reality.
A bird’s-eye view of the 10-acre campus of Duval Park, which
borders Joe’s Creek Greenway Park and its public trails.
According to Sean, “There were many partnerships – both external
and internal to Raymond James – working to ensure this project was
a success, from service providers to management agents to
construction folks and financing partners.”
Today, Duval Park is home to 71 veterans and their families, many of
whom have overcome significant adversity and patiently waited
their turn on a growing list to get into a place they say has given
them a true sense of community.
“People basically feel like they won the lottery when they make it
into these communities. It changes people’s lives in a big way,” said
Steve. “To give a failed development from the housing crash new
purpose was so gratifying,” he added. “We were able to take
something blighted and turn it into a sought-after home for veterans.
It’s a great example of the power of our business, and of the positive
impact we can have on communities.”
RAYMOND JAMES ANNUAL REPORT 2016
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(cid:59)(cid:81)(cid:86)(cid:75)(cid:77)(cid:3) (cid:81)(cid:92)(cid:3) (cid:95)(cid:73)(cid:91)(cid:3) (cid:77)(cid:91)(cid:92)(cid:73)(cid:74)(cid:84)(cid:81)(cid:91)(cid:80)(cid:77)(cid:76)(cid:3) (cid:81)(cid:86)(cid:3) (cid:25)(cid:33)(cid:32)(cid:30)(cid:20)(cid:3) (cid:58)(cid:73)(cid:97)(cid:85)(cid:87)(cid:86)(cid:76)(cid:3) (cid:50)(cid:73)(cid:85)(cid:77)(cid:91)(cid:3) (cid:60)(cid:73)(cid:96)(cid:3)
(cid:43)(cid:90)(cid:77)(cid:76)(cid:81)(cid:92)(cid:3)(cid:46)(cid:93)(cid:86)(cid:76)(cid:91)(cid:3)(cid:80)(cid:73)(cid:91)(cid:3)(cid:79)(cid:90)(cid:87)(cid:95)(cid:86)(cid:3)(cid:75)(cid:87)(cid:86)(cid:91)(cid:81)(cid:76)(cid:77)(cid:90)(cid:73)(cid:74)(cid:84)(cid:97)(cid:22)(cid:3)(cid:59)(cid:87)(cid:87)(cid:86)(cid:20)(cid:3)(cid:92)(cid:80)(cid:77)(cid:3)(cid:79)(cid:90)(cid:87)(cid:93)(cid:88)(cid:3)(cid:95)(cid:81)(cid:84)(cid:84)(cid:3)
have deployed nearly $7 billion and helped create 92,000
(cid:93)(cid:86)(cid:81)(cid:92)(cid:91)(cid:3)(cid:87)(cid:78) (cid:3)(cid:80)(cid:87)(cid:93)(cid:91)(cid:81)(cid:86)(cid:79)(cid:3)(cid:92)(cid:80)(cid:90)(cid:87)(cid:93)(cid:79)(cid:80)(cid:3)(cid:25)(cid:20)(cid:32)(cid:30)(cid:29)(cid:3)(cid:76)(cid:77)(cid:73)(cid:84)(cid:91)(cid:3)(cid:92)(cid:80)(cid:90)(cid:87)(cid:93)(cid:79)(cid:80)(cid:87)(cid:93)(cid:92)(cid:3)(cid:92)(cid:80)(cid:77)(cid:3)(cid:61)(cid:86)(cid:81)(cid:92)(cid:77)(cid:76)(cid:3)
(cid:59)(cid:92)(cid:73)(cid:92)(cid:77)(cid:91)(cid:22)(cid:3)(cid:49)(cid:86)(cid:3)(cid:26)(cid:24)(cid:25)(cid:30)(cid:3)(cid:73)(cid:84)(cid:87)(cid:86)(cid:77)(cid:20)(cid:3)(cid:81)(cid:92)(cid:3)(cid:91)(cid:87)(cid:84)(cid:76)(cid:3)(cid:85)(cid:87)(cid:90)(cid:77)(cid:3)(cid:92)(cid:80)(cid:73)(cid:86)(cid:3)(cid:12)(cid:25)(cid:3)(cid:74)(cid:81)(cid:84)(cid:84)(cid:81)(cid:87)(cid:86)(cid:3)(cid:81)(cid:86)(cid:3)(cid:77)(cid:89)(cid:93)(cid:81)(cid:92)(cid:97)(cid:3)
(cid:92)(cid:87)(cid:3)(cid:81)(cid:86)(cid:94)(cid:77)(cid:91)(cid:92)(cid:87)(cid:90)(cid:91)(cid:20)(cid:3)(cid:73)(cid:86)(cid:3)(cid:81)(cid:86)(cid:75)(cid:90)(cid:77)(cid:73)(cid:91)(cid:77)(cid:3)(cid:87)(cid:78) (cid:3)(cid:25)(cid:29)(cid:13)(cid:3)(cid:87)(cid:94)(cid:77)(cid:90)(cid:3)(cid:92)(cid:80)(cid:77)(cid:3)(cid:88)(cid:90)(cid:77)(cid:94)(cid:81)(cid:87)(cid:93)(cid:91)(cid:3)(cid:97)(cid:77)(cid:73)(cid:90)(cid:22)(cid:3)
But more impressive than the group’s growth, says Tax
(cid:43)(cid:90)(cid:77)(cid:76)(cid:81)(cid:92)(cid:3)(cid:46)(cid:93)(cid:86)(cid:76)(cid:91)(cid:3)(cid:56)(cid:90)(cid:77)(cid:91)(cid:81)(cid:76)(cid:77)(cid:86)(cid:92)(cid:3)(cid:59)(cid:92)(cid:77)(cid:94)(cid:77)(cid:3)(cid:51)(cid:90)(cid:87)(cid:88)(cid:78)(cid:20)(cid:3)(cid:81)(cid:91)(cid:3)(cid:92)(cid:80)(cid:77)(cid:3)(cid:92)(cid:90)(cid:73)(cid:86)(cid:91)(cid:78)(cid:87)(cid:90)(cid:85)(cid:73)(cid:92)(cid:81)(cid:94)(cid:77)(cid:3)
(cid:77)(cid:1658)(cid:77)(cid:75)(cid:92)(cid:3) (cid:81)(cid:92)(cid:91)(cid:3) (cid:88)(cid:90)(cid:87)(cid:82)(cid:77)(cid:75)(cid:92)(cid:91)(cid:3) (cid:80)(cid:73)(cid:94)(cid:77)(cid:3) (cid:80)(cid:73)(cid:76)(cid:3) (cid:87)(cid:86)(cid:3) (cid:75)(cid:87)(cid:85)(cid:85)(cid:93)(cid:86)(cid:81)(cid:92)(cid:81)(cid:77)(cid:91)(cid:3) (cid:73)(cid:75)(cid:90)(cid:87)(cid:91)(cid:91)(cid:3) (cid:92)(cid:80)(cid:77)(cid:3)
(cid:75)(cid:87)(cid:93)(cid:86)(cid:92)(cid:90)(cid:97)(cid:22)(cid:3) (cid:185)(cid:60)(cid:80)(cid:77)(cid:3) (cid:80)(cid:93)(cid:85)(cid:73)(cid:86)(cid:3) (cid:91)(cid:81)(cid:76)(cid:77)(cid:3) (cid:81)(cid:91)(cid:3) (cid:92)(cid:80)(cid:77)(cid:3) (cid:85)(cid:87)(cid:91)(cid:92)(cid:3) (cid:88)(cid:87)(cid:95)(cid:77)(cid:90)(cid:78)(cid:93)(cid:84)(cid:3) (cid:88)(cid:73)(cid:90)(cid:92)(cid:3) (cid:87)(cid:78) (cid:3)
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the people we’re able to help.”
COMMUNITIES BUILT
1,865 properties
92,000 units
227,000 residents
COMMUNITY
IMPACT
JOBS
SUPPORTED
144,000
HOMES
CONSTRUCTED
1,275 new
574 rehabilitated
16 repurposed
buildings/sites
TENANTS SERVED
1,168 properties for families
683 properties for seniors
14 properties for mixed occupancy
(FAMILIES AND SENIORS)
“The human side is the most powerful
part of what we do. The biggest impact
we make is in the lives of the people
we’re able to help.” Tax Credit Funds President Steve Kropf
17
17
Mark O’Brien and Stacy Houston of Raymond James Public Finance are
flanked by Juan Salgado, executive director of the Phoenix IDA, and
Shelby Scharbach, executive director of the Maricopa County IDA, outside
the Franklin Police and Fire High School, where teachers have benefited
from the multiplying effects of the Home in Five Advantage program.
NURT URING RELATION SH IPS in the Valley of the Sun
Years into a successful partnership, Raymond James Public Finance found new ways for a community
to help its residents pursue the American dream.
Raymond James owes much of its progress to its past. We match a
commitment to expanding our businesses in new directions with a
knack for cultivating, and continually evolving, long-term relationships.
That ongoing investment in the potential of our established
partners has always been a key aspect of the firm’s success, and we
continued building on those foundations in 2016.
Raymond James is home to one of the most productive and dynamic
public finance practices in the industry and consistently ranks among
the top 10 senior managing underwriters of U.S. municipal bonds. In
2016 alone, the firm senior managed 812 negotiated and competitive
issues worth in excess of $16.1 billion. And much of that record
productivity can be attributed to long-held relationships.
Eighteen years after they began doing business in Arizona,
members of Raymond James Public Finance’s housing team
marked a new milestone.
In September 2016, Home in Five Advantage, a mortgage origination
program (MOP) that has helped 13,000 low- and moderate-income
families buy their first homes, celebrated its fourth anniversary – and
one of its most successful quarters to date, with new loans up 12.4%.
18
A joint effort between Raymond James and the industrial development
authorities (IDAs) of Maricopa County and Phoenix, Home in Five
benefits not only from an innovative financing mechanism, but also
from the long and unique relationship between its key players.
Raymond James started doing single-family bond work with Maricopa
County in 1998. Next, the group expanded its local footprint to include
projects with the city of Phoenix. Then in 2006, something interesting
happened when the team began working jointly with both IDAs.
“When we’re working on projects like this, it’s almost always with one
entity,” said Mark O’Brien, senior banker with Public Finance’s housing
group. “This is certainly unique in the fact that it’s a nice, cooperative
relationship between the city and the county – each with its own board
of directors, its own staff.”
Beyond its novel leadership, the program, which offers qualified
buyers competitively priced 30-year fixed-rate mortgage loans, as well
as grants for down payment assistance and closing costs, also employs
a pioneering financing structure.
MOPs are traditionally funded through the sale of single-family bonds,
but Home in Five was one of the first programs in the country, and the
first in the state of Arizona, to employ an innovative non-bond structure.
This means Home in Five is exempt from some of the income and
homebuyer restrictions traditional bond programs require, so it can reach
a wider range of applicants. This kind of ingenuity has been a hallmark of
the partnership between Raymond James and the IDAs from the start.
“Over the years, an exceeding amount of creativity and a long string of
innovations have gone into helping the IDAs fulfill their missions. Our
history with them has been a critical factor in helping them expand their
efforts in new ways,” said Bob Coleman, managing director of Raymond
James Public Finance’s housing group. Bob also believes the depth of the
relationship is as vital as its longevity. “We are not just helping them with
the financing aspects of this. We’ve helped them with marketing. We’ve
helped them recruit lenders. So, it’s not just ‘put the financing mechanism
in place and go.’ We provide very active, comprehensive service.”
“We’re working on this program daily. Whether it’s supporting lenders,
taking calls from borrowers or assisting issuers, we’re heavily involved in
and committed to its ongoing success,” added banker Stacy Houston.
As of the third quarter of 2016, Home in Five had partnered with
113 different private sector mortgage and lending partners and reported
just over $2.3 billion in total loan volume and more than $90 million in
down payment grants. The scale of these numbers is reflected by the
impact the program has had on the community.
“We think it’s been particularly important for this area, because Phoenix
and Maricopa County, what they call the Valley of the Sun, was a ground
zero area for the foreclosure crisis,” according to Mark.
Another powerful measure of the program’s success is the diversity of
its loan recipients. “Roughly 47% of homebuyers belong to minority
groups, and 39% are female-headed households. And though the
non-bond structure doesn’t require it, more than 99.5% are first-time
homebuyers,” Mark shared. “They’re achieving a key part of the
American dream via this program.”
In addition to fulfilling individual dreams, Home in Five also has a
multiplying effect for the community at large. Each IDA has taken the
additional revenues generated by the program and directed them
toward other economic and community development projects. So far
that reinvestment has taken two primary forms.
One of the efforts enables the IDAs to provide extra assistance for
hometown heroes. Using a portion of the revenues, Home in Five offers an
additional 1% of down payment assistance to first responders, including
police, firefighters and emergency personnel, as well as teachers,
members of the military and veterans. Another initiative has seen the IDAs
make joint grants to fund homeless services. In particular, efforts have
been focused on supporting the Human Services Campus in downtown
Phoenix, which provides resources, meals and short-term housing.
As Mark sees it, these effects could go right on multiplying. “This is a
housing program that is using its additional proceeds to help the
homeless, who, thanks to that support, may one day be able to utilize
Home in Five themselves.”
RAYMOND JAMES ANNUAL REPORT 2016
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strength
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(cid:73)(cid:3)(cid:85)(cid:87)(cid:90)(cid:77)(cid:3)(cid:75)(cid:87)(cid:80)(cid:77)(cid:91)(cid:81)(cid:94)(cid:77)(cid:3)(cid:88)(cid:84)(cid:73)(cid:92)(cid:78)(cid:87)(cid:90)(cid:85)(cid:20)(cid:3)(cid:87)(cid:86)(cid:77)(cid:3)(cid:92)(cid:80)(cid:73)(cid:92)(cid:3)(cid:90)(cid:77)(cid:73)(cid:76)(cid:81)(cid:84)(cid:97)(cid:3)(cid:76)(cid:77)(cid:85)(cid:87)(cid:86)(cid:91)(cid:92)(cid:90)(cid:73)(cid:92)(cid:77)(cid:91)(cid:3)(cid:92)(cid:80)(cid:77)(cid:3)
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relationship with (cid:49)(cid:54)(cid:60)(cid:58)(cid:61)(cid:59)(cid:60)(cid:3)(cid:42)(cid:73)(cid:86)(cid:83)(cid:20)(cid:3)(cid:74)(cid:73)(cid:91)(cid:77)(cid:76)(cid:3)(cid:81)(cid:86)(cid:3)(cid:63)(cid:81)(cid:75)(cid:80)(cid:81)(cid:92)(cid:73)(cid:20)(cid:3)(cid:51)(cid:73)(cid:86)(cid:91)(cid:73)(cid:91)(cid:20)(cid:3)
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The relationship began in the usual way. David Thompson, a
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liability reporting services. It has also collaborated closely with
(cid:46)(cid:81)(cid:96)(cid:77)(cid:76)(cid:3) (cid:49)(cid:86)(cid:75)(cid:87)(cid:85)(cid:77)(cid:188)(cid:91)(cid:3) (cid:44)(cid:77)(cid:90)(cid:81)(cid:94)(cid:73)(cid:92)(cid:81)(cid:94)(cid:77)(cid:91)(cid:3) (cid:76)(cid:77)(cid:91)(cid:83)(cid:3) (cid:87)(cid:86)(cid:3) (cid:81)(cid:86)(cid:92)(cid:77)(cid:90)(cid:77)(cid:91)(cid:92)(cid:3) (cid:90)(cid:73)(cid:92)(cid:77)(cid:3) (cid:91)(cid:92)(cid:90)(cid:73)(cid:92)(cid:77)(cid:79)(cid:81)(cid:77)(cid:91)(cid:22)(cid:3)
(cid:53)(cid:87)(cid:91)(cid:92)(cid:3) (cid:90)(cid:77)(cid:75)(cid:77)(cid:86)(cid:92)(cid:84)(cid:97)(cid:20)(cid:3) (cid:58)(cid:73)(cid:97)(cid:85)(cid:87)(cid:86)(cid:76)(cid:3) (cid:50)(cid:73)(cid:85)(cid:77)(cid:91)(cid:3) (cid:80)(cid:77)(cid:84)(cid:88)(cid:77)(cid:76)(cid:3) (cid:73)(cid:90)(cid:90)(cid:73)(cid:86)(cid:79)(cid:77)(cid:3) (cid:92)(cid:80)(cid:77)(cid:3) (cid:91)(cid:73)(cid:84)(cid:77)(cid:3) (cid:87)(cid:78) (cid:3)
(cid:49)(cid:54)(cid:60)(cid:58)(cid:61)(cid:59)(cid:60)(cid:188)(cid:91)(cid:3)(cid:53)(cid:77)(cid:90)(cid:75)(cid:80)(cid:73)(cid:86)(cid:92)(cid:3)(cid:59)(cid:77)(cid:90)(cid:94)(cid:81)(cid:75)(cid:77)(cid:91)(cid:3)(cid:73)(cid:86)(cid:76)(cid:3)(cid:43)(cid:90)(cid:77)(cid:76)(cid:81)(cid:92)(cid:3)(cid:43)(cid:73)(cid:90)(cid:76)(cid:3)(cid:88)(cid:87)(cid:90)(cid:92)(cid:78)(cid:87)(cid:84)(cid:81)(cid:87)(cid:91)(cid:3)(cid:92)(cid:87)(cid:3)
a third party.
(cid:42)(cid:97)(cid:3) (cid:77)(cid:91)(cid:92)(cid:73)(cid:74)(cid:84)(cid:81)(cid:91)(cid:80)(cid:81)(cid:86)(cid:79)(cid:3) (cid:73)(cid:3) (cid:75)(cid:77)(cid:86)(cid:92)(cid:90)(cid:73)(cid:84)(cid:3) (cid:88)(cid:87)(cid:81)(cid:86)(cid:92)(cid:3) (cid:87)(cid:78) (cid:3) (cid:75)(cid:87)(cid:86)(cid:86)(cid:77)(cid:75)(cid:92)(cid:81)(cid:87)(cid:86)(cid:3) (cid:78)(cid:87)(cid:90)(cid:3) (cid:73)(cid:3) (cid:94)(cid:73)(cid:90)(cid:81)(cid:77)(cid:92)(cid:97)(cid:3)
(cid:87)(cid:78) (cid:3)(cid:75)(cid:90)(cid:81)(cid:92)(cid:81)(cid:75)(cid:73)(cid:84)(cid:3)(cid:91)(cid:77)(cid:90)(cid:94)(cid:81)(cid:75)(cid:77)(cid:91)(cid:3)(cid:73)(cid:86)(cid:76)(cid:3)(cid:83)(cid:77)(cid:97)(cid:3)(cid:92)(cid:77)(cid:73)(cid:85)(cid:91)(cid:20)(cid:3)(cid:92)(cid:80)(cid:77)(cid:3)(cid:76)(cid:77)(cid:88)(cid:87)(cid:91)(cid:81)(cid:92)(cid:87)(cid:90)(cid:97)(cid:3)(cid:81)(cid:86)(cid:91)(cid:92)(cid:81)(cid:92)(cid:93)(cid:92)(cid:81)(cid:87)(cid:86)(cid:91)(cid:3)
(cid:88)(cid:84)(cid:73)(cid:92)(cid:78)(cid:87)(cid:90)(cid:85)(cid:3) (cid:80)(cid:73)(cid:91)(cid:3) (cid:75)(cid:90)(cid:77)(cid:73)(cid:92)(cid:77)(cid:76)(cid:3) (cid:87)(cid:88)(cid:88)(cid:87)(cid:90)(cid:92)(cid:93)(cid:86)(cid:81)(cid:92)(cid:81)(cid:77)(cid:91)(cid:3) (cid:78)(cid:87)(cid:90)(cid:3) (cid:87)(cid:86)(cid:77)(cid:3) (cid:90)(cid:77)(cid:84)(cid:73)(cid:92)(cid:81)(cid:87)(cid:86)(cid:91)(cid:80)(cid:81)(cid:88)(cid:3) (cid:92)(cid:87)(cid:3)
become many.
RAYMOND JAMES DEPOSITORY INSTITUTIONS COORDINATES
THE EFFORTS OF KEY AREAS OF THE FIRM ON BEHALF OF
BANKS, CREDIT UNIONS AND OTHER FINANCIAL INSTITUTIONS.
• Fixed Income Capital Markets
• Investment Banking
• Equity Sales, Trading
& Syndicate
• Equity Research
• Wealth Management
and Trust
• Tax Credit Funds
• Raymond James Bank
19
6
4
1
,
7
6
9
5
,
6
0
1
2
,
6
7
9
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0
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0
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6
1
0
2
FINANCIAL ADVISORS
PRIVATE CLIENT GROUP
BRANCH LOCATIONS
PRIVATE CLIENT GROUP
CLIENT ASSETS
PRIVATE CLIENT GROUP
FINANCIAL ASSETS
UNDER MANAGEMENT
$Billions
$Billions
10-YEAR FINANCIAL SUMMARY YEAR ENDED SEPTEMBER 30
2007
2008
2009
2010
RESULTS
Total Revenues
$ 3,109,579,000
$ 3,204,932,000
$ 2,602,519,000
$ 2,979,516,000
Net Revenues
Net Income
Net Income per Share (a)
Basic
Diluted
Weighted Average Common Shares
Outstanding – Basic (a)
Weighted Average Common and Common Equivalent Shares
Outstanding – Diluted (a)
2,609,915,000
2,812,703,000
2,545,566,000
2,916,665,000
250,430,000
235,078,000
152,750,000
228,283,000
2.10
2.07
1.95
1.93
1.25
1.25
1.83
1.83
115,268,000
116,110,000
117,188,000
119,335,000
117,011,000
117,140,000
117,288,000
119,592,000
Cash Dividends Declared per Common Share
0.40
0.44
0.44
0.44
FINANCIAL
CONDITION
Total Assets
16,228,797,000
20,709,616,000
(b)
18,223,854,000
(c,e)
17,880,535,000
(e,d)
Equity Attributable to RJF
1,757,814,000
1,883,905,000
2,032,463,000
2,032,816,000
Shares Outstanding (a)
Book Value per Share (a)
116,649,000
116,434,000
118,799,000
121,041,000
15.07
16.18
17.11
19.03
(a) Excludes non-vested shares.
(b) 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.
(c) 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.
20
RAYMOND JAMES ANNUAL REPORT 2016
4
.
6
1
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,
1
6
.
8
6
9
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.
5
7
9
5
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3
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(cid:1094)
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4
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2
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0
1
7
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9
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
TOTAL CAPITAL
MARKETS REVENUE
TOTAL INVESTMENT
BANKING REVENUE
$Millions
$Millions
TOTAL BANK LOANS
TOTAL BANK ASSETS
(1)
$Billions
$Billions
(1) Includes affiliate deposits
2011
2012
2013
2014
2015
2016
$ 3,399,886,000
$ 3,897,900,000
$ 4,595,798,000
$ 4,965,460,000
$ 5,308,164,000
$ 5,520,344,000
3,334,056,000
3,806,531,000
4,485,427,000
4,861,369,000
5,200,210,000
5,403,267,000
278,353,000
295,869,000
367,154,000
480,248,000
502,140,000
529,350,000
2.20
2.19
2.22
2.20
2.64
2.58
3.41
3.32
3.51
3.43
3.72
3.65
122,448,000
130,806,000
137,732,000
139,935,000
142,548,000
141,773,000
122,836,000
131,791,000
140,541,000
143,589,000
145,939,000
144,513,000
0.52
0.52
0.56
0.64
0.72
0.80
18,002,871,000
(e)
21,144,975,000
(e)
23,172,045,000
(e)
23,312,788,000
(e)
26,468,032,000
(e)
31,593,733,000
2,587,619,000
3,268,940,000
3,662,924,000
4,141,236,000
4,522,031,000
4,914,096,000
123,273,000
136,076,000
138,750,000
140,836,000
142,751,000
141,545,000
20.99
24.02
26.40
29.40
31.68
34.72
(d) 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.
(e) Effective October 1, 2015, we implemented new accounting guidance related to the presentation of debt issuance costs. The new guidance requires debt
issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying value of that debt liability.
Footnoted periods presented have been restated to reflect this change.
21
RAYMOND JAMES FINANCIAL, INC. BOARD OF DIRECTORS
Francis S. Godbold
Paul C. Reilly
Susan N. Story
Thomas A. James
Vice Chairman
Raymond James Financial
Chief Executive Officer
Raymond James Financial
Shelley G. Broader
Gordon L. Johnson
Director, President and CEO
Chico’s FAS, Inc.
President
Highway Safety Devices, Inc.
A specialty contractor for municipal
roadway projects
Director, President and CEO
American Water Works
Company, Inc.
A publicly traded water and
wastewater utility holding
company
Executive Chairman of the Board
Raymond James Financial
Roderick C. McGeary
Retired accounting executive
RAYMOND JAMES FINANCIAL, INC. EXECUTIVE COMMITTEE
Bella Loykhter Allaire
Executive Vice President
of Technology and Operations
Raymond James & Associates
Paul D. Allison
Chairman and CEO
Raymond James Ltd.
John C. Carson Jr.
President
Raymond James Financial
Fixed Income Capital Markets
Scott A. Curtis
President
Raymond James Financial Services
Jeffrey A. Dowdle
President, Asset Management
Services
Executive Vice President
Raymond James Financial
Tash 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
Jonathan N. Santelli
Executive Vice President
General Counsel
Raymond James Financial
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
22
RAYMOND JAMES ANNUAL REPORT 2016
Robert P. Saltzman
Jeffrey N. Edwards
Charles G. von Arentschildt
Benjamin C. Esty
Retired
Former President and CEO
Jackson National Life Insurance
Company
COO, New Vernon Advisers, LP
A registered investment advisor
Retired
Former Chairman and CEO, Global
Markets, North America
Deutsche Bank Securities Inc.
Professor of Business
Administration
Harvard Graduate School of
Business Administration
OTHER EXECUTIVE OFFICERS
Jennifer C. Ackart
Senior Vice President
Controller
Raymond James Financial
George Catanese
Senior Vice President
Chief Risk Officer
Raymond James Financial
223
23
RAYMOND JAMES CARE S 2016 By the numbers
Each year, Raymond James upholds a tradition of giving that dates back to our founding in
1962 and our founder, Bob James – and 2016 was no exception. The associates and leaders
of Raymond James joined forces to give their time, funds and resources in support of a
number of noble causes, and we thank them for their generosity.
145
CHARITABLE
ORGANIZATIONS
SUPPORTED
6,862
VOLUNTEER HOURS
3,500
PARTICIPANTS
102
31
COMMUNITIES SERVED
STATES IMPACTED
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.
• We must communicate with our clients 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.
24
• Continuing education is necessary to maintain the timeliness of
investment knowledge, tax law information and financial planning
techniques.
• Innovation is requisite to our survival in a changing world.
• To emulate other members of our industry requires us to continue
to work hard; to excel beyond our peers requires us to provide an
even higher caliber of service to our clients.
• We must give something back to the communities
in which we live and work.
Nomura Instinet
2016
A N N U A L R E P O R T
ON FORM 10-K
FOR FISCAL YEAR ENDED
SEPTEMBER 30,
2016
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, 2016
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 (Section 229.405) 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, 2016, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant computed by reference
to the price at which the common stock was last sold was $5,967,672,213.
The number of shares outstanding of the registrant’s common stock as of November 18, 2016 was 141,970,986.
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 16, 2017 are incorporated by reference into Part III.
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
RAYMOND JAMES FINANCIAL, INC.
TABLE OF CONTENTS
Business
Risk factors
Unresolved staff comments
Properties
Legal proceedings
Market for registrant’s common equity, related shareholder matters and issuer purchases of equity securities
Selected financial data
Management’s discussion and analysis of financial condition and results of operations
Quantitative and qualitative disclosures about market risk
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
16
29
29
29
32
34
35
83
99
202
202
205
205
205
205
205
205
205
208
2
Index
Item 1. BUSINESS
PART I
Raymond James Financial, Inc. (“RJF” or the “Company”) is a financial holding company whose broker-dealer subsidiaries
are engaged in various financial services 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.
Established in 1962 and public since 1983, RJF has been listed on the New York Stock Exchange (the “NYSE”) since 1986
under the symbol “RJF.” As a financial holding company, RJF is subject to supervision, examination and regulation by the Board
of Governors of the Federal Reserve System (the “Fed”).
RJF’s principal subsidiaries are 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.” Our operations are predominately conducted
in the United States of America (“U.S.”) and Canada.
Among the keys to our historical and continued success, our emphasis on putting the client first is at the core of our corporate
values. We also believe in maintaining a conservative, long-term focus in our decision making. We believe that this disciplined
decision-making approach translates to a strong, stable financial services firm for clients, advisors, associates and shareholders.
REPORTABLE SEGMENTS
We currently operate through four operating segments and our “Other” segment. The four operating segments are “Private
Client Group” (“PCG”), “Capital Markets,” “Asset Management,” and RJ Bank. The Other segment captures principal capital
and private equity activities as well as certain corporate overhead costs of RJF.
The graph below depicts the relative net revenue contribution of each of our operating segments for the fiscal year ended
September 30, 2016:
*Chart above does not include intersegment eliminations or the Other segment.
3
Index
PRIVATE CLIENT GROUP
We provide financial planning and securities transaction services to more than 2.9 million client accounts through the branch
office systems of RJ&A, RJFS, RJFSA, RJ Ltd. and in the United Kingdom through Raymond James Investment Services Limited
(“RJIS”). Financial advisors have multiple affiliation options, which we refer to as AdvisorChoice. Our two primary affiliation
options for financial advisors are the employee option and the independent contractor option.
We recruit experienced financial advisors 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 transitional cost assistance and retention
purposes.
Total assets under administration in the PCG segment as of September 30, 2016 amount to $574.1 billion. We have 7,146
financial advisors affiliated with us as of September 30, 2016.
Employee Financial Advisors
Employee financial advisors work in a traditional branch setting supported by local management and administrative staff.
They provide services predominately to individual clients. These financial advisors are our employees, and their compensation
primarily includes commission payments and participation in the firm’s benefit plans.
Independent Contractor Financial Advisors
Our financial advisors who are independent contractors are responsible for all of their direct costs and, accordingly, are paid
a larger percentage of commissions and fees than employee financial advisors. Our independent contractor financial advisor option
is designed to help our advisors build their businesses with as much or as little of our support as they determine they need. With
specific approval, they are permitted to conduct, on a limited basis, certain other approved business activities, such as offering
insurance products, independent registered investment advisory services, and accounting and tax services.
Irrespective of the affiliation choice, 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. Revenues from this segment are typically driven
by total client assets under administration, and are generally either recurring fee-based or transactional in nature. The proportion
of our securities commissions and fee revenues originating from the employee versus the independent contractor affiliation models
is relatively balanced.
Securities commissions and fee revenues by affiliation, as well as the portion of total segment revenues that is recurring versus
transactional in nature, for the fiscal year ended September 30, 2016, are presented below:
4
Index
We provide the following types of services through this segment:
• We provide investment services for which we charge sales commissions or asset-based fees based on established
schedules.
• We offer investment advisory services. 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.
• Our U.S. financial advisors provide insurance and annuity products through our general insurance agency, Raymond
James Insurance Group, Inc.
• Our U.S. financial advisors offer a number of professionally managed load and no-load mutual funds.
• We provide 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 based on current interest rates.
• We provide 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 the independent contractor registered investment
advisors with whom we are affiliated.
• We conduct securities lending activities through RJ&A, in which we borrow and lend securities from and to 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 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. The net revenues of
this business consist of the interest spreads generated on these activities.
• Through our Alternative Investments Group, we provide diversification strategies and products to qualified clients
of our affiliated financial advisors. The Alternative Investments Group provides strategies and products for portfolio
investment allocation opportunities where a selective addition of alternative investments that have historically
demonstrated lower correlation to traditional market indices may reduce overall portfolio volatility and increase long-
term performance.
• Through the formation of the Alex. Brown division of RJ&A, we enhanced our capabilities to service the needs of
ultra-high-net-worth clients and select institutions.
.
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CAPITAL MARKETS
Our capital markets segment conducts institutional sales, securities trading, equity research, investment banking, syndicate,
and the syndication of investments that qualify for tax credits under Section 42 of the Internal Revenue Code (referred to as our
“tax credit funds”). Within our management structure, we distinguish between activities that support equity and fixed income
products and services. We primarily conduct these activities in the U.S., Canada, and Europe.
The graph below depicts the portions of this segment’s revenues that are derived from equity securities and products, fixed
income securities and products, and our tax credit funds activities for the fiscal year ended September 30, 2016:
We provide the following services through this segment:
Equity Capital Markets Activities
• We earn institutional sales commissions on the sale of equity products. Sales volume is influenced by a combination of
general market activity and the Capital Markets group’s ability to identify and promote attractive investment opportunities
for our institutional clients. Commission amounts on equity transactions are based on trade size and the amount of business
conducted annually with each institution.
• We provide various investment banking services including public and private equity financing for corporate clients and
merger and acquisition advisory services. Our investment banking activities include a comprehensive range of strategic
and financial advisory services tailored to our clients’ business life cycles and backed by our strategic industry focus.
•
In our syndicate operations, we 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 our participation in
transactions managed by other investment banking firms.
• Our domestic research department supports our institutional and retail sales efforts and publishes research on a wide
variety of companies. This research primarily focuses on U.S. and Canadian companies in specific industries, including
agricultural, consumer, energy, clean energy, energy services, financial services, healthcare, industrial, mining and natural
resources, forest products, real estate, technology, and communication and transportation. Proprietary industry studies
and company-specific research reports are made available to both institutional and individual clients.
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Fixed Income Activities
• We earn institutional sales commissions from institutional clients who purchase both taxable and tax-exempt fixed income
products, primarily municipal, corporate, government agency and mortgage-backed bonds. The commissions that we
charge on fixed income products are based on trade size and the characteristics of the specific security involved.
• We carry inventories of taxable and tax-exempt securities to facilitate institutional sales activities. Our 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.
• Our fixed income investment banking services include public finance and debt underwriting activities where we serve
as a financial advisor, placement agent or underwriter to various issuers, including state and local government agencies
(and their political subdivisions), housing agencies, and non-profit entities including health care and higher education
institutions. We may also act as a consultant, underwriter, or selling group member for offerings of corporate bonds,
mortgage-backed securities (“MBS”), whole loans, agency bonds, preferred stock and unit investment trusts. When
underwriting new issue securities, we may agree to purchase the issue through a negotiated sale or submission of a
competitive bid.
•
In order to facilitate client transactions, hedge a portion of our fixed income securities inventories, or to a limited extent
for our own account, we enter into interest rate swaps and futures contracts. In addition, we conduct a “matched book”
derivatives business where we may enter into derivative transactions, including interest rate swaps, options, and
combinations of those instruments, primarily with government entities and not-for-profit counterparties. In this matched
book business, for every derivative transaction we enter into with a client, we enter into an offsetting derivative transaction
with a credit support provider that is a third party financial institution.
• Through our fixed income public finance operations, we enter into forward commitments to purchase Government National
Mortgage Association (“GNMA”) or Federal National Mortgage Association (“FNMA”) MBS. Such 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.
Tax Credit Fund Activities
•
In our syndication of tax credit investments, one of our subsidiaries acts as the general partner or managing member in
partnerships and limited liability companies that invest in real estate project entities which qualify for tax credits under
Section 42 of the Internal Revenue Code. We earn fees for the origination and sale of these investment products as well
as for the oversight and management of the investments over the statutory tax credit compliance period.
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ASSET MANAGEMENT
Our Asset Management segment provides investment advisory and asset management services to individual and institutional
investment portfolios, and sponsors mutual funds under the name “Eagle” (“Eagle Funds”). We also provide services to our PCG
clients (“AMS”) and through Raymond James Trust, N.A. (“RJ Trust”).
We earn advisory fees on both managed and non-discretionary asset-based accounts. In managed programs, we make decisions
about how to invest the assets in accordance with such programs objectives. In non-discretionary asset-based programs, we provide
administrative support to each plan, which may include trade execution, record-keeping and periodic investor reporting. We
generally earn higher fees for managed programs than for non-discretionary asset-based programs, since we provide additional
services to managed programs. As of September 30, 2016, there were $77.0 billion in financial assets held in managed programs
and $119.3 billion in financial assets held in non-discretionary asset-based programs.
The graph below depicts financial assets under management in our managed programs by objective as of September 30, 2016:
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RJ BANK
RJ Bank provides corporate loans, securities based loans (“SBL”) and residential loans. RJ Bank is active in corporate loan
syndications and participations. RJ Bank also provides Federal Deposit Insurance Corporation (“FDIC”) insured deposit accounts
to clients of our broker-dealer subsidiaries and to the general public. 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.
RJ Bank operates primarily from a 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 commercial and industrial (“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 70% of RJ Bank’s loan portfolio, of which 95% are U.S. and Canadian syndicated loans. Residential mortgage
loans are originated or purchased 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 of PCG clients.
RJ Bank has total assets of $16.6 billion at September 30, 2016, which are comprised of the following:
OTHER
Our “Other” segment includes our principal capital and private equity activities as well as certain corporate overhead costs
of RJF, such as the interest cost on our senior notes payable, and the acquisition and integration costs associated with certain
acquisitions (See Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information on our
acquisitions).
Our principal capital and private equity activities include various direct and third party private equity investments; employee
investment funds (the “Employee Funds”); and various private equity funds which we sponsor.
EMPLOYEES AND INDEPENDENT CONTRACTORS
Our employees and independent contractors (collectively “associates”) are vital to our success in the financial services industry.
As of September 30, 2016, we had over 11,900 employees, and over 4,000 affiliated independent contractor financial advisors.
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OPERATIONS AND INFORMATION PROCESSING
We have operations personnel at various locations throughout the U.S. who are responsible for processing securities
transactions, custody of client securities, support of client accounts, the receipt, identification and delivery of funds and securities,
and compliance with regulatory and legal requirements for most of our U.S. securities brokerage operations. 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 financial 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 as well as that of our clients. We apply numerous safeguards to maintain the confidentiality,
integrity and availability of both client and Company information.
Our business continuity program has been developed to provide reasonable assurance that we will continue to operate in the
event of disruptions at our critical facilities. Our business departments have developed operational plans for such disruptions, and
we have a staff which devotes its full time to monitoring and facilitating those plans. Our business continuity plan continues to
be enhanced and tested to allow for continuous operations in the event of weather-related or other interruptions at our corporate
headquarters in Florida or one of our operations processing or data center sites in Florida, Colorado, Tennessee or Michigan.
We have also developed a business continuity plan for each of our PCG retail branches in the event any of these branches is
impacted by severe weather.
COMPETITION
The financial services industry is an intensely competitive business. We compete with many other financial services firms,
including a number of larger securities firms, most of which are affiliated with major financial services companies, insurance
companies, banking institutions and other organizations. We also compete with companies that offer web-based 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, services, product selection, location and reputation in local markets.
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
RJF is a bank holding company subject to the Bank Holding Company Act that has made an election to be a financial holding
company. As a financial holding company, RJF is subject to regulation, oversight, and supervision, including periodic examination,
by the Fed. RJ Bank is a national bank regulated, supervised and examined by the Office of the Comptroller of the Currency
(“OCC”), and the Consumer Financial Protection Bureau (“CFPB”). Our trust company subsidiary also is regulated, supervised
and examined by the OCC. The Fed and the FDIC also regulate and may examine RJ Bank and the trust company. Collectively,
the rules and regulations of the Fed, the OCC, the FDIC and the CFPB cover all aspects of the banking business, including, for
example, lending practices, the receipt of deposits, capital structure, transactions with affiliates, conduct and qualifications of
personnel, and as discussed further below, capital requirements. This regulatory and supervisory framework is currently subject
to significant changes that can affect the operating costs and permissible businesses of RJF, RJ Bank and the trust company. As
a part of their supervisory function, the Fed, the OCC, the FDIC, and the CFPB also have the power to bring enforcement actions
for violations of law and, in the case of the Fed, the OCC and the FDIC, unsafe or unsound practices. Our broker-dealer subsidiaries,
which also are registered investment advisors, are subject to regulation and oversight by various regulatory and self-regulatory
authorities discussed under “Other regulations applicable to our operations” below.
The following discussion summarizes briefly the principal elements of the supervisory and regulatory framework applicable
to RJF. The framework is intended to protect our clients and customers, the integrity of the financial markets, and our depositors
and the Federal Deposit Insurance Fund and is not intended to protect our creditors or shareholders. These rules and regulations
limit our ability to engage in certain activities, as well as our ability to upstream to RJF funds from our regulated subsidiaries,
which include RJ Bank or our broker-dealer subsidiaries. To the extent that the following information describes statutory and
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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 or supervisory policy may have a material effect on our business.
Rules and regulations resulting from the Dodd-Frank Act
In July 2010, the U.S. government enacted sweeping changes to the supervision and regulation of the financial industry through
the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The Dodd-
Frank Act requires U.S. federal banking and other regulatory agencies to conduct hundreds of rulemakings, studies and reports.
These regulatory agencies include: the Commodity Futures Trading Commission; the Securities and Exchange Commission (the
“SEC”); the Fed; the OCC; the FDIC; the CFPB; and the Financial Stability Oversight Council. Certain elements of the Dodd-
Frank Act became effective immediately; however, the details of some provisions are subject to implementing regulations.
Furthermore, some provisions of the Dodd-Frank Act are still subject to further rulemaking proceedings and studies and will take
effect over the next several years.
As a result of the Dodd-Frank Act and other regulatory reforms, we are experiencing a period of unprecedented change in
financial regulation and supervision. These changes could have a significant impact on how we conduct our business. Many
regulatory or supervisory policies remain in a state of flux. As a result, we cannot specifically quantify the impact that such
regulatory or supervisory requirements will have on our business and operations (see Item 1A, “Risk Factors,” within this report
for further discussion of the potential future impact on our operations). Below, we highlight certain of the more significant changes
brought about as a result of the Dodd-Frank Act.
FDIC Assessment Rates
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, pursuant to the Dodd-Frank Act, the FDIC issued a final rule
changing its assessment base. For banks with greater 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.
CFPB Oversight
In July 2011, the CFPB began operations and was given rulemaking authority for a wide range of consumer protection laws
that apply to all banks and was provided broad powers to supervise and enforce federal consumer protection laws. The CFPB has
supervisory and enforcement powers under several consumer protection laws, including the: (i) Equal Credit Opportunity Act;
(ii) Truth in Lending Act; (iii) Real Estate Settlement Procedures Act; (iv) Fair Credit Reporting Act; (v) Fair Debt Collection Act;
(vi) Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and unfair, deceptive or abusive acts or practices
under section 1031 of the Dodd-Frank Act. Beginning with fiscal year 2014, the CFPB assumed supervisory authority over RJ
Bank for its compliance with the various federal consumer protection laws. The CFPB has authority to promulgate regulations,
issue orders, draft policy statements, conduct examinations, and bring enforcement actions. The creation of the CFPB has led to
enhanced enforcement of consumer protection laws. To the extent that, as a result of such heightened scrutiny and oversight, we
become the subject of any enforcement activity, we may be required to pay fines, incur penalties, or engage in certain remediation
efforts.
Stress Tests
In October 2012, the Fed, FDIC and OCC jointly issued final rules requiring certain bank holding companies, state member
banks, and savings and loan companies with total assets between $10 billion and $50 billion to conduct annual company-prepared
stress tests, report the results to their primary regulator and the Fed (who is RJF’s primary regulator), and publish a summary of
the results. Stress tests must be conducted using certain scenarios (baseline, adverse, and severely adverse) prescribed by the Fed.
RJF was required to conduct its first stress test by March 2014. The Dodd-Frank Act also required that RJF 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
summary of certain stress test results is available on our website under “More... - Investors - Financial Reports - Other Reports
and Information - 2016 Annual Dodd-Frank Act Stress Test Disclosure” (the information on our website is not incorporated by
reference into this report).
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The Volcker Rule
RJF is subject to the Volcker Rule, which generally prohibits, subject to exceptions, insured depository institutions, bank
holding companies and their affiliates (together, “Banking Entities”) from engaging in “proprietary trading” or acquiring or retaining
an ownership interest in a hedge fund or private equity fund (“covered funds”). Banking Entities engaged in proprietary trading
and/or investments in covered funds must establish a Volcker Rule-specific compliance program. We have adopted a program,
which is designed to be effective in ensuring compliance with the Volcker Rule, however, in connection with their examinations,
regulators will assess the sufficiency and adequacy of our program. The Volcker Rule also limits investments in, and relationships
with, covered funds. The conformance period for compliance with the rule with respect to investments in certain illiquid funds
has been extended and Banking Entities may still apply for an additional five-year extension with respect to investments in certain
illiquid funds. We maintain a number of private equity investments, some of which meet the definition of covered funds under
the Volcker Rule. The extension of the conformance deadline provides us with additional time to realize the value of these
investments in due course and implement any additional actions necessary for conformance with the rule. To the extent that any
of our covered funds satisfy the Fed’s criteria for further extension for certain illiquid funds, we may apply for such extensions,
although there is no assurance that any such extension would be granted.
Basel III and U.S. Capital Rules
Both RJF, as a bank holding company, and RJ Bank are subject to capital requirements that have increased due to recent
regulatory actions. In July 2013, the OCC, the Fed and the FDIC released final U.S. rules implementing the Basel III capital
framework developed by the Basel Committee on Banking Supervision and certain Dodd-Frank Act and other capital provisions
and updated the prompt corrective action framework to reflect the new regulatory capital minimums (the “U.S. Basel III Rules”).
The U.S. Basel III Rules: (i) increase the quantity and quality of regulatory capital; (ii) establish a capital conservation buffer; and
(iii) make changes to the calculation of risk-weighted assets. The U.S. Basel III Rules became effective for RJF on January 1,
2015, subject to applicable phase-in periods. The rules governing the capital conservation buffer became effective for both RJF
and RJ Bank as of January 1, 2016. See Note 25 of the Notes to the Consolidated Financial Statements in this Form 10-K for
information regarding RJF and RJ Bank regulatory capital levels and ratios, including information regarding the capital conservation
buffer. 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 and prospects could be adversely
affected. See Item 1A, “Risk Factors,” within this report for more information.
Failure to meet minimum capital requirements can trigger discretionary, and in certain cases, mandatory actions by regulators
that could have a direct material effect on the financial results of RJF and RJ Bank. Under capital adequacy guidelines, 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. The capital amounts and classification for RJF and RJ Bank are also
subject to the qualitative judgments of U.S. regulators based on components of capital, risk-weightings of assets, off-balance sheet
transactions, and other factors. Quantitative measures established by federal banking regulations to ensure capital adequacy require
that RJF, as a financial holding company, and RJ Bank maintain minimum amounts and ratios of: (i) Common Equity Tier 1 (or
“CET1”), Tier 1 and Total capital to risk-weighted assets; (ii) Tier 1 capital to average assets; and (iii) capital conservation buffers.
See Item 7, “Regulatory” in this report and Note 25 of the Notes to the Consolidated Financial Statements in this Form 10-K, for
further information.
Money Market Funds
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 withdrawals 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 in limited circumstances for our own investment purposes as well as to offer our clients with money market funds that are
sponsored by third parties as one of several cash sweep alternatives.
Municipal Advisor Regulation
In September 2013, the SEC issued final rules regarding the mandatory registration of “municipal advisors” as required under
the Dodd-Frank Act. These final rules for municipal advisors, which became effective in July 2014: (i) impose a fiduciary duty
on municipal advisors when advising municipal entities; (ii) may result in the need for new written representations by issuers; and
(iii) may limit the manner in which we, in our capacity as an underwriter or in our other professional roles, interact with municipal
issuers. Our municipal finance business became subject to additional regulation and oversight by the SEC by virtue of our
registration with the SEC as a municipal advisor in 2014. In August 2014, the SEC also announced that it will undertake a two-
year review of municipal advisors as part of an exam initiative.
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Moreover, in December 2015, the Municipal Securities Rulemaking Board (the “MSRB”) received approval from the SEC
on new MSRB Rule G-42 (regarding duties of non-solicitor municipal advisors) and related amendments to MSRB Rule G-8
(regarding books and records to be made by municipal advisors, among others), all of which became effective in June 2016.
Additional rulemaking by the MSRB may cause further changes to the manner in which state and local governments are able to
interact with outside finance professionals. These new rules may impact the nature of our interactions with public finance clients,
as well as potentially have a negative short-term impact on the volume of public finance financing transactions while the industry
attempts to adapt to the new regulatory landscape. However, 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.
Fiduciary Duty Standard
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. The SEC has not yet proposed rules relating
to a new standard of conduct applicable to broker-dealers. However in April 2016, the U.S. Department of Labor (the “DOL”)
issued its final regulation (the “DOL Rule”) expanding the definition of who is deemed an “investment advice fiduciary” under
the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), as a result of giving investment advice to a “plan,”
“plan participant” or “beneficiary,” as well as under the Internal Revenue Code for individual retirement arrangements (“IRAs”)
and non-ERISA plans (collectively, “qualified plans”). As a result of adopting a new definition of “fiduciary” under ERISA, the
final rule extends fiduciary status to many investment professionals that have not been considered fiduciaries under current law.
A fiduciary is subject to strict duties to act solely in the interests of plan participants and beneficiaries and is personally liable to
the ERISA plan for breaches in its discharge of its duties.
The DOL Rule also contains exemptions, including the Best Interest Contract exemption (the “BIC Exemption”) and Principal
Transactions in Certain Assets exemption (the “Principal Transactions Exemption”), designed to enable investment professionals
that will become fiduciaries to continue to operate under existing business models that would otherwise be prohibited, subject to
compliance with new conditions. In order to rely on these exemptions, we will be required to: (i) act under defined impartial
conduct standards that are in the best interest of our client; (ii) adopt certain anti-conflict policies and procedures; (iii) provide
disclosure of certain information relating to fees, compensation and defined “material conflicts of interest;” (iv) provide a written
acknowledgment of fiduciary status; and (v) for IRAs and non-ERISA plans, enter into an enforceable contract with our client
that contains extensive warranties and does not allow exculpatory provisions waiving the client’s rights and remedies, including
the right to participate in a class action in court. The DOL Rule became effective as of June 7, 2016, with phase-in of the fiduciary
definition not applicable until April 10, 2017, and further transition periods until January 1, 2018 applying to both the BIC Exemption
and Principal Transactions Exemption.
We are evaluating the impact of the DOL Rule on our business. However, because qualified accounts, particularly IRA
accounts, comprise a significant portion of our business, we expect that compliance with the DOL Rule and reliance on the BIC
Exemption and the Principal Transactions Exemption will require us to incur increased legal, compliance and information
technology costs. In addition, as discussed above, we may face enhanced legal risks.
Incentive-Based Compensation Arrangements
Pursuant to the Dodd-Frank Act, six federal agencies are charged with jointly prescribing regulations or guidelines related to
the prohibition of incentive-based compensation arrangements that encourage inappropriate risks at certain financial institutions.
The agencies have released a proposed rule that would prohibit certain forms of incentive-based compensation arrangements for
financial institutions with greater than $1 billion in total assets (the “Incentive-Based Compensation Proposal”). Much of the
Incentive-Based Compensation Proposal would apply to financial institutions categorized as either “Level 1” institutions (assets
of $250 billion or more) or “Level 2” institutions (assets of $50 billion to $250 billion), while “Level 3” institutions (assets of $1
billion to $50 billion) would be subject to less extensive obligations. All covered financial institutions would be required to, among
other requirements: (i) annually document the structure of their incentive-based compensation arrangements; (ii) retain records of
such annual documentation for at least seven years; and (iii) comply with general prohibitions on incentive-based compensation
arrangements that could encourage inappropriate risk-taking. Should the Incentive-Based Compensation Proposal be adopted,
we would be subject to the rule’s requirements as a “Level 3” financial institution, which would require us to incur additional legal
and compliance costs, as well as subject us to increased legal risks.
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Other regulations applicable to our operations
The SEC is the federal agency charged with administration of the federal securities laws in the United States. Our broker-
dealer subsidiaries are subject to SEC regulations relating to their business operations, including sales and trading practices, public
offerings, publication of research reports, use and safekeeping of client funds and securities, capital structure, record-keeping,
privacy requirements, and the conduct of directors, officers and employees. 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.
Broker-dealers are required to maintain the minimum net capital deemed necessary to meet their continuing commitments to
customers and others, and are required to keep their assets in relatively liquid form. These rules also limit the ability of broker-
dealers to transfer capital to parent companies and other affiliates. The SEC has adopted amendments to its financial stability
rules, many of which became effective as of October 2013 and are applicable to our broker-dealer subsidiaries, including changes
to the; (i) net capital rule; (ii) customer protection rule; (iii) record-keeping rules; and (iv) notification rules. We continue to
evaluate the impact of these amendments on our broker-dealer subsidiaries; however, based on our current analysis, we do not
believe these amendments will have a material adverse effect on any of our broker-dealer subsidiaries.
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. Outside of the United States, we have
additional offices in Europe, Canada and Latin America that are subject to local regulatory bodies in these territories.
Much of the regulation of broker-dealers in the United States and Canada, however, has been delegated to self-regulatory
organizations (“SROs”), the Financial Industry Regulatory Authority (“FINRA”), the Investment Industry Regulatory Organization
of Canada (“IIROC”) and securities exchanges. These SROs adopt and amend rules for regulating the industry, subject to the
approval of government agencies. These SROs also 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 may adversely impact the reputation of a broker-dealer.
Our U.S. broker-dealer subsidiaries are subject to the Securities Investor Protection Act (“SIPA”) and are required by federal
law to be members of the Securities Investors Protection Corporation (“SIPC”). The SIPC was established under SIPA, and
oversees the liquidation of broker-dealers during liquidation or financial distress. 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.
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 each of the securities commissions in the jurisdictions of registration, as well as by the SROs and IIROC.
IIROC requires that RJ Ltd. be a member of the Canadian Investors Protection Fund (the “CIPF”), whose primary role is investor
protection. 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. See Note 25 of the Notes to Consolidated
Financial Statements in this Form 10-K for further information on SEC, FINRA and IIROC regulations pertaining to broker-dealer
regulatory minimum net capital requirements.
Our investment advisory operations, including the mutual funds that we sponsor, are also subject to extensive regulation in
the United States. Our U.S. asset managers are registered as investment advisors with the SEC under the Investment Advisers Act
of 1940 as amended (the “Investment Advisers Act”), and are also required to make notice filings in certain states. Virtually all
aspects of our 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.
RJ Bank is also subject to the Community Reinvestment Act (the “CRA”). The CRA is intended to encourage banks to help
meet the credit needs of their communities, including low and moderate income neighborhoods, consistent with safe and sound
bank operations. Under the CRA, the Fed, the FDIC and the OCC are required to periodically examine and assign to each bank
one of the following public CRA ratings: “outstanding;” “satisfactory;” “needs to improve;” or “substantial noncompliance.”
Members of the public may submit comments on a bank’s performance under the CRA; such comments will form part of the
bank’s performance evaluation. The results of the evaluation, together with the bank’s CRA rating, are also taken into consideration
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when evaluating mergers, acquisitions, and applications to open a branch or facility. RJ Bank could face additional requirements
and limitations should it fail to adequately meet the criteria stipulated under the CRA.
Bank Secrecy Act and USA PATRIOT Act of 2001
The Bank Secrecy Act and the USA PATRIOT Act of 2001 (“Patriot Act”) and requirements administered by the Office of
Foreign Assets Control (“OFAC”) require financial institutions, among other things, to implement a risk-based program reasonably
designed to prevent money laundering and to combat the financing of terrorism, including through suspicious activity and currency
transaction reporting, compliance, record-keeping and due diligence on customers. The Patriot Act also contains financial
transparency laws and enhanced information collection tools and enforcement mechanisms for the U.S. government, including:
due diligence and record-keeping requirements for private banking and correspondent accounts; standards for verifying customer
identification at account opening; and rules to produce certain records upon request of a regulator or law enforcement and to
promote cooperation among financial institutions, regulators, and law enforcement in identifying parties that may be involved in
terrorism, money laundering and other crimes. Failure to meet the requirements of the Bank Secrecy Act, the Patriot Act, or OFAC
can lead to supervisory actions including fines.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the registrant (which includes officers of certain significant subsidiaries) are as follows:
Jennifer C. Ackart
52
Senior Vice President since August, 2009 and Controller since February, 1995
Bella Loykhter Allaire
63 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
60 Chairman, President and CEO - Raymond James Ltd. since January, 2009; Co-President and Co-
CEO - Raymond James Ltd., August, 2008 - January, 2009
John C. Carson, Jr.
George Catanese
Scott A. Curtis
Jeffrey A. Dowdle
60
57
54
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
President - Asset Management Group since May, 2016; Executive Vice President - Asset
Management Group, February, 2014 - May, 2016; 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
45
President - Private Client Group - Raymond James & Associates, Inc. since January, 2012;
Regional Director - Raymond James & Associates, Inc., October, 2006 - December, 2011
Jeffrey P. Julien
60 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
Steven M. Raney
51
President and CEO - Raymond James Bank, N.A. since January, 2006
Paul C. Reilly
62 Chief Executive Officer since May, 2010; Director since January, 2006; President, May, 2009 -
April, 2010
Jonathan N. Santelli
45 Executive Vice President, General Counsel and Secretary since May, 2016; Senior Vice President
and Deputy General Counsel - First Republic Bank, October, 2013 to April, 2016; Managing
Director and Associate General Counsel - Preferred and Small Business Banking - Bank of
America, December, 2011 - August, 2013; Managing Director and Associate General Counsel -
Private Wealth Management - Bank of America, October, 2009 - November, 2011
Jeffrey E. Trocin
57
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
62 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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OTHER INFORMATION
Our Internet address is www.raymondjames.com. We make available on our website, free of charge and in printer-friendly
format including “.pdf” file extensions, 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 Annual 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, which
could adversely affect our business, financial condition, results of operations, liquidity and the trading price of our common stock.
The list of risk factors provided below is not exhaustive; there may be factors not discussed below or in this Form 10-K that
adversely impact our results of operations, harm our reputation or inhibit our ability to generate new business prospects.
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
address, or appear to fail to address, issues that may give rise to reputational risk, we could significantly harm our business prospects.
These issues may include, but are not limited to, any of the risks discussed in this Item 1A, including appropriately dealing with
potential conflicts of interest, legal and regulatory requirements, ethical issues, money laundering, cybersecurity and privacy,
record-keeping, and sales and trading practices, the 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. Failure to
maintain appropriate service and quality standards, 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 reputational harm. Further, negative publicity about 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 affected by domestic and international macroeconomic
and political conditions, including economic output levels, interest and inflation rates, employment levels, prices of commodities
including oil and gas, consumer confidence levels, and fiscal and monetary policy. For example, 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 also can decrease materially 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. Macroeconomic conditions also 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 economic output levels, artificially maintained levels of historically low interest rates, relatively high
unemployment rates, and significant uncertainty with respect to domestic and international fiscal and monetary policy. These
conditions led to changes in the global financial markets that from time to time negatively impacted our net revenue and profitability.
While global financial markets have shown 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 credit market dislocations, 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 lower trading volumes, a decline
in fees from reduced portfolio values of securities managed on behalf of our clients, a reduction in revenue from capital markets
and advisory transactions due to reduced activity, 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. 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 time periods 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 (“EU”), including Britain’s June 23, 2016 referendum to exit the EU (“Brexit”), and the
stability of the EU’s sovereign debt, has caused uncertainty and disruption for financial markets globally. Continued uncertainties
loom over the outcome of the EU’s financial support programs. It is possible that other EU member states may experience financial
troubles in the future, or may choose to follow Britain’s lead and leave the EU. Any negative impact on economic conditions and
global markets from these developments could adversely affect our business, financial condition and liquidity.
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. Market conditions in the United States and Canada
can be assessed through the following metrics: the level and volatility of interest rates; the unemployment and under-employment
rates; real estate prices; consumer confidence levels and changes in consumer spending; and the number of personal bankruptcies,
among others. Deterioration of market conditions can diminish loan demand, lead to an increase in mortgage and other loan
delinquencies, affect loan repayment performance and result in higher reserves and net charge-offs, which can adversely affect
our earnings.
Lack of liquidity or access to capital could impair our business and financial condition.
We must maintain appropriate liquidity levels. Our inability to maintain adequate liquidity 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, sell assets at unfavorable prices, and cut or eliminate dividend payments. Our
liquidity could be negatively affected by the inability of our subsidiaries to generate cash in the form of dividends from earnings,
regulatory changes to the liquidity or capital requirements applicable to our subsidiaries that may prevent us from upstreaming
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 RJF, and other commitments or restrictions on capital as a result of adverse legal
settlements, judgments, or regulatory sanctions. Furthermore, as a bank holding company, we may become subject to a prohibition
or 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 dividend payments by regulated subsidiaries
to their parent.
The availability of financing, including access to the credit and capital markets, depends on various 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 of capital and the availability of funding may be adversely
affected by illiquid credit markets and wider credit spreads. Additionally, lenders may from time to time curtail, or even cease to
provide, funding to borrowers as a result of future concerns over the strength of specific counterparties, as well as the stability of
markets generally. 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.
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A downgrade in our credit ratings could have a material adverse effect on our operations, earnings and financial condition.
If our 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 client relationships. Such a change in our credit ratings could also adversely affect our liquidity and
competitive position, increase our 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 obtain additional outside financing to fund our operations on favorable terms, or at all. The impact of
a credit rating downgrade to a level below investment grade would result in our breaching provisions in certain of our derivative
instruments, and may result in a request for immediate payment and/or ongoing overnight collateralization on our derivative
instruments in liability positions (see Note 18 of the Notes to Consolidated Financial Statements in this Form 10-K for such
information). A credit rating downgrade would also result in RJF incurring a higher commitment fee on any unused balance on
its $300 million revolving credit facility executed on August 6, 2015, in addition to triggering a higher interest rate applicable to
any borrowings outstanding on the line as of and subsequent to such downgrade (see Note 15 of the Notes to Consolidated Financial
Statements in this Form 10-K for information on this revolving credit facility).
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, interest rate changes
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. Interest rate changes 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 private
equity 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 our capital requirements, which could have an adverse effect on our
business results, financial condition and liquidity.
Our venture capital and private equity 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.
We are exposed to credit risk.
We are generally exposed to the risk that third parties that owe us money, securities or other assets will fail to meet their
performance obligations due to numerous causes, including bankruptcy, lack of liquidity, or operational failure, among others. 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, which exposes us to credit risk. Although generally collateralized by the underlying security to the
transaction, we still face risk associated with changes in the market value of collateral through settlement date. We also hold
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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/
or 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, as well as by monitoring
collateral and transaction levels daily. Significant deterioration in the credit quality of one of our counterparties could lead to
widespread concerns about the credit quality of other counterparties in the same industry, thereby exacerbating our credit risk
exposure.
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 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, result in significant reputational damage,
and adversely impact our financial performance.
We also incur credit risk by lending to businesses and individuals through the offering of: C&I loans, commercial and residential
mortgage loans, tax-exempt loans, home equity lines of credit, and margin and other loans collateralized by securities. We incur
credit risk through our investments. 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, or 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 natural disasters, health emergencies or pandemics, acts of terrorism, severe weather events or
other adverse economic events, 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.
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. 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
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cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us.
Losses arising in connection with counterparty defaults may have a material adverse effect on our results of operations.
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 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
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 (“AUM”). AUM 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 impact
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 in which we
are involved. 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, despite risk mitigation policies, we may incur losses as a result of positions we hold 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, to the limited extent permitted by applicable regulations, may continue to make principal investments in
private equity funds and other illiquid investments. We may be unable to realize our investment objectives if we cannot sell or
otherwise dispose of our interests at attractive prices or 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. 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.
We continue to experience pricing pressures in areas of our business which may impair our future revenue and profitability.
We continue to experience 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 price competition and decreased
trading margins. In the equity market, we experience pricing pressure from institutional clients to reduce commissions, and this
pressure has been augmented by the use of electronic and direct market access trading, which has created additional competitive
downward pressure on trading margins. We believe that price competition and pricing pressures in these and other areas will
continue as institutional investors continue to reduce the amounts they are willing to pay, including by reducing the number of
brokerage firms they use, and some of our competitors seek to obtain market share by reducing fees, commissions or margins.
We 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), and location
and reputation in relevant markets. Over time there has been substantial consolidation and convergence among companies in the
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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 and hedge funds, among 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.
The inability to develop new products and services, or enhance existing offerings, could have a material adverse effect on our
profitability. In addition, we may incur substantial expenditures to keep pace with the constant changes and enhancements being
made in technology, including improvements made to internet connectivity, networking and telecommunications systems.
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 clients 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. 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. Financial industry employers 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 in 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 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 and may be subject to additional
claims in the future as we seek to hire qualified personnel, some of whom may work for our competitors. Some of these claims
may result in material litigation. We could incur substantial costs in defending against these claims, regardless of their merits.
Such claims could also discourage potential employees who work for our competitors from joining us.
Business growth could increase costs and regulatory and integration risks.
Integrating acquired businesses, including for example, the September 6, 2016 acquisition of the U.S. Private Client Services
unit of Deutsche Bank Wealth Management (“Alex. Brown”) and the August 31, 2016 acquisition of MacDougall, MacDougall
& MacTier, Inc. (“3Macs”), as well as providing a platform for new businesses and partnering with other firms involve risks and
present financial, managerial and operational challenges. We may incur significant expense in connection with expanding our
existing businesses, recruiting financial advisors, or making strategic acquisitions or investments. Our overall profitability would
be negatively affected if investments and expenses associated with such growth are not matched or exceeded by the revenues
derived from such investments or growth.
Expansion may also create a need for additional compliance, documentation, risk management and internal control procedures,
and often involves hiring additional personnel to address these procedures. To the extent such procedures are not adequate or not
adhered to with respect to our expanded business or any new business, we could be exposed to a material loss or regulatory sanction.
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Moreover, to the extent we pursue acquisitions we may be unable to complete such acquisitions on acceptable terms. We may
be unable to integrate any acquired business into our existing business successfully. 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 capital or borrow in order to finance an acquisition, which could result in dilution or increased leverage. We
may not be able to obtain financing on favorable terms or perhaps at all.
A continued interruption to our telecommunications or data processing systems, or the failure to effectively update the
technology we utilize, could be materially adverse to our business.
Our businesses rely extensively on 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: (i) successfully maintain and upgrade the capability of our
technology systems; (ii) address the needs of our clients by using technology to provide products and services that satisfy their
demands; and (iii) retain skilled information technology employees. Failure of our technology 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 applicable laws and regulatory
sanctions. See Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in this report for additional information
regarding our exposure to and approaches for managing these types of operational risks.
Security breaches of our technology systems, or those of our clients or other third-party vendors we rely on, could subject
us to significant liability and harm our reputation.
The expectations of sound operational and informational security practices have risen among our clients and vendors, the
public at large and regulators. Our operational systems and infrastructure must continue to be safeguarded and monitored for
potential failures, disruptions, cyber-attacks 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, 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. Despite our implementation of
protective measures and endeavoring 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 an impact on the security and stability of our
operations.
Notwithstanding the precautions we take, if one or more of these events were to occur, this could jeopardize the information
we confidentially maintain, including that of our clients and counterparties, which is processed, stored in and transmitted through
our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our
clients and counterparties. 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. We may also be subject to litigation
and financial losses that are neither insured nor covered under any of our current insurance policies. 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.
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 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
such 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 system failure, employee
negligence, fraud or misappropriation, could damage our reputation and cause us to lose clients and related revenue. Potential
liability in the event of a security breach of client data could be significant. Depending on the circumstances giving rise to the
breach, this liability may not be subject to a contractual limit or an exclusion of consequential or indirect damages.
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See Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in this report for additional information regarding
our exposure to and approaches for managing these types of operational risks.
Associate misconduct, which is difficult to detect and deter, could harm us by impairing our ability to attract and retain
clients and subject 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. 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. If our associates engage in misconduct, our business would be
adversely affected.
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 out of our Southfield, Michigan and Memphis, Tennessee locations and our information
systems processing to be conducted out of our information technology data center in the Denver, Colorado area, 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. Refer to the “a continued interruption to our telecommunications or data processing systems, or the failure to effectively
update the technology we utilize, could be materially adverse to our business” risk factor in this Item 1A for a discussion of how
events beyond our control, including weather-related events, could impact our ability to conduct business.
Regions may fail to honor its indemnification obligations associated with Morgan Keegan matters.
Under the definitive stock purchase agreement entered into in connection with our acquisition of Morgan Keegan & Company,
Inc., and MK Holding, Inc. and certain of its affiliates (collectively referred to as “Morgan Keegan”) from Regions Financial
Corporation (“Regions”), Regions has obligations to continue to indemnify RJF with respect to certain litigation as well as other
matters. Specifically, the terms of the agreement provide that Regions will indemnify RJF for losses incurred in connection with
legal proceedings pending as of the closing date of that acquisition (April 2, 2012), or commenced thereafter and related to pre-
closing matters that were received prior to the closing date, as well as any cost of defense pertaining thereto. RJF is relying on
Regions to continue to fulfill its indemnification obligations under the SPA with respect to such matters. Our inability to enforce
these indemnification provisions in the future, or our failure to recover future 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 21 of the Notes to Consolidated Financial Statements in this Form 10-K for further information regarding the
indemnification from Regions.
We are exposed to litigation risks, which could materially and adversely impact our business operations and prospects.
Many aspects of our business involve substantial risks of liability. 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. Our Private Client Group business
segment has historically been more susceptible to 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 laws or other laws for:
alleged materially false or misleading statements made in connection with securities offerings and other transactions; issues related
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to the suitability of our investment recommendations; 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 impact or cause us significant reputational
harm, which in turn could seriously harm our business and future business 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.
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 a discussion regarding our approach to managing legal risk.
The preparation of the consolidated financial statements requires the use of estimates that may vary from actual results
and new accounting standards could adversely affect future reported results.
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Such estimates and assumptions may require management to make difficult,
subjective and complex judgments about matters that are inherently uncertain. One of our most critical estimates is RJ Bank’s
allowance for loan losses. At any given point in time, conditions in the real estate and credit markets may increase the complexity
and 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 subjective judgment. Some of these instruments and other assets and liabilities may have no direct observable
inputs, making their valuation particularly subjective and, consequently, 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, as well as 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. The Financial Accounting Standards Board (the “FASB”) and the SEC have at times revised 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 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 June 2016, the FASB issued a new standard on accounting for credit losses. The new standard will replace multiple existing
impairment models, including the replacement of the “incurred loss” model for loans with an “expected loss” model. We are
evaluating the potential impact its adoption, which will occur no later than the quarter ended December 31, 2020, will have on our
financial position and results of operations.
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 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 use limits and other risk mitigation techniques, those techniques and
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the judgments that accompany their application cannot anticipate unforeseen economic and financial outcomes or the specifics
and timing of such outcomes. Our risk management methods may not predict future risk exposures effectively. 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 manage our growth adequately, or to manage our risk effectively,
could materially and adversely affect our business and financial condition.
Financial services firms are subject to numerous actual or perceived conflicts of interest, which are under growing scrutiny
by U.S. federal and state regulators. Our risk management processes include addressing potential conflicts of interest that arise
in our business. Management of potential conflicts of interest has become increasingly complex as we expand our business
activities. A perceived or actual failure to address conflicts of interest adequately could affect our reputation, the willingness of
clients to transact business with us or give rise to litigation or regulatory actions. Therefore, there can be no assurance that conflicts
of interest will not arise in the future that could cause result in material harm to our business and financial condition.
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 commonly known as emerging markets, and
as a result, are exposed to risks, including economic, market, litigation and regulatory risks. Our businesses and revenues derived
from non-U.S. operations are subject to risk of loss from currency fluctuations, social or political instability, less established
regulatory regimes, changes in governmental or central bank policies, downgrades in the credit ratings of sovereign countries,
expropriation, nationalization, confiscation of assets and unfavorable legislative, economic 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 our reputation. We also invest or trade in the securities of corporations
located in non-U.S. jurisdictions. Revenues from trading non-U.S. securities also may be subject to negative fluctuations as a
result of the abovementioned factors. The impact of these fluctuations could be magnified because non-U.S. trading markets,
particularly those in emerging markets, are generally smaller and less developed, less liquid and more volatile than U.S. trading
markets.
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.
While we endeavor to purchase insurance coverage appropriate to our risk assessment, 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 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 regulatory scrutiny over the last several years, increasing the risk
of financial liability and reputational harm resulting from adverse regulatory actions.
Financial services firms have been operating in an onerous regulatory environment, which 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 various regulators, including the SEC, the Fed, the OCC and the CFPB, in addition to stock exchanges, FINRA and state
attorneys general. Penalties and fines imposed by regulatory authorities have increased substantially in recent years. We may be
adversely affected by changes in the interpretation or enforcement of existing laws, rules and regulations. Each of the regulatory
bodies with jurisdiction over us has regulatory powers dealing with many different 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 continue operating
particular businesses or engage in certain activities. Substantial legal liability or significant regulatory action taken against us
could harm our business prospects through adverse financial effects and reputational harm.
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Changes in regulations resulting from the Dodd-Frank Act, the DOL Rules, including the new fiduciary standard, or any
new regulations or laws may adversely affect our businesses.
Market and economic conditions over the past several years have directly led to a demand by the public for changes in the
way the financial services industry is regulated, including a call for more stringent legislation and regulation in the United States
and abroad. The Dodd-Frank Act enacted sweeping changes and an unprecedented increase in the supervision and regulation of
the financial services industry (see Item 1, “Regulation,” in this report for a discussion of such changes). The ultimate impact that
the Dodd-Frank Act and implementing regulations will have on us, the financial industry and the economy at large cannot be
quantified until all of the implementing regulations called for under the legislation have been finalized and fully implemented.
Nevertheless, it is apparent that these legislative and regulatory changes could affect our revenue, limit our ability to pursue business
opportunities, impact the value of our assets, require us to alter at least some of our business practices, impose additional compliance
costs, and 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 could materially impact our results of operations, financial condition and liquidity. Certain
provisions of the Dodd-Frank Act that have (or may) impact our businesses include: the establishment of a fiduciary standard for
broker-dealers; regulatory oversight of incentive compensation; the imposition of capital requirements on financial holding
companies; restrictions on proprietary trading; and, to a lesser extent, greater oversight over derivatives trading. There is also
increased regulatory scrutiny (and related compliance costs) as we continue to grow and surpass certain consolidated asset thresholds
established under the Dodd-Frank Act, which have the effect of imposing enhanced standards and requirements on larger institutions.
These include, but are not limited to, RJ Bank’s oversight by the CFPB. The CFPB has had an active enforcement agenda and
any action taken by the CFPB could result in requirements to alter or cease offering affected products and services, make such
products and services less attractive, impose additional compliance measures, or result in fines, penalties or required remediation.
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. We were required to comply with the Volcker Rule’s
provisions beginning on July 21, 2015. Although we have not historically engaged in significant levels of proprietary trading, due
to our underwriting and market making activities, the Volcker Rule will likely adversely affect our results of operations through
increased operational and compliance costs, possible reductions in our trading revenues, and changes to our private equity
investments.
We are evaluating the impact of the DOL Rule on our business. However, because qualified accounts, particularly IRA
accounts, comprise a significant portion of our business, we expect that implementation of the DOL Rule will negatively impact
our results including the impact of increased costs related to compliance, legal and information technology. In addition, we expect
that our legal risks will increase, in part, as a result of the new contractual rights required to be given to IRA and non-ERISA plan
clients under the BIC Exemption and Principal Transactions Exemption.
The Basel III regulatory capital standards impose additional capital and other requirements on us that could decrease our
competitiveness and profitability.
In July 2013, the Fed, the OCC and the FDIC released final U.S. Basel III Rules, which implemented the global regulatory
capital reforms of Basel III and certain changes required by the Dodd-Frank Act. The U.S. Basel III Rules increase the quantity
and quality of regulatory capital, establish a capital conservation buffer and make selected changes to the calculation of risk-
weighted assets. We became subject to the requirements under the final U.S. Basel III Rules as of January 1, 2015, subject to a
phase-in period for several of its provisions, including the new minimum capital ratio requirements, the capital conservation buffer
and the regulatory capital adjustments and deductions. The increased capital requirements stipulated under the U.S. Basel III
Rules 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 and prospects could be adversely affected. We continue to evaluate the
impact of the U.S. Basel III Rules on both RJ Bank and RJF.
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 in the
United States, and, accordingly, 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. The capital amounts
and classification for both RJF and RJ Bank are also subject to qualitative judgments by U. S. federal regulators based on components
of our capital, risk-weightings of assets, off-balance sheet transactions, and other factors. Quantitative measures established by
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regulation to ensure capital adequacy require RJF and RJ Bank to maintain minimum amounts and ratios of Common Equity Tier
1, Tier 1 and Total capital to risk-weighted assets, Tier 1 capital to average assets and capital conservation buffers (as defined in
the regulations). Failure to meet minimum capital requirements can trigger certain mandatory (and potentially additional
discretionary) actions by regulators that, if undertaken, could harm either RJF or RJ Bank’s operations and financial condition.
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.
We are subject to the SEC’s uniform net capital rule (Rule 15c3-1) and FINRA’s net capital rule, 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 that 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 certain thresholds. In
addition, our Canada-based broker-dealer subsidiary is subject to similar limitations under applicable regulation in that jurisdiction
by IIROC. Regulatory capital requirements applicable to some of our significant subsidiaries may impede access to funds that
RJF needs to make payments on any such obligations.
See Note 25 of the Notes to Consolidated Financial Statements in this Form 10-K for further information on regulations and
capital requirements.
As a financial holding company, RJF’s liquidity depends on payments from its subsidiaries, which may be subject to
regulatory restrictions.
RJF is a financial holding company and therefore depends on dividends, distributions and other payments from its subsidiaries
in order to meet its obligations, including debt service. RJF’s subsidiaries are subject to laws and regulations that restrict dividend
payments or authorize regulatory bodies to prevent or reduce the flow of funds from those subsidiaries to RJF. RJF’s broker-
dealers and bank subsidiary are limited in their ability to lend or transact with affiliates and are subject to minimum regulatory
capital and other requirements, as well as limitations on their ability to use funds deposited with them in broker or bank accounts
to fund their businesses. These requirements may hinder RJF’s ability to access funds from its subsidiaries. RJF may also become
subject to a prohibition or limitations on its ability to pay dividends or repurchase its common stock. The federal banking regulators,
including the OCC, the Fed and the FDIC, as well as the SEC (through FINRA) have the authority and under certain circumstances,
the obligation, to limit or prohibit dividend payments and stock repurchases by the banking organizations they supervise, including
RJF and its bank subsidiaries. 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 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 and constantly changing regulation. 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; recordkeeping; and the conduct of directors, officers and employees. Any violation of these laws
or regulations could subject us to the following events, any of which could have a material adverse effect on our business, financial
condition and prospects: civil and 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.
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.
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 resulted in increased focus on the regulation
of the financial services industry, including many proposals for new rules. Any new rules issued by U.S. regulators that oversee
the financial services industry 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 to federal, state
or foreign tax laws, or by changes to the interpretation or enforcement of existing laws and regulations.
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Regulatory actions brought against us may result in judgments, settlements, fines, penalties or other results, any of which
could have a material adverse effect on our business, financial condition or results of operations. There is no assurance that regulators
will be satisfied with the policies and procedures implemented by RJF and its subsidiaries. In addition, from time to time, RJF
and its affiliates may become subject to additional findings with respect to compliance or other regulatory deficiencies, which
could subject us to additional liability, including penalties. See Item 1, “Regulation,” 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.
Numerous regulatory changes, and enhanced regulatory and enforcement activity, relating to the asset management
business may increase our compliance and legal costs and otherwise adversely affect our business.
The SEC has proposed certain measures that would establish a new framework to replace the requirements of Rule 12b-1
under the 1940 Act with respect to how mutual funds pay fees to cover the costs of selling and marketing their shares. The staff
of the SEC’s Office of Compliance, Inspections and Examinations has indicated that it is reviewing the 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, their impact cannot be fully ascertained 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. As
some of our wholly owned subsidiaries are registered as investment advisors with the SEC, increased regulatory scrutiny and
rulemaking initiatives may result in augmented 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 not possible 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. Conformance with any new laws or regulations could make compliance more difficult and expensive and affect
the manner in which we conduct business. For example, 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 is appropriate for broker-dealers;
however, any such standard, if mandated, would likely require us to review our product and service offerings and implement certain
changes, as well as require that we incur additional regulatory costs in order to ensure compliance.
In addition, U.S. and foreign governments have recently taken regulatory actions impacting the investment management
industry, 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. For example, several states and municipalities in the United States have
adopted “pay-to-play” rules, which could limit our ability to charge advisory fees. Such “pay-to-play” rules could affect the
profitability of that portion of our business. Additionally, 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 be limited or modified in the future. 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 and external
research, including external research paid for with soft dollars. 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 additional 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 business or other businesses, and changes to the laws, rules and regulations in the United States related to the
over-the-counter swaps and derivatives markets require additional registration, recordkeeping and reporting obligations.
RJ Bank is subject to the Community Reinvestment Act 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 U.S. federal 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 monetary penalties, injunctive relief, and the imposition of restrictions on mergers, acquisitions and expansion
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activity. Private parties may also have the ability to challenge a financial institution’s performance under fair lending laws by
bringing private class action litigation.
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 2. PROPERTIES
The RJF and RJ Bank corporate headquarters are located on land we own that is located within the Carillon Office Park in
St. Petersburg, Florida. This office complex currently includes buildings which provide approximately 920,000 square feet of
office space. At this location, we also have the necessary rights to add approximately 440,000 square feet of new office space on
our existing parcel. To facilitate certain storage needs, we lease approximately 30,000 square feet of warehouse space near this
headquarters complex.
We conduct employee-based branch office operations in various locations throughout the U.S. and in certain foreign countries.
With the exception of one company-owned RJ&A branch located 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 2027. Leases for branch offices of RJFS, the independent contractors
of RJ Ltd., and RJIS, are the responsibility of the respective independent contractor financial advisors.
We conduct certain operations from our 88,000 square foot office building located on land we own in Southfield, Michigan.
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 240,000 square feet of leased office space in the Raymond James Tower located in downtown
Memphis, Tennessee. During September 2016, we completed the purchase of approximately 65 acres of land located in Pasco
County, Florida.
RJ Ltd. leases its main office premises in Vancouver, Calgary, Toronto, and Montreal, as well as certain branch offices located
throughout Canada. These leases have various expiration dates through 2030. RJ Ltd. does not own any land or buildings.
See Note 21 of the Notes to Consolidated Financial Statements in this Form 10-K for further information on our lease
commitments.
Item 3. LEGAL PROCEEDINGS
In addition to the matters specifically described below, in the normal course of our business, we have been named, from time
to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with
our activities as a diversified financial services institution.
We are also subject, from time to time, to other reviews, investigations and proceedings (both formal and informal) by
governmental and self-regulatory agencies regarding our business. Such proceedings may involve, among other things, our sales
and trading activities, financial products or offerings we sponsored, underwrote or sold, and operational matters. Some of these
proceedings have resulted, and may in the future result, in adverse judgments, settlements, fines, penalties, injunctions or other
relief and/or require us to undertake remedial actions.
We cannot predict if, how or when such proceedings or investigations will be resolved or what the eventual settlement, fine,
penalty or other relief, if any, may be. A large number of factors may contribute to this inherent unpredictability: the proceeding
is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class
action will be allowed to proceed on that basis; the other party is seeking relief other than or in addition to compensatory damages
(including, in the case of regulatory and governmental proceedings, potential fines and penalties); the matters present significant
legal uncertainties; we have not engaged in settlement discussions; discovery is not complete; there are significant facts in dispute;
and numerous parties are named as defendants (including where it is uncertain how liability might be shared among defendants).
We contest liability and/or the amount of damages as appropriate in each pending matter. Over the last several years, the level
of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased
significantly in the financial services industry. While we have identified below certain proceedings that we believe could be
material, individually or collectively, there can be no assurance that material losses will not be incurred from claims that have not
yet been asserted or are not yet determined to be material.
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Index
We include in some of the descriptions of individual matters below certain quantitative information about the plaintiff’s claim
against us as alleged in the plaintiff’s pleadings or other public filings. Although this information may provide insight into the
potential magnitude of a matter, it does not represent our estimate of reasonably possible loss or our judgment as to any currently
appropriate accrual related thereto.
Subject to the foregoing, we believe, after consultation with counsel and consideration of the accrued liability amounts included
in the accompanying consolidated financial statements, that the outcome of such litigation and regulatory proceedings will not
have a material adverse effect on our consolidated financial condition. However, the outcome of such litigation and proceedings
could be material to our operating results and cash flows for a particular future period, depending on, among other things, our
revenues or income for such period.
See Note 21 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information regarding legal
and regulatory matter contingencies, and refer to the “loss provisions arising from legal and regulatory matters” section of Critical
Accounting Estimates in Part II - Item 7 of this report, and Note 2 of the Notes to Consolidated Financial Statements in this Form
10-K, for information on our criteria for establishing accruals.
Jay Peak Litigation
We and one of our financial advisors are named defendants in various lawsuits related to an alleged fraudulent scheme conducted
by Ariel Quiros (“Quiros”) and William Stenger (“Stenger”) involving the misuse of EB-5 investor funds in connection with the
Jay Peak ski resort in Vermont (“Jay Peak”) and associated limited partnerships. Plaintiffs in the lawsuits allege that Quiros misused
$200 million of the amounts raised by the limited partnerships and misappropriated $50 million for his personal benefit. The
plaintiffs also generally allege some combination of the following: that we or our subsidiaries or employees were negligent in
supervision, breached fiduciary duty, conspired to breach, and aided and abetted the breach of, fiduciary duty, committed, or aided
and abetted, fraud and/or fraudulent inducement, engaged in or facilitated fraudulent transfers, committed conversion, civil theft,
and/or commingled investor funds.
There are six civil court actions pending in which we or one of our subsidiaries are named:
• On May 3, 2016, Alexandre Daccache filed a purported consolidated class action on behalf of approximately 836 individual
investors in seven Jay Peak limited partnerships in the U.S. Federal District Court for the Southern District of Florida,
styled Daccache, et al. v. Raymond James Financial, Inc. The plaintiffs demand, among other things, damages in the
amount of $250 million, treble damages under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and
unspecified punitive damages.
• On May 20, 2016, Michael I. Goldberg, a court-appointed receiver for Jay Peak, filed a complaint against the company
and other defendants in the United States District Court for the Southern District of Florida, styled Michael I. Goldberg,
as Receiver v. Raymond James Financial, Inc. et al. The complaint seeks, among other relief, compensatory damages
and treble damages under RICO.
• On June 3, 2016, Milos Citakovic and other individual investors filed a complaint against RJ&A and a financial advisor
in the Eleventh Judicial Circuit Court in Miami-Dade County, Florida, styled Citakovic v. Raymond James & Associates,
Inc., and Joel Burstein. The plaintiffs seek, among other things, compensatory damages.
• On July 26, 2016, Caterina Calero and other individual investors filed a complaint against RJ&A and other defendants
in the Eleventh Judicial Circuit Court in Miami-Dade County, Florida, styled Caterina Gonzalez Calero v. Raymond
James & Associates, Inc. et al. (“Calero”). The complaint seeks, among other things, compensatory damages and treble
damages for alleged violations of the Florida civil theft statute.
• On October 26, 2016, Caroline Walters and other individual investors filed a complaint against RJ&A in the Circuit Court
of the 20th Judicial Circuit in and for Collier County, Florida, styled Caroline Walters, et al. v. Raymond James & Associates,
Inc. The plaintiffs seek, among other things, compensatory damages in an undetermined amount and treble damages for
alleged RICO violations.
• On November 7, 2016, Zheng Zhang and other individual investors filed a complaint against RJ&A, and certain other
defendants, in the United States District Court for the Southern District of Florida, styled Zheng Zhang, et al. v. Raymond
James & Associates, Inc., Joel Burstein and Ariel Quiros. The plaintiffs seek, among other things, compensatory damages
and punitive damages in an undetermined amount.
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Given the early stage of the cases, the complexity of the forensic accounting necessary to determine the amount of actual
investor losses, the identification and availability of any assets for recovery by the plaintiffs and the potential for insurance coverage,
a range of possible loss in excess of the amount accrued cannot be estimated. While there can be no assurance that we will be
successful, we intend to vigorously defend the claims against us.
Morgan Keegan Litigation
Indemnification from Regions
Under the agreement with Regions governing our 2012 acquisition of Morgan Keegan, Regions is obligated to indemnify RJF
for losses we may incur in connection with any Morgan Keegan legal proceedings pending as of the closing date for that transaction
(which was April 2, 2012), or commenced after the closing date but related to pre-closing matters that are received prior to April
2, 2015.
Pending Morgan Keegan matter (subject to indemnification)
In July 2006, Morgan Keegan & Company, Inc., a Morgan Keegan affiliate, and one of its former analysts were named as
defendants in a lawsuit filed by Fairfax Financial Holdings and affiliates in the Circuit Court of Morris County, New Jersey.
Plaintiffs made claims under a civil 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 in
order to improperly drive down plaintiff’s stock price, so that others could profit from short positions. Plaintiffs alleged that the
defendants’ actions damaged their reputations and harmed their business relationships. Plaintiffs alleged various categories of
damages, 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, and that the claims were therefore not subject to treble damages. On June 27,
2012, the trial court dismissed plaintiffs’ tortious interference with prospective relations claim, but allowed the other claims to go
forward. Prior to commencement of a jury trial, the court dismissed the remaining claims with prejudice. A hearing on plaintiffs’
appeal of the court’s rulings was held on October 17, 2016.
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Index
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.” As of November 9, 2016, we had 358 holders of record
of our common stock. A substantially greater number of shares of our common stock is held by beneficial owners, whose shares
are held of record by banks, brokers, and other financial institutions. 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
2016
2015
High
Low
High
Low
$
$
$
$
59.81
56.68
56.69
58.97
$
$
$
$
45.86
39.84
44.22
46.30
$
$
$
$
58.18
59.77
61.46
61.82
$
$
$
$
48.06
50.97
54.99
48.24
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
2016
2015
$
$
$
$
0.18
0.20
0.20
0.20
$
$
$
$
0.16
0.18
0.18
0.18
On August 24, 2016, our Board of Directors declared a quarterly cash dividend of $0.20 per share of common stock which
was paid on October 17, 2016.
See Note 25 of the Notes to Consolidated Financial Statements in this Form 10-K for information regarding our intentions
for paying cash dividends and the related capital restrictions.
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Index
We purchase our own stock from time to time in conjunction with a number of activities, each of which is described below.
The following table presents information on our purchases of our own stock, on a monthly basis, for the twelve month period
ended September 30, 2016:
October 1, 2015 – October 31, 2015
November 1, 2015 – November 30, 2015
December 1, 2015 – December 31, 2015
First quarter
January 1, 2016 – January 31, 2016
February 1, 2016 – February 28, 2016
March 1, 2016 – March 31, 2016
Second quarter
April 1, 2016 – April 30, 2016
May 1, 2016 – May 31, 2016
June 1, 2016 – June 30, 2016
Third quarter
July 1, 2016 – July 31, 2016
August 1, 2016 – August 31, 2016
September 1, 2016 – September 30, 2016
Fourth quarter
Fiscal year total
Total number of
shares
purchased (1)
Average price
per share
Number of shares
purchased as part of
publicly announced
plans or programs(2)
Approximate dollar
value (in thousands) at
each month-end, of
securities that may yet
be purchased under the
plans or programs (3)(4)
4,699
124,984
80,836
210,519
2,273,592
930,678
7,622
3,211,892
40,017
6,098
922
47,037
3,490
12,615
1,712
17,817
3,487,265
$
$
$
$
$
$
$
$
$
51.71
57.57
58.15
57.66
47.44
41.71
45.43
45.78
48.83
52.73
54.87
49.45
53.86
56.54
57.78
56.14
46.60
— $
— $
— $
—
2,234,366
929,213
$
$
— $
3,163,579
— $
— $
— $
—
— $
— $
— $
—
3,163,579
93,112
150,000
150,000
44,231
135,671
135,671
135,671
135,671
135,671
135,671
135,671
135,671
(1) Of the total for the year ended September 30, 2016, share purchases for the trust fund established 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 amounted to 84,642 shares, for a total consideration of $4.9 million (for more information on this trust fund, see Note 2
and Note 11 of the Notes to Consolidated Financial Statements in this Form 10-K). These activities do not utilize the repurchase
authority discussed in footnote (2) below.
We also repurchase shares when employees surrender shares as payment for option exercises or withholding taxes. Of the total for
the year ended September 30, 2016, shares surrendered to us by employees for such purposes amount to 239,044 shares, for a total
consideration of $13.1 million. These activities do not utilize the repurchase authority discussed in footnote (2) below.
Of the total for the year ended September 30, 2016, we repurchased 3,163,579 shares pursuant to our securities repurchase authorization,
see footnotes (2), (3) and (4) below for additional information.
(2) During January and February 2016, we purchased shares of our common stock in open market transactions, for a total purchase price
of $144.5 million, which reflects an average purchase price per share of $45.69. These share repurchases were made pursuant to the
RJF securities repurchase authorizations described in footnotes (3) and (4) below.
(3) On November 19, 2015, we announced an increase in the amount previously authorized by our Board of Directors to be used, at the
discretion of our Securities Repurchase Committee, for open market repurchases of our common stock and certain senior notes, to
$150 million subject to cash availability and other factors.
(4) As a result of repurchases made during January 2016 and early February 2016, and to re-establish the prior authorization limit, on
February 4, 2016, we announced an additional increase in the authorization limit. This action replenished the amount previously
authorized by our Board of Directors to be deployed back to $150 million (after consideration of the 2016 repurchases through such
date) at the discretion of our Securities Repurchase Committee, for open market repurchases of our common stock and certain senior
notes, subject to cash availability and other factors.
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Index
Item 6. SELECTED FINANCIAL DATA
Year ended September 30,
2016
2015
2014
2013
2012
(in thousands, except per share 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(1)
Senior notes maturing within twelve months(2)
Long-term obligations:
Non-current portion of other borrowings
Non-current portion of loans payable of consolidated
variable interest entities(4)
Non-current portion of senior notes payable(2)
Total long-term debt
Equity attributable to Raymond James Financial, Inc.
Shares outstanding (5)
Book value per share at end of year
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,520,344
5,403,267
529,350
3.72
3.65
141,773
144,513
0.80
31,593,733
—
$
$
$
$
$
$
$
$
5,308,164
5,200,210
502,140
3.51
3.43
142,548
145,939
0.72
26,468,032
250,000
$
$
$
$
$
$
$
$
4,965,460
4,861,369
480,248
3.41
3.32
139,935
143,589
0.64
23,312,788
—
$
$
$
$
$
$
$
$
4,595,798
4,485,427
367,154
2.64
2.58
$
$
$
$
$
3,897,900
3,806,531
295,869
2.22
2.20
137,732
130,806
140,541
0.56
$
131,791
0.52
23,172,045
$
21,144,975
— $
—
604,080 (3) $
583,740 (3) $
537,932 (3) $
47,132
4,291
1,700,000
2,308,371
4,914,096
141,545
34.72
$
$
$
$
$
12,597
900,000
1,496,337
4,522,031
142,751
31.68
$
$
$
$
$
25,928
1,150,000
1,713,860
4,141,236
140,836
29.40
$
$
$
$
$
43,877
1,150,000
1,241,009
3,662,924
138,750
26.40
$
$
$
$
$
$
173,918
62,938
1,150,000
1,386,856
3,268,940
136,076
24.02
(1) Effective September 30, 2016 we adopted new accounting guidance related to the presentation of debt issuance costs. Under this new
guidance, debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the
carrying value of that debt liability, consistent with debt discounts. The applicable prior period balances have been reclassified to
conform to the current year presentation. See Note 17 in the Notes to Consolidated Financial Statements in this Form 10-K for additional
information.
(2) Senior notes payable balances presented exclude the impact of debt issuance costs.
(3) At September 30, 2016, 2015, and 2014, the outstanding balances were primarily comprised of borrowings from the Federal Home
Loan Bank of Atlanta (“FHLB”) by RJ Bank and mortgage notes payable on our corporate headquarters offices.
(4) Loans payable of consolidated variable interest entities (“VIE”) are non-recourse to us.
(5) Excludes non-vested shares.
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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. This 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, investment banking activity, 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, 2016 compared with the year ended September 30, 2015
We achieved net revenues of $5.4 billion, a $203 million, or 4%, increase over the prior year. Our net income of $529 million
reflects an increase of $27 million, or 5%, and our diluted earnings per share for the current year amount to $3.65, a 6% increase.
The current year diluted earnings per share benefited from our repurchase of common stock in open market transactions. Total
client assets under administration increased to $604.4 billion at September 30, 2016, a 26% increase over the prior year level. The
increase in assets under administration is attributable to our acquisitions of Alex. Brown and 3Macs, strong financial advisor
recruiting results, high levels of retention of our existing financial advisors, and an increase in U. S. equity markets over the year.
After excluding the acquisition-related expenses we incurred during the current year, our Non-GAAP adjusted net income
amounts to $556 million,(1) an increase of 11% over the prior year. Non-GAAP adjusted diluted earnings per share amounts to
$3.84,(1) an increase of 12% over the $3.43 diluted earnings per share in the prior year.
Net revenues increased in each of our four operating segments. Our non-operating Other segment reflects a decline in net
revenues as the prior year experienced higher valuation gains from our private equity investments than the current year as well as
realized gains on sales of ARS. Non-interest expenses have increased $202 million, or 5%. The increase primarily results from:
increases in compensation, commissions and benefits due to annual raises, growth in related commission and fee revenues, and
increases in benefits expenses; increases in communications and information processing expenses resulting from our continued
investment in our PCG platform and in improving our compliance and regulatory systems; an increase in the bank loan loss
provision resulting from loan growth and an increase associated with the credit deterioration of certain loans in the energy sector,
and increases in other expenses predominately due to increases in certain legal and regulatory expenses.
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 net revenues of $3.62 billion, a 3% increase, while pre-tax income decreased
by $2 million to $341 million. The increase in revenues is primarily attributable to an increase in account and service
fee income, most notably an increase in fees associated with our multi-bank client cash sweep program resulting from
both an increase in short-term interest rates, and an increase in client cash balances resulting from clients’ reaction to
market volatility and uncertainty. Securities commissions and fee revenues increased 1% overall. Fees arising from fee-
based accounts as well as commissions on fixed income products increased substantially, more than offsetting declines
in commissions on mutual funds, equity securities and new issue sales credits. Non-interest expenses increased compared
to the prior year level, most significantly due to higher administrative expenses to support our continued growth, higher
communications and information technology expenses resulting from our continued investments in our platform and in
improving our compliance and regulatory systems, and an increase in other expense predominately due to certain legal
and regulatory expenses. The segment’s margin on net revenues decreased to 9.4% from 9.8%.
(1)
“Adjusted net income,” and “adjusted diluted earnings per share” are each non-GAAP financial measures. Please see the “reconciliation of the GAAP measures
to the non-GAAP measures” in this Item 7, for a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures, and for other
important disclosures.
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Index
• The Capital Markets segment generated net revenues of $1 billion, a 4% increase, while pre-tax income increased $32
million, or 30%, to $139 million. The increase in revenues is driven by an increase in trading profits, sales commissions
on fixed income products, and to a lesser extent an increase in tax credit fund syndication fee revenues, offset by declines
in equity underwriting fee and merger and acquisition and advisory fee revenues. Non-interest expenses increased a
modest 1% over the prior year level.
• Our Asset Management segment generated net revenues of $404 million, a 3% increase, while pre-tax income decreased
$3 million, or 2%, to $132 million. Non-discretionary asset-based administration fee revenues increased, driven by an
increase in assets held in these programs over the prior year level. Advisory fee revenues from managed programs
approximate the prior year despite the increase in balances of financial assets under management in managed programs
as of fiscal year end due to the volatility of markets during the year and the timing of our fee computations. Expenses
have increased 6% over the prior year level, due in large part to a prior year reversal of certain incentive compensation
expense accruals for associates who left the firm during the prior year, which did not recur in the current year.
• RJ Bank generated net revenues of $494 million, a 19% increase, while pre-tax income increased $59 million, or 21%,
to $337 million. The loan loss provision increased nearly $5 million, or 20%, over the prior year level due to higher
corporate loan growth, charges during the current year resulting from loans outstanding within the energy sector, and
additional provision for corporate loan downgrades. Non-interest expenses (excluding provision for loan losses) increased
$16 million, or 15%, primarily due to an increase in the affiliate deposit account servicing fees paid to the Private Client
Group resulting from an increase in balances, and an increase in FDIC insurance premiums.
• Activities in our Other segment reflect a pre-tax loss that is $84 million, or 129%, more than the prior year. Total revenues
in the segment decreased $21 million, or 31%, primarily resulting from a decrease in private equity valuation gains, and
a decrease of $11 million in gains on the sale of certain ARS securities resulting from prior year sales that did not recur
in the current year, offset by increased interest revenue and foreign exchange gains. Acquisition-related expenses of $41
million are reflected in this segment, which did not occur in the prior year. These expenses result from our incremental
acquisition-related expenses for our acquisitions of Alex. Brown, 3Macs, and Mummert.
• Our effective tax rate was 33.9% in fiscal year 2016, down from the 37.1% in the prior year. The reduction in our effective
tax rate compared to the prior year was due to the following factors: (1) as a result of the fiscal year 2016 increase in
equity market values compared to fiscal year 2015, the change in the amount of our non-taxable gains/losses arising from
the value of our company-owned life insurance portfolio had the effect of decreasing our effective tax rate by 1.5%
compared to the prior year; (2) adjustments associated with planned divestitures of our remaining businesses in South
America accounted for an effective rate decrease of 1.1%; (3) we settled significant state tax audits during the year which
reduced our effective rate by 0.4%; and (4) we were able to generate and utilize additional low-income housing tax credits
to apply against our tax liability which had a favorable 0.5% impact on our effective tax rate.
• We repurchased approximately 3.2 million shares of our common stock in open market transactions during the year, for
a total purchase price of approximately $144.5 million, reflecting an average per share repurchase price of $45.69 (see
Part II, Item 5 in this report, for additional information on these share repurchases). The current year diluted earnings
per share benefited by $0.05 as a result of these repurchases.
Consistent with our growth strategies, we completed three acquisitions during the year - Alex. Brown, 3Macs, and Mummert.
We continue to evaluate future opportunities, but remain committed to our strategy that acquisitions must meet our strategic growth
objectives, involve entities that share our culture of conservatism and “client-first” values, and be executed at purchase prices that
provide us opportunities to increase our shareholders’ value.
The number and significance of possible regulatory changes that impact the businesses in which we operate continues to grow
and evolve. In April 2016, the DOL issued its final regulation expanding the definition of who is deemed an “investment advice
fiduciary” under ERISA as a result of giving investment advice to a plan, plan participant or beneficiary, as well as under the
Internal Revenue Code for individual retirement accounts and non-ERISA plans. Refer to the “Fiduciary Duty Standard” section
of Item 1 “Regulation” in this report for further discussion of the regulation, its effective dates, and its potential impact.
Year ended September 30, 2015 compared with the year ended September 30, 2014
We achieved net revenues of $5.2 billion in fiscal year 2015, a $339 million, or 7%, increase compared to the prior year. All
four operating segments achieved net revenue increases. Total client assets under administration increased to $480 billion at
September 30, 2015, a 1% increase over the prior year level. The increase in assets under administration is attributable to strong
36
Index
financial advisor recruiting results and high levels of retention of our existing financial advisors, which more than offset the decline
in the U.S. equity markets for the year (primarily occurring in our fourth fiscal quarter of fiscal year 2015).
We achieved net income in fiscal year 2015 of $502 million, an increase of $22 million, or 5%, compared to the prior year.
Three of our four operating segments achieved increased profitability in fiscal year 2015 over the prior year level. Fully diluted
earnings per share of $3.43 increased $0.11, or 3%, over the prior year amount.
Non-interest expenses in fiscal year 2015 increased $278 million, or 7%, compared to the prior year. The increase is primarily
due to the increase in compensation, commissions and benefits expenses associated with the increased revenues. In addition, as
a result of various growth strategies across our businesses in fiscal year 2015, we experienced an increase in our business
development expenses. Our strategic efforts during fiscal year 2015 to continually improve the technology available to our financial
advisors, as well as the additional costs of compliance with various new rules and regulations impacting our industry, are factors
impacting an increase in our communications and information processing expenses. The provision for loan losses increased
significantly in fiscal year 2015 over the prior year, as fiscal year 2014 benefited to a greater extent than fiscal year 2015, from
improved credit characteristics of the loan portfolio. The combination of the above noted factors, even after consideration of the
incremental expenses resulting from activities associated with the strategic growth initiatives that should favorably impact future
revenues, resulted in a pre-tax margin on net revenues in fiscal year 2015 of 15.3%, a level that is nearly equivalent to the 15.4%
pre-tax margin on net revenues in the prior year.
A summary of the most significant items impacting our financial results in fiscal 2015 as compared to the fiscal year 2014
are as follows:
• Our Private Client Group segment generated net revenues in fiscal year 2015 of $3.5 billion, a $228 million, or 7%,
increase over the prior year. Pre-tax income amounted to $342 million, a $12 million, or 4%, increase over the prior year.
The increase in revenues in fiscal year 2015 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.
Client assets under administration of the Private Client Group increased 1% over the prior year level, to $453.3 billion
at September 30, 2015. The increase in fiscal year 2015 commission revenues and client assets have resulted primarily
from successful recruiting of financial advisors, and high levels of financial advisor retention. Financial advisor recruiting
in fiscal year 2015 was strong with a net increase of 331 financial advisors over the year to 6,596 affiliated financial
advisors as of September 30, 2015. There was an overall net increase in client assets despite the impact of the decline in
the market value of assets that occurred during the fourth quarter of fiscal year 2015 as a result of declining equity market
conditions. Commission expenses in fiscal year 2015 increased in proportion to the increase in commission revenues
while all other components of non-interest expense increased 5% as we incurred increases in certain costs associated with
the successful recruiting efforts and continued information system improvements. On July 31, 2015, we completed our
acquisition of The Producers Choice, LLC (“TPC”), a private insurance and annuity marketing organization based in
Troy, Michigan. Our acquisition of TPC brings more life insurance and annuity experts to the firm to support financial
advisors and their clients.
• The Capital Markets segment generated fiscal year 2015 net revenues of $960 million, a $7 million, or 1%, increase over
the prior year. Pre-tax income in fiscal year 2015 was $107 million, a decrease of $24 million, or 18%, compared to the
prior year. Fiscal year 2015 reflected increases over the prior year in merger and acquisition fees and tax credit fund
syndication fees. Commission revenues from fixed income institutional sales increased in fiscal year 2015 over the prior
year level, resulting in part from growth in our public finance activities. However, equity underwriting revenues declined
compared to the prior year as a result of weakness in both the energy and real estate sectors, which also led to a decline
in commission revenues on equity products in fiscal year 2015. The net profit generated by this segment in fiscal year
2015 was negatively impacted by increased costs, some of which result from our efforts during the year to broadly build
out certain sector capabilities and to increase investment banking coverage in certain sectors, which we believe present
solid long-term opportunities for future revenue growth. The continued difficult market environment in Canada in fiscal
year 2015 negatively impacted this segment’s revenues and profitability.
• Our Asset Management segment generated net revenues in fiscal year 2015 of $392 million, a $23 million, or 6%, increase
over the prior year. Pre-tax income in fiscal year 2015 was $135 million, a $7 million, or 5%, increase over the prior
year. Financial assets under management increased 1% from the prior year, to $65.2 billion as of September 30, 2015.
The increase resulted from net inflows of client assets, which more than offset the unfavorable impact of the decline in
the market value of assets that occurred during the fourth quarter of fiscal year 2015 as a result of declining equity market
conditions. On April 30, 2015, we completed our acquisition of Cougar Global Investments Limited (“Cougar”), an asset
37
Index
management firm based in Toronto, Canada that markets its investment services to high net worth individuals, families,
foundations, trusts and institutions in Canada and the United States.
• RJ Bank generated net revenues in fiscal year 2015 of $414 million, a $63 million, or 18%, increase over the prior year.
Pre-tax income in fiscal year 2015 was $279 million, a $36 million, or 15% increase, over the prior year. Net interest
income increased due to growth in average loans outstanding, coupled with a modest increase in net interest margin in
fiscal year 2015. Our provision for loan losses in fiscal year 2015 increased $10 million, or 74% compared to the prior
year. We incurred substantial provision for loan losses associated with loan growth in both years, however the majority
of the year-over-year increase resulted from the prior year benefiting to a greater extent than fiscal year 2015, from
improved credit characteristics of the loan portfolio. The credit characteristics of the loan portfolio generally improved
over the year, reflecting the positive impact of improved economic conditions.
• Activities in our Other segment in fiscal year 2015 resulted in a pre-tax loss that was $19 million less than the prior year.
Net revenues in this segment in fiscal year 2015 increased $25 million, resulting from increases in revenues associated
with our private equity portfolio investments, and an increase in gains resulting from our auction rate securities portfolio
sales and redemption activities. As a result of the fiscal year 2015 increase in private equity investment revenues, the
portion of this segment’s pre-tax income that is attributable to noncontrolling interests also increased.
• Our fiscal year 2015 effective tax rate was 37.1%, up from the 35.8% in the prior year. As a result of the fiscal year 2015
decline in equity market values compared to positive markets in fiscal year 2014, the change in the amount of our non-
taxable gains/losses arising from the value of our company-owned life insurance portfolio had the effect of increasing
our effective tax rate by 1.2% compared to the prior year effective tax rate.
38
Index
Segments
The following table presents our consolidated and segment gross revenues, net revenues and pre-tax income (loss), the latter
excluding noncontrolling interests, for the years indicated:
2016
2015
Year ended September 30,
% change
($ in thousands)
2014
% change
Total company
Revenues
Net revenues
Pre-tax income excluding noncontrolling interests
$
$
5,520,344
5,403,267
800,643
5,308,164
5,200,210
798,174
4 % $
4 %
—
4,965,460
4,861,369
748,045
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
Intersegment eliminations
Revenues
Net revenues
3,626,718
3,616,479
340,564
1,016,375
999,919
139,173
404,421
404,349
132,158
517,243
493,966
337,296
3,519,558
3,507,806
342,243
975,064
960,035
107,009
392,378
392,301
135,050
425,988
414,295
278,721
46,291
(31,692)
(148,548)
66,967
(10,198)
(64,849)
(90,704)
(79,754)
(71,791)
(64,029)
3 %
3 %
—
4 %
4 %
30 %
3 %
3 %
(2)%
21 %
19 %
21 %
(31)%
(211)%
(129)%
(26)%
(25)%
3,289,503
3,279,883
330,278
968,635
953,215
130,565
369,690
369,666
128,286
360,317
351,770
242,834
42,203
(35,253)
(83,918)
(64,888)
(57,912)
7 %
7 %
7 %
7 %
7 %
4 %
1 %
1 %
(18)%
6 %
6 %
5 %
18 %
18 %
15 %
59 %
71 %
23 %
(11)%
(11)%
39
Index
Reconciliation of the GAAP measures to the non-GAAP measures
For fiscal year 2016, we utilized certain non-GAAP calculations as additional measures to aid in, and enhance, the understanding
of our financial results. We believe that the non-GAAP measures provide useful information by excluding certain material items
that may not be indicative of our core operating results. We believe that these non-GAAP measures will allow for better evaluation
of the operating performance of the business and facilitate a meaningful comparison of our results in the current year to those in
prior and future years. The non-GAAP financial information should be considered in addition to, not as a substitute for, measures
of financial performance prepared in accordance with GAAP. In addition, our non-GAAP measures may not be comparable to
similarly titled non-GAAP measures of other companies.
The non-GAAP adjustments are comprised entirely of acquisition-related expenses (associated with our acquisitions of Alex.
Brown, 3Macs and Mummert) net of applicable taxes. Our acquisition-related expenses are incremental expenses arising solely
as a result of the acquisition, which do not represent recurring costs within the fully integrated combined organization. There are
no non-GAAP adjustments in either of the fiscal years ended September 30, 2015 or 2014. See the footnotes below for further
explanation of each item.
The following table provides a reconciliation of the GAAP measures to the non-GAAP measures for the period which includes
non-GAAP adjustments:
Net income attributable to RJF, Inc. - GAAP
Non-GAAP adjustments:
Acquisition-related expenses (1)
Tax effect of non-GAAP adjustments (2)
Non-GAAP adjustments, net of tax
Adjusted net income attributable to RJF, Inc. - Non-GAAP basis
Non-GAAP earnings per common share:
Adjusted non-GAAP basic
Adjusted non-GAAP diluted
Average equity - GAAP (3)
Adjusted average equity - non-GAAP(3)(4)
Return on equity - GAAP
Adjusted return on equity - non-GAAP basis (5)
Pre-tax income attributable to RJF - GAAP
Total pre-tax non-GAAP adjustments (as detailed above)
Adjusted pre-tax income attributable to RJF non-GAAP
Pre-tax margin on net revenues - GAAP
Pre-tax margin on net revenues - non-GAAP(6)
Year ended
September 30, 2016
($ in thousands, except
per share amounts)
$
$
$
$
$
$
$
$
529,350
40,706
(13,793)
26,913
556,263
3.91
3.84
4,693,138
4,702,461
11.3%
11.8%
800,643
40,706
841,349
14.8%
15.6%
(1) The non-GAAP adjustment adds back to pre-tax income acquisition-related expenses incurred during the fiscal year associated with
our acquisitions described above.
(2) The non-GAAP adjustment reduces net income for the income tax effect of the pre-tax non-GAAP adjustments, utilizing the fiscal
year effective tax rate to determine the current tax expense.
(3) Computed by adding the total equity attributable to RJF as of each quarter-end date during the fiscal year, plus the beginning of the
fiscal year total, divided by five.
(4) The calculation of non-GAAP average equity includes the impact on equity of the non-GAAP adjustments described in the table above.
(5) Computed by utilizing the adjusted net income attributable to RJF non-GAAP and the average equity non-GAAP. See footnotes (3)
and (4) above for the calculation of average equity non-GAAP.
(6) Computed by dividing the adjusted pre-tax income attributable to RJF by net revenues (GAAP basis).
40
Index
Net interest analysis
Given the relationship of our interest sensitive assets to liabilities, any changes in short-term interest rates are likely to have
a meaningful impact on our overall financial performance, as we have certain assets and liabilities, primarily held in our PCG and
RJ Bank segments, which are subject to changes in interest rates. Based on the current level of short-term interest rates, gradual
increases 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 twelve month period based on instantaneous shifts in interest rates using the asset/liability model applied by RJ Bank).
The closing of the Alex. Brown acquisition occurred late in fiscal year 2016, therefore we expect that our average interest-
earning assets will increase substantially in fiscal year 2017, over the average fiscal year 2016 levels. The substantial client cash
and margin balances associated with the Alex. Brown division client accounts should have a favorable impact on our net interest
earnings.
In December 2015, the Federal Reserve Bank announced an increase in its benchmark short-term interest rate by 25 basis
points. We estimate that this increase had a favorable impact on our pre-tax income of an amount approximating $60 million in
fiscal year 2016, reflecting approximately $80 million of additional pre-tax income on an annualized basis.
Our latest projection of the impact of additional increases by the Federal Reserve Bank in its benchmark short-term interest
rate, which is based upon September 30, 2016 balances, projects that an additional 25 basis point rise would result in an additional
increase in our annual pre-tax income in a range of approximately $48 million to $60 million over a twelve month period. The
realization of such amounts is dependent upon the realization of certain key assumptions in our analysis. Such assumptions include
our estimates of the timing and amounts of: earnings/deposit rates paid on our clients’ cash balances; client cash balance levels;
the level of earning assets; and RJ Bank’s net interest margin. In our analysis, we assume that between 40% and 50% of such rate
increase would also be reflected as a rate increase on earning/deposits paid on our clients’ cash balances.
We anticipate that a majority of any future increases would be reflected in account and service fee revenues (resulting from
an increase in the fees generated in lieu of interest income from our multi-bank sweep program with unaffiliated banks and the
discontinuance of money market fund fee waivers) which are reported in the PCG segment, and the remaining portion of the
increase would be reflected in net interest income reported primarily in our PCG and RJ Bank segments.
If the Federal Reserve Bank was to reverse its December 2015 action and decrease the benchmark short-term interest rate,
the impact on our net interest income would be an unfavorable reversal of the positive impact described above.
41
Index
The following table presents our consolidated average interest-earning asset and liability balances, interest income and expense
balances, and the average yield/cost, for the years indicated:
Average
balance(1)
2016
Interest
inc./exp.
Year ended September 30,
2015
2014
Average
yield/cost
Average
balance(1)
Interest
inc./exp.
Average
yield/cost
Average
balance(1)
Interest
inc./exp.
Average
yield/cost
($ in thousands)
Interest-earning assets:
Margin balances
$
1,811,845
$
68,712
3.79% $
1,805,312
$
67,573
3.74% $
1,764,305
$
68,454
3.88%
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)
Brokerage client
liabilities
Bank deposits (2)
Trading
instruments
sold but not yet
purchased (3)
Stock borrow
Borrowed funds
3,565,252
22,287
0.63%
2,498,357
13,792
0.55%
2,783,598
15,441
0.55%
14,336,765
487,366
3.42%
12,129,531
405,578
3.34%
10,048,719
343,942
3.39%
561,925
7,596
1.35%
508,223
5,100
1.00%
648,515
6,560
1.01%
757,734
577,002
19,362
8,777
2.56%
1.52%
716,409
433,642
19,450
12,036
2.71%
2.78%
630,295
423,466
17,883
8,731
2.84%
2.06%
563,548
8,207
1.46%
457,797
7,056
1.54%
413,600
6,427
1.55%
2,701,258
18,018
0.67%
2,917,208
12,622
0.43%
3,396,796
13,448
Total
$ 24,875,329
$ 640,325
2.57% $ 21,466,479
$ 543,207
2.53% $ 20,109,294
$ 480,886
Interest-bearing liabilities:
$
4,291,632
12,985,696 (4)
2,084
10,218 (4)
0.05% $
3,693,928
$
0.09%
11,199,242
0.03% $
3,967,811
$
0.08%
10,119,433
1,269
7,959
0.03%
0.09%
940
8,382
4,503
5,237
6,079
293,096
79,613
723,904
5,035
3,174
12,957
78,533
1.72%
3.99%
1.79%
6.49%
294,256
135,027
721,296
1.53%
3.88%
0.84%
6.62%
243,737
114,404
485,594
4,327
2,869
3,939
1,148,947
76,038
Senior notes
1,210,148
1,149,136
76,088
Loans payable of
consolidated
variable
interest
entities (3)
Other (3)
18,090
229,859
1,021
4,055
5.64%
1.76%
33,225
271,476
1,879
4,846
5.66%
1.79%
51,518
319,328
2,900
4,790
Total
$ 19,832,038
$ 117,077
0.59% $ 17,497,586
$ 107,954
0.62% $ 16,450,772
$ 104,091
Net interest
income
$ 523,248
$ 435,253
$ 376,795
(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.
(4) Net of affiliate deposit balances and interest expense associated with affiliate deposits.
42
0.40%
2.39%
1.78%
2.51%
0.81%
6.62%
5.63%
1.50%
0.63%
Index
Year ended September 30, 2016 compared with the year ended September 30, 2015 – Net Interest Analysis
Net interest income increased $88 million, or 20%. Net interest income is earned primarily by our RJ Bank and PCG segments,
which are discussed separately below.
The RJ Bank segment’s net interest income increased $75 million, or 19%, resulting from an increase in average interest-
earning banking assets partially offset by a small decline in the 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.
Net interest income in the PCG segment increased $8 million, or 9%. Average customer cash balances and the related segregated
asset balances increased compared to the prior year as many clients reacted to uncertainties in the equity markets during portions
of the current year by increasing the cash balances in their brokerage accounts. The December 2015 Federal Reserve Bank short-
term interest rate increase further increased the net interest earned on these segregated asset balances. In addition, both the interest
rates and the average balances associated with margin loans provided to brokerage clients increased.
Interest income earned on the available for sale securities portfolio increased $2 million, or 49%, due to increased yields and
balances. 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 expense incurred on our other borrowings increased by $7 million, or 113%. These borrowings are in large part
comprised of RJ Bank’s borrowings from the FHLB and the related interest rate hedges. See Note 15 of our Notes to Consolidated
Financial Statements in this Form 10-K for additional information regarding all of our borrowings other than our senior notes
payable.
Interest expense incurred on our senior notes increased by $2 million, or 3%. The incremental interest expense arising from
our July 2016 $800 million senior note issuances exceeded the interest savings resulting from our April 2016 repayment of the
$250 million 4.25% issuance which matured. See Note 17 of our Notes to Consolidated Financial Statements in this Form 10-K
for additional information.
Year ended September 30, 2015 compared with the year ended September 30, 2014 – Net Interest Analysis
Net interest income increased $58 million, or 16%, in fiscal year 2015 compared to the prior year. Net interest income is
earned primarily by our RJ Bank and PCG segments, which are discussed separately below.
The RJ Bank segment’s net interest income in fiscal year 2015 increased $57 million, or 16%, primarily as a result of an
increase in average loans outstanding as well as a modest increase 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.
Net interest income in the PCG segment was nearly unchanged in fiscal 2015 compared to the prior year. A decrease in net
interest income arising from our broker-dealer margin lending activities, where a decline in margin interest rates more than offset
the impact of slightly higher average client margin balances outstanding, was nearly offset by an increase in net interest revenue
arising from our securities lending activities.
Net interest income arising from our securities lending activities increased $1 million, or 16%, in fiscal year 2015, due primarily
to an increase in interest income associated with hard-to-borrow securities in our Box lending program. These revenues increased
$3 million in fiscal year 2015 due to our ability to lend these securities at a premium. The increase in revenues was offset by a $2
million increase in interest expense during fiscal year 2015 associated with our stock borrow activities, as a result of additional
expense associated with borrowing hard-to-borrow securities.
Interest income earned on the available for sale securities portfolio held in our RJ Bank and Other segments decreased $1
million, or 22%, due to lower average investment balances and a slight decrease in yields on the portfolio in fiscal year 2015. The
decrease in average balances outstanding is the result of sales and redemptions within the portfolio during fiscal year 2015 (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 held in the Capital Markets segment increased $2 million, or 9%, in fiscal
2015, due to slightly higher average trading security inventory levels, partially offset by the impact of lower yields (see Note 6 of
our Notes to Consolidated Financial Statements in this Form 10-K for additional information on our trading instruments).
43
Index
Results of Operations – Private Client Group
The following table presents consolidated financial information for our PCG segment for the years indicated:
Revenues:
Securities commissions and fees:
Equities
Fixed income products
Mutual funds
Fee-based accounts
Insurance and annuity products
New issue sales credits
Sub-total securities commissions and fees
Interest
Account and service fees:
Client account and service fees
Mutual fund and annuity service fees
Client transaction fees
Correspondent clearing fees
Account and service fees – all other
Sub-total account and service fees
Other
Total revenues
Interest expense
Net revenues
Non-interest expenses:
Sales commissions
Admin & incentive compensation and benefit costs
Communications and information processing
Occupancy and equipment
Business development
Clearance and other
Total non-interest expenses
Pre-tax income
Year ended September 30,
2016
% change
2015
% change
2014
($ in thousands)
$
240,855
(11)% $
270,435
(9)% $
297,535
95,908
631,102
1,589,124
377,329
44,088
2,978,406
107,281
230,470
255,405
20,258
2,522
376
509,031
32,000
3,626,718
(10,239)
3,616,479
2,193,099
595,541
166,507
125,555
88,535
106,678
3,275,915
29 %
(7)%
8 %
4 %
(41)%
1 %
7 %
31 %
2 %
7 %
5 %
32 %
14 %
(10)%
3 %
(13)%
3 %
1 %
8 %
6 %
4 %
(4)%
49 %
3 %
74,448
680,375
1,472,877
363,352
75,015
2,936,502
100,594
176,175
249,232
18,971
2,401
284
447,063
35,399
3,519,558
(11,752)
3,507,806
2,169,823
552,762
157,729
121,115
92,473
71,661
3,165,563
(5)%
—
17 %
2 %
(15)%
6 %
1 %
9 %
17 %
11 %
(21)%
(3)%
13 %
(5)%
7 %
22 %
7 %
8 %
7 %
3 %
2 %
14 %
(5)%
7 %
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
37,087
3,289,503
(9,620)
3,279,883
2,002,831
518,489
153,076
118,503
80,950
75,756
2,949,605
$
340,564
— $
342,243
4 % $
330,278
Margin on net revenues
9.4%
9.8%
10.1%
The success of the PCG segment is dependent upon the quality of our products, services, financial advisors and support
personnel including our ability to attract, retain and motivate a sufficient number of these associates. We face competition for
qualified associates from major financial services companies, including other brokerage firms, insurance companies, banking
institutions and discount brokerage firms.
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. 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
44
Index
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.
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 many 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 per bank for joint accounts) at various third
party banks. This program enables clients to obtain up to $2.5 million in individual FDIC deposit insurance coverage ($5 million
for joint accounts) while earning competitive rates on their cash balances.
Clients’ transactions in securities are affected on either a cash or margin basis. Margin loans to clients 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 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.
PCG client asset balances are as follows as of the dates indicated:
Total PCG assets under administration
PCG assets in fee-based accounts
$
$
574.1
231.0
($ in billions)
27% $
29% $
453.3
179.4
1% $
7% $
450.6
167.7
As of September 30,
2016
% change
2015
% change
2014
Total PCG assets under administration increased 27% over September 30, 2015. The increase results from net client inflows
attributable to strong financial advisor recruiting results, high levels of retention of our existing financial advisors, our fiscal year
2016 acquisitions of Alex. Brown and 3Macs which resulted in a combined $50 billion of client asset inflows as of their respective
acquisition closing dates, and an increase in U. S. equity markets at September 30, 2016 compared to the prior year. Total PCG
assets in fee-based accounts increased 29% compared to September 30, 2015. Increased client assets under administration typically
result in higher fee-based account revenues and mutual fund and annuity service fees. In periods where equity markets improve,
assets under administration increase and client activity generally increases, thereby having a favorable impact on financial advisor
productivity. Generally, assets under administration, client activity, and financial advisor productivity decline in periods where
equity markets reflect downward trends. Higher client cash balances generally lead to increased interest income and account fee
revenues, depending upon spreads 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
dates indicated:
Employees
Independent Contractors
Total advisors
Total branch locations
September 30,
2016
2015
2014
3,098
4,048
7,146
2,890
2,738
3,858
6,596
2,702
2,634
3,631
6,265
2,569
45
Index
The number of financial advisors as of September 30, 2016 reflects a net increase of 550 individuals, or an 8% net increase,
over the number of financial advisors as of September 30, 2015. The net increase results from strong financial advisor recruiting
and high levels of retention throughout fiscal year 2016, as well as the addition of 265 financial advisors as a result of our acquisitions
of Alex. Brown and 3Macs. Importantly, the client asset levels and productivity measures associated with those financial advisors
recruited during the fiscal year exceed our historical benchmark averages. Notwithstanding the future impact of changes in the
overall economy, and more specifically their impact on future equity markets and fixed income markets, factors over which we
have no control, we believe that this increase in productive financial advisors is a positive indication of potential future revenue
growth in this segment.
Year ended September 30, 2016 compared with the year ended September 30, 2015 – Private Client Group
Net revenues increased $109 million, or 3%, to $3.62 billion. Pre-tax income decreased $2 million, to $341 million. PCG’s
pre-tax margin on net revenues decreased to 9.4% as compared to the prior year’s 9.8%. The 3Macs and Alex. Brown acquisitions
were completed late in the fiscal year and therefore the impact of these acquisitions on this segment’s operations were not significant
to our fiscal year 2016 results.
Securities commissions and fees increased $42 million, or 1%. Revenues earned on fee-based accounts increased $116 million,
or 8%, commissions earned on fixed income products increased $21 million, or 29%, and commission revenues on insurance and
annuity products increased $14 million, or 4%. Offsetting these increases, commissions on mutual funds decreased $49 million,
or 7%, new issue sales credits declined $31 million, or 41%, and commissions on equity products decreased $30 million, or 11%,
all of which reflect the challenging equity market conditions during significant portions of the current year.
Total account and service fees increased $62 million, or 14%. Client account and service fees increased $54 million, or 31%,
primarily due to an increase in RJBDP fees resulting from increased average balances in the program as well as the December
2015 increase in interest rates. Mutual fund and annuity service fees increased $6 million, or 2%, primarily as a result of an increase
in money market processing fees and omnibus fees arising from increased client assets and positions which are paid to us by
companies whose products we distribute. Omnibus fees are generally based on the number of positions held in our client portfolios
and compensate us for recordkeeping.
Total segment revenues increased 3%. The portion of total segment revenues that we consider to be recurring is approximately
77% at September 30, 2016, an increase from 75% at September 30, 2015. Recurring commission and fee revenues include asset-
based fees, trailing commissions from mutual funds and variable annuities/insurance products, mutual fund and annuity service
fees, fees earned on funds in our multi-bank sweep program, and interest. Assets in fee-based accounts in fiscal year 2016 increased
by a percentage greater than the percentage increases for total PCG client assets as clients continue to elect fee-based alternatives
versus traditional transaction-based accounts. At September 30, 2016, such assets were $231.0 billion, an increase of 29% compared
to the $179.4 billion as of September 30, 2015.
Net interest income in the PCG segment increased $8 million, or 9%. Average customer cash balances and the related segregated
asset balances increased compared to the prior year as many clients reacted to uncertainties in the equity markets during portions
of the current year by increasing the cash balances in their brokerage accounts. The December 2015 Federal Reserve Bank short-
term interest rate increase further increased the net interest earned on these segregated asset balances. In addition, both the average
interest rate and the average client margin balances outstanding increased.
Non-interest expenses increased $110 million, or 3%. Administrative and incentive compensation and benefits expense
increased $43 million, or 8%, resulting in part from annual increases in salaries, increases in employee benefit plan costs and
additional staffing levels, primarily in PCG operations and information technology functions, to support our continuing growth.
Clearance and other expense increased $35 million, or 49%, primarily resulting from increases in other expense related to certain
legal and regulatory expenses which are approximately $40 million higher than the prior year level. Sales commission expense
increased $23 million, or 1%, which is consistent with the 1% increase in securities commissions and fees revenues.
Communications and information processing expense increased $9 million, or 6%, due to increases in software consulting and
other information technology expenses associated with our continued investment in our platform and improving our compliance
and regulatory systems.
Year ended September 30, 2015 compared with the year ended September 30, 2014 – Private Client Group
Net revenues in fiscal year 2015 increased $228 million, or 7%, to $3.5 billion while pre-tax income increased $12 million,
or 4%, to $342 million. PCG’s pre-tax margin on net revenues decreased slightly to 9.8% as compared to 10.1% in fiscal year
2014.
46
Index
Securities commissions and fees in fiscal year 2015 increased $178 million, or 6%. Client assets under administration increased
to $453.3 billion, an increase of $2.7 billion, or 1%, compared to September 30, 2014. The year over year increase in client assets
in fiscal year 2015 was driven by positive net inflows generated by financial advisor retention and recruiting results, as the equity
markets in the U.S. were down compared to the prior year. The most significant increase in these revenues in fiscal year 2015
arose from revenues earned on fee-based accounts, which increased $212 million, or 17%, and was partially offset by a $27 million,
or 9%, decrease in commissions on equity products, a $13 million, or 15%, decrease in new issue sales credits due to a decrease
in equity underwritings, and a $4 million, or 5%, decrease in commissions on fixed income products. Fiscal year 2015 includes
a $7 million decrease in mutual fund commission revenues due to the resolution of a mutual fund share class issue that resulted
in refunds of commissions being paid during the year to certain of our clients. Despite this unusual item, mutual fund commission
revenues still increased $2 million, compared to fiscal year 2014. Commission revenues on equity products have decreased in our
Canadian broker-dealer subsidiary as a result of the weaker Canadian currency compared to the U.S. dollar, as well as the overall
challenging Canadian market conditions that existed throughout fiscal year 2015. Commission earnings on fixed income products
in fiscal year 2015 decreased primarily due to the continuation of historically low interest rates which continue to result in challenging
fixed income market conditions.
Total account and service fee revenues in fiscal year 2015 increased $52 million, or 13%. Mutual fund and annuity service
fees increased $37 million, or 17%, primarily as a result of an increase in education and marketing support (“EMS”) fees (which
include no-transaction-fee (“NTF”) program revenues), and mutual fund omnibus fees, all of which are paid to us by the mutual
fund companies whose products we distribute. 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. Omnibus fees are generally based on the number of positions held in our client portfolios. Increases in such revenues
are a result of increases in the number of positions for existing fund families on the omnibus platform as well as new fund families
joining the omnibus program during fiscal year 2015. Client account and service fees in fiscal year 2015 increased $14 million,
or 9%, as a result of the changes made in many of our fee schedules implemented since December 2013. In addition, transaction
handling fees in fee-based accounts increased due to the increased number of transactions, fees generated in lieu of interest income
from our multi-bank sweep program with unaffiliated banks increased due to higher average balances in the program, and SBL
affiliate servicing fees increased (refer to the RJ Bank results of operations in this report for additional information on SBL activities)
as SBL balances have continued to grow in fiscal year 2015.
PCG net interest is relatively unchanged in fiscal year 2015 compared to fiscal year 2014. Net interest income arising from
our broker-dealer margin lending activities in fiscal year 2015 decreased slightly compared to the fiscal year 2014 level, a slight
decline in margin interest rates more than offset the impact of slightly higher average margin loan balances outstanding. The rate
of growth in margin loan balances in fiscal year 2015 has been negatively impacted by the popularity of our SBL product offered
by RJ Bank. As a result of the extremely low rate interest rate environment that existed during fiscal year 2015 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.
Total segment revenues in fiscal year 2015 increased 7%. The portion of total segment revenues that we consider to be
recurring is approximately 75% at September 30, 2015, an increase from 72% at September 30, 2014. Assets in fee-based accounts
in fiscal year 2015 increased more than average PCG client assets as clients continue to elect fee-based alternatives versus traditional
transaction-based accounts. At September 30, 2015, such assets were $179.4 billion, an increase of 7% compared to the $167.7
billion as of September 30, 2014.
Non-interest expenses in fiscal year 2015 increased $216 million, or 7%. Sales commission expense increased $167 million,
or 8%, largely consistent with the 6% increase in commission and fee revenues, coupled with increased hiring bonuses resulting
from the high level of recruiting activity in fiscal year 2015. Administrative and incentive compensation and benefits expense in
fiscal year 2015 increased $34 million, or 7%, in part from annual increases in salary expenses, increases in employee benefit plan
costs, and additional staffing levels, primarily in information technology functions, to support our continuing growth. Business
development expenses increased $12 million, or 14%, due to increased recruiting activity and the related incoming account transfer
fee expenses, and conference and travel related expenses in fiscal year 2015.
47
Index
Results of Operations – Capital Markets
The following table presents consolidated financial information for our Capital Markets segment for the years indicated:
Revenues:
Institutional sales commissions:
Equity
Fixed income
Sub-total institutional sales commissions
Equity underwriting fees
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
Clearance and all other
Total non-interest expenses
Income before taxes and including noncontrolling
interests
Noncontrolling interests
$
2016
228,346
316,144
544,490
54,492
148,503
41,024
59,424
28,664
87,966
24,795
27,017
1,016,375
(16,456)
999,919
204,965
433,136
72,305
34,250
39,892
42,565
76,189
903,302
96,617
(42,556)
% change
Year ended September 30,
2015
($ in thousands)
% change
(8)% $
11 %
2 %
(27)%
(8)%
(3)%
33 %
7 %
60 %
9 %
68 %
4 %
9 %
4 %
3 %
1 %
1 %
1 %
(9)%
10 %
(2)%
1 %
45 %
247,414
283,828
531,242
74,229
162,270
42,149
44,608
26,766
55,021
22,663
16,116
975,064
(15,029)
960,035
198,691
428,501
71,630
34,006
44,058
38,553
77,801
893,240
66,795
(40,214)
(5)% $
15 %
5 %
(26)%
7 %
(24)%
29 %
17 %
(8)%
9 %
(7)%
1 %
(3)%
1 %
3 %
1 %
6 %
(2)%
9 %
(6)%
19 %
3 %
(22)%
2014
260,934
246,131
507,065
100,091
151,000
55,275
34,473
22,966
59,701
20,746
17,318
968,635
(15,420)
953,215
192,774
425,153
67,835
34,859
40,409
41,072
65,160
867,262
85,953
(44,612)
Pre-tax income excluding noncontrolling interests $
139,173
30 % $
107,009
(18)% $
130,565
The Capital Markets segment consists primarily of equity and fixed income products and services. The activities include
institutional sales and trading in the U.S., Canada and Europe; management of and participation in debt and equity public offerings;
financial advisory services, including private placements and merger and acquisition services; public finance activities; and the
syndication and related management of investment partnerships designed to yield returns in the form of low-income housing tax
credits to institutions. We provide securities brokerage services to institutions with an emphasis on the sale of U.S. and Canadian
equities and fixed income products. Institutional sales commissions for both equity and fixed income products are driven primarily
through trade volume, resulting from a combination of participation in public offerings, general market activity, and by the Capital
Markets group’s ability to find attractive investment opportunities and promote those opportunities to potential and existing
clients. Revenues from investment banking activities are driven principally by our role in the offering and the number and dollar
value of the transactions with which we are involved. This segment also includes trading of taxable and tax-exempt fixed income
products, as well as equity securities in the over-the-counter (“OTC”) and Canadian markets. This trading involves the purchase
of securities from, and the sale of securities to, our clients as well as other dealers who may be purchasing or selling securities for
their own account or acting as agent for their clients. Profits and losses related to this trading activity are primarily derived from
the spreads between bid and ask prices, as well as market trends for the individual securities during the period we hold them.
No single client accounts for a material percentage of this segment’s total business.
48
Index
Year ended September 30, 2016 compared with the year ended September 30, 2015 – Capital Markets
Net revenues increased $40 million, or 4%, to nearly $1 billion. Pre-tax income increased $32 million, or 30%, to $139
million.
Commission revenues increased $13 million, or 2%. Institutional fixed income commissions increased $32 million, or 11%,
benefiting from increased activity during the year both in the anticipation of, and the aftermath resulting from, the eventual
December 2015 Federal Reserve Bank action to increase short-term interest rates, as well as the interest rate volatility in the markets
during much of the fiscal year. Offsetting this increase, institutional equity sales commissions decreased $19 million, or 8%,
resulting primarily from decreased equity underwriting activities throughout most of fiscal year 2016.
Underwriting revenues decreased by $20 million, or 27%, while merger and acquisition and advisory fees decreased $14
million, or 8%. The late September 2015 decline in the equity markets, coupled with market uncertainty in advance of the December
2015 Federal Reserve Bank announcement and their related commentary on interest rates, combined to result in an unfavorable
market environment for equity activities during much of the fiscal year. As a result, we experienced lower volumes in both our
merger and acquisition advisory and underwriting activities throughout most of fiscal year 2016. While merger and acquisition
and advisory fees are a volatile revenue source in general, the number of merger and acquisition transactions in fiscal year 2016,
and especially in the first three months of the fiscal year, was particularly low. Most of the decrease in our equity underwriting
revenues results from our domestic operations. Revenues from our Canadian activities were relatively unchanged from the low
amount generated in the prior year. The number of both lead-managed and co-managed underwritings in both our domestic and
Canadian operations decreased during fiscal year 2016 compared to fiscal year 2015.
We experienced solid performance in our public finance underwritings in the current year, which positively impacted both
our securities commissions and fee revenues and our investment banking revenues. The combined revenues resulting from these
public finance business activities increased 1% over the prior year level.
Tax credit fund syndication fee revenues increased $15 million, or 33%, due to an increase in the volume of tax credit fund
partnership interests sold during the current year. As a market leader amongst syndicators of Low-Income Housing Tax Credit
Fund (“LIHTC”) investments, we achieved a new milestone in fiscal year 2016 by selling over $1 billion of such investments to
institutional investors. Additionally, we were able to recognize nearly $7 million in 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
results from the favorable resolution of certain conditions associated with the partnership interests. As of September 30, 2016,
approximately $11 million of previously deferred revenues remain to be recognized in future revenues, whenever such conditions
for revenue recognition are fully satisfied.
Our net trading profit increased $33 million, or 60%. Trading profits generated in our fixed income operations increased
approximately $27 million, reflecting solid results in most product categories. Within our equity capital markets operations, the
prior year included $5 million of realized trading losses attributable to an equity underwriting position held in our Canadian
subsidiary that did not recur in the current year.
Other revenues increased $11 million, or 68%. These revenues include $5 million arising from revenues associated with our
annual analyst best picks. Foreign exchange gains associated with certain of our international operations increased $4 million.
Non-interest expenses increased $10 million, or 1%. Sales commissions expense increased $6 million, or 3%, consistent with
the 2% increase in institutional sales commission revenues. Administrative and incentive compensation and benefit expense
increased $5 million, or 1%, consistent with annual increases in salaries and increases in employee benefit plan costs. Our business
development expenses decreased $4 million, or 9%, reflecting the outcome of heightened expense management.
Noncontrolling interests is primarily comprised of the net pre-tax impact (which are net losses) from the consolidation of
certain low-income housing tax credit funds, with noncontrolling interests reflecting the portion of such losses that we do not
own. Total segment expenses attributable to others approximate the prior year level.
Year ended September 30, 2015 compared with the year ended September 30, 2014 – Capital Markets
Net revenues in fiscal year 2015 increased $7 million, or 1%, while pre-tax income decreased $24 million, or 18%.
Institutional fixed income sales commissions in fiscal year 2015 increased $38 million, or 15%, benefiting from increased
interest rate volatility and public finance activities during fiscal year 2015. Offsetting this increase, institutional equity sales
49
Index
commissions decreased $14 million, or 5%, resulting primarily from decreased equity underwriting activities throughout fiscal
year 2015, particularly in the energy and real estate sectors.
Merger and acquisitions and advisory fee revenues in fiscal year 2015 increased $11 million, or 7%, reaching $162 million.
We experienced significant increases in these revenues in fiscal year 2015 arising from our U.S. operations, led by our technology
services sector and reflecting the benefit of prior years’ investments in other business sectors. The portion of these revenues arising
from our Canadian operations decreased significantly due to the difficult Canadian equity market conditions throughout fiscal year
2015, especially in the natural resources sector.
Our net trading profits in fiscal year 2015 decreased $5 million, or 8%. Typically, our trading profits are generated primarily
from fixed income securities. However, in fiscal year 2015, the primary reason for the decrease is $5 million of realized trading
losses arising in our Canadian operations, primarily attributable to a loss on an equity underwriting position. Despite the continuation
of the challenging fixed income market conditions throughout fiscal year 2015, fixed income trading results were solid and steady
throughout the year, assisted by the trading profits generated on GNMA and FNMA MBS.
Underwriting fee revenues in fiscal year 2015 decreased $26 million, or 26%. Equity underwriting activities related to both
initial public offerings and follow-on offerings declined significantly in the fiscal year. The market sectors that historically represent
our areas of strength had relatively lower activity levels during fiscal year 2015.
We experienced growth in our public finance underwritings in fiscal year 2015 with a 63% increase in the par value of lead
managed new issues compared to the prior year. This increase favorably impacts both our securities commissions and fees revenues
and our investment banking revenues. The combined revenues resulting from our public finance business activities in fiscal year
2015 increased $11 million, or 17%.
Tax credit fund syndication fee revenues in fiscal year 2015 increased by $10 million, or 29%, due to a 17% increase in the
volume of tax credit fund partnership interests sold during the year. Our continued growth in this business over the past several
years has resulted in our ascension to a market leading position amongst syndicators of LIHTC investments.
Non-interest expenses in fiscal year 2015 increased $26 million, or 3%. Sales commissions expense increased $6 million, or
3%, which is correlated with the 5% increase in overall institutional sales commission revenues. Business development expenses
in fiscal year 2015 increased $4 million, or 9%, predominately in our equity capital markets operations, representing recruiting
and other costs as they pursue opportunities for future growth and revenues. Clearance and other expense increased $13 million,
or 19%, primarily due to a higher volume of trades, as reflected by the increase in institutional sales commission revenues, and
$3 million of expense related to historical European trading activities.
During fiscal year 2015, we made investments in our domestic equity capital markets business through successful recruiting
of experienced professionals to broadly build out our life sciences sector capabilities and to increase investment banking coverage
in the financial services, energy and government services sectors. While the immediate impact of these hires results in an increase
in compensation expense, we believe the long-term result of these efforts will have a favorable impact on both revenues and net
profits of the segment.
Losses of real estate partnerships held by consolidated VIEs result directly from the consolidation of certain low-income
housing tax credit funds, and in fiscal year 2015 decreased $3 million, or 6%, compared to fiscal year 2014. 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 reflects the portion of these consolidated entities which we do not own. Total segment expenses attributable to
others in fiscal year 2015 decreased by $4 million, corresponding with the reduction in losses of real estate partnerships held by
consolidated VIEs discussed in the preceding paragraph.
50
Index
Results of Operations – Asset Management
The following table presents consolidated financial information for our Asset Management segment for the years indicated:
Year ended September 30,
2016
% change
2015
% change
2014
($ in thousands)
Revenues:
Investment advisory and related administrative fees:
Managed programs
$
270,623
— $
271,609
4 % $
260,903
Non-discretionary asset-based administration
Sub-total investment advisory and related
administrative 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
74,130
344,753
59,668
404,421
112,998
27,027
4,423
9,500
56,751
57,983
268,682
135,739
3,581
10 %
2 %
12 %
3 %
11 %
7 %
(3)%
(4)%
3 %
3 %
6 %
(3)%
67,286
17 %
57,341
338,895
53,483
392,378
101,723
25,286
4,564
9,911
54,938
56,254
252,676
139,702
4,652
6 %
4 %
6 %
(1)%
16 %
(1)%
8 %
18 %
14 %
8 %
3 %
318,244
51,446
369,690
102,674
21,861
4,587
9,208
46,674
49,495
234,499
135,191
6,905
Pre-tax income excluding noncontrolling interests
$
132,158
(2)% $
135,050
5 % $
128,286
The Asset Management segment includes the operations of Eagle, the Eagle Funds, AMS, ClariVest Asset Management, Inc.
(“ClariVest”), Cougar, RJ Trust, 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. We generate revenues in this segment by providing investment advisory and asset management services to either
individual or institutional investment portfolios, along with mutual funds. Investment advisory fee revenues are earned on the
assets held in either 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. Asset balances are impacted by both the performance of
the market and the new sales and redemptions of client accounts/funds. Rising markets have historically had a positive impact on
investment advisory fee revenues as existing accounts increase in value, and individuals and institutions may commit incremental
funds in rising markets.
No single client accounts for a material percentage of this segment’s total business.
Managed Programs
As of September 30, 2016, approximately 80% of investment advisory fees recorded in this segment are earned from assets
held in managed programs. Of these revenues, approximately 70% of our investment advisory fees recorded each quarter are
determined based on balances at the beginning of a quarter, approximately 15% are based on balances at the end of the quarter
and the remaining 15% are computed based on average assets throughout the quarter.
In fiscal year 2015, RJF acquired Cougar. Eagle offers Cougar’s global asset allocation strategies to its clients worldwide.
Cougar has a substantial amount of assets under advisement, which are non-discretionary advised assets. See Note 3 of the Notes
to Consolidated Financial Statements in this Form 10-K for additional information regarding the Cougar acquisition. The majority
of the assets managed by Cougar are reflected in non-discretionary asset-based program balances.
51
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)
Freedom accounts(2)
Raymond James Consulting Services(3)
Unified Managed Accounts (“UMA”)(4)
All other
Sub-total assets under management
Less: Assets managed for affiliated entities
Total financial assets under management
2016
September 30,
2015
(in millions)
2014
27,235
$
25,692
$
24,136
18,883
10,389
1,086
81,729
(4,744)
76,985
$
20,188
13,484
8,613
1,116
69,093
(3,916)
65,177
$
28,752
18,562
13,085
7,587
1,382
69,368
(4,811)
64,557
$
$
(1) Accounts by which Eagle asset managers are engaged to manage clients’ assets with investment decisions made by the Eagle asset
manager.
(2) Accounts that provide the client a choice between mutual funds, exchange traded funds or a combination of both with investment
decisions made by an in-house investment committee.
(3) Accounts by which in-house or third-party asset managers are engaged to manage clients’ assets with investment decisions made by
such asset manager.
(4) Accounts that provide the client with the ability to combine separately managed accounts, mutual funds and exchange traded funds
all in one aggregate account with investment decisions made by an in-house investment committee.
The following table summarizes the activity impacting the total financial assets under management in managed programs
(including activity in assets managed for affiliated entities) for the years indicated:
Assets under management at beginning of year
Net inflows of client assets
Net market appreciation (depreciation) in asset values
Other
Assets under management at end of year
Year ended September 30,
2016
2015
(in millions)
2014
$
$
$
69,093
6,327 (1)
6,309
—
69,368
2,797
(2,170)
(902) (2)
$
60,788
3,865
4,715
—
81,729
$
69,093
$
69,368
(1) The fiscal year 2016 net inflows include approximately $2.0 billion of client assets resulting from our acquisition of Alex. Brown.
(2) The “other” category in the prior year includes $1.05 billion of assets that were previously included in Eagle Asset Management, Inc.
programs which were transferred into non-discretionary asset-based programs. The asset balances in non-discretionary asset-based
programs are discussed below.
Non-discretionary asset-based programs
As of September 30, 2016, approximately 20% of investment advisory fee revenues recorded in this segment are earned for
administrative services on assets held in certain non-discretionary asset-based programs. These assets totaled $119.3 billion, $91.0
billion, and $81.3 billion as of September 30, 2016, 2015 and 2014, respectively. The majority of the administrative fees associated
with these programs are determined based on balances at the beginning of the quarter, with a portion based on month-end balances.
All such fees are reflected within “non-discretionary asset-based administration” revenues in this segment’s results of operations.
Year ended September 30, 2016 compared with the year ended September 30, 2015 – Asset Management
Revenues increased $12 million, or 3%, to $404 million. Pre-tax income decreased $3 million, or 2%, to $132 million.
52
Index
Total investment advisory and related administrative fee revenues increased by $6 million, or 2%. Revenues from non-
discretionary asset-based administration activities increased $7 million, or 10%, primarily resulting from the 31% increase in assets
held in such programs. Assets arising from our Alex. Brown and 3Macs acquisitions had little impact on revenues as the acquisitions
occurred late in the fiscal year. Offsetting this increase, advisory fee revenues from managed programs decreased by approximately
$1 million. Although financial assets under management increased $11.8 billion, or nearly 18% (net of assets managed for affiliated
entities) compared to the prior year level, such balances have been lower on fee billing dates during the current year. Also, a
portion of the increase in assets arose from our acquisition of Alex. Brown which occurred late in the fiscal year.
Other income increased $6 million, or 12%, resulting in part from RJ Trust which generated an increase in trust fee income
arising from their 30% increase in trust assets from the prior year level. In addition, Eagle received increased shareholder servicing
fees and money market fee sharing related to the increase in interest rates.
Expenses increased by approximately $16 million, or 6%, primarily resulting from an $11 million, or 11%, increase in
administrative and incentive compensation expenses, a $2 million, or 3%, increase in investment sub-advisory fee expense, a $2
million, or 7%, increase in communications and information processing expense, and a $2 million, or 3%, increase in other expense.
The increase in administrative and incentive compensation expenses results primarily from annual salary increases, increases in
personnel to support the growth of the business and increases in certain employee benefit plan costs. In addition, the prior year
incentive compensation expense included a reversal of certain incentive compensation expense accruals for associates who left
the firm during the prior year; such a reversal did not recur in the current year. The increase in sub-advisory fee expense results
from increased assets under management in applicable programs. The increase in communication and information processing
expense results from increased costs in support of growth in the business. The increase in other expense is in part the result of an
increase in revenue sharing with PCG, certain regulatory compliance and legal expenses, and certain incremental costs associated
with Cougar including amortization of intangible assets arising from the acquisition.
Noncontrolling interests includes the impact of the consolidation of certain subsidiary investment advisors and other
subsidiaries. The portion of net income attributable to noncontrolling interests decreased $1 million compared to the prior year
as a result of the reduction in the amount of performance fee revenues earned in the current year that are attributable to others.
Year ended September 30, 2015 compared to the year ended September 30, 2014 – Asset Management
Pre-tax income in the Asset Management segment in fiscal year 2015 increased $7 million, or 5%.
Investment advisory fee revenue in fiscal year 2015 increased by $21 million, or 6%, generated by an increase in assets under
management that resulted from net inflows of client assets. Market values depreciated primarily as a result of the equity market
decline that occurred during the fourth quarter of fiscal year 2015. Performance fees, which are earned by managed funds for
exceeding certain performance targets, amounted to $5 million in fiscal year 2015, a decrease of $5 million from the amount earned
in the prior year.
Other revenue in fiscal year 2015 increased by $2 million, or 4%, primarily resulting from an increase in fee income generated
by RJ Trust, reflecting a 4% increase in RJ Trust client assets compared to the prior year, to $3.51 billion as of September 30,
2015.
Expenses increased in fiscal year 2015 by approximately $18 million, or 8%, primarily resulting from an $8 million, or 18%,
increase in investment sub-advisory fees, a $3 million, or 16%, increase in communications and information support processing
expense, and a $7 million, or 14%, increase in other expenses. The increase in investment sub-advisory fee expense in fiscal year
2015 is primarily attributable to increased fees paid to external managers for Raymond James Consulting Services and UMA
programs, which both experienced increases in asset levels compared to the prior year. The fiscal year 2015 increase in
communications and information processing expense result from additional costs associated with supporting the steadily increasing
levels of assets under management as well as the growth in asset levels in our non-discretionary asset-based programs. The increase
in other expense in fiscal year 2015 is primarily due to Eagle’s share of certain costs incurred in the organization and start-up of
a new fund in which Eagle serves as the sub-advisor.
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 in fiscal year 2015 decreased $2 million compared
to the prior year primarily as a result of a reduction in the amount of performance fee revenues earned in fiscal year 2015 that were
attributable to others.
53
Index
Results of Operations – RJ Bank
The following table presents consolidated financial information for RJ Bank for the years indicated:
Revenues:
Interest income
Interest expense
Net interest income
Other income
Net revenues
Non-interest expenses:
Compensation and benefits
Communications and information processing
Occupancy and equipment
Loan loss provision
FDIC insurance premiums
Affiliate deposit account servicing fees
Other
Total non-interest expenses
Pre-tax income
Year ended September 30,
2016
% change
2015
% change
2014
($ in thousands)
$
501,967
21 % $
415,271
17 % $
355,304
(23,277)
478,690
15,276
493,966
29,742
7,090
1,216
28,167
15,478
43,145
31,832
156,670
337,296
$
99 %
19 %
43 %
19 %
7 %
37 %
(3)%
20 %
32 %
22 %
4 %
16 %
21 % $
(11,693)
403,578
10,717
414,295
27,843
5,186
1,256
23,570
11,746
35,429
30,544
135,574
278,721
37 %
16 %
114 %
18 %
9 %
22 %
(1)%
74 %
17 %
5 %
48 %
24 %
15 % $
(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
RJ Bank provides corporate loans, residential loans and securities based loans. RJ Bank is active in corporate loan syndications
and participations. RJ Bank also provides FDIC-insured deposit accounts to clients of our broker-dealer subsidiaries and to the
general public. 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.
Other than the business generated through our Private Client Group as a whole, no single client accounts for a material
percentage of this segment’s total business.
The following tables present certain credit quality trends for loans held by RJ Bank:
Net loan (charge-offs)/recoveries:
C&I loans
Commercial real estate (“CRE”) loans
Residential mortgage loans
SBL
Total
Year ended September 30,
2016
2015
2014
(in thousands)
$
$
(2,956) $
(580) $
(1,829)
—
(53)
—
3,773
(461)
25
64
(17)
35
(3,009) $
2,757
$
(1,747)
54
Index
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:
Residential first mortgage
Total other real estate owned
Total nonperforming assets
Total nonperforming assets 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(1)
Total loans(1)
(1) Net of unearned income and deferred expenses.
2016
As of September 30,
2015
(in thousands)
2014
137,701
1,614
36,533
4,100
12,664
4,766
197,378
35,194
4,230
41,746
37
81,207
4,497
4,497
85,704
$
$
$
$
117,623
2,707
30,486
5,949
12,526
2,966
172,257
$
$
— $
4,796
47,504
319
52,619
4,631
4,631
57,250
$
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
0.50%
0.39%
0.69%
214,286
$
119,519
$
45,988
7,470,373
122,718
2,554,071
740,944
2,441,569
1,904,827
(40,675)
15,193,827
15,408,113
6,928,018
162,356
2,054,154
484,537
1,962,614
1,481,504
(32,424)
13,040,759
13,160,278
6,422,347
94,195
1,689,163
122,218
1,751,747
1,023,748
(37,533)
11,065,885
11,111,873
$
$
$
$
$
$
$
$
55
Index
The following table presents RJ Bank’s allowance for loan losses by loan category:
2016
Loan
category as
a % of total
loans
receivable
Allowance
As of September 30,
2015
Loan
category as
a % of total
loans
receivable
Allowance
($ in thousands)
2014
Loan
category as
a % of total
loans
receivable
Allowance
$
$
—
123,459
1,452
30,809
4,100
12,655
4,764
20,139
197,378
1% $
42%
1%
14%
5%
16%
12%
9%
100% $
—
98,447
2,148
24,064
5,949
12,513
2,962
26,174
172,257
1% $
44%
1%
13%
4%
15%
11%
11%
100% $
—
87,551
1,307
21,061
1,380
14,340
2,044
19,891
147,574
—
49%
1%
13%
1%
16%
9%
11%
100%
As of September 30,
2013
2012
Loan
category as
a % of total
loans
receivable
Loan
category as
a % of total
loans
receivable
Allowance
($ in thousands)
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%
Allowance
$
$
—
81,733
674
16,566
19,117
1,112
17,299
136,501
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:
2016
2015
Year ended September 30,
2014
(in thousands)
2013
Allowance for loan losses attributable to foreign loans, beginning of year: $
26,174
$
19,891
$
17,299
$
7,955
$
(Benefit) provision for loan losses - foreign loans
(5,998)
7,927
3,337
9,696
Foreign loan charge-offs:
C&I loans
Foreign exchange translation adjustment
—
(37)
—
(1,644)
—
(745)
(56)
(296)
2012
1,596
6,242
—
117
Allowance for loan losses attributable to foreign loans, end of year
$
20,139
$
26,174
$
19,891
$
17,299
$
7,955
56
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:
Deposits
with other
banks
C&I loans
CRE
construction
loans
Residential
mortgage
loans
SBL
Total cross-
border
outstandings (1)
CRE loans
(in thousands)
September 30, 2016
Canada
$
36,843
$
367,258
$
— $
109,577
$
540
$
311
$
514,529
September 30, 2015
Canada
$
122,810
$
456,602
$
— $
178,230
$
557
$
328
$
758,527
September 30, 2014
Canada
$
64,363
$
397,743
$
— $
112,325
$
586
$
37
$
575,054
(1) Excludes any hedged, non-U.S. currency amounts.
57
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:
Year ended September 30,
2016
2015
2014
Average
balance
Interest
inc./exp.
Average
yield/
cost
Average
balance
Interest
inc./exp.
($ in thousands)
Average
yield/
cost
Average
balance
Interest
inc./exp.
Average
yield/
cost
Interest-earning banking assets:
Loans, net of unearned income (1)
Loans held for sale - all
domestic
Loans held for investment:
Domestic:
C&I loans
CRE construction
loans
CRE loans
Tax-exempt loans
(2)
Residential mortgage
loans
SBL
Foreign:
$
150,305
$
4,551
3.07% $
107,255
$
2,686
2.64% $
107,898
$
2,705
2.51%
6,167,886
231,652
3.71%
5,672,456
205,673
3.59%
4,854,911
176,820
3.61%
149,075
1,927,405
7,426
58,616
4.90%
2.99%
95,609
1,462,690
4,105
44,367
4.23%
2.99%
51,361
1,249,124
2,346
37,156
4.50%
2.93%
617,701
16,707
4.16%
301,767
8,812
4.49%
44,150
1,454
5.07%
2,215,536
1,711,500
64,537
51,446
2.87%
2.96%
1,924,408
1,267,401
55,286
35,242
2.83%
2.74%
1,751,584
779,872
51,409
21,843
2.90%
2.76%
C&I loans
1,003,516
39,824
3.90%
1,004,661
39,313
3.86%
945,799
38,778
4.04%
CRE construction
loans
CRE loans
Residential mortgage
loans
SBL
20,026
369,819
1,036
11,432
2,253
1,743
70
69
Total loans, net
14,336,765
487,366
Agency MBS
363,722
4,993
68,904
884,556
1,764
4,140
Non-agency collateralized
mortgage obligations
Cash
FHLB stock, Federal
Reserve Bank of Atlanta
(“FRB”) stock, and
other
Total interest-earning
banking assets
Non-interest-earning
banking assets:
5.09%
3.04%
3.07%
3.89%
3.42%
1.37%
2.56%
0.47%
23,017
265,634
2,697
1,936
937
9,002
84
71
12,129,531
405,578
248,408
2,446
89,336
611,375
2,178
1,344
4.01%
3.34%
3.06%
3.60%
3.34%
0.98%
2.44%
0.22%
42,594
217,461
2,099
1,866
2,763
8,537
64
67
10,048,719
343,942
297,933
2,622
127,022
979,978
3,164
2,558
6.40%
3.87%
3.00%
3.57%
3.39%
0.88%
2.49%
0.28%
186,589
3,704
1.98%
111,891
3,725
3.33%
95,806
3,018
3.15%
15,840,536
$ 501,967
3.18%
13,190,541
$ 415,271
3.15%
11,549,458
$ 355,304
3.04%
Allowance for loan losses
(188,429)
Unrealized loss on
available for sale
securities
Other assets
Total non-interest-
earning banking
assets
(3,172)
281,961
90,360
Total banking assets
$ 15,930,896
(140,544)
(9,338)
289,322
139,440
$ 11,688,898
(158,373)
(4,666)
321,919
158,880
$ 13,349,421
(continued on next page)
58
Index
Year ended September 30,
2016
2015
2014
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)
Interest-bearing banking liabilities:
Deposits:
Certificates of
deposit
$
345,628
$
5,402
1.56% $
347,748
$
5,839
1.68% $
329,176
$
6,126
1.86%
Money market,
savings, and NOW
accounts (3)
FHLB advances and
other
Total interest-bearing
banking liabilities
Non-interest-bearing
banking liabilities
Total banking
liabilities
Total banking
shareholder’s
equity
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
13,238,007
7,087
0.05%
10,851,494
2,543
0.02%
9,790,257
1,833
0.02%
680,778
10,788
1.56%
664,387
3,311
0.49%
337,603
588
0.17%
14,264,413
$
23,277
0.16%
11,863,629
$
11,693
0.10%
10,457,036
$
8,547
0.08%
71,278
14,335,691
1,595,205
52,933
11,916,562
1,432,859
36,827
10,493,863
1,195,035
$ 15,930,896
$ 13,349,421
$ 11,688,898
$
1,576,123
$ 478,690
$
1,326,912
$ 403,578
$
1,092,422
$ 346,757
3.02%
3.04%
111.05%
1.41%
14.10%
10.01%
3.05%
3.07%
111.18%
1.34%
12.52%
10.73%
2.97%
2.98%
110.45%
1.35%
13.21%
10.22%
(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, 2016, 2015 and 2014 was $36 million, $30 million, and $34 million, respectively.
(2) The yield is presented on a tax-equivalent basis utilizing the federal statutory tax rate of 35%.
(3) Negotiable Order of Withdrawal (“NOW”) account.
59
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.
Interest revenue:
Interest-earning banking assets:
Loans, net of unearned income:
Loans held for sale
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
Year ended September 30,
2016 compared to 2015
2015 compared to 2014
Increase (decrease) due to
Increase (decrease) due to
Volume
Rate
Total
Volume
Rate
Total
(in thousands)
$
1,078
$
787
$
1,865
$
(16) $
(3) $
(19)
17,964
2,295
14,095
9,227
8,364
12,348
(45)
(122)
3,531
(14)
(7)
1,135
(498)
601
8,015
1,026
154
(1,332)
887
3,856
556
221
25,979
3,321
14,249
7,895
9,251
16,204
511
99
(1,101)
2,430
—
5
1,412
84
2,195
(14)
(2)
2,547
(414)
2,796
(21)
29,775
2,021
6,353
8,484
5,073
13,655
2,414
(1,269)
1,891
18
3
(436)
(939)
(962)
507
(922)
(262)
858
(1,126)
(1,196)
(256)
(1,879)
(557)
(1,426)
2
1
260
(47)
(252)
200
28,853
1,759
7,211
7,358
3,877
13,399
535
(1,826)
465
20
4
(176)
(986)
(1,214)
707
FHLB stock, FRB stock, and other
Total interest-earning banking assets
2,486
72,438
(2,507)
14,258
86,696
66,572
(6,605)
59,967
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
(36)
559
82
605
(401)
3,985
7,395
(437)
4,544
7,477
346
199
569
10,979
11,584
1,114
(633)
511
2,154
2,032
(287)
710
2,723
3,146
Change in net interest income
$
71,833
$
3,279
$
75,112
$
65,458
$
(8,637) $
56,821
60
Index
Year ended September 30, 2016 compared with the year ended September 30, 2015 – RJ Bank
Net revenues increased $80 million, or 19%, to $494 million. Pre-tax income increased $59 million, or 21%, to $337 million.
The increase in pre-tax income was primarily attributable to a $75 million, or 19%, increase in net interest income and a $5
million, or 43%, increase in other income, offset by an increase of $5 million, or 20%, in the provision for loan losses, and a $16
million, or 15%, increase in non-interest expenses (excluding provision for loan losses).
The $75 million increase in net interest income was the result of a $2.6 billion increase in average interest-earning banking
assets partially offset by a small decline in net interest margin. The increase in average interest-earning banking assets was driven
by a $2.2 billion increase in average loans and a $443 million increase in average cash and investments. The increase in average
loans was comprised of a $1.4 billion, or 16%, increase in average corporate loans, a $444 million, or 35%, increase in average
SBL balances, and a $291 million, or 15%, increase in average residential mortgage loans. The net interest margin decreased to
3.04% from 3.07% due to an increase in average, lower-yielding cash balances in addition to an increase in total cost of funds to
0.16% from 0.10%. The average interest-earning banking assets yield increased slightly to 3.18% from 3.15% compared to the
prior year primarily due to an increase in the loan portfolio yield to 3.42% from 3.34%. This resulted primarily from the Federal
Reserve Bank’s December 2015 increase in short-term interest rates. The increase in total cost of funds primarily resulted from
an increase in deposit and borrowing costs, which includes additional expense from our interest rate hedging activities. Borrowing
costs increased to 1.81% from 0.61% in the prior year.
Corresponding to the increase in average interest-earning banking assets, average interest-bearing banking liabilities increased
$2.4 billion to $14.3 billion.
The increase in the provision for loan losses as compared to the prior year is primarily due to higher corporate loan growth,
the charges during the current year related to loans outstanding within the energy sector, as well as additional provision for corporate
loan downgrades resulting in higher criticized loans as compared to the prior year. The provision for loan losses also reflects the
offsetting impact of improved credit characteristics from the continued decline in residential mortgage loan delinquencies and
nonperforming loans.
Other income increased $5 million as compared to prior year primarily due to increases in affiliate income related to the current
year growth in securities-based lending, gains realized from the sale of available for sale securities, trading gains as a result of
higher sales of Small Business Administration (“SBA”) loan securitizations, and lower foreign exchange losses.
Non-interest expenses (excluding provision for loan losses) increased $16 million as compared to the prior year. The current
year expense included an $8 million increase in affiliate deposit account servicing fees and a $4 million increase in FDIC insurance
premiums both resulting from the increase in deposit balances. Other increases in non-interest expense included a $2 million
increase in SBL affiliate fees due to increased SBL balances, a $2 million increase in communications and information processing
expense, a $2 million increase in compensation and benefits resulting from salary increases and staff additions, and a $1 million
increase in equity losses related to RJ Bank’s investment in low income housing tax credit projects (these losses are by design of
the investment structure, income tax credits not reflected in the pre-tax operating results of the segment are received by RJF which
net an overall positive return on such investments). These increases in non-interest expenses were partially offset by a $3 million
decrease in expense related to the reserve for unfunded lending commitments.
Year ended September 30, 2015 compared to the year ended September 30, 2014 – RJ Bank
Pre-tax income in the RJ Bank segment in fiscal year 2015 increased $36 million, or 15% compared to fiscal year 2014. The
increase in pre-tax income in fiscal year 2015 was primarily attributable to a $63 million, or 18%, increase in net revenues, offset
by an increase of $10 million, or 74%, in the provision for loan losses and a $17 million, or 17%, increase in non-interest expenses
(excluding the provision for loan losses). The increase in net revenues in fiscal year 2015 was attributable to a $57 million increase
in net interest income and a $6 million increase in other income.
The $57 million increase in net interest income in fiscal year 2015 was the result of a $1.6 billion increase in average interest-
earning banking assets and an increase in the net interest margin compared to fiscal year 2014. The increase in average interest-
earning banking assets in fiscal year 2015 was primarily driven by a $2.1 billion increase in average loans offset by a $440 million
decrease in average cash and investments. In fiscal year 2015, average corporate loans increased $1.4 billion, or 19%, average
SBL balances increased $488 million, or 62%, and average residential mortgage loans increased $173 million, or 10%. The yield
on interest-earning banking assets increased to 3.15% from 3.04% due to an improvement in the earning-asset composition from
lower-yielding cash and investments to a larger percentage of higher yielding loans in fiscal year 2015. The loan portfolio yield
61
Index
decreased slightly in fiscal year 2015 to 3.34% from 3.39% in fiscal year 2014. Primarily as a result of the increase in the yield
of the average interest-earning banking assets in fiscal year 2015, the net interest margin increased to 3.07% from 2.98%.
Corresponding to the increase in average interest-earning banking assets, average interest-bearing banking liabilities in fiscal
year 2015 increased $1.4 billion to $11.9 billion.
The increase in other income in fiscal year 2015 was due to a decrease of $4 million in foreign currency losses, a $1 million
increase resulting from held for sale loan activities, and a $1 million increase in gains from the sale of foreclosed properties.
A significant portion of the provision for loan losses in both fiscal year 2015 and 2014 resulted from loan portfolio growth in
each year. The primary factors impacting the year over year increase in provision for loan losses in fiscal year 2015 results from
the varying impact of credit characteristics which were particular to fiscal year 2015 and 2014. The fiscal year 2015 provision for
loan losses was impacted by an increase in corporate criticized loans, which was partially offset by the impact of improved credit
characteristics of the residential mortgage loan portfolio. Fiscal year 2014 benefited to a greater extent than fiscal year 2015 from
the improved credit characteristics of the loan portfolio including a decrease in corporate criticized loans.
The $17 million increase in non-interest expenses (excluding the provision for loan losses) in fiscal year 2015 was primarily
attributable to a $3 million, or 68%, increase in SBL affiliate fees due to increases in SBL balances; a $2 million, or 5%, increase
in affiliate deposit account servicing fees related to increased deposit balances; a $2 million increase in expenses related to the
reserve for unfunded lending commitments; a $2 million or 17% increase in FDIC insurance premiums; a $2 million, or 9%,
increase in compensation and benefits resulting from annual raises and increases in the costs of certain employee benefit programs
coupled with increases in the number of personnel; a $1 million, or 22%, increase in communications and information processing
expense; and a $1 million increase of expense related to other taxes.
Results of Operations – Other
The following table presents consolidated financial information for the Other segment for the years indicated:
Revenues:
Interest income
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
$
2016
% change
Year ended September 30,
2015
($ in thousands)
% change
$
16,977
1,825
27,489
46,291
39 % $
11 %
(48)%
(31)%
12,237
1,644
53,086
66,967
(77,983)
(31,692)
1 %
(211)%
(77,165)
(10,198)
60,448
40,706
101,154
(132,846)
15,702
(148,548)
49 %
—
149 %
(162)%
(129)% $
40,551
—
40,551
(50,749)
14,100
(64,849)
2014
12,549
1,340
28,314
42,203
(77,456)
(35,253)
43,055
—
43,055
(78,308)
5,610
(83,918)
(2)% $
23 %
87 %
59 %
—
71 %
(6)%
—
(6)%
35 %
23 % $
This segment results include our principal capital and private equity activities, certain corporate overhead costs of RJF including
the interest cost on our public debt, and the acquisition and integration costs associated with certain acquisitions (including for
fiscal year 2016, acquisition costs associated with our acquisitions of Alex. Brown, 3Macs and Mummert, see Note 3 of the Notes
to the Consolidated Financial Statements in this Form 10-K for additional information).
Year ended September 30, 2016 compared to the year ended September 30, 2015 – Other
The pre-tax loss generated by this segment increased by approximately $84 million, or 129%.
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Index
Total revenues in this segment decreased $21 million, or 31%. Private equity gains included in other revenues decreased by
$24 million, or 50%. Realized gains on the sale of ARS securities decreased by $11 million due to the nonrecurring prior year
gain on the sale of all of our Jefferson County, Alabama Limited Obligation School Warrants ARS. Offsetting these decreases,
prior year foreign exchange losses of $5 million arising from certain Canadian denominated liabilities did not recur in the current
year, and interest income increased $5 million resulting from the increase in interest rates and higher corporate cash balances
throughout most of the current year.
Interest expense increased $1 million, or 1%. The most significant component of the increase was the interest expense incurred
on our senior notes, which increased by $2 million, or 3% as the average outstanding balance increased due to our July 2016
issuance of $800 million of senior notes payable. The new issuances more than offset the impact of the April 2016 repayment of
$250 million in maturing senior notes. See Note 17 of the Notes to Consolidated Financial Statements in this Form 10-K for
additional information.
Compensation and other expense increased $20 million, or 49%. Of the increase, $6 million is due to increases in expenses
associated with certain corporate benefit plans provided to associates, $5 million is the result of an increase in corporate charitable
donations, and $4 million is the result of additional executive compensation expense resulting from the favorable results of
operations and new personnel.
The acquisition-related expenses pertain to incremental expenses incurred in connection with our acquisitions of Alex. Brown,
3Macs and Mummert. See Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K for information regarding
the components of these expenses.
The portion of revenue attributable to noncontrolling interests increased $2 million, despite the decrease in total gains generated
in the private equity portfolio. In the prior year, we had significant gains on certain investments in which a relatively small portion
was attributable to others. In the current year, gains on those investments did not recur, and thus a larger portion of our total gains
were attributable to others.
Year ended September 30, 2015 compared to the year ended September 30, 2014 – Other
The pre-tax loss generated by this segment in fiscal year 2015 decreased by approximately $19 million, or 23%.
Net revenues in this segment in fiscal year 2015 increased $25 million, or 71%. The increase in fiscal year 2015 results from
a $25 million increase in revenues arising from our principal capital and private equity portfolio investments. We also realized an
increase in fiscal year 2015 revenues arising from the sale or redemption activities in our ARS portfolio of $4 million, which were
offset by certain foreign currency translation losses that primarily result from the weakened Canadian dollar, and decreases in the
valuation of other investments (primarily in managed equities). The fiscal year 2015 ARS portfolio gain is primarily the result of
an $11 million gain on the sale of all of our Jefferson County, Alabama Limited Obligation School Warrants ARS. In the fiscal
year 2014, gains resulting from sales and redemption activities in our ARS portfolio were primarily comprised of a $5.5 million
gain on the redemption of Jefferson County Alabama Sewer Revenue Refunding Warrants ARS.
The portion of revenue attributable to noncontrolling interests in fiscal year 2015 increased $8 million, as the increase in
revenues generated by our private equity portfolio resulted in higher amounts of such revenues that are attributable to others.
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Index
Certain statistical disclosures by bank holding companies
As a financial holding company, we are required to provide certain statistical disclosures by bank holding companies pursuant
to the 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)
2016
1.8%
11.3%
17.1%
21.9%
Year ended September 30,
2015
2.0%
11.5%
18.5%
21.0%
2014
2.1%
12.3%
18.1%
19.3%
(1) Computed as net income attributable to RJF 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 for the year indicated, divided by the average equity attributable to RJF for
each respective fiscal year. Average equity is computed by adding the total equity attributable to RJF 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, various sections within Item 7A in this report and the Notes to Consolidated
Financial Statements in this Form 10-K for the other required disclosures.
Liquidity and Capital Resources
Liquidity is essential to our business. The primary goal of our liquidity management activities is to ensure adequate funding
to conduct our business over a range of market environments.
Senior management establishes our liquidity and capital policies. These policies include senior management’s review of short-
and long-term cash flow forecasts, review of monthly capital expenditures, the monitoring of the availability of alternative sources
of financing, and the daily monitoring of liquidity in our significant subsidiaries. Our decisions on the allocation of capital to our
business units consider, among other factors, projected profitability and cash flow, risk and impact on future liquidity needs. Our
treasury department assists in evaluating, monitoring and controlling the impact that our business activities have on our financial
condition, liquidity and capital structure as well as maintains our relationships with various lenders. The objectives of these policies
are to support the successful execution of our business strategies while ensuring ongoing and sufficient liquidity.
Liquidity is provided primarily through our business operations and financing activities. Financing activities could include
bank borrowings, repurchase agreement transactions or additional capital raising activities under our “universal” shelf registration
statement.
Cash used in operating activities during the year ended September 30, 2016 was $518 million. Successful operating results
generated a $650 million increase in cash.
Increases in cash from operations include:
• An increase in brokerage client payables had a $1.82 billion favorable impact on cash. The increase largely results from
two factors. First, many clients reacted to uncertainties in the equity markets by increasing the cash balances in their
brokerage accounts. Second, our brokerage client account balances increased as a result of our fiscal year 2016 acquisitions
of Alex. Brown and 3Macs. Cumulatively, these two factors result in the increase in brokerage client payables and a
corresponding increase in assets segregated pursuant to regulations which is discussed below.
Stock loaned, net of stock borrowed, increased $153 million.
•
• Accrued compensation, commissions and benefits increased $46 million as a result of the increased financial results we
achieved in fiscal year 2016.
Offsetting these, decreases in cash used in operations resulted from:
• A $1.95 billion increase in assets segregated pursuant to regulations and other segregated assets, primarily resulting from
the increase in client cash balances described above.
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Index
• An increase in our brokerage client receivables and other receivables of $621 million.
• Loans provided to financial advisors, net of repayments, increased resulting in the use of $345 million in cash. The
increase in loans was due in part to retention incentives provided to financial advisors joining us as a result of our Alex.
Brown and 3Macs acquisitions. In addition, loans provided to recruited financial advisors resulted from organic growth.
• An increase in securities purchased under agreements to resell, net of securities sold under agreements to repurchase,
•
used $135 million.
Purchases and originations of loans held for sale, net of proceeds from sales and securitizations, resulted in a $101 million
decrease.
Investing activities resulted in the use of $2.98 billion of cash during the year ended September 30, 2016.
The primary investing activities were:
• An increase in bank loans used $2.28 billion.
•
Purchases of available for sale investments held at RJ Bank, net of proceeds from maturations, repayments and sales
within the portfolio, used $356 million.
• Our acquisitions of Alex. Brown, 3Macs, and Mummert, net of the cash acquired in such transactions, used $175 million.
• The investment in fixed assets, predominately internally-developed computer software, used $122 million.
• The funding of other investments used $40 million.
Financing activities provided $2.58 billion of cash during the year ended September 30, 2016.
Increases in cash from financing activities resulted from:
• RJ Bank deposit balance increases provided $2.34 billion.
•
Proceeds of $542 million from the issuance of senior notes, net of repayments of scheduled maturities and debt issuance
costs.
Proceeds of $43 million from the exercise of stock options and employee stock purchases.
Proceeds of $25 million from FHLB borrowings.
•
•
Offsetting these, decreases in cash from financing activities resulted from:
• Our repurchase of $163 million of RJF shares, including $144.5 million used for repurchases pursuant to a share repurchase
authorization (see Part II - Item 5 in this report, for additional information on our share repurchases).
• Repayments of our short-term borrowings of $115 million.
Payment of dividends to our shareholders of $113 million.
•
The effect of currency exchange rates on our cash balances has resulted in a $29 million decrease in our U.S. dollar denominated
cash balance during the year ended September 30, 2016. This effect is primarily attributable to cash balances we have that are
denominated in Canadian currency. While the Canadian dollar to U.S. dollar exchange rate increased 1.7% since September 30,
2015, which has a favorable impact on this measure, the amount of our cash balance denominated in Canadian currency has also
increased, the effect of which more than offsets the favorable impact of the change in exchange rates.
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.
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Index
Sources of Liquidity
Approximately $810 million of our total September 30, 2016 cash and cash equivalents (a portion of which resides in a deposit
account at RJ Bank) was available to the parent company without restrictions. The cash and cash equivalents held were as follows:
Cash and cash equivalents:
September 30, 2016
(in thousands)
$
RJF
RJ&A
RJ Bank
RJ Ltd.
RJFS
RJFSA
Other subsidiaries
Total cash and cash equivalents
$
371,978
456,543
201,760
308,677
116,279
28,828
166,387
1,650,452
(1)
(2)
(1) RJF maintains a depository account at RJ Bank which has a balance of $350 million as of September 30, 2016. 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 $828 million to RJ&A as of September 30, 2016 (a portion of which is included in the RJ&A cash balance presented
in this table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business
activities.
In addition to the cash balances described above, we have other various potential sources of cash available to the parent from
subsidiaries which are described in the following section.
At September 30, 2016 the RJF loan to RJ&A was $828 million. Of this balance, $371 million was not held in cash. RJ&A
has other means of raising cash that include borrowings on committed or uncommitted facilities that are described in the following
sections. Were RJ&A to have made such borrowings as of September 30, 2016, cash available to the parent at such time would
have approximated $1.18 billion rather than the $810 million of cash available to the parent on September 30, 2016 presented
above.
Liquidity Available from Subsidiaries
Liquidity is principally available to the parent company from RJ&A and RJ Bank.
RJ&A is required to maintain net capital equal to the greater of $1 million or 2% of aggregate debit balances arising from
client balances. 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, 2016, 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 $460 million, of which
approximately $120 million is available for dividend while still maintaining the internally 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 the prior approval of 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, 2016, RJ Bank had approximately $194 million of capital in
excess of the amount it would need at September 30, 2016 to maintain its internally targeted total capital to risk-weighted assets
ratio of 12.5%, and could pay a dividend of such amount without requiring prior approval of its regulator.
Although we have liquidity available to us from our other subsidiaries, the available amounts are not as significant as the
amounts described above, and in certain instances may be subject to regulatory requirements.
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Index
Borrowings and Financing Arrangements
The following table presents our financing arrangements with third party lenders that we generally utilize to finance a portion
of our fixed income securities trading instruments held, and the outstanding balances related thereto, as of September 30, 2016:
RJ&A(4)
RJ Ltd.
RJF
Total
Total number of
arrangements
As of September 30, 2016
($ in thousands)
Financing arrangement:
Committed secured (1)
Committed unsecured
Uncommitted secured(1)(2)
Uncommitted unsecured(1)(2)
Total financing arrangements
Outstanding borrowing amount:
Committed secured (1)
Committed unsecured
Uncommitted secured(1)(2)(3)
Uncommitted unsecured(1)(2)
Total outstanding borrowing amount
$
$
$
$
200,000
—
1,800,000
350,000
2,350,000
$
$
—
—
34,495 (5)
—
34,495
— $
—
185,227
—
185,227
$
—
—
—
—
—
$
$
$
$
—
300,000
—
50,000
350,000
—
—
—
—
—
$
$
$
$
200,000
300,000
1,834,495
400,000
2,734,495
—
—
185,227
—
185,227
2
1
8
6
17
(1) Our ability to borrow is dependent upon compliance with the conditions in the various committed loan agreements and collateral
eligibility requirements.
(2) Lenders are under no contractual obligation to lend to us under uncommitted credit facilities.
(3) As of September 30, 2016, we had outstanding borrowings under two uncommitted secured borrowing arrangements with lenders.
(4) We generally utilize the RJ&A facilities to finance a portion of our fixed income securities trading instruments.
(5) This financing arrangement is primarily denominated in Canadian dollars, amounts presented in the table have been converted to U.S.
dollars at the currency exchange rate in effect as of September 30, 2016.
The committed financing arrangements are in the form of either tri-party repurchase agreements or secured lines of credit, or
in the case of the RJF Credit Facility, an unsecured line of credit. The uncommitted 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. We had no borrowings outstanding
on these lines of credit as of September 30, 2016.
RJ Bank had $575 million in FHLB borrowings outstanding at September 30, 2016, comprised of two floating-rate advances,
totaling $550 million and a $25 million fixed-rate advance, all 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). RJ Bank has an additional $1.1 billion in immediate credit available from the FHLB as of September 30, 2016
and total available credit of 30% of total assets with the pledge of additional collateral to the FHLB.
RJ Bank is eligible to participate in the Fed’s discount-window program; however, RJ Bank does not view borrowings from
the Fed as a primary source 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, 2016, collateralized financings outstanding in the amount of $193 million are included in securities
sold under agreements to repurchase on the Consolidated Statements of Financial Condition included in this Form 10-K. Of this
total, outstanding balances on the uncommitted secured agreements (which are reflected in the table of financing arrangements
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Index
above) were $185 million as of September 30, 2016. There were no outstanding balances on committed facilities as of September
30, 2016. Borrowings on these secured or unsecured facilities 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 140%
of the amount financed.
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
Reverse repurchase transactions
For the quarter ended:
Average daily
balance
outstanding
Maximum
month-end
balance
outstanding
during the
quarter
End of period
balance
outstanding
Average daily
balance
outstanding
(in thousands)
Maximum
month-end
balance
outstanding
during the
quarter
End of period
balance
outstanding
September 30, 2016
June 30, 2016
March 31, 2016
December 31, 2015
September 30, 2015
$
$
$
$
$
202,687
239,237
268,150
270,586
280,934
$
$
$
$
$
195,551
266,158
266,761
247,730
332,536
$
$
$
$
$
193,229
266,158
190,679
245,554
332,536
$
$
$
$
$
412,513
433,003
419,112
423,059
432,131
$
$
$
$
$
470,222
457,777
471,925
415,346
498,871
$
$
$
$
$
470,222
444,812
428,864
405,507
474,144
At September 30, 2016, in addition to the financing arrangements described above, we had $33 million outstanding on a
mortgage loan for our St. Petersburg, Florida home-office complex, that is included in other borrowings in our Consolidated
Statements of Financial Condition.
At September 30, 2016 we have senior notes payable of $1.70 billion. Our senior notes payable, exclusive of any unaccreted
premiums or discounts and debt issuance costs, is comprised of $300 million par 8.60% senior notes due August 2019, $250 million
par 5.625% senior notes due 2024, $500 million par 3.625% senior notes due 2026, $350 million par 6.90% senior notes due 2042,
and $300 million par 4.95% senior notes due July 2046. See Note 17 in the Notes to the Consolidated Financial Statements in
this Form 10-K for additional information.
Our current senior long-term debt ratings are:
Rating Agency
Standard & Poor’s Ratings Services (“S&P”) (1)
Moody’s Investors Services (“Moody’s”) (2)
(1) The S&P rating and outlook are as presented in their September 2016 report.
(2) The Moody’s rating and outlook are as presented in their June 2016 report.
Rating
BBB
Baa2
Outlook
Positive
Positive
Our current long-term debt ratings depend upon a number of factors including industry dynamics, operating and economic
environment, operating results and margins, earnings trends and volatility, balance sheet composition, liquidity and liquidity
management, our capital structure, our overall risk management, business diversification and 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. A downgrade below investment grade could 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 the 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. A credit downgrade would
result in RJF incurring a higher commitment fee on any unused balance on one of its borrowing arrangements, the $300 million
revolving credit facility, in addition to triggering a higher interest rate applicable to any borrowings outstanding on that line as of
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Index
and subsequent to such downgrade. Conversely, an improvement in RJF’s current credit rating would have a favorable impact on
the commitment fee as well as the interest rate applicable to any borrowings on such line. None of our credit agreements contain
a condition or event of default related to our credit ratings.
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 $323 million as
of September 30, 2016 and we are able to borrow up to 90%, or $291 million of the September 30, 2016 total, without restriction. To
effect any such borrowing, the underlying investments would be converted to money market investments. Thus, a portion of any
such borrowings could require us to take market risks as a component of our cost associated with the borrowing. There are no
borrowings outstanding against any of these policies as of September 30, 2016.
On May 22, 2015 we filed a “universal” shelf registration statement with the SEC to be in a position to access the capital
markets if and when necessary or perceived by us to be opportune. In July 2016, we chose to access such markets to issue senior
notes, see Note 17 in the Notes to the Consolidated Financial Statements in this Form 10-K for additional information.
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 21 in the Notes to Consolidated Financial Statements in this Form 10-K, under the agreement
with Regions governing our 2012 acquisition of Morgan Keegan, Regions is obligated to indemnify RJF for losses we may incur
in connection with any Morgan Keegan legal proceedings pending as of the closing date for that transaction (which was April 2,
2012), or commenced after the closing date but related to pre-closing matters received prior to April 2, 2015. As a result of the
indemnity, we do not anticipate the resolution of any pre-closing date Morgan Keegan litigation matters to negatively impact our
liquidity (see Note 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 nature of the pre-closing date matters).
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 $31.6 billion at September 30, 2016 are approximately $5.13 billion, or 19%, greater than our total assets as
of September 30, 2015. Net bank loans receivable increased $2.22 billion primarily due to the growth of RJ Bank’s corporate loan
portfolio during the year. Additionally, assets segregated pursuant to federal regulations (for the benefit of our clients) increased
$1.98 billion, most significantly due to the increase in our brokerage client payable balances discussed in the following paragraph,
in addition to a number of other less significant factors. Brokerage client receivables increased $529 million primarily resulting
from an increase in margin loan balances arising from our acquisition of Alex. Brown. Loans to financial advisors increased $350
million resulting from both retention incentives provided to financial advisors joining us as a result of our Alex. Brown and 3Macs
acquisitions, as well as loans provided to recruited financial advisors resulting from organic growth. Available for sale securities
increased $346 million primarily resulting from an increase in such investments held by RJ Bank. Our intangible assets and
goodwill increased $127 million primarily as a result of our fiscal year 2016 acquisitions of Alex. Brown, 3Macs, and Mummert.
Offsetting the increases in assets, our cash and cash equivalents balance decreased $951 million, refer to the discussion of the
components of this decrease in the “Liquidity and Capital Resources” section within this Item 7.
As of September 30, 2016, our liabilities of $26.4 billion were $4.76 billion, or 22% more than our liabilities as of September 30,
2015. The increase is primarily due to a $2.34 billion increase in bank deposit liabilities as RJ Bank retained a higher portion of
RJBDP balances to in part, fund a portion of their net loan growth. Brokerage client payable balances increased $1.77 billion,
reflecting increases in client cash balances in brokerage accounts due to clients reacting to uncertain equity markets since
September 30, 2015 by holding more cash, as well as an increase in client accounts resulting from our acquisitions of Alex. Brown
and 3Macs. Our outstanding balance of senior notes payable increased $543 million which is the net result of our July 2016
issuance of $500 million 3.625% senior notes and $300 million 4.95% senior notes and the $250 million April 2016 repayment
upon maturity of our 4.25% senior notes. Trade and other accounts payable decreased $139 million primarily resulting from a
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decrease of $108 million in the liability associated with Morgan Keegan legal matter contingencies which were subject to
indemnification (see Note 21 of the Notes to the Consolidated Financial Statements in this Form 10-K for additional information).
Contractual obligations
The following table sets forth our contractual obligations and payments due thereunder by fiscal year:
Long-term debt obligations:
Senior notes payable (1)
Loans payable of consolidated variable
interest entities(2)
Long-term portion of other borrowings(3)
Sub-total long-term debt obligations
Estimated interest on long-term debt (4)
Operating lease obligations (5)
Purchase obligations (6)
Other long-term liabilities:(7)
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
Total contractual obligations
Total
2017
2018
2019
(in thousands)
2020
2021
Thereafter
Year ended September 30,
$ 1,700,000
$
— $
— $ 300,000
$
— $
— $ 1,400,000
12,597
608,658
2,321,255
1,470,565
437,605
302,899
8,306
4,578
12,884
114,755
91,729
131,153
3,613
555,113
558,726
111,068
80,615
66,603
678
5,130
305,808
99,844
72,916
36,319
315,236
424,969
78,629
78,319
43,876
60,446
65,878
68,342
—
5,430
5,430
73,631
61,452
14,115
87,288
62,348
—
30,748
30,748
71,835
45,602
10,862
39,565
53,087
—
7,659
1,407,659
999,432
85,291
43,847
—
102,427
35,037
17,519
17,518
—
—
—
—
20,543
795,785
$ 5,328,109
4,757
179,224
$ 529,745
5,247
127,087
$ 944,099
5,388
139,608
$ 654,495
2,373
152,009
$ 306,637
1,682
94,334
$ 253,381
1,096
103,523
$ 2,639,752
(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) Interest computation includes scheduled interest on our senior notes, the mortgage note payable, and RJ Bank’s FHLB advances
(assuming no change in the variable interest rate from that as of September 30, 2016, but factoring into the computation the effect of
certain interest rate swap contracts that swap variable interest rate payments to fixed interest payments). See Notes 15 and 17 of the
Notes to Consolidated Financial Statements in this Form 10-K for information regarding the borrowings.
(5) Primarily comprised of outstanding obligations on long-term leases for office space.
(6) 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 data services, communication services, processing services and computer 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.
(7) The table does not include any amounts for uncertain tax positions because we are unable to reasonably predict the timing of future
payments, if any, to respective taxing authorities. We have recorded a liability of $22.2 million as of September 30, 2016 which is
included in trade and other payables on our Consolidated Statements of Financial Condition related to such positions (see Note 20 of
the Notes to Consolidated Financial Statements in this Form 10-K for additional information).
(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.
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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, certain historic deferred compensation plans of Morgan Keegan, and deferred compensation
obligations we assumed in the Alex. Brown acquisition. See Note 24 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 either the obligations of the historic deferred compensation plans of Morgan Keegan, or the deferred compensation
obligations we assumed in the Alex. Brown acquisition. 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 indemnified RJF for losses it may incur 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 we expect that all such matters will be resolved within two years.
(11) Raymond James Tax Credit Funds, Inc. 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 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 26 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 execute open market purchases of our common stock and certain of our senior
notes, at the discretion of the Securities Repurchase Committee. See Item 5 in this report for additional information regarding this
authorization.
In the normal course of business, certain of our subsidiaries 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 impact on our operations
of certain rules and regulations resulting from the DOL Rule and the Dodd-Frank Act, including the Volcker Rule, in Item 1
Business, Regulation in this report.
RJF, RJ Bank and RJ Trust are each subject to various regulatory and capital requirements. RJF and RJ Bank are categorized
as “well capitalized” as of September 30, 2016.
RJ Trust is regulated by the OCC and is required to maintain sufficient capital. As of September 30, 2016, RJ Trust met the
requirements.
All of our other active regulated domestic and international subsidiaries, including but not limited to RJ&A, RJFS, Eagle
Fund Distributors, Inc. and Raymond James (USA) Ltd., had net capital in excess of minimum requirements as of September 30,
2016.
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)). RJ Ltd. is not in Early Warning Level 1 or Level 2 at September 30, 2016.
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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 25 of the Notes to Consolidated Financial Statements in this Form 10-K for 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.
Fair value is defined by GAAP as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market
participants on the measurement date. We determine the fair values of our financial instruments and any other assets and liabilities
required by GAAP to be recognized at fair value in the financial statements as of the close of business of each financial statement
reporting period. These fair value determination processes also apply to any of our impairment tests or assessments performed for
nonfinancial instruments such as goodwill, identifiable intangible assets, certain real estate owned and other long-lived assets.
In determining the fair value of our financial instruments in accordance with GAAP, we use various valuation approaches,
including market and/or income approaches. Fair value is a market-based measure considered from the perspective of a market
participant. As such, even when assumptions from market participants are not readily available, our own assumptions reflect those
that we believe market participants would use in pricing the asset or liability at the measurement date. GAAP provides for the
following three levels to be used to classify our fair value measurements:
Level 1-Financial instruments included in Level 1 are highly liquid instruments with quoted prices in active markets for
identical assets or liabilities. These include equity securities traded in active markets and certain U. S. Treasury securities,
other governmental obligations, or publicly traded corporate debt securities.
Level 2-Financial instruments reported in Level 2 include those that have pricing inputs that are other than quoted prices in
active markets, but which are either directly or indirectly observable as of the reporting date (i.e. prices for similar instruments).
Instruments that are generally included in this category are equity securities that are not actively traded, corporate obligations
infrequently traded, certain government and municipal obligations, interest rate swaps, certain asset-backed securities (“ABS”),
certain collateralized mortgage obligations (“CMOs”), certain MBS, certain other derivative instruments, brokered certificate
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of deposits, 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, pools of interest-only SBA loan strips (“I/O Strips”), certain municipal and corporate obligations which include
ARS, and nonrecurring fair value measurements for certain impaired loans.
GAAP requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when performing
our fair value measurements. The availability of observable inputs can vary from instrument to instrument and in certain cases,
the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level
within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment
of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of
factors specific to the instrument.
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.
Investments in private equity measured at net asset value per share
Effective September 30, 2016, we adopted new accounting guidance related to the classification and disclosure of certain
investments using the net asset value (“NAV”) as a practical expedient to measure the fair value of the investment. Among its
provisions, this new guidance eliminates, for all investments in which fair value is measured using NAV as a practical expedient,
the requirement to categorize such investments within the fair value hierarchy. We have retroactively applied this new guidance
to investments held in the prior fiscal year. As a practical expedient, we utilize NAV or its equivalent to determine the recorded
value of a portion of our private equity portfolio. We utilize NAV when the fund investment does not have a readily determinable
fair value and the NAV of the fund is calculated in a manner consistent with the measurement principles of investment company
accounting, including measurement of the investments at fair value. See Note 5 of the Notes to Consolidated Financial Statements
in this Form 10-K for additional information on our private equity investments measured at NAV.
Level 3 assets and liabilities
As of September 30, 2016, 8% of our total assets and 3% of our total liabilities are financial instruments measured at fair
value on a recurring basis. In comparison as of September 30, 2015, financial instruments measured at fair value on a recurring
basis represented 7% of our total assets and 3% of our total liabilities.
Financial instruments measured at fair value on a recurring basis categorized as Level 3 amount to $215 million as of
September 30, 2016 and represent 9% of our assets measured at fair value. Of the Level 3 assets as of September 30, 2016, our
ARS positions comprise $125 million, or 58%, and our private equity investments not measured at NAV comprise $83 million, or
39%, of the total. Our Level 3 assets decreased $9 million, or 4%, as compared to the September 30, 2015 level. Our ARS portfolio
decreased approximately $14 million compared to September 30, 2015, primarily resulting from decreases in the valuation of the
portfolio, and to a lesser extent, sales and redemption activities (see Notes 5 and 7 of the Notes to Consolidated Financial Statements
in this Form 10-K for additional information). Offsetting this decrease, our private equity investments not measured at NAV
increased $6 million as valuation increases more than offset the net impact of capital contributed/distributions received. Level 3
assets represent 4% of total equity as of September 30, 2016, reflecting a decrease from the 5% of total equity measure as of
September 30, 2015.
Financial instruments which are liabilities categorized as Level 3 amount are insignificant as of both September 30, 2016 and
2015.
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
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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, 2016 and 2015. 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 level within the fair value hierarchy, specific valuation techniques, and other significant accounting policies pertaining
to certain financial instruments with the most significant carrying values that are presented in our Consolidated Statements of
Financial Condition as of September 30, 2016 are described below.
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, 2016,
4% of our gross trading security assets and 62% of our gross trading securities sold but not yet purchased, are classified as Level
1 of the fair value hierarchy.
When trading securities 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,
brokered certificates of deposit 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, 2016, 96% of our gross trading
security assets and 38% 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,
2016, 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,
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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.
We enter into certain interest rate swap contracts (the “RJ Bank Interest Hedges”) which swap variable interest payments on
debt for fixed interest payments. Through the RJ Bank Interest Hedges, RJ Bank is able to mitigate a portion of the market risk
associated with certain fixed rate interest earning assets held by RJ Bank. The RJ Bank Interest Hedges are recorded at fair value
on the Consolidated Statements of Financial Condition and are designated as cash flow hedges. The fair value of RJ Bank Interest
Hedges 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 a third party to corroborate the output of our
internal pricing models.
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, 85% of the portfolio is classified as Level 2 and 15% 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 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 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 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 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 non-agency securities at September 30, 2016 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
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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.
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 are carried at either NAV as a practical expedient, or fair value utilizing valuation techniques
categorized as Level 3 in the fair value hierarchy. Our total private equity investments as of September 30, 2016 amount to $195
million prior to the consideration of the noncontrolling interest portion we do not own. Of this, 57% are valued using the NAV
as a practical expedient, and 43% are valued at fair value. The valuation of these investments at fair value 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. In comparison, our total private equity investments gross value, prior to
the consideration of the noncontrolling interest portion we do not own, as of September 30, 2015 amounted to $209 million. Of
this total, 63% were valued using NAV as a practical expedient, and 37% were valued at fair value utilizing valuation techniques
categorized as Level 3. See Note 5 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information
on our private equity investments, including the amounts associated with noncontrolling interests.
Valuation of identifiable intangible assets
During fiscal year 2016, we acquired Alex. Brown, 3Macs, and Mummert. In each case, we accounted for the acquisition
under the acquisition method of accounting with the assets and liabilities recorded as of the acquisition date at their respective fair
values in our consolidated financial statements. The assets to be measured at fair value include any acquired identifiable intangible
assets including, but not limited to, assets such as trade names, customer relationships, non-compete agreements, and contracts
which include favorable terms.
The process of identifying potential identifiable assets to value in any acquisition transaction is subjective, and involves
management judgment. Estimating the fair value of identifiable intangible assets involves the use of valuation techniques that
rely on significant estimates and assumptions. These estimates and assumptions may include forecasted revenue growth rates,
forecasted allocations of expense and risk-adjusted discount rates. We base our fair value estimates on assumptions we believe to
be reasonable given the information that is available to us at the time of our assessment; however, actual future results may differ
significantly from those estimates.
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In some instances, depending on the nature of the intangible asset, the determination of the useful life of the asset can also be
subjective, and involve significant management judgment.
The outcome of the identifiable intangible asset valuation process has a direct, inverse impact on the determination of the
amount of goodwill arising from the application of the acquisition method of accounting for the transaction. The greater the
identifiable intangible asset valuation, the lower the goodwill. Additionally, the greater the identifiable intangible asset, the greater
amortization expense associated with such asset will be in future periods, and therefore, the lower future net income will be.
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, 2016 we performed a qualitative impairment assessment for
certain of our reporting units and a quantitative impairment assessment for our two RJ Ltd. reporting units operating in Canada.
For each reporting unit that we performed qualitative assessments, we determined 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 assessments, we determined that no quantitative analysis of the fair
value of any of the reporting units we elected to qualitatively analyze for impairment as of December 31, 2015 was required, and
we concluded that none of the goodwill allocated to any of those reporting units as of December 31, 2015 was impaired. No events
have occurred since December 31, 2015 that would cause us to update this impairment testing.
In the RJ Ltd. reporting unit testing, we elected to perform quantitative assessments for the two reporting units within RJ Ltd.
that include an allocation of goodwill. Although GAAP provides the option to perform a qualitative analysis which may result in
a conclusion that no quantitative analysis of the reporting unit equity value is required, for this year’s annual goodwill testing of
our two RJ Ltd. reporting units, we elected to perform a quantitative analysis. In these analyses, we make significant assumptions
and estimates about the extent and timing of future cash flows and discount rates, as well as utilize data from peer group companies
to assess the equity value of each RJ Ltd. reporting unit. Based upon the outcome of our quantitative assessments, we concluded
there was no impairment of goodwill. The fair value of the equity of the RJ Ltd. PCG reporting unit was substantially in excess
of its book carrying value, which includes goodwill. However, primarily as a result of the unfavorable impacts of the prolonged
commodity recession in Canada on our business, most specifically impacting the natural resources sector of that economy, the fair
value of the equity of the RJ Ltd. ECM reporting unit is not substantially in excess of its book carrying value, which includes
goodwill. The RJ Ltd. ECM reporting unit goodwill balance was $16.9 million as of December 31, 2015, and we estimate that
the excess of the fair value of the reporting unit over its carrying value including goodwill approximates 10%. Should the equity
market conditions in Canada fail to improve, or we otherwise fail to perform as we have projected, an impairment charge of some
portion, or perhaps all, of such goodwill could occur. Refer to Note 13 in the Notes to the Consolidated Financial Statements in
this Form 10-K for a discussion of the valuation methodologies and a summary of the key assumptions we applied in determining
the fair value of our two RJ Ltd. reporting units. No events have occurred since December 31, 2015 that would cause us to update
this impairment testing.
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 and regulatory matters
The recorded amount of liabilities related to legal and regulatory matters is subject to significant management judgment. For
a description of the significant estimates and judgments associated with establishing such accruals, see the “Contingent 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, 2016.
At September 30, 2016, the amortized cost of all RJ Bank loans was $15.4 billion and an allowance for loan losses of $197
million was recorded against that balance. The total allowance for loan losses is equal to 1.30% of the amortized cost of the loan
portfolio.
RJ Bank’s process of evaluating its probable loan losses includes a complex analysis of several quantitative and qualitative
factors, requiring a substantial amount of judgment. Due to the uncertainty associated with this subjectivity, our underlying
assumptions and judgments could prove to be inaccurate, and the allowance for loan losses could then 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.
The provision for loan losses in the current year includes a provision resulting from an increase in the qualitative reserve
related to loans in the energy sector.
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.
We have provided for U.S. deferred income taxes 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. 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. At the present time, we have no plans or intentions to repatriate funds for which no U.S. income tax has
been provided.
See Note 20 of the Notes to Consolidated Financial Statements in this Form 10-K for further information.
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Effects of recently issued accounting standards, and accounting standards not yet adopted
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 first became effective for this financial report covering the quarter ending December 31, 2015. Based upon the
nature of our investments in LIHTC structures, we do not meet the specified conditions which allow for election of this accounting
treatment and thus the adoption of this guidance did not have any direct impact on our financial position or 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 first became effective for this
financial report covering the quarter ending December 31, 2015. This new guidance had no impact on our financial position and
results of operations. Given the nature of our OREO balances as of December 31, 2015, its adoption did not materially impact
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 for the period ended
December 31, 2015. Due to the immaterial nature of our disposals in fiscal year 2016, this new guidance did not have any impact
on our financial position or results of operations.
In May 2014, the FASB issued new guidance regarding revenue recognition. In August 2015, the FASB amended this new
guidance by deferring the initial required implementation date by one year. 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. The FASB is expected to
amend the guidance as the work of various industry implementation working groups identify implementation issues and FASB
provides clarifying guidance in response to such feedback. In March 2016, the FASB issued such a clarifying amendment regarding
certain principal versus agent considerations. In May 2016, the FASB issued additional amendments regarding the rescission of
certain SEC Staff Observer Comments upon adoption of the new standard as well as providing an update to certain narrow topics
within the scope of the new revenue recognition guidance. This new revenue recognition guidance, including clarifications, is
first effective for our financial report covering the quarter ending December 31, 2018, early adoption is permitted in certain
circumstances. 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 still evaluating which transition approach to use. We are
continuing our evaluation of 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.
The adoption of this guidance is not anticipated to have a significant impact on our consolidated financial position or 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) requires certain
disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement
and other disclosures when substantial doubt is not alleviated, and (6) requires 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
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report covering the quarter ending after December 31, 2016. 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. The adoption of this guidance is not anticipated to have any impact on our financial position
and results of operations.
In January 2015, the FASB issued guidance that eliminates from GAAP the concept of extraordinary items. This new guidance
is effective for us for our fiscal year commencing on October 1, 2016. Given that the adoption of this new guidance could impact
certain presentations in our consolidated statements of income, depending upon the nature of future events and circumstances, but
would not impact our determinations of net income presented in such statements, we do not anticipate that the adoption of this
guidance will have any impact on the presentation of our results of operations.
In February 2015, the FASB issued amended guidance to the consolidation model. In October 2016, the FASB issued an
additional amendment to this guidance. The impact of these amendments on the consolidation model are to:
• Eliminate the deferral of the application of the new consolidation model, which had resulted in the application of prior
accounting guidance to consolidation determinations of certain investment funds (see Note 2 of the Notes to Consolidated
Financial Statements in this Form 10-K for a discussion of how this deferral is applicable to our Managed Funds).
• Make certain changes to the variable interest consolidation model.
• Make certain changes to the voting interest consolidation model.
This amended guidance is effective for us for our fiscal year commencing on October 1, 2016. The adoption of this new guidance
will likely impact our financial statements in the following manner:
• Will likely change certain historical conclusions that we are the primary beneficiary of certain LIHTC Funds. We currently
anticipate that we will deconsolidate each of the non-guaranteed LIHTC Funds we currently consolidate.
• We will apply this new guidance to our Managed Funds, but do not anticipate that we will conclude that we are the primary
beneficiary of such Managed Funds. Accordingly, we believe that our historical practice of not consolidating the Managed
Funds will continue after the adoption of this amended guidance.
We believe the application of this amended guidance will significantly improve the meaningfulness of our consolidated financial
statements. We will adopt this amended guidance in our interim financial report covering the quarter ending December 31, 2016.
In April 2015, the FASB issued guidance governing the presentation of debt issuance costs in the consolidated financial
statements. Under the new guidance, debt issuance costs related to a recognized debt liability are required to be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015,
the FASB issued additional clarifying guidance indicating that for debt issuance costs related to line-of-credit arrangements, the
SEC staff would not object to an entity deferring and presenting debt issuance costs ratably over the term of the line-of-credit
arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This new guidance
first became effective for this financial report covering the year ended September 30, 2016. See Note 1 of the Notes to Consolidated
Financial Statements in this Form 10-K for additional information regarding our adoption of this guidance.
In April 2015, the FASB issued guidance governing a customer’s accounting for fees paid in a cloud computing arrangement.
Under the new guidance, if a cloud computing arrangement includes a software license, then the customer should account for the
software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing
arrangement does not include a software license, the customer should account for the arrangement as a service contract. This new
guidance is effective for us for our fiscal year commencing on October 1, 2016. Given that we have a limited number of cloud
computing arrangements, we do not expect the adoption of this new guidance to have a material impact on our consolidated
financial statements.
In May 2015, the FASB issued guidance governing disclosures for entities who elect to measure the fair value of certain
investments in certain entities using the net asset value per share (or its equivalent) practical expedient. Under the new guidance,
the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset
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value practical expedient is eliminated. Additionally, the new guidance eliminates the requirement to make certain disclosures for
all investments that are eligible to be measured at fair value using the net asset value per share practical expedient, rather, those
disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. We
adopted this new guidance as of September 30, 2016, its adoption impacted certain of our fair value disclosures, however, it did
not have an impact on our financial position. See Notes 1 and 5 in the Notes to Consolidated Financial Statements in this Form
10-K for additional information.
In June 2015, the FASB issued amended guidance related to technical corrections and improvements. This amended guidance:
1) includes amendments related to differences between the original guidance and the codification. 2) Provides guidance clarification
and reference corrections. 3) Streamlines or simplifies the codification through minor structural changes to headings or minor edits
of text to improve the usefulness and understandability of the codification. 4) Makes minor improvements to the guidance. The
amendments that require transition guidance are effective for our fiscal year commencing on October 1, 2016 and early adoption
is permitted. All other amendments will be effective upon issuance of the amended guidance. We do not anticipate that the adoption
of this new guidance will have any material impact on our consolidated financial statements.
In September 2015, the FASB issued guidance governing adjustments to the provisional amounts recognized at the acquisition
date with a corresponding adjustment to goodwill. Such adjustments are required when new information is obtained about facts
and circumstances that existed as of the acquisition date that, if known, would have affected the measurement amounts initially
recognized or would have resulted in the recognition of additional assets and liabilities. This new guidance eliminates the
requirement to retrospectively account for such adjustments. This new guidance is effective for our fiscal year commencing on
October 1, 2016, and early adoption is permitted in certain circumstances. We do not expect the adoption of this new guidance to
have a material impact on our consolidated financial statements. Where possible, we plan on adopting this simplifying guidance
early. Given that this guidance applies to entity specific transactions and would only become relevant in certain circumstances,
we are unable to estimate the impact, if any, this new guidance may have on our financial position.
In November 2015, the FASB issued guidance simplifying the presentation of deferred income taxes on the statement of
financial position by eliminating the requirement to separately present current and noncurrent deferred tax liabilities and assets
on such statements. Given that we do not present current and noncurrent balances separately on our consolidated statements of
financial position, this simplifying guidance will have no impact our consolidated statements of financial position.
In January 2016, the FASB issued guidance related to the accounting for financial instruments. Among its provisions, this
new guidance:
• Requires equity investments (other than those accounted for under the equity method or those that result from the
consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However,
an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus
impairment, if any.
Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a
qualitative assessment to identify impairment.
•
• Eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is
required to be disclosed for financial instruments measured at amortized cost on the balance sheet.
• Requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
• Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value
of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the
liability at fair value in accordance with the fair value option.
• Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial
asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.
• Clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for
sale securities in combination with the entity’s other deferred tax assets.
This new guidance is effective for us for our fiscal year commencing on October 1, 2018. Early adoption is generally not permitted.
We are evaluating the impact, if any, the adoption of this new guidance will have on our financial position and results of operations.
In February 2016, the FASB issued new guidance related to the accounting for leases. The new guidance requires the recognition
of assets and liabilities on the balance sheet related to the rights and obligations created by lease agreements regardless of whether
they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement and presentation
of expenses and cash flows arising from a lease will primarily depend upon its classification as a finance or operating lease. The
new guidance requires new disclosures to help financial statement users better understand the amount, timing, and cash flows
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arising from leases. The new guidance is first effective for our financial report covering the quarter ended December 31, 2019,
early adoption is permitted. This new guidance will impact our financial position and results of operations. We are evaluating
the magnitude of such impact.
In March 2016, the FASB issued new guidance related to derivatives and hedging, specifically the effect of derivative contract
novations on existing hedge accounting relationships. The new guidance clarifies that a change in counterparty to a derivative
instrument that has been designated as a hedging instrument under the current guidance does not, in and of itself, require re-
designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The new guidance
is first effective for our financial report covering the quarter ended December 31, 2017, early adoption is permitted. We are
evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.
In March 2016, the FASB issued new guidance related to derivatives and hedging, specifically contingent put and call options
in debt instruments. The new guidance clarifies the requirements for assessing whether contingent call (put) options that can
accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing
the assessment is required to assess the embedded call (put) options solely in accordance with the following four-step decision
sequence; an entity must consider 1) whether the payoff is adjusted based on changes in an index, 2) whether the payoff is indexed
to an underlying other than interest rates or credit risk, 3) whether the debt involves a substantial premium or discount and 4)
whether the call (put) option is contingently exercisable. The new guidance is first effective for our financial report covering the
quarter ended December 31, 2017, early adoption is permitted. We are evaluating the impact the adoption of this new guidance
will have on our financial position and results of operations.
In March 2016, the FASB issued new guidance related to equity method investments and joint ventures. The new guidance
eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of
ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings
retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had
been held. Additionally, the new guidance requires that the equity method investor add the cost of acquiring the additional interest
in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the
date the investment becomes qualified for equity method accounting and therefore upon qualifying for the equity method of
accounting, no retroactive adjustment of the investment is required. The new guidance is first effective for our financial report
covering the quarter ended December 31, 2017, early adoption is permitted. Given that this guidance applies to entity specific
transactions and would only become relevant in certain circumstances, we are unable to estimate the impact, if any, this new
guidance may have on our financial position.
In March 2016, the FASB issued amended guidance related to stock compensation. The amended guidance involves several
aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards
as either equity or liabilities, and classification on the statement of cash flows. The amended guidance is first effective for our
financial report covering the quarter ended December 31, 2017, although early adoption is permitted. We believe the adoption of
this new guidance will improve the meaningfulness of the presentation of our financial position and results of operations and we
plan to adopt this guidance early, after we have satisfactorily addressed all of its provisions. We anticipate, based upon the fair
value of RJF shares as of September 30, 2016, that the implementation of this guidance will have a favorable impact on our tax
expense and net earnings, beginning in the period of adoption.
In June 2016, the FASB issued new guidance related to the measurement of credit losses on financial instruments. The amended
guidance involves several aspects of the accounting for credit losses related to certain financial instruments including assets
measured at amortized cost, available-for-sale debt securities and certain off-balance sheet commitments. The new guidance
broadens the information that an entity must consider in developing its estimated credit losses expected to occur over the remaining
life of assets measured either collectively or individually and expands the disclosure requirements regarding an entity’s assumptions,
models, and methods for estimating credit losses. Additionally the new guidance requires new disclosures of the amortized cost
balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. The new guidance
is first effective for our financial report covering the quarter ended December 31, 2020, early adoption is permitted although not
prior to our financial report covering the quarter ended December 31, 2019. We are evaluating the impact the adoption of this new
guidance will have on our financial position and results of operations.
In August 2016, the FASB issued amended guidance related to the Statement of Cash Flows. The amended guidance involves
several aspects of the classification of certain cash receipts and cash payments including debt prepayment or debt extinguishment
costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in
relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination,
proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including
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bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization
transactions and separately identifiable cash flows and application of the predominance principle. The amended guidance is first
effective for our financial report covering the quarter ended December 31, 2017, early adoption is permitted. The adoption of this
new guidance will impact our Statement of Cash Flows, however, we are evaluating the impact the adoption of this new guidance
will have on our financial position and results of operations.
In October 2016, the FASB issued guidance related to the accounting for income tax consequences of intra-entity transfers of
assets. Current GAAP prohibits the recognition of current and deferred income taxes for intra-entity asset transfer until the asset
has been sold to an outside party. Under the new guidance, an entity should recognize the income tax consequences of an inter-
entity transfer of an asset when the transfer occurs. The guidance is first effective for our financial report covering the quarter
ended December 31, 2018, early adoption is permitted. We are evaluating the impact the adoption of this new guidance will have
on our financial position and results of operations.
Off-Balance Sheet arrangements
Information concerning our off-balance sheet arrangements is included in Note 26 of the Notes to Consolidated Financial
Statements in this Form 10-K.
Effects of inflation
Our assets are primarily liquid in nature and are not significantly affected by inflation. However, the rate of inflation affects
our expenses, including employee compensation, communications and occupancy, which may not be readily recoverable through
charges for services we provide to our clients.
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 market prices of our inventory, hedge, interest-rate derivative and
investment positions. We have exposure to market risk primarily through our broker-dealer trading operations and, to a lesser
extent, through our banking operations. Our broker-dealer subsidiaries, primarily RJ&A, trade taxable and tax-exempt 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,
residential mortgage-backed securities, CMOs and equity securities within its available for sale securities portfolio, and also from
time-to-time may hold SBA loan securitizations not yet transferred. Additionally, we hold certain ARS in a non-broker-dealer
subsidiary of RJF.
See Notes 2, 5, 6 and 7 of the Notes to Consolidated Financial Statements in this Form 10-K for fair value and other information
regarding our trading inventories and available for sale securities.
Changes in value of our trading inventory may result from fluctuations in interest rates, obligor creditworthiness equity prices,
macroeconomic factors, risk aversion, investor expectations, asset liquidity, and dynamic relationships among these factors. We
manage our trading inventory by product type and have established trading divisions with responsibility for particular product
types. Our primary method of controlling risk in our trading inventory is through the establishment and monitoring of risk-based
limits and limits on the dollar amount of securities positions held overnight in inventory. A hierarchy of limits exists at levels
including firm, division, asset type (organized as trading desks, e.g., for OTC equities, corporate bonds, municipal bonds) asset
sub-type (e.g. below-investment grade positions), and individual trader. Position limits in trading inventory accounts are monitored
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on a daily basis. Consolidated position and exposure reports are prepared and distributed daily to senior management. Trading
positions are carefully monitored for potential limit violations. Management likewise monitors inventory levels and trading results,
as well as inventory aging, pricing, concentration and securities ratings. For our derivatives positions, which are composed primarily
of interest rate swaps but include futures contracts and forward foreign exchange contracts, we monitor daily their exposure in our
derivatives subsidiary against established limits with respect to a number of factors, including interest rate, foreign exchange spot
and forward rates, spread, ratio, basis, and volatility risk. These derivative exposures are monitored both on a total portfolio basis
and separately for each agreement 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 U.S. Treasury securities and futures contracts, liquid spread products, and swaps.
We monitor daily, 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, also known as
the “Risk-Based Capital Guidelines: Market Risk” rule released by the Fed, OCC and FDIC, requires us to calculate VaR numbers
for all of our trading portfolios, including fixed income, equity, foreign exchange, and derivative instruments.
To calculate VaR, we use historical simulation. This approach assumes that historical changes in market conditions, such as
in interest rates and equity prices, are representative of future changes. The simulation is based on daily market data for the previous
twelve months. VaR is reported at a 99% confidence level for a one-day time horizon. Assuming that future market conditions
change as they have in the past twelve months, we would expect to incur losses greater than those predicted by our one-day VaR
estimates about once every 100 trading days, or about three times per year on average. For regulatory capital calculation purposes,
we also report VaR numbers for a ten-day time horizon.
The Fed’s MRR requires us to perform daily back testing procedures of our VaR model, whereby we compare each day’s
projected VaR to its regulatory-defined daily trading losses, which excludes fees, commissions, reserves, net interest income, and
intraday trading. Based on these daily “ex ante” versus “ex post” comparisons, we 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 twelve months
ended September 30, 2016, our regulatory-defined daily loss in our trading portfolios exceeded our predicted VaR once.
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:
Year ended September 30, 2016
VaR at September 30,
High
Low
Daily
Average
(in thousands)
2016
2015
Daily VaR
$
2,735
$
619
$
1,584
$
1,804
$
1,173
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.
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Separately, RJF provides additional market risk disclosures to comply with the MRR. The results of the application of this
market risk capital rule are available on our website under “More... - Investors - 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).
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. We utilize stress testing
to complement our VaR analysis so as to measure risk under historical and hypothetical adverse scenarios. During volatile markets
we may choose to pare our trading inventories to reduce risk.
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 HFAs (see further description of these activities in the Item 1 Business,
Capital Markets 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, 2016.
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 MBS and CMO’s (both of which are held in the available for sale securities portfolio), 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.
In February 2015, we implemented a hedging strategy using interest rate swaps as a result of RJ Bank’s asset and liability
management process described above. For further information regarding this risk management objective, see the discussion of
the RJ Bank Interest Hedges in the derivative contracts section of Note 2 of the Notes to Consolidated Financial Statements in this
Form 10-K, and additional information in Note 18 of the Notes to Consolidated Financial Statements in this Form 10-K.
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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 asset/liability model:
Instantaneous changes in rate
+300
+200
+100
0
-50
Net interest income
($ in thousands)
$570,203
$575,174
$579,272
$560,561
$507,221
Projected change in
net interest income
1.72%
2.61%
3.34%
—
(9.52)%
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 an increase 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 asset/liability model:
Instantaneous changes in rate
Projected change in EVE
+300
+200
+100
0
-50
(12.65)%
(7.75)%
(1.62)%
—
(9.94)%
The following table shows the contractual maturities of RJ Bank’s loan portfolio at September 30, 2016, 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
SBL
Total loans held for investment
Total loans
One year or less
>One year – five
years
> 5 years
Total(1)
Due in
— $
(in thousands)
— $
202,967
$
202,967
188,267
22,914
273,463
—
1,600
1,899,825
2,386,069
2,386,069
$
4,742,258
70,247
1,735,356
5,250
5,735
5,002
6,563,848
6,563,848
$
2,539,848
29,557
545,252
735,694
2,434,234
—
6,284,585
6,487,552
$
7,470,373
122,718
2,554,071
740,944
2,441,569
1,904,827
15,234,502
15,437,469
$
$
(1) Excludes any net unearned income and deferred expenses.
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Index
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, 2016:
Loans held for sale
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total loans held for investment
Total loans
Interest rate type
Fixed
Adjustable
Total(1)
(in thousands)
$
3,614
$
199,353
$
202,967
3,200
—
43,356
740,944
212,186
5,002
1,004,688
1,008,302
$
7,278,906
99,804
2,237,252
—
2,227,783
(2)
(2)
(2)
(2) (3)
—
11,843,745
12,043,098
$
$
7,282,106
99,804
2,280,608
740,944
2,439,969
5,002
12,848,433
13,051,400
(1) Excludes any net unearned income and deferred expenses.
(2) Related contractual loan terms may include an interest rate floor and/or fixed interest rates for a certain period of time, which would
impact the timing of the interest rate reset for the respective loan.
(3) See the discussion within the “Risk Monitoring process” section of Item 7A in this report for additional information regarding RJ
Bank’s interest-only loan portfolio and related repricing schedule.
Other
Within our available for sale securities portfolio, we hold ARS, which are long-term variable rate securities tied to short-term
interest rates. As short-term interest rates rise, due to the variable nature of the penalty interest rate provisions embedded in most
of these securities in the event auctions fail to set the security’s interest rate, then a penalty rate that is specified in the security
increases. These penalty rates are based upon a stated interest rate spread over what is typically a short-term base interest rate
index. These securities are carried on our Consolidated Statements of Financial Condition at fair value, changes in interest rates
impact the fair value (see notes 2 and 5 of the Notes to Consolidated Financial Statements in this Form 10-K for additional
information on the fair value of these securities. 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. The faster and steeper
short-term interest rates rise, the earlier prepayments will likely occur and the higher the fair value of the security.
Equity price risk
We are exposed to equity price risk as a consequence of making markets in equity securities. 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. 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.
In addition, RJF’s private equity investments may be impacted by equity prices.
Foreign exchange risk
We are subject to foreign exchange risk due to our investments in foreign subsidiaries as well as transactions denominated in
a currency other than the U.S. dollar.
RJ Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate this risk, RJ Bank utilizes
short-term, forward foreign exchange contracts. These derivative agreements are primarily accounted for as net investment hedges
in the consolidated financial statements. See Notes 2 and 18 of the Notes to Consolidated Financial Statements in this Form 10-
K for further information regarding these derivative contracts.
We have foreign exchange risk in our investment in RJ Ltd., of approximately CDN $325 million at September 30, 2016,
which is not hedged. Foreign exchange gains/losses related to this investment are primarily reflected in other comprehensive
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Index
income (loss) (“OCI”) on our Consolidated Statements of Income and Comprehensive Income, see Note 22 of the Notes to
Consolidated Financial Statements in this Form 10-K for further information regarding all of our components of OCI.
We also have foreign exchange risk associated with our investments in subsidiaries located in the United Kingdom, France,
Germany, and South America. These investments are not hedged and we do not believe we have material foreign exchange risk
either individually, or in the aggregate, pertaining to these subsidiaries.
In addition, we are subject to foreign exchange risk due to our holdings of cash and certain other assets and liabilities, which
result from transactions denominated in a currency other than the U.S. dollar. These foreign currency transactions are not hedged
and the related gains/losses arising therefrom are reflected in other revenue on our Consolidated Statements of Income and
Comprehensive Income.
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, transitional cost assistance,
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
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.
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Index
RJ Bank’s strategy for credit risk management includes well-defined credit policies, uniform underwriting criteria, and ongoing
risk monitoring and review processes for all corporate, residential and 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 is described in 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, loan-to-value (“LTV”),
and combined LTV (including second mortgage/home equity loans). RJ Bank does not originate or purchase option adjustable
rate mortgage (“ARM”) loans with negative amortization, reverse mortgages, or other types of non-traditional loan products.
Loans with deeply discounted teaser rates are not originated or purchased. All loans in this segment are collateralized by
residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. 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
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 2016 corporate profit levels declined slightly and have remained weak as compared to historic levels. Unemployment
rates have remained relatively flat. 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
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Index
residential mortgage loan performance. All of these factors have a potentially negative impact on loan performance and net charge-
offs. However, during fiscal year 2016, 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, 2016, 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. 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. There was no material change in RJ Bank’s methodology for determining the allowance for loan losses during the
twelve months ended September 30, 2016.
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) recoveries
Foreign exchange translation adjustment
Allowance for loan losses, end of year
2016
$ 172,257
28,167
For the year ended September 30,
2013
2014
2015
($ in thousands)
$ 136,501
13,565
$ 147,541
2,565
$ 147,574
23,570
2012
$ 145,744
25,894
(2,956)
—
(1,470)
—
(4,426)
(1,191)
—
(1,667)
—
(2,858)
(1,845)
(16)
(2,015)
—
(3,876)
(813)
(9,599)
(6,771)
(254)
(17,437)
(10,486)
(2,000)
(15,270)
(96)
(27,852)
—
—
1,417
—
1,417
(3,009)
(37)
$ 197,378
611
3,773
1,206
25
5,615
2,757
(1,644)
$ 172,257
16
80
1,998
35
2,129
(1,747)
(745)
$ 147,574
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
Allowance for loan losses to total bank loans outstanding
1.30%
1.32%
1.33%
1.52%
1.81%
The primary factors influencing the provision for loan losses during the year as compared to the prior year include higher
corporate loan growth, the charges during the current year resulting from loans outstanding within the energy sector, as well as
additional provision for corporate loan downgrades resulting in higher criticized loans as compared to the prior year. The allowance
for loan losses of $197 million as of September 30, 2016 increased from the prior year due to significant loan portfolio growth
during the fiscal year. The allowance for loan losses to total bank loans outstanding declined to 1.30% at September 30, 2016
from 1.32% at September 30, 2015.
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Index
The following table presents net loan (charge-offs)/recoveries and the percentage of net loan (charge-offs)/recoveries to the
average outstanding loan balances by loan portfolio segment:
2016
For the year ended September 30,
2015
2014
Net loan
(charge-off)
amount
% of avg.
outstanding
loans
Net loan
(charge-off)/
recovery
amount
% of avg.
outstanding
loans
Net loan
(charge-off)/
recovery
amount
% of avg.
outstanding
loans
($ in thousands)
$
$
(2,956)
—
(53)
—
(3,009)
0.04% $
—
—
—
0.02% $
(580)
3,773
(461)
25
2,757
0.01% $
0.22%
0.02%
—
0.02% $
(1,829)
64
(17)
35
(1,747)
0.03%
—
—
—
0.02%
For the year ended September 30,
2012
2013
Net loan
(charge-off)
amount
% of avg.
outstanding
loans
Net loan
(charge-off)
amount
% of avg.
outstanding
loans
$
$
(696)
(7,919)
(4,472)
(222)
(13,309)
($ in thousands)
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%
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.
Net loan charge-off activity during the current year as compared to the prior year increased $6 million as the current year reflected
net charge-offs resulting from the resolution of certain corporate criticized loans while the prior year reflected net recoveries in
the corporate loan portfolio for that respective fiscal year. Continued improved credit characteristics in the residential mortgage
loan portfolio have resulted in insignificant amounts of net charge-offs during each of our fiscal years 2016 and 2015.
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Index
The table below presents nonperforming loans and total allowance for loan losses:
2016
September 30,
2015
2014
Nonperforming
loan balance
Allowance
for
loan losses
balance
Nonperforming
loan balance
Allowance
for
loan losses
balance
Nonperforming
loan balance
Allowance
for
loan losses
balance
Loans held for 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
$
$
35,194
—
4,230
—
41,783
—
81,207
$
$
(137,701) $
(1,614)
(36,533)
(4,100)
(12,664)
(4,766)
(197,378) $
( $ in thousands)
— $
—
4,796
—
47,823
—
52,619
$
(117,623)
(2,707)
(30,486)
(5,949)
(12,526)
(2,966)
(172,257)
$
$
— $
—
18,876
—
61,789
—
80,665
$
(103,179)
(1,594)
(25,022)
(1,380)
(14,350)
(2,049)
(147,574)
0.53%
0.40%
0.73%
September 30,
2013
2012
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
Residential mortgage loans
SBL
Total
$
$
89
—
25,512
76,357
—
101,958
$
$
(95,994) $
(1,000)
(19,266)
(19,126)
(1,115)
(136,501) $
Total nonperforming loans as a % of RJ Bank total loans
1.14%
19,517
—
8,404
78,739
—
106,660
1.31%
$
$
(92,409)
(739)
(27,546)
(26,138)
(709)
(147,541)
The level of nonperforming loans is another indicator of potential future credit losses. The amount of nonperforming loans
increased during the year ended September 30, 2016. This increase was due to a $35 million increase in nonperforming C&I loans
partially offset by a $6 million decrease in nonperforming residential mortgage loans. Included in nonperforming residential
mortgage loans are $40 million in loans for which $20 million in charge-offs were previously recorded, resulting in less exposure
within the remaining balance.
The nonperforming loan balances above excludes $14 million, $15 million, $14 million, $10 million, and $13 million as of
September 30, 2016, 2015, 2014, 2013 and 2012 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 85% of the residential loans
are fully documented loans and 98% of the residential mortgage loan portfolio is owner-occupant borrowers for their primary or
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second home residences, of which approximately 85% is for their primary residences. Approximately 10% of the first lien residential
mortgage loans are ARMs with interest-only payments based on a fixed rate for an initial period of the loan, typically 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 12% 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.
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 480 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 Shared National Credit (“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 as well as our rigorous processes to manage and limit credit losses arising from loan
delinquencies. There are various other factors included in these processes, depending on the loan portfolio.
SBL and residential mortgage 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. Collateral calls
have been minimal relative to our SBL portfolio with no losses incurred to date.
We track and review many factors to monitor credit risk in RJ Bank’s residential mortgage loan portfolio. 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, loan policy exceptions, and updated LTV ratios. These qualitative measures, while
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considered and reviewed in establishing the allowance for loan losses, have not resulted in any material quantitative adjustments
to RJ Bank’s historical loss rates.
RJ Bank obtains the most recently available information (generally on a quarter lag) to estimate current LTV ratios on the
individual loans in the performing residential mortgage loan portfolio. Current LTV ratios are estimated based on the initial
appraisal obtained at the time of origination, adjusted using relevant market indices for housing price changes that have occurred
since origination. The value of the homes could vary from actual market values due to change in the condition of the underlying
property, variations in housing price changes within current valuation indices and other factors.
The current average estimated LTV is 54% for the total residential mortgage loan portfolio. Residential mortgage loans with
estimated LTVs in excess of 100% represent slightly less than 1% of the residential mortgage loan portfolio. Credit risk management
considers 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.
At September 30, 2016, loans over 30 days delinquent (including nonperforming loans) decreased to 1.20% of residential
mortgage loans outstanding, compared to 1.69% over 30 days delinquent at September 30, 2015. Additionally, our September 30,
2016 percentage compares favorably to the national average for over 30 day delinquencies of 4.49% 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 subprime loans and limited amount of non-traditional loan products.
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, 2016
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
$
Total residential mortgage loans $
September 30, 2015
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
$
Total residential mortgage loans $
3,950
—
3,950
4,849
30
4,879
$
$
$
$
25,429
20
25,449
28,036
231
28,267
$
$
$
$
29,379
20
29,399
32,885
261
33,146
0.16%
—
0.16%
0.25%
0.14%
0.25%
1.05%
0.10%
1.04%
1.44%
1.09%
1.44%
1.21%
0.10%
1.20%
1.69%
1.23%
1.69%
(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 residential 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 portfolio. The geographic concentrations (top five states)
of RJ Bank’s one-to-four family residential mortgage loans are as follows:
September 30, 2016
Loans outstanding as a % of
RJ Bank total residential
mortgage loans
21.0%
18.9%
7.1%
5.5%
3.6%
CA (1)
FL
TX
NY
IL
Loans outstanding
as a % of RJ Bank
total loans
3.2%
2.9%
1.1%
0.8%
0.6%
September 30, 2015
Loans outstanding as a % of
RJ Bank total residential
mortgage loans
20.5%
19.6%
5.9%
5.8%
4.2%
FL
CA (1)
NY
TX
NJ
Loans outstanding
as a % of RJ Bank
total loans
2.9%
2.8%
0.8%
0.8%
0.6%
(1) The concentration ratios for the state of California excludes 4.4% and 4.7% from the computation of loans outstanding as a percentage
of RJ Bank total residential mortgage loans, and 0.7% and 0.9% from the computation of loans outstanding as a percentage of RJ Bank
total loans, for September 30, 2016 and 2015 respectively, 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, 2016 and 2015, these loans totaled $308 million and $264 million, respectively, or
approximately 10% and 15% of the residential mortgage portfolio, respectively. At September 30, 2016, the balance of amortizing,
former interest-only, loans totaled $296 million. The weighted average number of years before the remainder of the loans, which
were still in their interest-only period at September 30, 2016, begins amortizing is 4.8 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, 2016
(in thousands)
$
$
59,128
10,830
16,235
36,078
26,942
158,624
307,837
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
Corporate loans
September 30, 2016
65%/760
September 30, 2015
66%/757
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, semi-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 SNC exams 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, for additional information on RJ Bank’s allowance for
loan loss policies. See the Credit Risk section in Item 7A of this report for additional information on RJ Bank’s corporate loan
portfolio.
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At September 30, 2016, other than loans classified as nonperforming, there were no loans that were delinquent greater than
30 days.
Credit risk is also managed by diversifying the corporate loan portfolio. RJ Bank’s corporate loan portfolio does not contain
a significant concentration in any single industry. The industry concentrations (top five categories) of RJ Bank’s corporate loans
are as follows:
September 30, 2016
Loans
outstanding as
a % of RJ
Bank total
corporate
loans
5.6%
5.2%
5.0%
4.6%
4.6%
Office (real estate)
Hospitality
Consumer products and services
Retail real estate
Power & infrastructure
Loans
outstanding as
a % of RJ
Bank total
loans
4.0%
3.7%
3.6%
3.3%
3.3%
September 30, 2015
Loans
outstanding as
a % of RJ
Bank total
corporate
loans
5.8%
5.7%
5.5%
5.4%
4.5%
Retail real estate
Pharmaceuticals
Consumer products and services
Hospitality
Automotive/transportation
Loans
outstanding as
a % of RJ
Bank total
loans
4.3%
4.2%
4.1%
4.0%
3.3%
RJ Bank’s energy loan portfolio is primarily comprised of loans to mid-stream pipeline and other borrowers that are not directly
exposed to the commodity. At September 30, 2016, the total commitment for these loans was $696 million, of which $408 million
was outstanding, representing 4% of RJ Bank’s total corporate loan portfolio and 3% of RJ Bank’s total loans. There was $83
million of this outstanding balance rated as criticized loans. As of September 30, 2016, RJ Bank had provided an allowance for
loan losses of $30 million for its energy loan portfolio, representing 7% of this loan portfolio.
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 an Operational Risk Management Committee (chaired by our Chief Operating Officer and comprised of senior
managers), which reviews and addresses operational risks across our businesses. The committee establishes, and from time-to-
time will reassess, 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.
As more fully described in the discussion of our business technology risks included in Item 1A: Risk Factors in this report,
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 an impact on the
security and stability of our operations. If one or more of these events were to occur, this could jeopardize the information we
confidentially maintain, including that of our clients and counterparties, which is processed, stored in and transmitted through our
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computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our clients
or counterparties. To-date, we have not experienced any material losses relating to cyber-attacks or other information security
breaches, however, there can be no assurances that we will not suffer such losses in the future.
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 (“AML”) Officers in each of our subsidiaries who monitor compliance with regulations adopted under
the Patriot Act.
We expect that compliance with the DOL Rule and reliance on the BIC Exemption and the Principal Transactions Exemption
will require us to incur increased legal, compliance and information technology costs. In addition, we may face enhanced legal
risks. Refer to the “Regulation” section of Item 1 in this Form 10-K for a discussion of the DOL Rule.
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
review 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
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.
The nature of the periodic examinations of our operations by our various regulators, applicable to not only our banking activities
but also to our broker-dealer operational activities, have been active, expanding in some respects as it pertains to the scope of their
annual reviews, and reflective of a heightened level of scrutiny of the operations and activities of financial services entities. We
continue to incur costs to support these reviews, and evaluate and implement changes in our processes and procedures to improve
and continue to comply with all of the various regulations to which we are subject. Given this environment, we cannot predict
the impact that the ultimate outcome resulting from the periodic examinations by one or more of our regulators could have on our
future costs or results of operations.
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.
In recent years, we have made and expect to continue to expand our deployment of significant resources in support of our
AML program. We have significantly increased the number of associates dedicated to AML monitoring, expanded training for
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our associates, and during fiscal year 2016 implemented a leading AML software solution. All of these activities allow us to
increase our monitoring and detection of suspicious and reportable activities.
We hold certain private equity investments which are subject to the Volcker Rule. The conformance period for compliance
with the rule with respect to investments in certain illiquid funds has been extended and Banking Entities may still apply for an
additional five-year extension with respect to investments in certain illiquid funds. The extension of the conformance deadline
provides us with additional time to realize the value of these investments in due course and implement any additional actions
necessary for conformance with the rule. To the extent that any of our covered funds satisfy the Fed’s criteria for further extension
for certain illiquid funds, we may apply for such extensions, although there is no assurance that any such extension would be
granted. While we anticipate the liquidation of these investments to take place over a number of years, many of these fund
investments meet the definition of prohibited “covered funds” as defined by the Volcker Rule of the Dodd-Frank Act. In order to
be compliant with the Volcker Rule by its’ July 2017 conformance period, it is possible that we may be required to sell our interests
in such funds. If that occurs, we may receive a value for our interests that is less than the carrying value as there is a limited
secondary market for these investments and we may be unable to sell them in orderly transactions. See further discussion of these
regulations in the Regulatory section of Item 1 in this report, and see Note 5 of our Notes to Consolidated Financial Statements
within this Form 10-K for information on the fair value of these private equity investments.
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 - Senior notes payable
Note 18 - Derivative financial instruments
Note 19 - Disclosure of offsetting assets and liabilities, collateral, encumbered assets and repurchase
agreements
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 - Share-based and other compensation
Note 25 - Regulatory capital requirements
Note 26 - Financial instruments with off-balance sheet risk
Note 27 - Earnings per share
Note 28 - Segment information
Note 29 - Condensed financial information (parent company only)
Supplementary data
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100
101
103
104
105
107
108
127
130
131
143
143
148
148
157
157
160
161
164
165
166
167
168
173
176
179
183
186
186
191
194
196
196
199
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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, 2016 and 2015, 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, 2016. 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, 2016 and 2015, and the results of its operations and its cash flows for each of the years
in the three-year period ended September 30, 2016, 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, 2016, based on criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our
report dated November 22, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
/s/ KPMG LLP
Tampa, Florida
November 22, 2016
Certified Public Accountants
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Assets:
Cash and cash equivalents
Assets segregated pursuant to regulations and other segregated assets
Securities purchased under agreements to resell and other collateralized financings
Financial instruments, at fair value:
Trading instruments
Available for sale securities
Private equity investments
Other investments
Derivative instruments associated with offsetting matched book positions
Receivables:
Brokerage clients, net
Stock borrowed
Bank loans, net
Brokers-dealers and clearing organizations
Loans to financial advisors, net
Other
Deposits with clearing organizations
Prepaid expenses and other assets
Investments in real estate partnerships held by consolidated variable interest entities
Property and equipment, net
Deferred income taxes, net
Goodwill and identifiable intangible assets, net
Total assets
(continued on next page)
September 30,
2016
2015
(in thousands)
$
1,650,452
$
2,601,006
4,889,584
470,222
2,905,324
474,144
766,805
859,398
194,634
296,844
422,196
690,551
513,730
209,088
248,751
389,457
2,714,782
170,860
2,185,296
124,373
15,210,735
12,988,021
164,908
838,721
615,853
245,364
777,224
157,228
321,457
322,024
504,442
134,890
488,760
514,000
207,488
693,739
199,678
255,875
266,899
376,962
$
31,593,733
$
26,468,032
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)
Liabilities and equity:
Trading instruments sold but not yet purchased, at fair value
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
Senior notes payable
Total liabilities
Commitments and contingencies (see Note 21)
Equity
September 30,
2016
2015
($ in thousands)
$
328,938
$
193,229
422,196
287,993
332,536
389,457
6,444,671
677,761
4,671,073
478,573
14,262,547
11,919,881
306,119
590,560
608,658
915,954
12,597
164,054
729,245
703,065
842,527
25,960
1,680,587
1,137,570
26,443,817
21,681,934
Preferred stock; $.10 par value; 10,000,000 shares authorized; -0- shares issued and outstanding
—
—
Common stock; $.01 par value; 350,000,000 shares authorized; 151,424,947 shares issued as of
September 30, 2016 and 149,283,682 shares issued as of September 30, 2015. Shares outstanding of
141,544,511 as of September 30, 2016 and 142,750,653 as of September 30, 2015
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 9,766,846 common shares at September 30, 2016 and 6,364,706 common shares
at September 30, 2015
Accumulated other comprehensive loss
Total equity attributable to Raymond James Financial, Inc.
Noncontrolling interests
Total equity
Total liabilities and equity
1,513
1,498,921
3,832,332
(362,937)
(55,733)
4,914,096
235,820
5,149,916
1,491
1,344,779
3,419,719
(203,455)
(40,503)
4,522,031
264,067
4,786,098
$
31,593,733
$
26,468,032
See accompanying Notes to Consolidated Financial Statements.
102
Index
Revenues:
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Year ended September 30,
2015
(in thousands, except per share amounts)
2014
2016
Securities commissions and fees
Investment banking
Investment advisory and related administrative 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 attributable to noncontrolling interests
Net income attributable to Raymond James Financial, Inc.
Net income per common share – basic
Net income per common share – diluted
Weighted-average common shares outstanding – basic
Weighted-average common and common equivalent shares outstanding – diluted
Net income attributable to Raymond James Financial, Inc.
Other comprehensive income (loss), net of tax:(1)
Unrealized (loss) gain on available for sale securities and non-credit portion of other-than-
temporary impairment losses
Unrealized gain (loss) on currency translations, net of the impact of net investment hedges
Unrealized loss on cash flow hedges
Total comprehensive income
Other-than-temporary impairment:
Total other-than-temporary impairment, net
Portion of recoveries recognized in other comprehensive income
Net impairment losses recognized in other revenue
$
$
$
$
$
$
$
$
3,498,615
304,155
392,326
640,325
511,326
91,591
82,006
5,520,344
(117,077)
5,403,267
3,624,747
279,746
167,455
42,732
148,413
59,930
28,167
40,706
234,000
4,625,896
777,371
271,293
506,078
(23,272)
529,350
3.72
3.65
141,773
144,513
$
$
$
$
3,443,038
323,660
385,238
543,207
457,913
58,512
96,596
5,308,164
(107,954)
5,200,210
3,525,378
266,396
163,229
42,748
158,966
59,569
23,570
—
183,642
4,423,498
776,712
296,034
480,678
(21,462)
502,140
3.51
3.43
142,548
145,939
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
$
529,350
$
502,140
$
480,248
(5,576)
2,179
(11,833)
514,120
1,305
(1,305)
$
$
(3,325)
(30,640)
(4,650)
463,525
2,489
(2,489)
$
$
— $
— $
6,021
(18,635)
—
467,634
4,966
(4,993)
(27)
$
$
$
(1) All components of other comprehensive income (loss), net of tax, are attributable to Raymond James Financial, Inc.
See accompanying Notes to Consolidated Financial Statements.
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Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Common stock, par value $.01 per share:
Balance, beginning of year
Share issuances
Balance, end of year
Additional paid-in capital:
Balance, beginning of year
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 (reduction of prior tax benefit) from share-based payments
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: (1)
Balance, beginning of year
Net change in unrealized gain/loss 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
Net change in cash flow hedges, net of tax
Balance, end of year
Total equity attributable to Raymond James Financial, Inc.
Noncontrolling interests:
Balance, beginning of year
Net loss attributable to noncontrolling interests
Capital contributions
Distributions
Other
Balance, end of year
Total equity
Year ended September 30,
2016
2015
2014
(in thousands, except per share amounts)
$
1,491 $
22
1,513
1,444 $
47
1,491
1,429
15
1,444
1,344,779
28,025
16,470
73,871
35,121
655
1,498,921
3,419,719
529,350
(116,737)
—
3,832,332
(203,455)
(153,137)
(6,345)
(362,937)
1,239,046
23,847
21,351
68,196
(8,115)
454
1,344,779
3,023,845
502,140
(106,271)
5
3,419,719
(121,211)
(64,780)
(17,464)
(203,455)
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)
(40,503)
(1,888)
10,726
(5,576)
2,179
(11,833)
(55,733)
4,914,096
$
(3,325)
(30,640)
(4,650)
(40,503)
4,522,031
$
6,021
(18,635)
—
(1,888)
4,141,236
$
264,067
(23,272)
15,179
(18,312)
(1,842)
235,820
5,149,916 $
$
292,020
(21,462)
19,530
(23,570)
(2,451)
264,067
4,786,098 $
335,413
(32,097)
22,565
(27,093)
(6,768)
292,020
4,433,256
$
$
$
(1) All components of other comprehensive (loss) income are attributable to Raymond James Financial, Inc.
See accompanying Notes to Consolidated Financial Statements.
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Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income attributable to Raymond James Financial, Inc.
Net loss attributable to noncontrolling interests
Net income including noncontrolling interests
Adjustments to reconcile net income including noncontrolling interests to net cash (used in)
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
Other
Net change in:
Year ended September 30,
2016
2015
2014
(in thousands)
$
529,350
$
502,140
$
480,248
(23,272)
506,078
(21,462)
480,678
(32,097)
448,151
72,383
(58,798)
68,315
(23,462)
64,163
(35,171)
(25,010)
(42,544)
(22,804)
42,394
76,426
36,590
34,277
71,488
54,527
26,414
69,609
35,343
Assets segregated pursuant to regulations and other segregated assets
(1,954,079)
(416,060)
1,575,563
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 financial advisors, net of repayments
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
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and
loans held for sale
(Excess tax benefit) reduction of prior tax benefit from share-based payment arrangements
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Additions to property and equipment
Increase in bank loans, net
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock, net
Proceeds from sales of loans held for investment
Purchases or contributions, to private equity or other investments, net of proceeds from sales of, or
distributions received from, private equity and other investments
Purchases of available for sale securities
Available for sale securities maturations, repayments and redemptions
Proceeds from sales of available for sale securities
Business acquisitions, net of cash acquired
Other investing activities, net of proceeds received
Net cash used in investing activities
(continued on next page)
(135,385)
152,701
(344,786)
(621,161)
(21,178)
28,122
1,817,304
46,351
(101,155)
(35,121)
(518,324)
59,913
95,805
(81,617)
(56,394)
40,656
46,896
589,464
28,758
(59,638)
8,115
899,177
206,666
50,767
(34,067)
(159,562)
(46,526)
19,330
(1,800,957)
72,294
45,811
(7,437)
507,587
(121,733)
(74,111)
(60,149)
(2,478,549)
(2,200,861)
(2,391,311)
(3,231)
197,557
(40,352)
(463,202)
95,961
11,062
(175,283)
(4,049)
(4,446)
111,731
(44,574)
(92,485)
69,757
84,785
(15,823)
(1,932)
(22,161)
183,279
42,832
(1,305)
104,407
49,937
(2,007)
(286)
$ (2,981,819) $ (2,167,959) $ (2,096,764)
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:
(Repayments of) proceeds from short-term borrowings, net
Proceeds from Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances and other borrowed funds
Proceeds from senior note issuances, net of debt issuance costs
Repayment of senior notes payable
Repayments of borrowings by consolidated variable interest entities which are real estate
partnerships
Proceeds from capital contributed to and borrowings of consolidated variable interest entities which
are real estate partnerships
Exercise of stock options and employee stock purchases
Increase in bank deposits
Purchases of treasury stock
Dividends on common stock
Excess tax benefit (reduction of prior tax benefit) from share-based payments
Year ended September 30,
2016
2015
2014
(in thousands)
$
(115,000) $
(34,700) $
70,624
25,000
(4,407)
792,221
(250,000)
550,299
(509,252)
500,367
(4,011)
—
—
—
—
(14,262)
(19,673)
(21,839)
—
43,331
110
47,964
2,342,666
1,890,957
(162,502)
(113,435)
35,121
(88,542)
(103,143)
(8,115)
726
33,633
733,553
(8,427)
(88,102)
7,437
Net cash provided by financing activities
2,578,733
1,725,905
1,223,961
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
(29,144)
(950,554)
(55,180)
401,943
(32,337)
(397,553)
2,601,006
2,199,063
2,596,616
$ 1,650,452
$ 2,601,006
$
2,199,063
$
$
$
113,639
303,793
3,685
$
$
$
106,313
378,928
5,870
$
$
$
101,090
319,279
6,213
See accompanying Notes to Consolidated Financial Statements.
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Index
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
NOTE 1 – INTRODUCTION AND BASIS OF PRESENTATION
Description of business
Raymond James Financial, Inc. (“RJF” or the “Company”) is a financial holding company whose broker-dealer subsidiaries
are engaged in various financial services 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.
Acquisitions
During fiscal year 2016, we completed our acquisitions of the U.S. Private Client Services unit of Deutsche Bank Wealth
Management (“Alex. Brown”), MacDougall, MacDougall & MacTier, Inc. and its wholly owned subsidiaries (“3Macs”)
headquartered in Canada, and Mummert & Company Corporate Finance GmbH (“Mummert”) headquartered in Europe. During
fiscal year 2015, we completed our acquisitions of Cougar Global Investments Limited (“Cougar”) headquarter in Canada, and
the U.S. based The Producers Choice LLC (“TPC”). See Note 3 for additional information on our acquisition activities during
fiscal year 2016 and 2015.
Principal subsidiaries
As of September 30, 2016, our principal subsidiaries, all wholly owned, consist of: 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.
Adoption of new accounting guidance
Effective September 30, 2016, we adopted new accounting guidance related to the presentation of debt issuance costs in the
consolidated financial statements. Under this new guidance, debt issuance costs related to a recognized debt liability are presented
in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debt discounts. We have
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Index
retroactively applied this guidance to debt liability balances existing in the prior fiscal year, and the applicable prior period balances
have been reclassified to conform to the current year presentation. See Note 17 for additional information.
Effective September 30, 2016, we adopted new accounting guidance related to the classification and disclosure of certain
investments using the net asset value (“NAV”) as a practical expedient to measure the fair value of the investment. Among its
provisions, this new guidance eliminates, for all investments in which fair value is measured using NAV as a practical expedient,
the requirement to categorize such investments within the fair value hierarchy. We have retroactively applied this new guidance
to investments held in the prior fiscal year, and applicable balances have been reclassified to conform to the current year presentation.
See Note 5 for additional information.
Reclassifications
In addition to the reclassification described above, certain other prior period amounts, none of which are material, have been
reclassified to conform to the current year presentation.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recognition of revenues
Securities commissions and 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. 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.
ii.
Investment advisory service fee revenues earned by employee financial advisors (IARs of RJ&A) are presented in
securities commissions and fees revenue on a gross basis. The RJ&A IARs are paid compensation which is computed
as a percentage of the revenues generated and which is recorded as a component of compensation, commissions and
benefits expense.
Investment advisory service fee revenues earned by independent contractors who are registered representatives
(“RR”) with RJFS are also registered with RJFSA and offer investment advisory services under RJFSA’s RIA license
as an IAR of RJFSA are presented in securities fees and commissions revenue on a gross basis. These financial
advisors are paid a portion of the revenues generated which is recorded as a component of compensation, commissions
and benefits expense.
iii. Independent RIA firms that are owned and operated by a financial advisor who is an independent contractor registered
as a RR with RJFS, may receive administrative and custodial services provided by RJFS as an 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.
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Index
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.
c. Certain asset-based fees, which are recorded ratably over the period earned.
d. Trailing commissions from mutual funds and variable annuities/insurance products, which are recorded ratably over the
period earned.
e.
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.
f. 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, other than for merger and acquisition advisory arrangements, are recorded at the time a
transaction is completed and the related income is reasonably determinable. Such investment banking revenues include management
fees and underwriting fees, net of reimbursable expenses, earned in connection with the distribution of the underwritten securities,
private placement fees, and syndication fees on the sale of low-income housing tax credit fund interests. Any securities we receive
in connection with investment banking transactions are recorded at fair value.
Merger and acquisition advisory fee revenues are recorded when: there is an executed engagement letter; the delivery of our
services is complete; the underlying transaction price is fixed or determinable; and the collectability of the fee is reasonably assured.
We distribute our proprietary equity research products to certain institutional investor clients 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.
In our low-income housing tax credit fund syndication activities, we provide oversight and management of the funds during
the fifteen year tax credit compliance period of the underlying funds’ investments. We recognize these fees ratably over the period
the services are provided.
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 $49 million for the year ended September 30, 2016,
and $40 million in each respective year ended September 30, 2015 and 2014. Commissions remitted totaled $47 million, $38
million, and $37 million for the years ended September 30, 2016, 2015, and 2014, respectively.
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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 or qualified securities.
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. In addition, RJ Bank may maintain 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.
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 collateral 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.
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”), certain other derivative
instruments, brokered certificates of deposit, 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, 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.
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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, 2016 and 2015. 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 level within the fair value hierarchy, specific valuation techniques, and other significant accounting policies pertaining
to financial instruments presented in our Consolidated Statements of Financial Condition are described as follows:
Level 1 measures:
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. 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.
Level 2 measures:
When Trading Securities 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,
brokered certificates of deposit 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.
A portion of our financial instruments classified on our Consolidated Statements of Financial Condition as a component of
our available for sale securities are classified as Level 2 within the fair value hierarchy. The valuation methodologies of such
financial instruments are discussed in the available for sale securities section that follows.
We are a party to various derivative contracts that are classified as Level 2 within the fair value hierarchy. The valuation
methodologies of such financial instruments are discussed in the derivatives contract section that follows.
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RJ Bank maintains a trading portfolio of certain corporate loans that it originates through the syndication market. These
trading instruments are included in Trading Securities, 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. We validate the third party pricing service quotes by comparing such prices to
those provided by another external source.
RJ Bank maintains certain loans held for sale, which are classified within Level 2 of the fair value hierarchy. The valuation
methodologies of such financial instruments are discussed in the loans held for sale and allowances for losses section that follows.
Level 3 measures:
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.
A portion of our financial instruments classified on our Consolidated Statements of Financial Condition as a component of
our available for sale securities are classified as Level 3 within the fair value hierarchy. The valuation methodologies of such
financial instruments are discussed in the available for sale securities section that follows.
We hold private equity investments that are classified as Level 3 within the fair value hierarchy. The valuation methodologies
of such financial instruments are discussed in the private equity investments section that follows.
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 Securities 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.
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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”). These securities are generally classified at the date of purchase as available for sale securities. The RJ Bank
AFS Securities are used as part of RJ Bank’s interest rate risk and liquidity management strategies, and may be sold in response
to changes in interest rates, changes in prepayment risks, or other factors.
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 average life of the security.
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 sold.
Unrealized gains or losses on any RJF AFS Securities, except for those that are deemed to be other-than-temporary, are recorded
through other comprehensive (loss) income and are thereafter presented in equity as a component of accumulated other
comprehensive income (“AOCI”) on our Consolidated Statements of Financial Condition.
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 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 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 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.
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For 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.
Derivative contracts
Trading:
We enter into interest rate swaps or 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 including interest, are recorded in net trading profit within the Consolidated Statements of Income
and Comprehensive 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.
Matched Book:
We also facilitate matched book derivative transactions through Raymond James Financial Products, LLC (“RJFP”) a non-
broker-dealer subsidiary. RJFP enters into derivative transactions (primarily interest rate swaps) with clients. For every derivative
transaction RJFP 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. RJFP 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. RJFP recognizes revenue on derivative transactions on the
transaction date, computed as the present value of the expected cash flows RJFP 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.
Hedges:
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
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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.
The cash flows associated with certain assets held by RJ Bank provide interest income at fixed interest rates. Therefore, the
value of these assets, absent any risk mitigation, is subject to fluctuation based upon changes in market rates of interest over time.
Beginning in February 2015, we entered into certain interest rate swap contracts (the “RJ Bank Interest Hedges”) which swap
variable interest payments on debt for fixed interest payments. Through the RJ Bank Interest Hedges, RJ Bank is able to mitigate
a portion of the market risk associated with certain fixed rate interest earning assets held by RJ Bank.
The RJ Bank Interest Hedges are recorded at fair value on the Consolidated Statements of Financial Condition and are
designated as cash flow hedges. The effective portion of the related gain or loss is recorded, net of tax, in shareholders’ equity as
part of the cash flow hedge component of AOCI and subsequently reclassified to earnings when the hedged transaction affects
earnings, specifically upon the incurrence of interest expense on certain borrowings. The ineffective portions of the related gain
and loss are immediately recognized into earnings in the Consolidated Statements of Income and Comprehensive Income. Hedge
effectiveness is assessed at inception and each reporting period utilizing regression analysis and performed using the hypothetical
derivative method. However, as the key terms of the hedging instrument and hedged transaction match at inception, management
expects there to be no ineffectiveness impacting earnings from this hedge while it is outstanding. As a result of these derivative
transactions being executed through a clearing exchange, we are required to provide the exchange with either a cash deposit or
qualified securities. Such deposit balances are included as a component of deposits with clearing organizations on our Consolidated
Statements of Financial Condition. The fair value of RJ Bank Interest Hedges 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 a third party to corroborate the output of our internal pricing models.
Other:
As part of our acquisition of Alex. Brown, RJ&A assumed certain Deutsche Bank restricted stock unit (“DBRSU”) awards,
including the associated plan terms and conditions. Refer to the “share-based compensation” section of this footnote for a description
of the assumed obligation. The DBRSU awards contain performance conditions based on Deutsche Bank and subsidiaries attaining
certain financial results and will ultimately be settled in Deutsche Bank AG (“DB”) common shares, as traded on the New York
Stock Exchange (“NYSE”), provided the performance metrics are achieved. The DBRSU obligation results in a derivative.
The DBRSU derivative liability is measured by applying the reporting period-end DB common share price to the DBRSU
awards outstanding as of the end of such period. This computation is a Level 2 measure under the fair value hierarchy and the
liability is included in accrued compensation, commissions, and benefits in our Consolidated Statements of Financial Condition.
Private equity investments
Private equity investments consist of direct and third party private equity funds, merchant banking investments, employee
investment funds, and various Company-sponsored private equity funds. Our investments in these private funds are primarily
closed-end funds in which the Company’s investments are generally not eligible for redemption. Distributions will be received
from these funds as the underlying assets are liquidated or distributed. We estimate that the underlying assets of these funds will
be liquidated over the remaining life of these funds (ranging from one to nine years). These investments are measured at fair value
with any changes recognized in other revenue on our Consolidated Statements of Income and Comprehensive Income. The fair
value of private equity investments are determined utilizing either NAV as a practical expedient, or Level 3 valuation techniques.
We utilize NAV or its equivalent as a practical expedient to determine the fair value of our private equity investments when:
the fund does not have a readily determinable fair value; the NAV of the fund is calculated in a manner consistent with the
measurement principles of investment-company accounting, including measurement of the underlying investments at fair value;
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and it is not probable that we will sell the investment at an amount other than NAV. The NAV is calculated based on our proportionate
share of the net assets of the fund as provided by the fund manager.
The portion of our private equity investment portfolio that is not valued at NAV is 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 valued
using these valuation techniques are classified within Level 3 of the fair value hierarchy. The valuation of such investments
requires significant 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.
Other investments
Other investments consist primarily of marketable securities we hold that are associated with certain of our deferred
compensation programs, term deposits with Canadian financial institutions, 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).
The non-qualified deferred compensation plans or arrangements are for the benefit of certain employees, and provide a return
to the participating employees based upon the performance of various referenced investments. The balances associated with these
plans are invested in certain marketable securities that we hold 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.
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 receivable held by one of our broker-dealer subsidiaries
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, transitional cost assistance,
and retention purposes. These loans are generally repaid over a five to eight year period with interest recognized as earned. There
is no fee income associated with these loans. We assess future recoverability of these loans through analysis of individual financial
advisor production or other performance standards. In the event that the financial advisor is no longer affiliated with us, any unpaid
balance of such loan becomes immediately due and payable to us. In determining the allowance for doubtful accounts 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
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balance of loans to financial advisors on our Consolidated Statements of Financial Condition, net of the allowance for doubtful
accounts. Of the gross balance outstanding, the portion associated with financial advisors who are no longer affiliated with us is
approximately $13 million and $10 million at September 30, 2016 and 2015, respectively. Our allowance for doubtful accounts
is approximately $5 million and $4 million at September 30, 2016 and 2015, respectively.
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.
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 interest rate
terms, as well as SBA loans purchased and intended for sale in the secondary market but not yet aggregated for securitization into
pools, are each 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.
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
sells these pools in the secondary market. Individual loans may be sold prior to securitization.
The determination of the fair value of the SBA loans depends 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 the 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 SBA 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 profit. Sales of the securitizations
are accounted for as of settlement date, which is the date RJ Bank has surrendered control over the transferred assets. RJ Bank
does not retain any interest in the securitizations once they are sold. 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
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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.
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.
Gains and losses on sales of residential mortgage loans held for sale, SBA loans that are not part of a securitized pool, and
corporate loans transferred from the held for investment portfolio, 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.
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
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concessions granted, such as interest rate reductions, generally do not reflect current market conditions for a new loan of similar
risk made to another borrower in similar financial circumstances. 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. The concessions granted in restructurings of corporate loans are similar to
those for residential mortgage loans, and may also include the reduction of the guarantor’s liability. 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 based on
ongoing evaluations of the portfolio, the related risk characteristics, and the overall economic and environmental conditions
affecting the 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 reflect 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. Estimates that are particularly susceptible to change that may have an impact on the amount of the allowance include:
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the selection of proxy data used to calculate loss factors;
the evaluation of loss emergence and historical loss experience periods;
our evaluation of the risk profile of loan portfolio segments, including internal risk ratings;
the value of underlying collateral, which impacts loss severity and certain cash flow assumptions;
our selection and evaluation of qualitative factors, which reflect the imprecision that is inherent in the estimation of
probable loan losses.
The allowance for loan loss is comprised of three components: allowances calculated based on formulas for homogeneous
classes of loans collectively evaluated for impairment, specific allowances assigned to certain classified loans individually evaluated
for impairment, and allowances resulting from our analysis of certain qualitative factors. The 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.
An annual analysis of the loss emergence period estimate, which is the average length of time between the event that triggers
a loss and the confirmation and/or charge-off of that loss is performed for all loan classes. This analysis is utilized in establishing
the allowance for each of the classes of loans through the application of an adjustment to the calculated allowance percentage for
the respective loan grade.
The loans within the corporate loan classes are assigned to an internal loan grade 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
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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 estimated incurred loss associated with that grade. The
allowance for loan losses for all non-impaired loans is then calculated based on the allowance percentage assigned to the respective
loan’s class and grade factoring in the respective loss emergence period. The allowance for loan losses for all impaired loans and
those nonaccrual residential mortgage loans that have been evaluated for a charge-off are based on an individual evaluation of
impairment as previously described in the “Impaired loans” section.
The 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 type; past loss history, Shared National
Credit (“SNC”) reviews and examination results from bank regulators. Loan grades for individual C&I and tax-exempt loans are
derived from analyzing two aspects of the risk profile 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 historical long-term industry loss rates (proxy data) as RJ Bank has limited
loss history, are considered in combination with certain adjustments for the loss emergence period to derive the final C&I and tax-
exempt loan grades and allowance percentages. The allowance for loans within the CRE and CRE construction loan portfolios is
based on either a probability of default and loss given default methodology or analyses of peer group and industry loss history in
combination with certain adjustments for loss emergence period.
The quantitative loss rates for corporate loans are supplemented by considering qualitative factors that may cause estimated
losses to differ from quantitatively calculated amounts. These qualitative factors are intended to address developing external and
environmental trends, and include, but are not limited to: trends in delinquencies, loan growth; loan terms; changes in geographic
distribution; changes in the value of the underlying collateral for collateral-dependent loans; lending policies; loan review process;
experience, ability and depth of lending management and other relevant staff; local, regional, national and international economic
conditions; competition; legal and regulatory requirements; and concentrations of credit risk.
Historical loan loss rates, a quantitative factor, are utilized when assigning the allowance percentages for residential first
mortgage loans and residential home equity loans. These estimated loss rates are based on RJ Bank’s historical loss data over a
period of time. RJ Bank currently utilizes a look back period for residential first mortgage and home equity loans reflecting the
current housing cycle that includes the last downturn.
The SBL portfolio is not yet seasoned enough to exhibit a loss trend; therefore, the allowance is based primarily on peer group
allowance information and the qualitative factors noted below.
For residential first mortgage loan, residential home equity loan and SBL classes, the qualitative factors considered to
supplement the quantitative analysis include, but are not limited to, loan performance trends, loan product parameters and
qualification requirements, borrower credit scores at origination, occupancy (i.e., owner occupied, second home or investment
property), documentation level, loan purpose, geographic concentrations, average loan size, loan policy exceptions, updated loan-
to-value (“LTV”) ratios, and the factors noted above that are utilized for corporate loans.
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 primarily 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 previously
discussed.
RJ Bank reserves for 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 previously described.
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
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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
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 semi-annually by the agent bank’s regulator, a process in which the other
participating banks have no involvement. Once the SNC 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 semi-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. Corporate loans are subject
to RJ Bank’s internal review procedures and regulatory review by the OCC as part of RJ Bank’s regulatory examination.
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, current valuation estimate 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 Federal Home Loan Bank of Atlanta (“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
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may be impairment. Any cash dividends received from these investments 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 Note 24 for information on the non-qualified deferred
compensation plans). The life insurance policies are carried at cash surrender value as determined by the insurer. See Note 10
for additional information.
Investments in real estate partnerships held by consolidated variable interest entities
Raymond James Tax Credit Funds, Inc., a wholly owned subsidiary of RJF (“RJTCF”), is the managing member or general
partner in low-income housing tax credit (“LIHTC”) funds, some of which require consolidation (refer to the separate discussion
of our policies regarding the evaluation of VIEs to determine if consolidation is required that follows). 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 in Note 11.
Property and equipment
Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization.
Depreciation of assets is primarily provided for using the straight-line method over the estimated useful lives of the assets, which
range from two to 10 years for software, three 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. Depreciation expense associated
with property, equipment and leasehold improvements is included in occupancy and equipment costs in the Consolidated Statements
of Income and Comprehensive Income. Amortization expense associated with computer software is included in communications
and information processing expense in the Consolidated Statements of Income and Comprehensive Income.
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 we acquire such as customer relationships, trade names, developed technology, intellectual
property, 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. Amortization expense associated with such intangible assets is included in other expense in the
Consolidated Statements of Income and Comprehensive Income.
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 other expense in the 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
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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).
Contingent 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 and regulatory 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 or significant regulatory matter 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 matters or regulatory proceedings may be substantially higher or
lower than the recorded liability amounts for such 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 certain of 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. See Note 24 for additional information. Compensation expense is recognized for all share-based compensation with
future service requirements over the requisite service period using the straight-line method, and in certain instances, the graded
attribution method.
As part of our acquisition of Alex. Brown, RJ&A assumed certain DBRSU awards, including the associated plan terms and
conditions. The DBRSU awards contain performance conditions based on Deutsche Bank and subsidiaries attaining certain financial
results and will ultimately be settled in DB common shares, as traded on the NYSE, provided the performance metrics are achieved.
The portion of these awards that relate to past services performed by the award recipients before the acquisition of Alex. Brown
represents consideration transferred in the business combination. The portion of these awards which relate to compensation for
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future services are a prepaid compensation asset which has a corresponding derivative liability. The prepaid compensation asset
is amortized over the remaining requisite service period of the participant using the straight-line method while the derivative
liability is recorded at fair value at the end of each reporting period until it is settled. Refer to the “derivative contracts” sub-
section of the “financial instruments owned, financial instruments sold but not yet purchased and fair value” section of this footnote
for information regarding the determination of the fair value of this derivative. The amortization of the prepaid asset and the
change in fair value of the derivative liability is recorded within compensation expense in our Consolidated Statements of Income
and Comprehensive Income. See Note 24 for additional information on this share-based compensation plan.
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 Note 24 for additional information.
Leases
We lease office space and equipment under operating leases. We recognize rent expense related to these operating leases on
a straight-line basis over the lease term. The lease term commences on the earlier of the date when we become legally obligated
for the rent payments or the date on which we take possession of the property. For tenant improvement allowances and rent
holidays, we record a deferred rent liability in other liabilities 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
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 associated with certain acquisitions are separately reported in the Consolidated Statement of
Income and Comprehensive Income and include certain incremental expenses arising from our acquisitions. 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 the foreign subsidiary 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
124
Index
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 and restricted stock units 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: 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.
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
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Index
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
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 (see Note 10 for additional information).
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.
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Index
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 (as hereinafter defined in Note 21) 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.
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
Acquisitions during fiscal year 2016
Mummert & Company Corporate Finance GmbH
On June 1, 2016, we completed our acquisition of all of the outstanding shares of Mummert. Mummert is a middle market
M&A advisory firm, headquartered in Munich, Germany, that is focused primarily on the technology, industrial, healthcare,
consumer and business services sectors. Mummert expands our investment banking capabilities in Europe, and operates within
the corporate finance division of RJ&A included in our Capital Markets segment. For purposes of certain acquisition related
financial reporting requirements, the Mummert acquisition is not considered a material acquisition. We accounted for this acquisition
under the acquisition method of accounting with the assets and liabilities of Mummert recorded as of the acquisition date at their
respective fair values in our consolidated financial statements. Mummert’s results of operations have been included in our results
prospectively from June 1, 2016.
MacDougall, MacDougall & MacTier Inc.
On August 31, 2016, we completed our acquisition of all of the outstanding shares of 3Macs, an independent investment firm
founded in 1849 and headquartered in Montreal, Quebec, Canada. As of the acquisition date, 3Macs had approximately 70 financial
advisors with approximately $6 billion (Canadian) of client assets under administration. The 3Macs financial advisors will operate
within a newly formed “3Macs” division of RJ Ltd. 3Macs is included in our Private Client Group segment. For purposes of
certain acquisition related financial reporting requirements, the 3Macs acquisition is not considered a material acquisition. We
accounted for this acquisition under the acquisition method of accounting with the assets and liabilities of 3Macs recorded as of
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Index
the acquisition date at their respective fair values in our consolidated financial statements. 3Macs results of operations have been
included in our results prospectively from August 31, 2016.
U.S. Private Client Services unit of Deutsche Bank Wealth Management
On September 6, 2016 (the “AB Closing Date”), RJ&A completed an acquisition of certain specified assets and the assumption
of certain specified liabilities of Alex. Brown from Deutsche Bank Securities, Inc. As of the acquisition date, approximately 190
financial advisors with approximately $46 billion of client assets under administration joined a new Alex. Brown division of RJ&A.
Alex. Brown is included in our Private Client Group segment. For purposes of certain acquisition related financial reporting
requirements, the Alex. Brown acquisition is not considered a material acquisition. We accounted for this acquisition under the
acquisition method of accounting with the specific assets acquired and liabilities of Alex. Brown we assumed recorded as of the
acquisition date at their respective fair values in our consolidated financial statements. Alex. Brown’s results of operations have
been included in our results of operations prospectively from September 6, 2016.
Other items of note
After each of the 3Macs and Alex. Brown acquisitions were finalized and as part of financial advisor retention programs,
RJ&A or RJ Ltd. funded retention loans to financial advisors who joined us at each respective closing date. RJ Ltd. funded
approximately $13 million of retention loans to such 3Macs financial advisors, with a final maturity date five years from their date
of issuance. RJ&A funded approximately $233 million of retention loans to such Alex. Brown financial advisors, with a final
maturity seven years from their date of issuance.
Under the terms of our purchase of Alex. Brown, in the event of the departure prior to March 7, 2017 of any Alex. Brown
financial advisor who became a continuing employee of RJ&A as of the AB Closing Date, depending upon the circumstances
surrounding such departure, Deutsche Bank Securities, Inc. may owe a portion of the consideration they received on the AB Closing
Date back to RJ&A. We accounted for this potentially refundable contingent consideration element of the purchase consideration
at fair value as of the closing date.
As part of the acquisition of Alex. Brown, RJ&A assumed certain liabilities, including DBRSU awards. The DBRSU awards
contain performance conditions based on Deutsche Bank and subsidiaries attaining certain financial results and will ultimately be
settled in DB common stock, as traded on the NYSE, provided the performance metrics are achieved (see Notes 2 and 24 for
additional information). On the acquisition date, RJ&A also executed employment agreements with certain key members of the
Alex. Brown management team.
As part of the acquisition of 3Macs, each 3Macs selling shareholder who became a continuing employee as of the closing
date, executed an agreement that provided, in part, should they leave the employment of 3Macs during the five year period after
the closing date, depending upon the circumstances surrounding such departure, they may be required to repay a portion of the
consideration they received upon the sale of their 3Macs shares. We have accounted for this potentially refundable contingent
consideration element of the purchase consideration, amounting to $24.7 million, as a prepaid compensation asset. This prepaid
asset is being amortized as compensation expense over the five year post-combination service period associated with this provision.
See Note 10 for additional information.
The terms in each of the 3Macs and Alex. Brown purchase agreements provided for a review, subsequent to the closing date,
of the estimated amounts of net acquired assets compared to the actual closing date net assets acquired, with an adjustment of the
purchase price either payable to the sellers (in the case of higher actual net assets than estimated at closing), or due from the sellers
(in the case of lower actual net assets than estimated at closing). We anticipate these reviews to be completed, and any consideration
to be transferred between the parties as a result of the outcome of the review, during fiscal year 2017.
As a part of the terms governing the Mummert acquisition, on certain future dates, there are earn-out computations to be
performed or contingent consideration provisions that may apply which could result in additional payments to the sellers. See Note
21 for additional information regarding this contingent obligation. For the provisions that are unrelated to future employment
considerations, we accounted for the contingent obligation at fair value as of the closing date. For the provisions where the ultimate
payment of the contingent consideration are conditioned upon continued employment as of the measurement dates which are three
and five years from the Mummert acquisition date, the obligations are being recognized as a component of our compensation
expense over such periods.
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Index
See Note 13 for information regarding the goodwill and identifiable intangible assets associated with these acquisitions. See
Note 21 for additional information regarding the contingent consideration associated with the Mummert and Alex. Brown
acquisitions.
Acquisitions during fiscal year 2015
Cougar Global Investments Limited
On April 30, 2015, we completed our acquisition of Cougar, which at such time had more than $1 billion in assets under
advisement. For purposes of certain acquisition related financial reporting requirements, the Cougar acquisition is not considered
to be a material acquisition. We accounted for this acquisition under the acquisition method of accounting with the assets and
liabilities of Cougar recorded as of the acquisition date at their respective fair values in our consolidated financial statements.
Cougar’s results of operations have been included in our results prospectively since April 30, 2015, in our asset management
segment.
The Producers Choice LLC
On May 28, 2015, RJF entered into a definitive agreement to acquire TPC. On July 31, 2015 (the “TPC Closing Date”), we
completed our acquisition of TPC. For purposes of certain acquisition related financial reporting requirements, the TPC acquisition
is not considered to be a material acquisition. We accounted for this acquisition under the acquisition method of accounting with
the assets and liabilities of TPC recorded as of the acquisition date at their respective fair values in our consolidated financial
statements. TPC’s results of operations have been included in our results prospectively since July 31, 2015, in our private client
group segment.
See Note 13 for information regarding the identifiable intangible assets and goodwill which resulted from these acquisitions.
See Note 21 for additional information regarding the contingent consideration associated with the TPC acquisition.
Acquisition-related expenses
The acquisition-related expenses presented on our Consolidated Statements of Income and Comprehensive income for the
year ended September 30, 2016 pertain to certain incremental expenses incurred in connection with the acquisitions described
above. Our acquisition-related expenses associated with our fiscal year 2015 acquisitions were not significant.
During the year ended September 30, 2016 we incurred the following acquisition-related expenses:
Information systems integration costs
Legal and regulatory
Pre-AB Closing Date unrealized loss in the fair value of DB shares purchased to satisfy the DBRSU liability(1)
Severance
Travel and all other
Total acquisition-related expenses
Year ended
September 30, 2016
(in thousands)
$
$
21,752
8,334
4,837
866
4,917
40,706
(1) On various dates between the signing of the asset purchase agreement and the AB Closing Date, we purchased DB shares in open
market transactions to serve as an economic hedge against a portion of the DBRSU liability to be assumed on the closing date. We
hold these equity securities in other investments on our Consolidated Statements of Financial Condition and they are recorded at fair
value. The unrealized loss we incurred on these shares prior to the AB Closing Date is included herein as a component of acquisition-
related expenses as the sole reason we acquired such asset was to use in the settlement of a portion of the DBRSU liability, once
assumed. For periods subsequent to the AB Closing Date, any unrealized gains/losses arising from the change in the fair value of such
assets is reflected as a component of the compensation expense associated with the DBRSUs. See Note 24 for additional information
about the DBRSU’s.
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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)
Assets segregated pursuant to federal regulations and other segregated assets (2)
Deposits with clearing organizations
Cash and cash equivalents
Government and agency obligations
Total deposits with clearing organizations
September 30,
2016
2015
(in thousands)
$
$
$
$
$
1,649,593
859
1,650,452
4,889,584
215,856
29,508
245,364
$
$
$
$
$
2,597,568
3,438
2,601,006
2,905,324
177,787
29,701
207,488
(1) The total amounts presented include cash and cash equivalents of $810 million and $1.216 billion as of September 30, 2016 and 2015,
respectively, which are either held directly by RJF in depository accounts at third party financial institutions, held in a depository
account at RJ Bank (computed as the lesser of RJ Bank’s cash balance or the amount of RJF’s depository account balance), 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.
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Index
NOTE 5 – FAIR VALUE
Assets and liabilities measured at fair value on a recurring and nonrecurring basis are presented below:
September 30, 2016
Assets at fair value on a recurring basis:
Trading instruments:
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,
2016
Municipal and provincial obligations
$
480
$
273,683
$
Corporate obligations
Government and agency obligations
Agency MBS and CMOs
Non-agency CMOs and ABS
Total debt securities
Derivative contracts
Equity securities
Brokered certificates of deposit
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 not measured at NAV(3)
Other investments (5)
10,000
6,412
413
—
17,305
—
14,529
—
555
122,885
43,186
164,250
34,421
638,425
163,242
1,500
35,206
3
32,389
838,376
—
—
1,417
—
—
1,417
—
296,146
682,297
50,519
—
—
—
732,816
—
257
Derivative instruments associated with offsetting matched
book positions
—
422,196
Deposits with clearing organizations:
Government and agency obligations
Other assets:
Derivative contracts (6)
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 (8)
Total bank loans, net
OREO (9)
Total assets at fair value on a nonrecurring basis
$
$
$
—
—
—
—
7
7
—
—
—
3,572
3,579
—
—
—
25,147
100,018
125,165
83,165 (4)
441
—
—
—
2,448 (7)
2,448
$
— $
—
—
—
—
—
(107,539)
—
—
—
274,163
132,885
49,598
164,663
34,428
655,737
55,703
16,029
35,206
4,130
(107,539)
766,805
—
—
—
—
—
—
—
—
—
—
—
—
—
682,297
50,519
1,417
25,147
100,018
859,398
83,165
296,844
422,196
29,508
2,016
2,448
4,464
29,508
—
—
—
—
2,016
—
2,016
359,460
$
1,995,661
$
214,798
$
(107,539) $
2,462,380
— $
23,146
$
47,982
$
— $
—
—
—
18,177
41,323
679
—
47,982
—
—
—
—
— $
42,002
$
47,982
$
— $
71,128
18,177
89,305
679
89,984
(continued on next page)
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Index
September 30, 2016
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,
2016
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 (6)
Other liabilities
Total trade and other payables
Accrued compensation, commissions and benefits:
Derivative contracts (10)
$
$
1,161
1,283
266,682
2,804
271,930
—
18,382
290,312
—
—
—
—
—
29,791
—
—
29,791
151,694
—
181,485
422,196
26,671
—
26,671
17,769
Total liabilities at fair value on a recurring basis
$
290,312
$
648,121
$
The text of the footnotes to the table on the previous page are as follows:
(continued from previous page)
— $
— $
— $
—
—
—
—
—
—
—
—
—
67
67
—
67
—
—
—
—
(142,859)
—
(142,859)
—
—
—
—
—
$
(142,859) $
1,161
31,074
266,682
2,804
301,721
8,835
18,382
328,938
422,196
26,671
67
26,738
17,769
795,641
(1) We had $3 million in transfers of financial instruments from Level 1 to Level 2 during the year ended September 30, 2016. These transfers were a
result of a decrease in the availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. We had
$1 million in transfers of financial instruments from Level 2 to Level 1 during the year ended September 30, 2016. These transfers were a result of an
increase in the 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) For derivative transactions not cleared through an exchange, and 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). Deposits associated with derivative transactions cleared through an exchange are included in deposits with
clearing organizations on our Consolidated Statements of Financial Condition.
(3) Effective September 30, 2016 we adopted new accounting guidance related to the classification and disclosure of certain investments using the NAV
as a practical expedient to measure the fair value of the investment. The amounts presented above do not include our investments measured at NAV,
see Notes 1, 2, and the “investments in private equity measured at net asset value per share” section within this footnote, for additional information.
(4) The portion of these investments we do not own is approximately $26 million as of September 30, 2016 and are included as a component of noncontrolling
interest in our Consolidated Statements of Financial Condition. The weighted average portion we own is approximately $57 million or 68% of the
total private equity investments of $83 million included in our Consolidated Statements of Financial Condition.
(5) Other investments include $77 million of financial instruments that are related to obligations to perform under certain deferred compensation plans
(see Notes 2 and 24 for further information regarding these plans), and DB shares with a fair value of $12 million as of September 30, 2016 which we
hold as an economic hedge against the DBRSU obligation (see Notes 2, 18, and 24 for additional information).
(6) Consists of derivatives arising from RJ Bank’s business operations, see Note 18 for additional information.
(7)
Includes the fair value of forward commitments to purchase GNMA or FNMA MBS arising from our fixed income public finance operations (see Notes
2 and 21 for additional information regarding the GNMA or FNMA MBS commitments).
(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.
(10) The balance reflects the DBRSUs which arose from our acquisition of Alex. Brown, see the discussion of the circumstances giving rise to this derivative
in Note 3.
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Index
September 30, 2015
Assets at fair value on a recurring basis:
Trading instruments:
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,
2015
Municipal and provincial obligations
$
17,318
$
188,745
$
—
$
— $
Corporate obligations
Government and agency obligations
Agency MBS and CMOs
Non-agency CMOs and ABS
Total debt securities
Derivative contracts
Equity securities
Brokered certificates of deposit
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 not measured at NAV(3)
Other investments (5)
2,254
7,781
253
—
27,606
—
24,859
—
679
53,144
—
—
1,402
—
—
1,402
—
230,839
92,907
108,166
117,317
46,931
554,066
132,707
3,485
30,803
4,816
725,877
302,195
71,369
—
—
—
373,564
—
17,347
Derivative instruments associated with offsetting matched
book positions
—
389,457
Deposits with clearing organizations:
Government and agency obligations
Other assets:
Derivative contracts(6)
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 (8)
Total bank loans, net
OREO (9)
Total assets at fair value on a nonrecurring basis
$
$
$
156
—
—
9
165
—
—
—
1,986
2,151
—
—
—
28,015
110,749
138,764
77,435 (4)
565
—
—
—
4,975 (7)
4,975
—
—
—
—
—
(90,621)
—
—
—
206,063
95,317
115,947
117,570
46,940
581,837
42,086
28,344
30,803
7,481
(90,621)
690,551
—
—
—
—
—
—
—
—
—
—
—
—
—
302,195
71,369
1,402
28,015
110,749
513,730
77,435
248,751
389,457
29,701
917
4,975
5,892
29,701
—
—
—
—
917
—
917
315,086
$
1,507,162
$
223,890
$
(90,621) $
1,955,517
— $
28,082
$
37,830
$
— $
—
—
—
14,334
42,416
671
—
37,830
—
—
—
—
— $
43,087
$
37,830
$
— $
65,912
14,334
80,246
671
80,917
(continued on next page)
133
Index
September 30, 2015
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,
2015
(continued from previous page)
Liabilities at fair value on a recurring basis:
Trading instruments sold but not yet purchased:
Municipal and provincial obligations
$
17,966
$
347
$
Corporate obligations
Government obligations
Agency MBS and CMOs
Total debt securities
Derivative contracts
Equity securities
Other securities
167
205,658
5,007
228,798
—
3,098
—
33,017
—
—
33,364
109,120
—
2,494
Total trading instruments sold but not yet purchased
231,896
144,978
Derivative instruments associated with offsetting matched
book positions
Trade and other payables:
Derivative contracts (6)
Other liabilities
—
—
—
389,457
7,545
—
Total trade and other payables
Total liabilities at fair value on a recurring basis
$
—
231,896
$
7,545
541,980
$
—
—
—
—
—
—
—
—
—
—
—
58
58
58
$
— $
—
—
—
—
(88,881)
—
—
18,313
33,184
205,658
5,007
262,162
20,239
3,098
2,494
(88,881)
287,993
—
—
—
—
(88,881) $
$
389,457
7,545
58
7,603
685,053
(1) We had $1 million in transfers of financial instruments from Level 1 to Level 2 during the year ended September 30, 2015. These transfers
were a result of a decrease in the availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement.
We had $2 million in transfers of financial instruments from Level 2 to Level 1 during the year ended September 30, 2015. These transfers
were a result of an increase in the 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) For derivative transactions not cleared through an exchange, and 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). Deposits associated with derivative transactions cleared through an exchange are
included in deposits with clearing organizations on our Consolidated Statements of Financial Condition.
(3) Effective September 30, 2016 we adopted new accounting guidance related to the classification and disclosure of certain investments using
the NAV as a practical expedient to measure the fair value of the investment. These prior year amounts reflect the effect of reclassifications
to conform the prior year to current year presentation. Accordingly, the amounts presented above do not include our investments measured at
NAV, see Notes 1, 2, and the “investments in private equity measured at net asset value per share” section within this footnote, for additional
information.
(4) The portion of these investments we do not own is approximately $19 million as of September 30, 2015 and are included as a component of
noncontrolling interest in our Consolidated Statements of Financial Condition. The weighted average portion we own is approximately $58
million or 75% of the total private equity investments of $77 million included in our Consolidated Statements of Financial Condition.
(5) Other investments include $106 million of financial instruments that are related to obligations to perform under certain deferred compensation
plans (see Notes 2 and 24 for further information regarding these plans).
(6) Consists of derivatives arising from RJ Bank’s business operations, see Note 18 for additional information.
(7)
Includes the fair value of forward commitments to purchase GNMA or FNMA MBS arising from our fixed income public finance operations
(see Notes 2 and 21 for additional information).
(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.
134
Index
The adjustment to fair value of the nonrecurring fair value measures for the year ended September 30, 2016 resulted in a
$12 million additional provision for loan losses and unfunded lending commitment reserve expense relating to impaired loans,
and $100 thousand in other losses relating to loans held for sale and OREO. The adjustment to fair value of the nonrecurring fair
value measures for the year ended September 30, 2015 resulted in a $900 thousand additional provision for loan losses relating to
impaired loans and $300 thousand in other losses relating to loans held for sale and OREO.
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, 2016
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
Corporate
Obligations
Other
ARS –
municipals
ARS -
preferred
securities
Private
equity
investments
not
measured
at NAV
Other
investments
Other
assets
Other
liabilities
$
156
$
9
$ 1,986
$
28,015
$
110,749
$
77,435
$
565
$ 4,975
$
(58)
(137)
—
75
(94)
—
—
—
—
—
—
(521)
133
136
11,517
(1)
—
(1,393)
(9,656)
—
— 61,887
—
—
11,271
— (59,780)
(1,583)
(1,211)
—
(2)
—
—
—
—
—
—
(25)
—
—
—
—
—
—
—
(18)
—
(17,040)
(141)
—
—
—
—
9
—
8
—
—
(2,527)
(9)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Fair value September 30,
2015
Total gains (losses) for the
year:
Included in earnings
Included in other
comprehensive income
Purchases and contributions
Sales
Redemptions by issuer
Distributions
Transfers:(2)
Into Level 3
Out of Level 3
Fair value
September 30, 2016
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
$
$
— $
7
$ 3,572
$
25,147
$
100,018
$
83,165
$
441
$ 2,448
$
(67)
— $
2
$ (225) $
(1,348) $
(9,574) $
11,517
$
2
$(2,527) $
—
(1) Primarily results from valuation adjustments of certain private equity investments. Since we only own a portion of these investments, our share of the
net valuation adjustments resulted in a gain of $3 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 $9 million.
(2) Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.
135
Index
Fair value
September 30, 2014
Total gains (losses) for the year:
Included in earnings
Included in other
comprehensive income
Purchases and contributions
Sales
Redemptions by issuer
Distributions
Transfers: (3)
Into Level 3
Out of Level 3
Year ended September 30, 2015
Level 3 assets at fair value
(in thousands)
Financial assets
Trading instruments
Private equity, other investments, other
receivables and other assets
Financial
liabilities
Payables-
trade
and other
Non-
agency
CMOs
&
ABS
Corporate
Obligations
Equity
securities
Other
ARS –
municipals
ARS -
preferred
securities
Private
equity
investments
not
measured at
NAV(1)
Other
investments
Other
assets
Other
liabilities
$
— $
11
$
44
$ 2,309
$
86,696
$ 114,039
$
75,980
$
1,731
$
787
$
(58)
(180)
11,042
25
8,723 (2)
(40)
—
33
(31)
—
—
209
(15)
1
—
—
—
—
(3)
—
—
5
—
20
—
(6,112)
(3,065)
34,478
—
— (34,621)
(63,611)
—
—
—
(69)
—
—
—
—
—
—
—
—
—
—
(250)
—
—
—
—
1,226
(4,307)
—
(4,187)
—
—
Fair value
September 30, 2015
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
$
$
156
$
9
$
— $ 1,986
$
28,015
$ 110,749
$
77,435
(40)
$
1
$
— $
11
$
(910)
$
(3,065)
$
7,252
57
—
—
—
(681)
(542)
—
—
4,188
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
565
$
4,975
$
(58)
(57)
$
4,203
$
—
(1) Effective September 30, 2016 we adopted new accounting guidance related to the classification and disclosure of certain investments
using the NAV as a practical expedient to measure the fair value of the investment. These prior year amounts reflect the effect of
reclassifications to conform the prior year to current year presentation. Accordingly, the amounts presented above do not include our
investments measured at NAV, see Notes 1, 2, and the “investments in private equity measured at net asset value per share” section
within this footnote, for additional information.
(2) 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 $7 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 $2 million.
(3) Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between
levels are recognized.
136
Index
Fair value
September 30,
2013
Total gains (losses)
for the year:
Included in
earnings
Included in other
comprehensive
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
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, other receivables 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
not measured
at NAV(1)
Other
investments
Other
receivables
Other
assets
Other
liabilities
$
14
$
35
$
3,956 $
78
$
130,934
$
110,784
$
82,390
$
4,607
$
2,778
$
15
$
(60)
(1)
—
—
—
—
(2)
—
—
6
—
103
(98)
—
—
—
(2)
(371)
(27)
7,046
44
4,143
174
(2,778)
772
—
18,628
22
—
(19,904)
(38)
(23,355)
(403)
3,536
—
—
—
—
975
—
63
(7,076)
(2,698)
—
—
—
—
—
(35)
—
—
(27,526)
(325)
—
—
—
—
—
—
—
(11,741)
7,289 (3)
—
(64)
(351)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
$
11
$
44
$
2,309 $
— $
86,696
$
114,039
$
75,980
$
1,731
$
— $
787
$
(58)
$
20
$
6
$
(7) $
— $
(403)
$
3,536
$
1,235
$
267
$
— $
772
$
—
(1) Effective September 30, 2016 we adopted new accounting guidance related to the classification and disclosure of certain investments
using the NAV as a practical expedient to measure the fair value of the investment. These prior year amounts reflect the effect of
reclassifications to conform the prior year to current year presentation. Accordingly, the amounts presented above do not include our
investments measured at NAV, see Notes 1, 2, and the “investments in private equity measured at net asset value per share” section
within this footnote, for additional information.
(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.
As of September 30, 2016, 8% 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, 2016 represent 9% of
our assets measured at fair value. In comparison as of September 30, 2015, 7% and 3% 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, 2015 represented 11% of our assets measured at fair value. Level 3 instruments as a
percentage of total financial instruments decreased by 3% compared to September 30, 2015, primarily as a result of the decrease
in fair value of our ARS portfolio, offset by an increase in the fair value of our private equity investments not measured at NAV.
137
Index
Gains and losses related to Level 3 recurring fair value measurements included in earnings are presented in net trading profit,
other revenues and other comprehensive income in our Consolidated Statements of Income and Comprehensive Income as follows:
For the year ended September 30, 2016
Total (losses) gains included in earnings
Change in unrealized (losses) gains for assets held at the end of the year
For the year ended September 30, 2015
Total (losses) gains included in earnings
Change in unrealized (losses) gains for assets held at the end of the year
For the year ended September 30, 2014
Total (losses) gains included in earnings
Change in unrealized gains (losses) for assets held at the end of the year
Quantitative information about level 3 fair value measurements
Net trading
profits
Other
revenues
(in thousands)
Other
comprehensive
income
$
$
$
$
$
$
(658) $
(223) $
(214) $
(28) $
(366) $
19
$
9,259
8,992
24,035
11,398
9,376
2,274
$
$
$
$
$
$
(11,049)
(10,922)
(9,177)
(3,975)
3,155
3,133
The significant assumptions used in the valuation of level 3 financial instruments are as follows (the table that follows
includes the significant majority of the financial instruments we hold that are classified as level 3 measures):
Fair value at
September 30,
2016
(in thousands)
Valuation technique(s)
Unobservable input
Range
(weighted-average)
Level 3 financial instrument
Recurring measurements:
Available for sale securities:
ARS:
Municipals - issuer is a
municipality
Municipals - tax-exempt
preferred securities
Preferred securities -
taxable
Private equity investments (not
measured at NAV):
Nonrecurring measurements:
Impaired loans: residential
Impaired loans: corporate
$
$
$
$
$
$
$
10,413
Discounted cash flow
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)
Average discount rate(a)
Average interest rates applicable to future
interest income on the securities(b)
Prepayment year(c)
5.17% - 6.36%
(5.77%)
1.23% - 1.83%
(1.53%)
2019 - 2026 (2022)
4.62% - 5.62%
(5.12%)
0.91% - 0.91%
(0.91%)
2016 - 2021 (2021)
4.87% - 6.34%
(5.56%)
1.24% - 2.51%
(1.34%)
2016 - 2021 (2021)
Discount rate(a)
13% - 20% (17.9%)
Terminal growth rate of cash flows
3% - 3% (3%)
Terminal year
EBITDA Multiple(d)
2019 - 2021 (2020)
5.25 - 7.5 (6.3)
Weighting assigned to outcome of
scenario 1/scenario 2
Not meaningful(e)
81%/19%
Not meaningful(e)
Prepayment rate
Not meaningful(f)
7 yrs. - 12 yrs.
(10.24 yrs.)
Not meaningful(f)
14,734
Discounted cash flow
100,018
Discounted cash flow
56,746
Income or market approach:
Scenario 1 - income approach -
discounted cash flow
Scenario 2 - market approach -
market multiple method
26,419
21,909
26,073
Transaction price or other
investment-specific events(e)
Discounted cash flow
Appraisal or discounted cash
flow value(f)
The text of the footnotes to the table above are on the following page.
138
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 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 are appraisals less selling costs for the collateral dependent
loans and discounted cash flows for impaired loans that are not collateral dependent.
Qualitative disclosure about unobservable inputs
For our recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair
value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs are
described below:
Auction rate securities:
One of the significant unobservable inputs used in the fair value measurement of auction rate securities presented within our
available for sale securities portfolio relates to judgments regarding whether the level of observable trading activity is sufficient
to conclude markets are active. Where insufficient levels of trading activity are determined to exist as of the reporting date, then
management’s assessment of how much weight to apply to trading prices in inactive markets versus management’s own valuation
models could significantly impact the valuation conclusion. The valuation of the securities impacted by changes in management’s
assessment of market activity levels could be either higher or lower, depending upon the relationship of the inactive trading prices
compared to the outcome of management’s internal valuation models.
The future interest rate and maturity assumptions impacting the valuation of the auction rate securities are directly related. As
short-term interest rates rise, due to the variable nature of the penalty interest rate provisions embedded in most of these securities
in the event auctions fail to set the security’s interest rate, then a penalty rate that is specified in the security increases. These
penalty rates are based upon a stated interest rate spread over what is typically a short-term base interest rate index. Management
estimates that at some level of increase in short-term interest rates, issuers of the securities will have the economic incentive to
refinance (and thus prepay) the securities. Therefore, the short-term interest rate assumption directly impacts the input related to
the timing of any projected prepayment. The faster and steeper short-term interest rates rise, the earlier prepayments will likely
occur and the higher the fair value of the security.
Private equity investments:
The significant unobservable inputs used in the fair value measurement of private equity investments relate to the financial
performance of the investment entity and the market’s required return on investments from entities in industries in which we hold
investments. Significant increases (or decreases) in our investment entities’ future economic performance will have a directly
proportional impact on the valuation results. The value of our investment moves inversely with the market’s expectation of returns
from such investments. Should the market require higher returns from industries in which we are invested, all other factors held
constant, our investments will decrease in value. Should the market accept lower returns from industries in which we are invested,
all other factors held constant, our investments will increase in value.
Investments in private equity measured at net asset value per share
As a practical expedient, we utilize NAV or its equivalent to determine the recorded value of a portion of our private equity
portfolio. We utilize NAV when the fund investment does not have a readily determinable fair value and the NAV of the fund is
calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of
139
Index
the investments at fair value.
Our private equity portfolio includes various direct and third party private equity investments, employee investment funds,
and various private equity funds which we sponsor. The portfolio is primarily invested in a broad range of industries including
leveraged buyouts, growth capital, distressed capital, venture capital and mezzanine capital.
Due to the closed-end nature of certain of our fund investments, such investments cannot be redeemed directly with the funds;
our investment is monetized through distributions received through the liquidation of the underlying assets of those funds.
The recorded value and unfunded commitments related to our private equity portfolio is as follows:
Recorded Value
RJF(1)
Unfunded Commitment
Noncontrolling
Interest(2)
Total
(in thousands)
September 30, 2016
Private equity investments at NAV
Private equity investments at fair value
Total private equity investments
September 30, 2015
Private equity investments at NAV
Private equity investments at fair value
Total private equity investments
$
$
$
$
$
$
111,469
83,165
194,634
131,653
77,435
209,088
27,542
$
3,001
$
30,543
35,606
$
3,326
$
38,932
(1) Represents RJF’s portion of unfunded commitments related to our private equity portfolio.
(2) Unfunded commitments related to the portion of our private equity portfolio owned by others. Such commitments are required to be
funded by the holders of the noncontrolling interests.
While we anticipate the liquidation of these investments to take place over nine years, many of these fund investments meet
the definition of prohibited “covered funds” as defined by the Volcker Rule of the Dodd-Frank Wall Street Reform and Consumer
Protection Act. In order to be compliant with the Volcker Rule by its’ July 2017 conformance period, it is possible that we may
be required to sell our interests in such funds. If that occurs, we may receive a value for our interests that is less than the carrying
value as there is a limited secondary market for these investments and we may be unable to sell them in orderly transactions.
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, 2016 and 2015, we have elected not to
choose the fair value option for any of our financial assets or liabilities not already recorded at fair value.
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, 2016 and 2015 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
140
Index
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.
The majority of fair value determinations for these loans are classified as Level 3 under the fair value hierarchy. 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, 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.
Loans to financial advisors, net: These financial instruments are primarily comprised of loans provided to financial advisors
or key revenue producers, primarily for recruiting, transitional cost assistance, and retention purposes. Such loans are generally
repaid over a five to eight year period, and are recorded at cost less an allowance for doubtful accounts. The fair value of loans
to financial advisors, net, is determined through application of a discounted cash flow analysis, based on contractual maturities of
the underlying loans discounted at the current market interest rates associated with such loans. This methodology for estimating
the fair value of these loans does not consider other market variables and, therefore, is not based on an exit price concept. Loans
to financial advisors, net are classified as Level 3 under the fair value hierarchy.
Securities borrowed and securities loaned: Securities borrowed and securities loaned are recorded at amounts which
approximate fair value and are primarily 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, 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 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 carrying amount of the remaining
components of our other borrowings approximate their fair value due to the relative short-term nature of such borrowings, some
of which are day-to-day. In addition to the mortgage note payable, 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.
Senior notes payable: The fair value of our senior notes payable 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 bank 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 26 for further discussion of off-balance sheet financial instruments.
141
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
September 30, 2016
Financial assets:
Bank loans, net(1)
Loans to financial advisors, net
Financial liabilities:
Bank deposits
Other borrowings(2)
Senior notes payable
September 30, 2015
Financial assets:
Bank loans, net(1)
Loans to financial advisors, net
Financial liabilities:
Bank deposits
Other borrowings(2)
Senior notes payable
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
196,109
$
14,925,802
— $
706,717
13,947,310
34,520
$
$
$
318,228
— $
— $
362,180
$
1,452,071
— $
— $
— $
— $
368,760
$
105,199
$
12,799,065
— $
420,868
11,564,963
38,455
892,963
$
$
$
358,981
— $
— $
$
$
$
$
$
$
15,121,911
706,717
14,265,538
34,520
1,814,251
12,904,264
420,868
11,923,944
38,455
1,261,723
$
$
$
$
$
$
$
$
$
$
15,121,430
838,721
14,262,547
33,391
1,680,587
12,907,776
488,760
11,919,881
37,716
1,137,570
(1) Excludes all impaired loans and loans held for sale which have been recorded at fair value in the Consolidated Statements of Financial
Condition at September 30, 2016 and 2015.
(2) Excludes the components of other borrowings that are recorded at amounts that approximate their fair value in the Consolidated
Statements of Financial Condition at September 30, 2016 and 2015.
142
Index
NOTE 6 – TRADING INSTRUMENTS AND TRADING INSTRUMENTS SOLD BUT NOT YET PURCHASED
September 30, 2016
September 30, 2015
Trading
instruments
Instruments
sold but not
yet purchased
Trading
instruments
Instruments
sold but not
yet purchased
(in thousands)
Municipal and provincial obligations
$
274,163
$
1,161
$
206,063
$
Corporate obligations
Government and agency obligations
Agency MBS and CMOs
Non-agency CMOs and ABS
Total debt securities
Derivative contracts (1)
Equity securities
Brokered certificates of deposit
Other
Total
132,885
49,598
164,663
34,428
655,737
55,703
16,029
35,206
4,130
31,074
266,682
2,804
—
301,721
8,835
18,382
—
—
95,317
115,947
117,570
46,940
581,837
42,086
28,344
30,803
7,481
18,313
33,184
205,658
5,007
—
262,162
20,239
3,098
—
2,494
$
766,805
$
328,938
$
690,551
$
287,993
(1) Represents the derivative contracts held for trading purposes. These balances do not include all derivative instruments. See Note 18
for further information regarding all of our derivative transactions, and see Note 19 for additional information regarding offsetting
financial instruments.
See Note 5 for additional information regarding the fair value of trading instruments and trading instruments sold but not yet
purchased.
NOTE 7 – AVAILABLE FOR SALE SECURITIES
Available for sale securities are comprised of MBS and CMOs owned by RJ Bank and ARS owned by one of our non-broker-
dealer subsidiaries.
There were $8.5 million of proceeds, and a gain of $100 thousand which is included in other revenues on our Consolidated
Statements of Income and Comprehensive Income, from the sale of available for sale securities held by RJ Bank during the year
ended September 30, 2016. During the year ended September 30, 2015, there were $12.2 million in proceeds, and a loss of $600
thousand, from sales of available for sale securities held by RJ Bank. During the year ended September 30, 2014, there were $26.6
million in proceeds, and a gain of $300 thousand, from the sale of available for sale securities owned by RJ Bank.
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
$2.8 million, and a gain of $300 thousand which is included in other revenues on our Consolidated Statements of Income and
Comprehensive Income for the year ended September 30, 2016. During the year ended September 30, 2015, sales or redemption
activities within the ARS portion of the available for sale securities portfolio resulted in proceeds of $63.9 million and a gain of
$11.1 million. Nearly all of the ARS proceeds as well as the gain on sale arising during the year ended September 30, 2015 resulted
from the sale of Jefferson County, Alabama Limited Obligation School Warrants ARS. During the year ended September 30, 2014,
sales or redemption activities within the ARS portion of the available for sale securities portfolio resulted in proceeds of $51.2
million, and a gain of $7.1 million, which includes $26.5 million in proceeds and a gain of $5.5 million, from the redemption of
Jefferson County, Alabama Sewer Revenue Refunding Warrants ARS.
143
Index
The amortized cost and fair values of available for sale securities are as follows:
September 30, 2016
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, 2015
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, 2014
Available for sale securities:
Agency MBS and CMOs
Non-agency CMOs (3)
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
Cost basis
Gross
unrealized gains
Gross
unrealized
losses
Fair value
(in thousands)
$
$
$
$
$
$
680,341
53,427
1,575
735,343
27,491
103,226
130,717
866,060
301,001
75,678
1,575
378,254
28,966
104,302
133,268
511,522
267,927
98,946
1,575
368,448
81,535
104,526
186,061
554,509
$
$
$
$
$
$
2,512
9
—
2,521
14
—
14
2,535
1,538
18
—
1,556
576
6,447
7,023
8,579
822
56
341
1,219
6,240
9,513
15,753
16,972
$
(556) $
(2,917)
(158)
(3,631)
(2,358)
(3,208)
(5,566)
(9,197) $
(344) $
(4,327)
(173)
(4,844)
(1,527)
—
(1,527)
(6,371) $
(1,029) $
(7,084)
—
(8,113)
(1,079)
—
(1,079)
(9,192) $
$
$
$
$
$
682,297
50,519
1,417
734,233
25,147
100,018
125,165
859,398
302,195
71,369
1,402
374,966
28,015
110,749
138,764
513,730
267,720
91,918
1,916
361,554
86,696
114,039
200,735
562,289
(1) As of September 30, 2016, the non-credit portion of unrealized losses related to non-agency CMOs with previously recorded OTTI
was $2.3 million (before taxes) recorded in AOCI. See Note 22 for additional information.
(2) As of September 30, 2015, the non-credit portion of unrealized losses related to non-agency CMOs with previously recorded OTTI
was $3.6 million (before taxes) recorded in AOCI.
(3) As of September 30, 2014, the non-credit portion of unrealized losses related to non-agency CMOs with previously recorded OTTI
was $6.1 million (before taxes) recorded in AOCI.
See Note 5 for additional information regarding the fair value of available for sale securities.
144
Index
The contractual maturities, amortized cost, carrying values and current yields for our available for sale securities are as
presented below. Since RJ Bank’s available for sale securities (MBS & CMOs) are backed by mortgages, actual maturities will
differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment
penalties. Expected maturities of ARS may differ significantly from contractual maturities, as issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Within one year
After one but
within five
years
September 30, 2016
After five but
within ten
years
($ in thousands)
After ten years
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
680,341
682,297
1.49%
53,427
50,519
2.56%
1,575
1,417
—
735,343
734,233
1.57%
27,491
25,147
1.77%
103,226
100,018
0.87%
130,717
125,165
1.05%
866,060
859,398
1.49%
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
$
$
$
$
$
$
$
$
1
1
0.54%
27,476
27,799
$
$
1.66%
100,033
100,729
$
$
1.46%
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
552,831
553,768
1.49%
53,427
50,519
2.56%
1,575
1,417
—
Sub-total agency MBS & CMOs, non-agency CMOs and other securities:
$
$
27,476
27,799
$
$
Amortized cost
Carrying value
Weighted-average yield
1
1
0.54%
1.66%
$
$
100,033
100,729
$
$
1.46%
607,833
605,704
1.58%
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
$
$
$
$
$
$
$
$
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
$
$
1
1
0.54%
27,476
27,799
$
$
1.66%
100,033
100,729
$
$
1.46%
27,491
25,147
1.77%
103,226
100,018
0.87%
130,717
125,165
1.05%
738,550
730,869
1.49%
145
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, 2016
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
Other securities
ARS municipal obligations
ARS preferred securities
Total
Agency MBS and CMOs
Non-agency CMOs
Other securities
ARS municipal obligations
Total
$
$
$
$
208,880
4,256
1,417
13,204
98,489
326,246
$
$
(361) $
(21)
(158)
(697)
(3,208)
(4,445) $
$
(in thousands)
28,893
44,137
—
11,695
—
84,725
$
(195) $
(2,896)
—
(1,661)
—
(4,752) $
237,773
48,393
1,417
24,899
98,489
410,971
$
$
(556)
(2,917)
(158)
(2,358)
(3,208)
(9,197)
Less than 12 months
September 30, 2015
12 months or more
Total
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
3,488
—
1,402
225
5,115
$
$
(37) $
—
(173)
(3)
(213) $
$
(in thousands)
29,524
65,854
—
11,627
107,005
$
(307) $
(4,327)
—
(1,524)
(6,158) $
33,012
65,854
1,402
11,852
112,120
$
$
(344)
(4,327)
(173)
(1,527)
(6,371)
The reference point for determining when securities are in a loss position is the reporting period end. As such, it is possible
that a security had a fair value that exceeded its amortized cost on other days during the period.
Agency MBS and CMOs
The Federal Home Loan Mortgage Corporation (“FHLMC”), FNMA, as well the GNMA, guarantee the contractual cash flows
of the agency MBS and CMOs. At September 30, 2016, of the 38 U.S. government-sponsored enterprise MBS and CMOs in an
unrealized loss position, 32 were in a continuous unrealized loss position for less than 12 months and six 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.
146
Index
The significant assumptions used in the cash flow analysis of non-agency CMOs are as follows:
Default rate
Loss severity
Prepayment rate
September 30, 2016
Range
0% - 8.2%
0% - 53.8%
6.5% - 19.6%
Weighted-
average (1)
3.07%
32.09%
12.22%
(1) Represents the expected activity for the next twelve months.
At September 30, 2016, 11 of the 13 non-agency CMOs were in a continuous unrealized loss position. Ten of these securities
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, 2016 reflect the uncertainty in the markets for these instruments.
ARS
Our 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, 2016 is $152.9 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.
As of September 30, 2016, there were 37 ARS preferred securities with a fair value less than their cost basis, indicating
potential impairment. We analyzed the credit ratings associated with each of these securities as an indicator of potential credit
impairment, and including subsequent rating changes, determined that all of 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 potential impairment within our ARS preferred securities portfolio is related
to potential credit loss.
Within our municipal ARS holdings as of September 30, 2016, there were nine municipal ARS 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 all of 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 potential impairment within our municipal ARS portfolio is related to
potential credit loss.
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, 2016 we do not expect to recover the entire amortized cost basis of certain
securities within the non-agency CMO available for sale security 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
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
$
$
147
2016
Year ended September 30,
2015
(in thousands)
18,703
$
(6,856)
$
11,847
(3,740)
2014
28,217
(9,541)
—
—
27
8,107
$
11,847
$
18,703
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,
2016
2015
(in thousands)
$
$
2,715,428
(646)
2,714,782
$
$
2,185,586
(290)
2,185,296
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,
2016
2015
(in thousands)
$
$
4,893,813
1,550,858
6,444,671
$
$
4,148,952
522,121
4,671,073
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.
148
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)
2016
Balance
%
September 30,
2015
Balance
($ in thousands)
%
2014
Balance
%
$
214,286
1% $
119,519
1% $
45,988
—
6,402,675
107,437
2,188,652
740,944
2,439,286
1,903,930
1,067,698
15,281
365,419
2,283
897
15,234,502
(40,675)
15,193,827
42%
1%
14%
5%
16%
12%
7%
—
2%
—
—
5,893,631
126,402
1,679,332
484,537
1,959,786
1,479,562
1,034,387
35,954
374,822
2,828
1,942
13,073,183
(32,424)
13,040,759
44%
1%
13%
4%
15%
11%
8%
—
3%
—
—
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
49%
1%
13%
1%
16%
9%
9%
—
2%
—
—
Total loans held for sale and investment
Allowance for loan losses
Bank loans, net
15,408,113
(197,378)
15,210,735
$
100%
13,160,278
(172,257)
$ 12,988,021
100%
11,111,873
(147,574)
$ 10,964,299
100%
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
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
September 30,
2013
2012
Balance
%
Balance
%
$
110,292
($ in thousands)
1% $
160,515
50%
—
12%
20%
6%
9%
—
2%
—
—
4,439,668
38,964
1,075,986
1,743,787
554,210
806,337
21,876
207,060
1,863
1,595
8,891,346
(43,936)
8,847,410
8,957,702
(136,501)
8,821,201
$
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
2%
55%
1%
10%
21%
4%
6%
—
1%
—
—
100%
(1) Net of unearned income and deferred expenses, which includes purchase premiums, purchase discounts, and net deferred origination
fees and costs.
149
Index
At September 30, 2016, 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.
Loans held for sale
RJ Bank originated or purchased $1.8 billion, $1.2 billion and $1.0 billion of loans held for sale during the years ended
September 30, 2016, 2015 and 2014, respectively. Proceeds from the sale of held for sale loans amounted to $383 million, $213
million and $189 million for the years ended September 30, 2016, 2015 and 2014, respectively. Net gains resulting from such
sales amounted to $1.7 million, $1.7 million and $800 thousand for the years ended September 30, 2016, 2015 and 2014,
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 $300 thousand, $400 thousand and $400 thousand for the years ended
September 30, 2016, 2015 and 2014, 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:
Year ended September 30, 2016
Purchases
Sales(1)
Year ended September 30, 2015
Purchases
Sales(1)
Year ended September 30, 2014
Purchases
Sales(1)
C&I
CRE
Residential
mortgage
(in thousands)
$
$
$
$
$
$
457,503
172,968
792,921
108,983
536,167
219,914
$
$
$
$
$
$
(2)
(3)
24,869
$
— $
371,710
—
— $
— $
220,311
—
5,000
$
— $
29,667
—
$
$
$
$
$
$
Total
854,082
172,968
1,013,232
108,983
570,834
219,914
(1) Represents the recorded investment of loans held for investment that were transferred to loans held for sale and subsequently sold to
a third party during the respective period. Corporate loan sales generally occur as part of a loan workout situation.
(2) Includes the purchase from other financial institutions of residential mortgage loans totaling $294 million in principal loan balance.
(3) Includes the purchase from another financial institution of residential mortgage loans totaling $207 million in principal loan balance.
150
Index
Aging analysis of loans held for investment
The following table presents an analysis of the payment status of loans held for investment:
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)
As of September 30, 2016:
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, net $
$
As of September 30, 2015:
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, net $
$
— $
—
—
—
1,766
—
—
1,766
163
—
—
—
2,906
30
—
3,099
$
$
$
— $
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
— $
— $
—
—
—
1,766
—
—
1,766
163
—
—
—
2,906
30
—
3,099
$
$
$
35,194
—
4,230
—
41,746
37
—
81,207
$
$
7,435,179
122,718
2,549,841
740,944
7,470,373
122,718
2,554,071
740,944
2,377,357
20,663
1,904,827
$ 15,151,529
2,420,869
20,700
1,904,827
$ 15,234,502
$
— $
—
4,796
—
6,927,855
162,356
2,049,358
484,537
6,928,018
162,356
2,054,154
484,537
47,504
319
—
52,619
1,891,384
20,471
1,481,504
$ 13,017,465
1,941,794
20,820
1,481,504
$ 13,073,183
(1) Includes $54 million and $22 million of nonaccrual loans at September 30, 2016 and 2015, 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 the nonperforming loans reflected
in the previous table, which would have been recorded had these loans been current in accordance with their original terms, totaled
$2 million, $1 million and $4 million for the years ended September 30, 2016, 2015 and 2014, respectively. The interest income
recognized on nonperforming loans was $1 million in each of the years ended September 30, 2016, 2015 and 2014.
The recorded investment in mortgage loans secured by one-to-four family residential properties for which formal foreclosure
proceedings are in process is $21 million and $25 million at September 30, 2016 and 2015, respectively.
151
Index
Impaired loans and troubled debt restructurings
The following table provides a summary of RJ Bank’s impaired loans:
Gross
recorded
investment
2016
Unpaid
principal
balance
September 30,
Allowance
for losses
Gross
recorded
investment
(in thousands)
2015
Unpaid
principal
balance
Allowance
for losses
Impaired loans with allowance for loan losses:(1)
C&I loans
Residential - first mortgage loans
$
Total
35,194
30,393
65,587
CRE loans
Residential - first mortgage loans
Impaired loans without allowance for loan losses:(2)
4,230
17,809
22,039
87,626
Total impaired loans
Total
$
$
$
35,872
41,337
77,209
11,611
26,486
38,097
115,306
$
$
13,351
3,147
16,498
—
—
—
16,498
$
$
10,599
35,442
46,041
4,796
20,221
25,017
71,058
$
$
11,204
48,828
60,032
11,611
29,598
41,209
101,241
$
$
1,132
4,014
5,146
—
—
—
5,146
(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 $4 million CRE, and $28 million residential first mortgage TDR’s at September 30, 2016 and
$5 million CRE, $11 million C&I, and $33 million residential first mortgage TDR’s at September 30, 2015.
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
Total
2016
Year ended September 30,
2015
(in thousands)
2014
$
$
$
$
18,112
4,474
51,554
—
74,140
1,413
1,413
$
$
$
$
11,311
14,694
59,049
—
85,054
1,426
1,426
$
$
$
$
6,183
23,416
70,370
21
99,990
1,592
1,592
During the years ended September 30, 2016, 2015, and 2014, RJ Bank granted concessions to borrowers having financial
difficulties, for which the resulting modification was deemed a TDR. These concessions granted for the respective first mortgage
residential loans were interest rate reductions, amortization and maturity date extensions, capitalization of past due payments, or
release of liability ordered under Chapter 7 bankruptcy not reaffirmed by the borrower. The concessions granted for the corporate
loans were amortization and maturity date extensions.
152
Index
The table below presents the TDR’s that occurred during the respective periods presented:
Year ended September 30, 2016
Residential – first mortgage loans
Year ended September 30, 2015
Residential – first mortgage loans
Year ended September 30, 2014
C&I loans
CRE loans
Residential – first mortgage loans
Total
Number of
contracts
Pre-
modification
outstanding
recorded
investment
($ in thousands)
Post-
modification
outstanding
recorded
investment
1
$
236
$
236
6
1
2
14
17
$
$
1,117
1,196
19,200
22,291
3,599
45,090
$
$
$
$
15,035
22,291
3,892
41,218
There were no TDR’s for which there was a payment default and for which the respective loan was modified as a TDR during
the years ended September 30, 2016 and 2015, respectively. During the year September 30, 2014, there were three residential first
mortgage TDR’s, respectively, with a recorded investment of $900 thousand 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, 2016 RJ Bank had no
outstanding commitments on TDRs. As of September 30, 2015, RJ Bank had one outstanding commitment on a C&I TDR in the
amount of $600 thousand.
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.
153
Index
The credit quality of RJ Bank’s held for investment loan portfolio is as follows:
Pass
Special mention(1)
Substandard(1)
Doubtful(1)
Total
(in thousands)
September 30, 2016
C&I
CRE construction
CRE
Tax-exempt
Residential mortgage
First mortgage
Home equity
SBL
Total
September 30, 2015
C&I
CRE construction
CRE
Tax-exempt
Residential mortgage
First mortgage
Home equity
SBL
Total
$
$
$
$
7,241,055
122,718
2,549,672
740,944
2,355,393
20,413
1,904,827
14,935,022
6,739,179
162,356
2,034,692
484,537
1,868,044
20,372
1,481,504
12,790,684
$
$
$
$
117,046
—
—
—
11,349
182
—
128,577
97,623
—
39
—
14,890
128
—
112,680
$
$
$
$
112,272
—
4,399
—
54,127
105
—
170,903
91,216
—
19,423
—
58,860
320
—
169,819
$
$
$
$
— $
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
— $
7,470,373
122,718
2,554,071
740,944
2,420,869
20,700
1,904,827
15,234,502
6,928,018
162,356
2,054,154
484,537
1,941,794
20,820
1,481,504
13,073,183
(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. 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%
Total
(1) Excludes loans that have full repurchase recourse for any delinquent loans.
Balance(1)
(in thousands)
$
$
804,559
1,256,436
66,307
11,106
858
2,139,266
154
Index
Allowance for loan losses and reserve for unfunded lending commitments
Changes in the allowance for loan losses of RJ Bank by portfolio segment are as follows:
Year ended September 30, 2016
Balance at beginning of year:
Provision (benefit) for loan losses
Net (charge-offs)/recoveries:
Charge-offs
Recoveries
Net charge-offs
Foreign exchange translation
adjustment
Balance at September 30, 2016
Year ended September 30, 2015
Balance at beginning of year:
Provision (benefit) for loan losses
Net (charge-offs)/recoveries:
Charge-offs
Recoveries
Net (charge-offs)/recoveries
Foreign exchange translation
adjustment
Balance at September 30, 2015
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 exchange translation
adjustment
Loans held for investment
C&I
CRE
construction
CRE
Tax-
exempt
Residential
mortgage
SBL
Total
(in thousands)
$ 117,623
23,051
$
$
2,707
(1,023)
$
30,486
5,997
$
5,949
(1,849)
12,526
191
$ 2,966
1,800
$ 172,257
28,167
(2,956)
—
(2,956)
(17)
$ 137,701
$ 103,179
16,091
(1,191)
611
(580)
(1,067)
$ 117,623
$
95,994
9,560
(1,845)
16
(1,829)
$
$
$
$
—
—
—
(70)
1,614
1,594
1,176
—
—
—
(63)
2,707
1,000
625
—
—
—
$
$
$
$
—
—
—
50
36,533
25,022
2,205
—
3,773
3,773
(514)
30,486
19,266
5,860
(16)
80
64
$
$
$
$
(546)
(31)
(168)
—
—
—
—
4,100
1,380
4,569
—
—
—
$
$
(1,470)
1,417
(53)
—
—
—
(4,426)
1,417
(3,009)
—
12,664
—
$ 4,766
(37)
$ 197,378
14,350
(1,363)
$ 2,049
892
$ 147,574
23,570
(1,667)
1,206
(461)
—
25
25
(2,858)
5,615
2,757
—
5,949
$
—
12,526
—
$ 2,966
(1,644)
$ 172,257
— $
1,380
19,126
(4,759)
$ 1,115
899
$ 136,501
13,565
—
—
—
(2,015)
1,998
(17)
—
35
35
(3,876)
2,129
(1,747)
—
1,380
$
—
14,350
—
$ 2,049
(745)
$ 147,574
Balance at September 30, 2014
$ 103,179
$
1,594
$
25,022
$
155
Index
The following table presents, by loan portfolio segment, RJ Bank’s recorded investment and related allowance for loan losses:
Loans held for investment
Allowance for loan losses
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Total
Individually
evaluated for
impairment
Recorded investment(1)
Collectively
evaluated for
impairment
Total
$
$
$
$
13,351
—
—
—
3,156
—
16,507
1,132
—
—
—
4,046
—
5,178
$
$
$
124,350
1,614
36,533
4,100
9,508
4,766
180,871
116,491
2,707
30,486
5,949
8,480
2,966
167,079
$
$
$
$
(in thousands)
137,701
1,614
36,533
4,100
12,664
4,766
197,378
117,623
2,707
30,486
5,949
12,526
2,966
172,257
$
$
$
$
35,194
—
4,230
—
56,735
—
96,159
10,599
—
4,796
—
62,706
—
78,101
$
$
$
$
7,435,179
122,718
2,549,841
740,944
2,384,834
1,904,827
15,138,343
6,917,419
162,356
2,049,358
484,537
1,899,908
1,481,504
12,995,082
$
$
$
$
7,470,373
122,718
2,554,071
740,944
2,441,569
1,904,827
15,234,502
6,928,018
162,356
2,054,154
484,537
1,962,614
1,481,504
13,073,183
September 30, 2016
C&I
CRE construction
CRE
Tax-exempt
Residential mortgage
SBL
Total
September 30, 2015
C&I
CRE construction
CRE
Tax-exempt
Residential mortgage
SBL
Total
(1) Excludes any net unearned income and deferred expenses.
The reserve for unfunded lending commitments, included in trade and other payables on our Consolidated Statements of
Financial Condition, was $11 million and $10 million at September 30, 2016 and 2015, respectively.
156
Index
NOTE 10 - PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets include the following:
Investments in company-owned life insurance (1)
Prepaid expenses
Direct investment in LIHTC project partnerships by RJ Bank (2)
Investment in FHLB stock
Indemnification asset (3)
Investment in FRB stock
Prepaid compensation arising from 3Macs acquisition(4)
Low-income housing tax credit fund financing asset (5)
Prepaid compensation associated with DBRSU awards(6)
OREO (7)
Other assets
Prepaid expenses and other assets
September 30,
2016
2015
(in thousands)
$
$
417,137
91,129
55,129
38,813
35,325
24,706
24,285
20,543
15,170
4,497
50,490
777,224
$
$
320,523
75,528
33,267
35,582
143,144
24,450
—
24,452
—
4,631
32,162
693,739
(1) As of September 30, 2016, we own life insurance policies with a cumulative face value of $955.8 million.
(2) See the discussion of the accounting policies regarding these investments in the “direct investments in LIHTC project partnerships”
section of Note 2.
(3) The indemnification asset pertains to legal matters for which Regions (as hereinafter defined in Note 21) has indemnified RJF in
connection with our acquisition of Morgan Keegan (as hereinafter defined in Note 21). The liabilities related to such matters are
included in trade and other payables on our Consolidated Statements of Financial Condition. See Note 21 for additional information.
(4) Asset arose from our acquisition of 3Macs. See the discussion of the circumstances giving rise to this asset in Note 3.
(5) In fiscal year 2010, we sold an investment in a low-income housing tax credit fund and we guaranteed the return on investment to one
of the purchasers. As a result of selling this investment and providing a guaranteed return to its buyer, we are the primary beneficiary
of the fund that was sold (see Note 11 for further information regarding the consolidation of this fund) and we 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 $20.5 million and $24.5 million is
included in trade and other payables on our Consolidated Statements of Financial Condition as of September 30, 2016 and 2015,
respectively. See Note 21 for further discussion of our obligations under the guarantee.
(6) See the discussion of the DBRSU awards in the “share-based compensation” section of Note 2, and additional information about such
awards in Note 24.
(7) See the discussion of the accounting policies regarding OREO in the “nonperforming assets” section of Note 2.
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.
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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, 2016
LIHTC Funds
Guaranteed LIHTC Fund (2)
Restricted Stock Trust Fund
EIF Funds
Total
September 30, 2015
LIHTC Funds
Guaranteed LIHTC Fund (2)
Restricted Stock Trust Fund
EIF Funds
Total
Aggregate
assets (1)
Aggregate
liabilities (1)
(in thousands)
$
$
$
$
107,511
63,415
9,949
3,749
184,624
143,111
71,231
6,405
4,627
225,374
$
$
$
$
26,604
2,556
9,949
—
39,109
41,125
2,263
6,405
—
49,793
(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,
2016
2015
(in thousands)
$
$
$
$
7,547
5,493
157,228
9,948
3,711
183,927
13,231
9,918
12,597
35,746
6,094
142,087
148,181
183,927
$
$
$
$
8,525
5,542
199,678
6,404
4,297
224,446
12,424
6,400
25,960
44,784
6,121
173,541
179,662
224,446
(1) Included in treasury stock in our Consolidated Statements of Financial Condition.
(2) Comprised of non-recourse loans. We are not contingently liable under any of these loans (see Note 16 for additional information).
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Index
The following table presents information about the net loss of the VIEs which we consolidate, and is included within our
Consolidated Statements of Income and Comprehensive Income. The noncontrolling interests presented in this table represent the
portion of the net loss from these VIEs which is not ours.
Revenues:
Interest
Other
Total revenues
Interest expense
Net revenues
Non-interest expenses (1)
Net loss including noncontrolling interests
Net loss attributable to noncontrolling interests
Net loss attributable to RJF
2016
Year ended September 30,
2015
(in thousands)
2014
$
$
$
2
46
48
(1,021)
(973)
42,507
(43,480)
(43,453)
$
2
(817)
(815)
(1,879)
(2,694)
38,179
(40,873)
(40,829)
(27) $
(44) $
1
1,334
1,335
(2,900)
(1,565)
40,819
(42,384)
(42,374)
(10)
(1) Primarily comprised of items reported in other expense on our Consolidated Statements of Income and Comprehensive Income.
Low-income housing tax credit funds
As of September 30, 2016, RJTCF is the managing member or general partner in 106 separate low-income housing tax credit
funds having one or more investor members or limited partners, 93 of which are determined to be VIEs and 13 of which are
determined not to be VIEs. RJTCF has concluded that it is the primary beneficiary of six 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 seven
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 six 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.
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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.
LIHTC Funds
NMTC Funds
Other Real Estate Limited Partnerships and
LLCs
Total
Aggregate
assets
2016
Aggregate
liabilities
$ 4,111,813
65,338
$ 1,406,453
68
22,897
$ 4,200,048
23,522
$ 1,430,043
September 30,
Our risk
of loss
Aggregate
assets
(in thousands)
83,155
12
$ 3,317,594
65,388
140
83,307
29,523
$ 3,412,505
$
$
2015
Aggregate
liabilities
Our risk
of loss
$
$
951,465
40
37,062
988,567
$
$
42,244
12
163
42,419
VIEs where we hold a variable interest but we are not required to consolidate
Managed Funds
We have subsidiaries which serve as the general partner of these Managed Funds. As described in Note 2, we have determined
that we are not required to consolidate these Managed Funds.
The aggregate assets, liabilities, and our exposure to loss from Managed Funds in which we hold a variable interest as of the
dates indicated are provided in the table below:
September 30,
Aggregate
assets
2016
Aggregate
liabilities
Our risk
of loss
Aggregate
assets
2015
Aggregate
liabilities
Our risk
of loss
Managed Funds
$
99,483
$
74
$
(in thousands)
— $
83,132
$
22
$
53
September 30,
2016
2015
$
(in thousands)
24,150
260,800
200,947
271,864
3,711
761,472
(440,015)
321,457
$
20,104
241,457
179,952
189,227
5,973
636,713
(380,838)
255,875
NOTE 12 - PROPERTY AND EQUIPMENT
Land
Buildings, leasehold and land improvements
Furniture, fixtures, and equipment
Software
Construction in process
Less: Accumulated depreciation and amortization
Total property and equipment, net
$
$
160
Index
NOTE 13 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
The following are our goodwill and net identifiable intangible asset balances as of the dates indicated:
Goodwill
Identifiable intangible assets, net
Total goodwill and identifiable intangible assets, net
Goodwill
September 30,
2016
2015
(in thousands)
$
$
408,072
$
96,370
504,442
$
307,635
69,327
376,962
The following summarizes our goodwill by segment, along with the balance and activity for the years indicated:
Goodwill at September 30, 2014
Additions
Goodwill at September 30, 2015
Additions
Foreign currency translation
Goodwill at September 30, 2016
Segment
Private client
group
$
$
$
174,584
12,149 (1)
186,733
86,351 (2)
2,437
275,521
Capital
markets
(in thousands)
120,902
$
—
120,902
9,012 (3)
2,637
132,551
$
$
$
$
$
Total
295,486
12,149
307,635
95,363
5,074
408,072
(1) The addition in fiscal year 2015 is directly attributable to the acquisition of TPC (see Notes 1 and 3 for additional information).
(2) Of the total private client group segment additions in fiscal year 2016, $81.7 million is attributable to our acquisition of Alex. Brown,
and $4.7 million is attributable to our acquisition of 3Macs. See Note 3 for additional information. The addition to goodwill associated
with Alex. Brown is deductible for tax purposes over 15 years, the addition attributable to 3Macs is not deductible for tax purposes.
(3) The capital markets segment goodwill addition in fiscal year 2016 is directly attributable to our acquisition of Mummert. This goodwill
is not deductible for tax purposes.
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, 2016, evaluating the balances as
of December 31, 2015. We assign goodwill to reporting units. Our reporting units include a Private Client Group reporting unit
comprised of our RJ&A domestic retail brokerage operations and TPC (included in our Private Client Group segment), RJ&A
Fixed Income (included in our Capital Markets segment) and RJ&A Equity Capital Markets (included in our Capital Markets
segment). In addition, we have two RJ Ltd. reporting units (RJ Ltd. Private Client Group (included in our Private Client Group
segment) and RJ Ltd. Capital Markets (included in our Capital Markets segment)), each associated with our Canadian operations,
and we elected to perform a quantitative assessment for each of the Canadian reporting units.
Qualitative Assessments
For each reporting unit that we performed qualitative assessments on, we determined whether it is more likely than not that
the carrying value of the 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 assessments, we determined that no quantitative analysis of the fair
value of any of the reporting units we elected to qualitatively analyze as of December 31, 2015 was required, and we concluded
that none of the goodwill allocated to any of those reporting units as of December 31, 2015 was impaired. No events have occurred
since December 31, 2015 that would cause us to update this impairment testing.
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Index
Quantitative Assessments
For our two RJ Ltd. reporting units, we elected not to perform a qualitative assessment but instead to perform quantitative
assessments of the equity value of each RJ Ltd. 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 December 31, 2015 impairment test date and a statement of operations for the last twelve months of activity
for each reporting unit were compiled. Future balance sheets and statements of operations were then projected, and estimated
future cash flows were determined by the combination of these projections. The cash flows were discounted at the reporting units
estimated cost of equity which was derived through application of the capital asset pricing model. The valuation result from the
market approach was dependent upon the selection of the comparable guideline companies and transactions and the earnings
multiple applied to each respective reporting units’ projected earnings. Finally, significant management judgment was applied in
determining the weight assigned to the outcome of the market approach and the income approach, which resulted in one single
estimate of the fair value of the equity of the reporting unit.
The following summarizes certain key assumptions utilized in our quantitative analysis as of December 31, 2015:
Segment
Reporting unit
Goodwill as of
the impairment
testing date
(in thousands)
Private client group:
RJ Ltd. Private Client Group
$
16,144
Capital markets:
RJ Ltd. Capital Markets
Total
$
16,893
33,037
Key assumptions
Weight assigned to
the outcome of:
Discount
rate used
in the
income
approach
14%
Multiple
applied to
revenue/EPS
in the market
approach
1.2x/12.4x
15%
1.1x/14.4x
Income
approach
Market
approach
75%
75%
25%
25%
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 the regulations.
Based upon the outcome of our quantitative assessments as of December 31, 2015, we concluded that none of the goodwill
associated with our two RJ Ltd. reporting units was impaired.
No events have occurred since December 31, 2015 that would cause us to update this impairment testing.
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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:
Private client
group
Capital
markets
Segment
Asset
management
(in thousands)
RJ Bank
Total
Net identifiable intangible assets as of
September 30, 2013
Additions
Amortization expense
Net identifiable intangible assets as of
September 30, 2014
Additions
Amortization expense
Net identifiable intangible assets as of
September 30, 2015
$
$
$
Additions
Amortization expense
Foreign currency translation
Impairment losses
Net identifiable intangible assets as of
September 30, 2016
9,191
$
43,474
$
12,329
$
$
65,978
—
(580)
$
$
8,611
10,290 (2)
(719)
18,182
36,624 (4)
(1,870)
—
—
—
(5,499)
37,975
$
—
(5,443)
32,532
1,013 (5)
(5,619)
11
—
—
(1,333)
10,996
7,974 (3)
(1,833)
984
408 (1)
(199)
$
1,193
$
574 (1)
(291)
$
17,137
$
1,476
$
—
(2,226)
(810)
—
419 (1)
(412)
—
(87)
408
(7,611)
58,775
18,838
(8,286)
69,327
38,056
(10,127)
(799)
(87)
$
52,936
$
27,937
$
14,101
$
1,396
$
96,370
(1) 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.
(2) The fiscal year 2015 additions are directly attributable to the acquisition of identifiable intangible assets which include customer
relationships, a trade name, developed technology, and non-compete agreements, arising from our acquisition of TPC (see Note 3 for
additional information).
(3) The fiscal year 2015 additions are directly attributable to the acquisition of identifiable intangible assets which include customer
relationships, a trade name, intellectual property, and a non-compete agreement, arising from our acquisition of Cougar (see Note 3
for additional information).
(4) The fiscal year 2016 additions are directly attributable to the acquisition of identifiable intangible assets which include customer
relationships, trade names, seller relationship agreements, and non-compete agreements arising from our acquisitions of Alex. Brown
and/or 3Macs (see Note 3 for additional information). The weighted-average useful life associated with these intangible assets, by
major asset class, are 15 years for the customer relationships, four years for the trade names, six years for the seller relationship
agreements, and three years for the non-compete agreements. Altogether the aggregate weighted-average useful life associated with
these additions is 12 years.
(5) The fiscal year 2016 addition is directly attributable to the acquisition of identifiable intangible assets, primarily a customer relationship
intangible asset, arising from our acquisition of Mummert (see Note 3 for additional information). The weighted-average useful life
associated with the addition is one year.
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Index
Identifiable intangible assets by type are presented below:
Customer relationships
Trade name
Developed technology
Intellectual property
Non-compete agreements
Seller relationship agreements
Mortgage servicing rights
Total
September 30,
2016
2015
Gross
carrying
value
Accumulated
amortization
Gross
carrying
value
Accumulated
amortization
(in thousands)
$
$
99,470
8,172
12,630
516
3,314
5,300
2,144
131,546
$
$
(22,895) $
(499)
(10,280)
(73)
(612)
(69)
(748)
(35,176) $
75,217
4,278
12,630
561
1,018
—
2,067
95,771
$
$
(17,759)
(111)
(7,754)
(23)
(206)
—
(591)
(26,444)
Projected amortization expense by fiscal year associated with the identifiable intangible assets as of September 30, 2016 is
as follows:
Fiscal year ended September 30,
2017
2018
2019
2020
2021
Thereafter
$
$
(in thousands)
12,947
11,156
10,675
9,895
9,104
42,593
96,370
NOTE 14 – BANK DEPOSITS
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,
2016
2015
Balance
Weighted-
average rate (1)
Balance
Weighted-
average rate (1)
Bank deposits:
NOW accounts
Demand deposits (non-interest-bearing)
Savings and money market accounts
Certificates of deposit
Total bank deposits(2)
$
$
4,958
7,264
13,935,089
315,236
14,262,547
($ in thousands)
0.01% $
—
0.05%
1.55%
0.08% $
4,752
9,295
11,550,917
354,917
11,919,881
0.01%
—
0.02%
1.64%
0.07%
(1) Weighted-average rate calculation is based on the actual deposit balances at September 30, 2016 and 2015, respectively.
(2) Bank deposits exclude affiliate deposits of approximately $353 million and $458 million at September 30, 2016 and 2015, respectively.
These affiliate deposits include $350 million and $451 million, held in a deposit account on behalf of RJF as of September 30, 2016
and 2015, respectively (see Note 29 for additional information).
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. The aggregate
amount of time deposit account balances that exceed the FDIC insurance limit at September 30, 2016 is $21.9 million.
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Index
Scheduled maturities of certificates of deposit are as follows:
September 30,
2016
2015
Denominations
greater than or
equal to $100,000
Denominations
less than $100,000
Denominations
greater than or
equal to $100,000
Denominations
less than $100,000
Three months or less
Over three through six months
Over six through twelve months
Over one through two years
Over two through three years
Over three through four years
Over four through five years
Total
$
$
14,252
14,191
15,452
32,816
43,730
58,425
26,173
205,039
$
$
Interest expense on deposits is summarized as follows:
$
(in thousands)
12,663
9,750
12,321
11,060
22,148
28,863
13,392
110,197
$
6,206
11,731
18,341
43,133
33,556
51,140
63,351
227,458
$
$
7,610
7,304
14,807
33,163
10,825
23,616
30,134
127,459
Certificates of deposit
Money market, savings and NOW accounts (1)
Total interest expense on deposits
2016
Year ended September 30,
2015
(in thousands)
2014
$
$
5,402
4,816
10,218
$
$
5,839
2,543
8,382
$
$
6,126
1,833
7,959
(1) The balances for the year ended September 30, 2016 are presented net of interest expense associated with affiliate deposits.
NOTE 15 – OTHER BORROWINGS
The following table details the components of other borrowings:
Other borrowings:
FHLB advances
Mortgage notes payable (3)
Borrowings on secured lines of credit (4)
Borrowings on ClariVest revolving credit facility (5)
Borrowings on unsecured lines of credit (6) (7)
Total other borrowings
September 30,
2016
2015
(in thousands)
$
$
575,000 (1) $
33,391
—
267
—
608,658
$
550,000 (2)
37,716
115,000
349
—
703,065
(1) Borrowings from the FHLB as of September 30, 2016 are comprised of three advances. The FHLB advances in the amount of $250
million, and $300 million, mature in September 2018 and have interest rates which reset quarterly. We use interest rate swaps to manage
the risk of increases in interest rates associated with these floating-rate advances by converting all of these balances subject to variable
interest rates to a fixed interest rate. Refer to Note 18 for information regarding these interest rate swaps which are accounted for as
hedging instruments. The other FHLB advance, in the amount of $25 million, matures in October, 2020 and bears interest at a fixed
rate of 3.4%. All of the FHLB advances are secured by a blanket lien granted to the FHLB on RJ Bank’s residential mortgage loan
portfolio. The weighted average interest rate on these advances as of September 30, 2016 is 1.01%.
(2) Borrowings from the FHLB at September 30, 2015 are comprised of two floating-rate advances, one in the amount of $250 million
and the other in the amount of $300 million. Both of these advances were restructured during fiscal year 2016 in order to extend their
maturity date.
See the following page for the continuation of the explanations to the footnotes in the above table.
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Index
Continuation of the footnote explanations pertaining to the table on the previous page.
(3) Mortgage notes payable pertain to mortgage loans on our corporate headquarters offices located in St. Petersburg, Florida. These
mortgage loans are secured by land, buildings, and improvements with a net book value of $44.7 million at September 30, 2016. These
mortgage loans bear interest at 5.7% with repayment terms of monthly interest and principal debt service and have a January 2023
maturity.
(4) Borrowings on secured lines of credit are day-to-day and are generally utilized to finance certain fixed income securities.
(5) ClariVest Asset Management, LLC (“ClariVest”), a subsidiary of Eagle, is a party to a revolving line of credit provided by a third party
lender (the “ClariVest Facility”). The maximum amount available to borrow under the ClariVest Facility is $500 thousand, bearing
interest at a variable rate which is 1% over the lenders prime rate. The ClariVest Facility expires in September 2018.
(6) In August 2015, RJF entered into a revolving credit facility agreement in which the lenders are a number of financial institutions (the
“RJF Credit Facility”). This committed unsecured borrowing facility provides for maximum borrowings of up to $300 million, at
variable rates of interest, with a facility maturity date in August 2020. There are no borrowings outstanding on the RJF Credit Facility
as of either September 30, 2016 or 2015. The interest rate associated with the RJF Credit Facility is a variable rate that, among other
factors, varies depending upon RJF’s credit rating. Based upon RJF’s credit rating as of September 30, 2016, the variable borrowing
rate is 1.75% per annum over LIBOR. There is a variable rate commitment fee associated with the RJF Credit Facility, such fee varying
depending upon RJF’s credit rating. Based upon RJF’s credit rating as of September 30, 2016, the variable rate commitment fee which
applies to any difference between the daily borrowed amount and the committed amount, is 0.25% per annum.
(7) Borrowings on unsecured lines of credit, with the exception of the RJF Credit Facility, 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,
2016, interest rates on the U.S. facilities that were utilized during the year, other than the ClariVest Facility and the RJF Credit
Facility which are each previously described, ranged from 0.18% to 2.85% (on a 360 days per year basis). The interest rate on
the ClariVest Facility during the fiscal year ended September 30, 2016 was 4.45% (on a 360 days per year basis). The interest rate
on the Canadian facility which was utilized from time-to-time throughout fiscal year 2016 was 1.95% (on a 360 days per year
basis).
Our other borrowings as of September 30, 2016, mature as follows based on their contractual terms:
Fiscal year ended September 30,
2017
2018
2019
2020
2021
Thereafter
Total
$
$
(in thousands)
4,578
555,113
5,130
5,430
30,748
7,659
608,658
There were other collateralized financings outstanding in the amount of $193 million and $333 million as of September 30,
2016 and 2015, 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
Two of the VIEs that we consolidate have borrowings which are comprised of non-recourse loans. These loans have imputed
interest rates of 5.17% and 6.38%. Payments on these loans are made semi-annually by the borrowing VIE directly to the third
party lender. These loans mature on January 2, 2018 and January 2, 2019. We are not contingently obligated under either of these
loans. See Note 11 for additional information regarding the entities determined to be VIEs, and which of those entities we
consolidate.
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Index
VIEs’ loans payable are presented below:
Current portion of loans payable
Long-term portion of loans payable
Total loans payable
September 30,
2016
2015
(in thousands)
8,306
$
4,291
12,597
$
13,363
12,597
25,960
$
$
The principal amount of the VIEs’ borrowings as of September 30, 2016, mature as follows based on their contractual terms:
Fiscal year ended September 30,
2017
2018
2019
Total
$
$
(in thousands)
8,306
3,613
678
12,597
NOTE 17 – SENIOR NOTES PAYABLE
The following summarizes our senior notes payable:
September 30,
2016
2015
4.25% senior notes, due 2016(1)
8.60% senior notes, due 2019(2)
5.625% senior notes, due 2024(3)
3.625% senior notes, due 2026(4)
6.90% senior notes, due 2042(5)
4.95% senior notes, due 2046(6)
Unaccreted discount
Debt issuance costs
Total senior notes payable
$
$
(in thousands)
— $
300,000
250,000
500,000
350,000
300,000
1,700,000
(1,601)
(17,812)
1,680,587
$
250,000
300,000
250,000
—
350,000
—
1,150,000
(778)
(11,652)
1,137,570
(1) In April 2011, we sold in a registered underwritten public offering, $250 million in aggregate principal amount of 4.25% senior notes.
The notes matured and were repaid in April 2016.
(2) 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.
(3) 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.
(4) In July 2016, we sold in a registered underwritten public offering, $500 million in aggregate principal amount of 3.625% senior notes
due September 2026. 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 35 basis points, plus accrued and unpaid interest thereon to the
redemption date.
See the following page for the continuation of the explanations to the footnotes in the above table.
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Index
Continuation of the footnote explanations pertaining to the table on the previous page.
(5) In March 2012, we sold in a registered underwritten public offering, $350 million in aggregate principal amount of 6.90% senior notes
due March 2042. Interest on these senior notes is payable quarterly in arrears. On or after March 15, 2017, we may redeem some or
all of the senior notes at any time at the redemption price equal to 100% of the principal amount of the notes being redeemed plus
accrued interest thereon to the redemption date.
(6) In July 2016, we sold in a registered underwritten public offering, $300 million in aggregate principal amount of 4.95% senior notes
due July 2046. 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 45 basis points, plus accrued and unpaid interest thereon to the redemption
date.
Our senior notes payable outstanding as of September 30, 2016, mature as follows based on their contractual terms:
Fiscal year ended September 30,
2017
2018
2019
2020
2021
Thereafter
Total
$
$
(in thousands)
—
—
300,000
—
—
1,400,000
1,700,000
NOTE 18 – DERIVATIVE FINANCIAL INSTRUMENTS
The significant accounting policies governing our derivative financial instruments, including our methodologies for
determining fair value, are described in Note 2.
Derivatives arising from our fixed income business operations
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.
In our over-the-counter market activities, 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 either directly with financial
institutions or trades cleared through an exchange (together referred to as 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.
In our “matched book” activities, RJFP enters into derivative transactions (primarily interest rate swaps) with clients. For
every derivative transaction RJFP enters into with a customer, RJFP 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, RJFP 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. RJFP 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. RJFP 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 RJFP is $7 million at both September 30, 2016 and 2015,
and is included in other receivables on our Consolidated Statements of Financial Condition.
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Index
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
We enter into derivatives contracts as part of RJ Bank’s business operations through its hedging activities, which include
forward foreign exchange contracts and interest rate swaps. Each of these activities is described in the “derivative contracts”
section of Note 2. Each of these activities is described further below.
A Canadian subsidiary of RJ Bank conducts operations directly related to RJ Bank’s Canadian dollar-denominated 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.
The cash flows associated with certain assets held by RJ Bank provide interest income at fixed interest rates. Therefore, the
value of these assets, absent any risk mitigation, is subject to fluctuation based upon changes in market rates of interest over time.
Through the RJ Bank Interest Hedges, RJ Bank swaps variable interest payments on certain debt for fixed interest payments as a
strategy to mitigate a portion of the market risk associated with certain fixed interest earning assets held by RJ Bank.
See Note 22 for additional information on the impact of these hedging activities on our Other Comprehensive (Loss) Income.
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. 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 asset of $33 million as of
September 30, 2016, and a net liability of $44 million as of September 30, 2015. 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 $3 million and $26
million at September 30, 2016 and 2015, respectively. Our maximum loss exposure under the interest rate swap contracts arising
from our OTC Derivatives Operations at September 30, 2016 is $38 million.
RJ Bank provides to counterparties for the benefit of its U.S. subsidiaries, a guarantee of payment in the event of the subsidiaries’
default under forward foreign exchange contracts. Due to this RJ Bank guarantee and the short-term nature of these derivatives,
RJ Bank’s U.S. subsidiaries are not required to post collateral and do not receive collateral with respect to certain derivative
contracts with the respective counterparties. As of September 30, 2016, 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.
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Index
Derivative balances included in our financial statements
See the table below for the notional and fair value amounts of both the asset and liability derivatives.
September 30, 2016
September 30, 2015
Balance sheet
location
Notional
amount
Fair
value(1)
Balance sheet
location
Notional
amount
Fair
value(1)
Asset derivatives
(in thousands)
Derivatives designated as hedging instruments:
Forward foreign exchange
contracts(2)
Prepaid expenses and
other assets
$
988,200 (3) $
1,396
Prepaid expenses and
other assets
$
752,600 (3) $
613
Derivatives not designated as hedging instruments:
Interest rate contracts(4)
Interest rate contracts(4)
Interest rate contracts(5)
Trading instruments
Trading instruments
Derivative instruments
associated with
offsetting matched book
positions
$ 2,036,233
$ 153,482
Trading instruments
$ 2,473,946
$ 130,095
$
121,715
(3)
$
9,760
Trading instruments
$
74,873
(3)
$
2,612
$ 1,469,295
$ 422,196
Derivative instruments
associated with
offsetting matched book
positions
Prepaid expenses and
other assets
$ 1,649,863
$ 389,457
$
214,300 (3) $
304
Forward foreign exchange
contracts(2)
Prepaid expenses and
other assets
$
411,300 (3) $
620
Liability derivatives
Derivatives designated as hedging instruments:
Interest rate contracts(6)
Trade and other payables
Derivatives not designated as hedging instruments:
Interest rate contracts(4)
Trading instruments sold
$
550,000
$
26,671
Trade and other payables
$
300,000
$
7,545
$ 1,997,100
$ 145,296
Trading instruments sold
$ 1,906,766
$ 104,255
Interest rate contracts(4)
Trading instruments sold
$
133,108 (3) $
6,398
Trading instruments sold
$
136,710 (3) $
4,865
Interest rate contracts(5)
DBRSUs(7)
Derivative instruments
associated with
offsetting matched book
positions
Accrued compensation,
commissions and
benefits
$ 1,469,295
$ 422,196
$
17,769
(8)
$
17,769
(9)
Derivative instruments
associated with
offsetting matched book
positions
$ 1,649,863
$ 389,457
—
$
—
$
—
(1) The fair value in this table is presented on a gross basis before netting of cash collateral and before any netting by counterparty according
to our legally enforceable master netting arrangements. The fair value in the Consolidated Statements of Financial Condition is presented
net. See Note 19 for additional information regarding offsetting asset and liability balances.
(2) These contracts are associated with RJ Bank’s activities to hedge its foreign currency exposure.
(3) The notional amount presented is denominated in Canadian currency.
(4) These contracts arise from our OTC Derivatives Operations.
(5) These contracts arise from our Offsetting Matched Book Derivatives Operations.
(6) These contracts are associated with our RJ Bank Interest Hedges activities.
(7) This derivative liability arose from our acquisition of Alex. Brown. See the discussion of the circumstances giving rise to this liability
in Note 3.
(8) The notional amount for the DBRSU derivative is the number of DBRSU awards to be settled in DB shares, times the DB share price
as of September 30, 2016.
(9) The fair value of the DBRSU derivative includes both the pre-combination and the post-combination share obligation.
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Index
(Losses) gains recognized in AOCI, net of income taxes, on derivatives are as follows (see Note 22 for additional information):
Forward foreign exchange contracts
RJ Bank Interest Hedges
Total (losses) gains recognized in AOCI, net of taxes
2016
Year ended September 30,
2015
(in thousands)
2014
$
$
(6,721) $
(11,833)
(18,554) $
60,331
(4,650)
55,681
$
$
29,376
—
29,376
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, 2016, 2015 or 2014. We expect to reclassify an estimated $5.8
million as additional interest expense out of AOCI and into earnings within the next 12 months. The maximum length of time
over which forecasted transactions are or will be hedged is 10 years.
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 the impact
recognized on derivatives included in the
Consolidated Statements of
Income and Comprehensive Income
Amount recognized during the
year ended September 30,
2015
2016
2014
Derivatives not designated as hedging instruments:
Interest rate contracts (1)
Interest rate contracts (2)
Forward foreign exchange contracts (3)
Net trading profit
Other revenues
Other (loss) revenues
DBRSUs(4)
Compensation, commissions and benefits
(gain)
(1) These contracts arise from our OTC Derivatives Operations.
(2) These contracts arise from our Offsetting Matched Book Derivatives Operations.
(in thousands)
$
$
$
$
2,819
92
$
$
3,107
901
(2,662) $
20,459
$
$
$
1,554
712
5,694
(2,457) $
— $
—
(3) These contracts are associated with RJ Bank’s activities to hedge its foreign currency exposure.
(4) The derivative arose from our acquisition of Alex. Brown, see the discussion of the circumstances giving rise to this derivative in Note
3. The impact of the change in value of the derivative in the current period is a gain, as the DB share price decreased. We also hold
900,000 shares of DB as of September 30, 2016 as an economic hedge against this obligation. The change in value of such DB shares
since the AB Closing Date is recorded as a component of compensation, commissions and benefits expense on our Consolidated
Statements of Income and Comprehensive Income, and partially offset a portion of this gain.
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Index
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, futures contracts, and the interest rate contracts associated with our OTC Derivatives Operations that are not cleared
through an exchange. 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 that are not cleared through
an exchange, 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 required to maintain cash or marketable security deposits with the exchange we
utilize to clear our OTC Derivatives transactions that are cleared through such exchanges. These deposits are a component of
deposits with clearing organizations on our Consolidated Statements of Financial Condition.
We are exposed to interest rate risk related to the interest rate derivative agreements arising from certain of our OTC Derivatives
Operations and RJ Bank Interest Hedges. We are also exposed to foreign exchange risk related to our futures contracts and forward
foreign exchange derivative agreements. We monitor exposure in our derivative agreements which we have risk 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, the counterparties to the derivative instruments could
terminate and request immediate payment or demand immediate and ongoing overnight collateralization on our derivative
instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent
features that are in a liability position at September 30, 2016 is $3 million, for which we have posted collateral of $2 million in
the ordinary course of business. If the credit-risk-related contingent features underlying these agreements were triggered on
September 30, 2016, we would have been required to post an additional $1 million of collateral to our counterparties.
Our only exposure to credit risk in the Offsetting Matched Book Derivatives Operations is related to our uncollected derivative
transaction fee revenues. We are not exposed to market risk as it relates to these derivative contracts due to the “pass-through”
transaction structure previously described.
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Index
NOTE 19 – DISCLOSURE OF OFFSETTING ASSETS AND LIABILITIES, COLLATERAL, ENCUMBERED ASSETS
AND REPURCHASE AGREEMENTS
Offsetting assets and liabilities
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
(received)
paid
Net amount
(in thousands)
As of September 30, 2016:
Assets
Securities purchased under agreements to resell
$
470,222
$
— $
470,222
$
(470,222)
(1)
$
and other collateralized financings
Derivatives - interest rate contracts(2)
Derivatives - interest rate contracts(3)
Derivatives - forward foreign exchange
contracts(5)
Derivative instruments associated with
offsetting matched book positions
Stock borrowed
Total assets
Liabilities
Securities sold under agreements to repurchase
Derivatives - interest rate contracts(2)
Derivatives - interest rate contracts(3)
Derivatives - RJ Bank Interest Hedges
DBRSUs(9)
Derivative instruments associated with
offsetting matched book positions
$
$
Stock loaned
Total liabilities
As of September 30, 2015:
Assets
and other collateralized financings
Derivatives - interest rate contracts(2)
Derivatives - forward foreign exchange
contracts(5)
Derivatives - interest rate contracts(3)
Derivative instruments associated with
offsetting matched book positions
Stock borrowed
Total assets
Liabilities
Securities sold under agreements to repurchase
Derivatives - interest rate contracts(2)
Derivatives - interest rate contracts(3)
Derivatives - RJ Bank Interest Hedges
Derivative instruments associated with
offsetting matched book positions
Stock loaned
Total liabilities
$
$
$
(1,489,320) $
142,859
$
(1,346,461) $
1,282,732
$
26,671
$
(37,058)
153,482
9,760
2,016
422,196
170,860
(107,539)
—
—
—
—
45,943
9,760
2,016
(29,028)
—
—
422,196
(4)
(422,196)
170,860
(167,169)
1,228,536
$
(107,539) $
1,120,997
$
(1,088,615)
(193,229) $
— $
(193,229) $
193,229
(145,296)
(6,398)
(26,671)
(17,769)
(422,196)
(677,761)
142,859
—
—
—
—
—
(2,437)
(6,398)
(26,671)
(17,769)
2,437
—
—
—
(422,196)
422,196
(677,761)
664,870
$
$
(6)
(7)
(4)
130,095
917
2,612
389,457
124,373
(90,621)
—
—
—
—
39,474
917
2,612
389,457
(12,609)
—
—
(4)
(389,457)
124,373
(120,957)
1,121,598
$
(90,621) $
1,030,977
$
(997,167)
(332,536) $
(104,255)
(4,865)
(7,545)
(389,457)
(478,573)
— $
(332,536) $
332,536
88,881
—
—
—
—
(15,374)
(4,865)
(7,545)
3,528
—
—
(389,457)
389,457 (4)
(478,573)
472,379
$
$
(6)
(7)
—
—
—
—
—
—
—
—
—
—
(8)
26,671
—
—
—
$
—
$
$
16,915
9,760
2,016
—
3,691
32,382
—
—
(6,398)
—
(17,769)
—
(12,891)
—
—
—
—
—
—
—
—
(7)
(8)
7,399
—
7,545
—
—
$
—
26,865
917
2,612
—
3,416
33,810
—
(4,447)
(4,865)
—
—
(6,194)
$
$
$
(1,317,231) $
88,881
$
(1,228,350) $
1,197,900
$
14,944
$
(15,506)
Securities purchased under agreements to resell
$
474,144
$
— $
474,144
$
(474,144)
(1)
$
The text of the footnotes in the above table are on the following page.
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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 $486 million and $499 million as of September 30, 2016 and 2015,
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) Derivatives - interest rate contracts (in which the notional amount is denominated in Canadian currency) are included in trading
instruments on our Consolidated Statements of Financial Condition. See Note 18 for additional information.
(4) 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 this table. See Note 18 for further discussion of the “pass through” structure of the derivative instruments
associated with Offsetting Matched Book Derivatives Operations.
(5) These contracts are associated with RJ Bank’s activities to hedge its foreign currency exposure. As of both September 30, 2016 and
2015, 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.
(6) We are over-collateralized since the actual amount of financial instruments pledged as collateral for securities sold under agreements
to repurchase amounts to $200 million and $346 million as of September 30, 2016 and 2015, respectively.
(7) For the portion of these derivative contracts that are transacted through an exchange, the nature of the agreement with the clearing
member exchange include terms that are similar to a master netting agreement, thus we are over-collateralized as of September 30,
2016 and 2015 since the actual amount of cash and securities deposited with the exchange for these derivative contracts is $8 million
and $18 million, respectively. These deposits are a component of deposits with clearing organizations on our Consolidated Statements
of Financial Condition. See Note 18 for additional information.
(8) Derivatives - RJ Bank Interest Hedges are included in trade and other payables on our Consolidated Statements of Financial Condition.
See Note 18 for additional information. The RJ Bank Interest Hedges are transacted through an exchange. The nature of the agreement
with the clearing member exchange includes terms that are similar to a master netting agreement. We are over-collateralized since the
actual amount of cash and securities deposited with the exchange for these derivative contracts is $42 million and $15 million as of
September 30, 2016, and 2015, respectively. These deposits are included in deposits with clearing organizations on our Consolidated
Statements of Financial Condition.
(9) This derivative liability arose from our acquisition of Alex. Brown. See the discussion of the circumstances giving rise to this liability
in Note 3. As of September 30, 2016, we hold 900,000 DB shares with a fair value of $12 million as an economic hedge against the
DBRSUs obligation. See additional discussion of the DBRSUs in Note 24.
For financial statement purposes, we do not offset our repurchase agreements or securities borrowing, securities lending
transactions and certain of our derivative instruments including those transacted through an exchange, 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 transacted through an exchange, are governed by master agreements that are widely used
by counterparties and that may allow for net settlements of payments in the normal course as well as offsetting of all contracts
with a given counterparty in the event of bankruptcy or default of one of the two parties to the transaction. Although not offset
on the Consolidated Statements of Financial Condition, these transactions are included in the preceding table.
Collateral and deposits with clearing organizations
We receive cash and securities as collateral, primarily in connection with Reverse Repurchase Agreements, securities borrowed,
derivative transactions not transacted through an exchange, and client margin loans arising from our domestic operations (see Note
8 for additional information). 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.
We also pay cash to the exchange, or receive cash from the exchange, related to derivative contracts transacted through an
exchange. We account for such cash as a component of deposits with clearing organizations on our Consolidated Statements of
Financial Condition.
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Index
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:
Collateral we received that is available to be delivered or repledged
Collateral that we delivered or repledged
September 30,
2016
2015
$
$
(in thousands)
2,925,335
1,536,393
(1)
$
$
2,308,277
1,122,540
(2)
(1) The collateral delivered or repledged as of September 30, 2016, includes client margin securities which we pledged with a clearing
organization in the amount of $389 million which were applied against our requirement of $203 million.
(2) The collateral delivered or repledged as of September 30, 2015, includes client margin securities which we pledged with a clearing
organization in the amount of $241 million which were applied against our requirement of $148 million.
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,
2016
2015
(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
$
$
587,369
25,200
(1)
$
$
424,668
94,006
(2)
(1) Assets delivered or repledged as of September 30, 2016, includes securities which we pledged with a clearing organization in the
amount of $19 million which were applied against our requirement of $203 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, 2015, includes securities which we pledged with a clearing organization in the
amount of $30 million which were applied against our requirement of $148 million (client margin securities we pledged which are
described in the preceding table constitute the remainder of the assets pledged to meet the requirement).
Repurchase agreements, repurchase-to-maturity transactions and securities lending transactions accounted for as secured
borrowings
We enter into Repurchase Agreements where we sell securities under agreements to repurchase, and also engage in securities
lending transactions. These activities are accounted for as collateralized financings. Our Repurchase Agreements would include
“repurchase-to-maturity” agreements, which are repurchase agreements where a security is transferred under an agreement to
repurchase and the maturity date of the repurchase agreement matches the maturity date of the underlying security, if any, that we
are a party to as of period-end. As of both September 30, 2016 and 2015, we did not have any “repurchase-to-maturity” agreements.
See Note 2 for a discussion of our respective Repurchase Agreement and securities borrowed and securities loaned accounting
policies.
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Index
The following table presents the remaining contractual maturity of securities under agreements to repurchase and securities
lending transactions accounted for as secured borrowings:
Overnight and
continuous
Up to 30 days
30-90 days
(in thousands)
Greater than
90 days
Total
As of September 30, 2016:
Repurchase agreements
Government and agency obligations
Agency MBS and CMOs
Total Repurchase Agreements
Securities lending
Equity securities
Total
$
$
92,804
92,422
185,226
677,761
862,987
$
$
6,252
1,751
8,003
—
8,003
$
$
— $
—
—
—
— $
Gross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the
Offsetting Assets and Liabilities table included within this footnote
Amounts related to repurchase agreements and securities lending transactions not included in the Offsetting Assets and
Liabilities table included within this footnote
As of September 30, 2015:
Repurchase agreements
Government and agency obligations
Agency MBS and CMOs
Total Repurchase Agreements
Securities lending
Equity securities
Total
$
$
$
211,594
112,941
324,535
$
5,250
2,751
8,001
478,573
803,108
$
—
8,001
$
— $
—
—
—
— $
Gross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the
Offsetting Assets and Liabilities table included within this footnote
Amounts related to repurchase agreements and securities lending transactions not included in the Offsetting Assets and
Liabilities table included within this footnote
— $
—
—
—
— $
$
$
— $
—
—
—
— $
$
$
99,056
94,173
193,229
677,761
870,990
870,990
—
216,844
115,692
332,536
478,573
811,109
811,109
—
We enter into Repurchase Agreements and conduct securities lending activities as components of the financing of certain of
our operating activities. In the event the market value of the securities we pledge as collateral in these activities declines, we may
have to post additional collateral or reduce the borrowing amounts. We monitor such levels daily.
NOTE 20 – INCOME TAXES
Total income taxes are allocated as follows:
Recorded in:
Income including noncontrolling interests
Equity, arising from compensation expense for tax purposes which is (in
excess of) less than amounts recognized for financial reporting purposes
Equity, arising from cumulative currency translation adjustments and net
investment hedges recorded through other comprehensive income (loss)
(“OCI”)
Equity, arising from available for sale securities recorded through OCI
Equity, arising from cash flow hedges recorded through OCI
Total
2016
Year ended September 30,
2015
(in thousands)
2014
$
271,293
$
296,034
$
267,797
(35,121)
8,115
(7,437)
(3,525)
(3,295)
(7,252)
222,100
$
31,078
(2,246)
(2,850)
330,131
$
15,142
3,694
—
279,196
$
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Index
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
2016
Year ended September 30,
2015
(in thousands)
2014
$
$
287,350
32,101
10,640
330,091
(51,383)
(6,267)
(1,148)
(58,798)
271,293
$
$
266,359
48,130
5,007
319,496
(20,567)
(5,127)
2,232
(23,462)
296,034
$
$
260,504
29,904
12,560
302,968
(35,262)
(410)
501
(35,171)
267,797
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) losses associated with company-owned life
insurance which are not (subject to tax) tax deductible
General business tax credits
Other, net
Total provision for income tax
Year ended September 30,
2016
2015
2014
Amount
%
Amount
%
Amount
%
($ in thousands)
$
$
280,225
13,864
(6,969)
35 % $
1.7 %
(0.9)%
279,361
29,224
(4,335)
35 % $
3.6 %
(0.5)%
261,816
18,826
(2,146)
35 %
2.5 %
(0.3)%
(9,098)
(1.1)%
3,040
0.4 %
(6,365)
(0.8)%
(8,559)
1,830
271,293
(1.0)%
0.2 %
33.9 % $
(7,166)
(4,090)
296,034
(0.9)%
(0.5)%
37.1 % $
(3,910)
(424)
267,797
(0.5)%
(0.1)%
35.8 %
U.S. and foreign components of income excluding noncontrolling interests and before provision for income taxes are as
2016
Year ended September 30,
2015
(in thousands)
782,146
$
16,028
798,174
$
$
$
765,420
35,222
800,642
2014
705,878
42,167
748,045
follows:
U.S.
Foreign
$
Income excluding noncontrolling interest and before provision for income taxes $
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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 foreign currency translations
Unrealized loss associated with available for sale securities
Accrued expenses
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
Other
Total deferred tax liabilities
Net deferred tax assets
September 30,
2016
2015
(in thousands)
$
192,397
78,552
22,184
4,314
44,419
24,897
366,763
(9)
366,754
(8,518)
(26,384)
(9,636)
(192)
(44,730)
322,024
$
150,949
68,445
22,892
7,764
40,075
28,575
318,700
(9)
318,691
(13,476)
(23,967)
(12,592)
(1,757)
(51,792)
266,899
$
$
We have a net deferred tax asset at September 30, 2016 and 2015. This asset includes net operating losses that will expire
between 2017 and 2030. A valuation allowance for the fiscal year ended September 30, 2016 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 $322 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 $10 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, 2016, we have approximately $204 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, 2016, the current tax receivable included in other receivables is $48 million, and a current tax payable
of $29 million is included in trade and other payables on our Consolidated Statements of Financial Condition. As of September 30,
2015 the current tax receivable included in other receivables is $36 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, 2016, accrued interest expense related to unrecognized tax benefits decreased
by approximately $1 million. During the year ended September 30, 2016, penalty expense related to unrecognized tax benefits
decreased by approximately $700 thousand. As of September 30, 2016 and 2015, accrued interest and penalties were approximately
$4 million and $6 million, respectively.
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Index
The aggregate changes in the balances for uncertain tax positions are as follows:
Balance for uncertain tax positions at beginning of year
Increases for tax positions related to the current year
Increases for tax positions related to prior years (1)
Decreases for tax positions related to prior years
Decreases due to lapsed statute of limitations
Decreases related to settlements
Balance for uncertain tax positions at end of year
2016
Year ended September 30,
2015
(in thousands)
2014
$
$
22,454
6,496
1,284
(1,592)
(1,447)
(5,022)
22,173
$
$
15,804
4,954
3,466
(204)
(1,566)
—
22,454
$
$
13,663
3,228
2,455
(1,642)
(1,218)
(682)
15,804
(1) The increases are primarily due to tax positions taken in previously filed tax returns with certain states. We continue to evaluate these
positions and intend to contest any proposed adjustments made by taxing authorities.
The total amount of uncertain tax positions that, if recognized, would impact the effective tax rate (the items included in the
table above after considering the federal tax benefit associated with any state tax provisions) was $16 million, $15 million, and
$10 million at September 30, 2016, 2015, 2014, respectively. We anticipate that the uncertain tax position balance may decrease
by $2 million over the next twelve months as a result of the resolution of outstanding state tax audits.
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 2012 for state and local tax returns and fiscal year 2011 for foreign tax
returns. Various state audits in process are expected to be completed in fiscal year 2017.
NOTE 21 – COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments and contingencies
In the normal course of business we enter into commitments for either fixed income or equity underwritings. As of
September 30, 2016, RJ&A had seven of such open underwriting commitments, all of which were subsequently settled in open
market transactions at amounts which approximate the carrying value of the commitments in our Consolidated Statements of
Financial Condition as of September 30, 2016. As of September 30, 2016, RJ Ltd. had four equity underwriting commitments,
all of which are recorded in our Consolidated Statements of Financial Condition as of September 30, 2016, and which aggregate
to approximately $6 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, transitional cost assistance, and 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, 2016 we had made commitments through the extension of formal offers totaling $128 million
that had not yet been funded, however, it is possible that not all of our offers will be accepted and therefore we would not fund
the total amount of the offers extended. As of September 30, 2016, $62 million of the total amount extended are unfunded
commitments to prospects that had accepted our offer, or recently hired producers.
In April 2016, Raymond James Global Securities Limited, a wholly owned subsidiary, entered into an agreement to sell all
of its ownership interest in two joint ventures, Raymond James Latin Advisors Limited, an entity incorporated in the British Virgin
Islands, and Raymond James Uruguay, S.A., an entity incorporated in Uruguay (collectively, the “Uruguay Ventures”). The sale
of the Uruguay Ventures closed on October 27, 2016. In September 2016, Raymond James South American Holdings, Inc., a
wholly owned subsidiary, entered into an agreement to sell all of its ownership interest in three of its subsidiaries, Raymond James
Argentina S.A., RJ Delta Asset Management S.A., and RJ Delta Capital S.A., each of which is incorporated in Argentina
(collectively, the “Argentine Ventures”). The Argentine Ventures currently serve, and the Uruguay Ventures served, certain Latin
America markets. The Argentine Ventures sale transaction will close once all the conditions to the sale have been satisfied, including
obtaining all necessary regulatory approvals, which we anticipate may occur prior to the end of calendar year 2016. The terms of
sale for these transactions include customary representations and provide for certain customary indemnities in favor of the purchaser.
Collectively, these sales are not anticipated to have any significant impact on our financial condition or results of operations as
these Latin American operations do not have a major effect on RJF’s operations as a whole.
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Index
As of September 30, 2016, RJ Bank had not settled purchases of $122 million in syndicated loans. These loan purchases are
expected to be settled within 90 days.
A subsidiary of RJ Bank has committed $62 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, 2016, the RJ Bank subsidiary
has invested $58 million of the committed amount.
See Note 26 for additional information regarding RJ Bank’s commitments to extend credit and other credit-related off-balance
sheet financial instruments such as standby letters of credit and loan purchases.
We have unfunded commitments to various venture capital or private equity partnerships, which aggregate to approximately
$42 million as of September 30, 2016. Of the total, we have unfunded commitments to internally-sponsored private equity limited
partnerships in which we control the general partner of approximately $18 million.
As part of the terms governing the TPC acquisition (see Note 3 for additional information regarding this acquisition), on
certain dates specified in the TPC purchase agreement, there are a number of “earn-out” computations to be performed. The result
of these computations could result in additional cash paid to the sellers of TPC in the future. These elements of contingent
consideration will be finally determined in the future based upon the outcome of either specific performance of defined tasks, or
the achievement of specified revenue growth hurdles, over a measurement period ranging from 18 months to 3 years after the TPC
Closing Date. Our initial estimate of the fair value of these elements of contingent consideration as of the TPC Closing Date are
included in our determination of the goodwill arising from this acquisition. As of September 30, 2016, we computed an estimate
of the fair value of this contingent consideration based upon the latest information available to us, and the excess of this fair value
determination over the initial estimate is included in other expense on our Consolidated Statements of Income and Comprehensive
Income.
As a part of the Mummert acquisition, on certain dates specified in the future, there are earn-out computations to be performed
or contingent consideration provisions that may apply. These elements of contingent consideration will be finally determined
based upon the achievement of specified revenue amounts and the continued employment of specified associates. See Note 3 for
additional information regarding this acquisition.
All of the elements of contingent consideration arising from the 3Macs and Alex. Brown acquisitions, in both cases, could
only result in a return of a portion of our purchase price paid at closing, and are described in Note 3.
RJF has committed an amount of up to $225 million, subject to certain limitations and to annual review and renewal by the
RJF Board of Directors, to either lend to RJTCF or to guarantee RJTCF’s obligations, in connection with RJTCF’s low-income
housing development/rehabilitation and syndication activities. At September 30, 2016, RJTCF has $76 million outstanding against
this commitment. RJTCF may borrow 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 2027. Minimum annual rental payments under such
agreements for the succeeding five fiscal years are approximately: $92 million in fiscal year 2017, $81 million in fiscal year 2018,
$73 million in fiscal year 2019, $61 million in fiscal year 2020, $46 million in fiscal year 2021, and $85 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 $97 million, $89 million and $91 million in
fiscal years 2016, 2015 and 2014, 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, 2016, RJ&A had approximately $821 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
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Index
of assets and liabilities measured at fair value included in Note 5, and at September 30, 2016 aggregate to a net liability having a
fair value of $3 million. The estimated fair value of the purchase commitment is a $2 million asset as of September 30, 2016.
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, or limitations on certain business
activities. In addition, regulatory agencies and self-regulatory organizations institute investigations from time to time into industry
practices, which can also result in the imposition of such sanctions. Refer to the “legal matter contingencies” discussion within
this footnote for information about related loss contingency reserves. See Note 25 for additional information regarding regulatory
capital requirements applicable to RJF and certain of its subsidiaries.
Guarantees
RJ Bank provides to an affiliate, RJ 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, 2016, the exposure under these guarantees is $14 million, which was underwritten as part of RJ Bank’s
corporate credit relationship with such borrowers. The outstanding interest rate swaps at September 30, 2016 have maturities
ranging from October 2016 through September 2034. 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, 2016. The estimated total potential exposure under
these guarantees is $52 million at September 30, 2016.
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, 2016, 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 guarantees the existing mortgage debt of RJ&A of approximately $33 million. See Note 15 for information regarding
this borrowing.
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 thousand per client, with a limitation
of $250 thousand 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 $2 million as of September 30, 2016.
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 six years, RJTCF is obligated to pay the investor an amount that results in the investor achieving a minimum
specified return on their investment. A $20.5 million financing asset is included in prepaid expenses and other assets (see Note
10 for additional information), and a related $20.5 million liability is included in trade and other payables on our Consolidated
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Index
Statements of Financial Condition as of September 30, 2016 related to this obligation. The maximum exposure to loss under this
guarantee is approximately $23 million at September 30, 2016, which represents the undiscounted future payments due the investor.
Legal and regulatory matter contingencies
In addition to the matters specifically described below, in the normal course of our business, we have been named, from time
to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with
our activities as a diversified financial services institution.
We are also subject, from time to time, to other reviews, investigations and proceedings (both formal and informal) by
governmental and self-regulatory agencies regarding our business. Such proceedings may involve, among other things, our sales
and trading activities, financial products or offerings we sponsored, underwrote or sold, and operational matters. Some of these
proceedings have resulted, and may in the future result, in adverse judgments, settlements, fines, penalties, injunctions or other
relief and/or require us to undertake remedial actions.
We cannot predict if, how or when such proceedings or investigations will be resolved or what the eventual settlement, fine,
penalty or other relief, if any, may be. A large number of factors may contribute to this inherent unpredictability: the proceeding
is in its early stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class
action will be allowed to proceed on that basis; the other party is seeking relief other than or in addition to compensatory damages
(including, in the case of regulatory and governmental proceedings, potential fines and penalties); the matters present significant
legal uncertainties; we have not engaged in settlement discussions; discovery is not complete; there are significant facts in dispute;
and numerous parties are named as defendants (including where it is uncertain how liability might be shared among defendants).
We contest liability and/or the amount of damages as appropriate in each pending matter. Over the last several years, the level
of litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased
significantly in the financial services industry. While we have identified below certain proceedings that we believe could be material,
individually or collectively, there can be no assurance that material losses will not be incurred from claims that have not yet been
asserted or are not yet determined to be material.
We include in some of the descriptions of individual matters below certain quantitative information about the plaintiff’s claim
against us as alleged in the plaintiff’s pleadings or other public filings. Although this information may provide insight into the
potential magnitude of a matter, it does not represent our estimate of reasonably possible loss or our judgment as to any currently
appropriate accrual related thereto.
Subject to the foregoing, we believe, after consultation with counsel and consideration of the accrued liability amounts included
in the accompanying consolidated financial statements, that the outcome of such litigation and regulatory proceedings will not
have a material adverse effect on our consolidated financial condition. However, the outcome of such litigation and proceedings
could be material to our operating results and cash flows for a particular future period, depending on, among other things, our
revenues or income for such period.
Excluding contingent liabilities arising out of the matters specifically described below, as well as any amounts subject to the
below-described indemnification from Regions, as of September 30, 2016, we currently estimate that the aggregate range of
possible loss is from $0 to $10 million in excess of the accrued liability (if any) related to litigation or regulatory matters. Refer
to Note 2 for a discussion of our criteria for recognizing liabilities for contingencies related to such matters.
We and one of our financial advisors are named defendants in various lawsuits related to an alleged fraudulent scheme conducted
by Ariel Quiros (“Quiros”) and William Stenger (“Stenger”) involving the misuse of EB-5 investor funds in connection with the
Jay Peak ski resort in Vermont (“Jay Peak”) and associated limited partnerships. Plaintiffs in the lawsuits allege that Quiros misused
$200 million of the amounts raised by the limited partnerships and misappropriated $50 million for his personal benefit. There
are six civil court actions pending in which we or one of our subsidiaries are named. The plaintiffs variously demand, among
other things, compensatory damages, treble damages under the Racketeer Influenced and Corrupt Organizations Act (“RICO”)
and punitive damages.
Given the early stage of the cases, the complexity of the forensic accounting necessary to determine the amount of actual
investor losses, the identification and availability of any assets for recovery by the plaintiffs and the potential for insurance coverage,
a range of possible loss in excess of the amount accrued cannot be estimated. While there can be no assurance that we will be
successful, we intend to vigorously defend the claims against us.
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Morgan Keegan Litigation
Indemnification from Regions
Under the agreement with Regions Financial Corporation (“Regions”) governing our 2012 acquisition of Morgan Keegan &
Company, Inc., and MK Holding, Inc. and certain of its affiliates (collectively referred to as “Morgan Keegan”), Regions is obligated
to indemnify RJF for losses we may incur in connection with any Morgan Keegan legal proceedings pending as of the closing date
for that transaction (which was April 2, 2012), or commenced after the closing date but related to pre-closing matters that are
received prior to April 2, 2015.
The Morgan Keegan matter described below is subject to such indemnification provisions. As of September 30, 2016,
management estimates the range of potential liability of all Morgan Keegan matters subject to indemnification, including the cost
of defense, to be from $16 million to $51 million. Any loss arising from such matters, after application of any contractual thresholds
and other reductions, as set forth in the agreement, will be borne by Regions. As of September 30, 2016 our Consolidated Statements
of Financial Condition include an indemnification asset of approximately $35 million which is included in other assets (see Note
10 for additional information), and a liability for potential losses of approximately $35 million which is included within trade and
other payables, pertaining to the Morgan Keegan matters subject to indemnification. The amount included within trade and other
payables is the amount within the range of potential liability related to such matters which management estimates is more likely
than any other amount within such range.
Morgan Keegan matter (subject to indemnification)
In July 2006, Morgan Keegan & Company, Inc., a Morgan Keegan affiliate, and one of its former analysts were named as
defendants in a lawsuit filed by Fairfax Financial Holdings and affiliates in the Circuit Court of Morris County, New Jersey.
Plaintiffs made claims under a civil 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 in
order to improperly drive down plaintiff’s stock price, so that others could profit from short positions. Plaintiffs alleged that the
defendants’ actions damaged their reputations and harmed their business relationships. Plaintiffs alleged various categories of
damages, 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, and that the claims were therefore not subject to treble damages. On June 27,
2012, the trial court dismissed plaintiffs’ tortious interference with prospective relations claim, but allowed the other claims to go
forward. Prior to commencement of a jury trial, the court dismissed the remaining claims with prejudice. A hearing on plaintiffs’
appeal of the court’s rulings was held on October 17, 2016.
NOTE 22 - OTHER COMPREHENSIVE (LOSS) INCOME
Other comprehensive (loss) income
The activity in other comprehensive (loss) income net of the related tax effects are as follows:
Unrealized (losses) gains on available for sale securities
Unrealized gains (losses) on currency translations net of the impact of net investment hedges
Unrealized loss on cash flow hedges
Net other comprehensive loss
Year ended September 30,
2016
2015
2014
(in thousands)
$
$
(5,576) $
(3,325) $
2,179
(11,833)
(30,640)
(4,650)
6,021
(18,635)
—
(15,230) $
(38,615) $
(12,614)
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Index
Accumulated other comprehensive (loss) income
The following table presents the changes, and the related tax effects, of each component of accumulated other comprehensive
(loss) income for the fiscal years ended September 30, 2016 and 2015 (in thousands):
Net
investment
hedges(1)
Currency
translations
Sub-total: net
investment
hedges and
currency
translations
Available for
sale securities
Cash flow
hedges(2)
Total
Year ended September 30, 2016
Accumulated other comprehensive income (loss)
as of the beginning of the year
Other comprehensive (loss) income before
reclassifications and taxes
Amounts reclassified from accumulated other
comprehensive income (loss), before tax
Pre-tax other comprehensive (loss) income
Income tax effect
Net other comprehensive (loss) income for
the year, net of tax
Accumulated other comprehensive income (loss)
as of September 30, 2016
Year ended September 30, 2015
Accumulated other comprehensive income (loss)
as of the beginning of the year
Other comprehensive income (loss) before
reclassifications and taxes
Amounts reclassified from accumulated other
comprehensive loss, before tax
Pre-tax other comprehensive income (loss)
Income tax effect
Net other comprehensive income (loss) for
the year, net of tax
Accumulated other comprehensive income (loss)
as of September 30, 2015
$
93,203
$
(130,476) $
(37,273) $
1,420
$
(4,650) $
(40,503)
$
$
(10,743)
—
(10,743)
4,022
(6,721)
9,397
—
9,397
(497)
8,900
(1,346)
—
(1,346)
3,525
2,179
(9,231)
(25,535)
(36,112)
360
(8,871)
3,295
6,450
(19,085)
7,252
6,810
(29,302)
14,072
(5,576)
(11,833)
(15,230)
86,482
$
(121,576) $
(35,094) $
(4,156) $
(16,483) $
(55,733)
32,872
$
(39,505) $
(6,633) $
4,745
$
— $
(1,888)
96,499
(96,061)
—
96,499
(36,168)
—
(96,061)
5,090
438
—
438
(31,078)
60,331
(90,971)
(30,640)
2,863
(8,434)
(5,571)
2,246
(3,325)
(9,407)
1,907
(7,500)
2,850
(6,106)
(6,527)
(12,633)
(25,982)
(4,650)
(38,615)
$
93,203
$
(130,476) $
(37,273) $
1,420
$
(4,650) $
(40,503)
(1) Comprised of 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).
(2) Represents RJ Bank Interest Hedges (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 income (loss), and the related tax effects, during the years ended September 30, 2016 and 2015:
Accumulated other comprehensive income (loss) components:
Increase (decrease) in
amounts reclassified
from accumulated
other comprehensive
(loss) income
(in thousands)
Affected line items in income statement
Year ended September 30, 2016
Available for sale securities: (1)
Auction rate securities (2)
RJ Bank available for sale securities (3)
RJ Bank Interest Hedges(4)
Income tax effect
Total reclassifications for the period
Year ended September 30, 2015
Available for sale securities: (1)
Auction rate securities (2)
RJ Bank available for sale securities (3)
RJ Bank Interest Hedges(4)
Income tax effect
Total reclassifications for the period
$
$
$
$
87 Other revenue
273 Other revenue
6,450
Interest expense
6,810 Total before tax
(2,590) Provision for income taxes
4,220 Net of tax
(8,976) Other revenue
542 Other revenue
1,907
Interest expense
(6,527) Total before tax
2,526
Provision for income taxes
(4,001) 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) Other revenues in our Consolidated Statements of Income and Comprehensive Income include realized gains on the sale of ARS (see
Note 7 for further information). The amounts presented in the table represent the reversal out of AOCI associated with such ARS’
sold. The net of such realized gain and this reversal out of AOCI represents the net effect of such redemptions and sales activities on
OCI for each respective fiscal year, on a pre-tax basis.
(3) Other revenues in our Consolidated Statements of Income and Comprehensive Income include realized gains or losses on the sale of
certain available for sale securities held by RJ Bank (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 gains or losses 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.
(4) See Note 18 for additional information regarding the RJ Bank Interest Hedges, and Note 5 for additional fair value information regarding
these derivatives.
All of the components of other comprehensive (loss) 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
$
2016
Year ended September 30,
2015
2014
(in thousands)
68,712
22,287
487,366
7,596
19,362
8,777
8,207
18,018
640,325
2,084
10,218
5,035
3,174
12,957
78,533
1,021
4,055
117,077
523,248
(28,167)
495,081
(1)
$
$
$
$
67,573
13,792
405,578
5,100
19,450
12,036
7,056
12,622
543,207
940
8,382
4,503
5,237
6,079
76,088
1,879
4,846
107,954
435,253
(23,570)
411,683
$
$
$
$
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
(1) The balance for the year ended September 30, 2016 is presented net of interest expense associated with affiliate deposits. The impact
of such expense on prior year periods was not significant.
NOTE 24 - SHARE-BASED AND OTHER COMPENSATION
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, at 65, or if a participant separates from service due to death or disability.
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, 2016 and
2015 was approximately 4,873,000 and 4,719,000, respectively. The market value of our common stock held by the ESOP at
September 30, 2016 was approximately $284 million, of which approximately $3 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 information regarding the carrying value of these insurance policies) to earn a competitive rate of
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Index
return for participants and to provide the primary 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 may elect to defer a percentage or specific dollar amount of
their compensation into the VDCP. The Deferral Plan Funding Structure is the primary source of funding for this plan.
We also maintain non-qualified deferred compensation plans or arrangements for the benefit of certain employees that provide
a return to the participating employees based upon the performance of various referenced investments. Under the terms of each
applicable plan or arrangement, we invest directly as a principal in such investments, which are directly related to our obligations
under the respective deferred compensation plan (see Note 5 for the fair value of these investments as of September 30, 2016, and
2015).
Compensation expense associated with all of the qualified and non-qualified plans described above totaled $116.9 million,
$116.9 million and $111.3 million for the fiscal years ended September 30, 2016, 2015 and 2014, 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.
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 may be granted to key administrative employees and employee financial advisors who achieve certain gross
commission levels. Options are exercisable in the 36th to 84th 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.
Expense and income tax benefits related to our stock options awards granted to employees are presented below:
Total share-based expense
Income tax benefits related to share-based expense
$
$
2016
Year ended September 30,
2015
(in thousands)
10,169
$
$
10,114
769
$
811
$
2014
9,068
667
For the year ended September 30, 2016, we realized $2 million of cumulative excess tax benefits related to our stock option
awards.
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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, 2016, 2015 and 2014:
Dividend yield
Expected volatility
Risk-free interest rate
Expected lives (in years)
Year ended September 30,
2016
2015
2014
1.41%
28.85%
1.65%
5.37
1.30%
29.55%
1.66%
5.48
1.33%
39.84%
1.43%
5.50
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 for the fiscal year ended September 30, 2016 is presented below:
Outstanding at October 1, 2015
Granted
Exercised
Forfeited
Outstanding at September 30, 2016
Weighted-
average
exercise
price ($)
Weighted-
average
remaining
contractual
term (years)
Aggregate
intrinsic
value ($)
Options
for shares
4,061,354 $
351,223 $
(625,194) $
(76,910) $
3,710,473 $
41.49
56.46
29.25
46.42
44.88
3.50 $ 49,479,000
Exercisable at September 30, 2016
639,607 $
31.54
1.35 $ 17,058,000
As of September 30, 2016, there was $19.3 million of total unrecognized pre-tax compensation cost, net of estimated
forfeitures, related to stock option awards. These costs are expected to be recognized over a weighted-average period of
approximately 2.74 years.
The following stock option activity occurred under the 2012 Plan for grants to employees:
Year ended September 30,
2015
(in thousands, except per option amounts)
2016
2014
Weighted-average grant date fair value per option
Total intrinsic value of stock options exercised
Total grant date fair value of stock options vested
$
$
$
13.96
16,273
7,690
$
$
$
14.36
29,574
10,483
$
$
$
16.21
15,570
5,004
Cash received from stock option exercises during the fiscal year ended September 30, 2016 was $13.7 million.
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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 our 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 $250,000. The
determination of the number of units or shares to be granted is determined by the Corporate Governance, Nominating and
Compensation Committee of the Board of Directors. Under the plan, the awards are generally restricted for a three to five year
period, during which time the awards are forfeitable in the event of termination other than for death, disability or retirement.
Prior to February 2011, non-employee members of our Board of Directors had been granted stock option awards annually.
Commencing in February 2011, restricted stock unit awards are issued annually to such members of our Board of Directors, in
lieu of stock option awards. The restricted stock units granted to these Directors vest over a one year period from their grant date,
provided that the director is still serving on our Board of Directors at the end of such period.
The following restricted stock award activity for grants to employees and members of our Board of Directors occurred during
the fiscal year ended September 30, 2016:
Non-vested at October 1, 2015
Granted
Vested
Forfeited
Non-vested at September 30, 2016
Weighted-
average
grant date
fair value ($)
Shares/Units
4,684,373 $
1,322,958 $
(1,053,903) $
(146,267) $
4,807,161 $
42.29
56.14
35.20
40.35
47.71
Expense and income tax benefits related to our restricted stock awards granted to our employees and members of our Board
of Directors are presented below:
Total share-based expense
Income tax benefits related to share-based expense
$
$
2016
Year ended September 30,
2015
(in thousands)
57,587
$
20,467
$
$
$
62,624
21,960
2014
54,666
19,105
For the year ended September 30, 2016, we realized $32.8 million of cumulative excess tax benefits related to our restricted
stock awards.
As of September 30, 2016, there was $95 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 2.81 years. The total fair value of shares and unit awards vested under this plan during the fiscal year
ended September 30, 2016 was $35.7 million.
Restricted stock awards associated with Alex. Brown
As part of our acquisition of Alex. Brown, RJ&A assumed certain DBRSU awards, including the associated plan terms and
conditions. The DBRSU awards contain performance conditions based on Deutsche Bank and subsidiaries attaining certain financial
results and will ultimately be settled in DB common stock, as traded on the NYSE, provided the performance metrics are achieved.
These awards are generally restricted for a three to six year period from their grant date, during which time the awards are subject
to forfeiture in the event of termination other than for death, disability or retirement. The DBRSUs are accounted for as a derivative,
see Note 18 for additional information.
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Index
On the AB Closing Date, we assumed 1,357,449 of DBRSUs, none of which have either vested, or been forfeited, during the
remainder of the fiscal year ended September 30, 2016. The per unit fair value of the DBSRUs at the AB Closing Date was $14.90
per unit, and the DBRSUs per unit fair value as of September 30, 2016 was $13.09.
As of September 30, 2016, there was a $15.2 million prepaid compensation asset included in prepaid expenses and other
assets in our Consolidated Statements of Financial Condition related to these DBRSUs (see Note 10). This asset is expected to
be amortized over a weighted-average period of approximately three years. As of September 30, 2016, there was a $17.8 million
derivative liability included in accrued compensation, commissions and benefits in our Consolidated Statements of Financial
Condition based on the September 30, 2016 fair value of DB shares of $13.09.
Subsequent to the AB Closing Date, the net impact of the DBRSUs in our Consolidated Statements of Income and
Comprehensive Income for the year ended September 30, 2016, including the related income tax effects, is presented below:
Amortization of DBRSU prepaid compensation asset
Change in fair value of derivative liability (gain)
Net gain before tax
Income tax expense
Year ended
September 30,
2016
(in thousands)
355
$
(2,457)
(2,102)
799
$
$
We hold 900,000 shares of DB as of September 30, 2016 as an economic hedge against this obligation, such shares are
included in other assets on our Consolidated Statements of Financial Condition. For the period ended September 30, 2016, a loss
in the fair value of these holdings since the AB Closing Date in the amount of $1.6 million is included in compensation, commissions
and benefits expense which offsets a portion of the gain reflected above.
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, 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 557,000,
430,000 and 397,000 shares to employees during the years ended September 30, 2016, 2015 and 2014, respectively. The
compensation cost is calculated as the value of the 15% discount from market value and was $4.2 million, $3.5 million and $3
million during the fiscal years ended September 30, 2016, 2015 and 2014, respectively.
Employee investment funds
Certain key employees participate in the EIF Funds, which are limited partnerships that invest in certain of our private equity
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.
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.
Non-employee share-based and other compensation
Share-based compensation
Under the 2012 Plan, we may grant stock options, restricted shares of common stock or restricted stock units to our independent
contractor financial advisors. The 2012 Plan is the successor to the prior plan under which options, restricted stock or restricted
stock units have been issued to independent contractors. 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. In addition,
we classify non-employee option awards as liabilities at fair value upon vesting, with changes in fair value reported in earnings
until these awards are exercised or forfeited. The outstanding stock options and restricted stock units granted to our independent
contractors are not material as of September 30, 2016.
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Index
Other compensation
We also 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 the primary 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 may elect to
defer a percentage or specific dollar amount of their compensation into the VDCP. The Deferral Plan Funding Structure is the
primary source of funding for this plan.
NOTE 25 – REGULATORY CAPITAL REQUIREMENTS
RJF, as a financial holding company, RJ Bank, and our broker-dealer subsidiaries are subject to oversight by various regulatory
authorities. Capital levels of each entity are monitored to assess the capital positions to ensure compliance with our various
regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial results.
Under capital adequacy guidelines, 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 report regulatory capital under Basel III under the standardized approach. Various aspects of the Basel III
rules are subject to multi-year transition periods through December 31, 2018.
RJF and RJ Bank are required to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined), Tier 1 capital to average assets (as defined), and under rules defined in Basel III, Common
equity Tier 1 capital (“CET1”) to risk-weighted assets. RJF and RJ Bank each calculate these ratios in order to assess compliance
with both regulatory requirements and their internal capital policies. Effective January 1, 2016, the minimum CET1, Tier 1 Capital,
and Total Capital ratios of RJF and RJ Bank are supplemented by an incremental capital conservation buffer, consisting entirely
of capital that qualifies as CET1, that phases in beginning on January 1, 2016 in increments of 0.625% per year until it reaches
2.5% of risk weighted assets on January 1, 2019. The capital conservation buffer is intended to be used to absorb potential losses
in times of financial or economic stress. If not maintained, we could be limited in the amount of certain discretionary bonuses
that may be paid and the amount of capital that may be distributed, including dividends and common equity repurchases. As of
September 30, 2016, RJF’s and RJ Bank’s capital conservation buffers were 13.6% and 6.0%, respectively. The applicable required
capital conservation buffer for each as of September 30, 2016 was 0.625%.
At current capital levels, RJF and RJ Bank are each categorized as “well capitalized.”
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Index
To meet requirements for capital adequacy purposes or to be categorized as “well capitalized,” RJF must maintain minimum
Common equity Tier 1, Tier 1 risk-based, Total risk-based, and Tier 1 leverage amounts and 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
regulatory provisions
Ratio
Amount
RJF as of September 30, 2016:
Common equity Tier 1 capital
Tier 1 capital
Total capital
Tier 1 leverage
RJF as of September 30, 2015:
Common equity Tier 1 capital
Tier 1 capital
Total capital
Tier 1 leverage
$
$
$
$
$
$
$
$
4,421,956
4,421,956
4,636,009
4,421,956
4,101,353
4,101,353
4,290,431
4,101,353
20.6% $
20.6% $
21.6% $
15.0% $
966,341
1,288,454
1,717,939
1,177,840
4.5% $
6.0% $
8.0% $
4.0% $
1,395,825
1,717,939
2,147,424
1,472,300
22.1% $
22.1% $
23.1% $
16.1% $
834,677
1,112,902
1,483,869
1,018,859
4.5% $
6.0% $
8.0% $
4.0% $
1,205,644
1,483,869
1,854,837
1,273,574
6.5%
8.0%
10.0%
5.0%
6.5%
8.0%
10.0%
5.0%
The decrease in RJF’s Total capital and Tier 1 capital ratios at September 30, 2016 compared to September 30, 2015 was
primarily the result of the significant growth of RJ Bank’s corporate loan portfolio, the repurchase of our common stock in open
market transactions, and the fiscal year 2016 acquisitions of Alex. Brown and 3Macs (see Note 3 for additional information
regarding these acquisitions). These deployments of excess capital were partially offset by positive earnings during the year ended
September 30, 2016.
To meet the requirements for capital adequacy or to be categorized as “well capitalized,” RJ Bank must maintain Common
equity Tier 1, Tier 1 risk-based, Total risk-based, and Tier 1 leverage amounts and 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
regulatory provisions
Ratio
Amount
RJ Bank as of September 30, 2016:
Common equity Tier 1 capital
Tier 1 capital
Total capital
Tier 1 leverage
RJ Bank as of September 30, 2015:
Common equity Tier 1 capital
Tier 1 capital
Total capital
Tier 1 leverage
$
$
$
$
$
$
$
$
1,675,890
1,675,890
1,841,112
1,675,890
1,525,942
1,525,942
1,672,577
1,525,942
12.7% $
12.7% $
14.0% $
9.9% $
592,864
790,486
1,053,981
675,939
13.0% $
13.0% $
14.3% $
10.9% $
526,577
702,103
936,137
558,829
4.5% $
6.0% $
8.0% $
4.0% $
856,360
1,053,981
1,317,476
844,924
4.5% $
6.0% $
8.0% $
4.0% $
760,611
936,137
1,170,171
698,536
6.5%
8.0%
10.0%
5.0%
6.5%
8.0%
10.0%
5.0%
The slight decrease in RJ Bank’s Total and Tier 1 capital ratios at September 30, 2016 compared to September 30, 2015 was
primarily due to significant growth in corporate loans.
Our intention is to maintain RJ Bank’s “well capitalized” status. In the unlikely event that RJ Bank failed to maintain its “well
capitalized” status, the consequences could include a requirement to obtain a waiver from the FDIC 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
requires that aggregate indebtedness, as defined, not exceed 15 times net capital, as defined. Rule 15c3-1 also provides for an
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Index
“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, ($250 thousand for RJFS as of September 30, 2016) or two percent of aggregate
debit items arising from client balances. FINRA may require a member firm to reduce its business if its net capital is less than
four percent of Aggregate Debit Items and may prohibit a member firm from expanding its business and declaring cash dividends
if its net capital is less than five percent of aggregate debit items.
The net capital position of our wholly owned broker-dealer subsidiary RJ&A is as follows:
Raymond James & Associates, Inc.:
(Alternative Method elected)
Net capital as a percent of aggregate debit items
Net capital
Less: required net capital
Excess net capital
As of September 30,
2016
2015
($ in thousands)
19.61%
512,594
(52,287)
460,307
$
$
20.85%
411,222
(39,452)
371,770
$
$
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,
2016
2015
(in thousands)
$
$
27,013
(250)
26,763
$
$
25,828
(250)
25,578
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, 2016 or 2015.
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,
2016
2015
(in thousands)
$
$
77,110
(250)
76,860
$
$
127,097
(250)
126,847
The substantial decrease in risk adjusted capital of RJ Ltd. at September 30, 2016 compared to September 30, 2015 was
primarily the result of its deployment of excess capital during fiscal year 2016 to fund a significant portion of the acquisition of
3Macs (see Note 3 for additional information regarding the acquisition).
Raymond James Trust, N.A., (“RJ Trust”) is regulated by the OCC and is required to maintain sufficient capital. As of
September 30, 2016 and 2015, RJ Trust met the requirements.
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At September 30, 2016, all of our other active regulated domestic and international subsidiaries are in compliance with and
met all capital requirements.
RJF expects to continue paying cash dividends. However, the payment and rate of dividends on our common stock is subject
to several factors including our operating results, financial requirements, and the availability of funds from our subsidiaries,
including our broker-dealer and bank subsidiaries, which may be subject to restrictions under regulatory capital rules. The
availability of funds from subsidiaries may also be subject to restrictions contained in loan covenants of certain broker-dealer loan
agreements; dividends to the parent from RJ Bank may be subject to restrictions by bank regulators. None of these restrictions
have ever limited our past dividend payments.
NOTE 26 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, we purchase and sell securities as either principal or agent on behalf of our clients. If either
the client or counterparty fails to perform, we may be required to discharge the obligations of the nonperforming party. In such
circumstances, we may sustain a loss if the market value of the security or futures contract is different from the contract value of
the transaction.
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 $91.5 million and securities loaned
was $69.6 million at September 30, 2016, and the market value of securities borrowed was $83.4 million and securities loaned
was $39.7 million at September 30, 2015. The contract value of securities borrowed and securities loaned was $93.4 million and
$75.8 million, respectively, at September 30, 2016 and the contract value of securities borrowed and securities loaned was $86.3
million and $44.4 million, respectively, at September 30, 2015. 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 $595.3 million and $432.6 million at September 30,
2016 and 2015, respectively. The contract value of securities loaned was $602 million and $434.2 million at September 30, 2016
and 2015, 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 $329 million and $288 million at September 30, 2016 and 2015, 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 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
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Index
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.
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.
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, 2016, forward contracts outstanding to buy and
sell U.S. dollars totaled CDN $24.2 million and CDN $23.6 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 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 (primarily SBL)
Commercial lines of credit
Unfunded loan commitments
As of September 30,
2016
2015
(in thousands)
29,686
3,616,933
1,430,630
354,556
$
$
$
$
60,925
2,531,690
1,419,746
322,419
$
$
$
$
In the normal course of business, RJ Bank issues, or participates in the issuance of 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, 2016, $29.7 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.
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Index
NOTE 27 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per share:
Income for basic earnings per common share:
Net income attributable to RJF
Less allocation of earnings and dividends to participating securities (1)
Net income attributable to RJF common shareholders
Income for diluted earnings per common share:
Net income attributable to RJF
Less allocation of earnings and dividends to participating securities (1)
Net income attributable to RJF common shareholders
Common shares:
Average common shares in basic computation
Dilutive effect of outstanding stock options and certain restricted stock units
Average common shares used in diluted computation
Earnings per common share:
Basic
Diluted
Stock options and certain restricted stock units excluded from weighted-average
diluted common shares because their effect would be antidilutive
Year ended September 30,
2016
2014
2015
(in thousands, except per share amounts)
$
$
$
$
$
$
$
$
$
$
529,350
(1,256)
528,094
529,350
(1,236)
528,114
141,773
2,740
144,513
$
$
$
$
502,140
(1,610)
500,530
502,140
(1,580)
500,560
142,548
3,391
145,939
3.72
3.65
$
$
3.51
3.43
$
$
3,255
2,849
480,248
(3,007)
477,241
480,248
(2,946)
477,302
139,935
3,654
143,589
3.41
3.32
1,503
(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 346 thousand, 464 thousand and 887 thousand for the years ended September 30, 2016, 2015 and 2014, respectively.
Dividends paid to participating securities amounted to $236 thousand, $300 thousand and $500 thousand for the years ended
September 30, 2016, 2015, and 2014 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 28 – SEGMENT INFORMATION
Year ended September 30,
2015
2014
2016
$
$
0.80
0.78
$
$
0.72
0.70
$
$
0.64
0.62
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 most corporate overhead and benefits to each segment, refer to
the discussion of the Other segment below for a description of the corporate expenses that are not allocated to segments. 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,
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Index
financial institutions and other counterparties, generally as an intermediary or to facilitate RJ&A’s clearance and settlement
obligations, and the correspondent clearing services that we provide to other broker-dealer firms.
The Capital Markets segment includes institutional sales and trading in the U.S., Canada and Europe. We provide securities
brokerage, trading, and research services to institutions with an emphasis on the sale of U.S. and Canadian equities and fixed
income products. This segment also includes our management of and participation in debt and equity underwritings, merger and
acquisition services, public finance activities, and the operations of RJTCF.
The Asset Management segment includes the operations of Eagle, the Eagle Family of Funds, Cougar, the asset management
operations of RJ&A, trust services of RJ Trust, and other fee-based asset management programs.
RJ Bank provides corporate loans, securities based loans and residential loans. RJ Bank is active in corporate loan syndications
and participations. RJ Bank also provides FDIC insured deposit accounts to clients of our broker-dealer subsidiaries and to the
general public. 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.
The Other segment includes our principal capital and private equity activities as well as certain corporate overhead costs of
RJF that are not allocated to operating segments including the interest costs on our public debt, and the acquisition and integration
costs associated with certain of our acquisitions (see Note 3 for additional information).
Information concerning operations in these segments of business is as follows:
Revenues:
Private Client Group
Capital Markets
Asset Management
RJ Bank
Other
Intersegment eliminations
Total revenues(1)
Income (loss) excluding noncontrolling interests and before provision for
income taxes:
Private Client Group
Capital Markets
Asset Management
RJ Bank
Other
Pre-tax income excluding noncontrolling interests
Add: net loss attributable to noncontrolling interests
2016
Year ended September 30,
2015
(in thousands)
2014
$
$
$
$
$
$
3,626,718
1,016,375
404,421
517,243
46,291
(90,704)
5,520,344
340,564
139,173
132,158
337,296
(148,548)
800,643
(23,272)
$
$
$
3,519,558
975,064
392,378
425,988
66,967
(71,791)
5,308,164
342,243
107,009
135,050
278,721
(64,849)
798,174
(21,462)
3,289,503
968,635
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)
Income including noncontrolling interests and before provision for income
taxes
$
777,371
$
776,712
$
715,948
(1) No individual client accounted for more than ten percent of total revenues in any of the years presented.
Net interest income (expense):
Private Client Group
Capital Markets
Asset Management
RJ Bank
Other
Net interest income
2016
Year ended September 30,
2015
(in thousands)
2014
$
$
97,042
8,339
183
478,690
(61,006)
523,248
$
$
88,842
7,634
127
403,578
(64,928)
435,253
$
$
89,527
5,326
92
346,757
(64,907)
376,795
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Index
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
September 30,
2016
2015
(in thousands)
$
$
10,317,681
3,064,076
133,190
16,613,391
1,465,395
31,593,733
$
$
6,870,379
2,780,733
187,378
14,191,566
2,437,976
26,468,032
(1) Includes $275.5 million and $186.7 million of goodwill at September 30, 2016 and 2015, respectively.
(2) Includes $132.6 million and $120.9 million of goodwill at September 30, 2016 and 2015, respectively.
We have operations in the United States, Canada, Europe and joint ventures in Latin America. Substantially all long-lived
assets are located in the United States. Revenues and income before provision for income taxes and excluding noncontrolling
interests, classified by major geographic areas in which they are earned, are as follows:
Revenues:
United States
Canada
Europe
Other
Total
Pre-tax income (loss) excluding noncontrolling interests:
United States
Canada
Europe
Other
Total
2016
Year ended September 30,
2015
(in thousands)
2014
$
$
$
$
5,118,760
278,652
85,718
37,214
5,520,344
778,351
20,243
(3,791)
5,840
800,643
$
$
$
$
4,911,304
279,200
85,289
32,371
5,308,164
784,517
17,770
(6,852)
2,739
798,174
$
$
$
$
4,512,808
323,038
95,865
33,749
4,965,460
706,366
37,947
(1,546)
5,278
748,045
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,
2016
2015
(in thousands)
$
$
29,218,939
2,275,056
61,067
38,671
31,593,733
(3)
$
$
24,531,993
1,814,178
36,669
85,192
26,468,032
(1) Includes $356.3 million and $274.6 million of goodwill at September 30, 2016 and 2015, respectively.
(2) Includes $42.7 million and $33 million of goodwill at September 30, 2016 and 2015, respectively.
(3) Includes $9.1 million of goodwill at September 30, 2016.
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Index
NOTE 29 - CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
As more fully described in Note 1, RJF (or the “Parent”), is a financial holding company whose subsidiaries are engaged in
various financial services businesses. The Parent’s primary activities include investments in subsidiaries and corporate investments,
including cash management, company-owned life insurance and private equity investments. The primary source of operating cash
available to the Parent is provided by dividends from its subsidiaries.
Our principal domestic broker-dealer subsidiaries of the Parent, RJ&A and RJFS, are required by regulations to maintain a
minimum amount of net capital (other non-bank subsidiaries of the Parent are also required by regulations to maintain a minimum
amount of net capital, but the net capital requirements of those other subsidiaries are much less significant). 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, 2016, each of these brokerage subsidiaries far exceeded their minimum net capital requirements, see Note 25 for
further information.
Subsidiary net assets of approximately $2.08 billion as of September 30, 2016 are restricted under regulatory or other
restrictions from being transferred from certain subsidiaries to the Parent, without prior approval of the respective entities’ regulator.
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 the available amounts are not as significant as those amounts described above. The Parent
regularly receives a portion of the profits of subsidiaries, other than RJ Bank, as dividends.
See Notes 15, 17, 21 and 25 for more information regarding borrowings, commitments, contingencies and guarantees, and
capital and regulatory requirements of the Parent and its subsidiaries.
The following table presents the Parent’s statements of financial condition:
Assets:
Cash and cash equivalents (1)
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
Senior notes payable
Total liabilities
Equity
Total liabilities and equity
September 30,
2016
2015
(in thousands)
$
371,978
$
746,042
—
1,228,046
1,658,663
3,118,961
14,891
31,954
611,667
7,036,160
$
82
853,222
1,519,263
2,378,129
10,602
31,954
616,526
6,155,820
81,340
$
78,945
230
13,892
346,015
1,680,587
2,122,064
4,914,096
7,036,160
$
—
129,779
287,495
1,137,570
1,633,789
4,522,031
6,155,820
$
$
$
(1) Of the Parent’s total cash and cash equivalents, $350 million and $451 million at September 30, 2016 and 2015, respectively, is held
in a deposit account at RJ Bank.
(2) Of the total receivable from non-bank subsidiaries, $457 million and $494 million at September 30, 2016 and 2015, 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
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
2016
Year ended September 30,
2015
(in thousands)
2014
$
$
$
248,020
75,000
8,999
807
4,654
337,480
(78,089)
259,391
54,664
6,330
636
18,364
9,792
(40,424)
49,362
$
230,853
—
6,886
843
3,823
242,405
(76,233)
166,172
46,758
5,999
800
17,581
10,365
(46,898)
34,605
210,029
(64,658)
274,687
254,663
529,350
$
131,567
(42,688)
174,255
327,885
502,140
$
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
177,987
(37,170)
215,157
265,091
480,248
200
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) loss on company-owned life insurance
Equity in undistributed net income of subsidiaries
Other
Net change in:
Intercompany receivables
Other
Intercompany payables
Trade and other
Accrued compensation and benefits
Net cash provided by operating activities
Cash flows from investing activities:
(Investments in) distributions received from subsidiaries, net
(Advances to) repayments of advances by subsidiaries, net
Proceeds from sales (purchases) of investments, net
Purchase of investments in company-owned life insurance, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from senior note issuances, net of debt issuance costs
Repayment of senior notes payable
Exercise of stock options and employee stock purchases
Purchase of treasury stock
Dividends on common stock
Net cash provided by (used in) financing activities
Net (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 (received) for income taxes, net
Supplemental disclosures of noncash investing activity:
Investments in (distributions from) subsidiaries, net
Year ended September 30,
2015
2014
2016
(in thousands)
$
529,350
$
502,140
$
480,248
(11,538)
(25,642)
(254,663)
73,798
19,641
97,067
(115,657)
2,396
58,520
373,272
(637,689)
(394,383)
24,609
(49,488)
(1,056,951)
792,221
(250,000)
43,331
(162,502)
(113,435)
309,615
(374,064)
746,042
371,978
74,568
27,397
$
$
$
(5,586)
8,960
(327,885)
60,634
(102,866)
51,442
20,338
(49)
2,911
210,039
(9,493)
(40,120)
(4,601)
(44,917)
(99,131)
—
—
47,964
(88,542)
(103,143)
(143,721)
(32,813)
778,855
746,042
76,297
32,383
$
$
$
(10,245)
(17,989)
(265,091)
75,725
45,656
44,360
(108,056)
12,835
7,668
265,111
33,973
287,154
6,347
(25,581)
301,893
—
—
33,633
(8,427)
(88,102)
(62,896)
504,108
274,747
778,855
76,661
(59,552)
781
$
507
$
(132,117)
$
$
$
$
201
Index
SUPPLEMENTARY DATA:
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
Fiscal Year 2016
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 (1)
Dividends declared per share
$
$
$
$
$
$
$
$
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
(in thousands, except per share data)
1,301,526 $
1,274,517 $
1,112,342 $
1,340,918 $
1,311,494 $
1,121,290 $
1,386,693 $
1,358,482 $
1,167,032 $
1,491,207
1,458,774
1,225,232
162,175 $
106,329 $
0.74 $
0.73 $
0.20 $
190,204 $
125,847 $
0.89 $
0.87 $
0.20 $
191,450 $
125,504 $
0.89 $
0.87 $
0.20 $
233,542
171,670
1.21
1.19
0.20
(1) Due to rounding the quarterly results do not sum to the total for the year.
Fiscal Year 2015
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
$
$
$
$
$
$
$
$
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
(in thousands, except per share data)
1,279,844 $
1,252,460 $
1,053,811 $
1,312,624 $
1,285,778 $
1,110,145 $
1,348,713 $
1,320,989 $
1,119,694 $
1,366,983
1,340,983
1,139,848
198,649 $
126,296 $
0.89 $
0.87 $
0.18 $
175,633 $
113,463 $
0.79 $
0.77 $
0.18 $
201,295 $
133,195 $
0.93 $
0.91 $
0.18 $
201,135
129,186
0.90
0.88
0.18
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)
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.
202
Index
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the year ended September 30, 2016 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal
control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for
external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial
reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable
assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance
that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable
assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements
would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is
not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control - Integrated Framework (2013) issued by COSO. Based on this evaluation, management concluded
that our internal control over financial reporting was effective as of September 30, 2016. 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, 2016 (included as follows).
203
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, 2016, based on criteria established in Internal Control - Integrated Framework (2013) 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, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We have also 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, 2016 and 2015, 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, 2016, and our report dated November 22, 2016 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Tampa, Florida
November 22, 2016
Certified Public Accountants
204
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 2017 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, 2016.
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 2017 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, 2016.
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 below and continued on the following pages.
Exhibit
Number
3.1
3.2
4.1
4.2.1
4.2.2
4.2.3
4.2.4
4.2.5
4.2.6
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 20, 2015, 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 24, 2015.
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 the 8.60% Senior Notes Due 2019, 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.
Third Supplemental Indenture, dated as of March 7, 2012, for the 6.90% Senior Notes Due 2042, 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 the 5.625% Senior Notes Due 2024, 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.
Fifth Supplemental Indenture, dated as of July 12, 2016, for the 3.625% Senior Notes Due 2026, 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 July 12, 2016.
Sixth Supplemental Indenture, dated as of July 12, 2016, for the 4.95% Senior Notes Due 2046, between Raymond James
Financial, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, incorporated by reference to Exhibit 4.2
to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 12, 2016.
205
Index
Exhibit
Number
10.1
10.2
10.3
10.4
10.5
Description
* 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, dated as of December 13, 2002, incorporated by reference to Exhibit 10.10 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.
* 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.
10.6
* Letter agreement, dated February 25, 2009, between Raymond James Financial, Inc. and Paul C. Reilly, incorporated by
reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on March 3, 2009.
10.7
10.8.1
10.8.2
* 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.
* 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.
* 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.
10.8.3
* Form of Amendment to Restricted Stock Grant Agreements outstanding under 2005 Raymond James Financial, Inc.
10.9
10.10
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.
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.
* 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.
10.11
* Amended and Restated Raymond James Financial Long-Term Incentive Plan, effective February 19, 2015, incorporated by
10.12.1
10.12.2
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange
Commission on August 8, 2016.
Revolving Credit Agreement, dated as of August 6, 2015, among Raymond James Financial, Inc. and a syndicate of lenders
led by Bank of America, N.A. and Regions Bank, 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 August 10, 2015.
First Amendment to Revolving Credit Agreement, dated as of June 8, 2016, among Raymond James Financial, Inc., the
Lenders party thereto, and Bank of America, N.A., 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 June 9, 2016.
10.13.1
* Raymond James Financial, Inc. Amended and Restated 2012 Stock Incentive Plan (as amended through February 18, 2016),
incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for the Annual Meeting of
Shareholders held February 18, 2016, filed with the Securities and Exchange Commission January 14, 2016.
10.13.2
* Form of Contingent Stock Option Agreement under 2012 Stock Incentive Plan, incorporated by reference to Exhibit 10.22 to
10.13.3
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 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.
10.13.4
* Form of Restricted Stock Unit Agreement for Performance Based Restricted Stock Unit Award under 2012 Stock Incentive
Plan, incorporated by reference to Exhibit 10.20.8 to the Company’s Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission on February 8, 2013.
10.13.5
* 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.
10.13.6
* 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.
10.13.7
* 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.
206
Index
Exhibit
Number
10.13.8
10.13.9
Description
* 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.
10.13.10
* 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.
10.13.11
* 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.
10.13.12
* 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.
10.13.13
10.13.14
* 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.
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.
10.14
* Raymond James Financial, Inc. Amended and Restated Voluntary Deferred Compensation Plan, effective February 23, 2016.
11
12
21
23
31.1
31.2
32
Statement re Computation of per Share Earnings (the calculation of per share earnings is included in Part II, Item 8, Note 27
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 executive officer participates.
207
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 22nd day of November, 2016.
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/ JEFFREY P. JULIEN
Jeffrey P. Julien
Chief Executive Officer (Principal Executive Officer) and Director
November 22, 2016
Executive Vice President - Finance, Chief Financial Officer
(Principal Financial Officer) and Treasurer
November 22, 2016
/s/ JENNIFER C. ACKART
Senior Vice President and Controller (Principal Accounting Officer)
November 22, 2016
Jennifer C. Ackart
/s/ THOMAS A. JAMES
Thomas A. James
Executive Chairman and Director
November 22, 2016
/s/ CHARLES G. VON ARENTSCHILDT
Director
Charles G. von Arentschildt
/s/ SHELLEY G. BROADER
Director
Shelley G. Broader
/s/ JEFFREY N. EDWARDS
Director
Jeffrey N. Edwards
/s/ BENJAMIN C. ESTY
Benjamin C. Esty
Director
November 22, 2016
November 22, 2016
November 22, 2016
November 22, 2016
/s/ FRANCIS S. GODBOLD
Vice Chairman and Director
November 22, 2016
Francis S. Godbold
/s/ GORDON L. JOHNSON
Director
Gordon L. Johnson
/s/ RODERICK C. MCGEARY
Director
Roderick C. McGeary
/s/ ROBERT P. SALTZMAN
Director
Robert P. Saltzman
/s/ SUSAN N. STORY
Susan N. Story
Director
208
November 22, 2016
November 22, 2016
November 22, 2016
November 22, 2016
International Headquarters: The Raymond James Financial Center
880 Carillon Parkway St. Petersburg, FL 33716 800.248.8863
raymondjames.com
©2016 Raymond James Financial Raymond James® is a registered trademark of Raymond James Financial, Inc.