A N N U A L R E P O R T 2 0 1 7
CLIENT FIRST. INTEGRITY. INDEPENDENCE. CONSERVATISM.
Here, company values are not simply words.
They are the essence of our company. They drive the people who make the big and small,
individual and collective decisions that have defined our past and will shape our future.
Because, no matter what changes, our business has been – and will remain – putting you
and your financial well-being first.
On the cover: Chairman Emeritus Tom James and
Raymond James founder Bob James in 1980
Thomas A. James
Chairman Emeritus
Raymond James Financial
Paul Reilly
Chairman and Chief Executive Officer
Raymond James Financial
C O N T E N T S
2
20
Message from the Chairman and CEO
Social Responsibility
6
21
Private Client Group
Corporate Leadership
8
22
Capital Markets
10-Year Financial Summary
12
24
Asset Management
Corporate and Shareholder
14
Information
25
Raymond James Bank
Financial Report
It takes strength and an unwavering focus to stay true to your values day after day, year after
year. But for more than 55 years at Raymond James, and as we look ahead, the more things
change, the more they stay the same.
1
M E S S A G E F R O M T H E C H A I R M A N A N D C E O
Thirty years ago, on October 19, 1987, the Dow Jones Industrial Average lost
more than 20% in a single day. In the midst of what became known as Black
Monday most firms in our industry closed their trading desks to avoid incurring
larger losses. Raymond James did not.
Instead, we accommodated clients’ trades, even as we took
accompanying losses. Doing so was a testament to our founding
commitment – to ALWAYS put clients and their financial well-being
first. That quarter in 1987 was the last time the firm posted a quarterly
loss. In the three decades since, there have been similar challenges –
from the dot-com bubble of the early 2000s to the financial crisis
of 2008-2009 – as well as less widespread ones. Raymond James
weathered all these, not only remaining profitable every quarter but
also taking advantage of significant opportunities.
This year was no different. We managed through challenging
regulatory and legal hurdles, most notably the initial implementation
of the Department of Labor’s (DOL) Fiduciary Rule, which required
several significant changes to comply with the rule’s complex
requirements for advisors providing advice relating to covered
retirement accounts. We also incurred a large legal settlement
related to an alleged fraudulent EB-5 government visa investment
program created in 2007 by third parties and offered directly to
foreign investors. We faced multiple hurricanes, including Hurricane
Irma, which required Raymond James to transition to our business
continuity protocol, but more importantly provided the opportunity
to reinforce our cultural focus on people through our support of
associates and of recovery organizations. We integrated three firms,
re-introducing the venerable Alex. Brown as a division of Raymond
James, welcoming the esteemed advisors of MacDougall, MacDougall
& MacTier Inc. (3Macs) in Canada, and joining forces in Europe with
Germany-based M&A advisory firm Mummert & Company Corporate
Finance. And we turned in outstanding results, generating record net
revenues of $6.37 billion and record net income of $636.2 million, or
$4.33 per diluted share.
The 18% revenue growth over fiscal 2016 was largely attributable
to growth in Private Client Group (PCG) fee-based account assets,
record investment banking revenues, and the benefit derived from
higher short-term interest rates. The strong revenue growth resulted
in our net income increasing 20% over fiscal 2016 despite $130
million of expenses associated with the above legal settlement,
$46 million of losses on extinguishment of higher-cost debt, and
$18 million of acquisition-related expenses during the fiscal year.
Our return on equity for the year was 12.2%, which was acceptable
given the aforementioned expenses and the strong capital position
we maintained throughout the year. Our shareholders’ equity of $5.6
billion on September 30, 2017, increased 14% over September 2016,
resulting in a book value per share of $38.74. All of our core operating
segments generated record net revenues and record pre-tax income
in fiscal 2017.
The Private Client Group generated record net revenues of $4.42
billion, a noteworthy increase of 22% over fiscal 2016, and record pre-
tax income of $373.0 million, a 10% increase despite the impact of the
legal settlement in the same year. These records were aided by strong
financial advisor retention and recruiting results, higher short-term
interest rates, and market appreciation during the fiscal year.
The DOL Fiduciary Rule was a moving target in fiscal 2017, as the
applicability date was delayed from April to June, and several
components of the rule were ultimately deferred for another 18
months. The uncertainty and far-reaching effects of the rule meant it
was a significant focus for PCG this year, as well as for other areas of
the firm that support financial advisors. We continue to believe the
rule, while well-intended, limits choice for investors and negatively
affects the very people it is trying to help. We therefore support the
SEC’s efforts to work with the DOL and the industry to establish a
uniform standard for all account types, and will continue to lend our
voice to this cause.
During fiscal 2017, we continued to make significant investments
in technology, focusing on enhancing our industry leadership in
advisor-facing systems, facilitating compliance with increasingly
complex regulatory requirements, and strengthening the stability and
security of our platform. For example, we rolled out and earned an
industry recognition award for our mobile capabilities, which enable
advisors to conduct most of their business from a mobile device. We
also launched the beta pilot of our Connected Advisor digital advice
platform, which is our response to “robo-advice,” but differs in that
it focuses on strengthening relationships between advisors and
their clients through the use of automated technology and data-
driven insights. We are entering fiscal 2018 with optimism about
the prospects for PCG, as we ended fiscal 2017 with 7,346 financial
advisors and record assets under administration of $659.5 billion.
In the Capital Markets segment, record net revenues of $1.01 billion
and record pre-tax income of $141.2 million were both up modestly
over fiscal 2016. The segment’s record results were lifted by strong
investment banking revenues of $398.7 million, which increased 31%
over fiscal 2016. The acquisition of Mummert & Company in fiscal
2016 bolstered our cross-border M&A capabilities and contributed
to part of the 54% improvement in the firm’s M&A revenues in fiscal
2017. While investment banking was strong, both institutional equity
2
ANNUAL REPORT 2017 and fixed income commissions continued to be challenged during the
year. Low volatility in the equity markets resulted in a modest decline
in institutional equity commissions. Similarly, low rate volatility and a
flattening yield curve caused institutional fixed income commissions
to decline 15% in fiscal 2017, which still represented a favorable
result compared to many of our direct competitors.
The Asset Management segment produced record net revenues of
$487.7 million and record pre-tax income of $171.7 million, increasing
21% and 30% over fiscal 2016, respectively. Financial assets under
management improved 25% to a record $96.4 billion. The increase
in financial assets under management reflected market appreciation
and increased utilization of fee-based accounts in PCG, partially
in response to the DOL Fiduciary Rule. Carillon Tower Advisers/
Eagle Asset Management generated modest net inflows during the
year, despite the industrywide headwinds for actively managed
investments. We announced the acquisition of Scout Investments
and Reams Asset Management in April to add scale to our asset
management business with complementary fixed income products.
The acquisition, which closed on November 17, 2017, added
approximately $27 billion in financial assets under management.
Raymond James Bank generated record net revenues of $592.7
million, up 20% over fiscal 2016, and record pre-tax income of
$409.3 million, up 21% over fiscal 2016. The bank’s loan portfolio
grew 12% to a record $17.0 billion during the year. Despite a 1%
decline in commercial and industrial loans, all of the other major
loan categories, which focus on providing solutions to clients in our
PCG and Capital Markets segments, grew substantially during the
year. The bank also initiated the expansion of its available-for-sale,
agency-backed securities portfolio, which ended the year at $2.1
billion. The bank’s credit metrics improved during the year, with
nonperforming assets declining 49% to $44 million and criticized
loans declining 12%. The bank’s net interest margin increased six
basis points to 3.10% in fiscal 2017, helped by the increases in short-
term interest rates but partially offset by a lower-yielding asset mix
during the year.
In addition to the impressive financial results we generated in
fiscal 2017, there were many other achievements, accolades and
milestones during the fiscal year:
• Raymond James was added to the S&P 500® index, reflecting our
long-term outperformance since the company’s inception.
• Both S&P Global Ratings and Moody’s Investors Service upgraded
Raymond James’ credit ratings during the year to BBB+ and Baa1,
respectively.
• Several Raymond James-affiliated advisors were recognized
during the year, including nine advisors named to Forbes’ list
of America’s Top Women Advisors, 32 advisors named to the
Financial Times “FT 400” list of top financial advisors, 69 advisors
named to Barron’s Top Advisors ranking, five advisors named
to Barron’s list of the Top 100 Women Financial Advisors, 17
advisors named to Forbes’ list of America’s Top Next Generation
Wealth Advisors, and 24 advisors in the Financial Institutions
Division named to Bank Investment Consultant’s list of the Top
100 Bank Advisors.
• Our Investment Banking teams earned numerous awards
during the year, including several awards from M&A Advisor and
Investment Bank of the Year at the M&A Atlas Awards.
• Raymond James announced the closing of a registered
underwritten public offering of $500 million in aggregate principal
amount of its reopened 4.95% senior notes due 2046. Additionally,
the firm elected to redeem all outstanding 6.90% senior notes as
well as all outstanding 8.60% senior notes during the fiscal year.
• We launched a new national advertising campaign in March, using
an integrated strategy of broadcast, print and online media to
support overall brand awareness.
• We continued to make strides for a more diverse and inclusive
workforce, building on existing programs such as our Network
for Women Advisors, which celebrated its 23rd year in 2017 with
close to 400 advisors – including almost two dozen prospective
advisors – attending our annual Women’s Symposium. Among
our accomplishments this year: hiring a director of diversity and
inclusion and significantly improving diversity on our candidate
slates, which resulted in an increase of external diverse hires by
50%, including notable senior-level hires in PCG and Raymond
James Bank, as well as our Compliance and Supervision areas.
• We purchased three buildings adjacent to our five existing
buildings on our St. Petersburg campus, significantly expanding
capacity at our headquarters by 35% to accommodate future
space needs.
• Our associates continued to give back to our communities,
contributing a total of $5.36 million, including the company’s
match, to the United Way campaign and more than $250,000
to the American Heart Association’s Tampa Bay Heart Walk.
Additionally, during Raymond James Cares Month in August, over
2,200 advisors and associates in 105 local communities across 35
states contributed more than 6,100 hours to benefit 161 nonprofit
organizations. The number of organizations supported reflects an
11% increase from 2016.
Fiscal 2017 was an extremely good year for Raymond James. We made
meaningful progress on several strategic initiatives, generated solid
financial results, and ended the year with records for almost all of our
key business metrics, including client assets under administration,
financial assets under management, the number of PCG financial
advisors, and net loans at Raymond James Bank. We also continued
to plan for the future, developing long-term strategic objectives for
each one of our businesses and establishing detailed plans to ensure
seamless succession of leadership throughout the organization over
the next several years.
We are starting fiscal 2018 with a favorable environment, as equity
markets are at record levels and economic growth continues to
improve both domestically and abroad. Additionally, the prospect of
major tax reform appears likely.
Notwithstanding these positive developments, 30 years ago,
Black Monday reinforced the importance of being prepared for the
unexpected. To that end, we strive to always maintain ample liquidity
and capital, with our capital ratios ending fiscal 2017 at more than
double the regulatory requirements to be considered well-capitalized.
3
ANNUAL REPORT 2017CLIENT FIRST. INTEGRITY. INDEPENDENCE. CONSERVATISM. For our largest business unit, we expect continued retention and
recruiting success in 2018 as our culture of independence and our
AdvisorChoice model, which encourages advisors to affiliate with
us in the way that best fits their business and client needs, continue
to resonate. Even as large firms announced their intention to leave
the industry’s Protocol for Broker Recruiting – an agreement among
participants to not hinder the transfer of client contact information
when an advisor leaves a firm – Raymond James reaffirmed our
participation. We strongly believe that the advisor-client relationship
is integral to putting a client’s interest first, and that our role is to
support this relationship, even if it means helping an advisor leave
Raymond James. In supporting advisors’ freedom, we know we have
to constantly earn their business, their trust and their clients’ trust,
and we do so through high-quality service.
The values that drive decisions like our commitment to the broker
protocol – client-first, independence, integrity and conservative,
long-term decision making – are the values that Bob James founded
the firm upon, that Tom James ensured permeated the firm, and that
are shared today by our Board of Directors and Executive Committee.
In February, when I was entrusted with chairman responsibilities, as
Tom James became chairman emeritus and retained a seat on the
board, I pledged that as chairman and CEO, my top priority would
be to continue to preserve and strengthen these values. While I
would not wish the fear of an impending hurricane – nor the realities
of devastation that follow – on anyone, Hurricane Irma, which
threatened our corporate headquarters, provided an opportunity for
our entire leadership team to reinforce our focus on our values, and
on the people who make our firm what it is. We flew approximately
190 associates, along with their families and even their pets, to our
Memphis corporate location to allow other Florida associates to
secure their homes against the storm; we opened our home office as
a shelter for those without electricity or supplies; we gave associates
in the path of Irma, Harvey or Maria $300 to help with the expenses
of evacuation and cleanup, regardless of actual impact; and our
Executive Committee led the way in giving to Friends of Raymond
James, an independent 501(c)3 set up to assist associates and their
families in times of need, resulting in $450,000 of total associate
donations to Raymond James families affected by the hurricanes.
I am extremely proud to have been part of those efforts and am more
reassured than ever that our values – and the people who live them
every day – are what set Raymond James apart. They are the core of
our strategic positioning, which not only enables us to be poised to
deliver relative outperformance in almost any market environment,
but gives me utmost confidence in the success of Raymond James in
2018 and for many, many years to come.
Sincerely,
PRIVATE CLIENT GROUP
More than 7,300 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 through 3,000 branch offices.
CAPITAL MARKETS
Investment Banking, Public Finance, Institutional Sales and
Trading, and Syndicate serve corporate, institutional nonprofit
and municipal clients throughout North America and Europe.
The group also provides research on companies globally,
market-making in common stocks, and trading primarily in
municipal, government agency, mortgage-backed and corporate
bonds. In addition, Raymond James Tax Credit Funds provides
resources to developers of affordable housing and sponsors
impactful investments in communities through fund offerings.
ASSET MANAGEMENT
The Asset Management Group provides investment advisory
and asset management services to individual and institutional
investors, and sponsors a family of mutual funds. We also deliver
services for Raymond James financial advisors via our Asset
Management Services division and Raymond James Trust, N.A.
Through Carillon Tower Advisers/Eagle Asset Management, we
serve as a discretionary manager for equity and fixed income
portfolios, for both institutional and retail investors.
RAYMOND JAMES 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.
OTHER
Our Other segment includes the firm’s private equity activities,
as well as certain corporate overhead costs of Raymond James
Financial, such as the interest cost on our senior notes payable,
and the acquisition and integration costs associated with certain
acquisitions.
Paul C. Reilly
Chairman and
Chief Executive Officer
Raymond James Financial
December 15, 2017
4
ANNUAL REPORT 2017 2017 NET REVENUE $6,371,097,000
PRIVATE CLIENT GROUP
CAPITAL MARKETS
ASSET MANAGEMENT
RAYMOND JAMES BANK
OTHER
INTERSEGMENT
$4,421,633,000
$1,013,683,000
$487,658,000
$592,670,000
($29,870,000)
($114,677,000)
69%
16%
8%
9%
(0%)
(2%)
2017 TOTAL PRE-TAX INCOME* $925,346,000
PRIVATE CLIENT GROUP
CAPITAL MARKETS
ASSET MANAGEMENT
RAYMOND JAMES BANK
$372,950,000
$141,236,000
$171,736,000
$409,303,000
40%
15%
19%
44%
OTHER
($169,879,000)
(18%)
*PRE-TAX INCOME EXCLUDING NONCONTROLLING INTERESTS
FISCAL YEAR FINANCIAL HIGHLIGHTS
2017
2016
CHANGE
Total Revenues
Net Revenues
Net Income
$6,524,875,000
$5,521,120,000
$6,371,097,000
$5,405,064,000
$636,235,000
$529,350,000
Earnings per Share (Diluted)
$4.33
$3.65
Shareholders’ Equity Attributable to RJF
(1)
Shares Outstanding
$5,581,713,000
$4,916,545,000
144,097,000
141,545,000
Book Value per Share
$38.74
$34.73
18%
18%
20%
19%
14%
2%
12%
ALL DATA AS OF FISCAL YEAR ENDED SEPTEMBER 30, 2017
(1) Excludes non-vested shares
COMPARISON OF FIVE-YEAR CUMULATIVE
TOTAL RETURN SEPTEMBER 2017
Assumes initial investment of $100 and reinvestment of dividends.
Prepared by Zacks Investment Research.
$300
$250
$200
$150
$100
2012
2013
2014
2015
2016
2017
Raymond James Financial, Inc.
S&P 500
Dow Jones U.S. Investment Services Index
7
3
.
6
1
4
.
5
0
2
.
5
6
8
.
4
9
4
.
4
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
NET REVENUE
$Billions
6
3
6
9
2
5
2
0
5
0
8
4
7
6
3
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
NET INCOME
$Millions
3
.
2
1
2
.
2
1
5
.
1
1
3
.
1
1
6
.
0
1
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
RETURN ON EQUITY
% Percent
2
.
2
1
2
.
8
6
.
17
.
7
8
.
5
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
MARKET CAPITALIZATION
$Billions
5
ANNUAL REPORT 2017CLIENT FIRST. INTEGRITY. INDEPENDENCE. CONSERVATISM.
P R I V A T E C L I E N T G R O U P
It was a record year for the Private Client Group business, as clients’ assets
under administration reached $659.5 billion, driving annual net revenues to
$4.42 billion.
While positive equity markets and higher short-term interest rates
provided tailwinds, minimal attrition of existing financial advisors
combined with another strong year of recruiting experienced
advisors remained as critical drivers of growth. In addition, 126
new financial advisors completed our in-house training programs.
In 2017, advisors continued to join Raymond James through the
various affiliation options – from traditional employee advisor
to independent contractor to independent RIA. While we are
regularly recognized for providing best-in-class financial advisor
technology tools and other areas of support, advisors’ reasons
for affiliating with Raymond James highlight our culture that
emphasizes client-first focus, commitment to advisor support
and a conservative management approach.
Meanwhile, as some competitors continue offering lucrative
upfront payouts to entice advisors away from their current
firms, very few have chosen to leave Raymond James. Annual
regrettable attrition has been consistently below 1%. This is
an especially notable accomplishment in the year following
the major acquisitions of Alex. Brown and 3Macs, particularly
given the typical attrition rates following these types of transac-
tions within our industry. Our
culture of advisors as clients
also plays a role – our advi-
sors consistently express a
willingness to recommend
the firm to other high-quality
advisors at competitor firms –
reflecting their overall sat-
isfaction with
Raymond
James’ service and support.
IN MEMORIAM
TONY GREENE
1938 - 2017
As we look toward the future,
we also remember those who
helped make Raymond James
what it is today. This year we lost
Tony Greene, founder and
former chairman and CEO of
Raymond James Financial
Services, and former member of
the Raymond James Financial
Board of Directors. Tony was an
inspirational leader and is
missed by many friends at
Raymond James.
6
to
it comes
When
that
support, this was a year of
continuing to build a strong
foundation for the future.
In 2017, many resources were
dedicated to the ongoing
updates stemming from a
heightened legal and regulatory environment, including prepar-
ing for the applicability dates of important provisions of the De-
partment of Labor’s (DOL) Fiduciary Rule, which were somewhat
uncertain for much of the fiscal year.
to operational processes,
Despite that uncertainty – as well as our opposition to specific
requirements of the rule that unintentionally disadvantage the
investors the agency is attempting to protect – we implemented
technology systems,
changes
product pricing and financial advisor compensation to ensure
compliance. While considering the necessary changes, our focus
remained on preserving flexibility and choice for advisors and
clients, an approach that we believe is the right one, even though
it requires additional education and training for advisors and
branch associates. This is a philosophy that will continue as we
navigate evolving regulatory expectations and requirements,
including our continued support for implementing a uniform
standard of care applicable for all clients and account types
under the purview of a single regulator.
In addition to our DOL efforts, we continued to deepen our
risk management and supervision teams, including hiring new
leaders at various levels of the organization to help guide areas
of increasing complexity and attention. These additions – along
with a significant increase in associates over the last few years
in supervision, compliance, legal and anti-money laundering –
are about better ensuring we protect clients, advisors and the
firm while also allowing for growth, flexibility and independence
for advisors.
The year also saw the expansion of existing solutions and services,
and the introduction of new ones. For example, we continued to
build out the scope of services we offer to support advisors and
their higher-net-worth relationships. Among the introductions:
more structured products, a Private Wealth Mortgage service
within Raymond James Bank and the expansion of the Private
Institutional Client desk, which offers an array of potential
investment opportunities for ultra-high-net-worth clients.
We also continued our focus on providing advanced technology
to support advisors and clients. Significant investments included
ANNUAL REPORT 2017 expanding and improving efficiency for mobile and client-
experience applications; security upgrades, additional resources,
increasingly more sophisticated
and training to combat
cybercriminals and digital fraudsters around the globe; and
continuing to build for the future. For example, we developed
and piloted “Connected Advisor,” a platform combining
infrastructure
already powerful advisor-centric technology
with collaborative, client-facing digital tools. This re-imagined
approach is Raymond James’ response to the robo-advisor
trend, but is decidedly different: Our focus is on supporting
the advisor-client relationship, helping advisors efficiently and
effectively connect and communicate with clients and serve
their needs with technology solutions that streamline all stages
of the relationship – from automating opening accounts to
collaborating with clients to offering more sophisticated support
in addressing clients’ increasingly complex needs.
While we manage and respond to the current environment and
prepare for the future, we remain thoroughly committed to a
tenet our mission statement clearly articulates: Our business is
people and their financial well-being. We firmly believe in the
value of personalized guidance from experienced, competent,
professional financial advisors and remain dedicated to
supporting them as they endeavor to assist clients with
navigating the inevitable life experiences that impact their
financial futures.
Scott A. Curtis
President
Raymond James Financial Services
Tash Elwyn
President
Raymond James & Associates
Private Client Group
Dennis W. Zank
Chief Operating Officer
Raymond James Financial
Chief Executive Officer
Raymond James & Associates
Bella Loykhter Allaire
Executive Vice President
of Technology and Operations
Raymond James & Associates
7
ANNUAL REPORT 2017CLIENT FIRST. INTEGRITY. INDEPENDENCE. CONSERVATISM. C A P I T A L M A R K E T S
E Q U I T Y C A P I T A L M A R K E T S
Equity Capital Markets had a record year
in fiscal 2017, with net revenues growing
fiscal 2016. Record
20% compared to
revenues were driven primarily by strong
M&A advisory performance in Investment
Banking as advisory revenue of $228 million
increased more than 50% over the prior year.
The first full-year contribution of our European advisory
business following the acquisition of Mummert & Co. in June
2016 was a contributor to this success, as the team completed
16 transactions, including several successful cross-border
collaborations with our U.S. teams. We expanded our footprint
from our base in Munich, Germany, to Frankfurt and London,
adding seven managing directors covering Technology,
Industrials, Health Care, Consumer and Financial Sponsors.
Jeffrey E. Trocin
President, Global Equities
and Investment Banking
Raymond James & Associates
Our North American results were driven by very strong performance
from our Technology & Services practice, which completed 42
advisory transactions across the software, FinTech, IT Services
and Systems & Components sectors, including the largest-ever
transaction advised by Raymond James: the $15.4 billion sale
of Mobileye – a company that develops and markets technology
deployed in autonomous driving vehicles – to Intel.
The year also saw the recent investments we’ve made in our
Consumer, Health Care, Energy, Financial Services, and Security,
Defense & Government Services investment banking practices pay
off with strong results from each of those teams, including a record
year for the Consumer Investment Banking group.
Our Canadian advisory efforts also produced strong results, including
advising Integra Gold Corporation on its sale to Eldorado Gold
Corporation. Our North American advisory teams collaborated on five
U.S./Canadian cross-border engagements in 2017, including serving
as advisor to TIO Networks Corporation on its sale to PayPal Holdings.
Globally, we advised on 79 M&A deals, each with fees over $1 million,
compared to 62 such transactions in 2016.
We also continued to recruit talent into our North American invest-
ment banking teams, adding managing directors across several
industry and specialty sectors. This included the addition of an
activism response and contested situations team to our M&A
practice, which was recognized by Thomson Reuters as the #2-ranked
advisor for activism defense in the first half of calendar 2017.
Our underwriting business also demonstrated excellent results
in 2017, with revenues up 34% from the prior year, driven by
strength in our Real Estate, Financial Services, Consumer, and
Energy practices. In total, 25 transactions generated fees to
Raymond James in excess of $1 million.
We continue to manage through challenging conditions in our
equities trading business as low volatility, funds flows toward
passive investment management strategies, fee compression
and the pending MiFID II regulations in Europe led to declines
in institutional equity sales. While securities commissions and
fee revenues declined 2% from fiscal 2016, we believe these
influences are less impactful to Raymond James than the declines
being experienced by our competitors.
We remain committed to providing market-leading equity
research, with 74 research analysts covering almost 1,300
companies globally, but have moderated our research costs in
response to industry challenges, and have added new business
8
ANNUAL REPORT 2017 lines such as event-driven trading that have helped to offset some
of the secular declines in the industry. The quality of Raymond
James’ research continues to have an excellent reputation –
Greenwich’s survey of North American Equity Investors in 2017
ranked Raymond James #1 with small/mid-cap managers in
overall sector research citations, corporate access importance,
sales capability, and top five relationships. Our Canadian Research
placed in the top seven in the latest Brendan Wood International
Survey, and two of our European analysts were named as top-
three stock pickers in Europe in their respective sectors by
Thomson Reuters.
Our synergistic relationship with the Private Client Group remains
an important strategic advantage. Private Client Group segment
securities commissions and fees associated with our underwriting
activities were up over 50% in 2017. In addition, we closed several
transactions that were originated through our Private Client
Group financial advisor relationships. A robust dialogue between
our investment bankers and financial advisors regarding financing
and M&A opportunities for their clients who own and manage
meaningful businesses bodes well for the future.
Finally, as we begin fiscal 2018, we do so with expanded leadership,
as head of Investment Banking Jim Bunn joins Jeff Trocin as co-
president of Equity Capital Markets. As we look ahead, we believe
this planned succession reinforces our long-term focus, and will
help ensure our investments in our businesses and people have
positioned us well for continued success.
Leading by example
AS WE PLAN FOR THE FUTURE, THE STAGE HAS ALREADY
BEEN SET FOR THE NEXT GENERATION OF LEADERS TO
EMERGE. WITH TRANSITIONS SUPPORTED AT EVERY STEP,
THERE IS MUTUAL RESPECT AND APPRECIATION FOR THE
EXPERIENCE OF AND, IN MANY CASES, THE CONTINUED
CONTRIBUTIONS OF PREDECESSORS.
Tom James exemplifies Raymond James’ thoughtful model of the
firm’s evolution of leadership. First, as he learned the business from
his father, Bob James, succeeding him as CEO to lead the company
in 1970. Then again in 2010, when Chairman and CEO Paul Reilly was
named CEO, working alongside Tom for a year before the transition
became official. This year, the firm’s conservative succession style
was further demonstrated by two leadership shifts in the Equity
Capital Markets and Public Finance divisions.
A highly regarded banker and leader with nearly 20 years of
experience, Jim Bunn grew into his leadership opportunities and
current role as co-president of Equity Capital Markets and head
of Investment Banking. Jim led the Financial Technology and
Technology Services practices at Lane Berry, a leading middle
market advisory firm acquired by Raymond James in 2009.
Upon joining Raymond James, he became co-head of the firm’s
Technology Services Investment Banking group prior to leading the
entire Investment Banking division.
Beneficial for both Jim and the firm, he has been serving alongside
Co-President of Equity Capital Markets Jeff Trocin since October
2017, joining Jeff on the firm’s Executive Committee and reporting
directly to Chairman and CEO Paul Reilly. “We make collaborative
decisions as I gain insight from leaders, analysts and sales traders in
all of the businesses, and absorb Jeff’s historical perspective before
fully taking the reins,” Jim said.
Jim Bunn, left, and Gavin Murrey
Similarly, the Public Finance division’s new leadership isn’t new at
all. Based in Memphis, Tennessee, Executive Vice President Gavin
Murrey joined Raymond James as part of the Morgan Keegan
acquisition in 2012. Since 1998, Gavin has been influential as a
senior banker and manager in growing the firm’s public finance
practice into one of the leading platforms in the nation with 180
banking professionals in 26 locations nationwide.
Appointed co-head of Public Finance in March 2016, Gavin shared
title and leadership responsibilities with Rob Baird for a little more
than a year and a half. Effective this past October, Rob stepped
down as executive vice president and co-head of Public Finance/
Debt Investment Banking to be an active senior managing director
of the Public Finance Division.
Jim and Gavin have faith in the positive momentum of their areas and
emphasize proactively caring for clients and fostering relationships.
Gavin summarized, “As teams, divisions and a firm, we want to grow
the right way. That means getting the right people who share our
client-first mentality in the right places. If you help solve your clients’
problems and are there for them, the rest will follow.”
9
ANNUAL REPORT 2017CLIENT FIRST. INTEGRITY. INDEPENDENCE. CONSERVATISM. C A P I T A L M A R K E T S
F I X E D I N C O M E
The fiscal year saw continued challenges for Fixed Income, as the persistence
of low interest rates, the reintroduction of monetary tightening by the Federal
Reserve, and uncertainty regarding tax and regulatory policy resulted in lower
customer activity for our Fixed Income Capital Markets (FICM) sales team and,
in turn, lower commissions.
However, the strong client relationships held by that team,
as well as those maintained by our Public Finance bankers,
resulted in solid financial results for the unit overall.
In FICM, the counsel we provide to the clients we serve has never
been more valuable, as they confront an increasingly complex
future. Our client-centered operating model continued to
prove that value in 2017, with Raymond James outperforming
industry peers on total fixed income sales and trading revenues
while delivering on strategic initiatives, including expanding our
product lineup and enhancing our consultative capabilities to
key customer segments.
asset/liability consulting services, resulting in growth of this
business overall.
Additionally, we continued to make critical investments to
fortify Raymond James’ competitive position, including taking
advantage of cyclical and secular forces to recruit talented
associates. Among this year’s hires were additions to our Non-
Agency Residential Mortgage-Backed Securities team on the
Structured Products desk, our Debt Origination & Syndication
operation, and the broader fixed income sales force, with an eye
to building on already strong portions of our FICM business for
the future.
For example, our Depositories franchise, which makes up a
substantial portion of our overall relationships, was impacted
by both the uncertainty in the regulatory environment as well
as the resurgence of consolidation in the bank industry. While
trading activity was down overall, we were able to continue to
deepen relationships through our portfolio accounting and
In Public Finance, fiscal 2017 was another very good year,
with revenues just slightly below the record levels achieved in
2016, despite a downturn in new municipal issues due to fewer
refunding issues nationally. Consistent with previous years,
Raymond James finished the fiscal year ranked as a Top 10
municipal underwriter of negotiated new issues.
BUILT BY BONDS:
THE MARVEL OF NEW
YORK CITY’S WATER
AND SEWER SYSTEMS
Since 2009, Raymond James has
served as senior manager to the
New York City Municipal Finance
Water Authority, underwriting
municipal bonds that provide
the infrastructure investment
for New York City’s massive
water and sewer systems.
The New York City Municipal Finance Water
Authority (New York Water or the Authority)
finances the capital needs of the water and
sewer systems of the city of New York. The
systems are owned by the city and operated
by the city’s Department of Environmental
Protection. The Authority is one of the largest
issuers of municipal debt with $30.8 billion of
outstanding bonds, all of which are repaid from
water and sewer revenues. The Authority’s
bonds, most of which are rated Aa1/AA+/AA+*,
finance most of the capital expenditures for
the systems, which are projected to total more
than $13.4 billion over the next five years.
Access to the capital markets is vital to the
functioning of the city of New York’s complex
water and sewer systems, which serve the
city’s 8.5 million residents. Bond proceeds fund
capital projects that benefit people and the
environment through drinking water protection,
water conservation, climate resiliency, pollution
reduction, water quality improvements
and green infrastructure management.
Raymond James has served as senior manager
for more than $68 billion of municipal bonds
throughout the country over the past five years,
ranking the firm as one of the largest underwriters
of municipal debt. In fiscal year 2017, the firm
was the senior managing underwriter on
two issues of long-term, fixed-rate water and
sewer revenue bonds for New York Water with
a total par amount of nearly $800 million.
Raymond James has been a senior
manager for the Authority since 2009. The
firm’s lead relationship banker for the
Authority, Kemp Lewis, senior managing
1 0
* Note: Moody’s/S&P/Fitch ratings of the Authority’s Second General Resolution bonds
Banking activity for the fiscal year included serving as placement
agent or book running senior manager for 414 negotiated new
issues with a total par value of over $13 billion. In addition, our
team of Public Finance bankers originated 285 co-managed
issues representing a total par value of over $62 billion.
Included among our senior managed issues were two New York
City Municipal Water Authority issues totaling $800 million in
aggregate par value.
Among the positive momentum leading to these results was
market share growth in several core geographic areas. For
example, as Raymond James continues to expand our presence
westward, the addition of two senior bankers to our California
team in fiscal 2016 is paying off: Since their hiring, we have
increased our market share in the state by 17%.
Our Texas bankers also delivered continued outstanding
performance, ranking as the top underwriter of lead managed
negotiated new issues this year, as well as the top underwriter of
Texas school bonds for the seventh consecutive year.
John C. Carson Jr.
President
Raymond James Financial
Fixed Income
We also attracted high-quality bankers to the team in 2017,
including a Chicago-based senior banker to lead our Midwest
practice. These additions, along with ongoing collaboration
between our generalists and our specialty banking groups,
resulted in increased revenues in fiscal 2017 and bode well for
future performance.
Finally, in the culmination of a succession plan, Gavin Murrey, a
19-year veteran of the firm who had served as co-head of Public
Finance since March 2016, became sole head of the division
as long-time leader Rob Baird stepped down at the end of
fiscal 2017. We are fortunate that Rob remains with the firm to
continue to provide a smooth management transition and help
strengthen our position for 2018 and beyond.
Looking forward, we remain clear-eyed about the continuing
challenges – and accompanying opportunities – for our Fixed
is
Income business overall. Fortunately, Raymond James
uniquely positioned to outperform the broader industry: Unlike
our larger competitors, we did not need to radically alter our
business model to conform to post-crisis regulations, and unlike
our downstream competitors, we have sufficient scale and
diversification to withstand the challenges underfoot.
Armed with deep client relationships, extensive expertise and a
strong platform of support, our associates are well-positioned
to continue to earn the loyalty our clients have entrusted to
Raymond James, both in the year ahead and well into the future.
director of public finance, has worked
with the Authority for over 25 years.
Kemp believes his team’s institutional knowledge
and experiences have contributed to the
successful relationship with the Authority.
“Having a long-term banking relationship creates
a continuity of insight that’s beneficial for the
client. In the end, it’s not about me or Raymond
James. It’s about the client,” Kemp said.
Olga Chernat, CFA, is the executive director of the
New York City Municipal Water Finance Authority.
When asked about the recent transactions, she
said, “Kemp and his team know our needs. They
do a very good job in structuring, pricing and
placing our bonds. Overall, selecting Raymond
James as one of three senior managers for
the Authority speaks volumes for the trust
we have in this long-term partnership.”
NYC Water and Sewer System Highlights
Every day, fresh, clean water is delivered from New York City’s upstate
watersheds, some more than 125 miles from the city, to the taps of
over 9 million people.
One billion gallons of some of the best drinking water in the country
are used in New York City and several upstate counties every day,
95% of which is delivered by gravity.
The New York City Department of Environmental Protection’s
watershed protection program maintains and protects the high
quality of the watersheds in upstate New York, which provide
water to the city.
The capital improvement program includes projects to address
the effects of climate change and a variety of sustainable green
infrastructure practices.
1 1
A S S E T M A N A G E M E N T
for managed accounts and
Our Asset Management segment includes Asset
Management Services (AMS), which provides a single
source
fee-based
platforms for Raymond James financial advisors,
and Carillon Tower Advisers (including Eagle Asset
Management), a global asset management firm
made up of independent boutiques spanning vari-
ous investment disciplines and asset classes.
Jeffrey A. Dowdle
President
Asset Management Group
Executive Vice President
Raymond James Financial
Driven by strong sales and market appreciation, these groups
combined to report record annual net revenues of $487.7 million
and record annual pre-tax income of $171.7 million.
Asset Management Services
By acting as a partner and support mechanism for the Private Client
Group (PCG), AMS experienced significant benefits from advisor
growth. Macro industry trends and factors such as the partial
implementation of the Department of Labor’s (DOL) Fiduciary Rule,
which accelerated the shift to fee-based account utilization, also
played a notable part in AMS’s strong results.
With many advisors deciding to move their smaller accounts to
a fee-based solution, AMS was well-positioned to manage these
accounts through the Freedom Foundation platform. This account
solution was designed to offer advisors an efficient way to diversify
smaller accounts with high-quality, professional managers, while
building the framework for ongoing, multigenerational relation-
ships. With the DOL rule as a tailwind, and combined impressive
effort by the sales and operations teams, the Freedom Foundation
platform has raised $1.1 billion in assets under administration.
Another significant achievement for AMS in 2017 was the continued
exploration of synergies with other parts of the firm. One of the
most prominent results of this endeavor was the introduction of
Raymond James Research Portfolio, an investment strategy with
the objective of generating a steady stream of dividend income.
The portfolio, which has raised over $600 million in 18 months, was
built in-house using the intellectual capital of Equity Capital
Market’s Equity Advisory Group, combined with the expertise of the
AMS Investment Committee.
Looking forward, we anticipate macro-trends to provide opportu-
nities to expand our product offerings, and will continue to collab-
orate with PCG to offer advisors solutions for their client needs.
Carillon Tower Advisers
Carillon Tower Advisers was introduced in January 2016 to
provide greater flexibility for the firm to add new investment
affiliates to its asset management lineup. Despite industrywide
headwinds for actively managed investments, this division
experienced modest new inflows during the fiscal year.
1 2
ANNUAL REPORT 2017 The investment management firms affiliated with Carillon Tower –
St. Petersburg, Fla.-based Eagle Asset Management, San Diego-
based ClariVest Asset Management and Toronto-based Cougar
Global Investments – generated more than $7 billion in sales for
the 2017 fiscal year. This was driven by a broad distribution
network and strong investment performance with almost 80% of
strategies outperforming their benchmarks over the preceding
five-year period.
Our work to expand internationally yielded positive results this
year, as ClariVest Asset Management extended its global reach by
securing institutional business in Australia. Additionally, as we
expand our income generating strategies, Eagle Asset Management
launched the Vertical Income Portfolio for retail investors, which
is designed to provide income through both dividend-paying and
fixed income vehicles. Eagle Asset Management is also seeing
increased interest in its institutional Micro Cap Core Portfolio.
As we look forward, we expect continued ability to perform as we
leverage our existing firms’ expertise while benefiting from the
November 2017 additions of two affiliates that nearly doubled
Carillon Tower’s assets. Scout Investments, a mid-cap and
international equity specialist, and its Reams Asset Management
division, an institutional fixed-income specialist, will bring many
years of well-recognized expertise, offering new investment
solutions for current clients and the opportunity for existing
affiliates to extend their reach into new sales channels.
Thoughtfully growing to better serve clients
CARILLON TOWER ADVISERS WELCOMES EQUITY-
FOCUSED SCOUT INVESTMENTS AND INSTITUTIONAL-
FIXED INCOME SPECIALIST REAMS ASSET MANAGEMENT
TO ITS MULTI-AFFILIATE PLATFORM.
Building on a strong foundation of asset management expertise
and partnership, Carillon Tower is focused on providing clients with
sophisticated and accessible investment options. In November,
Raymond James completed the purchase of Scout Investments and
its Reams Asset Management division from UMB Financial Corp.
Founded in 1982, these new partners bring a range of long-term
relationships and approximately $27 billion under management
and advisement.
“As with all additions to the Raymond James family, Scout and Reams
bring complementary cultures and management philosophies to the
asset management division," said Raymond James Chairman and
CEO Paul Reilly.
Scout and Reams join multi-affiliate, multi-channel platform
Carillon Tower Advisers, a global asset management firm and wholly
owned subsidiary of Raymond James, offering a suite of distribution
and operational support capabilities to independent portfolio
management teams. As a result of this acquisition, Carillon Tower
will distribute Scout and Reams investment products worldwide.
“We are pleased to welcome Scout and Reams to the Carillon
Tower family and excited that we will be able to offer our clients a
broader set of investment solutions,” said Carillon Tower President
and Chairman Cooper Abbott, CFA. “The addition of these well-
recognized franchises to our multi-boutique model is a natural
extension of our long-term growth strategy.”
From left to right: Court James, Executive Vice President; Carrie Gill, Principal Financial Officer and Treasurer, Carillon Funds; Susan Walzer, Esquire, SVP/Principal
Executive Officer, Carillon Funds; Cooper Abbott, President & Chairman; Aaron Ochstein, Global Director of Sales; Renee Baker, DBA, Chief Marketing Officer; Mike
Edwards, Head of Affiliate Development
1 3
ANNUAL REPORT 2017CLIENT FIRST. INTEGRITY. INDEPENDENCE. CONSERVATISM. R A Y M O N D J A M E S B A N K
This year was the most successful in Raymond James
Bank’s nearly 25-year history, as we generated record
net revenues and pre-tax income, resulting in return
on equity of 15.7%.
We attribute much of this year’s success, as well as our long-
term performance, to our unique business model, wherein a
portion of the firm’s Private Client Group clients’ cash
balances serves as the funding for the bank’s loan portfolio,
which grew by 12% in 2017 to a record $17 billion.
This loan portfolio serves as a strong connecting point for
multiple businesses within Raymond James, as well as a
source of cross-border cooperation. Approximately 70% of all
lending is to corporate and institutional clients, many of
whom have relationships with our Capital Markets business,
and close to 10% of the loan book is in Canada.
However, 2017 results are largely attributable to a continued
strong partnership with the Private Client Group (PCG). For
example, the addition of Alex. Brown advisors was an impetus
to develop a Private Wealth Mortgage channel for the high-
net-worth clients of all PCG clients. This new “white-glove”
experience was responsible for almost half of the record $981
million in new residential mortgages for the year, and should
be an ongoing source of growth as we proactively promote it
to more advisors and their qualified clients.
Steven M. Raney
President and CEO
Raymond James Bank
1 4
ANNUAL REPORT 2017 Similarly, Alex. Brown advisors and the many other
advisors who joined the firm from other “bank-owned”
brokerage companies in recent years are well-accustomed
to offering securities-based
lending (SBL) and cash
management solutions as services to their clients. As a
result of acquisition and recruiting activity, as well as
investments in our platform and ongoing education of
advisors, we reached a record $2.4 billion in SBL balances
in 2017, and the number of new accounts with a Capital
Access cash management feature that provides debit card,
checkwriting, online bill pay and mobile banking
capabilities increased almost 40% year-over-year.
Finally, while our prudent underwriting approach keeps
our overall risk profile highly conservative, an overall trend
toward improving credit quality still resulted in a decrease
in criticized loans, as well as reduced loan loss provision
expenses for the year.
As we look ahead to the coming year and beyond, we see
significant opportunity to enhance existing solutions and
expand the services we offer, while also continuing to
benefit from higher short-term interest rates. Even as we
do so, neither our intentional integration with Raymond
James’ other businesses nor our conservative risk-
management approach will change. We are confident
into Raymond James Bank
continuing to be a reliable and beneficial
this will translate
contributor to the firm overall.
FINANCIAL ADVISOR PENETRATION
FOR MORTGAGE & SBL
5-year trend
35%
32%
28%
26%
17%
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
Recognition for
our commitment
to excellence
TWO CREDIT RATING AGENCY UPGRADES
EARLIER THIS YEAR UNDERSCORE THE
STRENGTH, STABILITY AND SOUND BUSINESS
PRINCIPLES OF RAYMOND JAMES FINANCIAL.
S&P Global Ratings and Moody’s elevated the firm’s issuer
credit and senior debt ratings and declared a stable outlook –
putting Raymond James on par with some of the largest
financial institutions in the world.
The renowned credit ratings agencies cited our strong
fairly conservative
performance, diverse business mix,
financial profile, and superior earnings stability as reasons for
the upgrade, along with the firm’s strong liquidity and capital.
Reflective of the firm’s stability, these upgrades are a testament
to how the firm’s conservative approach has helped position
us to weather almost any market condition and emerge
stronger than before.
Our truest measure of success can be found in the trust our
clients place in us, which enables us to reach higher, achieve
more and provide the highest caliber of support to the
individuals, families and businesses we serve.
BBB+
S&P Upgrades
Raymond James
Ratings to BBB+
Baa1
Moody’s Upgrades
Raymond James
to Baa1
A credit rating of a security is not a recommendation to buy, sell or hold the
security and may be subject to review, revision, suspension, reduction or
withdrawal at any time by the assigning rating agency.
1 5
ANNUAL REPORT 2017CLIENT FIRST. INTEGRITY. INDEPENDENCE. CONSERVATISM. A U N I T E D F R O N T
Living our values remains a meaningful competitive differentiator for Raymond James.
And we have found that our steadfast commitment to doing what’s best for clients is
ultimately what’s best for our advisors and our firm.
A foundational firm value, Raymond James’ long-term conservative
management and thoughtful approach to risk and compliance
continues to contribute to our overall strong balance sheet and
capital position – with ample liquidity, continued profitability and
record earnings.
CEO and Chairman Paul Reilly has emphasized, “We need to stay
ever vigilant.” A mindset supported at every level of the firm, we
added nearly 200 associates over the last few years including in
supervision, compliance, legal and anti-money laundering (AML)
in addition to taking steps to modernize our capabilities.
MANAGING RISK AS IT EVOLVES
With a longstanding commitment to holistic risk management, we
have deepened our approach by focusing on infrastructure that
includes welcoming experienced leaders to help guide areas of
increasing complexity in our highly regulated business.
These additions carry on the firm’s mission to ensure the highest
protection for clients, advisors and the firm, while also providing
our financial advisors with the flexibility required to serve their
clients’ individual needs, in keeping with our culture.
investments we’ve made
The
information and
technology are vital as we keep our promise to work in the best
interest of our clients, and to strengthen and protect the firm. As
in people,
1 6
In the spirit of persistent attention, nearly 100 infrastructure and
security projects were executed this past fiscal year. Senior Vice
President & Chief IT Security Officer Andy Zolper leads information
security, data security and cyber security teams that made big
impacts to safeguarding client data and significantly decreasing
our vulnerability
included providing
additional protection measures to client data and upgrading our
United Nations Security Council Counter-terrorism Committee’s
(CTC) threat intelligence and response capabilities.
Initiatives
firmwide.
COLLABORATIVE AND INNOVATIVE COMPLIANCE
Connectedness and transparency across all risk management
teams are key to managing firmwide risk. George Catanese, chief
risk officer, contends that we can help “protect the individual and
ANNUAL REPORT 2017 From left to right: Danielle Tarasen, SVP, International Supervision; Tarek Halal, SVP,
Enterprise Risk Management; Chris Majeski, SVP, Head of PCG Supervision; Jonathan
Santelli, EVP, General Counsel & Secretary; Steven LaBarbera, Chief Audit Executive; Emma
Bredin, SVP, Chief Compliance Officer; Scott Willis, SVP, Deputy Chief BSA/AML Officer
Enforcement Award, this illustrates how our reported information
is “critical to protecting the U.S. financial system from terrorist
financing, money laundering and other serious crimes that can
threaten our national and economic security,” as stated in a letter
from the acting director of FinCEN.
Heading up anti-money laundering efforts, Bob Molloy, chief BSA/
AML officer, designed the reorganized framework for financial
crimes management, and oversees all actions and changes of the
program. “The key to our success has been a culture of support
from day one. As a firm, we want to do what’s right,” he said.
Adapting to the ever-changing environment, the group continues
to integrate solutions that, among other instinctive functions,
appropriately highlight potentially suspicious transactions or
behavior patterns. In addition to an increase in dedicated AML
professionals and leading technology, expanded training includes
cross-team interaction and required specialist certifications. “More
than doing a job, it’s about developing an expert,” Bob stressed.
NEXT GENERATION SUPERVISION
Part of our commitment to being nimble to the evolving needs of
risk management included enhancements to the firm’s supervision
program and control infrastructure. Organizational adjustments
better aligned compliance and supervisory functions, including a
new head of supervision and chief compliance officer.
Senior Vice President, Head of PCG Supervision Chris Majeski is
focused on the supervision program as part of the overall risk
operating model for the firm. “There is value in the ability to have
an infrastructure that thinks across all the ways we do business.
We recognize the individual aspects of each channel, and the
company as a whole, to find common threads and proactively
manage risk.”
Moving toward more intuitive ways to manage current and
emerging risks, Chris and his team consider how we empower
our financial advisors to be the best they can be by arming them
with the right technology and data to make good risk decisions.
“Overall, it’s about connecting data and centralized activities
to see the big picture of risk – integrating as much as possible
to create confidence in our foundation and ability to grow and
maximize satisfied client and advisor experiences.”
A STEADFAST, STRATEGIC APPROACH
In light of the ever-changing regulatory environment and our
expectations for risk management as a firm, we’ll continue to
invest – adding to our supervision and compliance teams and
refining our systems and policies. Protecting clients and advisors
is in the best interest of everyone and our firm. As Bob Molloy
underscored, “It’s about taking care of people: advisors, their
clients and each other.”
1 7
collective interest of every client and advisor” by keeping these
tenets top of mind.
Chief Compliance Officer Emma Bredin confirmed that having a
culture of compliance in line with our values of putting clients
first, integrity and conservatism helps to protect Raymond James
against regulatory and other risks. “It is vital that we respond to
the current regulatory environment but also to maintain systems,
processes and tools that allow our associates and advisors to
better manage their compliance risks on a day-to-day basis –
that protects the firm but also allows them to make decisions to
better serve their clients. We continue to innovate in a way that
means we are proactively thinking about risk, not just reacting to
changing regulation and expectations.”
The consolidated management of enterprise fraud risk tightly
including
weaves together all aspects of financial crimes
fraud, sanctions, anti-bribery, anti-terrorism and anti-money
laundering. Showcasing the power of linking AML, fraud and
government reporting, Raymond James was recently recognized
with a United States Department of the Treasury Financial
Crimes Enforcement Network (FinCEN) award for substantial
contributions to helping uncover one of the Federal Bureau of
Investigation’s highest priority transnational organized crime
targets through Bank Secrecy Act (BSA) reporting. One of six
significant criminal cases to receive FinCEN’s third annual Law
ANNUAL REPORT 2017CLIENT FIRST. INTEGRITY. INDEPENDENCE. CONSERVATISM. Putting company
values into action
RECENT NATURAL DISASTERS
SHOWCASED HOW PUTTING
PEOPLE FIRST IS IN OUR NATURE.
IN JUST SIX WEEKS LAST
FALL, THREE BACK-TO-BACK
HURRICANES – HARVEY, IRMA
AND MARIA – THREATENED THE
SOUTHEAST UNITED STATES
AND DEVASTATED COMMUNITIES
IN TEXAS, FLORIDA, PUERTO
RICO, AND THE U.S. AND BRITISH
VIRGIN ISLANDS.
Hope for the best, but prepare for the
worst. This guiding principle shapes the
Crisis Management Team’s response to
help ensure associate safety in natural
disasters. When Hurricane Irma made her
way closer and closer to the Tampa Bay
area, the team’s planning paid off. As the
storm’s path evolved with each official
update, the team adapted its strategy
accordingly. And now that plans have
been put into action, the experience will
inform best practices in the future.
Senior Vice President and Chief
Operational Risk Officer Heather Knable
recalled Chairman and CEO Paul Reilly
reiterating the firm’s focus every step of the
way – first and foremost, the safety of all
associates and their families. “Our people-
first approach started with Paul, and is a
testament to living the firm’s core values,”
she said. “Putting people first has always
been part of our corporate DNA, and this is
a great example of how our values came to
life in a real-world scenario.”
The firm’s actions before, during and
after the storms reflected those values.
Under Heather’s leadership, the Business
Continuity Planning group and Crisis
1 8
From left to right: Heather Knable, SVP, Chief Operational Risk Officer; Kim Jenson, SVP, Chief Operating Officer, Raymond
James & Associates; Tracey Bustamante, SVP, Corporate Communications; Raymond LaCour, SVP, Office Services; Beverly
Schulz, VP, Operational Risk Management; Stanley Duncan, Chief Human Resources Officer
Management Team worked around the
clock to provide ongoing monitoring and
communications regarding the storms,
ensuring associates in the path of Irma
and Harvey were well-informed.
To prepare for the storm, the firm
proactively chartered a plane and
relocated approximately 190 associates
and their families – even their pets –
from the corporate headquarters in
St. Petersburg, Florida, to the firm’s
Memphis, Tennessee, corporate office.
Memphis, along with the Southfield,
Michigan, and Denver campuses,
supported critical business functions
while the headquarters was closed during
Hurricane Irma. Memphis associates
ensured those from St. Petersburg were
well taken care of – providing hotel
rooms, food, transportation and places
to work remotely. They also shipped
supplies for St. Petersburg associates
without power or access to water …
coolers, batteries, diapers and more.
The firm also offered associates extra
time to evacuate and prepare for the
storm, as well as time to return and take
care of their homes and families. Now,
as part of Raymond James’ commitment
to recovery efforts, Raymond James is
continuing to support associates and
the community. “We have heard from
associates that it’s clear we care about
them as people, and not just about the
business,” Heather said. “It reaffirmed
that this is so much more than a
company; this is a family.”
After Hurricane Irma passed through
St. Petersburg, the headquarters
also became a safe haven for Florida
associates and their families. The
Office Services, Facilities and Business
Continuity Planning teams not only
prepared the buildings to brace for the
storm – but quickly equipped them to
serve as a temporary shelter for those
without power or water, and in need of a
hot meal once the storm had passed.
ANNUAL REPORT 2017 G I V I N G B A C K , C L O S E T O H O M E
As part of the hurricane recovery process, Raymond James provided
robust donations and relief to associates and their communities.
$800,000
FIRM’S TOTAL GIFT TOWARD AMERICAN
RED CROSS RELIEF EFFORTS IN THE
AREAS MOST IMPACTED BY THE STORMS
$100,000
for Hurricane Harvey relief
$500,000
for Hurricane Irma relief
$200,000
toward Hurricane Maria recovery efforts in
Puerto Rico and the U.S. Virgin Islands
$450,000
TOTAL DONATIONS TO FRIENDS OF RAYMOND
JAMES FOR ASSOCIATES AND THEIR FAMILIES
WHO WERE IMPACTED BY THE STORM
Paul and Rose Reilly and family pledged to match up to $100,000 of
donations from associates to Friends of Raymond James. In response,
the Executive Committee pledged to match another $135,000.
$300
FIRM’S HURRICANE RELIEF AWARD TO ALL
CORPORATE AND BRANCH ASSOCIATES* IN
TEXAS, FLORIDA AND THE SOUTHEAST
To help with the cost of evacuation, travel and other
storm-related expenses
*Excluding executives, financial advisors and branch managers, this award went to associates located in areas most impacted by Harvey and Irma.
O U R M I S S I O N
Our business is people and their financial well-being. Therefore, in the pursuit of
our goals, we will conduct ourselves in accordance with the following precepts:
Our clients always come first. We must provide the highest level
of service with integrity.
Assisting our clients in the attainment of their financial objectives is
our most worthy enterprise.
Continuing education is necessary to maintain the timeliness of
investment knowledge, tax law information and financial planning
techniques.
Innovation is requisite to our survival in a changing world.
We must communicate with our clients 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.
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.
1 9
ANNUAL REPORT 2017CLIENT FIRST. INTEGRITY. INDEPENDENCE. CONSERVATISM. S O C I A L R E S P O N S I B I L I T Y
All around the country and across Canada, you’ll see Raymond James associates giving
back to their communities in countless ways, supporting the arts, United Way and a host
of educational, civic, social and philanthropic endeavors. We’re proud of the work they do,
and we thank them for their boundless generosity.
R A Y M O N D J A M E S C A R E S 2 0 1 7
It was a good year for doing good.
$49 million
Contributed by the firm and our associates in 2017.
2 0
ANNUAL REPORT 2017154,067VOLUNTEER HOURS6,800+TOTAL VOLUNTEERS236NONPROFIT ORGANIZATIONS SUPPORTED120COMMUNITIES SERVED154,067VOLUNTEER HOURS6,800+TOTAL VOLUNTEERS236NONPROFIT ORGANIZATIONS SUPPORTED120COMMUNITIES SERVED154,067VOLUNTEER HOURS6,800+TOTAL VOLUNTEERS236NONPROFIT ORGANIZATIONS SUPPORTED120COMMUNITIES SERVED154,067VOLUNTEER HOURS6,800+TOTAL VOLUNTEERS236NONPROFIT ORGANIZATIONS SUPPORTED120COMMUNITIES SERVED154,067VOLUNTEER HOURS6,800+TOTAL VOLUNTEERS236NONPROFIT ORGANIZATIONS SUPPORTED120COMMUNITIES SERVED C O R P O R A T E L E A D E R S H I P
RAYMOND JAMES FINANCIAL, INC. BOARD OF DIRECTORS
Shelley G. Broader
Director, President and CEO
Chico’s FAS, Inc.
Jeffrey N. Edwards
COO
New Vernon Advisers, LP,
a registered investment advisor
Benjamin C. Esty
Professor of Business Administration
Harvard Graduate School of
Business Administration
Francis S. Godbold
Vice Chairman
Raymond James Financial
Thomas A. James
Chairman Emeritus
Raymond James Financial
Gordon L. Johnson
President
Highway Safety Devices, Inc.
Susan N. Story
Director, President and CEO
American Water Works Company, Inc.
Charles G. von Arentschildt
Retired
Former Chairman and CEO,
Global Markets, North America
Deutsche Bank Securities Inc.
Roderick C. McGeary
Retired
Former Co-Vice Chairman of
Consulting
KPMG LLP
Paul C. Reilly
Chairman and Chief Executive Officer
Raymond James Financial
Robert P. Saltzman
Retired
Former President and CEO
Jackson National Life Insurance
Company
Dennis W. Zank
Chief Operating Officer
Raymond James Financial
Chief Executive Officer
Raymond James & Associates
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.
James E. Bunn
Co-President
Global Equities and Investment
Banking
Raymond James & Associates
John C. Carson Jr.
President
Raymond James Financial
Fixed Income Capital Markets
Scott A. Curtis
President
Raymond James Financial Services
Steven M. Raney
President and CEO
Raymond James Bank
Jeffrey A. Dowdle
President
Asset Management Group
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
Paul C. Reilly
Chairman and
Chief Executive Officer
Raymond James Financial
Jonathan N. Santelli
Executive Vice President,
General Counsel and Secretary
Raymond James Financial
Jeffrey E. Trocin
Co-President
Global Equities
and Investment Banking
Raymond James & Associates
OTHER EXECUTIVE OFFICERS
Jennifer C. Ackart
Senior Vice President
and Controller
Raymond James Financial
George Catanese
Senior Vice President
and Chief Risk Officer
Raymond James Financial
2 1
ANNUAL REPORT 2017CLIENT FIRST. INTEGRITY. INDEPENDENCE. CONSERVATISM. 6
4
3
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7
6
4
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,
7
6
9
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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
2008
2009
2010
2011
RESULTS
Total Revenues
$ 3,204,932,000
$ 2,602,519,000
$ 2,979,516,000
$ 3,399,886,000
Net Revenues
Net Income
Net Income per Share (a)
Basic
Diluted
2,812,703,000
2,545,566,000
2,916,665,000
3,334,056,000
235,078,000
152,750,000
228,283,000
278,353,000
1.95
1.93
1.25
1.25
1.83
1.83
2.20
2.19
Weighted Average Common Shares
Outstanding – Basic (a)
Weighted Average Common and Common Equivalent Shares
Outstanding – Diluted (a)
116,110,000
117,188,000
119,335,000
122,448,000
117,140,000
117,288,000
119,592,000
122,836,000
Cash Dividends Declared per Common Share
0.44
0.44
0.44
0.52
FINANCIAL
CONDITION
Total Assets
20,709,616,000
(b)
18,223,854,000
(b,c)
17,880,535,000
(b,c)
18,002,871,000
(c)
Equity Attributable to RJF
1,883,905,000
2,032,463,000
2,032,816,000
2,587,619,000
Shares Outstanding (a)
Book Value per Share (a)
116,434,000
118,799,000
121,041,000
123,273,000
16.18
17.11
19.03
20.99
(a) Excludes non-vested shares.
(b) Total assets include cash funded by an equal amount in overnight borrowings to meet point-in-time regulatory balance sheet composition requirements
related to Raymond James Bank qualifying as a thrift institution.
2 2
ANNUAL REPORT 2017
2
.
4
3
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,
1
2
.
7
1
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,
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6
.
8
6
9
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2
TOTAL CAPITAL
MARKETS REVENUE
TOTAL INVESTMENT
BANKING REVENUE
$Millions
$Millions
TOTAL BANK LOANS
TOTAL BANK ASSETS
(1)
$Billions
$Billions
(1) Includes affiliate deposits
2012
2013
2014
2015
2016
2017
$ 3,897,900,000
$ 4,594,305,000
$ 4,964,128,000
$ 5,309,680,000
$ 5,521,120,000
$ 6,524,875,000
3,806,531,000
4,487,893,000
4,861,924,000
5,203,606,000
5,405,064,000
6,371,097,000
295,869,000
367,154,000
480,248,000
502,140,000
529,350,000
636,235,000
2.22
2.20
2.64
2.58
3.41
3.32
3.51
3.43
3.72
3.65
4.43
4.33
130,806,000
137,732,000
139,935,000
142,548,000
141,773,000
143,275,000
131,791,000
140,541,000
143,589,000
145,939,000
144,513,000
146,647,000
0.52
0.56
0.64
0.72
0.80
0.88
21,144,975,000
(c)
22,965,444,000
(c,d)
23,135,343,000
(c,d)
26,325,850,000
(c,d)
31,486,976,000
(d)
34,883,456,000
3,268,940,000
3,665,373,000
(d)
4,143,686,000
(d)
4,524,481,000
(d)
4,916,545,000
(d)
5,581,713,000
136,076,000
138,750,000
140,836,000
142,751,000
141,545,000
144,097,000
24.02
26.42
29.42
31.69
34.73
38.74
(c) Effective October 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, consistent with debt discounts. Footnoted periods presented have been restated to reflect this change.
(d) Effective October 2016 we implemented new consolidation guidance in which we deconsolidated a number of tax credit fund VIEs that had
previously been consolidated. Footnoted periods presented have been restated to reflect this change.
2 3
ANNUAL REPORT 2017CLIENT FIRST. INTEGRITY. INDEPENDENCE. CONSERVATISM.
C O R P O R A T E A N D S H A R E H O L D E R I N F O R M A T I O N
NUMBER OF SHAREHOLDERS
ELECTRONIC DELIVERY
PRINCIPAL SUBSIDIARIES
At November 16, 2017, there were 361 holders of
If you are interested in electronic delivery of
Raymond James & Associates, Inc.
record of our common stock. Shares of our
future copies of this report, please see the
Securities broker/dealer
common stock are held by a substantially greater
proxy voting instructions.
Member New York Stock Exchange
number of beneficial owners, whose shares are
held of record by banks, brokers and other
financial institutions.
TRANSFER AGENT AND REGISTRAR
Computershare Inc.
P.O. Box 505000
Member Financial Industry Regulatory Authority
Raymond James Financial Services, Inc.
Securities broker/dealer
ANNUAL REPORT ON FORM 10-K;
Louisville, KY 40233-5000
Member Financial Industry Regulatory Authority
CERTIFICATIONS
800.837.7596
A copy of the Annual Report on Form 10-K,
computershare.com/investor
Raymond James Financial Services
Advisors, Inc.
INDEPENDENT AUDITORS
Registered Investment Advisor
KPMG LLP
NEW YORK STOCK EXCHANGE SYMBOL
Canadian securities broker/dealer
RJF
Member Toronto Stock Exchange
Raymond James Ltd.
Eagle Asset Management, Inc.
Asset and mutual fund management
Raymond James Bank, N.A.
Member Federal Deposit Insurance
Corporation
COVERING ANALYSTS
Steven J. Chubak, CFA
Nomura
Ann Dai, CFA
Keefe, Bruyette and Woods
Conor Fitzgerald
Goldman Sachs & Co.
Christopher Harris
Wells Fargo Securities, LLC
William R. Katz
Citigroup Global Markets, Inc.
James Mitchell
The Buckingham Research Group
Devin Ryan
JMP Securities
Craig W. Siegenthaler, CFA
Credit Suisse
as filed with the Securities and Exchange
Commission is available, without charge, at
sec.gov, upon request in writing to Corporate
Secretary, Raymond James Financial, Inc.,
880 Carillon Parkway, St. Petersburg, Florida
33716, or by emailing investorrelations@
raymondjames.com.
Raymond James has included, as exhibits to its
2017 Annual Report on Form 10-K, certifications
of its chief executive officer and chief financial
officer as to the quality of the company’s public
disclosure. Raymond James’ chief executive
officer has also submitted to the New York
Stock Exchange a certification that he is not
aware of any violations by the company
of the NYSE company listing standards.
ANNUAL MEETING
The annual meeting of shareholders will be
conducted at Raymond James Financial’s
headquarters in The Raymond James Financial
Center, 880 Carillon Parkway, St. Petersburg,
Florida, on February 22, 2018, at 4:30 p.m.
The meeting will be broadcast live via
streaming audio on raymondjames.com
under “Investors – Shareholders’ Meeting.”
Notice of the annual meeting, proxy
statement and proxy voting instructions
accompany this report to shareholders.
Quarterly reports are made available to
shareholders in February, May, August and
November.
2 4
ANNUAL REPORT 2017 A N N U A L R E P O R T 2 0 1 7
O N F O R M 1 0 - K F O R F I S C A L Y E A R E N D E D
S E P T E M B E R 3 0 , 2 0 1 7
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, 2017
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
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
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, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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, 2017, 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 $9,811,540,297.
The number of shares outstanding of the registrant’s common stock as of November 16, 2017 was 144,400,529.
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 22, 2018
are incorporated by reference into Part III.
RAYMOND JAMES FINANCIAL, INC.
TABLE OF CONTENTS
Business
Risk factors
Unresolved staff comments
Properties
Legal proceedings
Mine safety disclosures
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
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
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.
Exhibits and financial statement schedules
Signatures
PAGE
3
15
28
28
28
30
30
32
33
79
80
168
168
171
171
171
171
171
171
171
174
2
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Item 1. BUSINESS
PART I
Raymond James Financial, Inc. (“RJF” or the “Company”) is a leading diversified financial services company providing private client
group, capital markets, asset management, banking and other services to individuals, corporations and municipalities. RJF’s broker-
dealer subsidiaries engage 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. RJF and its subsidiaries also provide investment
management services for retail and institutional clients, corporate and retail banking services, and trust services.
Established in 1962 and public since 1983, RJF is listed on the New York Stock Exchange (the “NYSE”) under the symbol “RJF.” As
a bank holding company and 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 “the firm”, “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 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, 2017:
*Chart above does not include intersegment eliminations or the Other segment.
3
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
PRIVATE CLIENT GROUP
We provide financial planning and securities transaction services through branch office systems. 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 other key revenue producers, primarily for transitional cost assistance and retention purposes.
Total assets under administration in the PCG segment as of September 30, 2017 amount to $659.5 billion. We have 7,346 financial
advisors affiliated with us as of September 30, 2017.
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. Recurring 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. 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 segment net revenues that was recurring versus
transactional in nature, for the fiscal year ended September 30, 2017, are presented below:
4
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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.
• We provide insurance and annuity products.
• We 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 who are affiliated
with us.
• We conduct securities borrowing and lending activities with other broker-dealers, financial institutions, and other counterparties.
The net revenues of this business consist of the interest spreads generated on these activities.
• We provide diversification strategies and alternative investment products to qualified clients of our affiliated financial advisors.
We provide strategies and products for portfolio investment allocation opportunities.
CAPITAL MARKETS
Our capital markets segment conducts institutional sales, securities trading, equity research, investment banking and the syndication
of investments that qualify for tax credits (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 were derived from equity securities and products, fixed income
securities and products, and our tax credit funds activities for the fiscal year ended September 30, 2017:
5
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
We provide the following services through this segment:
Equity Capital Markets
• 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 &
acquisition and 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.
• Our global 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., European 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.
Fixed Income
• We earn sales commissions from institutional clients who purchase and sell both taxable and tax-exempt fixed income products,
primarily municipal, corporate, government agency and mortgage-backed bonds, and whole loans. 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 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. When underwriting
new issue securities, we may agree to purchase the issue through a negotiated sale or submission of a competitive bid.
•
In our over-the-counter market activities, we enter into interest rate swaps and futures contracts either to facilitate client transactions
or to actively manage risk exposures that arise from our client activity, including a portion of our trading inventory. In addition,
we conduct a “matched book” derivatives business where we may enter into interest rate derivative transactions with clients. 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”) mortgage-backed securities (“MBS”).
Such MBS 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 Funds
•
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.
ASSET MANAGEMENT
Our Asset Management segment provides investment advisory and asset management services to individual and institutional investors,
and also sponsors a family of mutual funds. We also provide services to our PCG clients through our asset management services
division and through Raymond James Trust, N.A. (“RJ Trust”).
6
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
We earn investment advisory and related administrative fees on both managed and non-discretionary asset-based accounts. In managed
programs, decisions are made by in-house or third-party portfolio managers or investment committees about how to invest the assets
in accordance with such programs’ objectives. In non-discretionary asset-based programs, we provide administrative support, 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,
2017, there were $96.4 billion in financial assets held in managed programs and $157.0 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, 2017:
RJ BANK
RJ Bank provides corporate (commercial and industrial (“C&I”), commercial real estate (“CRE”) and CRE construction), securities-
based (“SBL”), tax-exempt 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 an investment
portfolio, 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 through the offices of our affiliated broker-dealers as well as through electronic banking
services. RJ Bank’s assets include C&I loans, commercial and residential real estate loans, tax-exempt loans, as well as loans fully
collateralized by marketable securities. Corporate and tax-exempt loans represent approximately 67% of RJ Bank’s loan portfolio, of
which 90% 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 investment portfolio is comprised primarily of agency MBS and collateralized mortgage
obligations (“CMOs”) and is classified as available-for-sale. RJ Bank’s liabilities primarily consist of deposits that are cash balances
swept from the investment accounts of PCG clients.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
RJ Bank had total assets of $20.61 billion at September 30, 2017, which were comprised of the following:
OTHER
Our Other segment includes our 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 Annual Report on Form 10-K (“Form 10-K”) for additional information on our acquisitions).
Our private equity activities include various direct and third party private equity investments 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, 2017, we had over 12,700 employees and over 4,300 affiliated independent contractor financial advisors.
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
businesses. This platform is designed to allow our financial advisors to spend more time with their clients and enhance and grow their
businesses.
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
8
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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, supervisory and oversight framework is 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 functions, 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, for unsafe or unsound practices. Our broker-dealer subsidiaries, which are also 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 the principal elements of the regulatory and supervisory framework applicable to RJF. The
framework is intended to protect our clients, the integrity of the financial markets, 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 submit funds to RJF from our regulated subsidiaries, which include RJ Bank and our broker-dealer
subsidiaries. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions that are referenced. A change in applicable statutes or regulations or in
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
required 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 and may be subject to amendment in the near future. 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
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 and related measures.
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.
CFPB Oversight
In July 2011, the CFPB began operations and was given rulemaking authority for a wide range of consumer protection laws applicable
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 (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. A summary of certain of
our stress test results (RJF and RJ Bank) is available on our website at www.raymondjames.com/investor-relations/financial-report
under “Other Reports and Information - 2017 Annual Dodd-Frank Act Stress Test Disclosure” (the information on our website is not
incorporated by reference into this report).
The Volcker Rule
RJF is subject to the Volcker Rule, a provision of the Dodd-Frank Act which generally prohibits, subject to exceptions, insured depository
institutions, bank holding companies and their affiliates (together, “banking entities”) from engaging in proprietary trading and limits
investments in and relationships with hedge funds and private equity funds (“covered funds”). Banking entities 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.
We maintain a number of private equity investments, some of which meet the definition of covered funds under the Volcker Rule. The
conformance period for compliance with the rule with respect to investments in covered funds was July 2017; however, banking entities
were able to apply for an extension to provide up to an additional five years to conform investments in certain illiquid funds. The
majority of our covered fund investments meet the criteria to be considered an illiquid fund under the Volcker Rule and we received
approval from the Fed to continue to hold such investments until July 2022. The extension of the conformance deadline provides us
with additional time to realize the value of these investments in due course and to execute appropriate strategies to comply with the
Volcker Rule at such time. Our current focus is on the divestiture of our existing portfolio.
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 regulatory actions
in recent years. 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
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 21 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 abilities to grow during favorable market conditions and to return capital to shareholders, 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 Note 21 of the Notes
to the Consolidated Financial Statements in this Form 10-K, for further information.
Money Market Reform
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 money market funds that are sponsored by third parties
as one of several cash sweep alternatives.
Municipal Advisor Regulation
In 2013 as required under the Dodd-Frank Act, the SEC issued its final rule regarding the new category of regulated financial activity:
“municipal advisors” (the “MA Rule”). The MA Rule, which became effective in 2014: (i) imposes 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. In addition
to the SEC rule, the Municipal Securities Rulemaking Board (“MSRB”) has developed a number of implementing rules and interpretive
guidance relating to municipal advisors, and we have implemented policies and procedures reasonably designed to comply with such
rules and guidance.
While over these past few years, broker-dealer and municipal advisor interaction with municipal entities has become an area of greater
rulemaking and regulatory exam and enforcement interest, we do not expect 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 stated that it will consider a heightened
standard of care; however, to date, it has not yet proposed any rules. 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 had not been considered fiduciaries under previous 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
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 are 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;
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 2016, subject to a phase-in of the fiduciary definition in June 2017, and also subject to a
further transition period until January 1, 2018 applying to both the BIC Exemption and Principal Transactions Exemption. In August
2017, the DOL recommended that the transition period be extended until July 1, 2019.
We have undertaken a comprehensive plan to comply with the DOL Rule. As 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 continue to incur increased levels of legal, compliance and information technology costs.
As discussed above, we may also face enhanced legal risks. We anticipate that amendments to the scope of the DOL Rule or the
adoption of any new rule by the SEC will require us to review and possibly modify our compliance plan and approach, which may also
lead to additional costs. In addition, state laws that impose a fiduciary duty also may require monitoring, as well as require that we
undertake additional compliance measures.
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.
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.
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
primarily in Canada and Europe and are subject to regulations in those areas. 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
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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.
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 a public CRA rating.
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 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.
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 21 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.
In Europe, the Markets in Financial Instruments Regulation and a revision of the Markets in Financial Instruments Directive (together,
“MiFID II”), will take effect on January 3, 2018, and will introduce comprehensive and new trading and market infrastructure reforms
in the European Union, including new trading venues, enhancements to pre- and post-trading transparency, and additional investor
protection requirements, among others. Although the full impact of these changes remains unclear, we have made changes to our
European operations, including systems and controls, in order to be in compliance with MiFID II.
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.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the registrant (which includes officers of certain significant subsidiaries) are as follows:
Jennifer C. Ackart
53
Senior Vice President since August 2009 and Controller since February 1995
Bella Loykhter Allaire
64 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
61 Chairman, President and CEO - Raymond James Ltd. since January 2009; Co-President and Co-
CEO - Raymond James Ltd., August 2008 - January 2009
James E. Bunn
44 Co-President - Global Equities and Investment Banking - Raymond James & Associates, Inc.
since October 2017; Head of Investment Banking - Raymond James & Associates, Inc. since
January 2014; Co-Head of Technology Services Investment Banking - Raymond James &
Associates, Inc., May 2009 - December 2013
John C. Carson, Jr.
George Catanese
Scott A. Curtis
Jeffrey A. Dowdle
61
58
55
53
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
46
President - Private Client Group - Raymond James & Associates, Inc. since January 2012;
Regional Director - Raymond James & Associates, Inc., October 2006 - December 2011
Thomas A. James
75 Chairman Emeritus since February 2017; Executive Chairman, May 2010 - February 2017
Jeffrey P. Julien
61 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
52
President and CEO - Raymond James Bank, N.A. since January 2006
Paul C. Reilly
63 Chairman since February 2017 and Chief Executive Officer since May 2010; Director since
January 2006; President, May 2009 - April 2010
Jonathan N. Santelli
Jeffrey E. Trocin
46 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
58 Co-President - Global Equities and Investment Banking - Raymond James & Associates, Inc.
since October 2017; President - Global Equities and Investment Banking - Raymond James &
Associates, Inc., July 2013 - October 2017; Executive Vice President - Equity Capital Markets
- Raymond James & Associates, Inc., February 2001 - July 2013
Dennis W. Zank
63 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.
14
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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, effects of accounting pronouncements, 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, 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 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 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. 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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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 improved, uncertainty remains. A period of sustained downturns and/or volatility in the securities markets,
a return to very low levels of short-term interest rates, credit market dislocations, reductions in the value of real estate, and other negative
market factors could significantly impair our revenues and profitability. Additionally, certain of our market-making activities depend
on market volatility to provide trading opportunities for our clients and decreases in volatility may reduce these opportunities or
adversely affect the results of these activities. 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 other parts of the world. Concerns about the European
Union (“EU”), including Britain’s June 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 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 affected primarily 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; 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, selling assets at unfavorable prices, and cutting or eliminating 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 prohibitions or limitations on our ability
to pay dividends and/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.
16
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 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 loans, including 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
also 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 securities. 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.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management,” in this
report for additional information regarding our exposure to and approaches to managing credit risk.
We are exposed to market risk.
We are, directly and indirectly, affected by changes in market conditions. Market risk generally represents the risk that values of assets
and liabilities or revenues will be adversely affected by changes in market conditions. For example, 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 private equity investments. Market
17
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
conditions that change from time to time, thereby exposing us to market risk, include fluctuations in interest rates, equity prices, foreign
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 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 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 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management,” in this
report for additional information regarding our exposure to and approaches to managing market risk.
Our business depends on fees generated from the distribution of financial products, fees earned from the management of client
accounts, 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 and
the renegotiation of contracts. In addition, the market environment in recent years has resulted in a shift to passive investment products,
which generate lower fees than actively managed products. A continued trend toward passive investments or 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 inflows/outflows 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 values of AUM 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 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; however, our current focus is on the divestiture of our existing portfolio. 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.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Any cyber-attack or other security breach 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.
Our operations rely heavily on the secure processing, storage and transmission of sensitive and confidential financial, personal and
other information in our computer systems and networks. There have been several highly publicized cases involving financial services
companies reporting the unauthorized disclosure of client or other confidential information in recent years, as well as cyber-attacks
involving the theft, dissemination and destruction of corporate information or other assets, in some cases as a result of failure to follow
procedures by employees or contractors or as a result of actions by third parties. Like other financial services firms, we are regularly
the target of attempted cyber-attacks, including unauthorized access, mishandling or misuse of information, computer viruses or
malware, denial-of-service attacks, phishing or other forms of social engineering, and other events, and we seek to continuously monitor
and develop our systems to protect our technology infrastructure and data from misappropriation or corruption. Cyber-attacks can
originate from a variety of sources, including third parties affiliated with foreign governments, organized crime or terrorist organizations.
Third parties may also attempt to place individuals within our firm or induce employees, clients or other users of our systems to disclose
sensitive information or provide access to our data, and these types of risks may be difficult to detect or prevent. 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, the techniques used in these attacks are increasingly sophisticated, change frequently
and are often not recognized until launched. Although we seek to maintain a robust suite of authentication and layered information
security controls, including our cyber threat analytics, data encryption and tokenization technologies, anti-malware defenses and
vulnerability management program, any one or combination of these controls could fail to detect, mitigate or remediate these risks in
a timely manner. 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 result in significant
liability and damage to our reputation, and have an ongoing impact on the security and stability of our operations.
We also rely on numerous third party service providers to conduct other aspects of our business operations, and we face similar risks
relating to them. While we regularly conduct security assessments on these third party vendors, we cannot be certain that their information
security protocols are sufficient to withstand a cyber-attack or other security breach. In addition, in order to access our products and
services, our customers may use computers and other devices that are beyond our security control systems.
Notwithstanding the precautions we take, if a cyber-attack or other information security breach were to occur, this could jeopardize
the information we confidentially maintain, or otherwise cause interruptions in our operations or those of our clients and counterparties,
exposing us to liability. As attempted attacks continue to evolve in scope and sophistication, we may be required to expend substantial
additional resources to modify or enhance our protective measures, to investigate and remediate vulnerabilities or other exposures or
to communicate about cyber-attacks to our customers. Though we have insurance against some cyber-risks and attacks, we may be
subject to litigation and financial losses that exceed our policy limits or are not 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. Further, successful cyber-attacks at other large financial institutions or other
market participants, whether or not we are affected, could lead to a general loss of customer confidence in financial institutions that
could negatively affect us, including harming the market perception of the effectiveness of our security measures or the financial system
in general, which could result in reduced use of our financial products and services.
Further, in light of the high volume of transactions we process, the large number of our clients, partners and counterparties, and the
increasing sophistication of malicious actors, a cyber-attack could occur and persist for an extended period of time without detection.
We expect that any investigation of a cyber-attack would take substantial amounts of time, and that there may be extensive delays
before we obtain full and reliable information. During such time we would not necessarily know the extent of the harm or how best to
remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, all of which
would further increase the costs and consequences of such an attack.
We may also be subject to liability under various data protection laws. In providing services to clients, we manage, utilize and store
sensitive or confidential client or employee data, including personal data. As a result, we are subject to numerous laws and regulations
designed to protect this information, such as U.S. federal, state and international laws governing the protection of personally identifiable
information. 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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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management” in this
report for additional information regarding our exposure to and approaches for managing these types of operational risks.
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 affected adversely 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 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 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 market, credit, 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 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 or may have limited predictive value. A failure to manage our growth adequately, including
growth in the products or services we offer, 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 and SROs such as FINRA. 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 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Risk Management,” in this report.
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.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 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.
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, 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 recruiting and 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. Recently, a large broker-dealer competitor announced
its withdrawal from the Protocol for Broker Recruiting (“Protocol”), a voluntary agreement among over 1,700 firms that governs,
among other things, the client information that financial advisors may take with them when they affiliate with a new firm. The ability
to bring such customer data to a new broker-dealer generally means that the financial advisor is better able to move client account
balances to his or her new firm. It is possible that other competitors will similarly withdraw from the Protocol. If the broker-dealers
from whom we recruit new financial advisors prevent, or significantly limit, the transfer of client data, our recruiting efforts may be
adversely affected and we could experience a higher number of claims against us relating to our recruiting efforts.
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
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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. 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, 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 14 of the Notes to Consolidated Financial Statements in this Form 10-K for information
on this revolving credit facility).
Business growth could increase costs and regulatory and integration risks.
We continue to grow through acquisitions. Integrating acquired businesses, 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.
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 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Risk Management,” 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
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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.
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 challenging market conditions, 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 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 see Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Risk Management,” 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 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, 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.
The FASB has issued several new accounting standards, including on the topics of credit losses, revenue recognition and leases.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Specifically, the new credit losses 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 that the adoption of these standards will
have on our financial position and results of operations. See Note 2 of the Notes to Consolidated Financial Statements in this Form
10-K for further information.
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 agreement 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 17 of the Notes to Consolidated Financial Statements in this Form 10-K for further information regarding the indemnification
from Regions.
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. As discussed above, weather events could also adversely impact certain loans
within RJ Bank’s portfolio. Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations
- Risk Management” in this Form 10-K for a discussion of our operational risk management.
We are exposed to risk from international markets.
We do business in other parts of the world 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 above mentioned factors.
We are exposed to 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. We have elected to self-insure our workers compensation, errors and omissions
liability and our employee-related health care benefit plans. We have self-insured retention risk related to our property and casualty,
and general liability benefit plans.
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, claims associated with risks we have retained either through our self-insurance
retention or by self-insuring, may exceed our recorded reserves which could negatively impact future earnings. Insurance claims may
divert management resources away from operating our business.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
RISKS RELATED TO OUR REGULATORY ENVIRONMENT
Financial services firms have been subject to regulatory changes resulting from the Dodd-Frank Act and 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 over the last several years have been operating in an onerous regulatory environment, which could become
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.
As a result of the 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;
prohibition of proprietary trading; restrictions on investments in covered funds; 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 are also required to comply with the
Volcker Rule’s provisions. Although we have not historically engaged in significant levels of proprietary trading, due to our underwriting
and market-making activities and our investments in covered funds, we have experienced and expect to continue to experience increased
operational and compliance costs and changes to our private equity investments. Any changes to regulations or changes to the supervisory
approach may also result in increased compliance costs to the extent we are required to modify our existing compliance policies,
procedures and practices.
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.
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 supervisory, compliance or other regulatory deficiencies, which could subject
us to additional liability, including penalties, and restrictions on our business activities. Among other things, these restrictions could
limit our ability to make investments, complete acquisitions, expand into new business lines, pay dividends and/or engage in share
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
repurchases. See Item 1, “Regulation,” in this report for additional information regarding our regulatory environment and Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management,” in this report regarding
our approaches to managing regulatory risk.
Changes in regulations resulting from the DOL Rule, including the DOL fiduciary standard, may adversely affect our businesses.
The DOL Rule became effective earlier in the year, subject to a transition period until January 2018 applying to both the BIC Exemption
and Principal Transactions Exemption. Although we have undertaken a comprehensive plan to comply with the DOL Rule given that
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 continue to incur increased legal,
compliance and information technology costs. We anticipate that if the DOL Rule is amended, a rule imposing heightened standards
on broker-dealers is adopted by the SEC, or fiduciary rules are adopted at the state level, we will be required to incur additional costs
in order to review and possibly modify our compliance plan and approach. Implementation of the DOL Rule, any amendments to the
rule, and any rules addressing similar matters 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.
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 asset 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 U.S. related to the over-the-counter swaps and derivatives markets require additional registration, record keeping
and reporting obligations.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 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 and RJ Bank are required to perform annual stress tests using certain scenarios provided by the Fed. While we
believe that both the quality and size 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 21 of the Notes to Consolidated Financial Statements in this Form 10-K for further information on regulations and capital
requirements.
The Basel III regulatory capital standards impose additional capital and other requirements on us that could decrease our
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.
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 its debt service obligations. 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.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 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 1.25 million square feet of office space. Our
current office space provides us the capacity we need to support our expected growth for several years, however, we also have the
necessary rights to add approximately 440,000 square feet of new office space on our existing land within the Carillon Office
Park. Additionally, we own approximately 65 acres of land located in Pasco County, Florida for future development and occupancy as
needed. To facilitate certain storage needs, we lease warehouse space near our headquarters complex.
We conduct employee-based branch office operations in various locations throughout the U.S. and in certain foreign countries. RJ&A
branches are leased from third parties under leases that contain various expiration dates through fiscal year 2028, with the exception
of one company-owned RJ&A branch located in Crystal River, Florida. Leases for branch offices of RJFS, the independent contractors
of RJ Ltd. and Raymond James Investment Services Limited (“RJIS”) are the responsibility of the respective independent contractor
financial advisors.
We conduct certain operations from our office building located on land we own in Southfield, Michigan (approximately 88,000 square
feet) and operate an information technology data center on land we own in the Denver, Colorado area (approximately 40,000 square
feet). We also conduct certain operations in leased office space (approximately 186,000 square feet) in the Raymond James Tower
located in downtown Memphis, Tennessee.
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 fiscal year 2031. RJ Ltd. does not own any land or buildings.
See Note 17 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
28
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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.
See Note 17 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 were named defendants in various lawsuits related to an alleged fraudulent scheme conducted by Ariel Quiros (“Quiros”) and
William Stenger involving the misuse of EB-5 visa program investor funds in connection with the Jay Peak ski resort in Vermont and
associated limited partnerships (“Jay Peak”). Plaintiffs alleged that Quiros misused $200 million from the limited partnerships and
misappropriated $50 million for his personal benefit. There were six civil court actions in which the plaintiffs variously demanded,
among other things, compensatory damages, treble damages under the Racketeer Influenced and Corrupt Organizations Act (“RICO”)
and punitive damages.
On April 13, 2017, RJA entered into an agreement regarding a proposed final, comprehensive settlement of all past, present and future
investor claims against us relating to the Jay Peak matters. Under the agreement, we paid to the SEC-appointed receiver for the Jay
Peak entities an aggregate of $150 million, which included $4.5 million previously paid in our settlement with the State of Vermont.
On June 30, 2017, the court issued a final order approving the proposed settlement agreement and barring all existing or potential future
claims against us (other than by governmental bodies or agencies) for any actions or damages associated with the Jay Peak matters.
The time period for appealing this final order expired on August 29, 2017, and the final order was not appealed.
Morgan Keegan Litigation
Indemnification from Regions
Under the agreement with Regions governing our 2012 acquisition of Morgan Keegan, Regions is obligated to indemnify us 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 were 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 Limited and an affiliate in the Superior Court of New Jersey, Law Division, in 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 the stock price of Fairfax, so that others could profit from short positions. Plaintiffs alleged that the
defendants’ actions disparaged them and harmed their business relationships. Plaintiffs further alleged various categories of damages,
including lost insurance business, losses on stock and bond offerings, reputational loss, increased audit fees and directors’ and officers’
29
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
insurance premiums, and lost acquisitions. They requested actual and punitive damages and treble damages under their RICO claims.
On May 11, 2012, the trial court dismissed the plaintiffs’ RICO claims. 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, and the plaintiffs appealed. On April 27, 2017, the Superior Court of New Jersey,
Appellate Division, affirmed the trial court's dismissal of certain claims against Morgan Keegan, including the RICO allegations, while
remanding to the trial court the claims of disparagement, tortious interference with prospective business relations, and civil conspiracy,
and limiting the actual damages to certain lost insurance business. Plaintiffs petitioned the Supreme Court of New Jersey for review
of the Appellate Division’s opinion, but on October 17, 2017, the Supreme Court of New Jersey denied the petition.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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 16, 2017, we had 361 holders of record of our
common stock. Shares of our common stock are held by a substantially greater number of beneficial owners, whose shares are held
of record by banks, brokers, and other financial institutions.
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
2017
2016
High
Low
High
Low
$
$
$
$
74.70
81.92
82.59
85.97
$
$
$
$
56.61
69.09
71.35
74.81
$
$
$
$
59.81
56.68
56.69
58.97
$
$
$
$
45.86
39.84
44.22
46.30
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
2017
2016
$
$
$
$
0.20
0.22
0.22
0.22
$
$
$
$
0.18
0.20
0.20
0.20
On August 23, 2017, our Board of Directors declared a quarterly cash dividend of $0.22 per share of common stock which was paid
on October 16, 2017.
See Note 21 of the Notes to Consolidated Financial Statements in this Form 10-K for information regarding our intentions for paying
cash dividends and the related capital restrictions.
30
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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, 2017:
Total number of
shares
purchased
Average price
per share
Number of shares
purchased as part of
publicly announced
plans or programs
Approximate dollar value
(in thousands) at each
month-end, of securities
that may yet be purchased
under the plans or
programs
October 1, 2016 – October 31, 2016
November 1, 2016 – November 30, 2016
December 1, 2016 – December 31, 2016
First quarter
January 1, 2017 – January 31, 2017
February 1, 2017 – February 28, 2017
March 1, 2017 – March 31, 2017
Second quarter
April 1, 2017 – April 30, 2017
May 1, 2017 – May 31, 2017
June 1, 2017 – June 30, 2017
Third quarter
July 1, 2017 – July 31, 2017
August 1, 2017 – August 31, 2017
September 1, 2017 – September 30, 2017
Fourth quarter
Fiscal year total
13,245
157,010
189,500
359,755
15,096
15,251
9,077
39,424
29,329
5,408
7,128
41,865
142
22,464
1,203
23,809
464,853
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
60.46
73.12
72.70
72.43
71.28
79.33
79.13
76.20
74.14
73.94
76.16
74.46
80.95
78.91
76.08
78.78
73.26
— $
— $
— $
—
— $
— $
— $
—
— $
— $
— $
—
— $
— $
— $
—
—
135,671
135,671
135,671
135,671
135,671
135,671
135,671
135,671
135,671
135,671
135,671
135,671
Of the total for the year ended September 30, 2017, 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 approximated 77 thousand shares, for a total consideration of $6 million (for more information on this trust fund, see Note
2 and Note 10 of the Notes to Consolidated Financial Statements in this Form 10-K). These activities do not utilize the repurchase
authority presented in the table above.
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, 2017, shares surrendered to us by employees for such purposes approximated 388 thousand shares, for a
total consideration of $28 million. These activities do not utilize the repurchase authority presented in the table above.
31
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Item 6. SELECTED FINANCIAL DATA
$ in thousands, except per share amounts
2017
2016
2015
2014
2013
Year ended September 30,
Operating results:
Total revenues
Net revenues
Net income attributable to Raymond James Financial, Inc.
Earnings per common share - basic
Earnings per common 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
Senior notes payable maturing within twelve months
Long-term obligations:
Non-current portion of other borrowings
Non-current portion of senior notes payable
Total long-term debt
Total equity attributable to Raymond James Financial, Inc.
Shares outstanding
Book value per share
$
$
$
$
$
$
$
$
$
$
$
$
$
6,524,875
6,371,097
636,235
4.43
4.33
$
$
$
$
$
5,521,120
5,405,064
529,350
3.72
3.65
$
$
$
$
$
5,309,680
5,203,606
502,140
3.51
3.43
$
$
$
$
$
4,964,128
4,861,924
480,248
3.41
3.32
$
$
$
$
$
4,594,305
4,487,893
367,154
2.64
2.58
143,275
141,773
142,548
139,935
137,732
146,647
144,513
145,939
143,589
0.88
$
0.80
$
0.72
$
0.64
$
140,541
0.56
34,883,456
$
— $
31,486,976
$
26,325,850
— $
250,000
898,967
1,550,000
2,448,967
5,581,713
144,097
38.74
$
$
$
$
$
604,080
1,700,000
2,304,080
4,916,545
141,545
34.73
$
$
$
$
$
583,740
900,000
1,483,740
4,524,481
142,751
31.69
$
$
$
$
$
$
$
23,135,343
$
22,965,444
— $
—
537,932
1,150,000
1,687,932
4,143,686
140,836
29.42
$
$
$
$
$
47,132
1,150,000
1,197,132
3,665,373
138,750
26.42
As a result of our October 1, 2016 adoption of the new consolidation guidance, we deconsolidated a number of tax credit fund variable
interest entities (“VIEs”) that had been previously consolidated. We determined that under the new guidance, we are no longer deemed
to be the primary beneficiary of these VIEs. We applied the new consolidation guidance on the full retrospective basis, meaning that
we have reflected the adjustments arising from this adoption as of the beginning of our earliest comparative period presented. There
was no net income impact on our Consolidated Statements of Income and Comprehensive Income for the prior year periods as the net
changes in revenues, interest and other expenses were offset by the impact of the deconsolidation on the net income/(loss) attributable
to noncontrolling interests. See Note 2 in the Notes to the Consolidated Financial Statements for additional information.
Senior notes maturing within twelve months and the non-current portion of senior notes payable excludes the impact of debt issuance
costs.
32
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INDEX
Introduction
Executive overview
Segments
Reconciliation of GAAP measures to non-GAAP measures
Net interest analysis
Results of Operations
Private Client Group
Capital Markets
Asset Management
Raymond James Bank
Other
Certain statistical disclosures by bank holding companies
Liquidity and Capital Resources
Sources of Liquidity
Statement of financial condition analysis
Contractual obligations
Regulatory
Critical accounting estimates
Recent accounting developments
Off-Balance sheet arrangements
Effects of inflation
Risk Management
PAGE
34
34
37
38
39
41
44
47
50
55
57
57
58
61
62
63
63
65
65
65
66
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Introduction
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 holding company 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, market volatility, 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 investment banking activity, including public offerings, as well as trading profits, and asset valuations, or a
combination thereof. In turn, these decisions and factors affect our business results.
Year ended September 30, 2017 compared with the year ended September 30, 2016
We achieved net revenues of $6.37 billion, a $966 million, or 18% increase. Our pre-tax income amounted to $925 million, an increase
of $125 million, or 16%. Our net income of $636 million increased $107 million, or 20%, and our earnings per diluted share were
$4.33, a 19% increase.
During the year ended September 30, 2017, earnings were impacted negatively by the Jay Peak settlement, losses on the early
extinguishment of certain of our senior notes and acquisition-related expenses. After excluding the impact of these expenses, which
totaled $194 million in the current year on a pre-tax basis, our adjusted pre-tax income was $1.12 billion,(1) an increase of 30% compared
with adjusted pre-tax income in the prior year, and adjusted net income was $768 million,(1) an increase of 35% compared with adjusted
net income in the prior year. Adjusted earnings per diluted share were $5.23,(1) a 33% increase compared with adjusted earnings per
diluted share in the prior year.
Net revenues increased in each of our four operating segments, including significant growth in the Private Client Group (“PCG”) and
Asset Management segments, which benefited from growth in client assets in fee-based accounts, and significant growth in RJ Bank
due to an increase in average interest-earning assets and an increase in net interest margin. Investment banking revenues in our Capital
Markets segment were strong and were significantly higher than fiscal year 2016; however institutional sales commissions declined
reflecting the low levels of market volatility. Total client assets under administration reached $692.9 billion at September 30, 2017, a
15% increase, primarily attributable to strong financial advisor recruiting and retention results and equity market appreciation.
Non-interest expenses increased $850 million, or 19%. The increase primarily resulted from increased compensation, commissions
and benefits expenses, primarily associated with increased revenues and income, as well as increased staffing levels required to support
our continued growth, and increased regulatory and compliance requirements. We also had losses on the early extinguishment of
certain senior notes and increased legal expenses during the year for the Jay Peak settlement.
Our effective tax rate was 31.2% in the current year, down from the 33.9% for the prior year. The decrease in our effective tax rate
compared to the prior year was primarily due to the favorable impact of the adoption of new stock compensation accounting guidance
which had a favorable impact on our effective tax rate of 2.7% and our provision for taxes of $25 million (see Note 2 and Note 20 of
the Notes to Consolidated Financial Statements in this Form 10-K for additional information). Also contributing to the decrease was
a favorable impact of 1.7% due to the increase in the amount of nontaxable gains arising from the value of our company-owned life
insurance portfolio as a result of an increase in equity market values, compared to a 1.1% favorable impact in the prior year.
Both the U.S. Senate and the U.S. House of Representatives have recently introduced versions of income tax reform, which would
have significant impacts on the federal tax code. These proposals contain several corporate income tax provisions, including a corporate
tax rate reduction from 35 percent to 20 percent which would prospectively benefit our effective tax rate following enactment. Depending
on the scope of any enacted legislation, there could also be a significant negative impact on our results in the period of enactment,
primarily due to the potential remeasurement of U.S. deferred tax balances at lower corporate enacted tax rates and a repatriation tax,
if any, on deemed repatriated earnings from foreign subsidiaries.
(1)
“Adjusted pre-tax income,” “adjusted net income,” and “adjusted earnings per diluted share” are each non-GAAP financial measures. Please see the “reconciliation of GAAP measures
to non-GAAP measures” in this Item 2, for a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures, and for other important disclosures.
34
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
A summary of our financial results by segment as compared to the prior year are as follows:
• Our Private Client Group segment generated net revenues of $4.42 billion, a 22% increase, while pre-tax income increased 10%
to $373 million. The increase in net revenues was primarily attributable to an increase in securities commissions and fees, driven
by strong recruiting results, the acquisitions of Alex. Brown and 3Macs in late fiscal 2016 and a stronger market environment
compared to the prior year. The segment also benefited from the impact of higher short-term interest rates, resulting in increases
in fees related to our RJ Bank Deposit Program (“RJBDP”) and interest income. Non-interest expenses increased $773 million,
or 24%, primarily resulting from an increase in sales commission expense, increased legal expenses related to the Jay Peak settlement
and increased administrative & incentive compensation and benefits expense.
• The Capital Markets segment generated net revenues of $1.01 billion, a 1% increase, while pre-tax income also increased 1% to
$141 million. The increase in net revenues was primarily due to an increase in merger & acquisition and advisory fee revenues
and equity underwriting fees, partially offset by a decline in institutional sales commissions and trading profits, reflecting lower
levels of volatility, and a decline in tax credit funds syndication revenues resulting from uncertainty over corporate tax reform.
Non-interest expenses increased $16 million, or 2%, primarily resulting from an increase in incentive compensation and benefits
expense largely related to improved investment banking results.
• Our Asset Management segment benefited from increased fee-based client assets, generating a 21% increase in net revenues to
$488 million, while pre-tax income increased 30% to $172 million. The increase in net revenues primarily reflected increases in
advisory fee revenues from managed programs and in non-discretionary asset-based administration fee revenues as financial assets
under management in managed programs and assets held in non-discretionary asset-based programs increased 25% and 32%,
respectively over the prior year level. Non-interest expenses increased $42 million, or 16%, primarily resulting from increased
investment sub-advisory fees and growth-related increases in administrative & incentive compensation and benefits expense.
• RJ Bank generated a 20% increase in net revenues to $593 million, while pre-tax income increased 21% to $409 million. The
increase in pre-tax income resulted primarily from an increase in net interest income and a decrease in the provision for loan losses,
partially offset by higher affiliate deposit fees paid to the Private Client Group due to an increase in client account balances. Net
interest income increased due to both growth in average interest-earning assets and an increase in the net interest margin which
benefited from the impact of higher short-term interest rates.
• Activities in our Other segment generated a pre-tax loss that is $21 million, or 14% more than the prior year, primarily due to the
losses on the early extinguishment of certain senior notes payable, combined with higher interest expense related to a higher
average balance of our senior notes payable for the fiscal year. Total revenues in the segment increased $19 million, or 41%,
primarily due to higher net valuation gains from our private equity portfolio and an increase in interest income due to increased
short-term interest rates and higher corporate cash balances.
Consistent with our growth strategies, in April 2017 we announced we had entered into a definitive agreement to acquire 100% of the
outstanding shares of Scout Investments, Inc. (the “Scout Group”), an asset management and distribution entity, from UMB Financial
Corporation. The Scout Group includes Scout Investments (“Scout”) and its Reams Asset Management division (“Reams”), as well
as Scout Distributors. The addition of Scout, an equity asset manager, and Reams, an institutional-focused fixed income specialist,
broadens the investment solutions available to our clients. The Scout Group was included in our Asset Management segment upon
completion of this acquisition, which occurred November 17, 2017.
Year ended September 30, 2016 compared with the year ended September 30, 2015
We achieved net revenues in fiscal year 2016 of $5.41 billion, a $201 million, or 4% increase over fiscal year 2015. Our fiscal year
2016 net income of $529 million reflected an increase of $27 million, or 5%, and our diluted earnings per share amounted to $3.65, a
6% increase. The fiscal year 2016 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 fiscal year 2015
level. The increase in assets under administration was 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 fiscal year 2016 impact of acquisition-related expenses and legal reserves for the Jay Peak matter, our adjusted net
income amounted to $569 million (1) and adjusted diluted earnings per share amounted to $3.93 (1).
(1) “Adjusted net income,” and “adjusted diluted earnings per share” are each non-GAAP financial measures. Please see the “reconciliation of GAAP measures to 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.
35
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Fiscal year 2016 net revenues increased in each of our four operating segments as compared to fiscal year 2015. Our non-operating
Other segment reflected a decline in net revenues as fiscal year 2015 experienced higher valuation gains from our private equity
investments than fiscal year 2016, as well as realized gains on sales of our auction rate securities (“ARS”). Non-interest expenses
increased $204 million, or 5%. The increase primarily resulted from: increases in compensation, commissions and benefits due to
annual raises, growth in related securities commissions 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 during fiscal year 2016.
A summary of the most significant items impacting our fiscal year 2016 financial results as compared to the prior year are as follows:
• Our Private Client Group segment generated fiscal year 2016 net revenues of $3.62 billion, a 3% increase, while pre-tax income
decreased by $2 million to $341 million. The increase in net revenues was primarily attributable to an increase in account and
service fee income, most notably an increase in fees associated with our RJBDP 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
during fiscal year 2016.
Securities commission 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 fiscal year 2015 levels, 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 expenses
related to the Jay Peak matter.
• The Capital Markets segment generated fiscal year 2016 net revenues of $1.00 billion, a 4% increase, while pre-tax income
increased by 30% to $139 million. The fiscal year 2016 increase in net revenues was driven by an increase in trading profits, sales
commissions on fixed income products and an increase in tax credit fund syndication fee revenues, offset by declines in equity
underwriting fees and merger & acquisition and advisory fee revenues. Non-interest expenses increased a modest 1% over the
fiscal year 2015 level.
• Our Asset Management segment generated net revenues of $404 million, a 3% increase, while pre-tax income decreased by 2%
to $132 million in fiscal year 2016. Non-discretionary asset-based administration fee revenues increased, driven by an increase in
assets held in these programs. Investment advisory fee revenues from managed programs approximated the fiscal year 2015 level
despite the increase in balances of financial assets under management as of September 30, 2016 due to the volatility of markets
during fiscal year 2016 and the timing of our fee computations. Expenses increased 6% in fiscal year 2016 due, in large part, to
the fiscal year 2015 reversal of certain incentive compensation expense accruals for associates who left the firm.
• RJ Bank generated fiscal year 2016 net revenues of $494 million, a 19% increase, while pre-tax income increased by 21% to $337
million. The loan loss provision increased nearly $5 million, or 20% over the fiscal year 2015 level due to higher corporate loan
growth, charges resulting from loans outstanding within the energy sector, and additional provision for corporate loan downgrades
during fiscal year 2016. 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 client
account balances, as well as an increase in FDIC insurance premiums.
• Activities in our Other segment during fiscal year 2016 reflect a pre-tax loss that was $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 resulting from fiscal year 2015 sales that did not recur in
fiscal year 2016, offset by increased interest revenue and foreign exchange gains. Acquisition-related expenses of $41 million for
fiscal year 2016 did not occur in fiscal year 2015, and resulted from incremental expenses related to our acquisitions of Alex.
Brown, 3Macs, and Mummert during fiscal year 2016.
• Our effective tax rate was 33.9% in fiscal year 2016, down from the 37.1% in the prior year. The fiscal year 2016 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 fiscal year
2015; (2) adjustments associated with our divestitures of our 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
36
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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 fiscal year 2016 for a
total purchase price of approximately $144.5 million, reflecting an average per share repurchase price of $45.69. The fiscal year
2016 diluted earnings per share benefited by $0.05 as a result of these repurchases.
Segments
The following table presents our consolidated and segment net revenues and pre-tax income/(loss), the latter excluding noncontrolling
interests, for the years indicated:
$ in thousands
Total company
Net revenues
Year ended September 30,
2017
%
change
2016
%
change
2015
$
6,371,097
18 % $
5,405,064
4 % $
5,203,606
Pre-tax income excluding noncontrolling interests
925,346
16 %
800,643
—
798,174
Private Client Group
Net revenues
Pre-tax income
Capital Markets
Net revenues
Pre-tax income
Asset Management
Net revenues
Pre-tax income
RJ Bank
Net revenues
Pre-tax income
Other
Net revenues
Pre-tax loss
Intersegment eliminations
Net revenues
4,421,633
372,950
1,013,683
141,236
487,658
171,736
592,670
409,303
22 %
10 %
1 %
1 %
21 %
30 %
20 %
21 %
3,616,479
340,564
1,001,716
139,173
404,349
132,158
493,966
337,296
3 %
—
4 %
30 %
3 %
(2)%
19 %
21 %
3,507,806
342,243
963,431
107,009
392,301
135,050
414,295
278,721
(29,870)
(169,879)
6 %
(14)%
(31,692)
(148,548)
(211)%
(129)%
(10,198)
(64,849)
(114,677)
(79,754)
(64,029)
37
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Reconciliation of GAAP measures to non-GAAP measures
We utilize certain non-GAAP calculations as additional measures to aid in, and enhance, the understanding of our financial results and
related measures. 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 following table provides a reconciliation of GAAP measures to non-GAAP measures for the periods which include non-GAAP
adjustments. Non-GAAP measures for the year ended September 30, 2016 have been revised from those previously reported to conform
to our current presentation, which includes amounts related to the Jay Peak settlement.
$ in thousands, except per share amounts
Net Income (1)
Non-GAAP adjustments: (2)
Acquisition-related expenses
Losses on extinguishment of debt
Jay Peak matter
Sub-total pre-tax non-GAAP adjustments
Tax effect of non-GAAP adjustments
Non-GAAP adjustments, net of tax
Adjusted net income
Pre-tax income (1)
Total pre-tax non-GAAP adjustments (as detailed above)
Adjusted pre-tax income
Pre-tax margin on net revenues (3)
Adjusted pre-tax margin on net revenues (3)
Earnings per common share:
Basic
Diluted
Adjusted earnings per common share:
Adjusted basic
Adjusted diluted
Average equity (4)
Adjusted average equity (4)
Return on equity (5)
Adjusted return on equity (5)
(1) Excludes noncontrolling interests.
Year ended September 30,
2017
2016
$
636,235
$
529,350
17,995
45,746
130,000
193,741
(61,869)
131,872
768,107
925,346
193,741
1,119,087
14.5%
17.6%
4.43
4.33
5.35
5.23
5,235,231
5,310,489
12.2%
14.5%
$
$
$
$
$
$
$
$
$
40,706
—
20,000
60,706
(20,570)
40,136
569,486
800,643
60,706
861,349
14.8%
15.9%
3.72
3.65
4.01
3.93
4,695,588
4,707,959
11.3%
12.1%
$
$
$
$
$
$
$
$
$
(2) See Note 3 for information on our acquisition-related expenses, Note 15 for information on our extinguishment of debt and Item 3 in this Form 10-K for more
information on the Jay Peak matter.
(3) Computed by dividing the pre-tax income attributable to RJF by net revenues for each respective period or, in the case of adjusted pre-tax margin on net revenues,
computed by dividing adjusted pre-tax income attributable to RJF by net revenues for each respective period.
(4) Computed by adding the total equity attributable to RJF as of each quarter-end date during the indicated period to the beginning of the year total and dividing by
five. Adjusted average equity is computed by adjusting for the impact on average equity of the non-GAAP adjustments, as applicable for each respective period.
(5) Computed by dividing net income attributable to RJF by average equity for each respective period or, in the case of adjusted return on equity, computed by dividing
adjusted net income attributable to RJF by adjusted average equity for each respective period.
38
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Net interest analysis
The Federal Reserve Bank announced increases in its benchmark short-term interest rate of 25 basis points in each of June 2017, March
2017 and December 2016, as well as in December 2015. Increases in short-term interest rates such as these have a significant impact
on our overall financial performance, as we have certain assets and liabilities, primarily held in our PCG and RJ Bank segments, which
are sensitive to changes in interest rates. Given the relationship of our interest sensitive assets to liabilities held in each of these segments,
increases in short-term interest rates result in an overall increase in our net earnings, although the impact to our net interest margin
depends on the yields on interest-earning assets relative to interest-bearing liabilities.
In PCG, we also earn fees in lieu of interest income from our RJBDP, a multi-bank a sweep program in which clients’ cash deposits
in their brokerage accounts are swept into interest-bearing deposit accounts at RJ Bank and various third-party banks. Such fees are
recorded in “Account and service fees” in our Consolidated Statements of Income and Comprehensive Income and fluctuate based on
changes in short-term interest rates relative to deposit rates paid on client cash balances. Of the total client domestic cash balances of
$43.0 billion at September 30, 2017, approximately $38.1 billion was included in the RJBDP, compared with $37.7 billion of the $43.9
billion of total client domestic cash balances at September 30, 2016. While the short-term interest rate increases in 2017 had a significant
impact on fees earned from our RJBDP, they have not yet had a significant impact on market deposit rates paid on client cash balances.
As such, any future increases in short-term interest rates may have less of an impact or could actually reduce our fees earned in this
program, depending on the level of deposit rates paid on client cash balances.
If the Federal Reserve Bank was to reverse its previous actions and decrease the benchmark short-term interest rate or if deposit rates
that we pay on client cash balances increased and resulted in a decline in spreads earned on our RJBDP program, the impact on our
net interest income and account and service fees would be an unfavorable reversal of the positive impact described above.
39
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
The following table presents our consolidated average balance, interest income and expense balances and the related yield and rates.
Average balances are calculated on a daily basis unless otherwise noted.
$ in thousands
Interest-earning assets:
Assets segregated pursuant to
regulations and other segregated
assets
Securities loaned
Trading instruments (1)
Available-for-sale securities
Margin loans
Bank loans, net of unearned income (2)
Loans held for sale
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans (3)
Residential mortgage loans
SBL
Total bank loans, net
Loans to financial advisors (1)
Corporate cash and all other (1)
Year ended September 30,
2017
2016
2015
Average
balance
Interest
inc./exp.
Average
yield/
cost
Average
balance
Interest
inc./exp.
Average
yield/
cost
Average
balance
Interest
inc./exp.
Average
yield/
cost
$ 3,250,854
$ 37,270
1.15% $ 3,565,252
$ 22,287
0.63% $ 2,498,357
$ 13,792
456,573
655,302
1,588,484
2,403,451
14,049
21,068
27,946
85,699
3.08%
3.22%
1.76%
3.57%
577,002
707,321
561,925
1,811,845
8,777
19,362
7,596
68,712
1.52%
2.74%
1.35%
3.79%
433,642
678,715
508,223
1,805,312
12,036
19,450
5,100
67,573
0.55%
2.78%
2.87%
1.00%
3.74%
159,384
5,156
3.34%
150,305
4,551
3.07%
107,255
2,686
2.64%
7,340,052
281,274
129,073
6,184
2,831,870
100,563
891,922
2,803,464
2,123,189
23,057
83,537
72,400
3.78%
4.73%
3.50%
3.98%
2.94%
3.36%
7,171,402
271,476
169,101
2,297,224
617,701
2,217,789
1,713,243
8,462
70,048
16,707
64,607
51,515
16,278,954
572,171
3.55% 14,336,765
487,366
848,677
3,450,514
13,333
30,590
1.57%
0.89%
563,548
2,750,688
8,207
18,090
3.73%
4.92%
3.00%
4.16%
2.87%
2.96%
3.42%
1.46%
0.66%
6,677,117
244,986
118,626
1,728,324
301,767
1,927,105
1,269,337
5,042
53,369
8,812
55,370
35,313
12,129,531
405,578
457,797
2,957,309
7,056
12,697
3.62%
4.19%
3.05%
4.49%
2.83%
2.74%
3.34%
1.54%
0.43%
2.53%
Total interest-earning assets
$ 28,932,809
$ 802,126
2.77% $ 24,874,346
$ 640,397
2.57% $ 21,468,886
$ 543,282
Interest-bearing liabilities:
Bank deposits
Certificates of deposit
$
293,589
$
4,325
1.47% $
345,628
$
5,402
1.56% $
347,748
$
5,839
1.68%
Money market, savings and
Negotiable Order of Withdrawal
(“NOW”) accounts
Securities borrowed
Trading instruments sold but not yet
purchased (1)
Brokerage client liabilities
Other borrowings
Senior notes
Other (1)
Total interest-bearing
liabilities
15,566,621
110,416
289,218
4,678,445
855,638
1,689,172
267,794
12,859
6,690
6,138
4,884
16,559
94,665
7,658
0.08% 12,640,068
6.06%
79,613
2.12%
0.10%
1.94%
5.60%
2.86%
281,501
4,291,632
723,904
1,210,148
241,454
4,816
3,174
5,035
2,084
12,957
78,533
4,055
0.05%
3.99%
1.79%
0.05%
1.79%
6.49%
1.68%
10,851,494
135,027
274,364
3,693,928
721,296
1,149,136
293,615
2,543
5,237
4,503
940
6,079
76,088
4,845
0.02%
3.88%
1.64%
0.03%
0.84%
6.62%
1.65%
$ 23,750,893
$ 153,778
0.65% $ 19,813,948
$ 116,056
0.59% $ 17,466,608
$ 106,074
0.61%
Net interest income
$ 648,348
$ 524,341
$ 437,208
(1) Average balance is calculated based on the average of the end of the month balances for each month within the period.
(2) Nonaccrual loans are included in the average loan balances. Payment or income received on corporate nonaccrual loans are applied to principal. Income on other
nonaccrual loans is recognized on a cash basis. Fee income on all loans included in interest income for the twelve months ended September 30, 2017, 2016 and
2015, was $38 million, $36 million and $30 million respectively.
(3) The yield is presented on a tax equivalent basis utilizing the federal statutory rate of 35%.
40
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net interest income increased $124 million, or 24%, primarily reflecting an increase in interest income in our PCG and RJ Bank
segments, partially offset by the impact of an increase in interest expense related to our senior notes payable.
Net interest income in the PCG segment increased $40 million, or 41%. Interest income in the PCG segment increased as a result of:
1) the impact of the increase in average segregated assets compared with prior year levels, largely driven by our September 2016
acquisition of Alex. Brown, as well as the impact of an increase in short-term interest rates on these balances; and 2) increased client
margin balances, largely driven by our September 2016 acquisition of Alex. Brown. The favorable impact of the growth was partially
offset by a decrease in average client margin rates on the portfolio. Interest expense for the segment increased, albeit to a much lesser
extent, primarily due to an increase in client cash balances and an increase in the interest rate paid to clients on such balances.
The RJ Bank segment’s net interest income increased $96 million, or 20%, resulting from an increase in average loans outstanding and
an increase in available-for-sale securities, as well as an increase in net interest margin as compared to the prior year. Refer to the
discussion of the specific components of RJ Bank’s net interest income in the RJ Bank section of this MD&A.
Interest expense incurred on our senior notes increased by $16 million, or 21%, as the average outstanding balance of senior notes
increased compared to the prior year. The net increase in the balance outstanding was due to our May 2017 and July 2016 issuances
of a combined $1.30 billion in senior notes, offset by the April 2016 maturity and repayment of $250 million of senior notes and the
March 2017 extinguishment of $350 million of senior notes. The early extinguishment of $300 million of senior notes in September
2017 did not meaningfully reduce our interest expense in fiscal year 2017.
Year ended September 30, 2016 compared with the year ended September 30, 2015
Net interest income increased $87 million, or 20%, primarily due to an increase in net interest income in RJ Bank and, to a lesser extent
in PCG.
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 fiscal
2016 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.
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. Interest expense incurred on other borrowings increased,
primarily related to RJ Bank’s borrowings from the FHLB and the related interest hedges. Refer to the discussion of the specific
components of RJ Bank’s net interest income in the RJ Bank section of this MD&A.
Interest 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.
Results of Operations – Private Client Group
The success of the PCG segment is dependent upon the quality of our products, services, financial advisors and support personnel.
Revenues of this segment are correlated with the level of PCG client assets under administration, including fee-based accounts, as well
as the overall U.S. equity markets. In periods where equity markets improve, assets under administration and client activity generally
increase, thereby having a favorable impact on net revenues.
Through our PCG segment, we provide investment services for which we charge sales commissions or asset-based fees. In addition,
we also offer investment advisory services for which we earn a fee calculated as a percentage of assets in the client account or a flat
periodic fee charged to the client for investment advice. Such revenues are included in “Securities commissions and fees.” We also
earn certain servicing fees, such as omnibus and education and marketing support (“EMS”) fees, from mutual fund and annuity companies
whose products we distribute, which are included in “Account and service fees.”
Net interest revenue in the PCG segment is generated by interest earnings on margin loans provided to clients and on cash segregated
pursuant to regulations, less interest paid on client cash balances in our client interest program. We also earn fees in lieu of interest
revenue from our RJBDP program, which are included in “Account and service fees.” Higher client cash balances generally lead to
41
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
increased interest income and account and service fee revenues, depending upon spreads realized in our client interest program and
RJBDP. For more information on client cash balances, see our previous discussion of interest-earning and interest-bearing assets and
liabilities in the Net Interest section of this MD&A.
For an overview of our PCG segment operations, refer to the information presented in Item I, Business in this Form 10-K.
Operating results
$ in thousands
Revenues:
Securities commissions and fees:
Fee-based accounts
Mutual funds
Insurance and annuity products
Equity products
Fixed income products
New issue sales credits
Sub-total securities commissions and fees
Interest
Account and service fees:
Mutual fund and annuity service fees
RJBDP fees
Client account and service fees
Client transaction 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 costs
Business development
Jay Peak matter
Brokerage, clearing, exchange and other
Total non-interest expenses
Pre-tax income
Year ended September 30,
2017
%
change
2016
% change
2015
$ 2,040,839
28% $ 1,589,124
8 % $ 1,472,877
646,614
385,493
303,015
118,062
72,281
3,566,304
152,711
290,661
270,030
98,500
22,205
2,898
684,294
34,279
4,437,588
(15,955)
4,421,633
2,653,287
713,043
193,902
146,394
98,138
130,000
113,919
4,048,683
2%
2%
26%
23%
64%
20%
42%
14%
99%
4%
10%
—
34%
7%
22%
56%
22%
21%
20%
16%
17%
11%
550%
31%
24%
631,102
377,329
240,855
95,908
44,088
2,978,406
107,281
255,405
135,460
95,010
20,258
2,898
509,031
32,000
(7)%
4 %
(11)%
29 %
(41)%
1 %
7 %
2 %
63 %
2 %
7 %
8 %
14 %
(10)%
680,375
363,352
270,435
74,448
75,015
2,936,502
100,594
249,232
83,059
93,117
18,971
2,685
447,064
35,398
3,626,718
3 %
3,519,558
(10,239)
(13)%
(11,752)
3,616,479
3 %
3,507,806
2,193,099
595,541
166,507
125,555
88,535
20,000
86,678
3,275,915
1 %
8 %
6 %
4 %
(4)%
NM
21 %
3 %
2,169,823
552,762
157,729
121,115
92,473
—
71,661
3,165,563
$
372,950
10% $
340,564
—
$
342,243
42
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Selected key metrics
Client Asset Balances:
$ in billions
PCG assets under administration
PCG assets in fee-based accounts
Financial advisors and Branch locations:
Employees
Independent Contractors
Total financial advisors
Branch locations
As of September 30,
2017
% change
2016
% change
2015
$
$
659.5
294.5
15% $
27% $
574.1
231.0
27% $
29% $
453.3
179.4
September 30,
2017 (1)
2016
2015
3,041
4,305
7,346
2,994
3,098
4,048
7,146
2,890
2,738
3,858
6,596
2,702
(1) During the year ended September 30, 2017, we refined the criteria to determine our financial advisor population, which resulted in a decrease in our previously
reported counts of approximately 100 advisors as of our date of adoption. The impact of the change in our methodology did not have a significant impact on the
prior periods, and thus we have not revised the number of financial advisors reported in prior periods.
PCG assets under administration increased 15% over September 30, 2016, resulting from net client inflows and equity market
appreciation. Our net client inflows were primarily attributable to strong financial advisor recruiting results. PCG assets in fee-based
accounts as a percentage of overall PCG assets under administration increased compared to September 30, 2016 due, in part, to clients
moving to fee-based alternatives versus traditional transaction-based accounts in response to the recently implemented DOL regulatory
changes. PCG assets under administration increased as of September 30, 2016 compared with September 30, 2015 due to strong
financial advisor recruiting results as well as our fiscal year 2016 acquisitions of Alex. Brown and 3Macs.
The net increase in financial advisors as of September 30, 2017 compared to September 30, 2016 resulted from strong financial advisor
recruiting and high levels of retention throughout fiscal year 2017. 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 the markets, we believe that this increase in financial advisors
is a positive indication of potential future revenue growth in this segment.
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net revenues increased $805 million, or 22% to $4.42 billion. Pre-tax income, which was negatively impacted by the Jay Peak
settlement, increased $32 million, or 10% to $373 million.
Securities commissions and fees increased $588 million, or 20%, primarily due to strong recruiting results, the acquisitions of Alex.
Brown and 3Macs in late fiscal 2016 and a stronger market environment compared to the prior year.
Account and service fees increased $175 million, or 34%, primarily due to higher RJBDP fees resulting from an increase in short-term
interest rates during fiscal year 2017. Mutual fund and annuity service fees also increased, reflecting higher EMS fees and mutual
fund omnibus fees. The increase in EMS fees is primarily due to increased assets in the program. The increase in omnibus fees is a
result of an increase in the number of positions invested in fund families on the omnibus platform.
The portion of total segment revenues that we consider to be recurring was 79% for fiscal 2017, an increase from 77% for fiscal
2016. Recurring 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 RJBDP program, and interest, all of which contributed to the increase.
As previously discussed, net interest income in the PCG segment increased $40 million, or 41%.
Non-interest expenses increased $773 million, or 24%. Sales commissions increased $460 million, or 21%, relatively in line with the
increase in securities commissions and fees. Expenses related to the Jay Peak matter increased by $110 million to reflect the amount
of the settlement in fiscal 2017. Administrative and incentive compensation and benefits expense increased $118 million, or 20%,
primarily resulting from additional staffing levels, primarily in operations and information technology functions, to support our continued
growth and increased regulatory and compliance requirements.
43
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Year ended September 30, 2016 compared with the year ended September 30, 2015
Net revenues in fiscal 2016 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 9.8% in fiscal 2015. The 3Macs and Alex. Brown acquisitions
were completed toward the end of fiscal year 2016 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 in fiscal 2016 increased $42 million, or 1%. Revenues earned in fiscal year 2016 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 fiscal year 2016.
Total account and service fees in fiscal year 2016 increased $62 million, or 14%. RJBDP fees increased $52 million, or 63%, primarily
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.
The portion of total segment revenues that we consider to be recurring was approximately 77% for fiscal 2016, an increase from 75%
from fiscal 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 RJBDP program, and interest.
As previously discussed, net interest income in the PCG segment increased $8 million, or 9%.
Non-interest expenses in fiscal year 2016 increased $110 million, or 3%. Administrative & incentive compensation and benefit costs
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 during fiscal year
2016. Sales commission expense in fiscal year 2016 increased $23 million, or 1%, which is consistent with the 1% increase in securities
commissions and fees revenues. Expenses related to the Jay Peak matter were $20 million in fiscal 2016 and there were no expenses
related to this matter in fiscal 2015. 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.
Results of Operations – Capital Markets
Our Capital Markets segment conducts fixed income institutional sales and equity securities trading, equity research, investment banking
and the syndication and related management of investments that qualify for tax credits. We primarily conduct these activities in the
U.S., Canada and Europe.
We earn institutional sales commissions for the sale of both equity and fixed income products, which 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 clients.
This segment also includes trading which 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. In our fixed income businesses, we also enter into interest rate swaps and futures
contracts to facilitate client transactions or to actively manage risk exposures.
We provide various investment banking services, including public and private equity and debt financing activities, including our public
finance activities, merger and acquisition advisory, and other advisory services. Revenues from investment banking activities are
driven principally by our role in the transaction and the number and dollar value of the transactions with which we are involved. For
an overview of our Capital Markets segment operations, refer to the information presented in Item I, Business in this Form 10-K.
44
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Operating results
$ in thousands
Revenues:
Securities commissions and fees:
Equity
Fixed income
Sub-total securities commissions and fees
Equity underwriting fees
Merger & acquisition and advisory fees
Fixed income investment banking
Tax credit funds syndication fees
Sub-total investment banking
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 costs
Business development
Losses and non-interest expenses of real estate partnerships held by consolidated VIEs
Brokerage, clearing, exchange and other
Total non-interest expenses
Income before taxes and including noncontrolling interests
Noncontrolling interests
Year ended September 30,
2017
%
change
2016
%
change
2015
$
222,942
267,749
490,691
72,845
228,422
43,234
54,098
398,599
21,623
78,155
27,095
18,072
1,034,235
(20,552)
1,013,683
176,197
469,468
70,140
33,920
38,389
13,663
84,702
886,479
127,204
(14,032)
(2)% $
(15)%
(10)%
34 %
54 %
5 %
(9)%
31 %
(27)%
(11)%
9 %
(32)%
2 %
33 %
1 %
(14)%
8 %
(3)%
(1)%
(4)%
40 %
11 %
2 %
(3)%
228,346
316,144
544,490
54,492
148,503
41,024
59,424
303,443
29,684
87,966
24,867
26,701
1,017,151
(15,435)
1,001,716
204,965
433,136
72,305
34,250
39,892
9,788
76,189
870,525
131,191
(7,982)
(8)% $
11 %
2 %
(27)%
(8)%
(3)%
33 %
(6)%
6 %
60 %
9 %
63 %
4 %
17 %
4 %
3 %
1 %
1 %
1 %
(9)%
142 %
(2)%
1 %
25 %
247,414
283,828
531,242
74,229
162,270
42,149
44,601
323,249
27,905
55,021
22,738
16,425
976,580
(13,149)
963,431
198,691
428,501
71,630
34,006
44,058
4,050
77,801
858,737
104,694
(2,315)
107,009
Pre-tax income excluding noncontrolling interests
$
141,236
1 % $
139,173
30 % $
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.
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net revenues increased $12 million, or 1%, to $1.01 billion, led by higher merger & acquisition and advisory fees and equity underwriting
revenues, partially offset by lower institutional sales commissions. Pre-tax income increased $2 million, or 1% to $141 million.
Total commission revenues decreased $54 million, or 10%. Institutional fixed income commissions decreased $48 million, or 15%,
driven by lower client trading volumes, as fixed income was faced with a challenging operating environment characterized by low
levels of volatility and a flattening yield curve. Institutional equity sales commissions decreased $5 million, or 2%, primarily reflecting
the impact of low levels of volatility.
Merger & acquisition and advisory fees increased $80 million, or 54%, primarily due to a stronger volume of both domestic and foreign
merger & acquisition activity in the current year compared to low levels in the prior year, as well as higher average fees per transaction.
Fiscal year 2017 also benefited from the impact of a full year of revenues related to our June 2016 acquisition of Mummert & Company
Corporate Finance GmbH (“Mummert”).
Equity underwriting fees increased $18 million, or 34%, primarily due to the improved equity market conditions compared with a
difficult fiscal 2016. The total number of both lead-managed and co-managed underwritings increased significantly over the prior year
levels.
Net revenues related to our public finance underwriting and advisory activities remained solid during our 2017 fiscal year and increased
slightly compared with fiscal 2016.
45
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Despite the uncertainty related to the outcome of any corporate tax reform initiatives, our tax credit funds reflected good performance
during the fiscal year. This uncertainty did depress new investment activity amongst syndicators of Low-Income Housing Tax Credit
Fund (“LIHTC”) investments during the year and, as a result, our tax credit fund syndication fees decreased $5 million, or 9%, from
prior year levels. Depending on the scope of any enacted tax reform legislation, there could also be a significant negative impact on
the future results of our tax credit fund business.
Net trading profit decreased $10 million, or 11%, compared with a strong fiscal 2016, primarily due to lower market volatility.
Non-interest expenses increased $16 million, or 2%. Administrative & incentive compensation and benefit expenses increased $36
million, or 8%, primarily resulting from the increase in incentive compensation as a result of the increase in investment banking net
revenues. Offsetting the increase, sales commission expenses decreased $29 million, or 14%, primarily as a result of lower institutional
fixed income commission revenues during the year.
Year ended September 30, 2016 compared with the year ended September 30, 2015
Net revenues in fiscal year 2016 increased $38 million, or 4%, to $1.00 billion. Fiscal year 2016 pre-tax income increased $32 million,
or 30%, to $139 million.
Commission revenues in fiscal year 2016 increased $13 million, or 2%. Institutional fixed income commissions increased $32 million,
or 11%, benefiting from increased activity both in the anticipation of, and the aftermath resulting from the 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 fiscal year
2016. Offsetting the increase, institutional equity sales commissions decreased $19 million, or 8%, resulting primarily from decreased
equity underwriting activities throughout most of fiscal year 2016.
Equity underwriting fees decreased in fiscal year 2016 by $20 million, or 27%, while merger & 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 fiscal year 2016. As a result, we experienced lower volumes in both our merger &
acquisition advisory and equity underwriting activities throughout most of fiscal year 2016. While merger & acquisition and advisory
fees are a volatile revenue source in general, the number of merger & acquisition transactions in fiscal year 2016 was low. Most of
the decrease in our equity underwriting revenues resulted from our domestic operations. Revenues from our Canadian activities were
relatively unchanged from the low amount generated in fiscal year 2015. The number of both lead-managed and co-managed equity
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 fiscal year 2016, 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 fiscal year 2015 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 fiscal year 2016. As a market leader amongst syndicators of LIHTC investments, we achieved a new milestone
in fiscal year 2016 by selling over $1 billion of such investments to institutional investors. Additionally, we recognized nearly $7 million
in revenues that were associated with partnership interests sold in prior years which had been deferred in those years. Fiscal year 2016
recognition of these previously deferred revenues resulted from the favorable resolution of certain conditions associated with the
partnership interests. As of September 30, 2016, approximately $11 million of previously deferred revenues remained to be recognized
in future revenues, whenever such conditions for revenue recognition are fully satisfied.
Our net trading profit in fiscal year 2016 increased $33 million, or 60%. Trading profits generated in our fixed income operations
increased approximately $27 million, reflecting solid results in most product categories. Our fiscal year 2015 equity capital markets
operations included $5 million of realized trading losses attributable to an equity underwriting position held in our Canadian subsidiary
that did not recur in fiscal year 2016.
Other revenues increased $10 million, or 63%. These revenues include $5 million in fiscal year 2016 arising from revenues associated
with our annual analyst best picks. Foreign exchange gains associated with certain of our international operations increased $4 million
during fiscal year 2016.
46
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Non-interest expenses in fiscal year 2016 increased $12 million, or 1%. Sales commission expense increased $6 million, or 3%,
consistent with the 2% increase in institutional sales commission revenues. Administrative & incentive compensation and benefit
expenses 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 in fiscal year
2016.
Results of Operations – Asset Management
Our Asset Management segment provides investment advisory and asset management services to individual and institutional investors,
and also sponsors a family of mutual funds. Investment advisory fee revenues are earned on the assets held in either managed or non-
discretionary asset-based programs. In managed programs, decisions are made by in-house or third-party portfolio managers or
investment committees about how to invest the assets in accordance with such programs’ objectives. In non-discretionary asset-based
programs, we provide administrative support, 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, as we provide additional services,
such as portfolio management, to managed programs. These fees are computed based on balances either at the beginning of the quarter,
the end of the quarter, or average daily assets. Asset balances are impacted by both the performance of the market and the new sales
(inflows) and redemptions (outflows) of client accounts/funds. Rising equity 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. For an overview of our Asset Management segment operations, refer to the information presented in Item I, Business
in this Form 10-K.
Operating results
$ in thousands
Revenues:
Investment advisory and related administrative fees:
Managed programs
Non-discretionary asset-based administration
Sub-total investment advisory and related administrative fees
Account and service fees and Other
Total revenues
Interest expense
Net revenues
Non-interest expenses:
Compensation and benefits
Communications and information processing
Occupancy and equipment costs
Business development
Investment sub-advisory fees
Other
Total non-interest expenses
Income before taxes and including noncontrolling interests
Noncontrolling interests
Year ended September 30,
2017
%
change
2016
%
change
2015
$
326,405
21% $
270,623
—
$
271,609
91,087
417,492
70,243
487,735
(77)
487,658
123,119
30,109
5,046
9,673
75,497
67,509
310,953
176,705
4,969
23%
21%
18%
21%
7%
21%
9%
11%
14%
2%
33%
17%
16%
30%
74,130
344,753
59,668
404,421
(72)
404,349
112,998
27,027
4,423
9,500
56,751
57,911
268,610
135,739
3,581
10 %
2 %
12 %
3 %
(6)%
3 %
11 %
7 %
(3)%
(4)%
3 %
3 %
6 %
(3)%
67,286
338,895
53,483
392,378
(77)
392,301
101,723
25,286
4,564
9,911
54,938
56,177
252,599
139,702
4,652
Pre-tax income excluding noncontrolling interests
$
171,736
30% $
132,158
(2)% $
135,050
Noncontrolling interests is primarily comprised of the net pre-tax impact (which are net gains) from the consolidation of certain
subsidiaries with noncontrolling interests reflecting the portion of such gains we do not own.
47
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Selected key metrics
Managed Programs - For the fiscal years ended September 30, 2017 and 2016, approximately 80% of investment advisory fees recorded
in this segment were earned from assets held in managed programs. Of these revenues, approximately 70% of such fees recorded in
each quarter were determined based on balances at the beginning of the quarter, approximately 15% were based on balances at the end
of the quarter and the remaining 15% were computed based on average assets throughout the quarter.
Financial assets under management:
$ in millions
Eagle Asset Management, Inc. (“Eagle”) (1)
Freedom accounts (2)
Raymond James Consulting Services (3)
Unified Managed Accounts (“UMA”) (4)
All other
Sub-total financial assets under management
Less: Assets managed for affiliated entities
Total financial assets under management
September 30,
2017
2016
2015
$
31,670
$
27,235
$
32,714
23,612
12,577
1,220
101,793
(5,397)
$
96,396
$
24,136
18,883
10,389
1,086
81,729
(4,744)
76,985
$
25,692
20,188
13,484
8,613
1,116
69,093
(3,916)
65,177
(1) Accounts for which Eagle portfolio managers are engaged to manage clients’ assets with investment decisions made by the Eagle portfolio manager.
(2) Accounts that provide the client a choice between a portfolio of mutual funds, exchange traded funds or a combination of both with investment decisions made
by an in-house investment committee.
(3) Accounts for which in-house or third-party portfolio managers are engaged to manage clients’ assets with investment decisions made by such portfolio 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.
Activity (including activity in assets managed for affiliated entities):
$ in millions
Financial assets under management at beginning of year
Net inflows
Net market appreciation/(depreciation) in asset values
Other
Financial assets under management at end of year
Year ended September 30,
2017
2016
2015
$
81,729
$
69,093
$
69,368
9,912
10,152
—
6,327
6,309
—
2,797
(2,170)
(902)
$
101,793
$
81,729
$
69,093
The fiscal year 2016 net inflows in the table above include approximately $2.0 billion of client assets resulting from our acquisition
of Alex. Brown. The “Other” category in fiscal year 2015 includes assets that were previously included in Eagle programs which were
transferred into non-discretionary asset-based programs.
Non-discretionary asset-based programs - For the fiscal years ended September 30, 2017 and 2016, approximately 20% of investment
advisory and related administrative fee revenues recorded in this segment were earned for administrative services on assets held in
certain non-discretionary asset-based programs. These assets (including those managed for affiliated entities) totaled $157.0 billion,
$119.3 billion, and $91.0 billion as of September 30, 2017, 2016 and 2015, respectively. The increase in assets in fiscal year 2017
over the prior year level was due, in part, to clients moving to fee-based alternatives in response to the recently implemented DOL
regulatory changes. The majority of the administrative fees associated with these programs are determined based on balances at the
beginning of the quarter.
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net revenues increased $83 million, or 21%, to $488 million. Pre-tax income increased $40 million, or 30%, to $172 million.
Total investment advisory and related administrative fee revenues increased $73 million, or 21%. Investment advisory fee revenues
arising from managed programs increased $56 million, or 21%, and fee revenues on non-discretionary asset-based administration
activities increased $17 million, or 23%, both resulting from the increases in assets held by such programs, including the impact of the
48
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Alex. Brown acquisition at the end of our 2016 fiscal year. Financial assets under management and non-discretionary assets were
positively impacted by net financial advisor growth, the move to fee based accounts as a result of the implementation of the DOL
regulatory changes and market appreciation.
Account and service fees and Other increased $11 million, or 18%, primarily resulting from RJ Trust which generated increased trust
fee revenue arising from the increase in trust assets to $5.5 billion as of September 30, 2017, as well as increased shareholder servicing
fees.
Non-interest expenses increased $42 million, or 16%, primarily resulting from a $19 million, or 33%, increase in investment sub-
advisory fees and a $10 million, or 9%, increase in compensation and benefit expenses. The increase in investment sub-advisory fees
resulted from the increase in assets in sub-advised managed programs. The increase in compensation and benefit expenses resulted
primarily from annual salary increases as well as increases in personnel to support the growth of the business. Other expenses increased
$10 million, or 17%, as a result of additional regulatory and compliance costs.
The results presented above do not include any acquisition-related expenses associated with our recently announced acquisition of
Scout Investments, Inc. (the “Scout Group”) and its Reams Asset Management division (“Reams”), as well as Scout Distributors, which
closed in November 2017. The acquisition-related expenses incurred in fiscal year 2017 related to this acquisition are reflected in the
Other segment. See Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K for further information about this
acquisition.
Year ended September 30, 2016 compared to the year ended September 30, 2015
Net revenues increased $12 million, or 3%, to $404 million. Pre-tax income decreased $3 million, or 2%, to $132 million.
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 were lower on fee billing dates during the 2016 fiscal year. Also, a portion of the
increase in assets arose from our acquisition of Alex. Brown which occurred late in the 2016 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.
Non-interest expenses increased by approximately $16 million, or 6%, primarily resulting from an $11 million, or 11%, increase in
compensation and benefit 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 compensation
and benefit expenses resulted 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.
49
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Results of Operations – RJ Bank
RJ Bank provides corporate loans (C&I, CRE and CRE construction), SBL, tax-exempt 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. Higher interest-earning asset balances generally lead to increased net interest earnings, depending upon spreads realized
on our net interest-bearing liabilities. For more information on average interest earning asset and liability balances, see our discussion
below in this MD&A.
For an overview of our RJ Bank segment operations, refer to the information presented in Item I, Business in this Form 10-K.
Operating results
$ in thousands
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 costs
Loan loss provision
FDIC insurance premiums
Affiliate deposit account servicing fees
Other
Total non-interest expenses
Pre-tax income
Year ended September 30,
2017
%
change
2016
% change
2015
$
609,971
22 % $
501,967
21 % $
415,271
(35,175)
574,796
17,874
592,670
33,991
7,946
1,432
12,987
16,832
67,981
42,198
183,367
51 %
20 %
17 %
20 %
14 %
12 %
18 %
(54)%
9 %
58 %
33 %
17 %
(23,277)
478,690
15,276
493,966
29,742
7,090
1,216
28,167
15,478
43,145
31,832
156,670
99 %
19 %
43 %
19 %
7 %
37 %
(3)%
20 %
32 %
22 %
4 %
16 %
(11,693)
403,578
10,717
414,295
27,843
5,186
1,256
23,570
11,746
35,429
30,544
135,574
$
409,303
21 % $
337,296
21 % $
278,721
50
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
The following table presents average balances, interest income and expense, the related interest yields and rates, and interest spreads
and margins for RJ Bank for the years indicated:
Year ended September 30,
2017
2016
2015
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
Interest-earning banking assets:
Loans, net of unearned income (1)
Loans held for sale
$
159,384
$
5,156
3.34% $
150,305
$
4,551
3.07% $
107,255
$
2,686
2.64%
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans (2)
Residential mortgage loans
SBL
7,340,052
281,274
129,073
6,184
2,831,870
100,563
891,922
2,803,464
2,123,189
23,057
83,537
72,400
3.78%
4.73%
3.50%
3.98%
2.94%
3.36%
7,171,402
271,476
169,101
2,297,224
617,701
2,217,789
1,713,243
8,462
70,048
16,707
64,607
51,515
3.73%
4.92%
3.00%
4.16%
2.87%
2.96%
6,677,117
244,986
118,626
1,728,324
301,767
1,927,105
1,269,337
5,042
53,369
8,812
55,370
35,313
Total loans, net
16,278,954
572,171
3.55% 14,336,765
487,366
3.42% 12,129,531
405,578
Agency MBS and CMOs
1,432,804
25,101
Non-agency CMOs
Cash
30,134
859,020
869
7,696
1.75%
2.88%
0.90%
363,722
68,904
884,556
4,993
1,764
4,140
1.37%
2.56%
0.47%
248,408
89,336
611,375
2,446
2,178
1,344
FHLB stock, Federal Reserve Bank of
Atlanta (“FRB”) stock, and other
157,395
4,134
2.63%
186,589
3,704
1.98%
111,891
3,725
Total interest-earning banking assets
18,758,307
$ 609,971
3.28% 15,840,536
$ 501,967
3.18% 13,190,541
$ 415,271
3.62%
4.19%
3.05%
4.49%
2.83%
2.74%
3.34%
0.98%
2.44%
0.22%
3.33%
3.15%
Non-interest-earning banking assets:
Allowance for loan losses
Unrealized loss on available-for-sale
securities
Other assets
(194,029)
(6,663)
374,769
Total non-interest-earning banking
assets
Total banking assets
174,077
$18,932,384
Interest-bearing banking liabilities:
Deposits:
(188,429)
(3,172)
281,961
90,360
$ 15,930,896
(158,373)
(4,666)
321,919
158,880
$ 13,349,421
Certificates of deposit
$
293,589
$
4,325
1.47% $
345,628
$
5,402
1.56% $
347,748
$
5,839
1.68%
Money market, savings, and NOW
accounts
FHLB advances and other
Total interest-bearing banking
liabilities
15,975,308
820,594
16,230
14,620
0.10% 13,238,007
1.76%
680,778
7,087
10,788
0.05% 10,851,494
1.56%
664,387
2,543
3,311
0.02%
0.49%
17,089,491
$ 35,175
0.20% 14,264,413
$ 23,277
0.16% 11,863,629
$ 11,693
0.10%
Non-interest-bearing banking liabilities
92,762
Total banking liabilities
Total banking shareholder’s equity
Total banking liabilities and
shareholders’ equity
17,182,253
1,750,131
$18,932,384
71,278
14,335,691
1,595,205
52,933
11,916,562
1,432,859
$ 15,930,896
$ 13,349,421
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
$ 1,668,816
$ 574,796
$ 1,576,123
$ 478,690
$ 1,326,912
$ 403,578
3.08%
3.10%
109.77%
3.02%
3.04%
111.05%
3.05%
3.07%
111.18%
(1) Nonaccrual loans are included in the average loan balances. Payment or income received on corporate nonaccrual loans are applied to principal. Income on other
nonaccrual loans is recognized on a cash basis. Fee income on all loans included in interest income for the years ended September 30, 2017, 2016 and 2015 was $38
million, $36 million, and $30 million, respectively.
(2) The yield is presented on a tax-equivalent basis utilizing the federal statutory tax rate of 35%.
51
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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 our 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.
$ in thousands
Interest revenue:
Interest-earning banking assets:
Bank loans, net of unearned income
Loans held for sale
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total bank loans, net
Available-for-sale securities
Agency MBS and CMOs
Non-agency CMOs
Cash
FHLB stock, FRB stock and other
Total interest-earning assets
Interest expense:
Interest-bearing liabilities:
Bank deposits
Certificates of deposit
Money market, savings and NOW accounts
FHLB advances and other
Total interest-bearing liabilities
Change in net interest income
Year ended September 30,
2017 compared to 2016
Increase/(decrease) due to
2016 compared to 2015
Increase/(decrease) due to
Volume
Rate
Total
Volume
Rate
Total
$
275
$
330
$
605
$
1,078
$
787
$
1,865
6,384
(2,003)
16,303
7,416
17,062
12,327
57,764
14,675
(993)
(120)
(579)
3,414
(275)
14,212
(1,066)
1,868
8,558
27,041
5,433
98
3,676
1,009
9,798
(2,278)
30,515
6,350
18,930
20,885
84,805
20,108
(895)
3,556
430
70,747
37,257
108,004
18,135
2,145
17,567
9,227
8,352
12,349
68,853
1,135
(498)
601
2,486
72,577
8,355
1,275
(888)
(1,332)
885
3,853
12,935
1,412
84
2,195
(2,507)
14,119
26,490
3,420
16,679
7,895
9,237
16,202
81,788
2,547
(414)
2,796
(21)
86,696
$
(814) $
(263) $
(1,077) $
(36) $
(401) $
(437)
1,466
2,216
2,868
7,677
1,616
9,030
9,143
3,832
11,898
559
82
605
3,985
7,395
10,979
$
67,879
$
28,227
$
96,106
$
71,972
$
3,140
$
4,544
7,477
11,584
75,112
The following tables present certain credit quality trends for loans held by RJ Bank:
$ in thousands
Net loan (charge-offs)/recoveries:
C&I loans
CRE loans
Residential mortgage loans
Total
Year ended September 30,
2017
2016
2015
$
$
(25,748) $
(2,956) $
5,013
83
—
(53)
(20,652) $
(3,009) $
(580)
3,773
(436)
2,757
52
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
$ in thousands
Nonperforming assets:
Nonperforming loans:
C&I loans
CRE loans
Residential mortgage loans:
Residential first mortgage
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
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Net unearned income and deferred expenses
Total loans held for investment
Total loans
As of September 30,
2017
2016
2015
$
5,221
$
35,194
$
—
4,230
33,718
31
38,970
4,729
4,729
41,746
37
81,207
4,497
4,497
—
4,796
47,504
319
52,619
4,631
4,631
$
$
43,699
$
85,704
$
57,250
0.21%
0.50%
0.39%
70,316
$
214,286
$
119,519
7,385,910
112,681
3,106,290
1,017,791
3,148,730
2,386,697
7,470,373
122,718
2,554,071
740,944
2,441,569
1,904,827
6,928,018
162,356
2,054,154
484,537
1,962,614
1,481,504
(31,178)
(40,675)
(32,424)
17,126,921
15,193,827
13,040,759
$ 17,197,237
$ 15,408,113
$ 13,160,278
Total loans in the above table are net of unearned income and deferred expenses. Total loans held for investment include $1.61 billion,
$1.25 billion and $1.15 billion of loans to borrowers domiciled in Canada at September 30, 2017, 2016 and 2015, respectively. At
September 30, 2017, there was $1.00 billion in Canadian dollar-denominated loans held for investment.
The following table presents RJ Bank’s allowance for loan losses by loan category:
$ in thousands
Loans held for sale
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total
As of September 30,
2017
2016
2015
Loan
category as a
% of total
loans
receivable
Allowance
Loan
category as a
% of total
loans
receivable
Loan
category as a
% of total
loans
receivable
Allowance
— $
—
1% $
—
43%
1%
18%
6%
18%
14%
137,701
1,614
36,533
4,100
12,664
4,766
48%
1%
17%
5%
16%
12%
117,623
2,707
30,486
5,949
12,526
2,966
1%
52%
1%
16%
4%
15%
11%
Allowance
$
—
119,901
1,421
41,749
6,381
16,691
4,299
$
190,442
100% $
197,378
100% $
172,257
100%
(continued on the next page)
53
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
(continued from the previous page)
$ in thousands
Loans held for sale
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total
As of September 30,
2014
2013
Loan
category as a
% of total
loans
receivable
Allowance
Loan
category as a
% of total
loans
receivable
— $
58%
1%
15%
1%
16%
9%
—
95,994
1,000
19,266
—
19,126
1,115
1%
59%
1%
14%
—%
19%
6%
Allowance
$
—
103,179
1,594
25,022
1,380
14,350
2,049
$
147,574
100% $
136,501
100%
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net revenues increased $99 million, or 20%, to $593 million, primarily reflecting an increase in net interest income. Pre-tax income
increased $72 million, or 21%, to $409 million.
Net interest income in the RJ Bank segment increased $96 million, or 20%, primarily due to a $2.92 billion increase in average interest-
earning banking assets to $18.76 billion and an increase in net interest margin. The increase in average interest-earning banking assets
was driven by a $1.94 billion increase in average loans and a $1.03 billion increase in our average available-for-sale securities portfolio.
The net interest margin increased to 3.10% from 3.04% due to an increase in the total banking assets yield, partially offset by an increase
in RJ Bank’s total cost of funds. The increase in the total banking assets yield was primarily due to an increase in the loan portfolio
yield resulting from an overall rise in market interest rates. The increase in the total cost of funds primarily resulted from the rise in
market interest rates as well as an increase in average FHLB advances. Corresponding to the increase in average interest-earning
banking assets, average interest-bearing banking liabilities increased $2.83 billion to $17.09 billion.
The loan loss provision decreased $15 million, or 54%, due to the change in mix of loan growth during fiscal 2017. Growth was
significantly lower in the C&I loan portfolio during the current year, which has higher allowance percentages, and was higher in the
residential mortgage, securities-based and tax-exempt loan portfolios, which have lower allowance percentages. This positive impact
was partially offset by additional provision during the current year for C&I and CRE loans in specific industry sectors.
During August and September 2017, Texas and Florida suffered severe damage from Hurricanes Harvey and Irma. We performed an
assessment of the impact to our loan portfolio associated with these weather related events and determined that only our residential
mortgage loan portfolio could be impacted. A qualitative adjustment was made to the allowance for loan losses during the 2017 fiscal
year with respect to the residential mortgage loan portfolio.
Non-interest expenses (excluding provision for loan losses) increased $42 million, or 33%, primarily reflecting a $25 million increase
in affiliate deposit account servicing fees due to an increase in client account balances and a $4 million increase in compensation and
benefits expense resulting from compensation increases and staff additions to support the growth of the business.
Year ended September 30, 2016 compared to the year ended September 30, 2015
Net revenues in fiscal year 2016 increased $80 million, or 19%, to $494 million, primarily reflecting an increase in interest income.
Pre-tax income increased $59 million, or 21%, to $337 million.
The $75 million, or 19%, increase in fiscal year 2016 net interest income was the result of a $2.65 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 $2.21 billion increase in average loans and a $443 million increase in average cash and available-for-sale securities
portfolio. The net interest margin at September 30, 2016 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. The average interest-earning banking assets yield increased 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.
54
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Borrowing costs increased in fiscal year 2016. Corresponding to the increase in average interest-earning banking assets, average
interest-bearing banking liabilities increased during fiscal year 2016.
The $5 million, or 20%, increase in the provision for loan losses as compared to fiscal year 2015 was primarily due to higher corporate
loan growth, the charges during fiscal year 2016 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
reflected the offsetting impact of improved credit characteristics from the continued decline in residential mortgage loan delinquencies
and nonperforming loans.
Other income in fiscal year 2016 increased $5 million, or 43%, primarily due to increases in affiliate income related to the fiscal year
2016 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 7(a) (“SBA”) loan securitizations, and lower foreign exchange losses.
Non-interest expenses (excluding provision for loan losses) increased $16 million, or 15%, as compared to fiscal year 2015. The
expense in fiscal year 2016 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 client account balances. Other increases in non-interest expenses 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 benefit expenses 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.
Results of Operations – Other
This segment’s results include our private equity activities, certain corporate overhead costs of RJF including the interest cost on our
public debt, losses on extinguishment of debt and the acquisition and integration costs associated with certain acquisitions. For an
overview of our Other segment operations, refer to the information presented in Item I, Business in this Form 10-K.
Operating results
$ in thousands
Revenues:
Interest income
Investment advisory fees
Other
Total revenues
Interest expense
Net revenues
Non-interest expenses:
Compensation and other
Acquisition-related expenses
Losses on extinguishment of debt
Total non-interest expenses
Loss before taxes and including noncontrolling interests:
Noncontrolling interests
2017
% change
2016
% change
2015
Year ended September 30,
$
24,998
1,478
39,022
65,498
(95,368)
(29,870)
64,573
17,995
45,746
128,314
(158,184)
11,695
47 % $
(19)%
42 %
41 %
22 %
6 %
7 %
(56)%
NM
27 %
(19)%
16,977
1,825
27,489
46,291
(77,983)
(31,692)
60,448
40,706
—
101,154
(132,846)
15,702
39 % $
11 %
(48)%
(31)%
1 %
(211)%
49 %
NM
NM
149 %
(162)%
12,237
1,644
53,086
66,967
(77,165)
(10,198)
40,551
—
—
40,551
(50,749)
14,100
(64,849)
Pre-tax loss excluding noncontrolling interests
$
(169,879)
(14)% $
(148,548)
(129)% $
Noncontrolling interests is primarily comprised of the net pre-tax impact (which are net gains) from the consolidation of certain private
equity investments with noncontrolling interests reflecting the portion of such gains that we do not own.
55
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Year ended September 30, 2017 compared to the year ended September 30, 2016
The pre-tax loss generated by this segment increased by $21 million, or 14%.
Total revenues in this segment increased $19 million, or 41%, most of which is comprised of an increase in our other revenues of $12
million, or 42%, due to higher net gains (both realized and unrealized) arising from our private equity portfolio, which increased $8
million compared to the prior year, a portion of which relates to noncontrolling interests. Interest income increased $8 million, or 47%,
resulting from the increase in interest rates and higher corporate cash balances.
Interest expense increased $17 million, or 22%, as the average outstanding balance of our senior notes increased due to the May 2017
and July 2016 issuances of an aggregate $1.30 billion in senior notes, partially offset by the April 2016 maturity and repayment of $250
million of senior notes and, the March 2017 extinguishment of $350 million of senior notes. The early extinguishment of $300 million
of senior notes in September 2017 did not meaningfully reduce our interest expense in fiscal year 2017. See Note 15 of the Notes to
Consolidated Financial Statements in this Form 10-K for further information.
Non-interest expenses increased $27 million, or 27%. Fiscal year 2017 included a $46 million loss on extinguishment of debt comprised
of a make-whole premium and the acceleration of unamortized debt issuance costs related to the early extinguishment of our senior
notes during the year. Acquisition-related expenses in fiscal year 2017, which were $23 million, or 56%, lower than the prior year,
pertained to certain incremental expenses incurred in connection with our announced acquisition of the Scout Group as well as our
fiscal year 2016 acquisitions of Alex. Brown and 3Macs. See Note 3 of the Notes to Consolidated Financial Statements in this Form
10-K for information regarding the components of these expenses.
Year ended September 30, 2016 compared to the year ended September 30, 2015
The fiscal year 2016 pre-tax loss generated by this segment increased by approximately $84 million, or 129%.
Total revenues in this segment decreased $21 million, or 31%. Private equity gains included in other revenues in fiscal year 2016
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, and interest income
increased $5 million resulting from the increase in interest rates and higher corporate cash balances throughout most of fiscal year
2016.
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 fiscal year 2016 issuances more than offset the impact of the April 2016 repayment of $250 million
in maturing senior notes.
Compensation and other expense increased $20 million, or 49%. Of the increase, $6 million was due to increases in fiscal year 2016
expenses associated with certain corporate benefit plans provided to associates, $5 million was the result of an increase in corporate
charitable donations, and $4 million was 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 fiscal year 2016 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.
56
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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. The following table provides certain of those disclosures for the periods indicated below. The disclosures
for years ended September 30, 2016 and 2015 have been revised from those previously reported to conform to our current presentation
which includes the impact of the deconsolidation of certain VIEs (see Note 2 of the Notes to Consolidated Financial Statements in this
Form 10-K for additional information regarding the deconsolidation).
RJF return on average assets
RJF return on average equity
Average equity to average assets
Dividend payout ratio
Year ended September 30,
2017
1.9%
12.2%
15.9%
20.3%
2016
1.9%
11.3%
16.6%
21.9%
2015
2.0%
11.5%
17.7%
21.0%
RJF return on average assets is computed as net income attributable to RJF for the year indicated, divided by average assets for each
respective fiscal year. Average assets is computed by adding the total assets as of each quarter-end date during the indicated fiscal
year, plus the beginning of the year total, divided by five.
RJF return on average equity is 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.
Average equity to average assets is computed as average equity divided by average assets as calculated in the above explanations.
Dividend payout ratio is 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 and Risk Management sections of this MD&A and the Notes to Consolidated Financial Statements in this Form
10-K for the other required disclosures.
Liquidity and Capital Resources
Liquidity is essential to our business. The primary goal of our liquidity management activities is to ensure adequate funding to conduct
our business over a range of market environments.
Senior management establishes our liquidity and capital management framework. This framework includes senior management’s review
of short- and long-term cash flow forecasts, review of monthly capital expenditures, monitoring of the availability of alternative sources
of financing, and 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 and maintains our relationships with various lenders. The objective of this framework is to support the
successful execution of our business strategies while ensuring ongoing and sufficient liquidity.
Liquidity is provided primarily through our business operations and financing activities. Financing activities could include bank
borrowings, repurchase agreement transactions or additional capital raising activities under our universal shelf registration statement.
Cash provided by operating activities during the year ended September 30, 2017 was $1.31 billion. In addition to operating cash flows
related to net income, other increases in cash from operations included:
• A $1.43 billion decrease in assets segregated pursuant to regulations and other segregated assets, primarily resulting from the
decrease in client cash balances in part due to a significant number of client accounts from the September 2016 Alex. Brown
acquisition electing into our RJBDP program during the current fiscal year.
$189 million of proceeds from sales of securitizations and loans held for sale, net of purchases and originations of loans and
securitizations.
•
• Accrued compensation, commissions and benefits increased $160 million as a result of the increased financial results we achieved
in fiscal year 2017.
57
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Offsetting these, decreases in cash used in operations resulted from:
• A decrease of $1.13 billion in brokerage client payables and other accounts payable, primarily reflecting a decrease in client cash
balances in our client interest program.
Securities loaned, net of securities borrowed decreased $262 million, primarily as a result of a decline in securities lending activity.
$146 million in Jay Peak settlement payments.
•
•
Investing activities resulted in the use of $3.38 billion of cash during the year ended September 30, 2017.
The primary investing activities were:
• A net increase in RJ Bank loans used $1.92 billion.
•
Purchases of available-for-sale securities held at RJ Bank, net of proceeds from maturations, repayments and sales within the
portfolio, used $1.34 billion.
• We used $190 million to fund property investments. Of this total, $52 million was used for our December 2016 purchase of three
office buildings which are located adjacent to our existing corporate headquarters in St. Petersburg, Florida. The remainder was
invested, in large part, in software and computer equipment.
Financing activities provided $4.06 billion of cash during the year ended September 30, 2017.
Increases in cash from financing activities resulted from:
• An increase in RJ Bank deposit balances of $3.47 billion.
• Net proceeds of $508 million from the issuance of 4.95% senior notes due 2046.
• Net proceeds of $905 million arising from FHLB borrowings and other borrowed funds.
Offsetting these, decreases in cash from financing activities resulted from:
• Repayment of $350 million of 6.90% senior notes due 2042, $300 million of 8.60% senior notes due 2019 and an associated $37
million debt extinguishment premium payment.
Payment of dividends to our shareholders of $127 million.
•
We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and committed and
uncommitted financing facilities provide adequate funds for continuing operations at current levels of activity.
Sources of Liquidity
Approximately $1.29 billion of our total September 30, 2017 cash and cash equivalents (a portion of which resides in depository
accounts at RJ Bank) was available to us without restrictions. The cash and cash equivalents held were as follows:
$ in thousands
September 30, 2017
RJF
RJ&A
RJ Bank
RJ Ltd.
RJFS
RJFSA
Other subsidiaries
Total cash and cash equivalents
$
$
528,397
1,178,683
1,175,722
439,012
128,903
56,089
162,866
3,669,672
RJF maintains depository accounts at RJ Bank with a balance of $192 million as of September 30, 2017. The portion of this total that
is available on demand without restrictions, which amounted to $152 million at September 30, 2017, is reflected in the RJF total and
is excluded from the RJ Bank total.
RJF had loaned $783 million to RJ&A as of September 30, 2017 (such amount is included in the RJ&A cash balance presented in the
table above), 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.
58
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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
transactions. Covenants in RJ&A’s committed secured financing facilities require its net capital to be a minimum of 10% of aggregate
debit items. At September 30, 2017, RJ&A significantly exceeded both the minimum regulatory requirements and the covenants in its
financing arrangements pertaining to net capital. At that date, RJ&A had excess net capital of approximately $534 million, of which
$176 million was 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
regulatory capital ratios. At September 30, 2017, RJ Bank had $184 million of capital in excess of the amount it would need at
September 30, 2017 to maintain its 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.
Borrowings and Financing Arrangements
Committed financing arrangements
Our ability to borrow is dependent upon compliance with the conditions in the various loan agreements and, in the case of secured
borrowings, collateral eligibility requirements. Our committed financing arrangements are in the form of either tri-party repurchase
agreements or, in the case of the RJF Credit Facility, an unsecured line of credit. The required market value of the collateral associated
with the committed secured facilities ranges from 102% to 125% of the amount financed.
The following table presents our committed financing arrangements with third party lenders, which we generally utilize to finance a
portion of our fixed income securities trading instruments held, and the outstanding balances related thereto:
$ in thousands
Financing arrangement:
Committed secured
Committed unsecured
Total committed financing arrangements
Outstanding borrowing amount:
Committed secured
Committed unsecured
Total outstanding borrowing amount
Uncommitted financing arrangements
As of September 30, 2017
RJ&A
RJ Ltd.
RJF
Total
Total number of
arrangements
200,000
—
200,000
$
$
— $
—
— $
200,000
300,000
300,000
— $
300,000
$
500,000
2
1
3
— $
—
— $
— $
—
— $
— $
—
— $
—
—
—
$
$
$
$
Our uncommitted financing arrangements are in the form of secured lines of credit, secured bilateral or tri-party repurchase agreements,
or unsecured lines of credit. Our arrangements with third party lenders are generally utilized to finance a portion of our fixed income
securities or for cash management purposes. Our uncommitted secured financing arrangements generally require us to post collateral
in excess of the amount borrowed. As of September 30, 2017, we had outstanding borrowings under five uncommitted secured borrowing
arrangements with lenders out of a total of 15 uncommitted financing arrangements (nine uncommitted secured and six uncommitted
unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities.
59
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
The following table presents our borrowings on uncommitted financing arrangements.
$ in thousands
Outstanding borrowing amount:
Uncommitted secured
Uncommitted unsecured
Total outstanding borrowing amount
Other financings
As of September 30, 2017
RJ&A
RJ Ltd.
RJF
Total
$
$
480,942
$
350,000
830,942
$
— $
—
— $
— $
480,942
—
350,000
— $
830,942
RJ Bank had $875 million in FHLB borrowings outstanding at September 30, 2017, comprised of floating-rate advances totaling $850
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 14 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information regarding these borrowings).
RJ Bank had an additional $916 million in immediate credit available from the FHLB as of September 30, 2017 and, with the pledge
of additional collateral to the FHLB, total available credit of 30% of total assets.
RJ Bank is eligible to participate in the Fed’s discount-window program; however, we do 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 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 agreements
and financings, with the outstanding balances on the repurchase agreements included in “Securities sold under agreements to repurchase”
on our Consolidated Statements of Financial Condition, included in this Form 10-K, in the amount $221 million as of September 30,
2017 (which are reflected in the table of financing arrangements above). Such financings are generally collateralized by non-customer,
RJ&A owned securities or by securities that we have received as collateral under reverse repurchase agreements.
The average daily balance outstanding during the five most recent successive quarters, the maximum month-end balance outstanding
during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements were as follows:
For the quarter ended
($ in thousands)
Average daily
balance
outstanding
Repurchase transactions
Reverse repurchase transactions
Maximum
month-end
balance
outstanding
during the
quarter
End of period
balance
outstanding
Average daily
balance
outstanding
Maximum
month-end
balance
outstanding
during the
quarter
End of period
balance
outstanding
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
$
$
$
$
$
241,365
231,378
204,623
219,095
202,687
$
$
$
$
$
247,048
226,972
222,476
241,773
195,551
$
$
$
$
$
220,942
226,972
222,476
203,378
193,229
$
$
$
$
$
463,618
479,653
410,678
424,548
412,513
$
$
$
$
$
503,462
540,823
535,224
445,646
470,222
$
$
$
$
$
404,462
483,820
535,224
358,493
470,222
At September 30, 2017, in addition to the financing arrangements described above, we had $29 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 included in this Form 10-K.
At September 30, 2017 we had senior notes payable of $1.55 billion. Our senior notes payable, exclusive of any unaccreted premiums
or discounts and debt issuance costs, is comprised of $250 million par 5.625% senior notes due 2024, $500 million par 3.625% senior
notes due 2026, and $800 million par 4.95% senior notes due 2046. See Note 15 in the Notes to the Consolidated Financial Statements
in this Form 10-K for additional information.
60
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Our senior long-term debt ratings as of the most current report are:
Rating Agency
Standard & Poor’s Ratings Services (“S&P”)
Moody’s Investors Services (“Moody’s”)
Rating
BBB+
Baa1
Outlook
Stable
Stable
Our current long-term debt ratings depend upon a number of factors including industry dynamics, operating and economic environment,
operating results, operating margins, earnings trends and volatility, balance sheet composition, liquidity and liquidity management, our
capital structure, our overall risk management, business diversification and 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 obtain 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 6 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 and subsequent to such downgrade.
Conversely, an improvement in RJF’s current credit rating could 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 and uses of liquidity
We have company-owned life insurance (“COLI”) policies which are utilized to fund certain non-qualified deferred compensation
plans and other employee benefit plans. Certain of our non-qualified deferred compensation plans and other employee benefit plans
are self-directed while others are company-directed. The COLI policies which we could readily borrow against have a cash surrender
value of approximately $405 million as of September 30, 2017 and we are able to borrow up to 90%, or $365 million, of the September 30,
2017 total without restriction. To effect any such borrowing, the underlying investments would be converted to money market
investments, therefore requiring us to take market risk related to the self-directed plans. There are no borrowings outstanding against
any of these policies as of September 30, 2017.
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.
On November 17, 2017 we acquired 100% of the outstanding shares of the Scout Group (see Note 3 of the Notes to Consolidated
Financial Statements in this Form 10-K for more information) for a purchase price consideration of $173 million. We utilized our cash
on-hand to fund the purchase.
See the “Contractual obligations” section below for information regarding our contractual obligations.
Statement of financial condition analysis
The assets on our consolidated statements 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 were liquid in nature, providing us with flexibility in financing our
business.
Total assets of $34.88 billion at September 30, 2017 were $3.40 billion, or 11%, greater than our total assets as of September 30, 2016.
Our cash and cash equivalents balances increased $2.02 billion; refer to the discussion of the components of this increase in the
“Liquidity and Capital Resources” section within this Item 7. Net bank loans receivable increased $1.80 billion primarily due to the
growth of RJ Bank’s CRE, tax-exempt, residential and securities-based loan portfolios. Our available-for-sale securities portfolio
increased by $1.33 billion, as RJ Bank increased their investments in such securities in line with our growth plan for this portfolio.
61
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Offsetting these increases, assets segregated pursuant to federal regulations (for the benefit of our clients) decreased $1.41 billion, in
part due to a significant number of client accounts from the September 2016 Alex. Brown acquisition electing into our RJBDP program
during the first quarter of fiscal 2017.
As of September 30, 2017, our total liabilities of $29.19 billion were $2.77 billion, or 10%, greater than our total liabilities as of
September 30, 2016. Bank deposit liabilities increased $3.47 billion as RJ Bank received a higher allocation of RJBDP balances which
was utilized to fund a portion of their increased securities portfolio and net loan growth. Other borrowings increased by $905 million
due to the increased utilization of short-term financings for cash management purposes, the financing of our fixed income securities
trading inventory, as well as increased borrowings by RJ Bank from the FHLB. Offsetting these increases, brokerage client payable
balances decreased $1.03 billion, reflecting a decrease in client cash balances in our client interest program (refer to the discussion of
the decrease in assets segregated pursuant to federal regulations above). Securities loaned balances decreased $294 million as a result
of decreased activity. Our outstanding balance of senior notes payable decreased $132 million due to the extinguishment of $350 million
of 6.90% senior notes due 2042 and $300 million of 8.60% senior notes due 2019, offset by the issuance of $500 million of 4.95%
senior notes due 2046.
Contractual obligations
The following table sets forth our contractual obligations and payments due thereunder by fiscal year:
$ in thousands
Long-term debt obligations:
Total
2018
2019
2020
2021
2022
Thereafter
Year ended September 30,
Senior notes payable
$
1,550,000
$
— $
— $
— $
— $
— $
1,550,000
Long-term portion of other borrowings
Sub-total long-term debt obligations
Estimated interest on long-term debt
Operating lease obligations
Purchase obligations
Other long-term liabilities:
Certificates of deposit (including interest)
Deferred compensation programs
Guaranteed LIHTC fund obligation
Sub-total long-term liabilities
898,967
2,448,967
1,449,995
448,927
317,877
328,503
484,609
15,786
828,898
—
—
92,059
96,756
152,082
72,055
72,348
5,247
855,130
855,130
87,230
89,711
73,794
62,423
74,028
5,388
5,430
5,430
74,194
78,164
31,715
78,659
74,961
2,373
149,650
141,839
155,993
30,748
30,748
73,043
61,959
14,835
36,250
61,009
1,682
98,941
6,084
6,084
72,430
42,846
9,308
79,116
61,643
1,096
1,575
1,551,575
1,051,039
79,491
36,143
—
140,620
—
141,855
140,620
Total contractual obligations
$
5,494,664
$
490,547
$
1,247,704
$
345,496
$
279,526
$
272,523
$
2,858,868
Estimated interest on long-term debt includes scheduled interest on our senior notes, our mortgage note payable and our FHLB advances
(assuming no change in the variable interest rate from that as of September 30, 2017, but factoring into the computation the effect of
the related interest rate hedges that swap variable interest rate payments to fixed interest payments). See Notes 14 and 15 of the Notes
to Consolidated Financial Statements in this Form 10-K for information regarding our senior notes payable and other borrowings.
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, computer software contracts
and our stadium naming rights contract which goes through 2027. 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.
See Note 20 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information regarding our deferred
compensation plans. Investments utilized to fund certain of these obligations are not presented in the table above.
Raymond James Tax Credit Funds, Inc. has provided a guaranteed return on investment to a third party investor in the Guaranteed
LIHTC Fund. Amounts presented in the table above represent the gross liability associated with this guarantee obligation and do not
reflect the related and offsetting financing asset. See Notes 9 and 17 of the Notes to Consolidated Financial Statements in this Form
10-K for further information.
62
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
The table above 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. See Note 16 of the Notes to Consolidated Financial Statements in this Form
10-K for additional information.
We have entered into investment commitments, lending commitments and other commitments to extend credit for which we are unable
to reasonably predict the timing of future payments. See Notes 17 and 22 of the Notes to Consolidated Financial Statements in this
Form 10-K for further information.
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 Form 10-K.
RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As of September 30, 2017, all of our
active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. In addition, RJF and RJ
Bank were categorized as “well capitalized” as of September 30, 2017.
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 21 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 financial instruments
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.
“Financial instruments” and “Financial instruments sold but not yet purchased” are reflected in the Consolidated Statements of Financial
Condition at fair value. Unrealized gains and losses related to these financial instruments are reflected in our net income or our other
comprehensive income/(loss), 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 price that would be received for an asset or paid to transfer a liability (an
exit price) in an orderly transaction between market participants at the measurement date in the principal or most advantageous market
for the asset or liability. 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.
63
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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, our fair value measurements reflect assumptions that we believe market participants would use in pricing the asset or liability at
the measurement date. In determining fair value, GAAP provides for the following three levels to be used to classify our fair value
measurements:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2-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).
Level 3-Inputs that cannot be observed in market activity.
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 2, 4, 5 and 6 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
As a practical expedient, we utilize net asset value (“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. Our investments in private equity measured at NAV amounted to $110 million and $111 million at
September 30, 2017 and 2016, respectively. See Note 4 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, 2017, 10% of our total assets and 2% of our total liabilities are financial instruments measured at fair value on a
recurring basis. In comparison as of September 30, 2016, financial instruments measured at fair value on a recurring basis represented
8% of our total assets and 3% of our total liabilities.
Financial instruments measured at fair value on a recurring basis categorized as Level 3 amounted to $201 million as of September 30,
2017 and represent 6% of our assets measured at fair value. Of the Level 3 assets as of September 30, 2017, our ARS positions comprise
$106 million, or 53%, and our private equity investments not measured at NAV comprise $89 million, or 44%, of the total. Our Level
3 assets decreased $14 million, or 6%, as compared to the September 30, 2016 level. Our ARS portfolio decreased approximately $19
million compared to September 30, 2016, due to sales within the portfolio (see Notes 4 and 5 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, 2017.
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. We have determined the market for certain other types of financial instruments, including
certain private equity investments, ARS, CMOs, ABS and certain collateralized debt obligations to be volatile, uncertain or inactive
as of both September 30, 2017 and 2016. 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
64
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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.
See Notes 2 and 4 of the Notes to Consolidated Financial Statements in this Form 10-K for further information about the level within
the fair value hierarchy, specific valuation techniques and inputs, and other significant accounting policies pertaining to financial
instruments at fair value.
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. In addition, refer to Note 17 of the Notes to the Consolidated
Financial Statements in this Form 10-K for information regarding legal and regulatory matter contingencies as of September 30, 2017.
Loss provisions arising from operations of our Broker-Dealers
The recorded amounts of loss provisions associated with brokerage client receivables and loans to financial advisors and certain key
revenue producers are subject to significant management judgment. For a description of the significant estimates and judgments
associated with establishing these broker-dealer related loss provisions and the related allowances for doubtful accounts, see the
“Brokerage client receivables, net” and “Loans to financial advisors, net” sections 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 8 of the Notes to Consolidated Financial Statements in this Form 10-K for
quantitative information regarding the allowance balances as of September 30, 2017.
At September 30, 2017, the amortized cost of all RJ Bank loans was $17.2 billion and an allowance for loan losses of $190 million
was recorded against that balance. The total allowance for loan losses is equal to 1.11% 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. As a result, the allowance for loan losses could be insufficient to cover actual losses. In
such an event, any losses in excess of our allowance would result in a decrease in our net income as well as a decrease in the level of
regulatory capital at RJ Bank.
Recent accounting developments
For information regarding our recent accounting developments, see Note 2 of the Notes to Consolidated Financial Statements in this
Form 10-K.
Off-Balance sheet arrangements
For information regarding our off-balance sheet arrangements, see Note 22 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.
65
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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 related to our business activities are market, credit, liquidity, operational, model and regulatory and legal.
Market risk
Market risk is our risk of loss resulting from the impact of changes in market prices on our inventory, 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. We also hold investments in MBS, residential mortgage-backed securities, CMOs and
equity securities within RJ Bank’s 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, 4, 5 and 6 of the Notes to Consolidated Financial Statements in this Form 10-K for fair value and other information
regarding our trading inventories, derivatives and available-for-sale securities.
Changes in value of our trading inventory may result from fluctuations in interest rates, credit spreads, equity prices, macroeconomic
factors, 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 multiple 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 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 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 or co-lead manager 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. We actively manage the interest rate risk arising from our fixed income trading securities through the use
of hedging strategies that involve U.S. Treasury securities and futures contracts, liquid spread products and derivatives.
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
66
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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 exclude fees, commissions, reserves, net interest income and intraday trading.
Based on these daily “ex ante” versus “ex post” comparisons, we determine whether 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,
2017, 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, for the period and dates indicated:
$ in thousands
Daily VaR
Year ended September 30, 2017
Period end VaR
Daily average VaR
High
Low
September 30,
2017
September 30,
2016
September 30,
2017
September 30,
2016
$
2,952
$
938
$
1,427
$
1,804
$
1,827
$
1,584
The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations. While management
believes that its assumptions and approximations are reasonable, there is no uniform industry methodology for estimating VaR, and
different assumptions or approximations could produce materially different VaR estimates. As a result, VaR statistics are more reliable
when used as indicators of risk levels and trends within a firm than as a basis for inferring differences in risk-taking across firms.
Separately, RJF provides additional market risk disclosures to comply with the MRR. The results of the application of this market risk
capital rule are available on our website under www.raymondjames.com/investor-relations/financial-report under “Market Risk Rule
Disclosure.”
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, review of issuer ratings and 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, we enter into forward commitments to purchase GNMA or FNMA MBS which
are issued on behalf of various state and local housing finance agencies. These activities result in exposure to interest rate risk. In
order to hedge the interest rate risk to which we would otherwise be exposed between the date of the commitment and the date of sale
of the MBS, we enter into 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 17 of the Notes to Consolidated Financial Statements in this
Form 10-K for additional information regarding these activities.
Banking operations
RJ Bank maintains an earning asset portfolio that is comprised of cash, C&I loans, tax-exempt loans, SBL, and commercial and
residential real estate loans, as well as MBS and CMOs (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 client deposits. Based on its
current earning asset portfolio, RJ Bank is subject to interest rate risk. During the year, RJ Bank has focused its interest rate risk analysis
on the risk of market interest rates rising given the Federal Reserve Bank’s increases in short-term interest rates since December
2015. 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.
RJ Bank uses simulation models and estimation techniques to assess the sensitivity of the net interest income stream to movements in
interest rates. To ensure that RJ Bank remains within its tolerances established for net interest income, a sensitivity analysis of net
interest income to interest rate conditions is estimated under a variety of scenarios. The model estimates the sensitivity by calculating
67
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
interest income and interest expense in a dynamic balance sheet environment using current repricing, prepayment, and reinvestment
of cash flow assumptions over a twelve month time horizon. Various interest rate scenarios are modeled in order to determine the
effect those scenarios may have on net interest income. Scenarios presented include instantaneous interest rate shocks of up 100 and
200 basis points and down 100 basis points. While not presented, additional rate scenarios are performed including interest rate ramps
and yield curve shifts that may more realistically mimic the speed of potential interest rate movements. RJ Bank also performs
simulations on time horizons up to five years to assess longer term impacts to various interest rate scenarios. On a quarterly basis, RJ
Bank tests expected model results to actual performance. Additionally, any changes made to key assumptions in the model are
documented and approved by RJ Bank’s Asset Liability Management Committee.
We utilize 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 this hedging strategy in Note 2 and Note 6 of
the Notes to Consolidated Financial Statements in this Form 10-K.
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
($ in thousands)
Net interest income
+200
+100
0
-100
$655,668
$671,707
$684,104
$553,977
Projected change in
net interest income
(4.16)%
(1.81)%
—
(19.02)%
Refer to “Management’s Discussion and Analysis - Net Interest Analysis” within this Form 10-K, for a discussion of the impact that
an increase in short-term interest rates could have on RJF’s operations.
The following table shows the contractual maturities of RJ Bank’s loan portfolio at September 30, 2017, 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. Loan amounts
in the table below exclude unearned income and deferred expenses.
$ in thousands
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
Due in
One year or less
> One year – five
years
> 5 years
Total
— $
36,030
$
31,861
$
67,891
114,443
—
546,414
—
1,662
2,383,183
3,045,702
3,045,702
$
4,098,767
112,681
2,001,057
4,295
2,668
3,514
3,172,700
—
558,819
1,013,496
3,144,400
—
6,222,982
6,259,012
$
7,889,415
7,921,276
$
7,385,910
112,681
3,106,290
1,017,791
3,148,730
2,386,697
17,158,099
17,225,990
$
$
68
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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, 2017. Loan amounts in the table below exclude unearned income and deferred
expenses.
$ in thousands
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
$
3,593
$
64,298 $
67,891
1,700
—
44,181
1,017,791
230,816
3,514
1,298,002
7,269,767
112,681
2,515,695
—
2,916,252
—
12,814,395
$
1,301,595
$
12,878,693 $
7,271,467
112,681
2,559,876
1,017,791
3,147,068
3,514
14,112,397
14,180,288
Contractual loan terms for C&I, CRE, CRE construction and residential mortgage loans 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.
See the discussion within the “Management’s Discussion and Analysis - Credit Risk - Risk Monitoring process” section of this Form
10-K for additional information regarding RJ Bank’s interest-only residential mortgage loan portfolio.
In our available-for-sale portfolio, we hold primarily fixed-rate agency MBS and CMOs which were carried at fair value in our
Consolidated Statements of Financial Condition at September 30, 2017 with changes in the fair value of the portfolio recorded through
“Other comprehensive income” in our Consolidated Statements of Income and Comprehensive Income. At September 30, 2017, our
portfolio had a fair value of $2.08 billion with a weighted-average yield of 1.94% and average expected duration of 3 years. See Note
5 in the Notes to Consolidated Financial Statements for additional information.
Other
We hold ARS, which are long-term variable rate securities tied to short-term interest rates, that are accounted for as available-for-sale
and are carried at fair value on our Consolidated Statements of Financial Condition. 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. Changes in interest rates impact the fair value as we estimate 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. See Notes 2 and 4 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information on
the fair value of these securities.
Equity price risk
We are exposed to equity price risk as a consequence of making markets in equity securities. Our 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 throughout each day and establishing position limits.
In addition, our 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 and resulting balances
denominated in a currency other than the U.S. dollar.
69
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Investments in foreign subsidiaries
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 6 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 CDN $340 million at September 30, 2017, which is not hedged. Foreign
exchange gains/losses related to this investment are primarily reflected in other comprehensive income/(loss) (“OCI”) on our
Consolidated Statements of Income and Comprehensive Income. See Note 18 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 and Germany.
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.
Transactions and resulting balances denominated in a currency other than the U.S. dollar
We are subject to foreign exchange risk due to our holdings of cash and certain other assets and liabilities resulting from transactions
denominated in a currency other than the U.S. dollar. Any currency related gains/losses arising from these foreign currency denominated
balances are reflected in “Other revenues” in our Consolidated Statements of Income and Comprehensive Income. The foreign exchange
risk associated with a portion of such transactions and balances denominated in foreign currency are mitigated utilizing short-term,
forward foreign exchange contracts. Such derivatives are not designated hedges and therefore the related gains/losses associated with
these contracts are included in “Other revenues” in our Consolidated Statements of Income and Comprehensive Income. See Note 6
of the Notes to Consolidated Financial Statements in this Form 10-K for information regarding our derivative contracts.
Credit risk
Credit risk is the risk of loss due to adverse changes in a borrower’s, issuer’s or counterparty’s ability to meet its financial obligations
under contractual or agreed upon terms. The nature and amount of credit risk depends on the type of transaction, the structure and
duration of that transaction, and the parties involved. Credit risk is an integral component of the profit assessment of lending and other
financing activities.
We are engaged in various trading and brokerage activities in which our 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 calculating the fair value of 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 other 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 securities
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
70
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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.
ARS held by a non-broker-dealer subsidiary of RJF is impacted by the credit worthiness of the ARS issuer. See Note 5 of the Notes
to Consolidated Financial Statements in this Form 10-K for more information.
The Bank has substantial C&I, CRE, tax-exempt, SBL and residential mortgage loan portfolios. A significant downturn in the overall
economy, deterioration in real estate values or a significant issue within any sector or sectors where RJ Bank has a concentration could
result in large provisions for loan losses and/or charge-offs.
RJ Bank’s strategy for credit risk management includes well-defined credit policies, uniform underwriting criteria, and ongoing risk
monitoring and review processes for all corporate, tax-exempt, 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
and tax-exempt loans as well as 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 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 inherent losses. RJ Bank utilizes a comprehensive credit
risk rating system to measure the credit quality of individual corporate and tax-exempt loans and related unfunded lending commitments,
including the probability of default and/or loss given default of each corporate and tax-exempt 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.
71
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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. Retail sales continue to
be sluggish and credit quality trends, while improved in some sectors, remain somewhat tenuous. There also continue to be concerns
over the energy sector as well as ongoing uncertainty in the healthcare sector in regard to the status of the Patient Protection and
Affordable Care Act. These factors have a potentially negative impact on loan performance and net charge-offs. However, during
fiscal year 2017, 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, 2017, 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,
2017.
Changes in the allowance for loan losses of RJ Bank were as follows:
$ in thousands
2017
2016
2015
2014
2013
Allowance for loan losses, beginning of year
$
197,378
$
172,257
$
147,574
$
136,501
$
147,541
For the year ended September 30,
Provision for loan losses
Charge-offs:
C&I loans
CRE loans
Residential mortgage loans
Total charge-offs
Recoveries:
C&I loans
CRE loans
Residential mortgage loans
Total recoveries
Net (charge-offs)/recoveries
Foreign exchange translation adjustment
Allowance for loan losses, end of year
12,987
28,167
23,570
13,565
2,565
(26,088)
—
(918)
(27,006)
340
5,013
1,001
6,354
(20,652)
729
(2,956)
—
(1,470)
(4,426)
—
—
1,417
1,417
(3,009)
(37)
(1,191)
—
(1,667)
(2,858)
611
3,773
1,231
5,615
2,757
(1,644)
(1,845)
(16)
(2,015)
(3,876)
16
80
2,033
2,129
(1,747)
(745)
$
190,442
$
197,378
$
172,257
$
147,574
$
(813)
(9,599)
(7,025)
(17,437)
117
1,680
2,331
4,128
(13,309)
(296)
136,501
Allowance for loan losses to total bank loans outstanding
1.11%
1.30%
1.32%
1.33%
1.52%
The primary factor resulting in the decreased provision as compared to fiscal 2016 was significantly lower C&I loan growth during
fiscal 2017, which has higher allowance percentages, and the impact of higher growth in the residential mortgage, securities-based and
tax-exempt loan portfolios, which have lower allowance percentages. This positive impact was partially offset by additional provision
during the current year for C&I and CRE loans in specific industry sectors. Reflecting this change in loan portfolio mix and an overall
improvement in credit quality, the total allowance for loan losses to total bank loans outstanding declined to 1.11% at September 30,
2017 from 1.30% at September 30, 2016.
72
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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:
$ in thousands
C&I loans
CRE loans
Residential mortgage loans
Total
$ in thousands
C&I loans
CRE loans
Residential mortgage loans
Total
For the year ended September 30,
2017
2016
2015
Net loan
(charge-off)/
recovery
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
$
$
(25,748)
5,013
83
(20,652)
0.35% $
0.18%
—
(2,956)
0.04% $
—
(53)
—
—
0.13% $
(3,009)
0.02% $
(580)
3,773
(436)
2,757
0.01%
0.22%
0.02%
0.02%
For the year ended September 30,
2014
2013
Net loan
(charge-off)/
recovery
amount
% of avg.
outstanding
loans
Net loan
(charge-off)/
recovery
amount
% of avg.
outstanding
loans
$
$
(1,829)
0.03% $
64
18
—
—
(696)
(7,919)
(4,694)
(1,747)
0.02% $
(13,309)
0.01%
0.73%
0.27%
0.15%
The level of charge-off activity is a factor that is considered in evaluating the potential for severity of future credit losses. Net charge-
offs during fiscal 2017 increased $18 million as compared to the prior year, driven by the resolution of one C&I loan which resulted
in a significant charge-off during fiscal 2017.
The tables below presents the nonperforming loans balance and total allowance for loan losses balance as of the period presented:
$ in thousands
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total
2017
September 30,
2016
2015
Nonperforming
loans
Allowance for
loan losses
Nonperforming
loans
Allowance for
loan losses
Nonperforming
loans
Allowance for
loan losses
$
5,221
$
—
—
—
33,749
—
$
38,970
$
(119,901) $
(1,421)
(41,749)
(6,381)
(16,691)
(4,299)
(190,442) $
35,194
$
(137,701)
$
— $
—
4,230
—
41,783
—
(1,614)
(36,533)
(4,100)
(12,664)
(4,766)
—
4,796
—
47,823
—
81,207
$
(197,378)
$
52,619
$
(117,623)
(2,707)
(30,486)
(5,949)
(12,526)
(2,966)
(172,257)
Total nonperforming loans as a %
of RJ Bank total loans
0.23%
0.53%
0.40%
$ in thousands
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total
September 30,
2014
2013
Nonperforming
loans
Allowance for
loan losses
Nonperforming
loans
Allowance for
loan losses
$
— $
(103,179) $
—
18,876
—
61,789
—
(1,594)
(25,022)
(1,380)
(14,350)
(2,049)
$
89
—
25,512
—
76,357
—
$
80,665
$
(147,574) $
101,958
$
(95,994)
(1,000)
(19,266)
—
(19,126)
(1,115)
(136,501)
Total nonperforming loans as a % of RJ Bank total loans
0.73%
1.14%
73
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
The level of nonperforming loans is another indicator of potential future credit losses. The amount of nonperforming loans decreased
$42 million during the year ended September 30, 2017, due to a $30 million decrease in nonperforming C&I loans, an $8 million
decrease in nonperforming residential mortgage loans and a $4 million decrease in nonperforming CRE loans. Included in nonperforming
residential mortgage loans are $31 million of loans for which $15 million in charge-offs were previously recorded, resulting in less
exposure within the remaining balance.
The nonperforming loan balances above exclude $14 million, $14 million, $15 million, $14 million and $10 million as of September
30, 2017, 2016, 2015, 2014 and 2013 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 described below.
SBL and residential mortgage loan portfolios
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). As of September 30, 2017, approximately 80% of the residential loans
were fully documented loans to industry standards and 96% of the residential mortgage loan portfolio consisted of owner-occupant
borrowers (80% for their primary residences and 20% for second home residences). Approximately 20% of the first lien residential
mortgage loans were 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 significant portion 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 represented 14% of RJ Bank’s total loan portfolio as of September 30, 2017. 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 and tax-exempt loan portfolios
RJ Bank’s corporate and tax-exempt loan portfolios were comprised of approximately 500 borrowers, the majority of which are
underwritten, managed and reviewed at our 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. 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. 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.
Regardless of the source, all corporate and tax-exempt loans are independently underwritten to RJ Bank credit policies and are subject
to approval by a loan committee, and credit quality is monitored on an on-going basis by RJ Bank’s 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
74
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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
and tax-exempt 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,
corporate and tax-exempt 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 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 updated every six months) 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.
At September 30, 2017, the average estimated LTV was 53% for the total residential mortgage loan portfolio. Residential mortgage
loans with estimated LTVs in excess of 100% represent much less than 1% of the residential mortgage loan portfolio as of September 30,
2017. 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.
At September 30, 2017, loans over 30 days delinquent (including nonperforming loans) decreased to 0.73% of residential mortgage
loans outstanding, compared to 1.20% over 30 days delinquent at September 30, 2016. Additionally, our September 30, 2017 percentage
compares favorably to the national average for over 30 day delinquencies of 4.05% as most recently reported by the Fed. RJ Bank’s
significantly lower delinquency rate as compared to its peers is the result of our uniform underwriting policies, the lack of subprime
loans and the limited amount of non-traditional loan products.
The following table presents a summary of delinquent residential mortgage loans, which is comprised of loans which are two or more
payments past due as well as loans in the process of foreclosure.
$ in thousands
September 30, 2017
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total residential mortgage loans
September 30, 2016
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total residential mortgage loans
Amount of delinquent residential loans
Delinquent residential loans as a percentage of
outstanding loan balances
30-89 days
90 days or
more
Total
30-89 days
90 days or
more
Total
$
$
$
$
3,061
248
3,309
3,950
—
3,950
$
$
$
$
$
$
$
$
19,823
18
19,841
25,429
20
25,449
75
22,884
266
23,150
29,379
20
29,399
0.10%
0.91%
0.10%
0.16 %
—
0.16 %
0.63%
0.07%
0.63%
1.05 %
0.10 %
1.04 %
0.73%
0.98%
0.73%
1.21 %
0.10 %
1.20 %
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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.
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, 2017
September 30, 2016
Loans outstanding as a % of RJ
Bank total residential mortgage
loans
Loans outstanding as
a % of RJ Bank total
loans
Loans outstanding as a % of RJ
Bank total residential mortgage
loans
Loans outstanding as a
% of RJ Bank total
loans
CA
FL
TX
NY
CO
23.8%
18.9%
7.8%
6.8%
3.4%
4.4%
3.5%
1.4%
1.3%
0.6%
CA
FL
TX
NY
IL
24.3%
18.1%
6.8%
5.3%
3.5%
3.9%
2.9%
1.1%
0.8%
0.6%
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, 2017 and 2016, these loans totaled $683 million and $308 million, respectively, or approximately 20% and
10% of the residential mortgage portfolio, respectively. At September 30, 2017, the balance of amortizing, former interest-only, loans
totaled $426 million. The weighted average number of years before the remainder of the loans, which were still in their interest-only
period at September 30, 2017, begins amortizing is 6.9 years.
A component of credit risk management for the residential portfolio is the LTV and borrower credit score at origination or purchase.
The most recent weighted-average 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 and tax-exempt loans
September 30, 2017
September 30, 2016
65%/758
65%/760
Credit risk in RJ Bank’s corporate and tax-exempt loan portfolios are 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, net” section, for additional information on RJ Bank’s allowance for loan loss policies.
Other than loans classified as nonperforming, the amount of loans that were delinquent greater than 30 days was not significant at
September 30, 2017.
76
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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, 2017
September 30, 2016
Loans
outstanding as a
% of RJ Bank
total corporate
loans
Loans
outstanding as a
% of RJ Bank
total loans
Loans
outstanding as a
% of RJ Bank
total corporate
loans
Loans
outstanding as a
% of RJ Bank
total loans
Office (real estate)
Retail real estate
Power & infrastructure
Consumer products and services
Hospitality
5.9%
5.3%
5.3%
5.2%
4.7%
4.0%
3.6%
3.6%
3.5%
3.2%
Office (real estate)
Hospitality
Consumer products and services
Retail real estate
Power & infrastructure
5.6%
5.2%
5.0%
4.6%
4.6%
4.0%
3.7%
3.6%
3.3%
3.3%
Liquidity risk
See the section entitled “Liquidity and capital resources” in Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations, in this Form 10-K for more information regarding our liquidity and how we manage liquidity risk.
Operational risk
Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business disruptions,
improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and
inadequacies or breaches in our control processes including cyber security incidents (see 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 (comprised of members of senior management), 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 various risk factors presented in Item 1A: Risk
Factors in this report, 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 or counterparties. To-date, we have not experienced any material losses relating to cyberattacks or other
information security breaches; however, there can be no assurances that we will not suffer such losses in the future.
Model Risk
Model risk refers to the possibility of unintended business outcomes arising from the design, implementation or use of models. Models
are used throughout the firm for a variety of purposes such as the valuation of financial instruments, assessing risk, stress testing, and
to assist in the making of business decisions. Model risk includes the potential risk that management makes incorrect decisions based
upon either incorrect model results or incorrect understanding and use of model results. Model risk may also occur when model output
77
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
experiences a deviation from the expected result. Model risk can result in significant financial loss, inaccurate financial or regulatory
reporting, misaligned business strategies or damage to our reputation.
Model Risk Management (MRM) is a separate department within our Risk Management department and is independent of model
owners, users, and developers. Our model risk management framework consists primarily of model governance, maintaining the firm-
wide model inventory, validating and approving all models across the firm, and on-going monitoring. Results of validations and issues
identified are reported to the ERM Committee and RJF Audit and Risk Committee of the Board of Directors. MRM assumes
responsibility for the independent and effective challenge of model completeness, integrity and design based on intended use.
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.
Compliance with the DOL Rule, reliance on the BIC Exemption and the Principal Transactions Exemption, and addressing any
amendments to the DOL Rule or other new regulations establishing a fiduciary duty or heightened standard of care 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 our 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 address these issues and disseminates
such policies 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 departments listed above and recommends action 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 are subject to changes in banking laws and regulations, including unanticipated rulings.
Over the past several years we have experienced the rapid introduction of significant new regulatory programs or changes affecting
consumer protection and disclosure requirements, financial reporting and regulatory restructuring. We closely monitor these regulatory
developments and strive to ensure that our compliance is timely. See the further discussion of our risks associated with regulations,
including the Dodd-Frank Act, in Item 1A, “Risk Factors” within this report.
The periodic examination of our banking and broker-dealer operations by various regulators has expanded in scope and reflects a
heightened level of scrutiny of financial services entities. We continue to incur costs to support these reviews, and we continuously
evaluate and implement changes to our processes and procedures to maintain compliance with the regulations applicable to our
businesses. Given this environment, we cannot predict the impact that 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 in the event that Regions fails to honor its indemnification obligations (see Item 3 Legal Proceedings
and Note 17 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 in recent years and we, as well as other financial services firms, have been directly affected by this increased
regulatory scrutiny.
78
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
We have and will continue to devote significant resources to the expansion and support of our risk management, legal and compliance
frameworks, including our AML program. We have significantly increased the number of associates dedicated to risk and compliance,
expanded training for our associates and continue to invest in technology to support these functions, including implementation of a
leading AML software solution. All of these activities allow us to increase our monitoring and detection of suspicious and reportable
activities.
We maintain a number of private equity investments, some of which meet the definition of covered funds under the Volcker Rule. The
conformance period for compliance with the rule with respect to investments in covered funds was July 2017; however, banking entities
were able to apply for an extension to provide up to an additional five years to conform investments in certain illiquid funds. The
majority of our covered fund investments meet the criteria to be considered an illiquid fund under the Volcker Rule and we received
approval from the Fed to continue to hold such investments until July 2022. The extension of the conformance deadline provides us
with additional time to realize the value of these investments in due course and to execute appropriate strategies to comply with the
Volcker Rule at such time. Our current focus is on the divestiture of our existing portfolio.
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 the
further discussion of our accounting policy regarding such matters in the loss provisions arising from legal proceedings section of
“Critical Accounting Estimates” contained in Item 7, “Management’s Discussion of Analysis of Financial Condition and Results of
Operations” and in Note 2 of our Notes to Consolidated Financial Statements within this Form 10-K.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management” in this
Form 10-K for our quantitative and qualitative disclosures about market risk.
79
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 - Organization and basis of presentation
Note 2 - Summary of significant accounting policies
Note 3 - Acquisitions
Note 4 - Fair value
Note 5 - Available-for-sale securities
Note 6 - Derivative financial instruments
Note 7 - Collateralized agreements and financings
Note 8 - Bank loans, net
Note 9 - Other assets
Note 10 - Variable interest entities
Note 11 - Property and equipment
Note 12 - Goodwill and identifiable intangible assets, net
Note 13 - Bank deposits
Note 14 - Other borrowings
Note 15 - Senior notes payable
Note 16 - Income taxes
Note 17 - Commitments, contingencies and guarantees
Note 18 - Accumulated other comprehensive income/(loss)
Note 19 - Interest income and interest expense
Note 20 - Share-based and other compensation
Note 21 - Regulatory capital requirements
Note 22 - Financial instruments with off-balance sheet risk
Note 23 - Earnings per share
Note 24 - Segment information
Note 25 - Condensed financial information (parent company only)
Supplementary data
80
PAGE
81
82
83
84
85
87
88
107
110
120
123
126
128
134
135
137
137
140
141
142
143
145
149
152
152
156
159
161
161
164
168
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, 2017 and 2016, 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, 2017. 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, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the
three-year period ended September 30, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Raymond
James’ internal control over financial reporting as of September 30, 2017, 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 21, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Tampa, Florida
November 21, 2017
Certified Public Accountants
81
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
$ in thousands, except per share amounts
Assets:
Cash and cash equivalents
Assets segregated pursuant to regulations and other segregated assets
Securities purchased under agreements to resell and other collateralized financings
Securities borrowed
Financial instruments, at fair value:
Trading instruments (includes $357,099 and $418,141 pledged as collateral)
Available-for-sale securities
Derivative assets
Private equity investments
Other investments (includes $6,640 and $22,501 pledged as collateral)
Brokerage client receivables, net
Receivables from brokers, dealers and clearing organizations
Other receivables
Bank loans, net
Loans to financial advisors, net
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
Other assets
Total assets
Liabilities and equity:
Bank deposits
Securities sold under agreements to repurchase
Securities loaned
Financial instruments sold but not yet purchased, at fair value
Trading instruments
Derivative liabilities
Brokerage client payables
Payables to brokers, dealers and clearing organizations
Accrued compensation, commissions and benefits
Other payables
Other borrowings
Senior notes payable
Total liabilities
Commitments and contingencies (see Note 17)
Equity
September 30,
2017
2016
$
3,669,672
$
1,650,452
3,476,085
4,884,487
404,462
138,319
564,263
2,188,282
318,775
198,779
220,980
470,222
170,860
713,550
859,398
480,106
194,634
326,353
2,766,771
2,714,782
268,021
652,769
380,764
610,417
17,006,795
15,210,735
873,272
111,743
437,374
313,486
493,183
780,425
838,721
116,133
321,457
322,024
503,046
718,835
$
34,883,456
$
31,486,976
$
17,732,362
$
14,262,547
220,942
383,953
193,229
677,761
221,449
356,964
5,411,829
172,714
1,059,996
567,045
1,514,012
1,548,839
29,190,105
320,103
475,608
6,444,671
306,119
898,185
556,532
608,658
1,680,587
26,424,000
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; 154,228,235 and 151,424,947 shares issued as of September
30, 2017 and 2016, respectively. Shares outstanding of 144,096,521 and 141,544,511 as of September 30, 2017 and
2016, respectively
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 10,084,038 and 9,766,846 common shares as of September 30, 2017 and 2016, respectively
Accumulated other comprehensive loss
Total equity attributable to Raymond James Financial, Inc.
Noncontrolling interests
Total equity
Total liabilities and equity
1,542
1,645,397
4,340,054
(390,081)
(15,199)
5,581,713
111,638
5,693,351
1,513
1,498,921
3,834,781
(362,937)
(55,733)
4,916,545
146,431
5,062,976
$
34,883,456
$
31,486,976
See accompanying Notes to Consolidated Financial Statements
82
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
$ in thousands, except per share amounts
Revenues:
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
Brokerage, clearing and exchange
Business development
Investment sub-advisory fees
Bank loan loss provision
Acquisition-related expenses
Losses on extinguishment of debt
Other
Total non-interest expenses
Income including noncontrolling interests and before provision for income taxes
Provision for income taxes
Net income including noncontrolling interests
Net income attributable to noncontrolling interests
Net income attributable to Raymond James Financial, Inc.
Earnings per common share – basic
Earnings 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 gain/(loss) 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 gain/(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
Year ended September 30,
2017
2016
2015
$
4,020,910
$
3,498,615
$
3,443,038
398,675
462,989
802,126
667,274
81,880
91,021
6,524,875
(153,778)
6,371,097
304,155
393,346
640,397
511,326
91,591
81,690
5,521,120
(116,056)
5,405,064
323,654
386,376
543,282
457,913
58,512
96,905
5,309,680
(106,074)
5,203,606
4,228,387
3,624,607
3,525,250
310,961
190,737
48,586
154,926
78,656
12,987
17,995
45,746
279,746
167,455
42,732
148,413
59,930
28,167
40,706
—
266,396
163,229
42,748
158,966
59,569
23,570
—
—
354,138
5,443,119
201,364
4,593,120
149,266
4,388,994
927,978
289,111
638,867
2,632
636,235
4.43
4.33
143,275
146,647
$
$
$
811,944
271,293
540,651
11,301
529,350
3.72
3.65
141,773
144,513
$
$
$
814,612
296,034
518,578
16,438
502,140
3.51
3.43
142,548
145,939
$
$
$
$
636,235
$
529,350
$
502,140
1,684
15,618
23,232
(5,576)
2,179
(11,833)
(3,325)
(30,640)
(4,650)
676,769
$
514,120
$
463,525
2,279
$
1,305
$
(2,279)
(1,305)
— $
— $
2,489
(2,489)
—
$
$
$
(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.
83
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
$ in thousands, except per share amounts
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: (2)
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: (3)
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: (2)
Balance, beginning of year
Net income attributable to noncontrolling interests
Capital contributions
Distributions
Derecognition resulting from sales
Other
Balance, end of year
Total equity
Year ended September 30,
2017
2016
2015
$
$
1,513
29
1,542
$
1,491
22
1,513
1,444
47
1,491
1,498,921
26,277
28,258
90,748
— (1)
1,193
1,645,397
3,834,781
636,235
(130,643)
(319)
1,344,779
28,025
16,470
73,871
35,121
655
1,498,921
3,422,169
529,350
(116,738)
—
1,239,046
23,847
21,351
68,196
(8,115)
454
1,344,779
3,026,295
502,140
(106,271)
5
4,340,054
3,834,781
3,422,169
(362,937)
(9,404)
(17,740)
(390,081)
(203,455)
(153,137)
(6,345)
(362,937)
(121,211)
(64,780)
(17,464)
(203,455)
$
$
(55,733)
(40,503)
(1,888)
$
$
1,684
15,618
23,232
(15,199)
5,581,713
146,431
2,632
9,775
(43,568)
(4,649)
1,017
111,638
$
$
(5,576)
2,179
(11,833)
(55,733)
4,916,545
154,454
11,301
917
(18,312)
—
(1,929)
146,431
(3,325)
(30,640)
(4,650)
(40,503)
4,524,481
162,634
16,438
—
(23,540)
—
(1,078)
154,454
$
5,693,351
$
5,062,976
$
4,678,935
(1) During the twelve months ended September 30, 2017, we adopted new stock compensation simplification guidance. See Notes 1, 16 and 20 for additional information.
(2) Each respective prior period balance has been restated to reflect the impact of the deconsolidation of certain VIEs. See Note 1 for additional information.
(3) All components of other comprehensive loss, net of tax, are attributable to Raymond James Financial, Inc.
See accompanying Notes to Consolidated Financial Statements.
84
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
$ in thousands
Cash flows from operating activities:
Net income attributable to Raymond James Financial, Inc.
Net income attributable to noncontrolling interests
Net income including noncontrolling interests
Adjustments to reconcile net income including noncontrolling interests to net cash provided by/(used in)
operating activities:
Depreciation and amortization
Deferred income taxes
Premium and discount amortization on available-for-sale securities and unrealized gain on other
investments
Provisions for loan losses, legal and regulatory proceedings (excluding the Jay Peak matter) and bad debts
Share-based compensation expense
Compensation expense/(benefit) which is payable in common stock of an acquiree
Unrealized (gain)/loss on company owned life insurance, net of expenses
Loss on extinguishment of senior notes payable
Other
Net change in:
Year ended September 30,
2017
2016
2015
$
636,235
$
529,350
$
502,140
2,632
638,867
11,301
540,651
16,438
518,578
84,132
(11,617)
(27,572)
36,357
96,164
13,301
(43,385)
45,746
29,532
72,383
(58,798)
(25,010)
42,394
78,528
(2,102)
(24,586)
—
16,940
68,315
(23,462)
(42,544)
34,277
71,488
—
10,724
—
5,681
Assets segregated pursuant to regulations and other segregated assets
1,430,898
(1,942,429)
(476,909)
Securities purchased under agreements to resell and other collateralized financings, net of securities sold
under agreements to repurchase
Securities loaned, net of securities borrowed
Loans provided to financial advisors, net of repayments
Brokerage client receivables and other accounts receivable, net
Trading instruments, net
Derivative instruments, net
Other assets
Brokerage client payables and other accounts payable
Accrued compensation, commissions and benefits
Proceeds from sales of securitizations and loans held for sale, net of purchases and originations of loans held
for sale
Jay Peak matter payments
Net cash provided by/(used in) operating activities
Cash flows from investing activities:
Additions to property, buildings and equipment, including software
Increase in bank loans, net
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock, net
Proceeds from sales of loans held for investment
Proceeds from sales of or distributions received from private equity and other investments, net of purchases
or contributions to private equity or 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
Net cash used in investing activities
(continued on next page)
97,001
(261,659)
(53,785)
(50,917)
57,106
57,889
97,391
(134,085)
152,380
(344,164)
(609,952)
7,048
(18,590)
(47,094)
(1,133,283)
1,782,456
160,038
46,367
189,232
(145,500)
1,305,936
(101,155)
(4,500)
(573,318)
41,101
98,896
(85,895)
(115,841)
32,408
(1,922)
(3,922)
792,657
34,702
(59,638)
—
898,694
(189,994)
(121,733)
(74,111)
(2,253,574)
(2,400,247)
(2,176,698)
(13,375)
333,130
90,458
(1,732,790)
299,343
93,774
—
(3,042)
(3,231)
197,557
(39,617)
(463,202)
95,961
11,062
(175,283)
(19,170)
(4,446)
111,731
(62,416)
(92,485)
69,757
84,785
(15,823)
(16,904)
$
(3,376,070) $
(2,917,903) $
(2,176,610)
See accompanying Notes to Consolidated Financial Statements.
85
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
$ in thousands
Cash flows from financing activities:
Proceeds from/(repayments of) 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 paid
Extinguishment of senior notes payable
Premium paid on extinguishment of senior notes payable
Acquisition-related contingent consideration received, net of payments
Exercise of stock options and employee stock purchases
Increase in bank deposits
Purchases of treasury stock
Dividends on common stock
Distributions to noncontrolling interests, net
Net cash provided by financing activities
Currency adjustment:
Effect of exchange rate changes on cash
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes
Year ended September 30,
2017
2016
2015
$
610,000
$
(115,000) $
(34,700)
950,000
(654,647)
508,473
(650,000)
(36,892)
2,992
57,462
25,000
(4,407)
792,221
(250,000)
—
—
550,299
(509,252)
—
—
—
—
43,331
47,964
3,469,815
2,342,666
1,890,957
(34,055)
(127,202)
(31,383)
(162,502)
(113,435)
(17,395)
(88,542)
(103,143)
(23,540)
4,064,563
2,540,479
1,730,043
24,791
2,019,220
1,650,452
188
(950,554)
(50,184)
401,943
2,601,006
2,199,063
$
3,669,672
$
1,650,452
$
2,601,006
$
$
155,984
349,009
$
$
113,517
303,793
$
$
106,190
378,928
See accompanying Notes to Consolidated Financial Statements.
86
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
NOTE 1– ORGANIZATION AND BASIS OF PRESENTATION
Organization
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 services, and trust services. As used herein, the terms “we,”
“our” or “us” refer to RJF and/or one or more of its subsidiaries.
Principal subsidiaries
As of September 30, 2017, our principal subsidiaries, all wholly owned, include: Raymond James & Associates, Inc. (“RJ&A”), a
domestic broker-dealer carrying client accounts; Raymond James Financial Services, Inc. (“RJFS”), an introducing domestic broker-
dealer; Raymond James Financial Services Advisors, Inc. (“RJFSA”), a registered investment advisor (“RIA”); 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.
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
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 for the reporting period. Actual results could differ from those estimates and could have a material impact on the
consolidated financial statements.
Adoption of new accounting guidance
We adopted accounting guidance related to the consolidation model as of October 1, 2016. As a result of this adoption we deconsolidated
a number of low-income housing tax credit (“LIHTC”) fund VIEs that had previously been consolidated. We applied the new
consolidation guidance on the full retrospective basis, meaning that we have reflected the adjustments arising from this adoption as of
the beginning of our earliest comparative period presented. In addition, effective October 1, 2016 we also adopted amended guidance
related to share-based compensation, which was applied on a prospective basis. The amended guidance involves several aspects of
the accounting for share-based payment transactions, including the income tax consequences and classification on the statement of
cash flows. See Note 2 for additional information.
Reclassifications
During the period, we made a number changes to the current and previously reported amounts in the Consolidated Statements of Cash
Flows. These included cash flow reclassifications to conform with changes made in the Consolidated Statements of Financial Condition
(including derivative balances and the Jay Peak legal settlement), required adjustments associated with the adoption of accounting
principles (including the deconsolidation of certain VIEs and treatment of excess tax benefits related to share-based compensation),
and immaterial adjustments between line items (including foreign exchange impact on cash adjustments and payments with
noncontrolling interest holders).
87
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In addition to the reclassification discussed above, certain other prior period amounts have also been reclassified to conform to the
current year’s 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 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 and are recognized over the period in which the service is provided. Such fees are earned from the services
provided by the financial advisors who affiliate with us.
Financial advisors may choose to affiliate with us as either an employee, and thus operate under our registered investment advisor
(“RIA”) license, or as an independent contractor. If affiliated as an independent contractor, the financial advisor may choose to
provide such advisory services either under their own RIA license, or under the RIA license of one of our subsidiaries.
The revenue recognition and related expense policies associated with the generation of advisory fees from each of these affiliation
alternatives are as follows:
i. Investment advisory service fee revenues earned by employee financial advisors and independent contractors who offer such
services under one of our subsidiary RIA licenses are presented in “Securities commissions and fees” revenue on a gross basis.
These advisors’ compensation is calculated as a percentage of the revenues generated and is recorded as a component of
“Compensation, commissions and benefits expense”.
ii. Independent RIA firms owned and operated by a financial advisor who is an independent contractor, may receive administrative
and custodial services from us. These 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.
iii. 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 that we provide. 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 over the period earned.
d. Trailing commissions from mutual funds and variable annuities/insurance products, which are recorded over the period earned.
e.
Insurance commission revenues and related expenses are recognized when the delivery of the insurance policy is confirmed by
the carrier, the premium is remitted to the insurance company and the policy requirements are met.
f. Annuity commission revenues and related expenses are recognized when the signed annuity application and premium is submitted
to the annuity carrier.
Investment banking - Investment banking revenues are generally recorded at the time the services related to the transaction are
completed under the terms of the engagement and the related income is reasonably determinable. Such investment banking revenues
include merger & acquisition and advisory fees, management fees and underwriting fees earned in connection with the distribution of
public offerings, private placement fees, and syndication fees on the sale of low-income housing tax credit fund interests. Expenses
associated with such transactions, net of client reimbursements, are deferred until the related revenue is recognized or the assignment
is otherwise concluded and are presented net with the related revenues.
88
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Investment advisory and related administrative 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 separately managed accounts for our clients, including individuals,
mutual funds and managed programs. We earn investment advisory and related administrative 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 over the period earned.
We may earn performance fees from various funds and separately managed 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
and 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 funds’ underlying investments. We recognize these fees 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 provided to mutual fund and insurance/annuity companies 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.
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 to maintain 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, which are recorded at fair value.
RJ Bank maintains cash in an interest-bearing pass-through account at the Federal Reserve Bank in accordance with Regulation D of
the Federal Reserve Act, which requires depository institutions to maintain minimum average reserve balances against its deposits.
Repurchase agreements and other collateralized financings
We purchase securities under short-term agreements to resell (“reverse repurchase agreements”). Additionally, we sell securities under
agreements to repurchase (“repurchase agreements”). Both reverse repurchase agreements and repurchase agreements are accounted
for as collateralized financings and are carried at contractual amounts plus accrued interest. To mitigate credit exposure, we receive
collateral with a fair 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.
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 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 7 for additional information regarding this collateral).
89
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Financial instruments, financial instruments sold but not yet purchased at 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 price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants at the measurement date in the principal or most advantageous market for the asset or liability.
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 measurement considered from the perspective of a market participant.
As such, our fair value measurements reflect assumptions 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 valued using unadjusted quoted prices in active
markets for identical assets or liabilities. These include equity and corporate debt securities traded in active markets and certain
U.S. Treasury securities and other governmental obligations.
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 and corporate debt obligations that are not actively
traded, certain government and municipal obligations, interest rate swaps, asset-backed securities (“ABS”), collateralized mortgage
obligations (“CMOs”), most 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 one or more inputs
that are 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 our private equity investments,
pools of interest-only Small Business Administration 7(a) (“SBA”) loan strips (“I/O Strips”), certain municipal and corporate
obligations which include auction rate securities (“ARS”), and nonrecurring fair value measurements for certain impaired loans.
GAAP requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when performing our fair
value measurements. The availability of observable inputs can vary from instrument to instrument and in certain cases, the inputs used
to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value
hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of
a particular input to the fair value measurement of an instrument requires judgment and consideration of factors specific to the instrument.
We offset our long and short positions for identical securities recorded at fair value as part of our trading instruments (long positions)
and trading instruments sold but not yet purchased (short positions).
Valuation techniques and inputs - 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 which are actively
traded will generally have a higher degree of price transparency than financial instruments that are thinly traded. 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 private equity investments, ARS, certain
CMOs, ABS and certain collateralized debt obligations, to be uncertain or inactive as of both September 30, 2017 and 2016. 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 low levels
of 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: Trading instruments and trading instruments sold but not yet purchased 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.
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When available, we use quoted prices in active markets to determine the fair value of our trading instruments. Such instruments are
classified within Level 1 of the fair value hierarchy.
Level 2: When trading instruments are traded in secondary markets and quoted market prices for identical instruments do not exist,
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. 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 section that follows.
We also maintain 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: 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.
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 Strips do not trade in an active market with readily observable prices. Accordingly, we use valuation techniques that consider a
number of factors including: (a) the original cost of the pooled underlying SBA loans from which the I/O Strip securities were created,
and any changes from the original to the hypothetical cost of buying similar loans under current market conditions; (b) seasoning of
the underlying SBA loans in the pool that back the I/O Strip securities; (c) the type and nature of the pooled SBA loans backing the
I/O Strip securities; (d) actual and assumed prepayment rates on the underlying pools of SBA loans; and (e) market data for past trades
in comparable I/O Strip securities. Prices from independent sources are used to corroborate our estimates of fair value. Our I/O Strip
securities are recorded in other securities within our “Trading instruments” on our Consolidated Statements of Financial Condition.
These fair value measurements use significant unobservable inputs and accordingly, we classify them as Level 3 of the fair value
hierarchy.
Included within trading instruments are to be announced (“TBA”) security contracts with investors for generic MBS at specific rates
and prices to be delivered on settlement dates in the future. We enter into these TBAs to hedge interest rate risk that arises as part of a
program our fixed income public finance operations offers to certain state and local housing finance agencies (“HFA”). Under this
program, we enter into forward commitments to purchase Government National Mortgage Association (“GNMA”) or Federal National
Home Mortgage Association (“FNMA”) MBS. The MBS are issued on behalf of various HFA clients and consist of the mortgages
originated through their lending programs. Our forward GNMA or FNMA MBS purchase commitments arise at the time of the loan
reservation for a borrower in the HFA lending program. The underlying terms of the GNMA or FNMA MBS purchase, including the
price for the MBS (which is dependent upon the interest rates associated with the underlying mortgages) are also fixed at loan reservation.
We typically sell such MBS upon acquisition as part of our fixed income operations. The TBA securities used to hedge these transactions
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 “Trading instruments” or “Trading instruments sold but not yet purchased,” 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 generally classified at the date of purchase and are comprised primarily
of agency MBS and CMOs and equity securities held predominately by RJ Bank and ARS. Available-for-sale securities held at RJ
Bank are used as part of its 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 available-for-sale securities is recognized in interest income on an accrual basis. For the RJ Bank available-for-sale 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 available-for-sale securities are recognized using the specific identification method and reflected in other
revenue in the period sold. Unrealized gains or losses on available-for-sale securities, except for those that are deemed to be other-
than-temporary, are recorded through other comprehensive income/(loss) and are thereafter presented in equity as a component of
accumulated other comprehensive income (“AOCI”) on our Consolidated Statements of Financial Condition.
For any available-for-sale 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 our available-for-sale securities. 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. We
estimate the portion of loss attributable to credit using a discounted cash flow model. For the non-agency CMOs within the RJ Bank
available-for-sale portfolio, which were classified as level 2 of the fair value hierarchy and were sold during the year ended September
30, 2017, our discounted cash flow model utilized relevant assumptions such as prepayment rate, default rate, and loss severity on a
loan level basis.
The fair value of agency securities included within the RJ Bank available-for-sale 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. On a
quarterly basis, we utilize bid quotations from other third party pricing services to corroborate the pricing information obtained from
the primary pricing service. Securities valued using these valuation techniques are 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 models take into consideration the characteristics of the underlying securities, as well as multiple inputs including the issuer
and its credit quality, data from recent trades, if any, 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 are classified within Level 3 of the fair value hierarchy.
Derivative assets and derivative liabilities - Our derivative assets and derivative liabilities are recorded at fair value and are included
in “Derivative assets” and “Derivative liabilities” in our Consolidated Statements of Financial Condition. To reduce credit exposure
on certain of our derivative transactions, we may enter into a master netting arrangement that allows for net settlement of all derivative
transactions with each counterparty. In addition, the credit support annex allows parties to the master netting 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. Where permitted, we elect to net-by-counterparty certain derivative contracts entered into under a legally
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enforceable master netting agreement and, therefore, the fair value of those derivative contracts are netted by counterparty in the
Consolidated Statements of Financial Condition. As we elect to net-by-counterparty the fair value of such derivative contracts, we
also net-by-counterparty any cash collateral exchanged as part of those derivative agreements.
Trading: We enter into interest rate contracts either as part of our fixed income business to facilitate client transactions, or to actively
manage risk exposures that arise from our client activity, including a portion of our trading inventory. 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 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 between the client and the third party financial institution. We record the value of each derivative position
held at fair value, as either an asset or an offsetting liability, presented within “Derivative assets” or “Derivative liabilities,” as applicable,
on our Consolidated Statements of Financial Condition. Fair value is determined using an internal pricing model which includes inputs
from independent pricing sources to project future cash flows under each underlying derivative contract. Since any changes in fair
value are completely offset by a change in fair value of the offsetting transaction position, there is no net impact on our Consolidated
Statements of Income and Comprehensive Income from changes in the fair value of these derivative instruments. We recognize revenue
on derivative transactions on the transaction date, computed as the present value of the expected cash flows we expect to receive from
the third party financial institution over the life of the derivative contract. The difference between the present value of these cash flows
at the date of inception and the gross amount potentially received is accreted to revenue over the term of the contract. The revenue
from these transactions is included within “Other revenues” on our Consolidated Statements of Income and Comprehensive Income.
RJ Bank Derivatives: We enter into three-month forward foreign exchange contracts primarily to hedge the risks related to RJ Bank’s
investment in their Canadian subsidiary, as well as their risk resulting from transactions denominated in currencies other that the U.S.
dollar. The majority of these derivatives are designated as net investment hedges. The effective portion of the gain or loss related to
the designated derivative instruments is recorded, net of tax, in shareholders’ equity as part of the cumulative translation adjustment
component of AOCI with such balance impacting “Other revenues” in the event the net investment is sold or substantially
liquidated. Gains and losses on the undesignated derivative instruments, as well as amounts representing hedge ineffectiveness, are
recorded in earnings in the Consolidated Statements of Income and Comprehensive Income. Hedge effectiveness is assessed at each
reporting period using a method that is based on changes in forward rates. The measurement of hedge ineffectiveness is based on the
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 generally match at inception, there is no expected
ineffectiveness to be recorded in earnings.
The fair value of our forward foreign exchange contracts is determined by obtaining valuations from a third party pricing service or
model. These valuations are based on observable inputs such as spot rates, foreign exchange rates and both U.S. and foreign 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. We enter
into floating-rate advances from the FHLB to, in part, fund these assets and then enter into interest rate swaps which swap variable
interest payments on this debt for fixed interest payments. These interest rate swaps are designated as cash flow hedges and effectively
fix our cost of funds associated with these assets to mitigate a portion of the market risk.
The effective portion of the gain or loss on these interest rate derivatives 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 “Interest expense” in the Consolidated Statements of Income and Comprehensive Income. Hedge effectiveness is
assessed at inception and at 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
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to be no ineffectiveness impacting earnings from this hedge while it is outstanding. The fair value of these interest rate 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, we 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 that 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 measurement under the fair value hierarchy and the liability is included in “Derivative liabilities” in our
Consolidated Statements of Financial Condition.
Private equity investments - Private equity investments consist of direct investments and investments in third-party private equity
funds and various Company-sponsored private equity funds. The private funds in which we invest 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. These investments are measured at fair value with any changes recognized in “Other”
revenues on our Consolidated Statements of Income and Comprehensive Income. The fair value of private equity fund investments
are determined utilizing either the net asset value (“NAV”) of the fund 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: (1) the
fund does not have a readily determinable fair value; (2) 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; and (3) 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, securities pledged as collateral with clearing
organizations and certain investments in funds for which, in a number of instances, one of our affiliates serves as the managing member
or general partner (see Note 10 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 “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 fair value. These investments are classified within
Level 1 of the fair value hierarchy.
Brokerage client receivables, net
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.
Brokerage client receivables are reported at their outstanding principal balance, adjusted for any allowance for doubtful accounts.
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When the receivable held 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 7 for additional information regarding
this collateral). We present “Brokerage client receivables, net” on our Consolidated Statements of Financial Condition, net of the
allowance for doubtful accounts. Our allowance for doubtful accounts was approximately $1 million at both September 30, 2017 and
2016.
Receivables from brokers, dealers and clearing organizations
Receivables from brokers, dealers and clearing organizations include amounts receivable for securities failed to deliver and cash on
deposit with clearing organizations. We present “Receivables from brokers, dealers and clearing organizations” on our Consolidated
Statements of Financial Condition, net of the allowance for doubtful accounts. Our allowance for doubtful accounts was insignificant
at September 30, 2017 and 2016.
Bank loans, net
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 securities-based loans (“SBL”)
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.
We segregate our loan portfolio into six portfolio segments, C&I, commercial real estate (“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.
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.
We purchase the guaranteed portions of SBA loans and accounts for these loans in accordance with the policy for loans held for sale.
We then aggregate 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 our 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 we have surrendered control over the transferred assets. We do 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 evaluations utilizing observable market
data for similar securities. We substantiate the prices obtained from the third party pricing service by comparing such prices for a
sample of securities to observable market trades obtained from external sources. The instruments valued using these observable inputs
are typically classified within Level 2 of the fair value hierarchy.
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Corporate loans, which include C&I, CRE, and CRE construction, as well as tax-exempt loans are designated as held for investment
upon inception and recognized in loans receivable. If we subsequently designate a corporate or tax-exempt 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 revenues” in the Consolidated Statements
of Income and Comprehensive Income, 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 revenues” in the Consolidated Statements
of Income and Comprehensive Income.
Off-balance sheet loan commitments - We have 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. Our policy is generally
to require customers to provide collateral at the time of closing. The amount of collateral obtained, if it is deemed necessary upon
extension of credit, is based on our 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 payables” 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.
We recognize 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 the revenue 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 we would not otherwise consider. Loans structured as described above are deemed
to be a trouble debt restructuring (“TDR”). 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 and tax-exempt loans thereafter until
the loan qualifies for return to accrual status. Loans (including first mortgage and home equity residential mortgage TDRs) 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. Corporate loan TDRs have generally been partially charged off and
therefore, remain on nonaccrual status until the loan is fully resolved.
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 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
revenues” on our Consolidated Statements of Income and Comprehensive Income.
Impaired loans - Loans in all classes are considered to be impaired when, based on current information and events, it is probable that
we 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.
We determine 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, we measure 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
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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 - We maintain an allowance for loan losses to provide
for probable losses inherent in our 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 we
believe the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
We have 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, we rely on estimates and exercise 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 losses is comprised of two components: allowances calculated based on formulas for homogeneous classes of
loans collectively evaluated for impairment, which are re-evaluated quarterly and adjusted based on our analysis of certain qualitative
factors, and specific allowances assigned to certain classified loans individually evaluated for impairment. 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 and tax-exempt 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
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 and tax-exempt 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 we have 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 loan-level probability of default
and loss given default estimates in combination with certain adjustments for loss emergence period.
The quantitative loss rates for corporate and tax-exempt 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 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.
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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 our historical loss data over a period of time. We
currently utilize 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. The allowance for loan losses for SBL is determined judgmentally by
management, which utilizes peer benchmarking data as we have historically not experienced losses on this portfolio.
We reserve 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 and tax-exempt 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 we determine that it is likely a corporate or tax-exempt loan will
not be collected in full, the loan is evaluated for potential impairment. After consideration of the borrower’s ability to restructure the
loan, alternative sources of repayment, and other factors affecting the borrower’s ability to repay the debt, the portion of the loan
deemed to be a confirmed loss, if any, is charged-off. For collateral-dependent loans secured by real estate, the amount of the loan
considered a confirmed loss and charged-off is generally equal to the difference between the recorded investment in the loan and the
collateral’s appraised value less estimated costs to sell. For C&I and tax-exempt loans, we evaluate all sources of repayment 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 8 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 our 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.
The agent bank’s regulator reviews a portion of SNC loans on a semi-annual basis, a process in which other participating banks have
no involvement. Once the SNC regulatory review process is complete, we receive 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. We 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 as a result of the review may impact our reserves and charge-offs during the quarter that the SNC
information is received from the OCC, however, these differences in classifications are generally insignificant. The amount of such
adjustments depend upon the classification and whether we 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. We
incorporate into our 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. Corporate loans are subject to our internal
review procedures and regulatory review by the OCC as part of our regulatory examination.
Every residential mortgage loan over 60 days past due is reviewed 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 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 we estimate will ultimately be collected, based on the value of the underlying collateral less estimated
costs to sell. We predominantly use 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. We take further charge-offs against the owned asset if an appraisal has a lower valuation than the original
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
BPO, but do 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.
Loans to financial advisors, net
We offer loans to financial advisors and certain other 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 amounts due at termination, the reasons for the terminated relationship, and the former financial advisor’s overall financial
position. When the review of these factors indicates that further collection activity is highly unlikely, the outstanding balance of such
loan is written-off and the corresponding allowance is reduced. Based upon the nature of these financing receivables, we do not analyze
this asset on a portfolio segment or class basis. Further, the aging of this receivable balance is not a determinative factor in computing
our allowance for doubtful accounts, as concerns regarding the recoverability of these loans primarily arise in the event that the financial
advisor is no longer affiliated with us. We present the outstanding balance of loans to financial advisors on our Consolidated Statements
of Financial Condition, net of the allowance for doubtful accounts. Of the gross balance outstanding, the portion associated with
financial advisors who are no longer affiliated with us was approximately $22 million and $13 million at September 30, 2017 and 2016,
respectively. Our allowance for doubtful accounts was approximately $8 million and $5 million at September 30, 2017 and 2016,
respectively.
Other assets
We carry 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. We annually evaluate our holdings
in FHLB and FRB stock for potential impairment based upon its assessment of the ultimate recoverability of the par value of the stock.
This annual evaluation is comprised of a review of the capital adequacy, liquidity position and the overall financial condition of the
FHLB and FRB to determine the impact these factors have on the ultimate recoverability of the par value of the respective stock.
Impairment evaluations are performed more frequently if events or circumstances indicate there may be impairment. Any cash dividends
received from these investments are recognized as “Interest income” in the Consolidated Statements of Income and Comprehensive
Income.
We also 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 20 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 9 for additional information.
Investments in real estate partnerships held by consolidated variable interest entities
Raymond James Tax Credit Funds, Inc. (“RJTCF”), a wholly owned subsidiary of RJF, or one of its affiliates, is the managing member
or general partner in LIHTC funds, some of which require consolidation (refer to the separate discussion that follows of our policies
regarding the evaluation of VIEs to determine if consolidation is required ). These funds invest in housing project limited partnerships
or limited liability companies (“LLCs”) which purchase and develop affordable housing properties qualifying for federal and state low-
income housing tax credits. The balance presented is the investment in project partnership balance of all of the LIHTC fund VIEs
which require consolidation. Additional information is presented in Note 10.
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.
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Notes to Consolidated Financial Statements
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 expenses” 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 analysis is not
necessary. Under this elective process, we assess qualitative factors to determine whether the existence of events or circumstances
leads us to determine 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 January 1 as our annual goodwill impairment evaluation date, evaluating balances as of December 31 (see Note 12
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 management’s judgment, the determination of a reasonable estimate of loss is not
possible.
We record liabilities related to legal and regulatory proceedings in “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
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Notes to Consolidated Financial Statements
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. 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. 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 discussed above, we assumed certain DBRSU awards as part of our acquisition of Alex. Brown that will
ultimately be settled in DB common shares provided that certain performance metrics are achieved. The portion of these awards that
related to services performed by the award recipients before the acquisition of Alex. Brown represented consideration transferred in
the business combination. The portion of these awards which related to compensation for future services were treated as a prepaid
compensation asset which had a corresponding derivative liability. The prepaid compensation asset is amortized over the remaining
requisite service period of the recipient 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 assets and derivative liabilities” 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 in “Compensation, commissions and benefits” expense in our Consolidated Statements of Income and
Comprehensive Income. See Note 20 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 directly hold 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 9 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 20 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 payables” 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.
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Foreign currency translation
The statements of financial condition of the foreign subsidiaries 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 income/(loss) and are thereafter presented in equity as a
component of AOCI.
Income taxes
The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year. We
utilize the asset and liability method to provide income taxes on all transactions recorded in the consolidated financial statements. This
method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts
of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference is determined
based on the tax rates that we expect to be in effect when the underlying items of income and expense are realized. Judgment is
required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns, including
the repatriation of undistributed earnings of foreign subsidiaries. Variations in the actual outcome of these future tax consequences
could materially impact our financial position, results of operations, or liquidity. See Note 16 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 VIEs: certain private equity investments, a trust fund
established for employee retention purposes (“Restricted Stock Trust Fund”), certain LIHTC funds and certain new market tax credit
funds (“NMTC Funds”).
Determination of the primary beneficiary of a VIE - We consolidate VIEs that are subject to assessment when we are deemed to be
the primary beneficiary of the VIE. The process for determining whether we are the primary beneficiary of the VIE is to conclude
whether we are a party to the VIE holding a variable interest that meets both of the following criteria: (1) has the power to make
decisions that most significantly affect the economic performance of the VIE, and (2) has the obligations to absorb losses or the right
to receive benefits that in either case could potentially be significant to the VIE.
Private Equity Interests - As part of our private equity investments, we hold interests in a number of limited partnerships (our “Private
Equity Interests”). We have concluded that the Private Equity Interests are VIEs, primarily as a result of the treatment of limited partner
kick-out and participation rights as a simple majority of the limited partners cannot initiate an action to kick-out the general partner
without cause and the limited partners with equity at-risk lack substantive participating rights.
In our analysis of the criteria to determine whether we are the primary beneficiary of the Private Equity Interests VIEs, we analyze the
power and benefits criteria. In a number of these entities, we are a passive limited partner investor, and thus we do not have the power
to make decisions that most significantly affect the economic performance of such VIEs. Accordingly, in such circumstances we have
determined we are not the primary beneficiary and therefore we do not consolidate the VIE. However, in certain of these entities, we
have concluded that we are the primary beneficiary as we meet the power and benefits criteria. In such instances, we consolidate the
Private Equity Interests VIE.
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 one of our Canadian subsidiaries. We are deemed to be the primary beneficiary
and, accordingly, consolidate this trust fund.
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Notes to Consolidated Financial Statements
LIHTC Funds - RJTCF is the managing member or general partner in a number of LIHTC Funds having one or more investor members
or limited partners. These low-income housing tax credit funds are organized as LLCs or limited partnerships for the purpose of investing
in a number of project partnerships, which are limited partnerships or LLCs that in turn purchase and develop low-income housing
properties qualifying for tax credits.
Our determination of the primary beneficiary of each tax credit fund in which RJTCF has a variable interest requires judgment and is
based on an analysis of all relevant facts and circumstances, including: (1) an assessment of the characteristics of RJTCF’s variable
interest and other involvement it has with the tax credit fund, including involvement of related parties and any de facto agents, as well
as the involvement of other variable interest holders, namely, limited partners or investor members, and (2) the tax credit funds’ purpose
and design, including the risks that the tax credit fund was designed to create and pass through to its variable interest holders. In the
design of tax credit fund VIEs, the overriding premise is that the investor members invest solely for tax attributes associated with the
portfolio of low-income housing properties held by the fund, while RJTCF, as the managing member or general partner of the fund, is
responsible for overseeing the fund’s operations.
Non-guaranteed LIHTC funds - 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.
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, in nearly all instances, has significant participating rights over the activities that most significantly impact the economics of the
fund. 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, in nearly all, these funds are not consolidated.
In non-guaranteed 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 its
share of any residuals upon the termination of the fund, are potentially significant to the fund. As such residuals received upon
termination are not expected to be significant to the funds, RJTCF does not consolidate non-guaranteed multi-investor funds.
Guaranteed LIHTC fund - In conjunction 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 (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.
Direct investments in LIHTC project partnerships - RJ Bank is also the investor member of a LIHTC fund which we have determined
to be a VIE, and in which a subsidiary of RJTCF is the managing member. We have determined that RJ Bank is the primary beneficiary
of this VIE and therefore we consolidate the fund. All LIHTC funds which we consolidated are investor members in certain LIHTC
project partnerships. Since unrelated third parties are the managing members of the investee project partnerships, we have determined
that consolidation of these project partnerships is not required and the funds account for their project partnership investments under
the equity method. The carrying value of the funds’ project partnership investments are included in “Investments in real estate
partnerships held by consolidated variable interest entities” on our Consolidated Statements of Financial Condition (see Note 10 for
additional information).
New market tax credit funds - An entity which was at one time an affiliate of Morgan Keegan (as hereinafter defined) is the managing
member of a number of NMTC Funds. NMTC Funds are organized as LLCs 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 Funds,
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,
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
Recent Accounting Developments
Adoption of new accounting guidance
Consolidation - In February 2015, the FASB issued amended guidance to the consolidation model (ASU 2015-02), with additional
amendments issued in October 2016 (ASU 2016-17). The impact of these amendments on the consolidation model were 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.
• Make certain changes to the variable interest consolidation model.
• Make certain changes to the voting interest consolidation model.
As a result of our October 1, 2016 adoption of this guidance, we deconsolidated a number of tax credit fund VIEs that had been
previously consolidated. We determined that under the new guidance, we are no longer deemed to be the primary beneficiary of these
VIEs. We applied the new consolidation guidance on the full retrospective basis, meaning that we have reflected the adjustments
arising from this adoption as of the beginning of our earliest comparative period presented. Accordingly, we deconsolidated $107
million in assets, $20 million in liabilities, $89 million in noncontrolling equity interests, and increased retained earnings by $2 million,
each computed as of September 30, 2016. There was no net income impact on our Consolidated Statements of Income and
Comprehensive Income for the prior year periods as the net change in revenues, interest and other expenses were offset by the impact
of the deconsolidation on the net income/(loss) attributable to noncontrolling interests. In addition, the new consolidation guidance
did not change our consolidation conclusions for certain entities but did change the determination of whether an entity was considered
a VIE and therefore impacts certain of our disclosures related to VIEs.
Goodwill - In September 2015, the FASB issued guidance governing adjustments to the provisional amounts recognized at the acquisition
date with a corresponding adjustment to goodwill (ASU 2015-16). 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 was effective for this fiscal year beginning on October
1, 2016. The adoption of this new guidance has not had a material impact on our consolidated financial statements.
Share-based compensation - In March 2016, the FASB issued amended guidance related to share-based compensation (ASU 2016-09).
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. We early adopted
this guidance as of October 1, 2016. Our adoption of the new stock compensation simplification guidance impacts our determination
of income tax expense. Generally, the amount of compensation cost recognized for financial reporting purposes varies from the amount
that can ultimately be deducted on the tax return for share-based payment awards. Under the prior guidance, the tax effects of deductions
in excess of compensation expense (“windfalls”), as well as the tax effect of any deficiencies (“shortfalls”) were recorded in equity to
the extent of previously recognized windfalls, with any remaining shortfall recorded in income tax expense. Under the new guidance,
all tax effects related to share-based payments are recorded through tax expense in the periods during which the awards are exercised
or vest, as applicable. Under the transition provisions of the new guidance, we have applied this new guidance prospectively to excess
tax benefits arising from vesting after the October 1, 2016 adoption date and are no longer presented within financing activities in the
Consolidated Statements of Cash Flows. Under the new guidance, excess tax benefits are included along with other income tax cash
flows as an operating activity in the Consolidated Statements of Cash Flows. See Notes 16 and 20 for additional information.
Accounting guidance not yet adopted
Revenue recognition - In May 2014, the FASB issued new guidance regarding revenue recognition (ASU 2014-09). 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. It also
provides guidance on accounting for certain contract costs and requires additional disclosures. This new revenue recognition guidance,
including subsequent amendments, is first effective for us for our fiscal year beginning on October 1, 2018 and allows for full retrospective
adoption or modified retrospective adoption. Although, early adoption is permitted for fiscal years beginning after December 15, 2016,
we do not plan to early adopt. Upon adoption, we plan to use a modified retrospective approach, with a cumulative effect adjustment
to opening retained earnings. Our implementation efforts include identifying revenues and costs within the scope of the standard,
analyzing contracts and reviewing potential changes to our existing revenue recognition accounting policies. Based on our
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
implementation efforts to date, we expect that we will be required to change our current presentation of certain costs from a net
presentation within revenues to a gross presentation, particularly with respect to merger & acquisitions advisory transactions and
underwriting transactions. We are still evaluating the impact the adoption of this new guidance will have on our financial position and
results of operations. We are also still evaluating the impact to our disclosures as a result of adopting this new guidance.
Financial instruments - In January 2016, the FASB issued guidance related to the accounting for financial instruments (ASU 2016-01).
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 beginning on October 1, 2018, generally under a modified retrospective
approach, with the exception of the amendments related to equity investments without a readily determinable fair value and the use of
an exit price notion to measure financial instruments for disclosure purposes, which will be applied prospectively as of the date of
adoption. 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.
Lease accounting - In February 2016, the FASB issued new guidance related to the accounting for leases (ASU 2016-02). 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 arising from leases. The new guidance is first effective for our fiscal year beginning on October 1, 2019 and will be
adopted under a modified retrospective approach. Early adoption is permitted. This new guidance will impact our financial position
and results of operations. We are evaluating the magnitude of such impact.
Derivatives and hedging (contract novations) - 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 (ASU 2016-05). 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 fiscal year beginning October 1, 2017 and will be adopted under either
a prospective or modified retrospective basis. We plan to adopt this guidance on a prospective basis and do not expect this new guidance
to have a material effect on our financial position and results of operations.
Derivatives and hedging (contingent put and call options in debt instruments) - In March 2016, the FASB issued new guidance
related to derivatives and hedging, specifically contingent put and call options in debt instruments (ASU 2016-06). 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 fiscal year beginning October 1, 2017 and will be adopted under a modified retrospective approach.
We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations.
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Equity method investments and joint ventures - In March 2016, the FASB issued new guidance related to equity method investments
and joint ventures (ASU 2016-07). 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
fiscal year beginning October 1, 2017 on a prospective basis. 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.
Credit losses - In June 2016, the FASB issued new guidance related to the measurement of credit losses on financial instruments (ASU
2016-13). The amended guidance involves several aspects of the accounting for credit losses related to certain financial instruments
including assets measured at amortized cost, available-for-sale debt securities and certain off-balance sheet commitments. The new
guidance broadens the information that an entity must consider in developing its estimated credit losses expected to occur over the
remaining life of assets measured either collectively or individually to include historical experience, current conditions and reasonable
and supportable forecasts, replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses
(“CECL”) model. The new guidance expands the disclosure requirements regarding an entity’s assumptions, models, and methods for
estimating credit losses and requires new disclosures of the amortized cost balance for each class of financial asset by credit quality
indicator, disaggregated by the year of origination. The new guidance is first effective for our fiscal year beginning October 1, 2020
and will be adopted under a modified retrospective approach. Early adoption is permitted although not prior to our fiscal year beginning
October 1, 2019. We have begun our implementation and evaluation efforts by establishing a cross-functional team to assess the
required changes to our credit loss estimation methodologies and systems, as well as determine additional data and resources required
to comply with the new guidance. We are evaluating the impact the adoption of this new guidance will have on our financial position
and results of operations, which will depend on, among other things, the current and expected macroeconomic conditions and the nature
and characteristics of financial assets held by us on the date of adoption.
Statement of Cash Flows (classification of certain cash receipts and cash payments) - In August 2016, the FASB issued amended
guidance related to the Statement of Cash Flows (ASU 2016-15). 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 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, 2018 and will be adopted under a retrospective approach. Early adoption is permitted. The adoption of this new guidance
will impact our Statement of Cash Flows and will not have an impact on our financial position and results of operations.
Income tax impact of intra-entity transfers of assets - In October 2016, the FASB issued guidance related to the accounting for
income tax consequences of intra-entity transfers of assets (ASU 2016-16). Current GAAP prohibits the recognition of current and
deferred income taxes for intra-entity asset transfers 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 fiscal year beginning October 1, 2018 and will be adopted under a retrospective approach. 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.
Statement of Cash Flows (restricted cash) - In November 2016, the FASB issued guidance related to the classification and presentation
of changes in restricted cash on the Statement of Cash Flows (ASU 2016-18). Current GAAP does not provide guidance to address
how to classify and present changes in restricted cash or restricted cash equivalents that occur when there are transfers between cash,
cash equivalents and restricted cash or restricted cash equivalents and when there are direct cash receipts into restricted cash or restricted
cash equivalents or direct cash payments made from restricted cash or restricted cash equivalents. Under the new guidance, an entity
should present in their Statement of Cash Flows the changes during the period in the total of cash and cash equivalents and amounts
described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and ending-of-period total amounts
shown on the statement of cash flows. The guidance is first effective for our financial report covering the quarter ended December 31,
2018 and will be adopted under a retrospective approach. Early adoption is permitted. We are evaluating the impact the adoption of
this new guidance will have on our Consolidated Statements of Cash Flows.
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Definition of a business - In January 2017, the FASB issued amended guidance related to the definition of a business (ASU 2017-01).
This amended guidance clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating
whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is first effective for
our fiscal year beginning October 1, 2018 and will be adopted on a prospective basis. Early adoption is permitted. Given the adoption
of this amended guidance is dependent upon the nature of future events and circumstances, we are unable to estimate the impact, if
any, the adoption of this new guidance will have on our financial position and results of operations.
Goodwill - In January 2017, the FASB issued amended guidance to simplify the subsequent measurement of goodwill, eliminating
“Step 2” from the goodwill impairment test (ASU 2017-04). In computing the implied fair value of goodwill under Step 2, an entity
had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure
that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under the
amended guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting
unit with its carrying amount and subsequently recognize an impairment charge for the amount by which the carrying amount exceeds
the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting
unit. The guidance is first effective for our financial report covering the quarter ended December 31, 2019 and will be adopted on a
prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January
1, 2017. We will adopt this simplification guidance in the earliest period it applies to our facts and circumstances.
Callable debt securities - In March 2017, the FASB issued guidance that requires certain premiums on callable debt securities to be
amortized to the earliest call date instead of the contractual life of the security (ASU 2017-08). Discounts on callable debt securities
will continue to be amortized to the contractual maturity date. This guidance is first effective for our fiscal year beginning on October
1, 2019; however, early adoption is permitted. The guidance will be adopted using a modified retrospective approach. We are evaluating
the impact the adoption of this new guidance will have on our financial position and results of operations.
Share-based payment awards - In May 2017, the FASB issued amended guidance that clarifies when changes to the terms or conditions
of share-based payment awards require an entity to apply modification accounting (ASU 2017-09). The amended guidance states an
entity should account for the effects of a modification unless certain criteria are met which include that the modified award has the
same fair value, vesting conditions and classification as the original award. The guidance is first effective for our fiscal year beginning
October 1, 2019 on a prospective basis; however, early adoption is permitted. Given that this guidance applies to 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.
Derivatives and hedging (accounting for hedging activities) - In August 2017, the FASB issued new guidance amending its hedge
accounting model (ASU 2017-12). Among other things, the new guidance:
• Expands the ability to hedge nonfinancial and financial risk components.
• Reduces complexity in fair value hedges of interest rate risk.
• Eliminates the requirement to separately measure and report hedge ineffectiveness.
• Generally requires the entire change in the fair value of a hedging instrument to be presenting in the same income statement
line as the hedged item.
• Modifies accounting for components excluded from the assessment of hedge effectiveness.
• Eases certain documentation and hedge effectiveness assessment requirements.
The new guidance is first effective for our fiscal year beginning October 1, 2019; however, early adoption is permitted. The amendments
are required to be applied to cash flow and net investment hedges that exist on the date of adoption on a modified retrospective basis.
Changes to presentation and disclosure requirements are only required on a prospective basis. We are evaluating whether we will early
adopt this new guidance and the impact it will have on our financial position and results of operations.
NOTE 3 – ACQUISITIONS
Acquisition announcements during fiscal year 2017
In April 2017, we announced we had entered into a definitive agreement to acquire 100% of the outstanding shares of Scout Investments,
Inc. (the “Scout Group”), an asset management and distribution entity, from UMB Financial Corporation. The Scout Group includes
Scout Investments (“Scout”) and its Reams Asset Management division (“Reams”), as well as Scout Distributors. The addition of
Scout, an equity asset manager, and Reams, an institutional-focused fixed income specialist, broadens the investment solutions available
to our clients. As of December 31, 2016, Scout and its Reams division had combined assets under management and advisement of
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
approximately $27 billion. The Scout Group was included in our Asset Management segment upon completion of this acquisition,
which occurred on November 17, 2017.
Acquisitions completed during fiscal year 2016
Mummert & Company Corporate Finance GmbH (“Mummert”)
In June 2016, we completed our acquisition of all of the outstanding shares of Mummert, a middle market M&A advisory firm,
headquartered in Munich, Germany, that was focused primarily on the technology, industrial, healthcare, consumer and business services
sectors. Mummert expanded our investment banking capabilities in Europe, and has been integrated into our Capital Markets segment.
For purposes of certain acquisition-related financial reporting requirements, the Mummert acquisition was 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. See Note 17 for information regarding the contingent
consideration associated with the Mummert transaction.
MacDougall, MacDougall & MacTier Inc. (“3Macs”)
In August 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 operate within RJ Ltd. in our
Private Client Group segment. For purposes of certain acquisition-related financial reporting requirements, the 3Macs acquisition was
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 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
In September 2016, we completed an acquisition of certain specified assets and the assumption of certain specified liabilities of the
U.S. Private Client Services unit of Deutsche Bank Wealth Management (“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
the firm. Alex. Brown is included in our Private Client Group segment. For purposes of certain acquisition-related financial reporting
requirements, the Alex. Brown acquisition was 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.
As part of the acquisition of Alex. Brown, we assumed the liability for certain DBRSU awards, including the associated plan terms
and conditions, which will ultimately be settled in DB common shares if the conditions outlined in the plan are met. At various dates
throughout fiscal year 2016, we purchased DB common shares to serve as an economic hedge to the DBRSU liability. See Note 2 and
Note 20 for further information on this liability.
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Acquisition-related expenses
The “Acquisition-related expenses” presented in our Consolidated Statements of Income and Comprehensive Income for the year ended
September 30, 2017 and 2016 pertain to certain incremental expenses incurred in connection with the acquisitions described above.
The table below presents a summary of acquisition-related expenses incurred in each respective period. Our acquisition-related expenses
associated with our fiscal year 2015 acquisitions were not significant.
$ in thousands
Severance
Acquisition and integration-related incentive compensation costs
Early termination costs of assumed contracts
Information systems integration costs
Legal and regulatory
Post-closing purchase price contingency
DBRSU obligation and related hedge
All other
Total acquisition-related expenses
In the table above:
Year ended September 30,
2017
2016
$
$
$
5,859
5,474
1,329
1,380
3,192
(3,345)
770
3,336
17,995
$
866
—
—
21,752
8,334
—
4,837
4,917
40,706
•
Severance expenses primarily arose from the 3Macs acquisition. Such costs included severance costs as well as any forgiven
employee loan balances and any unamortized balance of the prepaid compensation asset associated with terminated associates,
which was not collected. See Note 9 for more information.
• Acquisition and integration-related incentive compensation costs are primarily comprised of non-recurring RSU grants made
to certain employees and consultants for acquisition-related purposes.
• DBRSU obligation and related hedge expenses for the year ended September 30, 2017 included a loss on the DBRSU awards
related to a DB rights offering during the year. This loss was partially offset by a related gain on the DB shares that act as an
economic hedge to this obligation. Expenses for the year ended September 30, 2016 represented the pre-Alex. Brown closing
date unrealized loss on the DB shares. See Note 20 for more information.
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 4 – FAIR VALUE
Our “Financial instruments owned” and “Financial instruments sold, but not yet purchased” on our Consolidated Statements of
Financial Condition are recorded at fair value under GAAP. See Note 2 for further information about such instruments and our
significant accounting policies related to fair value.
The tables below presents assets and liabilities measured at fair value on a recurring and nonrecurring basis. Netting adjustments
represent the impact of counterparty and collateral netting on our derivative balances included in our Consolidated Statements of
Financial Condition. See Note 6 for additional information.
$ in thousands
Assets at fair value on a recurring basis
Trading instruments
Quoted prices
in active
markets for
identical
instruments
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Netting
adjustments
Balance as of
September 30,
2017
Municipal and provincial obligations
$
83
$
221,884
$
Corporate obligations
Government and agency obligations
Agency MBS and CMOs
Non-agency CMOs and ABS
Total debt securities
Equity securities
Brokered certificates of deposit
Other
Total trading instruments
Available-for-sale securities
Agency MBS and CMOs
Other securities
ARS preferred securities
Total available-for-sale securities
Derivative assets
Interest rate contracts
Matched book
Other
Foreign exchange contracts
Total derivative assets
Private equity investments
Measured at fair value
Measured at NAV
Total private equity investments
Other investments (2)
9,361
6,354
913
—
16,711
16,090
—
32
32,833
—
1,032
—
1,032
—
—
—
—
—
—
220,312
81,577
28,977
133,070
28,442
493,950
389
31,492
—
525,831
2,081,079
—
—
2,081,079
288,035
86,436
32
374,503
—
—
332
—
—
—
—
5
5
—
—
5,594 (1)
5,599
—
—
106,171
106,171
—
—
—
—
88,885
88,885
336
$
— $
221,967
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(55,728)
—
(55,728)
—
—
—
90,938
35,331
133,983
28,447
510,666
16,479
31,492
5,626
564,263
2,081,079
1,032
106,171
2,188,282
288,035
30,708
32
318,775
88,885
109,894
198,779
220,980
Total assets at fair value on a recurring basis
$
254,177
$
2,981,745
$
200,991
$
(55,728) $
3,491,079
Assets at fair value on a nonrecurring basis
Bank loans, net
Impaired loans
Loans held for sale (3)
Total bank loans, net
Other Assets: OREO
Total assets at fair value on a nonrecurring basis
$
$
— $
17,474
$
23,994
$
— $
—
—
—
11,285
28,759
880
—
23,994
—
—
—
—
— $
29,639
$
23,994
$
— $
41,468
11,285
52,753
880
53,633
(continued on next page)
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
$ in thousands
Liabilities at fair value on a recurring basis
Trading instruments sold but not yet purchased
Quoted prices
in active
markets for
identical
instruments
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Netting
adjustments
Balance as of
September 30,
2017
Municipal and provincial obligations
$
304
$
— $
— $
— $
Corporate obligations
Government obligations
Agency MBS and CMOs
Non-agency MBS and CMOs
Total debt securities
Equity securities
Total trading instruments sold but not yet purchased
Derivative liabilities
Interest rate contracts
Matched book
Other
Foreign exchange contracts
DBRSU obligation (equity)
Total derivative liabilities
1,286
167,622
2,477
—
171,689
8,118
179,807
—
—
—
—
—
35,272
—
—
5,028
40,300
1,342
41,642
288,035
101,893
646
25,800
416,374
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(59,410)
—
—
(59,410)
Total liabilities at fair value on a recurring basis
$
179,807
$
458,016
$
— $
(59,410) $
304
36,558
167,622
2,477
5,028
211,989
9,460
221,449
288,035
42,483
646
25,800
356,964
578,413
(1)
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
17 for additional information.
(2)
Includes $44 million of financial instruments that are related to obligations to perform under certain deferred compensation plans and DB shares with a fair
value of $19 million as of September 30, 2017 which we hold as an economic hedge against the DBRSU obligation. See Notes 2 and 20 for additional information.
(3) Loans classified as held for sale recorded at a fair value lower than cost.
111
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
$ in thousands
Assets at fair value on a recurring basis:
Trading instruments
Quoted prices
in active
markets for
identical
instruments
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Netting
adjustments
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
Equity securities
Brokered certificates of deposit
Other
Total trading instruments
Available-for-sale securities
Agency MBS and CMOs
Non-agency CMOs
Other securities
ARS
Municipal obligations
Preferred securities
10,000
6,412
413
—
17,305
14,529
—
555
122,885
43,186
164,250
34,421
638,425
1,500
35,206
3
32,389
675,134
—
—
1,417
—
—
682,297
50,519
—
—
—
Total available-for-sale securities
1,417
732,816
—
—
—
—
—
—
325,655
422,196
163,433
2,016
587,645
—
—
257
Derivative assets
Interest rate contracts
Matched-book
Other
Foreign exchange contracts
Total derivative assets
Private equity investments
Measured at fair value
Measured at NAV
Total private equity investments
Other investments (2)
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 (3)
Total bank loans, net
Other assets: OREO
Total assets at fair value on a nonrecurring basis
$
$
$
—
—
—
—
7
7
—
—
6,020 (1)
6,027
—
—
—
25,147
100,018
125,165
—
—
—
—
83,165
83,165
441
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(107,539)
—
(107,539)
—
—
—
274,163
132,885
49,598
164,663
34,428
655,737
16,029
35,206
6,578
713,550
682,297
50,519
1,417
25,147
100,018
859,398
422,196
55,894
2,016
480,106
83,165
111,469
194,634
326,353
359,461
$
1,995,852
$
214,798
$
(107,539) $
2,574,041
— $
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)
112
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
$ in thousands
Liabilities at fair value on a recurring basis
Trading instruments sold but not yet purchased
Quoted prices
in active
markets for
identical
instruments
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Netting
adjustments
Balance as of
September 30,
2016
Municipal and provincial obligations
$
1,161
$
— $
Corporate obligations
Government obligations
Agency MBS and CMOs
Total debt securities
Equity securities
Total trading instruments sold but not yet purchased
Derivative liabilities
Interest rate contracts
Matched book
Other
DBRSU obligation (equity)
Total derivative liabilities
Total liabilities at fair value on a recurring basis
$
1,283
266,682
2,804
271,930
18,382
290,312
29,791
—
—
29,791
—
29,791
—
—
—
—
290,312
$
422,196
178,502
17,769
618,467
648,258
$
—
—
—
—
—
—
—
—
—
—
—
—
$
— $
—
—
—
—
—
—
—
(142,859)
—
(142,859)
(142,859) $
$
1,161
31,074
266,682
2,804
301,721
18,382
320,103
422,196
35,643
17,769
475,608
795,711
(1)
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
17 for additional information.
(2)
Includes $77 million of financial instruments that are related to obligations to perform under certain deferred compensation 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 and 20 for additional information.
(3) Loans classified as held for sale recorded at a fair value lower than cost.
Transfers between levels
We had $4 million and $3 million in transfers of financial instruments from Level 1 to Level 2 during the year ended September 30,
2017 and 2016, respectively. These transfers were a result of decreased market activity in these instruments. Our transfers from
Level 2 to Level 1 were $1 million in each of the years ended September 30, 2017 and 2016, respectively. These transfers were a
result of increased market activity in these instruments. Our policy is to treat transfers between levels of the fair value hierarchy as
having occurred at the end of the reporting period.
Changes in Level 3 recurring fair value measurements
The tables below presents the changes in fair value for Level 3 assets and liabilities measured at fair value on a recurring basis. The
realized and unrealized gains and losses in the tables below may include changes in fair value that were attributable to both observable
and unobservable inputs. Our policy is to treat transfers between levels of the fair value hierarchy as having occurred at the end of
the reporting period.
113
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
$ in thousands
Fair value beginning of year
Total gains/(losses) for the year:
Included in earnings
Included in other comprehensive income
Purchases and contributions
Sales
Distributions
Transfers:
Into Level 3
Out of Level 3
Fair value end of year
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, 2017
Level 3 assets at fair value
Trading instruments
Available-for-sale securities
Non-agency
CMOs and
ABS
Other
ARS –
municipal
obligations
ARS -
preferred
securities
Private equity and other
investments
Private equity
investments
Other
investments
7
1
—
—
—
(3)
—
—
5
$
6,020
$
25,147
$
100,018
$
83,165 $
441
(2,568)
—
67,316
(65,174)
—
—
—
641
2,344
—
(28,132)
—
—
—
(84)
7,705
—
(1,468)
—
—
—
8,343
—
5,245
(168)
(7,700)
—
—
$
5,594
$
— $
106,171
$
88,885 $
118
—
217
(245)
—
—
(195)
336
1
$
(1,626) $
— $
7,705
$
8,331
$
118
Year ended September 30, 2016
Level 3 assets at fair value
Trading instruments
Available-for-sale securities
Private equity and other
investments
Corporate
obligations
Non-agency
CMOs and
ABS
Other
ARS –
municipal
obligations
ARS -
preferred
securities
Private equity
investments
Other
investments
$ in thousands
Fair value beginning of year
$
156
$
9
$
6,961
$
28,015
$
110,749
$
77,435
$
565
Total gains/(losses) for the year:
Included in earnings
Included in other comprehensive
income
Purchases and contributions
Sales
Redemptions by issuer
Distributions
Transfers:
Into Level 3
Out of Level 3
Fair value end of year
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
$
$
(137)
—
75
(94)
—
—
—
—
— $
—
—
—
—
—
(2)
—
—
7
(3,048)
133
136
—
61,887
(59,780)
(1,393)
(9,656)
—
—
(1,583)
(1,211)
—
—
—
—
(25)
—
—
—
—
—
—
—
11,517
—
11,271
(18)
—
9
—
8
—
—
(17,040)
(141)
—
—
—
—
441
$
6,020
$
25,147
$
100,018
$
83,165
$
— $
2
$
(2,752) $
(1,348) $
(9,574) $
11,517
$
2
The gains included in our Consolidated Statements of Income and Comprehensive Income for certain private equity investments for
the years ended September 30, 2017 and 2016 were primarily attributable to the noncontrolling interests’ share of the net valuation
adjustments.
As of September 30, 2017, 10% of our assets and 2% 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, 2017 represent 6% of our
assets measured at fair value. In comparison as of September 30, 2016, 8% 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, 2016 represented 8% of our assets measured at fair value. Level 3 instruments as a percentage of
114
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
total financial instruments decreased compared to September 30, 2016, primarily as a result of the increase in total assets measured
at fair value since September 30, 2016.
The following table presents the gains/(losses) related to Level 3 recurring fair value measurements included in our Consolidated
Statements of Income and Comprehensive Income.
$ in thousands
For the year ended September 30, 2017
Total gains/(losses) included in earnings
Change in unrealized gains/(losses) for assets held at the end of the year
For the year ended September 30, 2016
Total gains/(losses) 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
Other
comprehensive
income
$
$
$
$
(2,567) $
(1,625) $
9,018
8,449
(3,185) $
(2,750) $
11,795
11,519
$
$
$
$
10,049
7,705
(11,049)
(10,922)
The table below presents the valuation techniques and significant unobservable inputs used in the valuation of a significant majority
of our financial instruments classified as level 3. These inputs represent those that a market participant would take into account
when pricing these instruments.
Level 3 financial instrument
$ in thousands
Recurring measurements:
Fair value at
September 30,
2017
Valuation technique(s)
Unobservable input
Range
(weighted-average)
ARS preferred securities
$
106,171
Discounted cash flow
Average discount rate
5.46% - 6.81% (6.03%)
Average interest rates applicable to
2.58% - 3.44% (2.72%)
future interest income on the
securities (1)
Prepayment year (2)
2017 - 2021 (2021)
Private equity investments (not
measured at NAV):
$
68,454
Income or market approach:
Scenario 1 - income approach -
discounted cash flow
Discount rate
13% - 25% (22.4%)
Scenario 2 - market approach -
market multiple method
20,431
Transaction price or other
investment-specific events(3)
Terminal growth rate of cash flows
3% - 3% (3%)
Terminal year
2020 - 2042 (2021)
EBITDA Multiple
5.25 - 7.0 (5.8)
Weighting assigned to outcome of
scenario 1/scenario 2
Not meaningful (3)
87%/13%
Not meaningful (3)
20,736
3,258
Discounted cash flow
Prepayment rate
7 yrs. - 12 yrs. (10.4 yrs.)
Appraisal or discounted cash
flow value(4)
Not meaningful (4)
Not meaningful (4)
Nonrecurring measurements:
Bank loans: impaired loans -
residential
Bank loans: impaired loans:
corporate
$
$
$
(1) 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.
(2) Assumed calendar year of at least a partial redemption of the outstanding security by the issuer.
(3) Certain private equity investments are valued initially at the transaction price until either our periodic 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.
(4) 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.
(continued on next page)
115
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued from previous page)
Level 3 financial instrument
$ in thousands
Recurring measurements:
Available-for-sale securities
ARS Municipals - issuer
is a municipality
Available-for-sale securities
ARS Municipals - tax-
exempt preferred
securities
Available-for-sale securities
ARS Preferred securities
Private equity investments (not
measured at NAV):
Nonrecurring measurements:
Bank loans - impaired residential
Bank loans - impaired corporate
Fair value at
September 30,
2016
Valuation technique(s)
Unobservable input
10,413
Discounted cash flow
Average discount rate
Range
(weighted-average)
5.17% - 6.36%
(5.77%)
Average interest rates applicable to future
interest income on the securities (1)
Prepayment year (2)
1.23% - 1.83%
(1.53%)
2019 - 2026 (2022)
14,734
Discounted cash flow
Average discount rate
4.62% - 5.62%
(5.12%)
Average interest rates applicable to future
interest income on the securities (1)
Prepayment year (2)
0.91% - 0.91%
(0.91%)
2016 - 2021 (2021)
100,018
Discounted cash flow
Average discount rate
Average interest rates applicable to future
interest income on the securities (1)
Prepayment year (2)
4.87% - 6.34%
(5.56%)
1.24% - 2.51%
(1.34%)
2016 - 2021 (2021)
56,746
Income or market approach:
Scenario 1 - income approach -
discounted cash flow
Scenario 2 - market approach -
market multiple method
26,419
Transaction price or other
investment-specific events (3)
21,909
26,073
Discounted cash flow
Appraisal or discounted cash
flow value (4)
Discount rate
13% - 20% (17.9%)
Terminal growth rate of cash flows
3% - 3% (3%)
Terminal year
2019 - 2021 (2020)
EBITDA Multiple
5.25 - 7.5 (6.3)
Weighting assigned to outcome of
scenario 1/scenario 2
Not meaningful (3)
81%/19%
Not meaningful (3)
Prepayment rate
Not meaningful (4)
7 yrs. - 12 yrs.
(10.2 yrs.)
Not meaningful (4)
$
$
$
$
$
$
$
(1) 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.
(2) Assumed calendar year of at least a partial redemption of the outstanding security by the issuer.
(3) Certain private equity investments are valued initially at the transaction price until either our periodic 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.
(4) 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.
116
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, if any, 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/(decreases) in our investment entities’ future economic performance will have a corresponding
increase/(decrease) 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 the investments
at fair value.
Our private equity portfolio as of September 30, 2017 includes various direct and third party private equity investments 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. We anticipate
90% of these underlying assets will be liquidated over a period of five years or less, with the remaining 10% to be liquidated over
a period of nine years.
117
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The table below presents the recorded value and unfunded commitments related to our private equity portfolio.
$ in thousands
September 30, 2017
Private equity investments measured at NAV
Private equity investments measured at fair value
Total private equity investments
September 30, 2016
Private equity investments measured at NAV
Private equity investments measured at fair value
Total private equity investments
Recorded Value
RJF
Unfunded commitment
Noncontrolling
Interest
Total
$
$
$
$
109,894
$
20,973
$
2,273
$
23,246
88,885
198,779
111,469
$
27,542
$
3,001
$
30,543
83,165
194,634
The portions of the private equity investments we do not own were $54 million and $51 million as of September 30, 2017 and
September 30, 2016, respectively, and as such are included as a component of noncontrolling interest in our Consolidated Statements
of Financial Condition. Of the total private equity investments, the weighted average portion we own is $145 million or 73% and
$144 million or 74% as of September 30, 2017 and September 30, 2016, respectively.
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 (“Volcker Rule”). We have received approval from the Board of Governors of the
Federal Reserve System (the “Fed”) to continue to hold the majority of our covered fund investments for up to an additional five-
year conformance period, thereby extending our applicable holding period until July 2022 for such investments.
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, 2017 and 2016, we had not elected 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 represents financial instruments in which the ending balance at September 30, 2017 and 2016 was not carried at fair
value in accordance with the GAAP 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, repurchase agreements and reverse repurchase agreements
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. Repurchase agreements and reverse repurchase agreements
and other collateralized financings are classified as Level 2 under the fair value hierarchy as they are generally overnight and are
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, which are carried at lower of cost or market value, as well as any impaired loans held for investment are
recorded at fair value as nonrecurring fair value measurements, and therefore are excluded from the table below.
Fair values for both variable and fixed-rate loans held for investment are estimated using discounted cash flow analysis, 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
118
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 brokers, 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 (i.e., 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 certificates of deposit 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 certificates of deposit are classified as Level 3 under the fair value
hierarchy.
Payables: Brokerage client payables, payables to brokers, dealers and clearing organizations, 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 22 for further discussion of off-balance sheet financial instruments.
119
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The table below presents 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. The carrying amounts below exclude financial instruments which have been recorded
at fair value and those recorded at amounts which approximate fair value in the Consolidated Statements of Financial Condition.
$ in thousands
September 30, 2017
Financial assets:
Bank loans, net
Loans to financial advisors, net
Financial liabilities:
Bank deposits
Other borrowings
Senior notes payable
September 30, 2016
Financial assets:
Bank loans, net
Loans to financial advisors, net
Financial liabilities:
Bank deposits
Other borrowings
Senior notes payable
$
$
$
$
$
$
$
$
$
$
Quoted prices
in active
markets for
identical
instruments
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total estimated
fair value
Carrying amount
— $
— $
— $
— $
— $
— $
— $
— $
— $
23,001
$
16,836,745
— $
698,862
$
$
16,859,746
698,862
17,417,678
29,278
1,647,696
$
$
$
313,359
$
17,731,037
— $
— $
29,278
1,647,696
196,109
$
14,925,802
— $
699,733
$
$
15,121,911
699,733
$
$
$
$
$
$
$
$
$
$
16,954,042
863,647
17,732,362
28,813
1,548,839
15,121,430
826,776
14,262,547
33,391
1,680,587
13,947,310
34,520
$
$
$
318,228
$
14,265,538
— $
— $
34,520
1,814,251
362,180
$
1,452,071
NOTE 5 – 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. See Note 2 for a discussion of our available-for-sale securities accounting policies, including the fair value determination
process.
The amortized cost and fair values of available-for sale-securities are as follows:
$ in thousands
September 30, 2017
Agency MBS and CMOs
Other securities
Total RJ Bank available-for-sale securities
ARS preferred securities
Total available-for-sale securities
September 30, 2016
Agency MBS and CMOs
Non-agency CMOs (1)
Other securities
Total RJ Bank available-for-sale securities
ARS municipal obligations
ARS preferred securities
Total auction rate securities
Cost basis
Gross
unrealized gains
Gross
unrealized losses
Fair value
$
2,089,153
$
1,925
$
(9,999) $
2,081,079
$
$
$
$
1,575
2,090,728
101,674
2,192,402
680,341
53,427
1,575
735,343
27,491
103,226
130,717
$
$
—
1,925
4,497
6,422
2,512
9
—
2,521
14
—
14
(543)
(10,542)
—
1,032
2,082,111
106,171
(10,542) $
2,188,282
(556) $
(2,917)
(158)
(3,631)
(2,358)
(3,208)
(5,566)
682,297
50,519
1,417
734,233
25,147
100,018
125,165
859,398
Total available-for-sale securities
$
866,060
$
2,535
$
(9,197) $
(1) As of September 30, 2016, the non-credit portion of unrealized losses related to non-agency CMOs with previously recorded OTTI before taxes was $2 million,
recorded in AOCI. See Note 18 for additional information. During the year ended September 30, 2017, we sold the remainder of our non-agency CMOs.
See Note 4 for additional information regarding the fair value of available-for-sale securities.
120
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 and 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.
$ in thousands
Agency MBS and CMOs:
Amortized cost
Carrying value
Weighted-average yield
Other securities:
Amortized cost
Carrying value
Weighted-average yield
$
$
Sub-total agency MBS and CMOs and other securities:
Amortized cost
Carrying value
Weighted-average yield
ARS preferred securities:
Amortized cost
Carrying value
Weighted-average yield
Total available-for-sale securities:
Amortized cost
Carrying value
Weighted-average yield
$
$
$
Within one
year
After one but
within five years
After five but
within ten years
After ten years
Total
September 30, 2017
— $
110,510
$
675,502
$
1,303,141
$
2,089,153
—
—
110,019
1.96%
673,454
1,297,606
2,081,079
1.87%
1.97%
1.94%
— $
— $
— $
—
—
—
—
—
—
$
1,575
1,032
—
1,575
1,032
—
— $
110,510
$
675,502
$
1,304,716
$
2,090,728
—
—
110,019
1.96%
673,454
1,298,638
2,082,111
1.87%
1.97%
1.94%
— $
— $
— $
101,674
$
—
—
—
—
—
—
106,171
2.10%
101,674
106,171
2.10%
— $
110,510
$
675,502
$
1,406,390
$
2,192,402
—
—
110,019
1.96%
673,454
1,404,809
2,188,282
1.87%
1.98%
1.95%
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:
$ in thousands
Agency MBS and CMOs
Other securities
Total
$ in thousands
Agency MBS and CMOs
Non-agency CMOs
Other securities
ARS municipal obligations
ARS preferred securities
Total
Less than 12 months
September 30, 2017
12 months or more
Total
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
$
$
1,119,715
—
1,119,715
$
$
(5,621) $
295,528
—
1,032
(5,621) $
296,560
$
$
(4,378) $
1,415,243
(543)
1,032
(4,921) $
1,416,275
$
$
(9,999)
(543)
(10,542)
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
$
208,880
$
(361) $
28,893
$
(195) $
237,773
$
4,256
1,417
13,204
98,489
(21)
(158)
(697)
(3,208)
44,137
—
11,695
—
(2,896)
—
(1,661)
—
48,393
1,417
24,899
98,489
$
326,246
$
(4,445) $
84,725
$
(4,752) $
410,971
$
(556)
(2,917)
(158)
(2,358)
(3,208)
(9,197)
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.
121
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Agency MBS and CMOs and Non-agency 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, 2017, of the 133 U.S. government-sponsored enterprise MBS and CMOs in an unrealized
loss position, 100 were in a continuous unrealized loss position for less than 12 months and 33 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. At September 30, 2017,
debt securities we held from FNMA and FHLMC had an amortized cost of $1.43 billion and $586 million, respectively, and a fair value
of $1.42 billion and $582 million, respectively.
During the year ended September 30, 2017, we sold the remainder of our non-agency CMOs. In periods in which we held such
securities, all individual non-agency securities were evaluated for OTTI on a quarterly basis. Only those non-agency CMOs whose
amortized cost basis we did not expect to recover in full were considered to be other than temporarily impaired, as we had the ability
and intent to hold such securities.
There were $66 million in proceeds and a gain of $1 million, which is included in “Other revenues” on our Consolidated Statements
of Income and Comprehensive Income, from the sale of agency MBS and CMOs and non-agency CMO available-for-sale securities
during the year ended September 30, 2017. During the year ended September 30, 2016, there were $8 million in proceeds, resulting
in an insignificant gain, from sales of non-agency CMO available-for-sale securities. During the year ended September 30, 2015, there
were $12 million in proceeds and a loss of $1 million from the sale of non-agency CMO available-for-sale securities.
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 held as of September 30, 2017 was $120 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. All of our ARS securities
are evaluated for OTTI on a quarterly basis.
As of September 30, 2017, there were no ARS with a fair value less than cost basis. During the year ended September 30, 2017, we
sold the remainder of our ARS municipal obligations. In periods in which we held such securities, certain ARS had 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 had the ability and intent to hold these ARS and expected to recover the entire cost basis
and therefore concluded that none of the potential impairment was related to potential credit loss.
Sales or redemptions of ARS for the year-ended September 30, 2017 primarily related to ARS municipal obligations and resulted in
aggregate proceeds of $30 million and a gain of $1 million, which is included in “Other revenues” on our Consolidated Statements of
Income and Comprehensive Income. During the year ended September 30, 2016, sales or redemptions of ARS resulted in proceeds
of $3 million and an insignificant gain. During the year ended September 30, 2015, sales or redemptions of ARS resulted in proceeds
of $64 million and a gain of $11 million primarily related to ARS municipal obligations.
Other-than-temporarily impaired securities
There is no intent to sell our ARS and it was not more likely than not that we would be required to sell these securities as of September 30,
2017.
Changes in the amount of OTTI related to credit losses recognized in “Other revenues” on available-for-sale securities are as follows:
$ in thousands
Amount related to credit losses on securities we held at the beginning of the year
Decreases to the amount related to credit losses for securities sold during the year
Amount related to credit losses on securities we held at the end of the year
Year ended September 30,
2017
2016
2015
$
$
8,107
$
11,847
$
(8,107)
(3,740)
— $
8,107
$
18,703
(6,856)
11,847
122
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS
Our derivative assets and derivative liabilities are recorded at fair value and are included in “Derivative assets” and “Derivative
liabilities” in our Consolidated Statements of Financial Condition. Cash flows related to our derivative contracts are included within
operating activities in the Consolidated Statements of Cash Flows. 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 interest rate contracts as part of our fixed income business to facilitate client transactions or to actively manage risk
exposures that arise from our client activity, including a portion of our trading inventory. The majority of these derivatives are traded
in the over-the-counter market and are executed directly with another counterparty or are cleared and settled through a clearing
organization.
We also facilitate matched book derivative transactions in which RJFP enters into interest rate derivative transactions with clients. For
every derivative transaction RJFP enters into with a client, RJFP enters into an offsetting derivative on terms that mirror the client
transaction with a credit support provider, which is a third party financial institution. Any collateral required to be exchanged under
these derivative contracts is administered directly between the client and the third-party financial institution. Due to this pass-through
transaction structure, RJFP has completely mitigated the market and credit risk on these derivative contracts. As a result, derivatives
for which the fair value is in an asset position have an equal and offsetting derivative liability. RJFP only has credit risk on its uncollected
derivative transaction fee revenues. The receivable for uncollected derivative transaction fee revenues of RJFP was $5 million and $7
million at September 30, 2017 and 2016, respectively, and is included in “Other receivables” on our Consolidated Statements of
Financial Condition.
Derivatives arising from RJ Bank’s business operations
We enter into forward foreign exchange contracts and interest rate swaps to hedge certain exposures arising out of RJ Bank’s business
operations. Each of these activities is described in the “Derivative assets and derivative liabilities” section of Note 2 and below.
We enter into three-month forward foreign exchange contracts primarily to hedge the risks related to RJ Bank’s investment in their
Canadian subsidiary as well as their risk resulting from transactions denominated in currencies other than the U.S. dollar. The majority
of these derivatives are designated as net investment hedges.
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. RJ Bank
enters into floating-rate advances from the FHLB to, in part, fund these assets and then enters into interest rate swaps which swap
variable interest payments on this debt for fixed interest payments. These interest rate swaps are designated as cash flow hedges and
effectively fix RJ Bank’s cost of funds associated with these assets to mitigate a portion of the market risk.
Derivative arising from our acquisition of Alex. Brown
As part of our acquisition of Alex. Brown, we 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, provided the performance metrics are achieved. The DBRSU obligation results in a
derivative, the fair value and notional of which is measured by multiplying the number of outstanding DBRSU awards to be settled in
DB common shares as of the end of the reporting period by the end of reporting period DB share price, as traded on the NYSE.
Counterparty netting and collateral related to derivative contracts
To reduce credit exposure on certain of our derivative transactions, we may enter into a master netting arrangement that allows for net
settlement of all derivative transactions with each counterparty. In addition, the credit support annex allows parties to the master netting
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. Where permitted, we elect to net-by-counterparty certain derivative contracts entered into
under a legally enforceable master netting agreement and, therefore, the fair value of those derivative contracts are netted by counterparty
in the Consolidated Statements of Financial Condition. As we elect to net-by-counterparty the fair value of such derivative contracts,
we also net-by-counterparty cash collateral exchanged as part of those derivative agreements. We may also require certain counterparties
to make a deposit at the inception of a derivative agreement, referred to as “initial margin.” This initial margin is included in “Other
payables” on our Consolidated Statements of Financial Condition.
123
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We are also required to maintain cash or marketable security deposits with the clearing organizations we utilize to clear certain of our
interest rate derivative transactions. This initial margin is included as a component of “Receivables from brokers, dealers and clearing
organizations” in our Consolidated Statements of Financial Condition. On a daily basis we also pay cash to or receive cash from these
clearing organizations due to changes in the fair value of the derivatives which they clear. Such payments are referred to as “variation
margin.” During the quarter ended March 31, 2017, the Chicago Mercantile Exchange, a clearing organization we utilize to clear
certain of our interest rate derivatives, adopted a rule change which requires variation margin to be considered settlement of the related
derivatives instead of collateral. The impact of this change on our Consolidated Statements of Financial Condition was to reduce the
gross fair value of these derivative assets and/or liabilities by the amount of variation margin received or paid on the related derivatives.
Prior to the quarter ending March 31, 2017, such balances were included as a component of “Receivables from brokers, dealers and
clearing organizations” when such balances were in an asset position, or “Other payables” when such balances were in a liability
position, on our Consolidated Statements of Financial Condition.
RJ Bank provides to counterparties for the benefit of its U.S. subsidiaries, a guarantee of payment in the event of the subsidiary’s 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 generally not required to post collateral with and do not generally receive collateral from the respective
counterparties.
Derivative balances included in our financial statements
The table below presents the gross fair value and notional amount of derivative contracts by product type, the amounts of counterparty
and cash collateral netting in our Consolidated Statements of Financial Condition, as well as cash and securities collateral posted and
received under enforceable credit support agreements that do not meet the criteria for netting under GAAP.
$ in thousands
Derivatives not designated as hedging instruments
Interest rate contracts:
Matched book
Other
Foreign exchange contracts
DBRSU obligation (equity) (1)
Subtotal
Derivatives designated as hedging instruments
Interest rate contracts
Foreign exchange contracts
Subtotal
September 30, 2017
September 30, 2016
Derivative
assets
Derivative
liabilities
Notional
amount
Derivative
assets
Derivative
liabilities
Notional
amount
$
288,035
$
288,035
$ 2,766,488
$
422,196
$
422,196
$ 2,938,590
86,436
100,503
4,931,809
163,433
151,831
4,285,033
3
—
530
25,800
437,783
25,800
620
—
—
17,769
313,562
17,769
374,474
414,868
8,161,880
586,249
591,796
7,554,954
—
29
29
1,390
116
1,506
850,000
1,048,646
1,898,646
—
1,396
1,396
26,671
—
550,000
753,373
26,671
1,303,373
Total gross fair value/notional amount
374,503
416,374
$10,060,526
587,645
618,467
$ 8,858,327
Offset in the Statements of Financial Condition
Counterparty netting
Cash collateral netting
Total amounts offset
(6,045)
(49,683)
(55,728)
(6,045)
(53,365)
(59,410)
(55,498)
(52,041)
(55,498)
(87,361)
(107,539)
(142,859)
Net amounts presented in the Statements of Financial
Condition
318,775
356,964
480,106
475,608
Gross amounts not offset in the Statements of Financial Condition
Financial instruments (2)
Cash received/(paid)
Subtotal
Total
(293,340)
(288,035)
(451,224)
(424,633)
—
—
—
(26,671)
(293,340)
(288,035)
(451,224)
(451,304)
$
25,435
$
68,929
$
28,882
$
24,304
(1) The DBRSU obligation is not subject to an enforceable master netting arrangement or other similar arrangement. However, we hold shares of DB as an economic
hedge against this obligation with a fair value of $19 million and $12 million as of September 30, 2017 and 2016, respectively, which are a component of “Other
investments” on our Consolidated Statements of Financial Condition. See additional discussion of the DBRSUs in Note 20.
(2) Although the matched book 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. As a result, we present the matched book amounts net in the table
above.
124
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Gains/(losses) recognized in AOCI, net of income taxes, on derivatives designated as hedging instruments are as follows (see Note 18
for additional information):
$ in thousands
Interest rate contracts (cash flow hedges)
Foreign exchange contracts (net investment hedges)
Total gains/(losses) recognized in AOCI, net of taxes
Year ended September 30,
2017
2016
2015
$
$
23,232
$
(11,833) $
(26,281)
(6,721)
(3,049) $
(18,554) $
(4,650)
60,331
55,681
There was no significant 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, 2017, 2016 or 2015. We expect to reclassify an estimated $4 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.
Gains/(losses) on derivatives not designated as hedging instruments recognized on the Consolidated Statements of Income and
Comprehensive Income are as follows:
$ in thousands
Interest rate contracts:
Matched book
Other
Foreign exchange contracts
DBRSUs
DBRSUs
Location of the impact
recognized on derivatives included in the
Consolidated Statements of
Income and Comprehensive Income
Gain/(loss) recognized during the
year ended September 30,
2017
2016
2015
Other revenues
Net trading profit
Other revenues
Compensation, commissions and benefits expense
Acquisition-related expenses
$
$
$
$
$
36
7,895
$
$
92
2,819
$
$
901
3,107
(19,961) $
(2,662) $
20,459
(5,648) $
(2,383) $
2,457
$
— $
—
—
Acquisition-related expenses in the table above include the impact on the DBRSU obligation of the DB rights offering during fiscal
year 2017 and from forfeitures which occurred during the periods presented. The impact of the DB rights offering on the DBRSU
obligation was partially offset by a gain on the rights offering related to the shares of DB we hold as an economic hedge, which was
also reported in acquisition-related expenses.
Risks associated with, and our risk mitigation related to, our derivative contracts
Credit risk
We are exposed to credit losses in the event of nonperformance by the counterparties to forward foreign exchange derivative agreements
and interest rate contracts that are not cleared through a clearing organization. Where we are subject to credit exposure, we perform
a credit evaluation of counterparties prior to entering into derivative transactions and we monitor their credit standings. Currently, we
anticipate that all of the counterparties will be able to fully satisfy their obligations under those agreements. We may require initial
margin or collateral from counterparties in the form of cash deposits or other marketable securities to support certain of these obligations
as established by the credit threshold specified by the agreement and/or as a result of monitoring the credit standing of the counterparties.
Our only exposure to credit risk in the matched book derivatives operations is related to our uncollected derivative transaction fee
revenues. We are not exposed to market risk as it relates to these derivative contracts due to the pass-through transaction structure
previously described.
Interest rate and foreign exchange risk
We are exposed to interest rate risk related to certain of our interest rate derivative agreements. We are also exposed to foreign exchange
risk related to our forward foreign exchange derivative agreements. On a daily basis, we monitor our risk exposure in our derivative
agreements 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.
125
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Derivatives with credit-risk-related contingent features
Certain of the derivative instruments arising from our interest rate contracts and 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 both September 30, 2017 and
2016 was not material.
NOTE 7 – COLLATERALIZED AGREEMENTS AND FINANCINGS
Collateralized agreements are reverse repurchase agreements and securities borrowed. Collateralized financings are repurchase
agreements and securities loaned. We enter into these transactions in order to facilitate client activities, invest excess cash, acquire
securities to cover short positions and finance certain firm activities. The significant accounting policies governing our collateralized
agreements and financings are described in Note 2.
For financial statement purposes, we do not offset our reverse repurchase agreements, repurchase agreements, securities borrowing
and securities lending transactions because the conditions for netting as specified by GAAP are not met. Our reverse repurchase
agreements, repurchase agreements, securities borrowing and securities lending transactions are governed by master agreements that
are widely used by counterparties and that may allow for net settlements of payments in the normal course as well as offsetting of all
contracts with a given counterparty in the event of bankruptcy or default of one of the parties to the transaction. Although not offset
on the Consolidated Statements of Financial Condition, these transactions are included in the following table.
$ in thousands
September 30, 2017
Assets
Liabilities
Reverse
repurchase
agreements
Securities
borrowed
Repurchase
agreements
Securities
loaned
Gross amounts of recognized assets/liabilities
$
404,462
$
138,319
$
220,942
$
383,953
Gross amounts offset in the Statements of Financial Condition
—
—
—
—
Net amounts presented in the Statements of Financial Condition
404,462
138,319
220,942
383,953
Gross amounts not offset in the Statements of Financial Condition
(404,462)
(134,304)
(220,942)
(373,132)
Net amount
September 30, 2016
Gross amounts of recognized assets/liabilities
Gross amounts offset in the Statements of Financial Condition
Net amounts presented in the Statements of Financial Condition
Gross amounts not offset in the Statements of Financial Condition
Net amount
$
$
$
— $
4,015
$
— $
10,821
470,222
$
170,860
$
193,229
$
677,761
—
—
—
—
470,222
170,860
193,229
677,761
(470,222)
(167,169)
(193,229)
(664,870)
— $
3,691
$
— $
12,891
The required market value of the collateral associated with collateralized agreements and financings generally exceeds the amount
financed. Accordingly, the total collateral received under reverse repurchase agreements and the total amount of collateral posted under
repurchase agreements exceeds the carrying value of these agreements in our Consolidated Statements of Financial Condition. 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.
Collateral received and pledged
We receive cash and securities as collateral, primarily in connection with reverse repurchase agreements and other collateralized
financings, securities borrowed, derivative transactions not transacted through a clearing organization, and client margin loans. The
collateral we receive reduces our credit exposure to individual counterparties.
In many cases, we are permitted to deliver or repledge financial instruments we have received as collateral, 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.
126
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
delivered or repledged, to satisfy one of our purposes described above:
$ in thousands
Collateral we received that is available to be delivered or repledged
Collateral that we delivered or repledged
Encumbered assets
September 30,
2017
2016
$
$
3,030,736
1,068,912
$
$
2,925,335
1,536,393
We pledge certain of our financial instruments to collateralize either repurchase agreements or other secured borrowings, or to satisfy
our settlement requirements with counterparties or clearing organizations 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:
$ 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
September 30,
2017
2016
$
$
363,739
44,930
$
$
440,642
18,788
Repurchase agreements, repurchase-to-maturity transactions and securities lending transactions accounted for as secured
borrowings
The following table presents the remaining contractual maturity of repurchase agreements and securities lending transactions accounted
for as secured borrowings:
$ in thousands
As of September 30, 2017:
Repurchase agreements
Overnight and
continuous
Up to 30 days
30-90 days
Greater than 90
days
Total
Government and agency obligations
$
107,284
$
— $
— $
— $
Agency MBS and CMOs
Total Repurchase Agreements
Securities lending
Equity securities
Total
113,658
220,942
383,953
—
—
—
—
—
—
—
—
—
$
604,895
$
— $
— $
— $
Gross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the table within this footnote
Amounts related to repurchase agreements and securities lending transactions not included in the table within this footnote
$
$
As of September 30, 2016:
Repurchase agreements
Government and agency obligations
$
92,804
$
Agency MBS and CMOs
Total Repurchase Agreements
92,422
185,226
$
6,252
1,751
8,003
Securities lending
Equity securities
Total
677,761
—
$
862,987
$
8,003
$
— $
—
—
—
— $
— $
—
—
—
— $
Gross amounts of recognized liabilities for repurchase agreements and securities lending transactions included in the table within this footnote
Amounts related to repurchase agreements and securities lending transactions not included in the table within this footnote
$
$
107,284
113,658
220,942
383,953
604,895
604,895
—
99,056
94,173
193,229
677,761
870,990
870,990
—
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, 2017 and 2016, we did not have any
“repurchase-to-maturity” agreements.
127
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8 – BANK LOANS, NET
Bank client receivables are comprised of loans originated or purchased by RJ Bank and include C&I loans, tax-exempt loans, SBL,
and 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.
See Note 2 for a discussion of accounting policies related to bank loans and allowances for losses.
The following tables present the balances for both the held for sale and held for investment loan portfolios, as well as the associated
percentage of each portfolio segment in RJ Bank’s total loan portfolio. “Loans held for sale, net” and “Total loans held for investment,
net” in the table below are presented net of unearned income and deferred expenses, which include purchase premiums, purchase
discounts and net deferred origination fees and costs.
$ in thousands
Loans held for sale, net
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total loans held for investment
Net unearned income and deferred expenses
Total loans held for investment, net
2017
September 30,
2016
2015
Balance
%
Balance
%
Balance
%
$
70,316
— $
214,286
1% $
119,519
1%
43%
1%
18%
6%
18%
14%
7,385,910
112,681
3,106,290
1,017,791
3,148,730
2,386,697
17,158,099
(31,178)
17,126,921
7,470,373
122,718
2,554,071
740,944
2,441,569
1,904,827
15,234,502
(40,675)
15,193,827
48%
1%
17%
5%
16%
12%
6,928,018
162,356
2,054,154
484,537
1,962,614
1,481,504
13,073,183
(32,424)
13,040,759
52%
1%
16%
4%
15%
11%
Total loans held for sale and investment
17,197,237
100%
15,408,113
100%
13,160,278
100%
Allowance for loan losses
Bank loans, net
(190,442)
(197,378)
(172,257)
$
17,006,795
$
15,210,735
$
12,988,021
$ in thousands
Loans held for sale, net
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total loans held for investment
Net unearned income and deferred expenses
Total loans held for investment, net
Total loans held for sale and investment
Allowance for loan losses
Bank loans, net
September 30,
2014
2013
Balance
%
Balance
%
$
45,988
— $
110,292
1%
58%
1%
15%
1%
16%
9%
6,422,347
94,195
1,689,163
122,218
1,751,747
1,023,748
11,103,418
(37,533)
11,065,885
11,111,873
(147,574)
100%
5,246,005
60,840
1,283,046
—
1,745,650
555,805
8,891,346
(43,936)
8,847,410
8,957,702
(136,501)
59%
1%
14%
—
19%
6%
100%
$
10,964,299
$
8,821,201
At September 30, 2017, the FHLB had a blanket lien on RJ Bank’s residential mortgage loan portfolio as security for the repayment
of certain borrowings. See Note 14 for more information regarding borrowings from the FHLB.
128
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Loans held for sale
RJ Bank originated or purchased $1.67 billion, $1.80 billion and $1.24 billion of loans held for sale during the years ended September 30,
2017, 2016 and 2015, respectively. Proceeds from the sale of held for sale loans amounted to $439 million, $383 million and $213
million for the years ended September 30, 2017, 2016 and 2015, respectively. Net gains resulting from such sales amounted to $2
million in each of the years ended September 30, 2017, 2016 and 2015. 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 insignificant in each of
the years ended September 30, 2017, 2016 and 2015.
Purchases and sales of loans held for investment
The following table presents purchases and sales of any loans held for investment by portfolio segment:
$ in thousands
Year ended September 30, 2017
Purchases
Sales
Year ended September 30, 2016
Purchases
Sales
Year ended September 30, 2015
Purchases
Sales
C&I
CRE
Residential
mortgage
Total
$
$
$
$
$
$
536,627
341,196
457,503
172,968
792,921
108,983
$
$
$
$
$
$
63,542
$
264,340
$
— $
— $
24,869
$
371,710
$
— $
864,509
341,196
854,082
172,968
— $
— $
— $
220,311
$
— $
1,013,232
108,983
Sales in the table above represent the recorded investment of loans held for investment that were transferred to loans held for sale and
subsequently sold to a third party during the respective period. Corporate loan sales generally occur as part of a loan workout situation.
129
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Aging analysis of loans held for investment
The following table presents an analysis of the payment status of loans held for investment:
$ in thousands
As of September 30, 2017:
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, 2016:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
SBL
30-89
days and
accruing
90 days
or more and
accruing
Total
past due and
accruing
Nonaccrual (1)
Current and
accruing
Total loans
held for
investment (2)
$
— $
— $
— $
5,221
$
7,380,689
$
7,385,910
$
$
—
—
—
1,853
248
—
—
—
—
—
—
—
—
—
—
1,853
248
—
—
—
—
33,718
31
—
112,681
3,106,290
1,017,791
3,086,701
26,179
2,386,697
112,681
3,106,290
1,017,791
3,122,272
26,458
2,386,697
2,101
$
— $
2,101
$
38,970
$
17,117,028
$
17,158,099
— $
— $
— $
35,194
$
7,435,179
$
7,470,373
—
—
—
1,766
—
—
—
—
—
—
—
—
—
—
—
1,766
—
—
—
4,230
—
41,746
37
—
122,718
2,549,841
740,944
2,377,357
20,663
1,904,827
122,718
2,554,071
740,944
2,420,869
20,700
1,904,827
Total loans held for investment, net
$
1,766
$
— $
1,766
$
81,207
$
15,151,529
$
15,234,502
(1) Includes $18 million and $54 million of nonaccrual loans at September 30, 2017 and 2016, respectively, which are performing pursuant to their
contractual terms.
(2) Excludes any net unearned income and deferred expenses.
Other real estate owned, included in “Other assets” on our Consolidated Statements of Financial Condition was $5 million at both
September 30, 2017 and September 30, 2016. The recorded investment in mortgage loans secured by one-to-four family residential
properties for which formal foreclosure proceedings were in process was $18 million and $21 million at September 30, 2017 and 2016,
respectively.
130
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Impaired loans and troubled debt restructurings
The following table provides a summary of RJ Bank’s impaired loans:
Gross
recorded
investment
2017
Unpaid
principal
balance
September 30,
Allowance
for losses
Gross
recorded
investment
2016
Unpaid
principal
balance
Allowance
for losses
$ in thousands
Impaired loans with allowance for loan losses: (1)
C&I loans
$
5,221
$
6,160
$
Residential - first mortgage loans
Total
Impaired loans without allowance for loan losses: (2)
CRE loans
Residential - first mortgage loans
Total
23,977
29,198
—
16,737
16,737
31,100
37,260
—
24,899
24,899
1,963
2,504
4,467
—
—
—
$
35,194
$
35,872
$
30,393
65,587
4,230
17,809
22,039
41,337
77,209
11,611
26,486
38,097
13,351
3,147
16,498
—
—
—
Total impaired loans
$
45,935
$
62,159
$
4,467
$
87,626
$
115,306
$
16,498
(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 $27 million of residential first mortgage TDR’s at September 30, 2017, and $4 million CRE and $28
million residential first mortgage TDR’s at September 30, 2016.
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:
$ in thousands
Average impaired loan balance:
C&I loans
CRE loans
Residential - first mortgage loans
Total
Interest income recognized:
Residential - first mortgage loans
Total
Credit quality indicators
Year ended September 30,
2017
2016
2015
$
$
$
$
17,540
$
18,112
$
694
43,845
62,079
1,253
1,253
$
$
$
4,474
51,554
74,140
1,413
1,413
$
$
$
11,311
14,694
59,049
85,054
1,426
1,426
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.
131
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
The credit quality of RJ Bank’s held for investment loan portfolio was as follows:
$ in thousands
September 30, 2017
C&I
CRE construction
CRE
Tax-exempt
Residential mortgage:
First mortgage
Home equity
SBL
Total
September 30, 2016
C&I
CRE construction
CRE
Tax-exempt
Residential mortgage:
First mortgage
Home equity
SBL
Total
Pass
Special mention
Substandard
Doubtful
Total
$
7,232,777
$
63,964
$
89,169
$
— $
7,385,910
$
$
112,681
3,048,847
1,017,791
3,068,290
26,352
2,386,697
—
57,315
—
8,467
75
—
—
128
—
45,515
31
—
—
—
—
—
—
—
112,681
3,106,290
1,017,791
3,122,272
26,458
2,386,697
16,893,435
$
129,821
$
134,843
$
— $
17,158,099
7,241,055
$
117,046
$
112,272
$
— $
7,470,373
122,718
2,549,672
740,944
2,355,393
20,413
1,904,827
—
—
—
11,349
182
—
—
4,399
—
54,127
105
—
—
—
—
—
—
—
122,718
2,554,071
740,944
2,420,869
20,700
1,904,827
$
14,935,022
$
128,577
$
170,903
$
— $
15,234,502
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 updated every six months) 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. Residential mortgage loans
with estimated LTV s in excess of 100% represent less than 1% of the residential mortgage loan portfolio.
132
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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:
$ in thousands
Year ended September 30, 2017
Balance at beginning of year
Provision/(benefit) for loan losses
Net (charge-offs)/recoveries:
Charge-offs
Recoveries
Net (charge-offs)/recoveries
C&I
CRE
construction
CRE
Tax-exempt
Residential
mortgage
SBL
Total
Loans held for investment
$
137,701
$
1,614
$
36,533
$
4,100
$
12,664
$
4,766
$
197,378
7,502
(101)
(172)
2,281
3,944
(467)
12,987
(26,088)
340
(25,748)
—
—
—
—
5,013
5,013
—
—
—
—
(918)
1,001
83
—
—
—
—
—
(27,006)
6,354
(20,652)
729
Foreign exchange translation adjustment
446
(92)
375
Balance at end of year
$
119,901
$
1,421
$
41,749
$
6,381
$
16,691
$
4,299
$
190,442
Year ended September 30, 2016
Balance at beginning of year
$
117,623
$
2,707
$
30,486
$
5,949
$
12,526
$
2,966
$
172,257
Provision/(benefit) for loan losses
23,051
(1,023)
5,997
(1,849)
191
1,800
28,167
Net (charge-offs)/recoveries:
Charge-offs
Recoveries
Net (charge-offs)/recoveries
Foreign exchange translation adjustment
(2,956)
—
(2,956)
(17)
—
—
—
(70)
—
—
—
50
—
—
—
—
(1,470)
1,417
(53)
—
—
—
—
—
(4,426)
1,417
(3,009)
(37)
Balance at end of year
$
137,701
$
1,614
$
36,533
$
4,100
$
12,664
$
4,766
$
197,378
Year ended September 30, 2015
Balance at beginning of year
$
103,179
$
1,594
$
25,022
$
1,380
$
14,350
$
2,049
$
147,574
Provision/(benefit) for loan losses
16,091
1,176
2,205
4,569
(1,388)
917
23,570
Net (charge-offs)/recoveries:
Charge-offs
Recoveries
Net (charge-offs)/recoveries
(1,191)
611
(580)
—
—
—
—
3,773
3,773
Foreign exchange translation adjustment
(1,067)
(63)
(514)
—
—
—
—
(1,667)
1,231
(436)
—
—
—
—
—
(2,858)
5,615
2,757
(1,644)
Balance at end of year
$
117,623
$
2,707
$
30,486
$
5,949
$
12,526
$
2,966
$
172,257
133
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents, by loan portfolio segment, RJ Bank’s recorded investment (excluding any net unearned income and
deferred expenses) and the related allowance for loan losses.
Allowance for loan losses
Recorded investment
Loans held for investment
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Total
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Total
$
$
$
1,963
$
117,938
$
119,901
$
5,221
$
7,380,689
$
7,385,910
—
—
—
2,506
—
1,421
41,749
6,381
14,185
4,299
1,421
41,749
6,381
16,691
4,299
—
—
—
47,368
—
112,681
3,106,290
1,017,791
3,101,362
2,386,697
112,681
3,106,290
1,017,791
3,148,730
2,386,697
4,469
$
185,973
$
190,442
$
52,589
$
17,105,510
$
17,158,099
13,351
$
124,350
$
137,701
$
35,194
$
7,435,179
$
7,470,373
—
—
—
3,156
—
1,614
36,533
4,100
9,508
4,766
1,614
36,533
4,100
12,664
4,766
—
4,230
—
56,735
—
122,718
2,549,841
740,944
2,384,834
1,904,827
122,718
2,554,071
740,944
2,441,569
1,904,827
$
16,507
$
180,871
$
197,378
$
96,159
$
15,138,343
$
15,234,502
$ in thousands
September 30, 2017
C&I
CRE construction
CRE
Tax-exempt
Residential mortgage
SBL
Total
September 30, 2016
C&I
CRE construction
CRE
Tax-exempt
Residential mortgage
SBL
Total
The reserve for unfunded lending commitments, included in “Other payables” on our Consolidated Statements of Financial Condition,
was $11 million at both September 30, 2017 and 2016.
NOTE 9 - OTHER ASSETS
The following table details the components of Other assets:
$ in thousands
Investments in company-owned life insurance
Prepaid expenses
Investment in FHLB stock
Indemnification asset
Investment in FRB stock
Prepaid compensation arising from 3Macs acquisition
Guaranteed LIHTC Fund financing asset
Prepaid compensation associated with DBRSU awards
All other
Total other assets
September 30,
2017
2016
$
504,108
$
417,137
96,059
52,187
26,160
24,706
17,276
15,786
9,899
34,244
91,129
38,813
35,325
24,706
24,285
20,543
15,170
51,727
$
780,425
$
718,835
As of September 30, 2017, the cumulative face value of our company-owned life insurance (“COLI”) policies was $1.87 billion.
Our indemnification asset pertains to legal matters for which Regions (as hereinafter defined) has indemnified RJF in connection with
our acquisition of Morgan Keegan. The liabilities related to such matters were included in “Other payables” on our Consolidated
Statements of Financial Condition. See Note 17 for additional information.
As part of our 2016 acquisition of 3Macs, a portion of the amount paid to selling shareholders who became continuing employees as
of the closing date was treated as a prepaid compensation asset as the shareholders may be required to repay such amounts if they leave
3Macs during the five year period after the closing date, depending on the circumstances of their departure. This prepaid asset is being
amortized as compensation expense over the five-year post-combination period.
134
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 10 for further information) and we accounted for this sale 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 $16 million and $21 million was included in “Other payables” on our Consolidated Statements of Financial
Condition as of September 30, 2017 and 2016, respectively. See Note 17 for additional information.
See Note 20 for further information about prepaid compensation associated with the DBRSU awards that were assumed as part of our
2016 acquisition of Alex. Brown.
NOTE 10 – 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 VIEs to
determine whether consolidation is required” section of Note 2 for a discussion of our principal involvement with the VIEs and the
accounting policies regarding determination of whether we are deemed to be the primary beneficiary of VIEs.
VIEs where we are the primary beneficiary
Of the VIEs in which we hold an interest, we have determined that certain Private Equity Interests, a LIHTC Fund in which RJ Bank
is an investor and an affiliate of RJTCF is the managing member, any LIHTC Funds where RJTCF provides an investor member with
a guaranteed return on their investment, certain other LIHTC funds and the Restricted Stock Trust Fund require consolidation in our
financial statements, as we are deemed the primary beneficiary of such VIEs. The aggregate assets and liabilities of the VIEs we
consolidate are provided in the table below. Aggregate assets and aggregate liabilities may differ from the consolidated carrying value
of assets and liabilities due to the elimination of intercompany assets and liabilities held by the consolidated VIE.
$ in thousands
September 30, 2017
Private Equity Interests
LIHTC Fund in which RJ Bank is an investor member
Guaranteed LIHTC Fund
Other LIHTC Funds
Restricted Stock Trust Fund
Total
September 30, 2016
Private Equity Interests
LIHTC Fund in which RJ Bank is an investor member
Guaranteed LIHTC Fund
Restricted Stock Trust Fund
Total
Aggregate
assets
Aggregate
liabilities
$
$
$
$
104,414
$
57,719
51,400
7,418
12,122
233,073
$
140,870
$
55,550
63,415
9,949
269,784
$
3,851
1,055
2,872
2,544
12,122
22,444
4,888
240
2,556
9,949
17,633
In connection with the Guaranteed LIHTC Fund, RJTCF has provided one investor member with a guaranteed return on their investment
in the fund. See Note 9 for information regarding the financing asset associated with this fund and Note 17 for additional information
regarding this commitment.
135
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
$ in thousands
Assets:
Cash and cash equivalents
Assets segregated pursuant to regulations and other segregated assets
Other receivables
Intercompany receivables
Other investments
Investments in real estate partnerships held by consolidated variable interest entities
Trust fund investment in RJF common stock
Other assets
Total assets
Liabilities and equity:
Other payables
Intercompany payables
Total liabilities
RJF equity
Noncontrolling interests
Total equity
Total liabilities and equity
$
$
$
September 30,
2017
2016
$
2,052
4,590
168
454
101,905
111,743
12,120
41
8,302
2,833
28,463
475
103,630
116,133
9,948
—
233,073
$
269,784
9,667
$
16,520
26,187
101,445
105,441
206,886
$
233,073
$
3,617
16,416
20,033
117,023
132,728
249,751
269,784
The trust fund investment in RJF common stock in the table above is the Restricted Stock Trust Fund, which is included in “Treasury
stock” in our Consolidated Statements of Financial Condition.
VIEs where we hold a variable interest but are not the primary beneficiary
As discussed in Note 2, we have concluded that for certain VIEs we are not the primary beneficiary and therefore do not consolidate
these VIEs. Such VIEs include certain Private Equity Interests, certain LIHTC funds, NMTC Funds and other limited partnerships.
Our risk of loss for these VIEs is limited to our investments in, advances to, and/or receivables due from these VIEs.
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.
$ in thousands
LIHTC Funds
NMTC Funds
Private Equity Interests
Other
Total
Aggregate
assets
2017
Aggregate
liabilities
September 30,
Our risk
of loss
Aggregate
assets
2016
Aggregate
liabilities
$
5,372,367
$
2,134,600
$
60,959
$
4,217,812
$
1,429,085
$
30,297
10,485,611
169,462
105
174,354
88,615
9
73,457
3,163
65,338
14,286,950
144,579
68
132,334
83,174
$
16,057,737
$
2,397,674
$
137,588
$
18,714,679
$
1,644,661
$
Our risk
of loss
83,562
12
70,336
2,240
156,150
136
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 11 - PROPERTY AND EQUIPMENT
$ in thousands
Land
Software, including development in progress
Buildings, leasehold and land improvements
Furniture, fixtures and equipment
Construction in process
Total property and equipment
Less: Accumulated depreciation
Total property and equipment, net
NOTE 12 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET
The following are our goodwill and identifiable intangible asset balances as of the dates indicated:
$ in thousands
Goodwill
Identifiable intangible assets, net
Total goodwill and identifiable intangible assets, net
Goodwill
September 30,
2017
2016
$
29,079
$
345,734
324,452
224,418
12,056
935,739
(498,365)
$
437,374
$
24,150
271,864
260,800
200,947
3,711
761,472
(440,015)
321,457
September 30,
2017
2016
$
$
410,723
$
82,460
493,183
$
408,072
94,974
503,046
The following summarizes our goodwill by segment, along with the balance and activity for the years indicated:
$ in thousands
Fiscal Year 2017
Goodwill beginning of year
Additions
Foreign currency translation
Goodwill end of year
Fiscal Year 2016
Goodwill beginning of year
Additions
Foreign currency translation
Goodwill end of year
Segment
Private Client
Group
Capital
Markets
Total
$
$
$
$
275,521
$
132,551
$
408,072
—
1,192
—
1,459
—
2,651
276,713
$
134,010
$
410,723
186,733
$
120,902
$
86,351
2,437
9,012
2,637
275,521
$
132,551
$
307,635
95,363
5,074
408,072
During fiscal year 2017, there were no additions to goodwill. The Private Client Group segment goodwill additions in fiscal year 2016
were attributable to our acquisitions of Alex. Brown in the amount of $82 million and 3Macs in the amount of $5 million. The addition
to goodwill associated with Alex. Brown is deductible for tax purposes over 15 years. The addition to goodwill attributable to 3Macs
is not deductible for tax purposes. The Capital Markets segment goodwill addition in fiscal year 2016 was attributable to our acquisition
of Mummert. This goodwill is not deductible for tax purposes. See Note 3 for additional information regarding our acquisitions.
As described in Note 2, 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. During the year ended September 30, 2017, we
changed our annual goodwill impairment test date for all reporting units from December 31 to January 1; however, the results of our
test did not change as we continue to evaluate balances as of December 31. We performed our latest annual goodwill impairment
testing during the quarter ended March 31, 2017, evaluating balances as of December 31, 2016, and no impairment was identified. In
that testing, we performed both 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.
137
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
We assign goodwill to reporting units. Our reporting units include: a domestic Private Client Group (RJ&A domestic retail brokerage
operations and our subsidiary The Producers Choice LLC (“TPC”)) and a Canadian Private Client Group (RJ Ltd. Private Client Group),
each included in our Private Client Group segment; and RJ&A Fixed Income, U.S. Managed Equity Capital Markets, and RJ Ltd.
Capital Markets, each included in our Capital Markets segment.
Qualitative Assessments
For each reporting unit on which we performed a qualitative assessment, we determined whether it was more likely than not that the
carrying value of the reporting unit, including the recorded goodwill, was 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 was required, and we concluded that none of the goodwill allocated to any of those
reporting units was impaired. No events have occurred since our assessment that would cause us to update this impairment testing.
Quantitative Assessments
For our two RJ Ltd. reporting units, we elected not to perform a qualitative assessment and instead performed quantitative assessments
of the equity value of each RJ Ltd. reporting unit that had 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 December
31, 2016 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 unit’s 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 unit’s 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:
Segment
Reporting unit
Key assumptions
Weight assigned to the
outcome of:
Goodwill as of
December 31,
2016
(in thousands)
Discount
rate used
in the
income
approach
Multiple
applied to
revenue/EPS in
the market
approach
Income
approach
Market
approach
Private Client Group:
RJ Ltd. Private Client Group
Capital Markets:
RJ Ltd. Capital Markets
$
$
22,735
18,997
14.5%
14.5%
1.2x/12.9x
1.2x/13.3x
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, we concluded that none of the goodwill associated with our two RJ Ltd.
reporting units was impaired.
No events have occurred since our quantitative assessments during the quarter ended March 31, 2017 that would cause us to update
this impairment testing.
138
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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:
$ in thousands
Fiscal Year 2017
Net identifiable intangible assets beginning of year
Amortization expense
Foreign currency translation
Net identifiable intangible assets end of year
Fiscal Year 2016
Net identifiable intangible assets beginning of year
Additions
Amortization expense
Foreign currency translation
Net identifiable intangible assets end of year
Private Client
Group
Segment
Capital
Markets
Asset
Management
Total
$
$
$
$
52,936
$
27,937
$
14,101
$
(6,001)
91
(4,845)
(15)
(2,004)
260
47,026
$
23,077
$
12,357
$
18,182
$
32,532
$
17,137
$
36,624
(1,870)
—
1,013
(5,619)
11
—
(2,226)
(810)
52,936
$
27,937
$
14,101
$
94,974
(12,850)
336
82,460
67,851
37,637
(9,715)
(799)
94,974
The identifiable intangible asset additions in fiscal year 2016 were primarily attributable to the acquisition of Alex. Brown and 3Macs
and included customer relationships, trade names, seller relationship agreements and non-compete agreements. See Note 3 for additional
information regarding our acquisitions.
The following summarizes our identifiable intangible assets by type:
$ in thousands
Customer relationships
Trade name
Developed technology
Intellectual property
Non-compete agreements
Seller relationship agreements
Total
September 30,
2017
2016
Gross carrying
value
Accumulated
amortization
Gross carrying
value
Accumulated
amortization
$
99,749
$
8,366
1,630
542
3,336
5,300
$
118,923
$
(31,098) $
(2,076)
(706)
(131)
(1,551)
(901)
(36,463) $
99,470
$
8,172
12,630
516
3,314
5,300
129,402
$
(22,895)
(499)
(10,280)
(73)
(612)
(69)
(34,428)
The following table sets forth the projected amortization expense by fiscal year associated with our identifiable intangible assets:
Fiscal year ended September 30,
$ in thousands
2018
2019
2020
2021
2022
Thereafter
$
$
11,056
10,591
9,812
9,056
8,436
33,509
82,460
139
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 13 – 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, the
calculation of which was based on the actual deposit balances at September 30, 2017 and 2016, respectively.
$ in thousands
September 30,
2017
2016
Balance
Weighted-
average rate
Balance
Weighted-average
rate
Savings and money market accounts
$
17,391,091
0.14% $
13,935,089
Certificates of deposit
NOW accounts
Demand deposits (non-interest-bearing)
Total bank deposits
314,685
5,197
21,389
1.60%
0.01%
—
315,236
4,958
7,264
$
17,732,362
0.17% $
14,262,547
0.05%
1.55%
0.01%
—
0.08%
Total bank deposits in the table above excludes affiliate deposits of $243 million and $353 million at September 30, 2017 and 2016,
respectively. These affiliate deposits include $192 million and $350 million as of September 30, 2017 and 2016, respectively, held in
a deposit account at RJ Bank on behalf of RJF (see Note 25 for additional information).
Savings and money market accounts in the table above consist primarily of deposits that are cash balances swept from the client
investment accounts maintained at RJ&A to RJ Bank. These balances are held in Federal Deposit Insurance Corporation (“FDIC”)
insured bank accounts through the Raymond James Bank Deposit Program (“RJBDP”). The aggregate amount of time deposit account
balances that exceeded the FDIC insurance limit at September 30, 2017 was $23 million.
Scheduled maturities of certificates of deposit are as follows:
$ in thousands
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
September 30,
2017
2016
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
$
$
$
8,704
4,692
34,005
38,713
48,082
21,819
50,805
4,132
3,894
11,865
20,019
27,847
12,761
27,347
$
14,252
$
14,191
15,452
32,816
43,730
58,425
26,173
12,663
9,750
12,321
11,060
22,148
28,863
13,392
206,820
$
107,865
$
205,039
$
110,197
Interest expense on deposits, excluding interest expense related to affiliate deposits, is summarized as follows:
$ in thousands
Certificates of deposit
Money market, savings and NOW accounts
Total interest expense on deposits
Year ended September 30,
2017
2016
2015
$
$
4,325
12,859
17,184
$
$
5,402
4,816
10,218
$
$
5,839
2,543
8,382
140
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14 – OTHER BORROWINGS
The following table details the components of other borrowings:
$ in thousands
FHLB advances
Unsecured lines of credit
Secured lines of credit
Mortgage notes payable
ClariVest revolving credit facility
Total other borrowings
September 30,
2017
2016
875,000
$
575,000
350,000
260,000
28,813
199
1,514,012
$
—
—
33,391
267
608,658
$
$
Borrowings from the FHLB as of September 30, 2017 were comprised of both floating and fixed-rate advances. As of September 30,
2017 the floating-rate advances, which mature in June 2019 and have interest rates which reset quarterly, totaled $850 million. We use
interest rate swaps to manage the risk of increases in interest rates associated with these floating-rate advances by converting the
balances subject to variable interest rates to a fixed interest rate. Refer to Note 6 for information regarding these interest rate swaps,
which are accounted for as hedging instruments. The fixed-rate advance, in the amount of $25 million, matures in October 2020 and
bears interest at a fixed rate of 3.4%. All of the advances were secured by a blanket lien granted to the FHLB on our residential mortgage
loan portfolio. The weighted average interest rate on these advances as of September 30, 2017 was 1.41%.
Borrowings from the FHLB as of September 30, 2016 were comprised of floating-rate advances that have interest rates which reset
quarterly, totaling $550 million, and a fixed-rate advance in the amount of $25 million and bears interest at a rate of 3.4%. The weighted
average interest rate on these advances as of September 30, 2016 was 1.01%.
RJF is a party to a revolving credit facility agreement (the “RJF Credit Facility”) with a maturity date of May 2022 in which the lenders
are a number of financial institutions. This committed unsecured borrowing facility provides for maximum borrowings of up to $300
million at variable rates of interest. There were no borrowings outstanding on the RJF Credit Facility as of either September 30, 2017
or 2016. 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, 2017, the variable borrowing rate was 1.50% per annum over
LIBOR. There is a variable rate commitment fee associated with the RJF Credit Facility, which varies depending upon RJF’s credit
rating. Based upon RJF’s credit rating as of September 30, 2017, the variable rate commitment fee which applied to any difference
between the daily borrowed amount and the committed amount, was 0.20% per annum. Any borrowings on unsecured lines of credit,
with the exception of the RJF Credit Facility, were day-to-day and were generally utilized for cash management purposes.
Any borrowings on secured lines of credit were day-to-day and were generally utilized to finance certain fixed income securities. In
addition we have other collateralized financings included in “Securities sold under agreements to repurchase” on our Consolidated
Statements of Financial Condition. See Note 7 for information regarding our collateralized financing arrangements.
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, 2017,
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 0.35% to 3.41%. The interest rate on our Canadian facility which was utilized from time-
to-time during the fiscal year September 30, 2017 was 1.75%.
Mortgage notes payable pertain to mortgage loans on certain of our corporate headquarters offices located in St. Petersburg, Florida.
These mortgage loans are secured by land, buildings, and improvements. These mortgage loans bear interest at 5.7% with repayment
terms of monthly interest and principal debt service and have a January 2023 maturity.
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 lender’s prime rate. The weighted average interest rate on the ClariVest Facility during
the fiscal year ended September 30, 2017 was 4.91%. The ClariVest Facility expires in September 2018.
141
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our other borrowings as of September 30, 2017, mature as follows based on their contractual terms:
Fiscal year ended September 30,
$ in thousands
2018
2019
2020
2021
2022
Thereafter
Total
$
$
615,045
855,130
5,430
30,748
6,084
1,575
1,514,012
NOTE 15 – SENIOR NOTES PAYABLE
The following summarizes our senior notes payable:
$ in thousands
5.625% senior notes, due 2024
3.625% senior notes, due 2026
4.95% senior notes, due 2046
6.90% senior notes, due 2042
8.60% senior notes, due 2019
Unaccreted premium/(discount)
Unamortized debt issuance costs
Total senior notes payable
September 30,
2017
2016
$
250,000
$
500,000
800,000
—
—
1,550,000
11,905
(13,066)
$
1,548,839
$
250,000
500,000
300,000
350,000
300,000
1,700,000
(1,601)
(17,812)
1,680,587
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.
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.
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. In May 2017, we reopened the offering and sold, in a registered underwritten public offering, an additional $500 million
in aggregate principal amount of 4.95% senior notes due July 2046. These additional senior notes were consolidated, formed into a
single series, and are fully fungible with the $300 million in aggregate principal amount 4.95% senior notes issued in July 2016. Interest
on these senior notes is payable semi-annually. We may redeem some or all of these senior notes at any time prior to their maturity, at
a redemption price equal to the greater of (i) 100% of the principal amount of the notes 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.
Redemption at par of certain senior notes
On March 15, 2017 (the “March Redemption Date”), we redeemed all of our outstanding 6.90% senior notes due March 2042, which
were originally sold in a registered underwritten public offering in 2012. The aggregate principal amount outstanding of the 6.90%
Senior Notes was $350 million. The redemption price on the March Redemption Date was equal to the principal, plus accrued and
unpaid interest thereon to the March Redemption Date. Unamortized debt issuance costs as of the March Redemption Date of $8
million were accelerated and were included in “Losses on extinguishment of debt” in our Consolidated Statements of Income and
Comprehensive Income for the year ended September 30, 2017.
142
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On September 25, 2017 (the “September Redemption Date”), we redeemed all of our outstanding 8.60% senior notes due August 2019,
which were originally sold in a registered underwritten public offering in 2009. The aggregate principal amount outstanding of the
8.60% senior notes was $300 million. The redemption price on the September Redemption Date was equal to accrued and unpaid
interest as of the September Redemption Date plus the sum of the present value of the remaining scheduled payments, which consist
of principal and interest, discounted to the September Redemption Date on a semi-annual basis at a discount rate equal to a designated
U.S. Treasury Rate, plus 50 basis points. A make-whole premium related to the redemption of $37 million was included in “Losses
on extinguishment of debt” in our Consolidated Statements of Income and Comprehensive Income for the year ended September 30,
2017.
Our senior notes payable outstanding as of September 30, 2017, mature at varying dates between 2024 and 2046.
NOTE 16 – INCOME TAXES
For a discussion of our income tax accounting policies and other income tax-related information see Note 2.
Total income tax provision/(benefit) was allocated as follows:
$ in thousands
Recorded in:
Net income including noncontrolling interests
Equity, arising from cash flow hedges recorded through OCI
Equity, arising from cumulative currency translation adjustments and net investment hedges
recorded through OCI
Equity, arising from available-for-sale securities recorded through OCI
Equity, arising from compensation expense for tax purposes which was (in excess of)/less than
amounts recognized for financial reporting purposes
Year ended September 30,
2017
2016
2015
$
289,111
$
271,293
$
296,034
14,239
(7,427)
856
—
(7,252)
(3,525)
(3,295)
(35,121)
(2,850)
31,078
(2,246)
8,115
330,131
Total
$
296,779
$
222,100
$
Effective October 1, 2016, we adopted the new accounting guidance related to stock compensation. The amended guidance involves
several aspects of the accounting for share-based payment transactions, including the income tax consequences. Under the new guidance,
all tax effects related to share-based payments are recorded through tax expense in the periods during which the awards are exercised
or vest, as applicable. See Note 2 and Note 20 for additional information on our adoption of this new accounting guidance during the
period.
Our provision/(benefit) for income taxes consisted of the following:
$ in thousands
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Year ended September 30,
2017
2016
2015
$
255,555
$
287,350
$
37,553
7,620
300,728
(11,316)
(959)
658
(11,617)
32,101
10,640
330,091
(51,383)
(6,267)
(1,148)
(58,798)
266,359
48,130
5,007
319,496
(20,567)
(5,127)
2,232
(23,462)
296,034
Total provision for income tax
$
289,111
$
271,293
$
143
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:
Provision calculated at statutory rate
State income tax, net of federal benefit
Tax-exempt interest income
Excess tax benefits related to share-based compensation (1)
(Income)/losses associated with COLI which are not (subject to tax)/tax deductible
Federal tax credits
Other, net
Total provision for income tax
Year ended September 30,
2017
2016
2015
35.0 %
2.7 %
(1.0)%
(2.5)%
(1.7)%
(1.6)%
0.3 %
31.2 %
35.0 %
1.7 %
(0.9)%
—
(1.1)%
(1.0)%
0.2 %
33.9 %
35.0 %
3.6 %
(0.5)%
—
0.4 %
(0.9)%
(0.5)%
37.1 %
(1) Does not include excess state tax benefits related to share-based compensation, which had an impact of reducing our effective tax rate by (0.2)%
for 2017. See Note 2 and Note 20 for more information regarding the adoption of new accounting guidance related to stock compensation.
U.S. and foreign components of income excluding noncontrolling interests and before provision for income taxes were as follows:
$ in thousands
U.S.
Foreign
Income excluding noncontrolling interests and before provision for income taxes
Year ended September 30,
2017
2016
2015
$
$
915,711
9,635
925,346
$
$
765,421
35,222
800,643
$
$
782,146
16,028
798,174
The cumulative effects of temporary differences that give rise to significant portions of the deferred tax asset/(liability) items are as
follows:
$ in thousands
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,
2017
2016
$
235,171
$
192,397
74,909
1,928
3,342
41,545
13,665
370,560
(9)
370,551
(6,326)
(38,364)
—
(12,375)
(57,065)
$
313,486
$
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
We had a net deferred tax asset at September 30, 2017 and 2016. This asset includes net operating losses that will expire between 2018
and 2030. A valuation allowance for the fiscal year ended September 30, 2017 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 $313 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.
As of September 30, 2017, we consider all undistributed earnings of non-U.S. subsidiaries to be permanently reinvested and, therefore,
we have not provided for any U.S. deferred income taxes. As of September 30, 2017, we had approximately $219 million of cumulative
undistributed earnings attributable to foreign subsidiaries for which no provisions have been recorded for income taxes that could arise
144
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2017, the current tax receivable, which is included in “Other receivables” in our Consolidated Statements of
Financial Condition, was $102 million, and the current tax payable, which is included in “Other payables,” was $23 million. As of
September 30, 2016, the current tax receivable was $48 million and the current tax payable was $29 million.
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.
As of September 30, 2017 and 2016, accrued interest and penalties were approximately $3 million and $4 million, respectively.
The aggregate changes in the balances for uncertain tax positions were as follows:
$ in thousands
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
Year ended September 30,
2017
2016
2015
$
22,173
$
22,454
$
3,238
438
(717)
(2,497)
(2,629)
6,496
1,284
(1,592)
(1,447)
(5,022)
$
20,006
$
22,173
$
15,804
4,954
3,466
(204)
(1,566)
—
22,454
(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 $15 million, $16 million, and $15 million at
September 30, 2017, 2016, 2015, respectively. We anticipate that the uncertain tax position balance will not change significantly
over the next 12 months.
We file U.S. federal income tax returns as well as returns with various state, local and foreign jurisdictions. With few exceptions, we
are generally no longer subject to U.S. federal, state and local, or foreign income tax examination by tax authorities for years prior to
fiscal year 2014 for federal tax returns, fiscal year 2013 for state and local tax returns and fiscal year 2013 for foreign tax returns. Various
foreign and state audits in process are expected to be completed in fiscal year 2018.
NOTE 17 – COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments and contingencies
Loan and Underwriting Commitments
In the normal course of business we enter into commitments for either fixed income or equity underwritings. As of September 30,
2017, we had two such open underwriting commitments, both of which were subsequently settled in open market transactions and
none of which resulted in significant loss.
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, 2017, we had made commitments through the extension of formal offers totaling approximately $139 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, 2017, $59 million of the total amount extended consisted of unfunded
commitments to prospective financial advisors that had accepted our offers, or recently hired producers.
145
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of September 30, 2017, we had not settled purchases of $162 million in syndicated loans. These loan purchases are expected to be
settled within 90 days.
See Note 22 for additional information regarding our commitments to extend credit and other credit-related off-balance sheet financial
instruments such as standby letters of credit and loan purchases.
Investment Commitments
A subsidiary of RJ Bank has committed $80 million as an investor member in a LIHTC fund in which a subsidiary of RJTCF is the
managing member (see Note 2 for information regarding the accounting policies governing these investments). As of September 30,
2017, the RJ Bank subsidiary had invested $61 million of the committed amount.
We have unfunded commitments to various private equity partnerships, which aggregate to $36 million as of September 30, 2017. Of
the total, we have unfunded commitments of $18 million to internally-sponsored private equity limited partnerships in which we control
the general partner.
Acquisition-Related Commitments and Contingencies
On April 20, 2017, we announced we had entered into a definitive agreement to acquire the Scout Group. This acquisition closed on
November 17, 2017. See Note 3 for more information.
As part of the terms governing our fiscal year 2015 acquisition of TPC, 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 over a measurement period of up to three years after the TPC closing date, which was July 31, 2015. During the year
ended September 30, 2017 certain earn-out payments were measured and applicable amounts paid to the sellers of TPC. The remaining
elements of contingent consideration will be determined in the future based upon the outcome of either specific performance of defined
tasks, or the achievement of specified revenue growth hurdles. Our initial estimate of the fair value of the elements of contingent
consideration as of the TPC closing date was included in our determination of the goodwill arising from this acquisition. As of
September 30, 2017, we computed an estimate of the fair value of the contingent consideration based upon the latest information
available to us, and the excess of this fair value determination over the initial estimate was included in “Other expenses” on our
Consolidated Statements of Income and Comprehensive Income.
As a part of the terms governing the fiscal year 2016 Mummert acquisition (see Note 3 for additional information regarding this
acquisition), on certain dates specified in the Mummert purchase agreement, there are earn-out computations to be performed or
contingent consideration provisions that may apply. These elements of contingent consideration will be finally determined in the future
based upon the achievement of specified revenue amounts and the continued employment of specified associates. Since the ultimate
payment of these elements of contingent consideration are conditioned upon continued employment as of the measurement dates which
are three and five years from the Mummert acquisition date of June 1, 2016, these obligations, including any adjustments to the estimated
fair value, are being recognized as a component of our compensation expense over such periods.
Lease Commitments
Long-term lease agreements expire at various times through fiscal year 2031. Minimum annual rental payments under such agreements
for the succeeding five fiscal years are presented below:
Fiscal year ended September 30,
$ in thousands
2018
2019
2020
2021
2022
Thereafter
Total
$
$
96,756
89,711
78,164
61,959
42,846
79,491
448,927
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 $115 million, $97 million and $89 million
for fiscal years 2017, 2016 and 2015, respectively.
146
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other Commitments
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. As of September 30, 2017, RJTCF had $42 million outstanding against this
commitment. RJTCF may borrow from RJF in order to make investments in, or fund loans or advances to, either project partnerships
that purchase and develop properties qualifying for tax credits 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.
As a part of our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMA MBS (see
the discussion of these activities within “financial instruments, financial instruments sold but not yet purchased at fair value” in Note
2). At September 30, 2017, we had approximately $793 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 we would
otherwise be exposed between the date of the commitment and the date of sale of the MBS, we enter into TBA security contracts with
investors for generic MBS at specific rates and prices to be delivered on settlement dates in the future. These TBA securities and related
purchase commitment are accounted for at fair value. As of September 30, 2017, the fair value of the TBA securities and the estimated
fair value of the purchase commitments were not significant.
Contingencies
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 censures to fines and, in
serious cases, temporary or permanent suspension from conducting business, or limitations on certain business activities. In addition,
regulatory agencies and self-regulatory organizations institute investigations from time to time into industry practices, which can also
result in the imposition of such sanctions. Refer to the “Legal and regulatory matter contingencies” discussion within this footnote for
information about related loss contingency reserves.
Guarantees
RJF guarantees interest rate swap obligations of RJ Cap Services. See Note 6 for additional information regarding interest rate swaps.
RJF guarantees the existing mortgage debt of RJ&A of $29 million. See Note 14 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 of London.
For RJ&A, our clearing broker-dealer, the additional protection currently provided has an aggregate firm limit of $750 million for cash
and securities, including a sub-limit of $1.9 million per client for cash above basic SIPC. Account protection applies when a SIPC
member fails financially and is unable to meet obligations to clients. This coverage does not protect against market fluctuations. RJF
has provided an indemnity to Lloyd’s of London against any and all losses they may incur associated with the excess SIPC policies.
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 $3 million as of September 30, 2017.
RJTCF has provided a guaranteed return on investment to a third party investor in the Guaranteed LIHTC Fund 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 the Guaranteed LIHTC Fund fail to deliver a certain amount of tax credits and other tax benefits to this investor
over the next five years, RJTCF is obligated to pay the investor an amount that results in the investor achieving a minimum specified
return on their investment. A $16 million financing asset is included in “Other assets” (see Note 9 for additional information), and a
related $16 million liability is included in “Other payables” on our Consolidated Statements of Financial Condition as of September 30,
2017 related to this obligation. The maximum exposure to loss under this guarantee was $17 million as of September 30, 2017, which
represents the undiscounted future payments due the investor.
147
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
With respect to legal and regulatory matters for which management has been able to estimate a range of reasonably possible loss (and
excluding amounts subject to the below-described indemnification from Regions), as of September 30, 2017, we estimated the upper
end of the range of reasonably possible aggregate loss to be approximately $65 million in excess of the aggregate reserves for such
matters. Refer to Note 2 for a discussion of our criteria for recognizing liabilities for contingencies.
Morgan Keegan Litigation
Indemnification from Regions
Under the agreement with Regions governing our 2012 acquisition of Morgan Keegan, Regions is obligated to indemnify us 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 were received prior to April 2, 2015.
The Morgan Keegan matter described below is subject to such indemnification provisions. As of September 30, 2017, management
estimated the range of potential liability of all Morgan Keegan matters subject to indemnification, including the cost of defense, to be
from $12 million to $44 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, 2017, our Consolidated Statements of Financial Condition
include an indemnification asset of $26 million which is included in “Other assets” (see Note 9 for additional information), and a
liability for potential losses of $26 million which is included within “Other payables,” pertaining to the Morgan Keegan matters subject
to indemnification. The amount included within “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.
148
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 Limited and an affiliate in the Superior Court of New Jersey, Law Division, in 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 the stock price of Fairfax, so that others could profit from short positions. Plaintiffs alleged that the
defendants’ actions disparaged them and harmed their business relationships. Plaintiffs alleged various categories of damages, including
lost insurance business, losses on stock and bond offerings, reputational loss, increased audit fees and directors’ and officers’ insurance
premiums, and lost acquisitions. They requested actual and punitive damages and treble damages under their RICO claims. On May 11,
2012, the trial court dismissed the plaintiffs’ RICO claims. 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, and the plaintiffs appealed. On April 27, 2017, the Superior Court of New Jersey, Appellate
Division, affirmed the trial court's dismissal of certain claims against Morgan Keegan, including the RICO allegations, while remanding
to the trial court the claims of disparagement, tortious interference with prospective business relations, and civil conspiracy, and limiting
the actual damages to certain lost insurance business. Plaintiffs petitioned the Supreme Court of New Jersey for review of the Appellate
Division’s opinion, but on October 17, 2017, the Supreme Court of New Jersey denied the petition.
NOTE 18 - ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
Other comprehensive income/(loss)
The activity in other comprehensive income/(loss), net of the respective tax effect, was as follows:
$ in thousands
Unrealized gain/(loss) 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 gain/(loss) on cash flow hedges
Net other comprehensive income/(loss)
Year ended September 30,
2017
2016
2015
$
1,684
$
(5,576) $
(3,325)
15,618
23,232
2,179
(11,833)
(30,640)
(4,650)
$
40,534
$
(15,230) $
(38,615)
149
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Accumulated other comprehensive income/(loss)
All of the components of other comprehensive income/(loss) described below, net of tax, are attributable to RJF. The following table
presents the changes, and the related tax effects, of each component of accumulated other comprehensive income/(loss):
$ in thousands
Year ended September 30, 2017
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
income/(loss), before tax
Pre-tax net 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 the end
of the year
Year ended September 30, 2016
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
income/(loss), before tax
Pre-tax net 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 the end
of the year
Net
investment
hedges
Currency
translations
Sub-total:
net
investment
hedges and
currency
translations
Available-
for-sale
securities
Cash flow
hedges
Total
$
86,482
$
(121,576) $
(35,094) $
(4,156) $
(16,483) $
(55,733)
(41,997)
43,541
—
(41,997)
15,716
6,647
50,188
(8,289)
1,544
6,647
8,191
7,427
443
31,843
33,830
2,097
2,540
(856)
5,628
37,471
(14,239)
14,372
48,202
(7,668)
(26,281)
41,899
15,618
1,684
23,232
40,534
60,201
$
(79,677) $
(19,476) $
(2,472) $
6,749
$
(15,199)
93,203
$
(130,476) $
(37,273) $
1,420
$
(4,650) $
(40,503)
(10,743)
9,397
(1,346)
(9,231)
(25,535)
(36,112)
—
(10,743)
4,022
—
9,397
(497)
—
(1,346)
3,525
360
(8,871)
3,295
6,450
(19,085)
7,252
6,810
(29,302)
14,072
(6,721)
8,900
2,179
(5,576)
(11,833)
(15,230)
$
86,482
$
(121,576) $
(35,094) $
(4,156) $
(16,483) $
(55,733)
Our net investment hedges and cash flow hedges relate to our derivatives associated with RJ Bank’s business operations (see Note 6
for additional information on these derivatives).
150
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, for the years ended September 30, 2017 and 2016:
Accumulated other comprehensive income/(loss) components
$ in thousands
Increase/(decrease) in
amounts reclassified from
accumulated other
comprehensive income/
(loss)
Affected line items in income statement
Year ended September 30, 2017
Available-for-sale securities:
Auction rate securities
RJ Bank available-for-sale securities
RJ Bank cash flow hedges
Currency translations
Income tax effect
Total reclassifications for the year
Year ended September 30, 2016
Available-for-sale securities:
Auction rate securities
RJ Bank available-for-sale securities
RJ Bank cash flow hedges
Income tax effect
Total reclassifications for the year
$
$
$
$
1,458 Other revenue
639 Other revenue
Interest expense
5,628
6,647 Other expense
14,372 Total before tax
(5,460) Provision for income taxes
8,912 Net of tax
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
See Note 6 for additional information regarding the RJ Bank cash flow hedges, and Note 4 for additional fair value information regarding
these derivatives.
During the year ended September 30, 2017, we sold our interests in a number of Latin American joint ventures which had operations
in Uruguay and Argentina. As a component of our computation of the gain or loss resulting from such sales, we recognized the sold
entities’ cumulative currency translation balances which, prior to such reclassification, had been a component of the accumulated other
comprehensive loss.
151
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 19 – INTEREST INCOME AND INTEREST EXPENSE
The components of interest income and interest expense are as follows:
$ in thousands
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
Securities loaned
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
Securities borrowed
Borrowed funds
Senior notes
Other
Total interest expense
Net interest income
Bank loan loss provision
Year ended September 30,
2017
2016
2015
$
85,699
$
68,712
$
37,270
572,171
27,946
21,068
14,049
13,333
30,590
22,287
487,366
7,596
19,362
8,777
8,207
18,090
67,573
13,792
405,578
5,100
19,450
12,036
7,056
12,697
802,126
$
640,397
$
543,282
$
$
4,884
$
2,084
$
17,184
6,138
6,690
16,559
94,665
7,658
153,778
648,348
(12,987)
10,218
5,035
3,174
12,957
78,533
4,055
116,056
524,341
(28,167)
940
8,382
4,503
5,237
6,079
76,088
4,845
106,074
437,208
(23,570)
413,638
Net interest income after bank loan loss provision
$
635,361
$
496,174
$
Interest expense related to retail bank deposits in the above table for the years ended September 30, 2017 and 2016 is presented net of
interest expense associated with affiliate deposits, which have been eliminated in consolidation. The impact of such expense in the
year ended September 30, 2015 was not significant.
NOTE 20 - 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, 2017 and 2016 was
approximately 4,690,000 and 4,873,000, respectively. The market value of our common stock held by the ESOP at September 30,
2017 was approximately $396 million, of which approximately $4 million was 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
(COLI - see Note 9 for information regarding the carrying value of these insurance policies) to earn a competitive rate of return for
participants and to provide the primary source of funds available to satisfy our obligations under this plan.
Contributions to the qualified plans and the LTIP, are approved annually by the Board of Directors or a committee thereof.
152
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. COLI 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 and are included in “Other investments” in our Consolidated Statements of Financial Condition (see Note
4 for the fair value of these investments as of September 30, 2017, and 2016).
Compensation expense associated with all of the qualified and non-qualified plans described above totaled $131 million, $117 million
and $117 million for the fiscal years ended September 30, 2017, 2016 and 2015, 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 Amended and Restated 2012 Stock Incentive Plan (the “2012 Plan”) authorizes us to grant 40,244,000
new shares, including the shares available for grant under six predecessor plans. We generally issue new shares under the 2012 Plan,
however we are also permitted to reissue our treasury shares.
Share-based awards granted to our independent contractor financial advisors are measured at fair value on a quarterly basis until vesting,
with changes in the fair value included in compensation expense. 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 were not material as of September 30, 2017.
Stock option awards
Options may be granted to key 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 benefit related to our stock options awards granted to employees and independent contractor financial advisors
is presented below:
$ in thousands
Total share-based expense
Income tax benefit related to share-based expense
Year ended September 30,
2017
2016
2015
$
$
13,597
1,783
$
$
11,648
1,181
$
$
10,196
821
For the year ended September 30, 2017, we realized $3 million of excess tax benefits related to our stock option awards which favorably
impacted income tax expense in our Consolidated Statements of Income and Comprehensive Income as a result of our adoption of
stock compensation simplification guidance (see Note 2 and Note 16 for additional information on our adoption of this new accounting
guidance during the period).
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 employee 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, 2017, 2016 and 2015:
Dividend yield
Expected volatility
Risk-free interest rate
Expected lives (in years)
153
Year ended September 30,
2017
2016
2015
1.03%
30.91%
1.81%
5.36
1.41%
28.85%
1.65%
5.37
1.30%
29.55%
1.66%
5.48
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 recent and historical volatility of RJF
stock. 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, 2017 is presented below:
Options for
shares
Weighted- average
Weighted- average
remaining
contractual
Aggregate
intrinsic
exercise price
term
value
(in thousands)
(per share)
(in years)
($ in thousands)
Outstanding at October 1, 2016
Granted
Exercised
Forfeited
Outstanding at September 30, 2017
Exercisable at September 30, 2017
3,710
224
$
$
(1,051) $
(47) $
2,836
451
$
$
44.88
72.09
32.22
51.62
51.63
41.62
3.58
2.37
$
$
92,762
19,246
The following stock option activity occurred under the 2012 Plan for grants to employees:
$ in thousands, except per option amounts
Weighted-average grant date fair value per option
Total intrinsic value of stock options exercised
Total grant date fair value of stock options vested
Year ended September 30,
2017
2016
2015
$
$
$
19.96
42,178
10,768
$
$
$
13.96
16,273
7,690
$
$
$
14.36
29,574
10,483
Pre-tax expense not yet recognized for stock option awards granted to employees and independent contractor financial advisors, net
of estimated forfeitures, and the remaining period over which the expense will be recognized as of September 30, 2017, are presented
below:
Employees
Independent contractor financial advisors
Pre-tax expense not
yet recognized
(in thousands)
Remaining weighted-
average
amortization period
(in years)
$
$
14,655
2,904
2.5
3.0
Cash received from stock option exercises during the fiscal year ended September 30, 2017 was $31 million.
Restricted stock and restricted stock unit 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, which we funded to enable the trust fund to acquire our common stock in the open market to be used to settle RSUs granted
as a retention vehicle for certain employees of the Canadian subsidiary (see Note 10 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. 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, RSUs are issued annually to such members of our Board of Directors, in lieu of stock option awards. The RSUs
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.
154
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following restricted equity award activity which includes restricted stock and RSUs for grants to employees and members of our
Board of Directors occurred during the fiscal year ended September 30, 2017:
Shares/Units
(in thousands)
(per share)
Weighted- average
grant date fair value
Non-vested at October 1, 2016
Granted
Vested
Forfeited
Non-vested at September 30, 2017
4,807
1,637
$
$
(1,587) $
(113) $
4,744
$
47.71
72.39
38.68
60.11
58.94
Expense and income tax benefits related to our restricted equity awards granted to our employees and members of our Board of Directors
are presented below:
$ in thousands
Total share-based expense
Income tax benefits related to share-based expense
Year ended September 30,
2017
2016
2015
$
$
78,624
27,658
$
$
62,674
21,979
$
$
57,716
20,516
Total share-based expense for the year ended September 30, 2017 includes $5 million which is included as a component of “Acquisition-
related expenses” on our Consolidated Statements of Income and Comprehensive Income. See Note 3 for additional information
regarding such expense.
For the year ended September 30, 2017, we realized $22 million of excess tax benefits related to our restricted equity awards which
favorably impacted income tax expense in our Consolidated Statements of Income and Comprehensive Income as a result of our
adoption of stock compensation simplification guidance (see Note 2 for additional information on our adoption of this new accounting
guidance).
As of September 30, 2017, there was $125 million of total pre-tax compensation cost not yet recognized, net of estimated forfeitures,
related to restricted equity awards granted to employees and members of our Board of Directors. These costs are expected to be
recognized over a weighted-average period of approximately 3.1 years. The total fair value of shares and unit awards vested under
this plan during the year ended September 30, 2017 was $59 million.
There are no outstanding RSUs related to our independent contractor financial advisors as of September 30, 2017.
Restricted stock awards associated with Alex. Brown
As part of our acquisition of Alex. Brown, we 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 6 for
additional information regarding these derivatives.
The following table details the DBRSU activity for the year ended September 30, 2017:
Units
(in thousands)
Non-vested DBRSUs at October 1, 2016
DB rights offering
Forfeited
Non-vested DBRSUs at September 30, 2017
1,358
163
(28)
1,493
The per unit fair value of the DBRSUs at the AB Closing Date was $14.90, and the DBRSUs per unit fair value as of September 30,
2017 was $17.28.
As of September 30, 2017, there was a $10 million prepaid compensation asset included in “Other assets” in our Consolidated Statements
of Financial Condition related to these DBRSUs (see Note 9). This asset is expected to be amortized over a weighted-average period
155
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of approximately two years. As of September 30, 2017, there was a $26 million derivative liability included in “Derivative liabilities”
in our Consolidated Statements of Financial Condition based on the September 30, 2017 per share price of DB shares of $17.28.
The net impact of the DBRSUs in our Consolidated Statements of Income and Comprehensive Income, including the related income
tax effects, is presented below:
$ in thousands
Amortization of DBRSU prepaid compensation asset
Increase/(decrease) in fair value of derivative liability
Net expense/(gain) before tax
Income tax expense
Year ended September 30,
2017
2016
$
$
$
5,270
8,031
13,301
4,963
$
$
$
355
(2,457)
(2,102)
799
Included in the table above is the impact of a DB right offering during the year ended September 30, 2017, which increased the fair
value of the derivative liability due to the DBRSU plan terms and conditions, and was reported in “Acquisition-related expenses” on
the Consolidated Statements of Income and Comprehensive Income. Also includes the impact of DBRSUs forfeited during the year
ended September 30, 2017.
We hold shares of DB as of September 30, 2017 as an economic hedge against this obligation. Such shares are included in “Other
investments” on our Consolidated Statements of Financial Condition. The gains/losses on this hedge are included as a component of
“Compensation, commissions and benefits expense” or “Acquisition-related expenses” as applicable, and offsets a portion of the gain/
losses on the DBRSUs incurred during the periods discussed 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 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 343,000, 557,000 and 430,000 shares to
employees during the years ended September 30, 2017, 2016 and 2015, respectively. The compensation cost is calculated as the value
of the 15% discount from market value and was $4 million for each of the fiscal years ended September 30, 2017, 2016 and 2015.
Non-employee other compensation
We offer non-qualified deferred compensation plans that provide benefits to our independent contractor financial advisors who meet
certain production requirements. COLI 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 also eligible to participate in our VDCP. Eligible participants may elect to defer
a percentage or specific dollar amount of their compensation into the VDCP. COLI is the primary source of funding for this plan.
NOTE 21 – REGULATORY CAPITAL REQUIREMENTS
RJF, as a bank holding company and financial holding company, RJ Bank, and our broker-dealer subsidiaries are subject to capital
requirements by various regulatory authorities. Capital levels of each entity are monitored to ensure compliance with our various
regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial results.
As a bank holding company, RJF is subject to the risk-based capital requirements of the Federal Reserve Board. These risk-based
capital requirements are expressed as capital ratios that compare measures of regulatory capital to risk-weighted assets, which involve
quantitative measures of our assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting guidelines.
RJF’s and RJ Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components,
risk-weightings, and other factors.
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”). RJF and RJ Bank report regulatory
156
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
capital under the Basel III 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. Failure to maintain the capital conservation buffer could limit our ability to take certain capital actions,
including dividends and common equity repurchases, and to make discretionary bonus payments. As of September 30, 2017, both
RJF’s and RJ Bank’s capital levels exceeded the fully-phased in capital conservation buffer requirement, and are each categorized as
“well capitalized.”
To meet requirements for capital adequacy purposes or to be categorized as “well capitalized,” RJF must maintain minimum CET1,
Tier 1 capital, Total capital, and Tier 1 leverage amounts and ratios as set forth in the table below.
$ in thousands
RJF as of September 30, 2017:
CET1
Tier 1 capital
Total capital
Tier 1 leverage
RJF as of September 30, 2016:
CET1
Tier 1 capital
Total capital
Tier 1 leverage
Actual
Requirement for capital
adequacy purposes
To be well capitalized under
regulatory provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
$
$
$
$
$
$
$
5,081,335
5,081,335
5,293,331
5,081,335
4,421,956
4,421,956
4,636,009
4,421,956
23.0% $
23.0% $
23.9% $
15.0% $
20.6 % $
20.6 % $
21.6 % $
15.0 % $
994,950
1,326,600
1,768,800
1,359,168
966,341
1,288,454
1,717,939
1,177,840
4.5% $
6.0% $
8.0% $
4.0% $
4.5 % $
6.0 % $
8.0 % $
4.0 % $
1,437,150
1,768,800
2,211,000
1,698,960
1,395,825
1,717,939
2,147,424
1,472,300
6.5%
8.0%
10.0%
5.0%
6.5 %
8.0 %
10.0 %
5.0 %
The increase in RJF’s Total capital and Tier 1 capital ratios at September 30, 2017 compared to September 30, 2016 was primarily the
result of positive earnings during the year ended September 30, 2017, partially offset by the growth of RJ Bank’s assets, primarily bank
loans.
To meet the requirements for capital adequacy or to be categorized as “well capitalized,” RJ Bank must maintain CET1, Tier 1 capital,
Total capital, and Tier 1 leverage amounts and ratios as set forth in the table below.
$ in thousands
RJ Bank as of September 30, 2017:
CET1
Tier 1 capital
Total capital
Tier 1 leverage
RJ Bank as of September 30, 2016:
CET1
Tier 1 capital
Total capital
Tier 1 leverage
Actual
Requirement for capital
adequacy purposes
To be well capitalized under
regulatory provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
$
$
$
$
$
$
$
1,821,306
1,821,306
2,003,461
1,821,306
1,675,890
1,675,890
1,841,112
1,675,890
12.5% $
12.5% $
13.8% $
8.9% $
654,901
873,201
1,164,268
816,304
12.7 % $
12.7 % $
14.0 % $
9.9 % $
592,864
790,486
1,053,981
675,939
4.5% $
6.0% $
8.0% $
4.0% $
4.5 % $
6.0 % $
8.0 % $
4.0 % $
945,968
1,164,268
1,455,335
1,020,379
856,360
1,053,981
1,317,476
844,924
6.5%
8.0%
10.0%
5.0%
6.5 %
8.0 %
10.0 %
5.0 %
The decrease in RJ Bank’s Total and Tier 1 capital ratios at September 30, 2017 compared to September 30, 2016 was primarily due
to growth in assets, primarily bank loans.
157
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 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
regulatory capital 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 “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, 2017) 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 following table presents the net capital position of RJ&A:
$ in thousands
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
The following table presents the net capital position of RJFS:
$ in thousands
Raymond James Financial Services, Inc.:
(Alternative Method elected)
Net capital
Less: required net capital
Excess net capital
September 30,
2017
2016
21.37%
589,420
(55,164)
534,256
$
$
19.61%
512,594
(52,287)
460,307
September 30,
2017
2016
34,488
(250)
34,238
$
$
27,013
(250)
26,763
$
$
$
$
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. was not in Early Warning Level 1 or Level 2 at either September 30, 2017 or 2016.
158
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the risk adjusted capital of RJ Ltd. (in Canadian dollars):
$ in thousands
Raymond James Ltd.:
Risk adjusted capital before minimum
Less: required minimum capital
Risk adjusted capital
September 30,
2017
2016
$
$
108,985
(250)
108,735
$
$
77,110
(250)
76,860
Raymond James Trust, N.A., (“RJ Trust”) is regulated by the OCC and is required to maintain sufficient capital. As of September 30,
2017 and 2016, RJ Trust met the requirements.
As of September 30, 2017, all of our other active regulated domestic and international subsidiaries were in compliance with and met
all applicable 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 and regulatory requirements or restrictions, and the availability of funds from our
subsidiaries, including our broker-dealer and bank subsidiaries, which may also 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 and restrictions by bank regulators on dividends to the parent from RJ Bank.
NOTE 22 – 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.
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 financings and may result in credit exposure in the
event that the counterparty fails to meet its contractual obligations. Our exposure to credit risk can be directly impacted by volatile
securities markets, which may impair the ability of counterparties to satisfy their contractual obligations. We seek to control our credit
risk through a variety of reporting and control procedures, including establishing credit limits based upon a review of the counterparties’
financial condition and credit ratings. We monitor collateral levels on a daily basis for compliance with regulatory and internal guidelines
and request changes in collateral levels as appropriate.
Commitments to extend credit and other credit-related financial instruments
RJ Bank has outstanding at any time a significant number of commitments to extend credit and other credit-related off-balance sheet
financial instruments such as standby letters of credit and loan purchases, which then extend over varying periods of time. These
arrangements are subject to strict underwriting assessments and each customer’s credit worthiness is evaluated on a case-by-case basis.
Fixed-rate commitments are also subject to market risk resulting from fluctuations in interest rates and our exposure is limited to the
replacement value of those commitments.
The following table presents RJ Bank’s commitments to extend credit and other credit-related off-balance sheet financial instruments
outstanding:
$ in thousands
Standby letters of credit
Open-end consumer lines of credit (primarily SBL)
Commercial lines of credit
Unfunded loan commitments
September 30,
2017
2016
$
$
$
$
39,670
5,323,003
1,673,272
386,950
$
$
$
$
29,686
3,616,933
1,430,630
354,556
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, 2017, $40 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
159
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, we use 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 our lending commitments expire without being funded in whole or part, the contract amounts are not estimates of
our actual future credit exposure or future liquidity requirements. We maintain a reserve to provide for potential losses related to the
unfunded lending commitments. See Note 8 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. We use the same credit approval and monitoring process in extending loan commitments and other credit-
related off-balance sheet instruments as we do in making loans.
Securities loaned and Securities borrowed
We 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. Where permitted, 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. We measure the market value of the securities borrowed
and loaned against the amount of cash posted or received on a daily basis. Additional cash is obtained as necessary to ensure such
transactions are adequately collateralized. If another party to the transaction fails to perform as agreed we may incur a loss if the market
value of the security is different from the contract amount of the transaction. For example, 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. See Note 7 for more information on our securities borrowed
and securities loaned.
Financial instruments sold, but not yet purchased
We have sold securities that we do not currently own and will, therefore, be obligated to borrow, purchase or enter into a reverse
repurchase agreement for such securities at a future date. These securities are recorded at fair value and are included in “Trading
instruments sold, but not yet purchased” in our Consolidated Statements of Financial Condition (see Notes 2 and 4 for further
information). In certain cases, we utilize short positions to economically hedge long inventory positions. We may be subject to loss if
the market value of a short position increases by more than the market value of the hedged long position or if the short position is not
covered by a long hedged position.
We also enter into security transactions on behalf of our clients and other financial institutions 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 could 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.
As a part of our fixed income public finance operations, we enter into forward commitments to purchase GNMA or FNMA MBS. See
Note 2 and Note 17 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 differs significantly from the term
and notional amount of the TBA security contracts we enter into.
Forward foreign exchange contracts
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, 2017, forward contracts outstanding to buy and sell U.S. dollars totaled
160
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
CDN $3 million and CDN $5 million, respectively. RJ Bank is also subject to foreign exchange risk related to its net investment in a
Canadian subsidiary. See Note 6 for information regarding how RJ Bank utilizes derivatives to mitigate a significant portion of this
risk.
NOTE 23 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per share:
$ in thousands, except per share amounts
Income for basic earnings per common share:
Net income attributable to RJF
Less allocation of earnings and dividends to participating securities
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
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,
2017
2016
2015
$
$
$
$
$
$
$
$
$
$
636,235
(1,376)
634,859
636,235
(1,350)
634,885
143,275
3,372
146,647
$
$
$
$
529,350
(1,256)
528,094
529,350
(1,236)
528,114
141,773
2,740
144,513
4.43
4.33
$
$
3.72
3.65
$
$
1,657
3,255
502,140
(1,610)
500,530
502,140
(1,580)
500,560
142,548
3,391
145,939
3.51
3.43
2,849
The allocation of earnings and dividends to participating securities in the above table 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 317 thousand, 346 thousand and 464
thousand for the years ended September 30, 2017, 2016 and 2015, respectively. Dividends paid to participating securities were
insignificant for the years ended September 30, 2017, 2016, and 2015. 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 24 – SEGMENT INFORMATION
Year ended September 30,
2017
2016
2015
$
$
0.88
0.86
$
$
0.80
0.78
$
$
0.72
0.70
We currently operate through the following five business segments: “Private Client Group;” “Capital Markets;” “Asset Management;”
RJ Bank; and “Other.”
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.
161
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Private Client Group segment includes the retail branches of our broker-dealer subsidiaries located throughout the U.S., Canada
and the United Kingdom. These branches provide securities brokerage services including the sale of equities, mutual funds, fixed
income products and insurance products to their individual clients. The segment includes net interest earnings on client margin loans
and cash balances and certain fee revenues generated by the multi-bank aspect of the RJBDP. Additionally, this segment includes the
activities associated with the borrowing and lending of securities to and from other broker-dealers, financial institutions and other
counterparties, generally as an intermediary or to facilitate RJ&A’s clearance and settlement obligations, and the correspondent clearing
services that we provide to other broker-dealer firms.
The Capital Markets segment includes institutional sales and trading in the U.S., Canada and Europe. We provide securities brokerage,
trading, and research services to institutions with an emphasis on the sale of U.S. and Canadian equities and fixed income products.
This segment also includes our management of and participation in debt and equity underwritings, merger & acquisition services,
public finance activities, and the operations of RJTCF.
The Asset Management segment includes the operations of Eagle, the Eagle Family of Funds, the asset management services division
of RJ&A, trust services of RJ Trust, and other fee-based asset management programs.
RJ Bank provides corporate loans (C&I, CRE and CRE construction), SBL, tax-exempt 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 the results of our 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, losses on extinguishment of debt and the acquisition
and integration costs associated with certain acquisitions (see Note 3 for additional information).
The following table presents information concerning operations in these segments of business:
$ in thousands
Revenues:
Private Client Group
Capital Markets
Asset Management
RJ Bank
Other
Intersegment eliminations
Total revenues
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
Net income attributable to noncontrolling interests
Year ended September 30,
2017
2016
2015
$
4,437,588
$
3,626,718
$
3,519,558
$
$
1,034,235
1,017,151
$
$
487,735
627,845
65,498
(128,026)
6,524,875
372,950
141,236
171,736
409,303
(169,879)
925,346
2,632
$
$
404,421
517,243
46,291
(90,704)
5,521,120
340,564
139,173
132,158
337,296
(148,548)
800,643
11,301
976,580
392,378
425,988
66,967
(71,791)
5,309,680
342,243
107,009
135,050
278,721
(64,849)
798,174
16,438
814,612
Income including noncontrolling interests and before provision for income taxes
$
927,978
$
811,944
$
No individual client accounted for more than ten percent of total revenues in any of the years presented.
162
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
$ in thousands
Net interest income/(expense):
Private Client Group
Capital Markets
Asset Management
RJ Bank
Other
Net interest income
The following table presents our total assets on a segment basis:
$ in thousands
Total assets:
Private Client Group
Capital Markets
Asset Management
RJ Bank
Other
Total
Year ended September 30,
2017
2016
2015
$
$
136,756
$
97,042
$
6,543
623
574,796
(70,370)
9,432
183
478,690
(61,006)
648,348
$
524,341
$
88,842
9,589
127
403,578
(64,928)
437,208
September 30,
2017
2016
$
9,967,320
$
10,317,681
2,396,033
151,111
20,611,898
1,757,094
34,883,456
2,957,319
133,190
16,613,391
1,465,395
$
31,486,976
$
Total assets in the PCG segment included $277 million and $276 million of goodwill at September 30, 2017 and 2016, respectively.
Total assets in the Capital Markets segment included $134 million and $133 million of goodwill at September 30, 2017 and 2016,
respectively.
We have operations in the U.S., Canada and Europe. Substantially all long-lived assets are located in the U.S. 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:
$ in thousands
Revenues:
United States
Canada
Europe
Other
Total
Pre-tax income/(loss) excluding noncontrolling interests:
United States
Canada
Europe
Other
Total
Year ended September 30,
2017
2016
2015
$
6,057,971
$
5,119,536
$
4,912,820
354,685
107,831
4,388
278,652
85,718
37,214
279,200
85,289
32,371
6,524,875
$
5,521,120
$
5,309,680
919,324
$
778,351
$
784,517
14,138
(3,577)
(4,539)
20,243
(3,791)
5,840
17,770
(6,852)
2,739
925,346
$
800,643
$
798,174
$
$
$
Our total assets, classified by major geographic area in which they are held, are presented below:
$ in thousands
Total assets:
United States
Canada
Europe
Other
Total
September 30,
2017
2016
$
32,200,852
$
29,112,182
2,592,480
81,090
9,034
2,275,056
61,067
38,671
$
34,883,456
$
31,486,976
163
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Total assets in the United States included $356 million of goodwill at September 30, 2017 and 2016, respectively. Total assets in
Canada included $45 million and $43 million of goodwill at September 30, 2017 and 2016, respectively. Total assets in Europe included
$10 million and $9 million of goodwill at September 30, 2017 and 2016, respectively.
NOTE 25 - 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, 2017, each
of these brokerage subsidiaries far exceeded their minimum net capital requirements (see Note 21 for further information).
Subsidiary net assets of approximately $2.33 billion as of September 30, 2017 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 subsidiaries other than its broker-dealer subsidiaries and RJ Bank is not limited by regulatory
or other restrictions; however, 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.
Cash and cash equivalents of $1.29 billion and $810 million as of September 30, 2017 and 2016, respectively, were available to the
Parent without restriction and were held directly by RJF in depository accounts at third party financial institutions, held in depository
accounts at RJ Bank, or were otherwise invested by one of our subsidiaries on behalf of RJF. The amount held in depository accounts
at RJ Bank was $192 million as of September 30, 2017, of which $152 million was available on demand and without restriction. As
of September 30, 2016, $350 million was held in depository accounts at RJ Bank, all of which was available on demand and without
restriction.
See Notes 14, 15, 17 and 21 for more information regarding borrowings, commitments, contingencies and guarantees, and capital and
regulatory requirements of the Parent and its subsidiaries.
164
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the Parent’s statements of financial condition:
$ in thousands
Assets:
Cash and cash equivalents
Assets segregated pursuant to regulations
Intercompany receivables from subsidiaries:
Bank subsidiary
Non-bank subsidiaries (1)
Investments in consolidated subsidiaries:
Bank subsidiary
Non-bank subsidiaries
Property and equipment, net
Goodwill and identifiable intangible assets, net
Other assets
Total assets
Liabilities and equity:
Other payables
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,
2017
2016
$
528,397
$
371,978
40,145
319
—
—
1,166,765
1,228,046
1,823,342
3,448,191
14,457
31,954
624,452
1,658,663
3,121,410
14,891
31,954
611,667
$
7,678,022
$
7,038,609
$
80,576
$
81,340
—
52,699
414,195
1,548,839
2,096,309
5,581,713
230
13,892
346,015
1,680,587
2,122,064
4,916,545
$
7,678,022
$
7,038,609
(1) Of the total receivable from non-bank subsidiaries, $783 million and $457 million at September 30, 2017 and 2016, respectively, was invested in cash and cash
equivalents by the subsidiary on behalf of the Parent.
165
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the Parent’s statements of income:
$ in thousands
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
Losses on extinguishment of debt
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
Year ended September 30,
2017
2016
2015
$
183,347
$
248,020
$
230,853
125,000
16,404
1,838
25,323
351,912
(94,921)
256,991
61,765
8,741
677
18,773
45,746
14,707
(30,643)
119,766
137,225
(85,529)
222,754
413,481
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
210,029
(64,658)
274,687
254,663
$
636,235
$
529,350
$
—
6,886
843
3,823
242,405
(76,233)
166,172
46,758
5,999
800
17,581
—
10,365
(46,898)
34,605
131,567
(42,688)
174,255
327,885
502,140
166
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the Parent’s statements of cash flows:
$ in thousands
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
Loss on extinguishment of senior notes payable
Other
Net change in:
Assets segregated pursuant to regulations
Intercompany receivables
Other
Intercompany payables
Other payables
Accrued compensation and benefits
Net cash provided by operating activities
Cash flows from investing activities:
(Investments in)/distributions from subsidiaries, net
Advances to subsidiaries, net
Proceeds from sales/(purchases) of investments, net
Purchase of investments in company-owned life insurance, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from senior note issuances, net of debt issuance costs paid
Extinguishment of senior notes payable
Premium paid on extinguishment 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 increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes, net
Supplemental disclosures of noncash activity:
Investments in subsidiaries, net
Losses on extinguishment of debt
Year ended September 30,
2017
2016
2015
$
636,235
$
529,350
$
502,140
(14,588)
(47,920)
(413,481)
45,746
97,616
(40,145)
178,631
80,561
38,577
(764)
68,180
628,648
(36,520)
(117,670)
4,836
(40,661)
(190,015)
508,473
(650,000)
(36,892)
57,462
(34,055)
(127,202)
(282,214)
156,419
371,978
(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
528,397
$
371,978
$
(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
98,554
92,568
24,352
8,854
$
$
$
$
74,568
27,397
$
$
76,297
32,383
781
$
— $
507
—
$
$
$
$
$
167
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
SUPPLEMENTARY DATA:
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
$ in thousands, except per share amounts
Total revenues
Net revenues
Non-interest expenses
Income including noncontrolling interests and before provision for income taxes
Net income attributable to Raymond James Financial, Inc.
Earnings per common share - basic
Earnings per common share - diluted
Cash dividends per common share - declared
$ in thousands, except per share amounts
Total revenues
Net revenues
Non-interest expenses
Income including noncontrolling interests and before provision for income taxes
Net income attributable to Raymond James Financial, Inc.
Earnings per common share - basic
Earnings per common share - diluted
Cash dividends per common share - declared
Fiscal Year 2017
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
1,528,768 $
1,600,314 $
1,663,107 $
1,732,686
1,492,802 $
1,563,637 $
1,624,547 $
1,690,111
1,285,287 $
1,402,334 $
1,347,606 $
1,407,892
207,515 $
146,567 $
161,303 $
112,755 $
276,941 $
183,424 $
282,219
193,489
1.03 $
1.00 $
0.22 $
0.78 $
0.77 $
0.22 $
1.27 $
1.24 $
0.22 $
1.34
1.31
0.22
Fiscal Year 2016
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
1,300,857 $
1,341,110 $
1,386,997 $
1,492,156
1,274,158 $
1,312,001 $
1,358,964 $
1,459,941
1,104,085 $
1,117,893 $
1,154,110 $
1,217,032
170,073 $
106,329 $
194,108 $
125,847 $
204,854 $
125,504 $
242,909
171,670
0.74 $
0.73 $
0.20 $
0.89 $
0.87 $
0.20 $
0.89 $
0.87 $
0.20 $
1.21
1.19
0.20
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
As a result of our October 1, 2016 adoption of the new consolidation guidance, we deconsolidated a number of tax credit fund variable
interest entities (“VIEs”) that had been previously consolidated. We applied the new consolidation guidance on the full retrospective
basis, meaning that we have reflected the adjustments arising from this adoption for fiscal year 2016 presented above. See Note 2 in
the Notes to the Consolidated Financial Statements for additional information.
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.
168
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the year ended September 30, 2017 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, 2017. 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, 2017 (included as follows).
169
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, 2017, 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,
2017, 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, 2017 and 2016, 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, 2017, and our report dated November 21, 2017 expressed an unqualified opinion on those consolidated
financial statements.
/s/ KPMG LLP
Tampa, Florida
November 21, 2017
Certified Public Accountants
170
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Item 9B. OTHER INFORMATION
None.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
A list of our executive officers appears in Part I, Item 1 of this report. The balance of the information required by Item 10 is incorporated
herein by reference to the registrant’s definitive proxy statement for the 2018 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, 2017.
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 2018 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, 2017.
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
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.
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 4.950% 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.
Sixth (Reopening) Supplemental Indenture, dated as of May 10, 2017, for the 4.950% 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 4.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission
on May 10, 2017.
171
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Exhibit
Number
10.1
10.2
10.3
10.4
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.
* 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.
10.5
* Letter Agreement, dated February 27, 2017, between Raymond James Financial, Inc. and Paul C. Reilly, incorporated by
reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission
on February 28, 2017.
10.6
* Letter Agreement, dated February 27, 2017, between Raymond James Financial, Inc. and Thomas A. James, 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 February 28, 2017.
10.7.1
* Composite Version of 2005 Raymond James Financial, Inc. Restricted Stock Plan (as amended on December 10, 2010),
incorporated by reference to Appendix A to the 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.
10.7.2
* Form of Notice of Restricted Stock Unit Award and associated Restricted Stock Unit Agreement (employee/independent
contractor) under 2005 Raymond James Financial, Inc. Restricted Stock Plan, as amended, incorporated by reference to
Exhibit 10.17.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on
November 30, 2010.
10.7.3
* Form of Amendment to Restricted Stock Grant Agreements outstanding under 2005 Raymond James Financial, Inc.
10.8
10.9
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.
10.10
* Amended and Restated Raymond James Financial Long-Term Incentive Plan, effective February 19, 2015, incorporated by
10.11.1
10.11.2
10.11.3
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.
Second Amendment to Credit Agreement, dated as of May 5, 2017, 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 May 5, 2017.
10.12.1
* 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.
10.12.2
* Form of Contingent Stock Option Agreement under 2012 Stock Incentive Plan, incorporated by reference to Exhibit 10.22 to
10.12.3
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.
10.12.4
* 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.
10.12.5
* 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.
10.12.6
10.12.7
* 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.
* 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.
172
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Exhibit
Number
10.12.8
10.12.9
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.
10.12.10
* 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.
10.12.11
* 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.
10.12.12
* 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.
10.12.13
10.12.14
* 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.
10.13
10.14
11
12
21
23
31.1
31.2
32
* Raymond James Financial, Inc. Amended and Restated Voluntary Deferred Compensation Plan, effective February 23, 2016,
incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on November 22, 2016.
Settlement Agreement and Release, dated April 13, 2017, among Michael I. Goldberg, as receiver, Thomas A. Tucker
Ronzetti, Harley S. Tropin, and Kozyak Tropin & Throckmorton, LLP, as interim class counsel, and Raymond James &
Associates, Inc., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on April 13, 2017.
Statement re Computation of per Share Earnings (the calculation of per share earnings is included in Part II, Item 8, Note 23
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.
173
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Petersburg, State of Florida, on the 21st day
of November, 2017.
SIGNATURES
RAYMOND JAMES FINANCIAL, INC.
By: /s/ PAUL C. REILLY
Paul C. Reilly, Chairman and 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
Chairman and Chief Executive Officer (Principal Executive Officer)
and Director
November 21, 2017
Executive Vice President - Finance, Chief Financial Officer
(Principal Financial Officer) and Treasurer
November 21, 2017
/s/ JENNIFER C. ACKART
Senior Vice President and Controller (Principal Accounting Officer)
November 21, 2017
Jennifer C. Ackart
/s/ THOMAS A. JAMES
Thomas A. James
Chairman Emeritus and Director
November 21, 2017
/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 21, 2017
November 21, 2017
November 21, 2017
November 21, 2017
/s/ FRANCIS S. GODBOLD
Vice Chairman and Director
November 21, 2017
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
174
November 21, 2017
November 21, 2017
November 21, 2017
November 21, 2017
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ANNUAL REPORT 2017 INTERNATIONAL HEADQUARTERS: THE RAYMOND JAMES FINANCIAL CENTER
880 CARILLON PARKWAY ST. PETERSBURG, FL 33716 800.248.8863
RAYMONDJAMES.COM
© 2017 Raymond James Financial Raymond James® is a registered trademark of Raymond James Financial, Inc.