A N N U A L R E P O R T 2 0 1 8
for the future
A N N U A L R E P O R T 2 0 1 8
Since our founding in 1962,
Raymond James has been in the
business of planning – for private,
corporate and governmental
clients, for advisors, for the firm
and always for the future.
In 2018, that future was continuing to rapidly change shape.
Advancing technology and mobile access are transforming the way
we work across business units and keep in touch with clients. Shifting
demographics are expanding the kinds of people we serve and the
needs we help them meet.
In the face of this change, we are adapting, developing new solutions,
innovating to advance our industry and continuing to invest in our
infrastructure.
2
RAYMOND JAMES ANNUAL REPORT 2018 But we are also focused on what’s now, on what’s always been:
Our clients.
No matter the pace of change, we know our ability to achieve more than
three decades of consecutive quarterly profitability, as well as the record
performance we delivered this fiscal year, is reliant on staying true to the
values that are the foundation for our success.
We know that in a fast-moving world, slowing down to really understand
clients’ needs is fundamental to what we do, and that by helping them
achieve their goals, we’ll do the same, as a firm and for our shareholders.
C O N T E N T S
4
MESSAGE FROM
THE CHAIRMAN
AND CEO
10
PRIVATE CLIENT
GROUP
14
CAPITAL MARKETS
20
ASSET
MANAGEMENT
24
RAYMOND JAMES
BANK
25
26
SOCIAL
RESPONSIBILITY
CORPORATE
LEADERSHIP
28
10-YEAR
FINANCIALS
30
CORPORATE AND
SHAREHOLDER
INFORMATION
31
FINANCIAL REPORT
3
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE 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
Ten years ago, we were in the midst of the worst financial crisis since the Great Depression.
Too many firms in our industry suffered from excessive leverage and overexposure to
illiquid assets, which caused many to fail and some to rely on government support through
the Troubled Asset Relief Program (TARP). Raymond James not only survived the financial
crisis but did so without a government lifeline. Our long-term success reflects our mission
of always putting the financial well-being of our clients first, which ultimately serves the
best interests of our shareholders, associates and communities.
That approach led to outstanding results in fiscal 2018. A decade
after the financial crisis we finished the fiscal year with our 123rd
consecutive quarter of profitability and record annual net revenues and
earnings. Record net revenues of $7.27 billion increased 14%, record
pre-tax income of $1.31 billion increased 42%, and record net income
of $856.7 million represented a 35% increase over fiscal 2017. Adjusted
net income of $964.8 million1, which excludes the $105.3 million impact
of the Tax Cuts and Jobs Act, increased 26% compared to fiscal year
2017. Record financial results were driven by growth of client assets,
record investment banking revenues and the positive impact from
higher short-term interest rates. Client assets under administration
increased 14% during the year to $790.4 billion, another record,
lifted by equity market appreciation and the net addition of financial
advisors in the Private Client Group (PCG) segment. Our return on
average total equity for the year was 14.4%, very good given our strong
capital position throughout the year. Our shareholders’ equity of $6.4
billion on September 30, 2018, increased 14% over September 2017,
resulting in a book value per share of $43.73.
During the fiscal year we increased our quarterly dividend twice,
moving from $0.22 to $0.30 per quarter. In addition, in November
2018 the quarterly dividend was increased to $0.34 per quarter,
resulting in 55% growth over a 12-month period. In May, our board
of directors also approved a $250 million securities repurchase
authorization. The firm repurchased nearly 3.17 million shares of
common stock for an average of $78.94 per share. With the prior
authorization fully utilized, the board approved an additional
authorization of $500 million in late November 2018. While we strive
to maintain ample levels of capital and liquidity, we are deliberate
about returning capital to our shareholders, as appropriate.
Turning to our segment results, the Private Client Group generated
record net revenues of $5.09 billion, an increase of 15% over fiscal
2017, and record pre-tax income of $576.1 million, a 54% increase
over 2017, which was negatively impacted by $130 million of
reserves associated with a legal settlement. Fiscal 2018 concluded
with records for PCG assets under administration of $755.7 billion
and PCG assets in fee-based accounts of $366.3 billion.
A significant driver of PCG results in 2018 was our ability to retain
and attract quality financial advisors who appreciate the unique
combination of a client-first focused culture along with robust
technology and product offerings. More than 7,800 advisors are
now affiliated with the firm. Fiscal year 2018 established a new
milestone for financial advisor recruiting with over $300 million
of trailing 12-month production joining the firm. In addition to
attracting experienced advisors, we continued investing in the future
by expanding our financial advisor training program, with over 250
associates starting the program during fiscal 2018.
That view to the future was also clear as we implemented an
important succession plan, with Chief Operating Officer Dennis
Zank announcing his retirement from that role and as leader of PCG.
We’re grateful for Dennis’ 40 years of committed service to Raymond
James, where during his career he successfully led operations and
administration, and the Private Client Group. Most importantly,
he helped prepare the firm for continued success, including those
who took on his responsibilities, namely Raymond James Financial
Services (RJFS) President Scott Curtis, who we named head of PCG,
and Raymond James & Associates (RJA) President Tash Elwyn, who
expanded his role to become CEO of the RJA broker/dealer. In addition
to these changes, Jodi Perry replaced Scott Curtis as leader of the RJFS
Independent Contractor Division and was appointed to the Raymond
James Financial (RJF) Executive Committee, and Alex. Brown
President Haig Ariyan took on leadership of the firm’s Investment and
Wealth Solutions departments. I have utmost confidence in these
leaders and am pleased we have a strong team in place to continue
propelling our Private Client Group forward.
Notable for the firm and our industry this year was the reversal
of the Department of Labor’s fiduciary rule by a federal court of
appeals in June. While Raymond James has long advocated for a
uniform best interest standard, we as a firm and I personally were
outspoken against the DOL’s fiduciary rule and were pleased by
the outcome. We are encouraged by the SEC’s Regulation Best
1. “Adjusted net income” is a non-GAAP financial measure. Please see the “reconciliation of GAAP measures to non-GAAP measures” on page 38 of our Annual
Report on Form 10-K for the fiscal year ended September 30, 2018 for a reconciliation of our non-GAAP measures to the most directly comparable GAAP
measures, and for other important disclosures.
4
RAYMOND JAMES ANNUAL REPORT 2018 Interest proposal, which, once finalized, is expected to require the
same standard of care for all investors and account types. We will
implement any necessary changes with a consistent approach
to putting clients first, minimizing disruptions, and maintaining
flexibility and choice for advisors and clients.
Whatever the years ahead bring, I know with strong leadership in
place and a commitment to our advisors and their clients, PCG is well
positioned to continue its record of growth and success as we enter 2019.
Moving on to the Capital Markets segment, net revenues of $963.8
million and pre-tax income of $90.6 million declined 5% and 36%,
respectively, compared to fiscal 2017, in spite of record M&A results
that drove record total investment banking revenues of $440.8
million, up 11% over last year’s record. The strong M&A results
reflected a favorable market environment and the substantial
investments we made to strengthen our capabilities over the past
several years. The broader story for the segment was less positive.
Equity underwriting revenues declined 27% and institutional
commissions remained challenged in fiscal 2018, as the equity
business was negatively impacted by both structural and cyclical
factors, and a flattening yield curve hurt the fixed income business.
The Asset Management segment produced record net revenues of
$654.4 million and record pre-tax income of $235.3 million, increasing
34% and 37% over fiscal 2017, respectively, driven by financial assets
under management, which ended the fiscal year up 46% at a record
$140.9 billion. The increase in financial assets under management
reflected market appreciation and increased utilization of fee-based
accounts in PCG, with a large influx due to aspects of the now-defunct
DOL fiduciary rule, as well as interest in newer products such as
Freedom Foundations and environmental, social and governance
(ESG) portfolios, both of which offer professional management at
significantly lower asset levels than the segment’s typical offering.
Also meaningful was the addition of $27 billion of assets from the
acquisition of Scout Investments and Reams Asset Management
in November 2017. This acquisition, which significantly expanded
and diversified Carillon Tower Advisers’ product offering, has been
successful to date with strong asset retention and a seamless
integration during the fiscal year.
Also of note for the year was RJF Executive Committee member
and Asset Management Group President Jeff Dowdle being named
as RJF Chief Administrative Officer, expanding his role over several
administrative areas of the firm.
For Raymond James Bank, record net revenues of $726.7 million
were up 23% and record pre-tax income of $491.8 million increased
20% over fiscal 2017. By continuing to focus on providing solutions
to clients in our PCG and Capital Markets segments, the bank’s loan
portfolio grew 15% to a record $19.5 billion during the year. Most
importantly, the bank’s credit metrics improved, with nonperforming
assets declining 36% and criticized loans declining 12%. Net interest
margin expanded 12 basis points to 3.22% in fiscal 2018, helped by
the increases in short-term interest rates, which more than offset the
growth of lower yielding assets such as residential mortgages to PCG
clients and the agency-backed securities portfolio.
Complementing the strong performance within our businesses, we also
achieved several other notable accomplishments during the fiscal year:
• Giving back to our communities is an integral aspect of our mission,
and we certainly exhibited that in fiscal 2018. Between associate
contributions and a company match, Raymond James raised more
than $6 million for communities across the country through its
annual United Way campaign. Additionally, our associates raised
more than $250,000 for the American Heart Association through
the 2017 Heart Walk, and during the firm’s annual Raymond James
Cares Month, more than 2,500 advisors and associates volunteered
over 7,250 hours to benefit 172 charitable organizations, reflecting
an 18% increase in the number of volunteer hours over 2017.
Raymond James also donated $150,000 to recovery efforts in the
areas most affected by Hurricane Michael and $250,000 to the
American Red Cross to support Hurricane Florence relief efforts.
• The firm appointed two new directors to its board of directors –
retail and consumer products veteran Anne Gates and information
technology executive Bob Dutkowsky – and both were named to
the Audit and Risk Committee. I am confident that Anne and Bob
share our firm’s values and will be excellent additions to our board
of directors.
• We also formed an Operating Committee – this committee is
comprised of executive leaders representing different business
units and diverse perspectives from across the firm and will work
with the Executive Committee to participate in decision-making
and setting strategy.
• We’re continuing our long-term focus on having a more inclusive
and diverse workforce, and received recognition for our efforts,
including the Bank Insurance & Securities Association 2018 BISA
Diversity Award, which annually recognizes successful diversity
efforts of organizations from the financial industry. InvestmentNews
also recognized the firm as a “Diversity Champion,” two of our
advisors – RJA’s Tony Barrett and RJFS’ Joshua Charles – as “See
It Be It Role Models,” and EVP of Technology and Operations Bella
Allaire and financial advisor Sacha Millstone as “Women to Watch.”
• Raymond James was named to Fortune’s list of the World’s Most
Admired Companies and was also ranked 58th on Forbes’ list of
America’s Best Employers.
• Chairman Emeritus Tom James was recognized by InvestmentNews
as one of two “Icons” of our industry, alongside Fidelity Investments
Chairman Emeritus Edward “Ned” Johnson III, on its 2017 list of
Icons & Innovators.
• Several Raymond James-affiliated advisors were recognized during
the year, including eight advisors named to Forbes’ list of America’s
Top Women Advisors, 30 advisors named to the Financial Times “FT
400” list of top financial advisors, 55 advisors named to Barron’s Top
Advisors ranking, three advisors named to Barron’s list of the Top
5
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE 100 Women Financial Advisors, and 74 advisors named to Forbes’ list
of America’s Top Next Generation Wealth Advisors.
• Raymond James earned numerous investment banking
awards during the year, including several awards from the M&A
Advisor, comprised of three “Deal of the Year” awards and five
“International Deal of the Year” awards.
In short, it was a superb year for Raymond James. We are entering
fiscal 2019 with records for our key revenue drivers, including client
assets under administration, financial assets under management,
the number of PCG financial advisors, and net loans at Raymond
James Bank, capping off a very strong run of growth in recent years.
However, we are very aware that maintaining our strong position
is reliant on continuing to look forward and being vigilant about
continuing to evolve our business for the needs of the future, while
remaining rooted in the values that have defined our firm for the
past 55-plus years.
That includes managing our business with a thoughtful, conservative
approach. Volatility in the S&P 500 index late in 2018 reminds us that
we are 10 years into one of the longest bull markets in history, and
we should always be prepared for an eventual prolonged downturn
in the equity markets. Furthermore, the industry is starting to
experience significant competition for client cash balances, which
could also create headwinds for our financial results, particularly
when short-term interest rates stop rising.
Nonetheless, I am confident about our ability to navigate these
potential challenges, growing our businesses with our clients at the
forefront while delivering superior returns to our shareholders over
the long term.
Thank you for your trust and confidence in Raymond James.
Paul C. Reilly
Chairman and Chief Executive Officer
Raymond James Financial
December 14, 2018
PRIVATE CLIENT GROUP
More than 7,800 financial advisors – affiliated as traditional
employees, independent contractors, independent registered
investment advisors or financial institution-based advisors –
investment advisory and
financial planning,
provide
securities transaction services.
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
tax-incentivized
and
affordable housing
investments in communities through fund offerings.
facilitates
ASSET MANAGEMENT
The Asset Management segment provides investment
advisory and related administrative services to Private
Client Group clients through the Asset Management
Services division and through Raymond James Trust, N.A.
The segment also provides investment advisory and asset
management services to
institutional
investors, including through third-party broker/dealers,
through Carillon Tower Advisers and its affiliates, which
also sponsors a family of mutual funds.
individual and
RAYMOND JAMES BANK
Raymond James Bank provides a comprehensive array of
including
personal and corporate banking services
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
The 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.
6
RAYMOND JAMES ANNUAL REPORT 2018 2018 NET REVENUES $7,274,318,000
PRIVATE CLIENT GROUP
CAPITAL MARKETS
ASSET MANAGEMENT
RAYMOND JAMES BANK
OTHER
INTERSEGMENT
$5,093,030,000
$963,773,000
$654,377,000
$726,675,000
($15,156,000)
($148,381,000)
70%
13%
9%
10%
(0%)
(2%)
7
2
.
7
7
3
.
6
1
4
.
5
0
2
.
5
6
8
.
4
2018 TOTAL PRE-TAX INCOME* $1,310,655,000
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
PRIVATE CLIENT GROUP
CAPITAL MARKETS
ASSET MANAGEMENT
RAYMOND JAMES BANK
OTHER
$576,094,000
$90,647,000
$235,336,000
$491,779,000
($83,201,000)
44%
7%
18%
38%
(7%)
*PRE-TAX INCOME EXCLUDING NONCONTROLLING INTERESTS
FISCAL YEAR FINANCIAL HIGHLIGHTS
2018
2017
CHANGE
Net Revenues
Net Income
$7,274,318,000
$6,371,097,000
$856,695,000
$636,235,000
Earnings per Share (Diluted)
$5.75
$4.33
Shareholders’ Equity Attributable to RJF
(1)
Shares Outstanding
$6,368,461,000
$5,581,713,000
145,642,000
144,097,000
Book Value per Share
$43.73
$38.74
14%
35%
33%
14%
1%
13%
ALL DATA AS OF FISCAL YEAR ENDED SEPTEMBER 30, 2018
(1) Excludes non-vested shares
COMPARISON OF FIVE-YEAR CUMULATIVE
TOTAL RETURN SEPTEMBER 2018
Assumes initial investment of $100 and reinvestment of dividends.
Prepared by Zacks Investment Research.
$300
$250
$200
$150
$100
NET REVENUE
$Billions
9
2
5
2
0
5
0
8
4
7
5
8
6
3
6
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
NET INCOME
$Millions
4
.
4
1
3
.
2
1
2
.
2
1
5
.
1
1
3
.
1
1
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
RETURN ON EQUITY
% Percent
2
.
2
1
4
.
3
1
2
.
8
6
.
17
.
7
2013
2014
2015
2016
2017
2018
Raymond James Financial, Inc.
S&P 500
Dow Jones U.S. Investment Services Index
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
MARKET CAPITALIZATION
$Billions
7
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE
Americans produce
2.5 quintillion bytes
of data every day.
The Raymond James technology team plans to
use them wisely.
For the past several years, the group – more than 900
associates strong – has been laying the groundwork for a
transformative advisor technology platform by gathering,
analyzing, systematizing and protecting one of today’s most
abundant and precious resources: data.
“Leveraging data to help advisors deliver even better, more
timely, more seamless service to clients. That’s what we’ve
been working toward, and we’re seeing that come to fruition
now through applications that bring relevant information to the
forefront, our mobile platform that makes it accessible anywhere
and even our early steps into working with artificial intelligence,”
said Chief Information Officer Vin Campagnoli.
The work is complex and in many cases highly technical, but
underpinning it all is the human element, and a deeply held
belief that all of the information gathered and technology
tools created are only as good as the good they do for people.
“We’re harnessing the power of data and applying it to the
whole life cycle of helping advisors take care of their clients,”
explained Executive Vice President of Technology and
Operations Bella Allaire.
In many cases that life cycle now starts with two custom
applications. One, which garnered the firm’s sixth consecutive
Technology Innovation Award from the Bank Insurance &
Securities Association, brings information on thousands of
financial products together with key research – both from
external experts and Raymond James’ own analysts – and
enables advisors to compare it all against a client’s current
holdings to explore alternatives and opportunities.
The other, a portfolio construction and analysis tool, puts that
information into action. “We wanted to build an integrated
solution that took the advisor from investment research and
decision-making all the way through the implementation of
an investment plan for a client,” said Brian LaPierre, a vice
president of technology.
8
RAYMOND JAMES ANNUAL REPORT 2018 For progress
The assembled Raymond James Technology leadership
team – (left to right) Dave Allen, Kevin Adams, Bruce Mellusi,
Sateesh Prabakaran, Salit Nagy-Todd, Helen Rice-Devlin,
Stuart Feld, Andy Zolper, Bella Allaire, David Lesser and
Vin Campagnoli – brought more than seven years of data
groundwork to life in 2018.
information that comes in from the client and leverage our
Client Onboarding application to open new accounts,” Dave
said. “RPA – robotic process automation – is something we’ve
started to leverage in many different areas.”
And robotics is not the only way the firm is shifting into ever-
more-advanced technologies. Raymond James has also begun
delving into the world of artificial intelligence (AI).
“AI is how we are taking all of the data we’ve spent years
collecting and systematizing it to better respond to – and
maybe even to anticipate – events and to answer deeper
questions about and for our clients,” said Sateesh Prabakaran,
a senior vice president and chief architect of technology.
Still in its nascence, but gaining momentum, the AI work being
done at Raymond James will touch portfolio evaluation and
management, internal workflows, client service, regulation
and compliance, data security, and even help drive the firm’s
overarching priorities.
“Artificial intelligence seeks to check if various hypotheses
are indeed true, and then to generate new hypotheses for
discussion,” continued Sateesh. “It can show firm leaders and
advisors what they don’t know about their business, so they
can even more effectively manage outcomes.”
“This is definitely not about hyper-automation, where humans
will no longer be required,” Vin Campagnoli added. “People
remain front and center to our business, and protecting
them and their information is still paramount. We just
want to leverage the power of data to provide insights and
opportunities. The goal is always to help advisors better serve
their clients.”
9
Integration is a key priority for the technology team, including
fully integrating technology into how – and where – advisors
work. Introduced in 2017, Advisor Mobile enables advisors to
run their businesses from virtually anywhere. According to
Salit Nagy-Todd, a senior vice president of technology who
was instrumental in the platform’s development and rollout,
“Advisors can be at a lunch meeting, and when somebody
asks them a question, they can pull up Advisor Mobile and
get that information on the fly. It’s become one of the top
applications our advisors use on a regular basis.”
The year also saw the debut of Connected Advisor, Raymond
James’ answer to the roboadvisor trend that has gained
momentum in financial services over the past few years.
Intended for smaller relationships, including next-generation
clients, Connected Advisor offers turnkey automation with
ready access to the advice of a professional advisor.
“It’s a platform that allows a prospective client to become a
client without needing to have a face-to-face interaction with
the advisor, but while still getting the benefit of having an
advisor there to review their information and offer support if
and when necessary,” said Chief Technology Officer Dave Allen.
“Robo” in this case is not just a buzzword. “We actually
built a robot, a piece of intelligent software, to read the
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE P R I V A T E C L I E N T G R O U P
Industry-leading retention of current advisors, strong productivity and record
recruiting – boosted by positive equity markets and higher short-term interest rates –
combined to drive Private Client Group client assets under administration up 15% to
$755.7 billion as of the end of fiscal year 2018.
$5.09 billion
NET REVENUES
$576.1 million
PRE-TAX INCOME
KEY PERFORMANCE DRIVERS
• Record recruiting of high-quality advisors
• Limited attrition of existing advisors
• High advisor productivity
• Positive equity markets and rising interest rates
HEADWINDS
• Regulatory changes and expectations
• Rising technology expenses, especially related
to strengthening cybersecurity protections and
enhancing mobile device access capabilities for
advisors and their clients
• Trends toward index investing and “robo advice”
models
2018 Initiatives
Enacting leadership succession plans
Following an April announcement that Raymond James
Financial Chief Operating Officer Dennis Zank, who also
led the Private Client Group, would step down at the
end of the fiscal year, Scott Curtis was named head of the
firm’s domestic Private Client Group businesses. Scott was
previously president of Raymond James Financial Services
(RJFS), the firm’s independent advisor business. In addition,
Tash Elwyn was named president and CEO of Raymond
James & Associates (RJA), adding regulatory oversight and
reporting responsibilities for RJA’s broker/dealer activities,
while continuing his leadership of employee financial
advisors and branch associates. Finally, Jodi Perry, former
national director for the Independent Contractor Division of
RJFS, was named president of that division and promoted to
the firm’s Executive Committee, and President of Alex. Brown
Haig Ariyan’s role was expanded to include leadership of the
firm’s Investment and Wealth Solutions departments. These
appointments reflect a strong succession planning discipline
that has allowed for effective senior leadership transitions.
Enhancing products and services for advisors and
their clients
As the financial services and wealth management landscape
continues to evolve, firms and advisors must adapt to meet
the needs of clients. The Private Client Group, with support
from all areas of Raymond James, continues adapting to
changes and facilitating thoughtful, pragmatic progress
to ensure advisors and their clients receive best-in-class
support and service. One example is the unique longevity
planning solutions the firm introduced this year. By
combining education and planning tools with key external
partnerships, the firm is helping advisors guide and assist
clients through the challenges associated with longer
retirements, covering not only “expected” areas such as
financial and estate planning, but also wellness planning and
risk management – including protection against elder fraud.
1 0
RAYMOND JAMES ANNUAL REPORT 2018 7,813
RECORD NUMBER OF ADVISORS
IN OUR PRIVATE CLIENT GROUP
The firm reached a record number of advisors at the end of the
fiscal year, resulting from minimal attrition of existing advisors and
outstanding recruiting success. The Private Client Group continues to
attract experienced and successful advisors with significant assets under
management interested in managing their client relationships and
businesses in the people-centered environment of Raymond James.
Responding to an evolving regulatory environment
The challenges of an ever-changing regulatory
environment continued in 2018. The firm rolled back
certain changes implemented to comply with the now-
vacated Department of Labor fiduciary rule, while keeping
a watchful eye on the widely anticipated SEC’s best
interest rule, which will likely require a uniform standard
of care for all clients – an approach well-aligned with the
firm’s client-first philosophy. Meanwhile, the Private Client
Group made significant investments in enhancing risk
management resources – continuing to add experienced
associates, train financial advisors, and improve oversight
systems and processes to ensure effective support and
protection of advisors, their clients and the firm, now and
in the future.
+15%
YEAR-OVER-YEAR GROWTH OF PCG ASSETS
UNDER ADMINISTRATION
FINANCIAL ADVISORS
PRIVATE CLIENT GROUP
2014
2015
2016
2017
2018
CLIENT ASSETS
PRIVATE CLIENT GROUP
$Billions
2014
2015
2016
2017
2018
6,265
6,596
7,146
7,346
7,813
451
453
574
660
756
LOOKING AHEAD – A constantly shifting environment influenced by macroeconomic trends, the potential for market
volatility, changing advisor and client demographics and an ever-evolving technology landscape requires thoughtful
adaptation and continuous improvement. The Private Client Group is well-positioned to continue to evolve as an industry
leader, leveraging expertise and resources from the firm’s support teams and business units to provide best-in-class
products and services within the client-centric culture that has been the firm’s core since the beginning.
1 1
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE For renewal
It was 1849, before Canada was Canada.
A Montreal stockbroker named MacDougall helped a few
merchant marine captains invest their earnings.
requirements. The modern-day keepers of the 3Macs legacy
also wanted to keep their identity.
Thus begins the compelling history of the 3Macs investment firm,
which traces the varied accomplishments of many MacDougalls:
helping found the Montreal Stock Exchange, skating to four
Stanley Cup championships and new business connections,
investing in a young nation’s infrastructure, and, remarkably,
partnering with two unrelated Macs.
Yet, for its fascinating past, this storied boutique firm’s decision
two years ago to seek the support of a larger company was
keenly about its future.
Introducing 3Macs, a division of Raymond James Ltd.
“In the big picture, 3Macs needed to evolve and Raymond
James presented the best option for that evolution,”
said David MacDougall, a fifth-generation member of the
firm who serves as senior vice president and advisor/
portfolio manager. “Uniting with Raymond James
provided us with a more robust infrastructure, more
opportunities for growth and for expanding our business.
And we hoped we could keep the brand 3Macs because
it has qualities and a history worth leveraging.”
MacDougall, MacDougall & MacTier Inc. needed access to new
technology and help managing increasing industry compliance
In eastern Canada, especially, 3Macs stands for more than
abbreviated surnames. It is synonymous with integrity,
1 2
RAYMOND JAMES ANNUAL REPORT 2018 3Macs through the years
1849 – Donald Lorn MacDougall joins his
brother in establishing MacDougall Brothers.
1850s – Through wise investments, Donald
Lorn helps build the railroad system and
marine industry.
1867 – The British colonies of Canada, Nova
Scotia and New Brunswick unite to form the
Dominion of Canada, a new country.
1874 – The MacDougall brothers help
establish the Montreal Stock Exchange, with
Donald Lorn serving as president.
1880s and 1890s – Donald Lorn’s
nephew, Hartland B. MacDougall, establishes
contacts in the business and sports worlds,
playing on the same hockey team as Percival
Molson and winning the Stanley Cup four
times with the Montreal Victorias.
1921 – Hartland B. MacDougall and Robert
E. MacDougall (no relation) establish an
alliance, and the firm becomes MacDougall &
MacDougall.
1960 – A merger with Stuart MacTier allows
the firm to expand to Toronto, and changes
the name to MacDougall, MacDougall &
MacTier Inc.
2016 – The firm is acquired and becomes
3Macs, a division of Raymond James Ltd.
2018 – The 3Macs legacy continued, as
additional advisors chose to join the firm to
build their businesses with the support of
Raymond James.
Raymond James Ltd. Chairman and CEO Paul Allison (far left) visits with
top earners and long-time members of 3Macs, a division of Raymond James
Ltd., during a recent professional conference (left to right): Bob McKenzie,
Dominique Vincent, David MacDougall, the great-great-great-nephew of the
firm’s founder, and Carmen Jankey.
experience, independence and service – core values in which the firm is
rooted. Values shared by Raymond James.
“Service to investors is the 3Macs motto,” said Carmen Jankey, a senior
vice president and advisor/portfolio manager who began her career at
3Macs in the late 1980s. “We saw the similarities right away.”
“It was a natural fit with Raymond James because of the independence
and respect for the client,” said Dominique Vincent, a vice president and
advisor/portfolio manager who joined 3Macs in 2001. “And we are now
backed by the power of the larger firm.”
Completed in 2016, the acquisition increased Raymond James
Ltd.’s assets by CAD$6 billion, making it the largest independent
investment firm in Canada, seventh-largest overall. With the firm’s
presence anchored in western Canada, it also sent a strong signal.
“You can’t really celebrate yourself as being a Canadian firm without
being able to serve 20% of the population, which is in the province of
Quebec,” said Paul Allison, chairman and CEO of Raymond James Ltd.
“Now, we’re pan-Canadian, from coast to coast. And this gives us the
ability to serve clients in English and French.”
Headquartered in Montreal and with offices in Quebec City – cities
where French is the primary language – 3Macs expanded to Toronto in
the 1960s. In total, more than 70 advisors joined Raymond James Ltd.
with the 3Macs acquisition – pretty much all of them.
“Well, we did have one guy retire, but he was 85,” said Bob McKenzie, an
advisor/portfolio manager who joined 3Macs in 1995.
David, Carmen and Bob were on the board of directors at the time of
the acquisition, so were part of the decision.
“We’re happy we ended up with Raymond James. We wanted to be
able to tell our clients we were remaining independent. We’re part of
a bigger firm with better technology, better research, a great culture –
which we heard about and now we’re living it – and we didn’t have to
change our emails, our phones or our fees.”
The 3Macs legacy continues.
“I’m proud of our position in the history of Canada,” David MacDougall
said, “but I’m more proud of what we’ve done for the many families
we’ve helped along the road.”
1 3
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE C A P I T A L M A R K E T S
Capital Markets reported record Investment Banking and overall Equity Capital Markets (ECM)
revenues in 2018, driven primarily by robust Mergers & Acquisitions (M&A) activity. This growth
in M&A helped offset the impact of a challenging environment for equity and fixed income
institutional commissions, as well as Public Finance Underwriting.
$963.8 million
NET REVENUES
$90.6 million
PRE-TAX INCOME
TOTAL CAPITAL MARKETS NET REVENUES
$Millions
2014
2015
2016
2017
2018
953.2
963.4
1,001.7
1,013.7
963.8
KEY PERFORMANCE DRIVERS
• Substantial M&A success – including larger deal sizes and fees –
drove record Investment Banking results
• Expanding industry and geographic reach in the United States,
Europe and Asia
• Continued ability to attract experienced professionals
HEADWINDS
• Subdued volatility for much of the fiscal year affected both equity
and fixed income sales and trading, while persistent low interest
rates and continued flattening of the yield curve further impacted
fixed income commissions
• Regulation – particularly the European Union’s Markets in Financial
Instruments Directive (MiFID II) – resulted in significant changes to
industry practices that are reverberating beyond Europe
• Industry trends, such as flows to passive investment strategies,
shifts to low-touch trading and technology disruption, continue to
result in fee compression, as well as additional costs
P U B L I C F I N A N C E & F I X E D I N C O M E C A P I T A L M A R K E T S I N I T I A T I V E S
Expanding the Public Finance core footprint
In fiscal 2018, Public Finance increased market share and
rankings in three states with significant municipal issuances:
New York, Illinois and California. These results were partially
driven by the Public Finance team’s strategy of recruiting
experienced bankers to build Raymond James’ presence in key
geographic areas. For example, the recruitment of a successful
K-12 banking team in Illinois late in fiscal 2017 resulted in
market share increases of more than 175% in that state, and the
addition of three new bankers in California, Colorado and Texas
bodes well for future results in those areas.
Enhancing integration with the Private Client Group
Increased attention on driving awareness of the Public Finance
Referral Fee Program, which provides a pipeline of potential
new clients for Public Finance while supporting the business
growth efforts of the firm’s financial advisor population, paid
off handsomely in fiscal 2018. Internal referrals that resulted
in transactions were up 93%, giving rise to an almost fourfold
increase in related revenue.
Developing new products to support client needs
As interest rates increased during the year and tax laws changed
as a result of the Tax Cuts and Jobs Act of 2017, clients searched
for ways to minimize borrowing costs for new projects and
refinance existing debt. Public Finance was able to meet these
needs through products such as forwards and structured
financing – two areas of expected growth in fiscal 2019.
Reducing operating expenses in the Fixed Income
Capital Markets group
Saddled with dour business conditions for fixed income assets,
the Fixed Income Capital Markets team focused on reducing
costs to continue to produce satisfactory levels of profitability,
while also increasing the group’s ability to take advantage of
opportunities in the future.
1 4
RAYMOND JAMES ANNUAL REPORT 2018 E Q U I T Y C A P I T A L M A R K E T S I N I T I A T I V E S
Continued investment in the advisory business
In fiscal 2018, Investment Banking produced record advisory revenues
of nearly $297 million, up 30% from the prior year. This was driven by
continued investment in the North American M&A business, including
four new managing director hires in 2018, as well as in Europe, where the
addition of senior bankers and managing directors over the last two years
helped push European advisory revenues up 112% year over year. The
Investment Banking team was successful in its efforts to focus on larger
deals and fees, including earning the five highest advisory fees in the
firm’s history during the last two years.
180 NUMBER OF M&A TRANSACTIONS
IN FISCAL 2018
Enhancements to private equity relationships
Raymond James continued to expand its capabilities, product offerings
and touchpoints with the private equity community, a key client segment.
The firm closed more than 80 private equity-involved M&A engagements
in 2018, with over 80% of sell-side fees involving private equity firms. In
addition, the team launched a Credit Finance business unit in 2018 to
arrange senior secured funding facilities for private equity firms on a buy-
and-hold basis; this initiative is expected to deepen relationships with key
private equity and corporate clients.
Expansion of Asia coverage
In addition to European growth, Raymond James added additional senior
bankers to enhance its coverage of private equity investors and strategic
buyers located in Asia, and now has three bankers dedicated to access to
the Asian markets, particularly China. The firm also continued to explore
international partnerships to enhance the distribution of North American
equities, including a new partnership in Singapore.
Bolstering equities leadership
Raymond James hired industry veteran David De Luca as global head
of equities in April of this year to strengthen efforts across Research,
Sales and Trading. The position was created to focus on coordinating
capabilities to capture additional market share both domestically and
internationally.
ECM Industry Accolades
Building on deep understanding of and
strong relationships with middle market
companies, Equity Capital Markets overall
continued to earn recognition from
industry publications and media firms in
2018, including:
THE M&A ADVISOR:
• Information Technology Deal of the Year
• Corporate/Strategic Deal of the Year
($100MM–$1B)
• M&A Deal of the Year ($250MM–$1B)
• Cross Border Deal of the Year
($100MM–$250MM)
• Private Equity Deal of the Year
($100MM–$250MM)
M&A ADVISOR TURNAROUND AWARDS:
• Professional Services (B-To-B)
Deal of the Year
• Restructuring Community Impact
Deal of the Year
THE DEAL:
• Technology/Telecom Banker of the Year
THOMSON REUTERS ANALYSTS AWARDS:
• Six awards for Top Earnings Estimators
• Eight awards for Top Stock Pickers
LOOKING AHEAD – A strong M&A environment and the firm’s robust M&A pipeline bode well for ongoing performance.
Meanwhile, Capital Markets continues to invest across the platform, with several common themes among the businesses.
First, expanding into new markets – both domestic and international – through the opportunistic hiring of experienced
professionals or via potential acquisitions. Second, capitalizing on relationships within Raymond James, such as through
advisor referrals to Public Finance and Investment Banking, cross-selling of products across the platform, and through
partnerships with third parties or among business units to create new products or services for various clients. And finally, by
continuing to deepen existing client relationships in the middle market space, listening to client needs and responding with
solutions to support their growth, which in turn supports the firm’s growth.
1 5
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE For momentum
There’s no “I” in team.
But sometimes there’s approximately $90 million worth of growth – which has been the
result of the Technology & Services Investment Banking group’s team-centric approach.
1 6
RAYMOND JAMES ANNUAL REPORT 2018 A N N U A L R E P O R T 2 0 1 8
One of the biggest growth stories for the
firm in 2018 was the M&A practice within
Raymond James Equity Capital Markets.
Several areas continued to generate
significant success, and notable among
them was the continued momentum of
the Technology & Services team, which
Brendan Ryan and Jon Steele, based in
Boston, oversee.
“We’ve gone from $40 million in revenue
to $80 million to $130 million over the past
three years,” Jon shared. “That growth
is the result of great contributions – and
development – from all of our bankers
across the board.”
Both Brendan and Jon credit a uniquely
cohesive, collaborative and encouraging
environment for the group’s success, one
that has grown organically out of their
own shared professional history.
“The first deal I worked on, Jon was the
vice president and Jim Bunn, co-president
of Global Equities and Investment
Banking, was the managing director. So,
part of the foundational success of our
group has been mentorship,” Brendan
said. And they’ve made a conscious effort
to weave that sense of shared purpose
and collective achievement into each
relationship across the team. “Jon and
I are not here without Jim. He’s been
instrumental to our success, and we have
tried to pay that forward.”
Those “payments” have taken several
forms – from traditional mentoring to
celebrating individual achievements to
fostering healthy competition, which
is borne, according to Brendan, from
his and Jon’s own dynamic. “Jon and I
have always had a unique relationship
in that we’re competitive without being
competitive. We feed off of one another’s
success. And we’ve tried to extend that
across the group, to really encourage
people to not just be happy for each
other’s wins but to use them as motivation
to ramp up their own efforts and be even
better partners for their clients.”
That all-for-one approach, even as
members of the team work separate deals,
positioned the Technology & Services
group to capitalize on fiscal 2018’s hot
M&A market.
There is a tremendous amount of
capital focused on acquiring technology
businesses, which has aligned well with
the group’s continued expansion across
the broader technology landscape –
leveraging historical success in the
financial technology sector to replicate
similar efforts across the software,
IT services, information services and
infrastructure technology markets.
Said Jon, “The traction we have now
and the track record we’ve built over
time are because of the cohesiveness of
the team. And that has positioned the
group to compete for larger transactions
across multiple sectors, which we weren’t
necessarily doing three or four years ago.”
Brendan added that the group has
continued to move “up market,”
increasingly competing with bulge-bracket
firms and well-known boutiques over
the past few years. Again, he credits the
emphasis on empowering and accelerating
the career development of the members of
his team.
“The group’s growth has been remarkable
to watch – one banker even completely
re-engineered his approach to sector
coverage after 20 years in the business.
Seeing so many people graduate to
that next role and next title has been so
rewarding. They’re setting themselves and
all of us up for what should be a terrific run
over the coming years – which is a key area
of focus for Jon and me, as we are far from
achieving our objectives for the group.”
1 7
Brendan Ryan and Jon Steele
review the details of an
upcoming transaction from
Technology & Services team’s
Boston-based office.
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE For generations
Advisor Doug Simon (left) and
his colleagues Jeff Fishman and
Leanne Evans pose with clients
Ron and Cyndi Gula (right)
during one of their regular team
meetings in Baltimore.
To be a
fighter pilot,
you have
to have
perfect eyes.
Ron Gula didn’t.
After his just-impaired-enough eyesight disqualified him from
piloting fighter jets, Ron passed on the offer to fly transport
planes – it was fighter jets or nothing – and instead joined Air
Force intelligence. That move led him to be among the first
wave of “white hat hackers” at the National Security Agency
in the 1990s, spending his days testing the U.S. government’s
internet fence for weaknesses.
It was a natural fit then, after years of public service, for Ron
to take the skills he’d honed and – at the encouragement of
his wife, Cyndi, an engineer – use them to provide a service he
believed would soon be needed on a large scale.
1 8
RAYMOND JAMES ANNUAL REPORT 2018 “He may not have had the perfect eyesight needed to be a
fighter pilot,” Doug Simon, a client advisor with Alex. Brown,
a division of Raymond James, explained. “But Ron was a
visionary. He saw this industry coming, years before people
really recognized internet security as its own stand-alone
business.”
Ron and Cyndi founded their first cybersecurity company
in the late ′90s – one they had just sold when Doug began
working with them around 2007. Before long, they set about
building another – Tenable Network Security.
“They had 10 or 12 employees during our early conversations.
But each new quarter when I would ask, there would be 20
employees, then 30 employees, and the business would be
worth more and more.”
As the business grew, so did Doug’s relationship with the
couple. In addition to helping them plan and manage their
investments, Doug had a hand in connecting the Gulas with
attorneys and accountants to help meet their increasingly
complex planning needs.
“We, as a group, really function as a family office. There are
daily emails, regular conference calls, and quarterly meetings
with everyone in the room.”
And when Cyndi and Ron decided to bring in a venture capital
firm to buy Tenable, to take the company public, and to start
another new chapter of their lives, Doug was there.
“Tenable was the largest security IPO in five years when it
debuted and the largest IPO of any U.S. company in the third
quarter of 2018. The income generated from the sale was
substantial.”
So, after spending years helping keep their country and
the internet safe, Ron and Cyndi turned their attention to
protecting their family.
“I’d talked about trust and estate planning with them from
the beginning and emphasized that it was even more critical
now,” Doug said.
He then reached out to Raymond James Trust. Soon the Gulas
were working closely with Senior Trust Officer Julie Lyman on
a family trust, on two trusts for their sons, and on revising an
existing trust to ensure it could better meet the needs of its
18 beneficiaries – Cyndi and Ron’s nieces and nephews who
range in age from 30-something years to mere months.
Rick Biddison, senior portfolio manager, and Julie Lyman, senior
trust officer, pictured at the firm’s St. Petersburg headquarters,
have played a key role on Ron and Cyndi’s team.
“I worked with their attorney and Doug to best determine how
to manage things,” Julie said. “They originally had one trust
for the multiple beneficiaries, so we split it into 18 to account
for the different people and their individual needs.”
Julie also serves as corporate trustee on the accounts,
something Doug strongly encouraged. “Cyndi’s brother
was their designated trustee and he’s great, a very smart
guy,” Doug said. “But it’s a lot to take on and could become
deleterious if there wasn’t a corporate trustee with the
resources to oversee everything and to say no at the
appropriate times.”
The couple has plans for more trusts – one for each of their
eight siblings – but for the time being, they have yet another
new vision for the future of tech. They’ve launched Gula Tech
Adventures, a venture capital firm focused on helping mid-
Atlantic tech startups get off the ground.
And while the vision is bold, they remain grounded. “They’re
not flashy people in any way,” Doug said. “They do use private
jets occasionally now, but that’s about it.”
1 9
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE A S S E T M A N A G E M E N T
The combined efforts of Asset Management Services (AMS), which provides a
single source for managed accounts and fee-based platforms for Raymond James
financial advisors, and Carillon Tower Advisers, a global asset management firm
made up of independent boutiques spanning various investment disciplines and
asset classes, resulted in strong results in 2018.
$654.4 million
NET REVENUES
$235.3 million
PRE-TAX INCOME
KEY PERFORMANCE DRIVERS
• Strong equity markets
• Addition of new asset management teams
to Carillon Tower Advisers
• Heightened interest in fee-based relationships
due to regulatory environment
FINANCIAL ASSETS UNDER MANAGEMENT
$Billions
2014
2015
2016
2017
2018
64.6
65.2
77.0
96.4
140.9
2018 Initiatives
Continued growth for the Raymond James Research
Portfolio Equity Income Strategy
Launched in 2017, this strategy combines the expertise of
the AMS Investment Committee with the intellectual capital
of Raymond James Equity Capital Markets’ Equity Research
team for the benefit of PCG clients, and built on its initial
success with strong asset growth and market performance
this fiscal year.
Expansion of the Raymond James Freedom platform in AMS
The Freedom Foundation platform, introduced in 2015 to
help advisors efficiently diversify smaller accounts with
high-quality professional managers while strengthening
multigenerational relationships, has increased assets by 64%
over the previous year. Meanwhile, Freedom ESG was launched
this fiscal year as the firm’s first offering for environmental,
social and governance model portfolios. Developed as a result
of advisor feedback, it has raised $100 million in assets under
administration in approximately six months.
A growing Carillon Tower Advisers team
In continuation of its long-term growth strategy, Carillon
Tower Advisers welcomed Scout Investments and its Reams
Asset Management division to the platform in early fiscal
year 2018. Reams is an institutional-focused fixed income
specialist, while Scout is an equity asset manager. The
acquisition added $27 billion in assets under management
and advisement to the platform at closing.
LOOKING AHEAD – Changing regulatory requirements along with secular and cyclical demographic and industry evolution
put an emphasis on adaptability and client-focused approaches. We expect to continue to experience growth as a result of
these trends, supporting advisors as they move to more fee-based arrangements when appropriate. We also believe that
recent increases in volatility may provide opportunities for risk-aware active managers to add value. To that end, Asset
Management will continue to diversify our intermediary assets, and integrate our sales and marketing efforts to offer a full
range of solutions to our clients.
2 0
RAYMOND JAMES ANNUAL REPORT 2018 For rebuilding
RJTCF Vice President and Director of
Acquisitions James Dunton (right) onsite
at the Provision at West Bellfort apartment
complex in Houston with Michael Gardner,
whose firm is developing the project.
What’s more is the fund is working to account
for future weather events and related impacts,
as well. “This is the first fund we’ve syndicated
with a stated intent to plan ahead for future
weather impacts,” said Steve Kropf, president
and CEO of RJTCF. “We established a Weather
Resiliency Reserve to pay for features to better
prepare the apartment properties for future
weather events. Potential uses of the reserve
include generators and solar powered charging
stations, as well as providing for the formation
and maintenance of evacuation plans.”
While the benefit of these building projects
is clear, there are mounting challenges in
executing them, particularly in Houston.
Following recent corporate tax reform, there
are fewer sources to cover construction costs
and a shortage of construction labor post-
Harvey, not to mention rising interest rates.
“It’s pretty much a perfect storm of issues
impacting development post-Harvey in the
Houston area,” said Steve.
$9 billion+ in equity syndicated
through more than 100 tax credit funds
100,000+ units on 2,000+ properties
in 47 states, serving 200,000+ people
However, despite this set of challenges,
“Demand for affordable housing is
insatiable,” he adds. That demand is clearly
something RJTCF is committed to meeting,
with $9 billion in equity invested to date and
more than 2,000 projects sponsored.
“The LIHTC program is one of our nation’s
most successful and impactful housing
initiatives, and Raymond James has been a
leader in the space since the beginning.”
2 1
27 trillion gallons is a lot of rain.
By some calculations, it’s enough to fill
Houston’s Astrodome 85,000 times.
Over six days in late August of 2017,
Hurricane Harvey pummeled the Houston
area with that deluge, leaving some areas
submerged under more than four feet of
water. In an area that had already proven
itself prone to flooding, almost 7,000
homeowners realized too late just how
vulnerable their homes were.
With the sudden need for housing in the
communities affected by the hurricane,
Raymond James Tax Credit Funds (RJTCF)
saw an opportunity to make a difference.
Raymond James is a leading sponsor of high-
quality affordable housing developments
throughout the nation and has syndicated
more than 125 affordable housing funds since
1972 – even before the Low-Income Housing
Tax Credit (LIHTC) program was created under
the Tax Reform Act of 1986, which offers a
dollar-for-dollar tax credit for affordable
housing investments and gives incentives
for the utilization of private equity in the
development of affordable housing aimed at
low-income Americans.
Formalized in January 2018, RJTCF
sponsored the $100 million Raymond
James Affordable Housing Fund Ι Ι L.L.C.
The fund is focused on areas impacted
by Hurricane Harvey, as well as rural
markets and Native American housing, and
provides a reliable source of capital for the
rehabilitation or construction
of multifamily projects in these
underserved areas.
“There was a significant
opportunity after Hurricane
Harvey for us to help rebuild
a community in the wake
of an incredibly destructive
event,” said James Dunton,
vice president and director of
acquisitions for RJTCF. “We
knew that the fund could have a meaningful
impact on underserved markets in Houston,
and we moved quickly to respond.”
While building – and rebuilding – is always
a process, the fund is well on its way to
opening new doors for Houston residents.
The Provision at West Bellfort apartment
complex is well over halfway complete and
features 116 units, as well as a 4,235-square-
foot community building, on its 11.2-acre site.
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE For transformation
It all started with a 60-year-old boiler.
A 60-year-old boiler supporting a 90-year-old
hospital operated across two separate campuses –
all meticulously well-maintained, but in need of
an update and a reorganization to a single, highly
functional and efficient campus.
Nonprofit hospital system Trinity Health is a linchpin
healthcare provider for North Dakota and eastern Montana.
Not only is it the community’s primary source of care and the
only Level 2 trauma center in northwestern North Dakota, it’s
also the largest employer in Minot where its main campus
is located. But after nearly a century, it was time for new
construction. And to help lay the groundwork, Trinity turned
to another local institution.
“Trinity had been a client of Bremer Bank for years,” said
Layton White, a Bremer-based advisor affiliated with the
Raymond James Financial Institutions Division. “I had a very
good relationship with the CFO, and in casual conversations
over the course of several years, the idea of a bond offering to
fund a replacement hospital came up.”
Layton, who had paid a visit to Raymond James headquarters
when Bremer first affiliated with the firm in 2009,
remembered learning about the extensive municipal and
equity underwriting capabilities.
“I’m not an investment banker, but I knew who to call.
Basically, I connected the dots between Trinity and Natalie,”
he said.
Natalie is Natalie Wabich, a senior banker with Raymond
James Public Finance. “We were lucky enough, thanks to
Layton’s relationship, to receive an early introduction to the
team at Trinity, which was key. We kept in touch, knowing this
project was coming,” she said.
That first connection, made in 2014, was the start of a
multiyear process that would culminate in financing
$407,205,000 of debt, including a $350,330,000 bond offering,
2 2
RAYMOND JAMES ANNUAL REPORT 2018 Trinity board members John Kutch, president/CEO, far left,
and Dennis Empey, vice president/CFO, far right, discuss
project progress with advisor Layton White against the
backdrop of a rendering of their new facility.
Key players from the team that structured and executed Trinity’s offering
reunite during a recent Public Finance conference in St. Petersburg.
(left to right) Emily Carbone, Andrew Dwoskin, Casey Van De Walle
and Natalie Wabich.
to make sure it closed before December 31. In the end, the tax
bill didn’t eliminate the ability of 501(c)(3) hospitals to issue
debt; however, our industry was still greatly affected, so we
took the prospect seriously and worked around the clock.”
Given the circumstances, Trinity’s was far from the only deal of
its type trying to make it in under the presumed wire. But even
with a crowded market and an accelerated process, the team
was nimble enough to wait for the right time for pricing.
“Instead of one day, we had about five days we were targeting
for the pricing. And our whole team was ready to go whenever
the market looked strongest,” Natalie said.
And that day turned out to be December 14, which allowed for
a December 28 closing – ahead of their end-of-year deadline.
Now, with the deal done, construction is underway. “They
started on time and they’re on budget,” Layton said. And while
there is still much work to be done – the main excavation
is complete and the foundation walls are in progress – the
health of the community is already improving in other ways.
“The hospital construction has been a boon to employment,
and it’s impacted a lot of other clients in our network – both
for myself and fellow Bremer advisors and for the other
Raymond James offices in Minot. It’s a tremendous project.”
And, according to Natalie, Trinity is already embracing its
soon-to-be cutting-edge status. “You can watch construction
live via webcam.”
2 3
to help fund the construction of a state-of-the-art hospital
and medical office building. And just as being in the right
place at the right time – and knowing the right people – was
important at the outset, it turned out timing would again be
of the essence in crossing the finish line.
“One of the interesting twists for this project was the
congressional push for tax reform in November 2017. It
seemed 501(c)(3) hospital bond deals might be on the
chopping block – so nonprofit hospitals like Trinity would be
unable to issue tax-exempt bonds,” Natalie said.
That possibility prompted all of the key players on the
Raymond James side – including Natalie’s fellow bankers
Casey Van De Walle, Andrew Dwoskin and Emily Carbone, as
well as key players from the Municipal Underwriting team –
to quickly regroup and make the decision to compress the
timeline.
“We were originally set to price the transaction in February
2018,” said Natalie. “Instead, we pushed as hard as we could
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE R A Y M O N D J A M E S B A N K
Driven by continued growth in its loan portfolio and bolstered by a rising
interest rate environment, Raymond James Bank posted record net revenues
and pre-tax income in fiscal year 2018 – increases of 23% and 20% over fiscal
2017, respectively.
$726.7 million
NET REVENUES
$491.8 million
PRE-TAX INCOME
KEY PERFORMANCE DRIVERS
• Recruiting success in the Private Client Group and
continued integration into advisors’ practices
• A rising interest rate environment that provided
year-over-year expansion of net interest margin
• Broad-based loan growth, influenced by increased
offering of high-net-worth lending solutions
TOTAL BANK LOANS
$Billions
2014
2015
2016
2017
2018
11.0
13.0
15.2
17.0
19.5
TOTAL BANK ASSETS
$Billions
(1)
2014
2015
2016
2017
2018
(1) Includes affiliate deposits
12.5
14.7
17.0
20.9
23.2
2018 Initiatives
Continued focus on Private Client Group support
PCG advisor growth has organically driven growth of cash
management and lending programs – for example, securities based
loan balances, which are up 27% in 2018 – but greater penetration
of this natural market is an ongoing priority. In 2018, the bank
established a team of consultants to provide individualized
support for advisors and created a Cash & Lending Institute that will
commence early in fiscal year 2019, both designed to better educate
advisors on the benefits of banking products.
+40% 5-YEAR COMPOUND ANNUAL GROWTH RATE
OF SECURITIES BASED LOAN BALANCES
Expansion of services for high-net-worth clients
Over the last two years, Raymond James Bank has expanded
its offering for high-net-worth and ultra-high-net-worth clients,
beginning with the introduction of a Private Wealth Mortgage
channel for these clients, which has helped to drive total
originated mortgage balances up almost 31% over the last
five years. In 2018, the bank initiated the Structured Lending
division, hiring an experienced team of professionals to serve
extremely wealthy clients with multifaceted borrowing needs,
while continuing our commitment to sound underwriting and
comprehensive risk management.
Ongoing diversification of corporate banking
In fiscal 2018, the bank continued to diversify its corporate lending
business, expanding its relationships with large corporate agent
banks in North America and Europe, completing loan participations
with several new banks, and adding a new real estate banker to
develop relationships on the West Coast. Meanwhile, even as tax-
exempt lending slowed overall due to changes from the Tax Cuts
and Jobs Act of 2017, that business has grown to $1.23 billion since
its inception four years ago.
LOOKING AHEAD – While Raymond James Bank is clearly focused on meeting the needs of clients and navigating the
ever-changing market and regulatory environment, it continues to be vigilant in its business practices and conservative in its
product offerings. Looking ahead, there is significant opportunity for growth; however, the bank will continue to be strongly
committed to robust risk management and solid financial discipline, in keeping with the core values that have historically
driven Raymond James’ success.
2 4
RAYMOND JAMES ANNUAL REPORT 2018 S O C I A L R E S P O N S I B I L I T Y
Each year, Raymond James upholds a tradition of giving that dates back to our founding in
1962 and our founder, Bob James – and 2018 was no exception. The associates and leaders
of Raymond James joined forces to give their time, funds and resources in support of a
number of noble causes, and we thank them for their generosity.
RAYMOND JAMES CARES
2018 by the numbers
9,220
VOLUNTEERS
9,352
BOARD MEMBERS
164,198
VOLUNTEER HOURS
$56,435,615
IN CONTRIBUTIONS
*Numbers are for the United States, United Kingdom and Canada from fiscal year 2018
2 5
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE R A Y M O N D J A M E S F I N A N C I A L , I N C . B O A R D O F D I R E C T O R S
Anne Gates
Retired
Former President
MGA Entertainment, Inc.
Roderick C. McGeary
Retired accounting executive
Thomas A. James
Chairman Emeritus
Raymond James Financial
Paul C. Reilly
Chairman and Chief Executive Officer
Raymond James Financial
Benjamin C. Esty
Professor of Business Administration
Harvard Graduate School of Business
Administration
Bob Dutkowsky
Executive Chairman
Tech Data Corporation
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
President of Global Equities
and Investment Banking
Raymond James & Associates
John C. Carson Jr.
President
Raymond James Financial
Fixed Income Capital Markets
Scott A. Curtis
President
Private Client Group
Jeffrey A. Dowdle
President, Asset Management Group
Chief Administrative Officer
Raymond James Financial
Tash Elwyn
President and CEO
Raymond James & Associates
Private Client Group
Jeffrey P. Julien
Executive Vice President, Finance
Chief Financial Officer
Raymond James Financial
2 6
RAYMOND JAMES ANNUAL REPORT 2018 Gordon L. Johnson
President
Highway Safety Devices, Inc.
A specialty contractor for
municipal roadway projects
Shelley G. Broader
Director, President and CEO
Chico’s FAS, Inc.
Francis S. Godbold
Vice Chairman
Raymond James Financial
Robert P. Saltzman
Retired
Former President and CEO
Jackson National Life Insurance
Company
Susan N. Story
Director, President and CEO
American Water Works
Company, Inc.
A publicly traded water and
wastewater utility holding
company
Charles G. von Arentschildt
Retired
Former Chairman and CEO, Global
Markets, North America
Deutsche Bank Securities Inc
Jeffrey N. Edwards
COO, New Vernon Advisers, LP
A registered investment advisor
OTHER EXECUTIVE OFFICERS
Jodi Perry
President
Independent Contractor Division
Raymond James Financial Services
Jonathan N. Santelli
Executive Vice President
General Counsel
Raymond James Financial
Jennifer C. Ackart
Senior Vice President
Controller
Raymond James Financial
George Catanese
Senior Vice President
Chief Risk Officer
Raymond James Financial
Steven M. Raney
President and CEO
Raymond James Bank
Jeffrey E. Trocin
Vice Chairman
Raymond James Financial
Paul C. Reilly
Chairman and Chief Executive Officer
Raymond James Financial
2 7
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE A N N U A L R E P O R T 2 0 1 8
10-Year financial summary YEAR ENDED SEPTEMBER 30
2009
2010
2011
RESULTS
Net Revenues
$ 2,545,566,000
$ 2,916,665,000
$ 3,334,056,000
Net Income
Net Income per Share (a)
Basic
Diluted
Weighted Average Common Shares
Outstanding – Basic (a)
Weighted Average Common and Common Equivalent Shares
Outstanding – Diluted (a)
152,750,000
228,283,000
278,353,000
1.25
1.25
1.83
1.83
2.20
2.19
117,188,000
119,335,000
122,448,000
117,288,000
119,592,000
122,836,000
Cash Dividends Declared per Common Share
0.44
0.44
0.52
FINANCIAL
CONDITION
Total Assets
Equity Attributable to RJF
Shares Outstanding (a)
Book Value per Share (a)
(a) Excludes non-vested shares.
18,223,854,000
17,880,535,000
18,002,871,000
2,032,463,000
(b,c)
2,032,816,000
(b,c)
2,587,619,000
(c)
118,799,000
121,041,000
123,273,000
17.11
19.03
20.99
(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 8
RAYMOND JAMES ANNUAL REPORT 2018
10-Year financial summary YEAR ENDED SEPTEMBER 30
2012
2013
2014
2015
2016
2017
2018
$ 3,806,531,000
$ 4,487,893,000
$ 4,861,924,000
$ 5,203,606,000
$ 5,405,064,000
$ 6,371,097,000
$ 7,274,318,000
295,869,000
367,154,000
480,248,000
502,140,000
529,350,000
636,235,000
856,695,000
2.22
2.20
2.64
2.58
3.41
3.32
3.51
3.43
3.72
3.65
4.43
4.33
5.89
5.75
130,806,000
137,732,000
139,935,000
142,548,000
141,773,000
143,275,000
145,271,000
131,791,000
140,541,000
143,589,000
145,939,000
144,513,000
146,647,000
148,838,000
0.52
0.56
0.64
0.72
0.80
0.88
1.10
21,144,975,000
22,965,444,000
23,135,343,000
26,325,850,000
31,486,976,000
34,883,456,000
37,412,924,000
3,268,940,000
(c)
3,665,373,000
(c,d)
4,143,686,000
(c,d)
4,524,481,000
(c,d)
4,916,545,000
(d)
5,581,713,000
6,368,461,000
136,076,000
138,750,000
(d)
140,836,000
(d)
142,751,000
(d)
141,545,000
(d)
144,097,000
145,642,000
24.02
26.42
29.42
31.69
34.73
38.74
43.73
(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 9
RAYMOND JAMES ANNUAL REPORT 2018FOR THE FUTURE
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 19, 2018, there were 348 holders
If you are interested in electronic delivery of
Raymond James & Associates, Inc.
of 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
proxy voting instructions.
Member New York Stock Exchange
greater number of beneficial owners, whose
shares are held of record by banks, brokers and
other financial institutions.
ANNUAL REPORT ON FORM 10-K;
CERTIFICATIONS
A copy of the Annual Report on Form 10-K,
as filed with the Securities and Exchange
TRANSFER AGENT AND REGISTRAR
Authority
Member Financial Industry Regulatory
Computershare Inc.
P.O. Box 505000
Raymond James Financial Services, Inc.
Louisville, KY 40233-5000
Securities broker/dealer
800.837.7596
Member Financial Industry Regulatory
computershare.com/investor
Authority
Commission, is included in this document and
INDEPENDENT AUDITORS
Raymond James Financial Services
is also available, without charge, at
KPMG LLP
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
NEW YORK STOCK EXCHANGE SYMBOL
RJF
COVERING ANALYSTS
Alex Blostein
Goldman Sachs & Co.
its 2018 Annual Report on Form 10-K,
Christian Bolu
certifications of its chief executive officer and
Sanford C. Bernstein & Co.
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
Steven J. Chubak, CFA
Wolfe Research
Christopher Harris
Wells Fargo Securities, LLC
violations by the company of the NYSE
William R. Katz
company listing standards.
Citigroup Global Markets, Inc.
Advisors, Inc.
Registered Investment Advisor
Raymond James Ltd.
Canadian securities broker/dealer
Member Toronto Stock Exchange
Carillon Tower Advisers, Inc.
Asset and mutual fund management
Raymond James Bank, N.A.
Member Federal Deposit Insurance
Corporation
James Mitchell
The Buckingham Research Group
Devin Ryan
JMP Securities
Craig Siegenthaler
Credit Suisse
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 28, 2019,
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 and August.
3 0
R A Y M O N D J A M E S A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
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 8
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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, 2018
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 every Interactive Data File required to be submitted 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 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
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 29, 2018, 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 $11,702,670,062.
The number of shares outstanding of the registrant’s common stock as of November 19, 2018 was 143,284,861.
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 28, 2019
are incorporated by reference into Part III.
(THIS PAGE INTENTIONALLY LEFT BLANK)
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
27
28
28
30
30
32
33
75
76
155
155
158
158
158
158
158
158
158
161
2
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
PART I
Raymond James Financial, Inc. (“RJF,” the “firm” 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.
The firm, together with its subsidiaries, is engaged in various financial services activities, including providing investment management
services for retail and institutional clients, the underwriting, distribution, trading and brokerage of equity and debt securities and the
sale of mutual funds and other investment products. The firm also provides 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”).
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 five segments. Our business segments are Private Client Group (“PCG”), Capital Markets, Asset
Management and Raymond James Bank, N.A. (“RJ Bank”). Our Other segment captures private equity activities as well as certain
corporate overhead costs of RJF that are not allocated to our business segments.
The following graph depicts the relative net revenue contribution of each of our business segments for the fiscal year ended September
30, 2018.
*The preceding chart does not include intersegment eliminations or the Other segment.
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 recruiting, transitional cost assistance and retention
purposes.
Total assets under administration in the PCG segment as of September 30, 2018 were to $755.7 billion. We had 7,813 financial advisors
affiliated with us as of September 30, 2018.
3
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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, receive a higher
payout percentage 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 our multi-bank sweep program and interest. The proportion of our securities commissions and fees revenues originating
from the employee versus the independent contractor affiliation models is relatively balanced.
Securities commissions and fees 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, 2018, are presented in the following graphs.
4
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
We provide the following services through this segment.
• We provide investment services for which we charge sales commissions or asset-based fees based on established schedules.
• We offer investment advisory services. Fee revenues for such services are computed as either a percentage of the assets in the
client account or a flat periodic fee charged to the client for investment advice.
• We provide insurance and annuity products.
• We offer a number of professionally managed mutual funds.
• We earn fees from banks to which we sweep client cash in our Raymond James Bank Deposit Program (“RJBDP”). Such fees are
generally based on client cash balances in the program and short-term interest rates relative to the interest paid to clients on balances
in the RJBDP.
• 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 support and services (including access to clients’ account information and the
services of the Asset Management segment) to the independent 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
and management 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.
Investment banking revenues by revenue type as well as 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, 2018 are presented in the following graphs.
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 revenues 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. We carry inventories of taxable and tax-
exempt securities to facilitate client transactions.
• 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 healthcare 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.
• 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 agency mortgage-backed
securities (“MBS”). Such MBS are issued on behalf of various state and local housing finance agencies (“HFA”) 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 related administrative services to our PCG clients through our asset
management services division (“AMS”) and through Raymond James Trust, N.A. (“RJ Trust”). The segment also provides investment
advisory and asset management services to individual and institutional investors, including through third-party broker-dealers, through
Carillon Tower Advisers and its affiliates (collectively, “Carillon Tower”), which also sponsors a family of mutual funds.
We earn investment advisory fees and related administrative fees based on assets under management in both AMS and Carillon Tower,
where decisions are made by in-house or third-party portfolio managers or investment committees on how to invest client assets.
The Asset Management segment also earns administrative fees on certain asset-based programs offered to PCG clients which are not
6
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
managed by our Asset Management segment, but for which the segment provides administrative support, including trade execution,
record-keeping and periodic investor reporting.
Financial assets under management in managed programs and our financial assets under management in our managed programs by
objective as of September 30, 2018 are presented in the following graphs.
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, including to clients of our broker-dealer
subsidiaries. RJ Bank generates net interest revenue principally through the interest income earned on loans and an investment portfolio
of securities, which is offset by the interest expense it pays on client deposits and on its borrowings.
As of September 30, 2018, corporate and tax-exempt loans represented approximately 65% of RJ Bank’s loan portfolio, of which 89%
were 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.
RJ Bank had total assets of $22.92 billion at September 30, 2018, which are detailed in the following graph.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 public debt and the acquisition and integration costs associated with certain acquisitions (See Note 3 of the Notes to Consolidated
Financial Statements of 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, 2018, we had approximately 13,900 employees and approximately 4,650 affiliated independent contractor financial
advisors.
OPERATIONS AND INFORMATION PROCESSING
We have operations personnel at various locations 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 securities brokerage operations.
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
full time staff devoted to maintaining those plans. Our business continuity plan continues to be enhanced and tested to allow for
continuous operations in the event of weather-related or other interruptions at our corporate headquarters in Florida, one of our operations
processing or data center sites (located in Florida, Colorado, Tennessee or Michigan) as well as our branch and office locations throughout
the U.S., Canada and Europe.
COMPETITION
The financial services industry is intensely competitive. 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 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 (“BHC”) under the Bank Holding Company Act of 1956, as amended (the “BHC Act”) that has made
an election to be a financial holding company (“FHC”). Under the BHC Act, the activities of BHCs and FHCs are limited generally
to those activities closely related to banking and with respect to FHCs, activities financial in nature as outlined in the BHC Act and
related regulations. For RJF to remain a FHC, it and its depository institution subsidiaries must remain “well capitalized” and “well
managed” in accordance with the standards of the Fed and, with respect to its depository institution subsidiaries, the Office of the
Comptroller of the Currency (“OCC”). As a FHC, RJF is subject to regulation, oversight, and consolidated supervision, including
periodic examination, by the Fed. Under existing regulation, the Fed has authority to examine and take action with respect to all of
our subsidiaries. RJ Bank is a national bank and insured depository regulated, supervised and examined by the OCC and the Consumer
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 RJ Trust. 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 RJ Trust. 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
Since 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has imposed significant new
regulatory and compliance requirements, although some provisions of the Dodd-Frank Act remain 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 its implementing regulations, we continue to experience a period of notable 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, particularly due to the President’s
executive order issued in February 2017 to evaluate the current regulatory framework, particularly as it relates to the financial services
industry. As a result, we cannot specifically quantify the impact that such regulatory or supervisory requirements will have on our
business and operations (see Item 1A “Risk Factors” within this report for further discussion of the potential future impact on our
operations). In the following sections, 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. For banks with greater than $10 billion in assets, the FDIC’s current assessment rate calculation
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
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 (vii) unfair, deceptive or abusive acts or practices
under section 1031 of the Dodd-Frank Act. Since the beginning of fiscal year 2014, the CFPB has had supervisory authority over RJ
Bank for its compliance with the various federal consumer protection laws. The CFPB also 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
On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “EGRRCPA”) was signed into law,
making certain limited amendments to the Dodd-Frank Act, as well as certain targeted modifications to other post-financial crisis
regulations. Among other things, the law raises the asset thresholds for Dodd-Frank Act company-run stress testing, liquidity coverage
and living will requirements for bank holding companies to $250 billion, subject to the ability of the Fed to apply such requirements
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
to institutions with assets of $100 billion or more to address financial stability risks or safety and soundness concerns. On July 6, 2018,
the Fed, the OCC and the FDIC issued a joint interagency statement regarding the impact of the EGRRCPA. As a result of this statement
and the EGRRCPA, RJF and RJ Bank are no longer subject to Dodd-Frank Act stress testing requirements.
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. However, our current focus is on the divestiture of our existing portfolio.
On June 5, 2018, the five federal regulatory agencies having oversight over the Volcker Rule announced publication of proposed
amendments to the rule. The notice of proposed rulemaking contains certain revisions to the Volcker Rule’s covered fund restrictions.
RJF is evaluating the proposal to determine the impact such proposal will have, if any, if it becomes effective.
Basel III and U.S. Capital Rules
Both RJF 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 phase-in periods. The rules
governing the capital conservation buffer became effective for both RJF and RJ Bank as of January 1, 2016, subject to applicable phase-
in periods. See Note 21 of the Notes to the Consolidated Financial Statements of 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 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 of this Form 10-K for further information.
Fiduciary duty standard
In April 2016, the U.S. Department of Labor (the “DOL”) issued a 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”). However, in June 2018, the U.S.
Court of Appeals for the Fifth Circuit vacated the DOL Rule, and thus it is no longer in effect.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Separately, pursuant to the Dodd-Frank Act, the Securities and Exchange Commission (“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. In
April 2018, the SEC proposed Regulation Best Interest. The proposed Regulation Best Interest would, among other things, require a
broker-dealer to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment
strategy involving securities to such customer. We anticipate the adoption of any new rule by the SEC will require us to review and
possibly modify our compliance activities, which may 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.
Holding company support
Under the Dodd-Frank Act, the Fed must require that bank holding companies, such as RJF, serve as a source of financial strength for
any subsidiary depository institution. The term “source of financial strength” is defined as the ability of a company to provide financial
assistance to its insured depository institution subsidiaries in the event of financial distress at such subsidiaries. Under this requirement,
RJF in the future could be required to provide financial assistance to RJ Bank should it experience financial distress.
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 released a proposed rule in 2016 that, if implemented, 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”). No
final rule has been issued to date.
Other regulations applicable to our operations
The SEC is the federal agency charged with administration of the federal securities laws in the U.S. 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 Raymond James Financial Services, Inc. (“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 U.S., 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 U.S. and Canada,
however, has been delegated to self-regulatory organizations (“SROs”) (i.e., 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 regulators may conduct administrative proceedings that can result in censure, fine, suspension or
expulsion of a broker-dealer, its officers or employees. Such administrative proceedings, whether or not resulting in adverse findings,
can require substantial expenditures and may adversely impact the reputation of a broker-dealer.
Our U.S. broker-dealer subsidiaries are subject to the Securities Investor Protection Act (“SIPA”) and are required by federal law to
be members of the Securities Investors Protection Corporation (“SIPC”). The SIPC was established under SIPA, and oversees the
liquidation of broker-dealers during liquidation or financial distress. The SIPC fund provides protection for cash and securities held
in client accounts up to $500,000 per client, with a limitation of $250,000 on claims for cash balances.
Our investment advisory operations, including the mutual funds that we sponsor, are also subject to extensive regulation in the U.S.
Our U.S. asset managers are registered as investment advisers 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
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 and 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. In August 2018, the OCC requested comment on ways to
modernize its regulations that implement the CRA, which could affect how the CRA is applied to RJ Bank, but no proposed regulations
have been issued at this time.
U.S. federal law establishes minimum federal standards for financial privacy by, among other provisions, requiring financial institutions
to adopt and disclose privacy policies with respect to consumer information and setting forth certain limitations on disclosure to third
parties of consumer information. U.S. state law and regulations adopted under U.S. federal law impose obligations on RJF and its
subsidiaries for protecting the security, confidentiality and integrity of client information, and require notice of data breaches to certain
U.S. regulators, and in some cases, to clients. The General Data Protection Regulation (“GDPR”) imposes additional requirements
for companies that collect or store personal data of European Union residents. GDPR expands the scope of the EU data protection law
to all foreign companies processing personal data of EU residents, imposes a strict data protection compliance regime, and includes
new rights. RJF has adopted and disseminated privacy policies, and communicates required information relating to financial privacy
and data security, in accordance with applicable law.
Raymond James Limited (“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, including the Montreal Exchange and IIROC, 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 including 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 dollars (“CAD”) per client, with separate coverage of CAD 1 million for certain types of accounts. See Note 21
of the Notes to Consolidated Financial Statements of 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”), generally took effect on January 3, 2018, and introduced comprehensive, 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. We have made changes to our European operations, including systems and controls, in order
to be in compliance with MiFID II.
Central banks around the world, including the Fed, have commissioned working groups of market participants and official sector
representatives with the goal of finding suitable replacements for the London Interbank Offered Rate (“LIBOR”) based on observable
market transactions. It is expected that a transition away from the widespread use of LIBOR to alternative rates will occur over the
course of the next few years. Although the full impact of a transition, including the potential or actual discontinuance of LIBOR
publication, remains unclear, this change may have an adverse impact on the value of, return on and trading markets for a broad array
of financial products, including any LIBOR-based securities, loans and derivatives that are included in our financial assets and liabilities.
A transition away from LIBOR may also require extensive changes to the contracts that govern these LIBOR-based products, as well
as our systems and processes.
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 Financial Crimes
Enforcement Network (“FinCEN”) 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 initial and on-going 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 obtaining and verifying
12
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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. In May 2016, FinCEN issued a new rule that, since May 2018, has required certain
financial institutions, including our U.S. bank and broker-dealer subsidiaries, to obtain certain beneficial ownership information from
legal entity clients. Failure to meet the requirements of the Bank Secrecy Act, the Patriot Act or FinCEN 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
54
Senior Vice President since August 2009 and Controller since February 1995
Bella Loykhter Allaire
65 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
62 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
45 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.
62
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
George Catanese
59 Chief Risk Officer since February 2006
Scott A. Curtis
56
President - Private Client Group since June 2018; President - Raymond James Financial Services,
Inc. since January 2012; Senior Vice President - Private Client Group - Raymond James & Associates,
Inc., July 2005 - December 2011
Jeffrey A. Dowdle
54 Chief Administrative Officer since August 2018 and 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
47 Chief Executive Officer and President - Raymond James & Associates, Inc. since June 2018; President
- Private Client Group - Raymond James & Associates, Inc., January 2012 - June 2018; Regional
Director - Raymond James & Associates, Inc., October 2006 - December 2011
Thomas A. James
76 Chairman Emeritus since February 2017; Executive Chairman, May 2010 - February 2017
Jeffrey P. Julien
62 Executive Vice President - Finance since August 2009 and Chief Financial Officer since April 1987;
Treasurer, February 2011 - February 2018
Jodi L. Perry
47
President - Independent Contractor Division - Raymond James Financial Services, Inc. since June
2018; Senior Vice President, National Director - ICD - Raymond James Financial Services, Inc., May
2018 - June 2018; Senior Vice President, ICD Regional Director - Raymond James Financial Services,
Inc., June 2012 - May 2018
Steven M. Raney
53
President and CEO - Raymond James Bank, N.A. since January 2006
Paul C. Reilly
64 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
47 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
59 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
Except where otherwise indicated, the executive officer has held his or her current position for more than five years.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ADDITIONAL 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, changes
in tax rules and our effective tax rate, regulatory developments, effects of accounting pronouncements, and 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 in the following sections is not exhaustive; there may be factors not discussed in the following sections 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, 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
While we have recently experienced an operating environment that has been favorable for many of our businesses, at times over the
last several years we have experienced operating cycles during weak and uncertain U.S. and global economic conditions. If we were
to experience a period of sustained downturns 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, an increase in mortgage and other loan delinquencies, and other negative
market factors, our revenues could be significantly impaired. Periods of reduced revenue and other losses could lead to 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 notice to the European Council of its decision to exit the EU (“Brexit”) and the stability of the EU’s
sovereign debt, have 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.
We may be impacted by budget pressures affecting U.S. state and local governments, as well as negative trends in the housing and
labor markets. Investor concerns regarding these trends could potentially reduce the number and size of transactions in which we
participate and, in turn, reduce our fixed income investment banking revenues. In addition, such factors could potentially have an
adverse effect on 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 U.S. 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. Certain of our regulators 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.
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 as part of our trading inventory. 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.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 and an increase in fees received on our multi-bank deposit sweep program. 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
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.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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.
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.
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
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 cybersecurity
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. Additionally, the SEC issued guidance in February 2018 stating that, as a
public company, we are expected to have controls and procedures that relate to cybersecurity disclosure, and are required to disclose
information relating to certain cyber-attacks or other information security breaches in disclosures required to be made under the federal
securities laws. 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.
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.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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” of 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. 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.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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, partially due to the
industry trend toward unbundling fees related to research and execution. Our trading margins have been further compressed by the
use of electronic and direct market access trading, which has created additional competitive pressure. We believe that price competition
and pricing pressures in these and other areas will continue as institutional investors continue to reduce the amounts they are willing
to pay, including by reducing the number of brokerage firms they use, and some of our competitors seek to obtain market share by
reducing fees, commissions or margins.
We face intense competition.
We are engaged in intensely competitive businesses. We compete on the basis of a number of factors, including the quality of our
financial advisors and associates, our products and services, pricing (such as execution pricing and fee levels), and location and reputation
in relevant markets. Over time there has been substantial consolidation and convergence among companies in the 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. Certain large broker-dealer competitors have withdrawn
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
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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
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 (the “RJF 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 of this
Form 10-K for information on the RJF Credit Facility).
Business growth could increase costs and regulatory and integration risks.
We continue to grow, including through acquisitions and through our recruiting efforts. 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 funds 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.
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 is a risk that our associates could engage in misconduct that adversely affects our business. For example, our banking business
often requires that we deal with confidential matters of great significance to our clients. If our associates were to improperly use or
disclose confidential information provided by our clients, we could be subject to regulatory sanctions and suffer serious harm to our
reputation, financial position, current client relationships and ability to attract future clients. We are also subject to a number of
obligations and standards arising from our asset management business and our authority over the assets managed by our asset
management business. In addition, our financial advisors may act in a fiduciary capacity, providing financial planning, investment
advice and discretionary asset management. The violation of these obligations and standards by any of our associates would adversely
affect our clients and us. It is not always possible to deter associate misconduct, and the precautions we take to detect and prevent this
activity may not be effective. If our associates engage in misconduct, our business would be adversely affected.
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
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
or illegal acts of our associates could result in substantial liability. Our PCG 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. Litigation 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” of 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” of this report for a discussion regarding our approach
to managing legal risk.
A significant decline in our domestic client cash balances could negatively impact our net revenues and/or our ability to fund
RJ Bank’s growth.
We rely heavily on bank deposits as a low-cost source of funding for RJ Bank to extend loans to clients and purchase investment
securities. Our bank deposits are primarily driven by our multi-bank sweep program in which clients’ cash deposits in their brokerage
accounts are swept into FDIC-insured interest-bearing accounts at RJ Bank and various third-party banks. A significant reduction in
our domestic clients’ cash balances, a change in the allocation of that cash between RJ Bank and third-party banks, or a transfer of cash
away from RJF, could impact our net revenues and our ability to fund RJ Bank’s growth.
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” of this report for additional information on the nature of these estimates.
Our financial instruments, including certain trading assets and liabilities, available-for-sale securities, certain loans, 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 directly 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 Item 7 “Management’s
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Discussion and Analysis of Financial Condition and Results of Operations - Critical accounting estimates” of this report, and Note 2
of the Notes to Consolidated Financial Statements of this Form 10-K.
The FASB has issued several new accounting standards, including on the topics of credit losses and leases and the Federal banking
regulators have released implementation guidance and proposed implementation rules for some of these new standards. In particular,
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 and the proposed
regulatory implementation rules will have on our financial position, results of operations as well as our regulatory capital. See Note
2 of the Notes to Consolidated Financial Statements of this Form 10-K for further information.
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 previously discussed, 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” of this Form 10-K for a discussion of our operational risk management.
We are exposed to risks 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.
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. 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.
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,” of this report for a discussion of such changes). The ultimate impact that the Dodd-Frank Act and
implementing regulations, as further modified by the EGRRCPA and other financial services legislation, will have on us and the financial
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
services industry more broadly 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 impacted or may impact our businesses include: the establishment of a uniform fiduciary
standard or a best interest standard for broker-dealers; regulatory oversight of incentive compensation; the imposition of increased
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 subsidiaries
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
repurchases. See Item 1 “Regulation” of 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” of this report regarding
our approaches to managing regulatory risk.
Changes in requirements relating to the standard of conduct for broker-dealers applicable under state law may adversely affect
our businesses.
In April 2016, the DOL issued its final rule defining the term “fiduciary” and related exemptions in the context of ERISA and retirement
accounts. On June 21, 2018, the U.S. Court of Appeals for the Fifth Circuit Court issued an order vacating the DOL Rule and related
exemptions. We dedicated significant resources to interpret and implement policies to comply with the DOL Rule and continue to
evaluate the solutions available to retirement accounts, with additional changes possible. While the overall impact of the recently
vacated DOL Rule may have ultimately been adverse to our financial condition, results of operations and liquidity, we may benefit
from the changes to systems, processes, and offerings completed for the DOL Rule in complying with forthcoming regulatory initiatives.
In April 2018, the SEC proposed Regulation Best Interest, which would require a broker-dealer to act in the best interest of a retail
customer when making a recommendation of any securities transaction or investment strategy involving securities to such customer.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
We anticipate that if 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 costs in order to review and possibly modify the compliance plan and approach that we had
previously implemented for the now-vacated DOL Rule. Implementation of any rules addressing similar matters may negatively impact
our results including the impact of increased costs related to compliance, legal and information technology.
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 additional 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 have been or 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, including our product and service offerings.
In addition, U.S. and foreign governments have taken regulatory actions impacting the investment management industry, and may
continue to do so 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 U.S. 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.
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 is generally 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.
New regulations regarding the management of hedge funds and the use of certain investment products, including additional
recordkeeping and disclosure requirements, may impact our asset management business and result in increased costs.
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 U.S. 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.
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
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 of 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” of this report for additional information on liquidity and how we manage our liquidity risk.
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. An unfavorable CRA rating or a successful challenge to an
institution’s performance under the 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.
The OCC has requested comment on ways to modernize the regulations that implement the CRA for national banks, such as RJ Bank.
Any revisions to the regulations that implement the CRA may negatively impact our business, including through increased costs related
to compliance.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ITEM 2. PROPERTIES
We operate our business from our principal location in St. Petersburg, Florida, the Carillon Office Park, a 1.25 million square foot
office park that we own. Additionally, we own approximately 65 acres of land located in Pasco County, Florida for future development
and occupancy as needed. We conduct certain operations from our owned facility in Southfield, Michigan, comprising approximately
90,000 square feet, and operate a 40,000 square foot information technology data center on land we own in the Denver, Colorado area.
Generally, our owned locations and principal leases, identified below, support all of our business segments.
We lease the premises we occupy in other U. S. and foreign locations, including employee-based branch office operations. Our leases
contain various expiration dates through fiscal year 2031. Our principal leases are in the following locations:
• We lease approximately 190,000 square feet in Memphis, Tennessee, along with approximately 150,000 square feet in New York
and 70,000 square feet in Chicago, with other office and branch locations throughout the U.S;
• We lease approximately 80,000 square feet in Vancouver and approximately 75,000 square feet in Toronto, along with other office
and branch locations throughout Canada;
• We lease approximately 24,000 square feet in London, along with other office locations in Germany and France.
We believe that the facilities owned or occupied by our company suit our needs. Leases for branch offices independent contractors are
the responsibility of the respective independent contractor financial advisors.
ITEM 3. LEGAL PROCEEDINGS
In addition to the matters specifically described below, in the normal course of our business, we have been named, from time to time,
as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities
as a diversified financial services institution.
We are also subject, from time to time, to other reviews, investigations and proceedings (both formal and informal) by governmental
and self-regulatory agencies regarding our business. Such proceedings may involve, among other things, our sales and trading activities,
financial products or offerings we sponsored, underwrote or sold, and operational matters. Some of these proceedings have resulted,
and may in the future result, in adverse judgments, settlements, fines, penalties, injunctions or other relief and/or require us to undertake
remedial actions.
We cannot predict if, how or when such proceedings or investigations will be resolved or what the eventual settlement, fine, penalty
or other relief, if any, may be. A large number of factors may contribute to this inherent unpredictability: the proceeding is in its early
stages; the damages sought are unspecified, unsupported or uncertain; it is unclear whether a case brought as a class action will be
allowed to proceed on that basis; the other party is seeking relief other than or in addition to compensatory damages (including, in the
case of regulatory and governmental proceedings, potential fines and penalties); the matters present significant legal uncertainties; we
have not engaged in settlement discussions; discovery is not complete; there are significant facts in dispute; and numerous parties are
named as defendants (including where it is uncertain how liability might be shared among defendants).
We contest liability and/or the amount of damages, as appropriate, in each pending matter. Over the last several years, the level of
litigation and investigatory activity (both formal and informal) by government and self-regulatory agencies has increased significantly
in the financial services industry. While we have identified below certain proceedings that we believe could be material, individually
or collectively, there can be no assurance that material losses will not be incurred from claims that have not yet been asserted or are
not yet determined to be material.
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.
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RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
See Note 17 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding legal and
regulatory matter contingencies, and refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Critical accounting estimates” in the section “Loss provisions arising from legal and regulatory matters” of this report,
and Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K for information on our criteria for establishing accruals.
Morgan Keegan litigation
Indemnification from Regions
Under the agreement with Regions Financial Corporation (“Regions”) governing our 2012 acquisition of Morgan Keegan & Company
Inc., and MK Holding, Inc. and certain of its affiliates (collectively referred to as “Morgan Keegan”) (the “Stock Purchase Agreement”),
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.
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 (“Fairfax”) 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. Among other
things, 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. On
September 4, 2018, Fairfax and Morgan Keegan & Company, Inc. entered into a settlement agreement requiring payment to Fairfax
of $20 million in exchange for a full release of all claims relating in any way to the subject of this litigation and dismissal of the action
with prejudice. Such payment was made by Regions in accordance with the indemnification provision of the Stock Purchase Agreement.
Morgan Keegan & Company, Inc. denied any wrongdoing in connection with this matter.
Other litigation
On February 17, 2015, Jyll Brink (“Brink”) filed a putative class action complaint in the U.S. District Court for the Southern District
of Florida (the “District Court”) under the caption Jyll Brink v. Raymond James & Associates, Inc. (the “Brink Complaint”). The Brink
Complaint alleges that Brink, a former customer of RJ&A, was charged a fee in her Passport Investment Account, and that the fee
included an unauthorized and undisclosed profit to RJ&A in violation of its customer agreement and applicable industry standards.
The Passport Investment Account is a fee-based account in which clients pay asset-based advisory fees and certain processing fees for
ongoing investment advice and monitoring of securities holdings. The Brink Complaint seeks, among other relief, damages in the
amount of the difference between the actual cost of processing a trade, as alleged by Brink, and the fee charged by RJ&A. On May 9,
2016, RJ&A filed a motion to dismiss the Brink Complaint for lack of subject matter jurisdiction pursuant to the Securities Litigation
Uniform Standards Act (“SLUSA”). On June 6, 2016, the District Court entered an order granting the motion and dismissing the Brink
Complaint on SLUSA preclusion grounds. On June 24, 2016, Brink filed a notice of appeal of the order of dismissal with the United
States Court of Appeals for the Eleventh Circuit (the “Appellate Court”). On June 8, 2018, the Appellate Court issued its opinion
reversing the order of dismissal and remanding the case to the District Court for further proceedings consistent with the opinion. On
October 19, 2018, the District Court certified a class of former and current customers of RJ&A who executed a Passport Agreement
and were charged such fees during the period between February 17, 2010 and February 17, 2015. The matter is scheduled for trial
commencing April 15, 2019. RJ&A believes the claims in the Brink Complaint are without merit and is vigorously defending the
action.
On February 11, 2016, Caleb Wistar (“Wistar”) and Ernest Mayeaux (“Mayeaux”) filed a putative class action complaint in the District
Court under the caption Caleb Wistar and Ernest Mayeaux v. Raymond James Financial Services, Inc. and Raymond James Financial
Services Advisors, Inc. (as subsequently amended, the “Wistar Complaint”). Similar to the Brink Complaint, the Wistar Complaint
alleges that Wistar and Mayeaux, former customers of RJFS and Raymond James Financial Services Advisors, Inc. (“RJFSA”), were
charged a fee in RJFS and RJFSA’s Passport Investment Account and that the fee included an unauthorized and undisclosed profit to
RJFS and RJFSA in violation of its customer agreement and applicable industry standards. The Wistar Complaint seeks, among other
relief, damages in the amount of the difference between the actual cost of processing a trade, as alleged by Wistar and Mayeaux, and
the fee charge by RJFS and RJFSA. On September 6, 2018, RJFS and RJFSA filed a motion to dismiss the Wistar Complaint, which
motion is pending. The matter is scheduled for trial commencing September 16, 2019. RJFS and RJFSA believe the claims in the
Wistar Complaint are without merit and are vigorously defending the action.
29
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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 19, 2018, we had 348 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
2018
2017
High
Low
High
Low
$
$
$
$
91.29
99.26
102.17
97.62
$
$
$
$
81.90
84.37
83.89
87.56
$
$
$
$
74.70
81.92
82.59
85.97
$
$
$
$
56.61
69.09
71.35
74.81
Cash dividends per share of common stock paid during the quarter are reflected in the following table. The dividends were declared
during the quarter preceding their payment.
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal year
2018
2017
$
$
$
$
0.22
0.25
0.25
0.30
$
$
$
$
0.20
0.22
0.22
0.22
On August 22, 2018, our Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock, which was paid
on October 15, 2018.
See Note 21 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding our intentions for paying
cash dividends and the related capital restrictions.
Information related to our compensation plans under which equity securities are authorized for issuance is presented in Part III, Item
12 of this Form 10-K.
We did not have any sales of unregistered securities for the year ended September 30, 2018.
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 in the following
paragraphs. The following table presents information on our purchases of our own stock, on a monthly basis, for the twelve month
period ended September 30, 2018.
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, 2017 – October 31, 2017
November 1, 2017 – November 30, 2017
December 1, 2017 – December 31, 2017
First quarter
January 1, 2018 – January 31, 2018
February 1, 2018 – February 28, 2018
March 1, 2018 – March 31, 2018
Second quarter
April 1, 2018 – April 30, 2018
May 1, 2018 – May 31, 2018
June 1, 2018 – June 30, 2018
Third quarter
July 1, 2018 – July 31, 2018
August 1, 2018 – August 31, 2018
September 1, 2018 – September 30, 2018
Fourth quarter
Fiscal year total
8,493
18,539
205,504
232,536
18,887
5,708
861
25,456
1,966
9,035
1,750
12,751
344
419,692
1,218
421,254
691,997
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
85.25
85.32
87.32
87.08
91.47
91.85
97.04
91.74
87.44
95.11
97.60
94.27
96.56
90.63
92.77
90.64
89.55
— $
— $
— $
—
— $
— $
— $
—
— $
— $
— $
—
— $
401,406
$
— $
401,406
401,406
135,671
135,671
135,671
135,671
135,671
135,671
135,671
250,000
250,000
250,000
213,635
213,635
On May 22, 2018, we announced an increase to $250 million in the amount authorized by our Board of Directors to be used, at the
discretion of the Board’s Securities Repurchase Committee, for repurchases of our common stock and outstanding senior notes, subject
to market conditions and other factors. During August 2018, we repurchased 401 thousand shares of our common stock under this
authorization at a weighted-average price of $90.59, for total consideration of $36 million. Between October 1, 2018 and November
19, 2018, we utilized the remaining $214 million under our Board authorization to repurchase 2.77 million shares of our common stock
at a weighted-average price of $77.25.
For the year ended September 30, 2018, share purchases pursuant to the Restricted Stock Trust Fund, which was established to acquire
our common stock in the open market and used to settle restricted stock units (“RSUs”) granted as a retention vehicle for certain
employees of our wholly-owned Canadian subsidiaries, totaled approximated 77 thousand shares for aggregate consideration of $7
million. For more information on this trust fund, see Note 2 and Note 10 of the Notes to Consolidated Financial Statements of this
Form 10-K. These activities do not utilize the repurchase authority presented in the preceding table.
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, 2018, shares surrendered to us by employees for such purposes approximated 214 thousand shares, for a
total consideration of $19 million. These activities do not utilize the repurchase authority presented in the preceding table.
31
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
in thousands, except per share amounts
Operating results:
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
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
2018
2017
2016
2015
2014
Year ended September 30,
7,274,318
856,695
5.89
5.75
$
$
$
$
6,371,097
636,235
4.43
4.33
$
$
$
$
5,405,064
529,350
3.72
3.65
$
$
$
$
5,203,606
502,140
3.51
3.43
$
$
$
$
4,861,924
480,248
3.41
3.32
145,271
143,275
141,773
142,548
139,935
148,838
146,647
144,513
145,939
1.10
$
0.88
$
0.80
$
0.72
$
143,589
0.64
37,412,924
$
— $
34,883,456
$
31,486,976
$
26,325,850
— $
— $
250,000
893,837
1,550,000
2,443,837
6,368,461
145,642
43.73
$
$
$
$
$
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
—
537,932
1,150,000
1,687,932
4,143,686
140,836
29.42
$
$
$
$
$
$
$
$
$
$
$
$
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
RJ 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
40
44
46
48
53
54
54
55
58
59
59
60
61
61
62
62
33
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Introduction
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“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 to be not 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 general economic conditions and, more specifically, to the direction of the U.S. equity and fixed income markets, market
volatility, 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 who include investors,
borrowers, and competitors, impacting their level of participation in the financial markets. These factors also impact the level of
investment banking activity as well as trading profits and asset valuations, which ultimately affect our business results.
Year ended September 30, 2018 compared with the year ended September 30, 2017
We achieved net revenues of $7.27 billion, an increase of $903 million, or 14%. Pre-tax income of $1.31 billion, increased $385
million, or 42%. Our net income of $857 million increased $220 million, or 35%, and our earnings per diluted share were $5.75, a
33% increase.
During the year ended September 30, 2018, earnings were negatively affected by $105 million due to the impact of the Tax Cuts and
Jobs Act (“Tax Act”), primarily related to the remeasurement of U.S. deferred tax assets at a lower enacted federal corporate tax rate.
Excluding the impact of the Tax Act and $4 million of acquisition-related expenses, adjusted net income was $965 million (1), a 26%
increase compared with adjusted net income of $768 million (1) in the prior year, which excluded expenses related to the Jay Peak
matter, losses on the extinguishment of certain of our senior notes, and acquisition-related expenses. Adjusted earnings per diluted
share were $6.47 (1), a 24% increase compared with adjusted earnings per diluted share of $5.23 (1) in the prior year.
The increase in net revenues reflected significant growth in client assets, net interest income and account and service fees earned on
balances in our RJBDP, and strong investment banking revenues. Total client assets under administration reached $790.4 billion at
September 30, 2018, a 14% increase, primarily attributable to strong financial advisor recruiting and retention, as well as equity market
appreciation. Partially offsetting the aforementioned revenue increases, institutional equity and fixed income commissions declined
compared with the prior year, reflecting market-driven challenges.
Non-interest expenses increased $526 million, or 10%. The increase primarily resulted from increased compensation, commissions
and benefits expenses associated with the increase in net revenues, as well as increased staffing levels required to support our continued
growth and regulatory compliance requirements. Communications and information processing expenses also increased compared with
the prior year as a result of our continued investment in technology infrastructure to support our growth. Offsetting these increases
was a decline in legal expenses, as the settlement of the Jay Peak matter had a $130 million impact on the prior year, and a decline
related to our prior year loss on extinguishment of certain of our senior notes.
Our effective tax rate was 34.8% for fiscal 2018, reflecting the impact of the Tax Act of $105 million, partially offset by a lower blended
federal corporate statutory tax rate of 24.5%. Excluding the impact of the Tax Act, our adjusted effective tax rate was 26.7% (1). We
estimate our effective tax rate to be approximately 24%-25% for fiscal year 2019, reflecting the lower federal corporate statutory tax
rate of 21% for the full year. Our future effective tax rate may be impacted positively or negatively by non-taxable items (such as the
gains or losses earned on our company-owned life insurance policies and tax-exempt interest), non-deductible expenses (such as meals
and entertainment and certain executive compensation) and vesting and exercises of equity compensation awards. See Note 16 of the
Notes to Consolidated Financial Statements of this Form 10-K for further information on the Tax Act.
(1)
“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 is as follows:
• Our PCG segment generated net revenues of $5.09 billion, a 15% increase, and pre-tax income of $576 million, an increase of
54% over the prior year, which was negatively impacted by $130 million of legal expenses related to the Jay Peak matter. The
increase in net revenues was primarily attributable to an increase in securities commissions and fees, driven by increased fee-based
assets resulting from higher equity markets and continued strong financial advisor recruiting and retention. The segment also
benefited from an increase in account and service fees related to client cash balances in our RJBDP and higher net interest income.
Non-interest expenses increased $468 million, or 12%, primarily resulting from increases in compensation, commissions and
benefits expenses and communications and information processing expenses, offset by a decrease in the aforementioned legal
expenses.
• Our Capital Markets segment generated net revenues of $964 million, a 5% decrease over the prior year, and pre-tax income
declined 36% to $91 million. The decrease in net revenues was primarily due to market-driven challenges and low levels of client
activity, which led to decreases in institutional fixed income and equity commissions and net trading profits. Investment banking
revenues increased due to stronger merger & acquisition activity, partially offset by lower equity underwriting revenues. Non-
interest expenses decreased slightly compared with the prior year.
• Our Asset Management segment generated a 34% increase in net revenues to $654 million, and pre-tax income increased 37% to
$235 million. The increase in net revenues primarily reflected increases in advisory fees from managed programs and, to a lesser
degree, non-discretionary asset-based administrative fees. Financial assets under management increased 46% over the period year,
aided by the acquisition of Scout Investments, Inc. (the “Scout Group”), which added $27 billion of assets under management in
November 2017. Non-interest expenses increased $100 million, or 32%, primarily resulting from increased expenses related to
the Scout Group acquisition and increased investment sub-advisory fees.
• RJ Bank generated a 23% increase in net revenues to $727 million, while pre-tax income increased 20% to $492 million. The
increase in net revenues resulted primarily from an increase in net interest income due to growth in interest-earning assets and an
increase in net interest margin. Non-interest expenses increased $52 million, or 28%, primarily reflecting higher affiliate deposit
fees paid to PCG due to an increase in client accounts and an increase in compensation and benefits expenses.
• Our Other segment reflected a pre-tax loss that was $87 million, a decline of 51% from the prior year, primarily due to a decrease
in net interest expense, losses on the extinguishment of certain of our senior notes in the prior year, and lower acquisition-related
expenses. The decline in net interest expense reflected a decrease in the outstanding balance and average interest rate of our senior
notes payable, as well as an increase in interest income related to the increased interest rates earned on higher corporate cash
balances.
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, our 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 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.
(1)
“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.
35
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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 16 of the Notes to
Consolidated Financial Statements of 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
policies as a result of an increase in equity market values, compared to a 1.1% favorable impact in the prior year.
A summary of our financial results by segment as compared to the prior year is 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 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 was $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.
36
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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
Pre-tax income
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
Year ended September 30,
% change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
$ 7,274,318
$ 6,371,097
$ 5,405,064
1,310,655
925,346
800,643
5,093,030
4,421,633
3,616,479
576,094
372,950
340,564
14 %
42 %
15 %
54 %
963,773
90,647
1,013,683
1,001,716
141,236
139,173
(5)%
(36)%
654,377
235,336
487,658
171,736
404,349
132,158
726,675
491,779
592,670
409,303
493,966
337,296
(15,156)
(83,201)
(29,870)
(31,692)
(169,879)
(148,548)
(148,381)
(114,677)
(79,754)
34 %
37 %
23 %
20 %
49 %
51 %
18 %
16 %
22 %
10 %
1 %
1 %
21 %
30 %
20 %
21 %
6 %
(14)%
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 measures to 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 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. These non-GAAP measures 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.
$ in thousands, except per share amounts
Net Income
Non-GAAP adjustments:
Acquisition-related expenses
Losses on extinguishment of debt
Jay Peak matter
Sub-total pre-tax non-GAAP adjustments
Tax effect of non-GAAP adjustments
Impact of the Tax Act
Total non-GAAP adjustments, net of tax
Adjusted net income
Earnings per common share:
Basic
Diluted
Adjusted basic
Adjusted diluted
Effective tax rate:
Year ended September 30,
2018
2017
2016
$
856,695
$
636,235
$
529,350
3,927
—
—
3,927
(1,100)
105,254
108,081
17,995
45,746
130,000
193,741
(61,869)
—
131,872
40,706
—
20,000
60,706
(20,570)
—
40,136
$
964,776
$
768,107
$
569,486
$
$
$
$
5.89
5.75
6.63
6.47
$
$
$
$
4.43
4.33
5.35
5.23
$
$
$
$
3.72
3.65
4.01
3.93
For the twelve months ended September 30, 2018
($ in thousands)
Less: impact of the Tax Act
As adjusted for the impact of the Tax Act
Pre-tax income including
noncontrolling interests
1,304,877
$
Provision for income
taxes
Effective tax rate
$
$
453,960
105,254
348,706
34.8%
26.7%
Net income in the preceding table excludes noncontrolling interests.
For more information on acquisition-related expenses, see Note 3 of the Notes to Consolidated Financial Statements of this Form 10-
K.
See Note 16 of the Notes to Consolidated Financial Statements of this Form 10-K for more information related to the impact of the
Tax Act.
38
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Net interest analysis
The Federal Reserve Bank increased its benchmark short-term interest rate four times in fiscal 2018 in 25 basis point increments,
compared with three 25 basis point increases in fiscal 2017 and one 25 basis point increase in fiscal 2016. These increases in short-
term interest rates have had 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 generally result in an overall increase in our
net earnings, although the magnitude of the impact to our net interest margin depends upon the yields on interest-earning assets relative
to the cost of interest-bearing liabilities. Conversely, any decreases in short-term interest rates and/or increases in the deposit rates
paid to clients would likely have a negative impact on our earnings.
Refer to the discussion of the specific components of our net interest income within the “Management’s Discussion and Analysis of
Financial Condition - Results of Operations” for our RJ Bank, PCG and Other segments.
39
0.63%
1.52%
2.74%
1.35%
3.79%
3.73%
4.92%
3.00%
2.70%
2.87%
2.96%
3.07%
3.42%
1.46%
0.66%
2.57%
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
The following table presents our consolidated average balance, interest income and expense and the related yield and rates. Average
balances are calculated on a daily basis, with the exception of Trading instruments, Loans to financial advisors, net and Corporate cash
and all other, which are calculated based on the average of the end-of-month balances for each month within the period.
Year ended September 30,
2018
2017
2016
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 assets:
Cash segregated pursuant to
regulations
Securities loaned
Trading instruments
Available-for-sale securities
Margin loans
Bank loans, net:
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Loans held for sale
$ 2,587,759
$
52,561
2.03% $ 3,250,854
$ 37,270
381,422
694,715
2,530,988
14,548
23,016
52,420
2,586,882
107,201
7,618,949
326,042
165,780
3,231,369
1,146,493
3,447,710
2,689,612
125,970
8,547
132,898
29,567
108,825
111,403
5,057
3.81%
3.31%
2.07%
4.14%
4.22%
5.08%
4.06%
2.58%
3.16%
4.09%
4.01%
456,573
655,302
1,588,484
2,403,451
14,049
21,068
27,946
85,699
7,340,052
281,274
129,073
6,184
2,831,870
100,563
891,922
2,803,464
2,123,189
159,384
23,057
83,537
72,400
5,156
1.15%
3.08%
3.22%
1.76%
3.57%
3.78%
4.73%
3.50%
2.59%
2.94%
3.36%
3.34%
3,565,252
577,002
707,321
561,925
1,811,845
22,287
8,777
19,362
7,596
68,712
7,171,402
271,476
169,101
2,297,224
617,701
2,217,789
1,713,243
150,305
8,462
70,048
16,707
64,607
51,515
4,551
Total bank loans, net
18,425,883
722,339
3.93% 16,278,954
572,171
3.55% 14,336,765
487,366
Loans to financial advisors, net
Corporate cash and all other
892,776
3,757,719
15,078
56,830
1.69%
1.51%
848,677
3,450,514
13,333
30,590
1.57%
0.89%
563,548
2,750,688
8,207
18,090
Total interest-earning assets
$ 31,858,144
$1,043,993
3.28% $ 28,932,809
$ 802,126
2.77% $ 24,874,346
$ 640,397
Interest-bearing liabilities:
Bank deposits:
Certificates of deposit
$
372,052
$
6,217
1.67% $
293,589
$
4,325
1.47%
345,628
5,402
1.56%
Money market, savings and
Negotiable Order of Withdrawal
(“NOW”) accounts
Securities borrowed
Trading instruments sold but not yet
purchased
Brokerage client payables
Other borrowings
Senior notes payable
Other
Total interest-bearing
liabilities
18,473,046
157,310
267,759
4,167,919
914,463
1,549,163
366,182
59,340
7,630
7,344
15,367
22,006
72,708
10,891
0.32% 15,566,621
4.85%
110,416
2.74%
0.37%
2.41%
4.69%
2.97%
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%
$ 26,267,894
$ 201,503
0.77% $ 23,750,893
$ 153,778
0.65% $ 19,813,948
$ 116,056
0.59%
Net interest income
$ 842,490
$ 648,348
$ 524,341
Nonaccrual loans are included in the average loan balances in the preceding table. 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 year ended September 30, 2018, 2017 and 2016, was $24 million, $38
million and $36 million, respectively.
Results of Operations – Private Client Group
Through our PCG segment, we provide investment advisory and securities transaction services for which we charge asset-based fees
or sales commissions. Such revenues are included in “Securities commissions and fees.” 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
40
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
periods where equity markets improve, assets under administration and client activity generally increase, thereby having a favorable
impact on net revenues.
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, and from banks to which we sweep client cash in the RJBDP. Such fees are included in
“Account and service fees.” Servicing fees earned by mutual fund and annuity companies are generally based on the level of assets
or number of positions in such programs. Fees earned from our RJBDP are generally based on client cash balances in the program, as
well as the level of short-term interest rates relative to interest paid to clients on balances in the RJBDP.
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. Higher client cash balances generally lead to increased interest
income, depending on spreads realized in our client interest program. For more information on client cash balances, see our previous
discussion of interest-earning assets and interest-bearing liabilities in the Net interest analysis section of this MD&A.
For an overview of our PCG segment operations, refer to the information presented in Item 1 “Business” of 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
Subtotal securities commissions and fees
Interest income
Account and service fees:
Mutual fund and annuity service fees
RJBDP fees - third-party banks
Affiliate deposit account servicing fees from RJ Bank
Client account and service fees
Client transaction fees and other
Subtotal 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
Other
Total non-interest expenses
Pre-tax income
Year ended September 30,
% change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
$ 2,540,336
$ 2,040,839
$ 1,589,124
641,603
413,591
325,514
112,509
47,200
646,614
385,493
303,015
118,062
72,281
631,102
377,329
240,855
95,908
44,088
4,080,753
3,566,304
2,978,406
193,105
152,711
107,281
331,543
262,424
91,720
95,794
22,658
804,139
42,834
290,661
202,049
67,981
98,500
25,103
684,294
34,279
255,405
92,315
43,145
95,010
23,156
509,031
32,000
5,120,831
4,437,588
3,626,718
(27,801)
(15,955)
(10,239)
5,093,030
4,421,633
3,616,479
3,050,539
2,653,287
2,193,099
835,662
234,300
154,020
115,056
—
127,359
713,043
193,902
146,394
98,138
130,000
113,919
595,541
166,507
125,555
88,535
20,000
86,678
4,516,936
4,048,683
3,275,915
$
576,094
$
372,950
$
340,564
24 %
(1)%
7 %
7 %
(5)%
(35)%
14 %
26 %
14 %
30 %
35 %
(3)%
(10)%
18 %
25 %
15 %
74 %
15 %
15 %
17 %
21 %
5 %
17 %
28%
2%
2%
26%
23%
64%
20%
42%
14%
119%
58%
4%
8%
34%
7%
22%
56%
22%
21%
20%
16%
17%
11%
(100)%
550%
12 %
12 %
54 %
31%
24%
10%
41
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
As of September 30,
% change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
$
$
755.7
366.3
$
$
659.5
294.5
$
$
574.1
231.0
15%
24%
15%
27%
PCG assets under administration increased 15% in each of the fiscal years ended September 30, 2018 and 2017, resulting from equity
market appreciation and net client inflows. Net client inflows in each year were primarily attributable to strong financial advisor
recruiting and retention. PCG assets in fee-based accounts continued to increase as a percentage of overall PCG assets under
administration, representing 48% at September 30, 2018, compared to 45% at September 30, 2017 and 40% at September 30, 2016,
due in part to clients moving to fee-based alternatives from traditional transaction-based accounts in response to the regulatory
environment.
Financial advisors:
Employees
Independent contractors
Total advisors
2018
September 30,
2017 (2)
3,167
4,646 (1)
7,813
3,041
4,305
7,346
2016
3,098
4,048
7,146
(1)
Includes 126 registered individuals who met the requirements to be classified as financial advisors in fiscal year 2018 following our periodic review procedures.
(2) 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 the date of our adoption. The impact of the change in methodology did not have a significant impact on the
fiscal 2016 period, and thus we have not revised the number of financial advisors reported in fiscal 2016.
The net increase in financial advisors as of September 30, 2018 compared to September 30, 2017 and September 30, 2016 primarily
resulted from strong financial advisor recruiting and high levels of retention throughout fiscal year 2018 and 2017. We believe the
increases in financial advisors and assets under administration are a positive indication of potential future revenue growth in this
segment.
Clients’ domestic cash sweep balances
$ in millions
September 30, 2018
September 30, 2017
September 30, 2016
As of
RJBDP
RJ Bank
Third-party banks
Subtotal RJBDP
Money market funds
Client Interest Program (“CIP”)
Total clients’ domestic cash sweep balances
$
$
19,446
$
17,387
$
15,564
35,010
3,240
2,807
20,704
38,091
1,818
3,101
41,057
$
43,010
$
13,904
23,890
37,794
2,009
4,083
43,886
A significant portion of our clients’ cash is included in our RJBDP, a multi-bank 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. We earn fees from third-
party banks which fluctuate based on the amount of cash swept to such banks, as well as changes in short-term interest rates relative
to deposit rates paid on client cash balances. Fees from third-party banks are recorded in “Account and service fees” in our Consolidated
Statements of Income and Comprehensive Income. PCG also earns fees from RJ Bank for clients’ cash balances swept to RJ Bank.
Such fees are included in “Affiliate deposit account servicing fees from RJ Bank” in the “Operating results” table above and are
eliminated in consolidation.
Recent short-term interest rate increases by the Fed had a significant impact on fees earned from third-party banks in RJBDP, despite
the decline in RJBDP balances at such banks, but have not had as significant of an impact on market deposit rates paid on client cash
balances. As a result, RJBDP fees have increased significantly over the prior years. However, we expect market deposit rates to
continue to rise with future increases in short-term interest rates. As such, any future increases in short-term interest rates may have
less of a positive impact on fees earned from RJBDP depending on the level of deposit rates paid on client cash balances. Conversely,
42
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
any decreases in short-term interest rates and/or increases in the deposit rates paid to clients would likely have a negative impact on
our earnings.
Year ended September 30, 2018 compared with the year ended September 30, 2017
Net revenues of $5.09 billion increased $671 million, or 15%. The portion of segment net revenues that we consider to be recurring
was 82% for fiscal 2018, an increase from 79% for fiscal 2017. 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
and interest.
Pre-tax income of $576 million increased $203 million, or 54%, compared to the prior year, which included a $130 million legal charge
related to the Jay Peak matter.
Securities commissions and fees increased $514 million, or 14%. The increase in securities commissions and fees revenue was primarily
driven by an increase in client assets, resulting from higher equity markets and strong financial advisor recruiting and retention.
Commissions earned from insurance and annuity products and equity products also increased during the year. Offsetting these increases,
new issue sales credits declined compared with fiscal 2017 due to lower equity underwriting activity.
Total account and service fees increased $120 million, or 18%, primarily due to higher RJBDP fees resulting from an increase in short-
term interest rates over the prior year. Mutual fund and annuity service fees also increased, reflecting higher EMS fees and mutual
fund omnibus fees. The increase in EMS fees was primarily due to increased assets in the program, while the increase in omnibus fees
was a result of both an increase in assets and the number of positions invested in fund families on the omnibus platform.
Net interest income increased $29 million, or 21%, driven by an increase in interest income from margin loans, due to an increase in
short-term interest rates as well as higher average balances. To a lesser extent, there was also an increase in interest income from
segregated cash due to an increase in short-term interest rates, which more than offset the decrease in average balances. Offsetting the
increase in interest income, interest expense also increased, primarily due to the impact of higher interest rates paid on client cash
balances, partially offset by lower average client cash balances.
Non-interest expenses increased $468 million, or 12%, primarily due to an increase in sales commissions expense, which increased
$397 million, or 15%, in line with the increase in securities commissions and fees. Administrative and incentive compensation and
benefit costs increased $123 million, or 17%, primarily due to increased staffing levels to support our continued growth and regulatory
compliance requirements. Communications and information processing expense increased $40 million, or 21%, as a result of our
continued investment in technology infrastructure to support our growth. Offsetting these increases was a $130 million decrease in
expenses related to the Jay Peak matter, which was settled in fiscal 2017.
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net revenues of $4.42 billion in fiscal 2017 increased $805 million, or 22%. The portion of segment net revenues that we consider to
be recurring was 79% for fiscal 2017, an increase from 77% for fiscal 2016. Pre-tax income of $373 million, which was negatively
impacted by the Jay Peak settlement, increased $32 million, or 10%.
Securities commissions and fees in fiscal 2017 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 fiscal 2016.
Account and service fees in fiscal 2017 increased $175 million, or 34%, primarily due to higher RJBDP fees resulting from an increase
in short-term interest rates during the year. Mutual fund and annuity service fees also increased, reflecting higher EMS fees and mutual
fund omnibus fees. The increase in EMS fees was primarily due to increased assets in the program. The increase in omnibus fees was
a result of an increase in the number of positions invested in fund families on the omnibus platform.
Net interest income increased $40 million, or 41%. Interest income increased as a result of the impact of an increase in short-term
interest rates on segregated cash balances and increased client margin balances, largely driven by our September 2016 acquisition of
Alex. Brown. The favorable impact of the growth in margin balances was partially offset by a decrease in average client margin rates
on the portfolio. Interest expense 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.
Non-interest expenses in fiscal 2017 increased $773 million, or 24%. Sales commissions increased $460 million, or 21%, relatively
in line with the increase in securities commissions and fees. Administrative and incentive compensation and benefit costs increased
43
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
$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.
Results of Operations – Capital Markets
Our Capital Markets segment conducts fixed income and equity institutional sales and trading activities, 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, public financing
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 1 “Business” of this Form 10-K.
Operating results
$ in thousands
Revenues:
Securities commissions and fees:
Equity
Fixed income
Subtotal securities commissions and fees
Equity underwriting fees
Merger & acquisition and advisory fees
Fixed income investment banking
Tax credit funds syndication fees
Subtotal investment banking
Investment advisory fees
Net trading profit
Interest income
Other
Total revenues
Interest expense
Net revenues
Non-interest expenses:
Compensation, commissions and benefits
Communications and information processing
Occupancy and equipment costs
Business development
Losses and non-interest expenses of real estate partnerships held by consolidated VIEs
Other
Total non-interest expenses
Income before taxes and including noncontrolling interests
Noncontrolling interests
Year ended September 30,
% change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
$
202,809
$
222,942
$
228,346
221,684
424,493
53,262
296,606
39,430
51,464
440,762
24,661
53,412
32,253
16,023
991,604
(27,831)
963,773
267,749
490,691
72,845
228,422
43,234
54,098
398,599
21,623
78,155
27,095
18,072
316,144
544,490
54,492
148,503
41,024
59,424
303,443
29,684
87,966
24,867
26,701
1,034,235
1,017,151
(20,552)
(15,435)
1,013,683
1,001,716
634,522
645,665
638,101
73,448
34,226
45,292
11,802
85,648
884,938
78,835
(11,812)
70,140
33,920
38,389
13,663
84,702
886,479
127,204
(14,032)
72,305
34,250
39,892
9,788
76,189
870,525
131,191
(7,982)
(9)%
(17)%
(13)%
(27)%
30 %
(9)%
(5)%
11 %
14 %
(32)%
19 %
(11)%
(4)%
35 %
(5)%
(2)%
5 %
1 %
18 %
(14)%
1 %
—
(38)%
(16)%
(36)%
(2)%
(15)%
(10)%
34 %
54 %
5 %
(9)%
31 %
(27)%
(11)%
9 %
(32)%
2 %
33 %
1 %
1 %
(3)%
(1)%
(4)%
40 %
11 %
2 %
(3)%
76 %
1 %
Pre-tax income excluding noncontrolling interests
$
90,647
$
141,236
$
139,173
44
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Year ended September 30, 2018 compared with the year ended September 30, 2017
Net revenues of $964 million decreased $50 million, or 5%. Pre-tax income of $91 million decreased $51 million, or 36%.
Total securities commissions and fees decreased $66 million, or 13%, reflecting decreases in both fixed income and equity institutional
commissions. Institutional fixed income commissions continued to reflect challenging market conditions and low levels of client
activity due to the flattening yield curve and relatively low interest rate volatility. The decline in equity commissions reflected lower
equity underwriting activity, as well as market-driven challenges such as the industry trend toward separate payment for research and
execution services and the shift from high-touch execution services to low-touch execution services.
Net trading profits declined $25 million, or 32%, reflecting the challenging market conditions for fixed income during the current year.
Investment banking revenues increased $42 million, or 11%, reflecting strong merger & acquisition activity. Merger & acquisition
and advisory fees increased $68 million, or 30%, due to both a higher volume of transactions and higher average fees per transaction,
and aided by the expansion of our investment banking business in Europe. This increase was partially offset by lower equity underwriting
revenues, which declined $20 million, or 27%, reflecting lower levels of client activity. Fixed income investment banking also declined
compared with the prior year, reflecting the impact of lower public finance activity due to higher interest rates and tax reform.
Non-interest expenses decreased slightly compared with the prior year, as a decline in compensation, commissions and benefits expense
was largely offset by an increase in business development expense.
Year ended September 30, 2017 compared with the year ended September 30, 2016
Net revenues in fiscal 2017 of $1.01 billion increased $12 million, or 1%, led by higher merger & acquisition and advisory fees and
equity underwriting revenues, partially offset by lower institutional sales commissions. Pre-tax income of $141 million increased $2
million, or 1%.
Total securities commissions and fees for fiscal 2017 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 fiscal year 2017 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.
Despite the uncertainty related to the outcome of any corporate tax reform initiatives, our tax credit funds reflected good performance
during fiscal year 2017. This uncertainty did depress new investment activity amongst syndicators of Low-Income Housing Tax Credit
Fund (“LIHTC”) investments toward the end of fiscal year 2017 and, as a result, our tax credit fund syndication fees decreased $5
million, or 9%, from fiscal year 2016 levels.
Net trading profit decreased $10 million, or 11%, compared with a strong fiscal 2016, primarily due to lower market volatility.
Non-interest expenses for fiscal 2017 increased $16 million, or 2%. Compensation, commissions and benefits expenses increased $8
million, or 1%, primarily resulting from a net increase in incentive compensation as a result of the increase in investment banking net
revenues offset by a decrease in compensation related to lower institutional fixed income commission revenues during fiscal year 2017.
45
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Results of Operations – Asset Management
Our Asset Management segment provides investment advisory and related administrative services to our PCG clients through our asset
management services division (“AMS”) and through Raymond James Trust, N.A. (“RJ Trust”). The segment also provides investment
advisory and asset management services to individual and institutional investors, including through third-party broker-dealers, through
Carillon Tower Advisers and its affiliates (collectively, “Carillon Tower”), which also sponsors a family of mutual funds.
We earn investment advisory fees and related administrative fees based on assets under management in both AMS and Carillon Tower,
where decisions are made by in-house or third-party portfolio managers or investment committees on how to invest client assets.
The Asset Management segment also earns administrative fees on certain asset-based programs offered to PCG clients which are not
managed by our Asset Management segment, but for which the segment provides administrative support, including trade execution,
record-keeping and periodic investor reporting.
Fees are earned 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 relevant market and the new sales (inflows) and redemptions (outflows) of client accounts/
funds. Rising equity markets have historically had a positive impact on 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 1 “Business” of this Form 10-K.
Operating results
$ in thousands
Revenues:
Investment advisory and related administrative fees:
Managed programs
Non-discretionary asset-based administration
Subtotal 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,
% change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
$
454,027
$
326,405
$
270,623
115,562
569,589
84,829
654,418
91,087
417,492
70,243
487,735
74,130
344,753
59,668
404,421
(41)
(77)
(72)
654,377
487,658
404,349
169,993
38,495
7,360
11,353
89,784
93,697
410,682
243,695
8,359
123,119
30,109
5,046
9,673
75,497
67,509
310,953
176,705
4,969
112,998
27,027
4,423
9,500
56,751
57,911
268,610
135,739
3,581
39 %
27 %
36 %
21 %
34 %
(47)%
34 %
38 %
28 %
46 %
17 %
19 %
39 %
32 %
38 %
68 %
37 %
21%
23%
21%
18%
21%
7%
21%
9%
11%
14%
2%
33%
17%
16%
30%
39%
30%
Pre-tax income excluding noncontrolling interests
$
235,336
$
171,736
$
132,158
Selected key metrics
Managed programs - Our investment advisory fees recorded in this segment were earned based on balances either at the beginning of
the quarter, end of the quarter or average assets throughout the quarter. For the year ended September 30, 2018, approximately 55%
of our fees were determined based on asset balances at the beginning of each quarter, approximately 20% were based on asset balances
at the end of each quarter and the remaining 25% were based on average assets throughout each quarter. For the years ended
September 30, 2017 and 2016, approximately 70% of our fees were determined based on asset balances at the beginning of each quarter,
approximately 15% were based on asset balances at the end of each quarter and the remaining 15% were based on average assets
throughout each quarter. As of September 30, 2018, a greater percentage of fees were determined either based on asset balances at the
end of the quarter or on average assets throughout the quarter compared to September 30, 2017. This shift in timing is directly attributable
to our Scout Group acquisition.
46
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Financial assets under management:
$ in millions
Asset management services division of RJ&A (“AMS”)
Carillon Tower
Subtotal financial assets under management
Less: Assets managed for affiliated entities
Total financial assets under management
September 30,
2018
2017
2016
83,289
$
69,962
$
63,330
146,619
(5,702)
31,831
101,793
(5,397)
140,917
$
96,396
$
54,349
27,380
81,729
(4,744)
76,985
$
$
In the preceding table, Carillon Tower includes its subsidiaries and affiliates Eagle Asset Management, ClariVest Asset Management,
Cougar Global Investments, and the Scout Group.
The following table presents fee-billable financial assets under management (including assets managed for affiliates) by objective at
the dates indicated.
$ in millions
Equity
Fixed income
Balanced
Total financial assets under management
September 30,
2018
2017
2016
$
$
64,742
$
48,936
$
32,435
49,442
11,814
41,043
146,619
$
101,793
$
41,785
11,858
28,086
81,729
Activity (including activity in assets managed for affiliated entities):
$ in millions
Year ended September 30,
2018
2017
2016
Financial assets under management at beginning of year
$
101,793
$
81,729
$
69,093
Carillon Tower:
Scout Group acquisition
Other - net inflows/(outflows)
AMS - net inflows
Net market appreciation/(depreciation) in asset values
Financial assets under management at end of year
27,087
(63)
9,279
8,523
—
246
9,666
10,152
—
(1,159)
7,486 (1)
6,309
$
146,619
$
101,793
$
81,729
(1)
Includes approximately $2.0 billion of client assets resulting from our acquisition of Alex. Brown.
Non-discretionary asset-based programs - Our assets held in certain non-discretionary asset-based programs for which the Asset
Management segment does not exercise discretion but provides administrative support (including those managed for affiliated entities)
totaled $200.1 billion, $157.0 billion, and $119.3 billion as of September 30, 2018, 2017 and 2016, respectively. The increase in assets
in fiscal year 2018 over the prior year level was primarily due to market appreciation and to clients moving to fee-based accounts from
traditional transaction-based accounts partly in response to 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, 2018 compared with the year ended September 30, 2017
Net revenues of $654 million increased $167 million, or 34%. Pre-tax income of $235 million increased $64 million, or 37%.
Total investment advisory and related administrative fee revenues increased $152 million, or 36%, primarily driven by an increase in
financial assets under management. The increase in financial assets under management was primarily a result of the Scout Group
acquisition, as well as both net market appreciation and inflows related to financial advisor recruiting. Administrative fees also increased
over the prior year due to the aforementioned increase in assets held in non-discretionary asset-based programs.
Account and service fees and other income increased $15 million, or 21%, primarily reflecting increased shareholder servicing fees as
a result of the Scout Group acquisition, as well as increased trust fee revenue due to an 11% increase in assets in RJ Trust.
47
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Non-interest expenses increased $100 million, or 32%, primarily the result of a $47 million increase in compensation and benefits
expense, a $26 million increase in other expense and a $14 million increase in investment sub-advisory fees. Compensation and benefits
expense increased primarily due to the Scout Group acquisition, in addition to annual salary increases and an increase in personnel
over the prior year to support the growth of the business. The increase in other expense was primarily due to certain incremental costs
associated with the Scout Group acquisition, including platform fees related to the new funds offered, as well as the amortization of
intangible assets arising from the acquisition. The increase in investment sub-advisory fees resulted from increased assets under
management in applicable programs.
Year ended September 30, 2017 compared to the year ended September 30, 2016
Net revenues of $488 million increased $83 million, or 21%. Pre-tax income of $172 million increased $40 million, or 30%.
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
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 anticipated 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 benefits expense. The increase in investment sub-advisory fees
resulted from the increase in assets under management in applicable programs. The increase in compensation and benefits expense
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 do not include any acquisition-related expenses associated with acquisition of the Scout Group 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 of this Form 10-K for further information about this acquisition.
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 FDIC-insured deposit accounts to clients of our broker-dealer
subsidiaries. RJ Bank generates net interest revenue principally through the interest income earned on loans and an investment portfolio
of securities, 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 net interest-bearing liabilities. For more
information on average interest-earning asset and interest- bearing liability balances, see the following discussion in this MD&A.
For an overview of our RJ Bank segment operations, refer to the information presented in Item 1 “Business” of this Form 10-K.
48
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Operating results
$ in thousands
Revenues:
Interest income
Interest expense
Net interest income
Other
Net revenues
Non-interest expenses:
Compensation and benefits
Communications and information processing
Loan loss provision
FDIC insurance premiums
Affiliate deposit account servicing fees to PCG
Other
Total non-interest expenses
Pre-tax income
Year ended September 30,
% change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
$
792,970
$
609,971
$
501,967
(88,609)
(35,175)
(23,277)
704,361
22,314
726,675
40,670
9,713
20,481
20,145
91,720
52,167
574,796
17,874
592,670
33,991
7,946
12,987
16,832
67,981
43,630
478,690
15,276
493,966
29,742
7,090
28,167
15,478
43,145
33,048
234,896
183,367
156,670
$
491,779
$
409,303
$
337,296
30%
152%
23%
25%
23%
20%
22%
58%
20%
35%
20%
28%
20%
22 %
51 %
20 %
17 %
20 %
14 %
12 %
(54)%
9 %
58 %
32 %
17 %
21 %
Year ended September 30, 2018 compared with the year ended September 30, 2017
Net revenues of $727 million increased $134 million, or 23%, primarily reflecting an increase in net interest income. Pre-tax income
of $492 million increased $82 million, or 20%.
Net interest income increased $130 million, or 23%, due to a $3.19 billion increase in average interest-earning banking assets, as well
as an increase in net interest margin. The increase in average interest-earning banking assets was driven by growth in average loans
of $2.15 billion and a $967 million increase in our average available-for-sale securities portfolio. The net interest margin increased to
3.22% from 3.10%, due to an increase in asset yields, offset by an increase in the total cost of funds. The increase in asset yields
primarily resulted from an increase in the loan portfolio yield due to an increase in interest rates. The total cost of funds increased
primarily due to an increase in deposit costs, a result of increased interest rates and balances. Corresponding to the increase in average
interest-earning banking assets, average interest-bearing banking liabilities increased $3.00 billion.
The loan loss provision increased by $7 million, primarily due to higher corporate loan growth, partially offset by lower reserve rates
on pass-rated, corporate loans as a result of improved credit characteristics.
Non-interest expenses (excluding the loan loss provision) increased $44 million, or 26%, including a $24 million increase in affiliate
deposit account servicing fees to PCG due to an increase in client accounts and a $7 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, 2017 compared to the year ended September 30, 2016
Net revenues of $593 million increased $99 million, or 20%, primarily reflecting an increase in net interest income. Pre-tax income
of $409 million increased $72 million, or 21%.
Net interest income increased $96 million, or 20%, primarily due to a $2.92 billion increase in average interest-earning banking assets
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.
49
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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 year, which has higher allowance percentages, and was higher in the residential
mortgage loans, securities-based loans and tax-exempt loans portfolios, which have lower allowance percentages. This positive impact
was partially offset by additional provision during the current year for C&I loans 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 the loan loss provision) increased $42 million, or 33%, primarily reflecting a $25 million increase
in affiliate deposit account servicing fees to PCG due to an increase in client accounts and a $4 million increase in compensation and
benefits expense resulting from compensation increases and staff additions to support the growth of the business.
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.
Year ended September 30,
2018
2017
2016
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:
Cash
$
956,567
$
14,996
1.57% $
859,020
$
7,696
0.90% $
884,556
$
Available-for-sale securities
2,429,718
49,628
2.04%
1,462,938
25,970
1.78%
432,626
4,140
6,757
0.47%
1.56%
Bank loans, net of unearned income:
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Loans held for sale
Total loans, net
7,618,949
326,042
165,780
3,231,369
1,146,493
3,447,710
2,689,612
125,970
8,547
132,898
29,567
108,825
111,403
5,057
18,425,883
722,339
FHLB stock, FRB stock, and other
138,635
6,007
Total interest-earning banking assets
21,950,803
$
792,970
Non-interest-earning banking assets:
Unrealized loss on available-for-sale
securities
Allowance for loan losses
Other assets
(44,104)
(193,220)
379,461
Total non-interest-earning banking
assets
Total banking assets
142,137
$ 22,092,940
Interest-bearing banking liabilities:
Bank deposits:
4.22%
5.08%
4.06%
3.42%
3.16%
4.09%
4.01%
3.93%
4.33%
3.62%
7,340,052
281,274
129,073
6,184
2,831,870
100,563
891,922
2,803,464
2,123,189
159,384
23,057
83,537
72,400
5,156
16,278,954
572,171
157,395
4,134
18,758,307
$
609,971
3.78%
4.73%
3.50%
3.98%
2.94%
3.36%
3.34%
3.55%
2.63%
3.28%
7,171,402
271,476
169,101
2,297,224
617,701
2,217,789
1,713,243
150,305
8,462
70,048
16,707
64,607
51,515
4,551
14,336,765
487,366
186,589
3,704
15,840,536
$
501,967
3.73%
4.92%
3.00%
4.16%
2.87%
2.96%
3.07%
3.42%
1.98%
3.18%
(6,663)
(194,029)
374,769
174,077
$
18,932,384
(3,172)
(188,429)
281,961
90,360
$
15,930,896
Certificates of deposit
$
372,052
$
6,217
1.67% $
293,589
$
4,325
1.47% $
345,628
$
5,402
1.56%
Savings, money market, and NOW
accounts
FHLB advances and other
Total interest-bearing banking
liabilities
Non-interest-bearing banking liabilities
Total banking liabilities
Total banking shareholder’s equity
Total banking liabilities and
shareholders’ equity
Excess of interest-earning banking assets
over interest-bearing banking liabilities/
net interest income
Bank net interest:
Spread
Margin (net yield on interest-earning banking
assets)
Ratio of interest-earning banking assets to
interest-bearing banking liabilities
18,693,862
1,022,290
62,628
19,764
0.34%
1.91%
15,975,308
820,594
16,230
14,620
0.10%
1.76%
13,238,007
680,778
7,087
10,788
0.05%
1.56%
20,088,204
$
88,609
0.44%
17,089,491
$
35,175
0.20%
14,264,413
$
23,277
0.16%
89,663
20,177,867
1,915,073
92,762
17,182,253
1,750,131
71,278
14,335,691
1,595,205
$ 22,092,940
$
18,932,384
$
15,930,896
$
1,862,599
$
704,361
$
1,668,816
$
574,796
$
1,576,123
$
478,690
3.18%
3.22%
109.27%
3.08%
3.10%
109.77%
3.02%
3.04%
111.05%
Nonaccrual loans are included in the average loan balances in the preceding table. 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 loans included in interest income for the years ended September 30, 2018, 2017 and 2016 was $24 million, $38 million,
and $36 million, respectively.
The yield on tax-exempt loans in the preceding table is presented on a tax-equivalent basis utilizing the applicable federal statutory
rates for each of the years presented.
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
assets and interest-bearing 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 our interest-bearing liabilities. The effect of changes
in volume is determined by multiplying the change in volume by the previous year’s average yield/cost. Similarly, the effect of rate
changes is calculated by multiplying the change in average yield/cost by the previous year’s volume. Changes applicable to both
volume and rate have been allocated proportionately.
$ in thousands
Interest revenue:
Interest-earning banking assets:
Cash
Available-for-sale securities
Bank loans, net of unearned income:
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Loans held for sale
Total bank loans, net
FHLB stock, FRB stock and other
Year ended September 30,
2018 compared to 2017
Increase/(decrease) due to
2017 compared to 2016
Increase/(decrease) due to
Volume
Rate
Total
Volume
Rate
Total
$
874
$
6,426
$
7,300
$
(120) $
3,676
$
17,162
6,496
23,658
13,682
5,531
10,687
1,759
14,187
6,580
19,197
19,315
(1,081)
70,644
(493)
34,081
604
18,148
(70)
6,091
19,688
982
79,524
2,366
44,768
2,363
32,335
6,510
25,288
39,003
(99)
150,168
1,873
6,384
(2,003)
16,303
7,416
17,062
12,327
275
57,764
(579)
3,414
(275)
14,212
(1,066)
1,868
8,558
330
27,041
1,009
3,556
19,213
9,798
(2,278)
30,515
6,350
18,930
20,885
605
84,805
430
Total interest-earning banking assets
$
88,187
$
94,812
$
182,999
$
70,747
$
37,257
$
108,004
Interest expense:
Interest-bearing banking liabilities:
Bank deposits:
Certificates of deposit
Savings, money market, and NOW accounts
FHLB advances and other
Total interest-bearing banking liabilities
$
1,156
$
736
$
1,892
$
(814) $
(263) $
(1,077)
2,762
3,594
7,512
43,636
1,550
45,922
46,398
5,144
53,434
1,466
2,216
2,868
7,677
1,616
9,030
9,143
3,832
11,898
96,106
Change in net interest income
$
80,675
$
48,890
$
129,565
$
67,879
$
28,227
$
52
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Results of Operations – Other
This segment’s results include our private equity activities as well as 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 1 “Business” of this Form 10-K.
Operating results
$ in thousands
Revenues:
Interest income
Realized/unrealized gains - private equity investments
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
Pre-tax loss excluding noncontrolling interests
Year ended September 30,
% change
2018
2017
2016
2018 vs.
2017
2017 vs.
2016
$
41,577
$
24,998
$
8,944
9,471
59,992
(75,148)
(15,156)
66,442
3,927
—
31,386
9,114
65,498
(95,368)
(29,870)
64,573
17,995
45,746
16,977
23,735
5,579
46,291
(77,983)
(31,692)
60,448
40,706
—
70,369
128,314
101,154
(85,525)
(158,184)
(132,846)
(2,324)
11,695
15,702
(83,201) $ (169,879) $ (148,548)
$
66 %
(72)%
4 %
(8)%
(21)%
49 %
3 %
(78)%
(100)%
(45)%
46 %
47 %
32 %
63 %
41 %
22 %
6 %
7 %
(56)%
NM
27 %
(19)%
51 %
(14)%
Year ended September 30, 2018 compared to the year ended September 30, 2017
The pre-tax loss generated by this segment of $83 million was $87 million, or 51%, less than the loss generated in the prior year.
Net revenues in this segment increased $15 million, or 49%, due to an increase in our net interest expense, partially offset by lower
net gains on our private equity investments.
Net interest expense decreased by $37 million, or 52%, primarily due to a decrease in interest expense on our senior notes payable and
an increase in interest income. The decline in interest expense on our senior notes was due to a decrease in the average interest rate
and a lower average balance outstanding as a result of net redemptions in the prior year. Interest income increased as a result of the
increase in interest rates earned on higher corporate cash balances.
Non-interest expenses decreased $58 million, or 45%, as the prior year 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 prior year. Acquisition-related expenses in fiscal year 2018, which were $14 million lower than the prior year, pertained
to certain incremental expenses incurred in connection with our acquisition of the Scout Group, which closed in November 2017. Prior
year acquisition-related expenses primarily related to our acquisitions 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, 2017 compared to the year ended September 30, 2016
The pre-tax loss generated by this segment of $170 million was $21 million, or 14%, more than the loss in fiscal 2016.
Net revenues in this segment decreased $2 million, or 6%, due to higher net gains arising from our private equity investments portfolio,
which increased $8 million, a portion of which relates to noncontrolling interests, compared to fiscal 2016.
Net interest expense increased by $9 million, or 15%, due to an increase in interest expense, partially offset by an increase in interest
income. The increase in interest expense was the result of an increase in the average outstanding balance of our senior notes. The
increase in interest income was due to an increase in interest rates and higher corporate cash balances.
53
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Non-interest expenses increased $27 million, or 27%. Fiscal year 2017 included $46 million of losses 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 fiscal 2017. Acquisition-related expenses in fiscal year 2017, which were $23 million, or 56%, lower than
fiscal 2016, pertained to certain incremental expenses incurred in connection with our November 2017 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
of this Form 10-K for information regarding the components of these expenses.
Certain statistical disclosures by bank holding companies
We are required to provide certain statistical disclosures required for bank holding companies under the SEC’s Industry Guide 3. The
following table provides certain of those disclosures.
Return on average assets
Return on average equity
Average equity to average assets
Dividend payout ratio
Year ended September 30,
2018
2.4%
14.4%
16.5%
19.1%
2017
1.9%
12.2%
15.9%
20.3%
2016
1.9%
11.3%
16.6%
21.9%
Return on average assets is computed by dividing net income attributable to RJF for the year indicated by average assets for each
respective fiscal year. Average assets is computed by adding total assets as of each quarter-end to the beginning of the year total, and
dividing by five.
Return on average equity is computed by dividing net income attributable to RJF for the year indicated by 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 to the beginning of the year total, and dividing by five.
Average equity to average assets is computed by dividing average equity by average assets as calculated in accordance with the previous
explanations.
Dividend payout ratio is computed by dividing dividends declared per common share during the fiscal year by earnings per diluted
common share.
Refer to the “Results of Operations - RJ Bank” and “Risk management - Credit Risk” sections of Management’s Discussion and Analysis
of Financial Condition and Results of Operations and to the Notes to Consolidated Financial Statements of 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 economic and 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 and cash equivalents decreased $169 million to $3.50 billion at September 30, 2018 due to the firm using $3.48 billion of cash
for its investing activities, primarily investments in bank loans and our available-for-sale securities portfolio during the year. Offsetting
the cash used for investing activities, operating activities provided $1.90 billion of cash during the year. Financing activities provided
cash of $1.42 billion, primarily driven by an increase in bank deposits, as RJ Bank retained a higher portion of RJBDP balances, partially
offset by repayments of short-term borrowings and payments of dividends to our shareholders during the year.
54
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
We believe our existing assets, most of which are liquid in nature, together with funds generated from operations and available from
committed and uncommitted financing facilities provide adequate funds for continuing operations at current levels of activity.
Sources of liquidity
Approximately $1.40 billion of our total September 30, 2018 cash and cash equivalents included cash on hand at the parent, as well
as parent cash loaned to RJ&A. The following table presents our holdings of cash and cash equivalents.
$ in thousands
September 30, 2018
RJF
RJ&A
RJ Bank
RJ Ltd.
RJFS
Carillon Tower
Other subsidiaries
Total cash and cash equivalents
$
$
694,695
1,604,648
354,131
355,699
136,951
100,443
253,739
3,500,306
RJF maintained depository accounts at RJ Bank with a balance of $277 million as of September 30, 2018. The portion of this total
that was available on demand without restrictions, which amounted to $254 million as of September 30, 2018, is reflected in the RJF
total (and is excluded from the RJ Bank cash balance in the preceding table).
RJF had loaned $735 million to RJ&A as of September 30, 2018 (such amount is included in the RJ&A cash balance in the preceding
table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business activities.
On October 1, 2018 we deposited approximately $400 million of cash into RJ&A’s segregated reserve accounts as a result of its year
end reserve calculation.
In addition to the cash balances described, we have various other potential sources of cash available to the parent from subsidiaries,
as described in the following section.
Liquidity available from subsidiaries
Liquidity is principally available to RJF, 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. In addition, 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, 2018, 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 $868 million, of which
$438 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 RJF 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, 2018, RJ Bank had $226 million of capital in excess of the amount it would need at September 30,
2018 to maintain its targeted regulatory capital ratios, 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 those previously
described 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 our 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.
55
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
The following table presents our committed financing arrangements with third-party lenders, which we generally utilize to finance a
portion of our fixed income 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
September 30, 2018
RJ&A
RJF
Total
Total number of
arrangements
300,000
—
300,000
$
$
— $
300,000
300,000
$
300,000
300,000
600,000
3
1
4
— $
—
— $
— $
—
— $
—
—
—
$
$
$
$
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, 2018, we had outstanding borrowings under two uncommitted secured borrowing
arrangements with lenders out of a total of 13 uncommitted financing arrangements (seven uncommitted secured and six uncommitted
unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities.
The following table presents our borrowings on uncommitted financing arrangements, all of which were in RJ&A.
$ in thousands
Outstanding borrowing amount:
Uncommitted secured
Uncommitted unsecured
Total outstanding borrowing amount
Other financings
September 30, 2018
$
$
186,205
—
186,205
RJ Bank had $875 million in FHLB borrowings outstanding at September 30, 2018, comprised of floating-rate advances totaling $850
million and a $25 million fixed-rate advance, all of which were secured by a blanket lien on RJ Bank’s residential mortgage loan
portfolio (see Note 14 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding these
borrowings). RJ Bank had an additional $1.79 billion in immediate credit available from the FHLB as of September 30, 2018 and,
with the pledge of additional eligible collateral to the FHLB, total available credit of up to 30% of total assets.
RJ Bank is eligible to participate in the FRB’s discount-window program; however, we do not view borrowings from the FRB 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 FRB, and is secured by pledged C&I loans.
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, others or the firm. We account for each of these types of transaction as collateralized agreements and financings,
with the outstanding balances related to the securities loaned included in “Securities loaned” on our Consolidated Statements of Financial
Condition of this Form 10-K, in the amount of $423 million as of September 30, 2018. Such financings are generally collateralized
by cash or other collateral. See Note 7 of the Notes to Consolidate Financial Statements of this Form 10-K for more information on
our securities borrowed and securities loaned.
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 of this Form 10-K, in the amount $186 million as of September 30, 2018 (which
56
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
are reflected in the preceding table of uncommitted financing arrangements). 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 is detailed in the following
table.
Repurchase transactions
Reverse repurchase transactions
Average daily
balance
outstanding
$
$
$
$
$
117,388
151,233
163,923
218,690
241,365
$
$
$
$
$
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
186,205
164,891
157,466
229,036
247,048
$
$
$
$
$
186,205
115,464
142,791
229,036
220,942
$
$
$
$
$
354,991
364,410
378,109
443,391
463,618
$
$
$
$
$
375,616
368,822
448,474
506,711
503,462
$
$
$
$
$
372,603
343,052
448,474
307,742
404,462
For the quarter ended:
($ in thousands)
September 30, 2018
June 30, 2018
March 31, 2018
December 31, 2017
September 30, 2017
At September 30, 2018, in addition to the financing arrangements previously described, we had $24 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 of this Form 10-K.
At September 30, 2018 we had aggregate outstanding senior notes payable of $1.55 billion. Our senior notes payable, exclusive of
any unaccreted premiums or discounts and debt issuance costs, was 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 of the Notes to the
Consolidated Financial Statements of this Form 10-K for additional information.
Our senior long-term debt ratings as of the most current report are detailed in the following table.
Rating Agency
Standard & Poor’s Ratings Services
Moody’s Investors Services
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,
capital structure, 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 of
this Form 10-K for additional information). A credit downgrade could damage our reputation and result in certain counterparties
limiting their business with us, result in negative comments by analysts, and potentially negatively impact investor perception of us,
and cause a decline in 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 the $300 million RJF 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 borrowing arrangements contain a condition or event of default related to our credit ratings.
57
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Other sources and uses of liquidity
We have company-owned life insurance 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 employee-
directed while others are company-directed. Certain policies which we could readily borrow against had a cash surrender value of
$504 million as of September 30, 2018, comprised of $292 million related to employee-directed plans and $212 million related to
company-directed plans, and we were able to borrow up to 90%, or $454 million, of the September 30, 2018 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 employee-directed plans. There were no borrowings outstanding against any of these policies as of
September 30, 2018.
Between October 1, 2018 and November 19, 2018, we utilized the remaining $214 million under our Board authorization to repurchase
2.77 million shares of our common stock at a weighted-average price of $77.25. See Item 5 “Market for Registrant’s Common Equity,
Related Shareholder Matters and Issuer Purchases of Equity Securities” of this Form 10-K for more information.
On May 18, 2018, we filed a “universal” shelf registration statement with the SEC to be in a position to access the capital markets if
and when necessary or perceived by us to be opportune.
See the Contractual obligations section of this MD&A for information regarding our contractual obligations.
Statement of financial condition analysis
The assets on our consolidated statements of financial condition consisted 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 $37.41 billion as of September 30, 2018 were $2.53 billion, or 7%, higher than our total assets as of September 30,
2017. The increase in assets was primarily due to a $2.51 billion increase in net bank loans and a $508 million increase in our available-
for-sale securities portfolio, in line with our growth plans for such assets, as well as a $576 million increase in brokerage client receivables
reflecting client activity. Offsetting these increases, cash segregated pursuant to regulations decreased $1.03 billion compared with
September 30, 2017.
As of September 30, 2018, our total liabilities of $30.96 billion were $1.77 billion, or 6%, higher than our total liabilities as of
September 30, 2017, primarily reflecting a $2.21 billion increase in bank deposits, as RJ Bank retained a higher portion of RJBDP
balances to fund a portion of our loan and available-for-sale securities portfolio growth. Brokerage client payables increased $213
million, due to an increase in client cash held at the firm as of September 30, 2018. Offsetting these increases was a $615 million
decrease in other borrowings due to the repayment of certain borrowings during the year.
58
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Contractual obligations
The following table sets forth our contractual obligations and payments due thereunder by fiscal year.
$ in thousands
Long-term debt obligations:
Total
2019
2020
2021
2022
2023
Thereafter
Year ended September 30,
Senior notes payable - principal
$
1,550,000
$
— $
— $
— $
— $
— $
1,550,000
Long-term portion of other borrowings
Long-term debt obligations
Contractual interest payments
Operating lease obligations
Purchase obligations
Other long-term liabilities:
Certificates of deposit (including interest)
Other
Subtotal long-term liabilities
893,837
2,443,837
1,375,197
410,764
271,548
468,043
13,743
481,786
—
—
91,736
95,556
140,679
150,790
9,176
159,966
855,430
855,430
86,949
83,591
50,264
111,296
2,193
113,489
30,748
30,748
73,043
70,487
25,745
38,854
1,483
40,337
6,084
6,084
72,430
51,426
12,072
73,283
891
74,174
1,575
1,575
71,802
39,544
9,858
93,820
—
93,820
—
1,550,000
979,237
70,160
32,930
—
—
—
Total contractual obligations
$
4,983,132
$
487,937
$
1,189,723
$
240,360
$
216,186
$
216,599
$
2,632,327
Contractual interest payments represent estimated future interest payments related to our senior notes, mortgage note payable, FHLB
advances, and unsecured borrowings with original maturities greater than one year based on applicable interest rates at September 30,
2018. Estimated future interest payments for FHLB advances include the effect of the related interest rate hedges, which swap variable
interest rate payments to fixed interest payments. See Notes 14 and 15 of the Notes to Consolidated Financial Statements of 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.
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 Note 17 of the Notes to Consolidated Financial Statements of this Form 10-
K for further information.
Regulatory
Refer to the discussion of the regulatory environment in which we operate and the impact on our operations of certain rules and
regulations in Item 1 “Business - Regulation” of this Form 10-K.
RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As of September 30, 2018, 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, 2018.
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 a negative impact on our future business activities.
See Note 21 of the Notes to Consolidated Financial Statements of this Form 10-K for information on regulatory and capital requirements.
59
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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 of this Form 10-K.
We believe that of our accounting estimates and assumptions, those described in the following sections 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 our reported results of operations and 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 owned” 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) (“OCI”), 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 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.
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 of this Form 10-K for additional information on our financial
instruments.
Assets and liabilities measured at fair value on a recurring basis
As of both September 30, 2018 and September 30, 2017, 10% of our total assets and 2% of our total liabilities were financial instruments
measured at fair value on a recurring basis.
Financial instruments owned and measured at fair value on a recurring basis categorized as Level 3 amounted to $124 million as of
September 30, 2018, and represented 3% of our assets measured at fair value and 2% of our total equity. Our Level 3 assets were
primarily comprised of preferred auction rate securities (“ARS”) and private equity investments. Our Level 3 assets declined $77
million compared with September 30, 2017, primarily due to sales of ARS and certain private equity investments.
60
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Valuation techniques
The fair values for certain of our financial instruments are 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. We have
determined the market for certain other types of financial instruments, including private equity investments and auction-rate securities,
to be uncertain or inactive as of both September 30, 2018 and 2017. As a result, the valuation of these financial instruments included
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 a low volume of trades, 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 of 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 of this Form 10-K. In addition, refer to Note 17 of the Notes to the Consolidated
Financial Statements of this Form 10-K for information regarding legal and regulatory matter contingencies as of September 30, 2018.
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 of 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 of this Form 10-K for
quantitative information regarding the allowance balance as of September 30, 2018.
At September 30, 2018, the amortized cost of all RJ Bank loans was $19.7 billion and an allowance for loan losses of $203 million
was recorded against that balance. The total allowance for loan losses was equal to 1.04% 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 of this
Form 10-K.
Off-Balance sheet arrangements
For information regarding our off-balance sheet arrangements, see Notes 2 and 17 of the Notes to Consolidated Financial Statements
of this Form 10-K.
61
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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 information processing, and occupancy costs, which may not be
readily recoverable through charges for services we provide to our clients.
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 Audit and Risk Committee of the Board of Directors.
The principal risks related to our business activities are market, credit, liquidity, operational, model, and compliance.
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 and CMOs within RJ Bank’s available-for-sale
securities portfolio, and also from time-to-time may hold SBA loan securitizations not yet transferred.
See Notes 2, 4, 5 and 6 of the Notes to Consolidated Financial Statements of this Form 10-K for fair value and other information
regarding our trading inventories, available-for-sale securities and derivative instruments.
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 desks 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, trading desk (e.g., for OTC equities, corporate
bonds, municipal bonds), product 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
exposure against established limits with respect to a number of factors, including interest rates, 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, 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
62
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
“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. Simulation is based on daily market data for the previous twelve months.
VaR is reported at a 99% confidence level for a one-day time horizon. Assuming that future market conditions change as they have in
the past twelve months, we would expect to incur losses greater than those predicted by our one-day VaR estimates about once every
100 trading days, or about three times per year on average. For regulatory capital calculation purposes, we also report VaR numbers
for a ten-day time horizon.
The Fed’s MRR requires us to perform daily back testing procedures of our VaR model, whereby we compare each day’s projected
VaR to its regulatory-defined daily trading losses, which 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 year ended September 30, 2018,
our regulatory-defined daily loss in our trading portfolios exceeded our predicted VaR twice.
The following table sets forth the high, low, period end 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, 2018
Period end VaR
Daily average VaR
High
Low
September 30,
2018
September 30,
2017
September 30,
2018
September 30,
2017
$
3,917
$
654
$
1,204
$
1,427
$
1,437
$
1,827
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 agency 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 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 of 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, commercial and residential
real estate loans, 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. In recent years, 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.
63
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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 net interest income 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 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 previously
described. For further information regarding this risk management objective, see the discussion of this hedging strategy in Notes 2
and 6 of the Notes to Consolidated Financial Statements of 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
$776,537
$804,936
$830,600
$766,500
Projected change in
net interest income
(6.51)%
(3.09)%
—
(7.72)%
Refer to “Management’s Discussion and Analysis - Net interest analysis” of this Form 10-K, for a discussion of the impact changes in
short-term interest rates could have on the firm’s operations.
The following table shows the contractual maturities of RJ Bank’s loan portfolio at September 30, 2018, including contractual principal
repayments. This table does not include any estimates of prepayments, which could shorten the average loan lives and cause the actual
timing of the loan repayments to differ significantly from those shown in the table. Loan amounts in the table exclude unearned income
and deferred expenses.
$ in thousands
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total loans held for investment
Loans held for sale
Total loans
One year or less
> One year – five
years
> 5 years
Total
Due in
$
69,666
$
3,687,554
$
4,028,017
$
—
429,584
—
898
3,029,873
3,530,021
—
133,118
2,489,507
23,535
2,907
3,517
6,340,138
12
17,707
705,316
1,203,577
3,752,804
—
9,707,421
153,661
$
3,530,021
$
6,340,150
$
9,861,082
$
7,785,237
150,825
3,624,407
1,227,112
3,756,609
3,033,390
19,577,580
153,673
19,731,253
64
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, 2018. Loan amounts in the table exclude unearned income and deferred
expenses.
$ in thousands
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total loans held for investment
Loans held for sale
Total loans
Interest rate type
Fixed
Adjustable
Total
$
17,884
$
7,697,687
$
—
78,917
1,195,212
238,994
3,517
1,534,524
1,937
150,825
3,115,906
31,900
3,516,717
—
14,513,035
151,736
7,715,571
150,825
3,194,823
1,227,112
3,755,711
3,517
16,047,559
153,673
$
1,536,461
$
14,664,771 $
16,201,232
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 - Risk management - 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 RJ Bank available-for-sale securities 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, 2018 with changes in the fair value of the portfolio
recorded through OCI in our Consolidated Statements of Income and Comprehensive Income. At September 30, 2018, our RJ Bank
available-for-sale securities portfolio had a fair value of $2.63 billion with a weighted-average yield of 2.29% and average expected
duration of three years. See Note 5 of the Notes to Consolidated Financial Statements of this Form 10-K 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. These securities generally have embedded penalty
interest rate provisions in the event auctions fail to set the security’s interest rate, which are based upon a stated interest rate spread
over what is typically a short-term base interest rate index. As short-term interest rates rise, the penalty rate that is specified in the
security increases and the fair value of the security increases, 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. See Notes 2, 4 and 5 of the
Notes to Consolidated Financial Statements of this Form 10-K for additional information on these securities.
Equity price risk
We are exposed to equity price risk as a consequence of our capital markets activities. 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.
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. For example, a portion of our bank loan portfolio includes loans which are
denominated in Canadian dollars totaling $1.05 billion and $1.00 billion at September 30, 2018 and September 30, 2017, respectively.
A portion of such loans are held by RJ Bank’s Canadian subsidiary, which is discussed in the following sections.
Investments in foreign subsidiaries
RJ Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate its foreign exchange risk, RJ Bank
utilizes short-term, forward foreign exchange contracts. These derivative agreements are primarily accounted for as net investment
65
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
hedges in the consolidated financial statements. See Notes 2 and 6 of the Notes to Consolidated Financial Statements of this Form 10-
K for further information regarding these derivative contracts.
We had foreign exchange risk in our investment in RJ Ltd. of CAD 352 million at September 30, 2018, which was not hedged. Foreign
exchange gains/losses related to this investment are primarily reflected in OCI on our Consolidated Statements of Income and
Comprehensive Income. See Note 18 of the Notes to Consolidated Financial Statements of 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 Europe. 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 of 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
borrowing and lending activities are conducted with a large number of clients and counterparties and potential concentration is carefully
monitored. Inventory and investment positions taken and commitments made, including underwritings, may involve exposure to
individual issuers and businesses. We seek to limit this risk through careful review of the underlying business and the use of limits
established by senior management, taking into consideration factors including the financial strength of the counterparty, the size of the
position or commitment, the expected duration of the position or commitment and other positions or commitments outstanding.
66
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
RJ 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 of 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 previously described.
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 loans to subprime borrowers. Loans with deeply
discounted teaser rates are not originated or purchased. All loans in this segment are collateralized by residential real estate and
repayment is primarily dependent on the credit quality of the individual borrower. A decline in the strength of the economy,
particularly unemployment rates and housing prices, among other factors, could have a significant effect on the credit quality of
loans in this segment.
SBL: Loans in this segment are generally 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.
67
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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. There continue to be
concerns over the retail and energy sectors. These factors have a potentially negative impact on loan performance and net charge-offs.
However, during fiscal year 2018, 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, 2018, 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 year ended September 30, 2018.
The following table presents RJ Bank’s changes in the allowance for loan losses.
$ in thousands
2018
2017
2016
2015
2014
Allowance for loan losses beginning of year
$
190,442
$
197,378
$
172,257
$
147,574
$
136,501
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
20,481
12,987
28,167
23,570
13,565
(9,587)
(32)
(383)
(10,002)
4
—
2,320
2,324
(7,678)
(495)
(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)
$
202,750
$
190,442
$
197,378
$
172,257
$
(1,845)
(16)
(2,015)
(3,876)
16
80
2,033
2,129
(1,747)
(745)
147,574
Allowance for loan losses to total bank loans outstanding
1.04%
1.11%
1.30%
1.32%
1.33%
See explanation of the loan loss provision in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - RJ Bank” of this Form 10-K. As a result of improved credit quality in the loan portfolio, the total
allowance for loan losses to total bank loans outstanding declined to 1.04% at September 30, 2018 from 1.11% at September 30, 2017.
68
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
The following tables present 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
2018
2017
2016
Year ended September 30,
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
$
$
(9,583)
(32)
1,937
(7,678)
0.13% $
(25,748)
0.35% $
(2,956)
0.04%
—
0.06%
5,013
83
0.18%
—
—
(53)
—
—
0.04% $
(20,652)
0.13% $
(3,009)
0.02%
Year ended September 30,
2015
2014
Net loan
(charge-off)/
recovery
amount
% of avg.
outstanding
loans
Net loan
(charge-off)/
recovery
amount
% of avg.
outstanding
loans
$
$
(580)
3,773
(436)
2,757
0.01% $
(1,829)
0.03%
0.22%
0.02%
64
18
—
—
0.02% $
(1,747)
0.02%
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 2018 decreased $13 million as compared to the prior year. The decrease was due to the prior year reflecting the
resolution of one C&I loan which resulted in a significant charge-off during fiscal 2017.
The following tables present the nonperforming loans balance and total allowance for loan losses balance for the periods presented.
2018
September 30,
Nonperforming
loan balance
Allowance for
loan losses
balance
Loan category as
a % of total
loans receivable
Nonperforming
loan balance
2017
Allowance for
loan losses
balance
Loan category as
a % of total loans
receivable
40% $
1%
18%
6%
19%
15%
1%
100% $
5,221
$
(119,901)
—
—
—
33,749
—
—
38,970
0.23%
$
(1,421)
(41,749)
(6,381)
(16,691)
(4,299)
—
(190,442)
43%
1%
18%
6%
18%
14%
—
100%
$ in thousands
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Loans held for sale
Total
$
1,558
$
(123,395)
—
—
—
22,970
—
—
24,528
$
(3,168)
(46,811)
(8,544)
(16,886)
(3,946)
—
(202,750)
$
Total nonperforming loans as a
% of RJ Bank total loans
0.12%
69
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
Nonperforming
loan balance
2016
Allowance for
loan losses
balance
Loan category as
a % of total loans
receivable
Nonperforming
loan balance
2015
Allowance for
loan losses
balance
Loan category as
a % of total loans
receivable
September 30,
$
35,194
$
(137,701)
48% $
— $
(117,623)
—
4,230
—
41,783
—
—
(1,614)
(36,533)
(4,100)
(12,664)
(4,766)
—
1%
17%
5%
16%
12%
1%
—
4,796
—
47,823
—
—
(2,707)
(30,486)
(5,949)
(12,526)
(2,966)
—
$
81,207
$
(197,378)
100% $
52,619
$
(172,257)
52%
1%
16%
4%
15%
11%
1%
100%
$ in thousands
Loans held for investment:
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Loans held for sale
Total
Total nonperforming loans as a
% of RJ Bank total loans
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
Loans held for sale
Total
September 30,
2014
Allowance for
loan losses
balance
Loan category as
a % of total loans
receivable
Nonperforming
loan balance
$
— $
(103,179)
—
18,876
—
61,789
—
—
(1,594)
(25,022)
(1,380)
(14,350)
(2,049)
—
$
80,665
$
(147,574)
58%
1%
15%
1%
16%
9%
—
100%
Total nonperforming loans as a % of RJ Bank total loans
0.73%
The level of nonperforming loans is another indicator of potential future credit losses. The amount of nonperforming loans decreased
$14 million during the year ended September 30, 2018 primarily due to an $11 million decrease in nonperforming residential mortgage
loans. Included in nonperforming residential mortgage loans were $22 million in loans for which $11 million in charge-offs were
previously recorded, resulting in less exposure within the remaining balance.
The nonperforming loan balances above exclude $12 million, $14 million, $14 million, $15 million and $14 million as of September
30, 2018, 2017, 2016, 2015, and 2014, respectively, of residential troubled debt restructurings (“TDR”) which were returned to accrual
status in accordance with our policy. Total nonperforming assets, including other real estate acquired in the settlement of residential
mortgages, amounted to $28 million, $44 million, $86 million, $57 million and $86 million at as of September 30, 2018, 2017, 2016,
2015, and 2014, respectively. Total nonperforming assets as a percentage of RJ Bank total assets were 0.12%, 0.21%, 0.50%, 0.39%
and 0.69% at as of September 30, 2018, 2017, 2016, 2015, and 2014 respectively.
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, 2018, approximately 70% of the residential loans
were fully documented loans to industry standards and 96% of the residential mortgage loan portfolio consisted of owner-occupant
borrowers (78% for their primary residences and 18% for second home residences). Approximately 25% of the first lien residential
70
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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 15% of RJ Bank’s total loan portfolio as of September 30, 2018. 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
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 and loan policy exceptions. 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.
71
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
The following table presents a summary of delinquent residential mortgage loans, which are comprised of loans which are two or more
payments past due as well as loans in the process of foreclosure.
$ in thousands
September 30, 2018
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
Total residential mortgage loans
September 30, 2017
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
$
$
$
$
2,214
23
2,237
3,061
248
3,309
$
$
$
$
12,541
122
12,663
19,823
18
19,841
$
$
$
$
14,755
145
14,900
22,884
266
23,150
0.06%
0.09%
0.06%
0.10 %
0.91 %
0.10 %
0.33%
0.46%
0.33%
0.63 %
0.07 %
0.63 %
0.39%
0.55%
0.39%
0.73 %
0.98 %
0.73 %
At September 30, 2018, loans over 30 days delinquent (including nonperforming loans) decreased to 0.39% of residential mortgage
loans outstanding, compared to 0.73% over 30 days delinquent at September 30, 2017. Our September 30, 2018 percentage continues
to compare favorably to the national average for over 30 day delinquencies of 3.53%, 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.
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 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 following table details the geographic concentrations
(top five states) of RJ Bank’s one-to-four family residential mortgage loans.
September 30, 2018
September 30, 2017
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
NY
TX
CO
25.1%
17.2%
7.9%
7.8%
3.4%
4.8%
3.3%
1.5%
1.5%
0.6%
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%
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, 2018 and 2017, these loans totaled $992 million and $683 million, respectively, or approximately 25%
and 20% of the residential mortgage portfolio, respectively. The weighted average number of years before the remainder of the loans,
which were still in their interest-only period at September 30, 2018, begins amortizing is 6.6 years.
72
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
A component of credit risk management for the residential portfolio is the LTV ratio and borrower credit score at origination or purchase.
The following table details the most recent weighted-average LTV ratios and FICO scores at origination of RJ Bank’s residential first
mortgage loan portfolio.
Residential first mortgage loan weighted-average LTV/FICO
Corporate and tax-exempt loans
September 30, 2018
September 30, 2017
64%/763
65%/758
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 of 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, there were no corporate and tax-exempt loans that were delinquent greater than 30 days
at September 30, 2018.
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 following table details the industry concentrations (top five categories) of RJ Bank’s corporate
loans.
September 30, 2018
September 30, 2017
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
5.8%
5.1%
4.7%
4.6%
4.3%
3.8%
3.3%
3.1%
3.0%
2.8%
Office (real estate)
Retail real estate
Consumer products and services
Hospitality
Business systems and services
5.9%
5.3%
5.2%
4.7%
4.5%
4.0%
3.6%
3.5%
3.2%
3.1%
Office (real estate)
Hospitality
Business systems and services
Consumer products and services
Retail real estate
Liquidity risk
See the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and capital
resources” of this Form 10-K for 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 cybersecurity incidents. See Item 1A “Risk Factors” of this Form 10-K
for a discussion of certain cybersecurity 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.
73
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
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” of this Form 10-K, 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
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 material models used across the firm, and on-going monitoring. Results of validations
and issues identified are reported to the Enterprise Risk Management Committee and the 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.
Compliance risk
Compliance risk is the risk of legal or regulatory sanctions, financial loss, or reputational damage that we may suffer from a failure to
comply with applicable laws, external standards, or internal requirements. Our Compliance department plays a key leadership role in
the oversight, management, and mitigation of compliance risk throughout the firm, including through conducting an annual compliance
risk assessment and monitoring and testing activities, implementing policies, training associates on compliance-related topics, and
reporting compliance risk-related issues and metrics to the Board of Directors and senior management, among other activities.
Our Board of Directors oversees the firm’s management and mitigation of compliance risk, setting a culture that encourages ethical
conduct and compliance throughout the firm. Senior management communicates and reinforces this culture. Our first line of defense,
which includes all of our segments, is responsible for managing and mitigating compliance risk arising from its activities. The second
line of defense - which includes the Compliance, Legal, and Risk Management departments, including the Anti-Money Laundering
and Financial Crimes department - supports, oversees, and provides challenge to the first line of defense in its management and mitigation
of compliance risk. The third line of defense, Internal Audit, independently reviews activities conducted by the previous lines of defense
to assess their management and mitigation of compliance risk, providing additional assurance to the Board of Directors and senior
management with a view to enhancing our oversight, management, and mitigation of compliance risk.
The firm has a number of management-level committees through which compliance risk is overseen, managed, and mitigated. These
committees include the Anti-Money Laundering Oversight Committee, Compliance and Standards Committee, Compliance Risk and
Ethics Committee, Enterprise Risk Management Committee, Executive Committee, New Product Approval Committee, Operational
Risk Management Committee, and Supplier Risk Management Committee.
We have significantly increased the number of associates who are dedicated to managing and mitigating compliance risk, including
anti-money laundering-related matters. We have also invested in technology to improve our associates’ ability to monitor and detect
compliance risk, including suspicious activities. We will continue to devote significant resources to the expansion and support of the
firm’s framework for managing and mitigating compliance risk.
74
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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” of this
Form 10-K for our quantitative and qualitative disclosures about market risk.
75
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 assets and derivative liabilities
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 - Earnings per share
Note 23 - Segment information
Note 24 - Condensed financial information (parent company only)
Supplementary data
76
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77
78
79
80
81
83
83
102
104
113
115
118
119
125
126
128
128
131
132
133
134
136
140
141
142
146
149
149
151
155
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Raymond James Financial, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of Raymond James Financial, Inc. and subsidiaries
(the Company) as of September 30, 2018 and 2017, 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, 2018 and the related notes
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 2018 and 2017, and the results of its operations and its cash flows
for each of the years in the three-year period ended September 30, 2018, 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) (PCAOB),
the Company’s internal control over financial reporting as of September 30, 2018, 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 20, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2001.
Tampa, Florida
November 20, 2018
77
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
$ in thousands, except share amounts
Assets:
Cash and cash equivalents
Cash segregated pursuant to regulations
Securities purchased under agreements to resell
Securities borrowed
Financial instruments, at fair value:
Trading instruments (includes $464,528 and $357,099 pledged as collateral)
Available-for-sale securities (includes $19,672 and $- pledged as collateral)
Derivative assets
Private equity investments
Other investments (includes $25,503 and $6,640 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,
2018
2017
$
3,500,306
$
3,669,672
2,441,241
3,476,085
372,603
255,280
702,390
2,696,366
180,224
147,158
202,202
404,462
138,319
564,263
2,188,282
318,775
198,779
220,980
3,342,534
2,766,771
256,965
582,918
268,021
652,769
19,518,100
17,006,795
934,420
107,405
486,274
203,125
639,097
844,316
873,272
111,743
437,374
313,486
493,183
780,425
$
37,412,924
$
34,883,456
$
19,941,507
$
17,732,362
186,205
422,785
220,942
383,953
235,342
246,913
5,624,810
205,952
1,189,485
458,884
899,059
1,549,636
30,960,578
221,449
356,964
5,411,829
172,714
1,059,996
567,045
1,514,012
1,548,839
29,190,105
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; 156,363,615 and 154,228,235 shares issued as of September
30, 2018 and 2017, respectively. Shares outstanding of 145,642,437 and 144,096,521 as of September 30, 2018 and
2017, respectively
Additional paid-in capital
Retained earnings
Treasury stock, at cost; 10,693,026 and 10,084,038 common shares as of September 30, 2018 and 2017, respectively
Accumulated other comprehensive loss
Total equity attributable to Raymond James Financial, Inc.
Noncontrolling interests
Total equity
Total liabilities and equity
1,563
1,808,042
5,033,059
(447,274)
(26,929)
6,368,461
83,885
6,452,346
1,542
1,645,397
4,340,054
(390,081)
(15,199)
5,581,713
111,638
5,693,351
$
37,412,924
$
34,883,456
See accompanying Notes to Consolidated Financial Statements.
78
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 income
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
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/(loss) 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
Year ended September 30,
2018
2017
2016
$
4,483,040
$
4,020,910
$
3,498,615
440,811
605,634
1,043,993
771,012
56,722
74,609
7,475,821
(201,503)
7,274,318
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
4,795,375
4,228,387
3,624,607
365,879
201,943
181,470
92,388
20,481
3,927
—
307,978
5,969,441
1,304,877
453,960
850,917
(5,778)
856,695
5.89
5.75
145,271
148,838
$
$
$
310,961
190,737
154,926
78,656
12,987
17,995
45,746
279,746
167,455
148,413
59,930
28,167
40,706
—
402,724
5,443,119
244,096
4,593,120
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
$
$
$
Net income attributable to Raymond James Financial, Inc.
$
856,695
$
636,235
$
529,350
Other comprehensive income/(loss), net of tax:
Net change in unrealized gain/(loss) on available-for-sale securities and non-credit portion of other-
than-temporary impairment losses
Net change in unrealized gain/(loss) on currency translations, net of the impact of net investment
hedges
Net change in unrealized gain/(loss) on cash flow hedges
Total comprehensive income
(43,221)
(3,315)
34,806
1,684
15,618
23,232
$
844,965
$
676,769
$
(5,576)
2,179
(11,833)
514,120
See accompanying Notes to Consolidated Financial Statements.
79
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 from share-based payments (1)
Other
Balance end of year
Retained earnings:
Balance beginning of year
Net income attributable to Raymond James Financial, Inc.
Cash dividends declared
Other
Balance end of year
Treasury stock:
Balance beginning of year
Purchases/surrenders
Exercise of stock options and vesting of restricted stock units, net of forfeitures
Balance end of year
Accumulated other comprehensive loss:
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 unrealized gain/(loss) on currency translations, net of the impact of net investment hedges,
net of tax
Net change in unrealized gain on cash flow hedges, net of tax
Balance end of year
Year ended September 30,
2018
2017
2016
$
1,542 $
21
1,563
1,513 $
29
1,542
1,491
22
1,513
1,645,397
31,134
32,086
98,048
—
1,377
1,808,042
1,498,921
26,277
28,258
90,748
—
1,193
1,645,397
1,344,779
28,025
16,470
73,871
35,121
655
1,498,921
4,340,054
856,695
(163,501)
3,834,781
636,235
(130,643)
3,422,169
529,350
(116,738)
(189)
(319)
—
5,033,059
4,340,054
3,834,781
(390,081)
(362,937)
(45,228)
(11,965)
(9,404)
(17,740)
(447,274)
(390,081)
(203,455)
(153,137)
(6,345)
(362,937)
(15,199)
(55,733)
(40,503)
(43,221)
1,684
(5,576)
(3,315)
34,806
(26,929)
15,618
23,232
(15,199)
2,179
(11,833)
(55,733)
Total equity attributable to Raymond James Financial, Inc.
$
6,368,461
$
5,581,713
$
4,916,545
Noncontrolling interests:
Balance beginning of year
Net income attributable to noncontrolling interests
Capital contributions
Distributions
Derecognition resulting from sales
Other
Balance end of year
Total equity
$
111,638
$
146,431
$
154,454
(5,778)
—
(21,904)
—
(71)
83,885
2,632
9,775
(43,568)
(4,649)
1,017
111,638
11,301
917
(18,312)
—
(1,929)
146,431
$
6,452,346 $
5,693,351 $
5,062,976
(1) During the year ended September 30, 2017, we adopted new stock compensation simplification guidance. See Note 16 for additional information.
See accompanying Notes to Consolidated Financial Statements.
80
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/(loss) attributable to noncontrolling interests
Net income including noncontrolling interests
Adjustments to reconcile net income including noncontrolling interests to net cash provided by/(used in)
operating activities:
Depreciation and amortization
Deferred income taxes
Premium and discount amortization on available-for-sale securities and (gain)/loss on other investments
Provisions for loan losses, legal and regulatory proceedings and bad debts
Share-based compensation expense
Compensation expense/(benefit) payable in common stock of an acquiree
Unrealized gain on company-owned life insurance policies, net of expenses
Losses on extinguishment of debt
Other
Net change in:
Year ended September 30,
2018
2017
2016
$
856,695
$
636,235
$
529,350
(5,778)
850,917
2,632
638,867
11,301
540,651
98,735
116,549
21,058
54,683
103,054
(3,568)
(31,932)
—
24,847
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
Cash segregated pursuant to regulations
1,019,096
1,430,898
(1,942,429)
Securities purchased under agreements to resell, 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
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held
for sale
Jay Peak matter payments
(5,417)
(78,346)
(83,177)
(522,372)
(142,597)
72,932
27,371
345,996
131,569
(96,071)
—
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)
(101,155)
(4,500)
(573,318)
Net cash provided by/(used in) operating activities
1,903,327
1,305,936
Cash flows from investing activities:
Additions to property and equipment
Increase in bank loans, net
Proceeds from sales of loans held for investment
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)
(133,586)
(189,994)
(121,733)
(2,818,434)
(2,253,574)
(2,400,247)
193,157
333,130
(1,124,203)
(1,732,790)
495,465
45,449
(159,200)
25,438
299,343
93,774
—
74,041
197,557
(463,202)
95,961
11,062
(175,283)
(62,018)
(3,475,914)
(3,376,070)
(2,917,903)
See accompanying Notes to Consolidated Financial Statements.
81
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued from previous page)
$ in thousands
Cash flows from financing activities:
Proceeds from borrowings on the RJF Credit Facility
Repayment of borrowings on the RJF Credit Facility
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 (paid)/received, net
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, net
Year ended September 30,
2018
2017
2016
300,000
(300,000)
(610,000)
850,000
(854,952)
—
—
—
(6,888)
63,347
—
—
610,000
950,000
(654,647)
508,473
(650,000)
(36,892)
2,992
57,462
—
—
(115,000)
25,000
(4,407)
792,221
(250,000)
—
—
43,331
2,209,145
3,469,815
2,342,666
(61,971)
(151,336)
(17,163)
(34,055)
(127,202)
(31,383)
(162,502)
(113,435)
(17,395)
1,420,182
4,064,563
2,540,479
(16,961)
(169,366)
3,669,672
24,791
2,019,220
1,650,452
188
(950,554)
2,601,006
$
3,500,306
$
3,669,672
$
1,650,452
$
$
200,928
231,136
$
$
155,984
349,009
$
$
113,517
303,793
See accompanying Notes to Consolidated Financial Statements.
82
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Organization
Raymond James Financial, Inc. (“RJF,” the “firm” or the “Company”) is a financial holding company which, together with its
subsidiaries, is engaged in various financial services activities, including providing investment management services for retail and
institutional clients, the underwriting, distribution, trading and brokerage of equity and debt securities and the sale of mutual funds and
other investment products. The firm also provides corporate and retail banking services, and trust services. For further information
about our business segments, see Note 23 of this Form 10-K. As used herein, the terms “our,” “we,” or “us” refer to RJF and/or one
or more of its subsidiaries.
Basis of presentation
The accompanying consolidated financial statements include the accounts of RJF and its consolidated subsidiaries that are generally
controlled through a majority voting interest. We consolidate all of our 100% owned subsidiaries. In addition, we consolidate any
variable interest entity (“VIE”) in which we are the primary beneficiary. Additional information on these VIEs is provided in Note 2
and in Note 10. 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.
Reclassifications
Certain prior period amounts have 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.
83
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. Trailing commissions from mutual funds and variable annuities/insurance products, which are recorded over the period earned.
d.
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.
e. 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 and private placements. 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. Investment
banking revenues also include syndication fees on the sale of low income housing tax credit fund interests.
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 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, servicing
fees and fees generated from unaffiliated banks related to our Raymond James Bank Deposit Program (“RJBDP”), a multi-bank sweep
program. Transaction fees are earned and collected from clients as trades are executed. Annual account fees such as IRA fees and
distribution fees are recognized as earned over the term of the contract. Fees related to RJBDP and servicing fees, such as omnibus
and education and marketing support fees paid to us for marketing and administrative services provided to mutual fund and insurance/
annuity companies, are recognized as earned.
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.
84
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Cash segregated pursuant to regulations
In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Raymond James & Associates, Inc. (“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. The amounts included in Cash segregated pursuant to regulations in our consolidated statements
of financial condition represented the amounts of cash actually on deposit in our segregated reserve accounts for regulatory purposes
as of each respective period-end. In addition, Raymond James Ltd. (“RJ Ltd.”) is required to hold client Registered Retirement Savings
Plan funds in trust. Raymond James Bank, N.A. (“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.
Securities purchased under agreements to resell and securities sold under agreements to repurchase
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 under repurchase
agreements, we receive collateral with a fair value equal to or in excess of the principal amount loaned under such 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. In addition, under repurchase agreements, we are required to post
collateral in an amount that exceeds the carrying value of these agreements. In the event that the market value of the securities we
pledge as collateral declines, we may have to post additional collateral or reduce borrowing amounts. See Note 7 for additional
information regarding collateralized agreements and financings.
Securities borrowed and securities loaned
We act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from one broker-dealer
and then either lend them to another broker-dealer or use them to cover short positions. Where permitted, we have also loaned, to
broker-dealers and other financial institutions, securities owned by the firm or our clients and others we have received as collateral.
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 collateral agreements and financings.
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.
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).
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.
These instruments are generally valued using discounted cash flow techniques, market multiples, or investment-specific events.
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
85
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 values for certain of our financial instruments are 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 and auction-rate
securities (“ARS”), to be uncertain or inactive as of both September 30, 2018 and 2017. As a result, the valuation of these financial
instruments included 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 low volume of
trades, 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:
Trading instruments and trading instruments sold but not yet purchased - Trading instruments and trading instruments sold but
not yet purchased are comprised primarily of the financial instruments held by our broker-dealer subsidiaries and include debt securities,
equity securities, brokered certificates of deposit, and other securities. These instruments are recorded at fair value with realized and
unrealized gains and losses reflected in current period net income.
When available, we use quoted prices in active markets to determine the fair value of our trading instruments. Such instruments are
classified within Level 1 of the fair value hierarchy.
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. Securities valued using these techniques are classified within Level 2 of the fair value hierarchy.
Included within trading instruments are to be announced (“TBA”) security contracts with investors for generic mortgage backed
securities (“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.
Available-for-sale securities - Available-for-sale securities are generally classified at the date of purchase and are comprised primarily
of agency MBS and collateralized mortgage obligations (“CMOs”) held by RJ Bank. 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.
86
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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) (“OCI”) 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. 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 have the ability and intent 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 (“OTTI”) 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 do not consider these securities (MBS and CMOs) OTTI due to the guarantee of the full payment of principal and interest, and the
fact that we have the ability and intent to hold these securities. We estimate the portion of loss attributable to credit using a discounted
cash flow model.
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.
We also hold ARS which 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 valuation techniques use unobservable inputs 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
enforceable master netting agreement and, therefore, the fair value of those derivative contracts are netted by counterparty in our
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.
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. Any realized or unrealized gains or losses, including interest, are recorded in “Net trading
profit” within our Consolidated Statements of Income and Comprehensive Income. The fair value of these interest rate derivative
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Notes to Consolidated Financial Statements
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 in which Raymond James Financial Products, Inc. (“RJFP”),
a wholly owned subsidiary, enters into interest rate derivative transactions with clients. For every derivative transaction RJFP enters
into with a client, it also 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. 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 derivative, there is no net impact in 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 in our Consolidated Statements of Income and Comprehensive Income.
RJ Bank derivatives: We enter into three-month forward foreign exchange contracts to hedge the risks related to RJ Bank’s investment
in their Canadian subsidiary, as well as their risk due to holdings of cash and other assets and liabilities resulting from transactions
denominated in currencies other than the U.S. dollar. The majority of these derivatives are designated as net investment hedges. 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 are recorded in earnings in our 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 and measured using the hypothetical derivatives method. As the terms of the hedging instrument
and hypothetical derivative generally match at inception, the hedge is expected to be highly effective.
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 Federal Home Loan Bank of Atlanta (“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 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 the hedged borrowings. Hedge effectiveness is assessed at inception and at each reporting period utilizing regression
analysis. As the key terms of the hedging instrument and hedged transaction match at inception, management expects the hedges to
be effective while they are outstanding. The fair value of these interest rate hedges is determined by obtaining valuations from a third-
party pricing service. These third-party valuations are based on observable inputs such as time value and yield curve. We validate these
observable inputs by preparing an independent calculation using a secondary third-party model. We classify these derivative instruments
within Level 2 of the fair value hierarchy.
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
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Notes to Consolidated Financial Statements
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 private equity funds which we sponsor. The private equity 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 plans, term deposits with Canadian financial institutions, and securities pledged as collateral with clearing
organizations.
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, which is 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. An
allowance is established when collectability is not reasonably assured. When the receivable from a brokerage client 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” at their outstanding principal balance on our Consolidated Statements of Financial Condition, net
of any allowance for doubtful accounts. Our allowance for doubtful accounts was insignificant at both September 30, 2018 and 2017.
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Notes to Consolidated Financial Statements
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 any allowance for doubtful accounts.
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 loan 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 account 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 sell 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” on our Consolidated Statements of Income and
Comprehensive Income. 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, which 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.
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 our Consolidated Statements
of Income and Comprehensive Income, while interest collected on these assets is included in “Interest income.” Net unrealized losses
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Notes to Consolidated Financial Statements
are recognized through a valuation allowance by charges to income as a component of “Other” revenues in our 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 our 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 other real estate owned (“OREO”).
Nonperforming loans represent those loans which have been placed on nonaccrual status and loans which have been restructured in a
manner that grant a concession to a borrower experiencing financial difficulties we would not otherwise consider. Loans structured
as described above are deemed to be a troubled 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 our Consolidated
Statements of Financial Condition. These nonrecurring fair value measurements are classified within Level 2 of the fair value hierarchy.
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
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.
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Notes to Consolidated Financial Statements
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:
•
•
•
•
•
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; and
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. These homogeneous classes
are a result of management’s disaggregation of the loan portfolio and are comprised of the previously mentioned classes: C&I, CRE,
CRE construction, tax-exempt, residential first mortgage, residential home equity, and SBL.
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. The 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. For all loan classes
except for CRE loans, we assign each loan grade an allowance percentage based on the estimated incurred loss associated with that
grade. The allowance for loan losses for all non-impaired loans within those loan classes is then calculated based on the allowance
percentage assigned to the respective loan’s class and grade factoring in the respective loss emergence period. For the CRE loan class,
the allowance for loan losses is calculated based on the allowance percentage assigned to each loan. The allowance for loan losses for
all impaired loans and those nonaccrual residential first 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 loan grades and allowance percentages to 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 a 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.
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.
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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, loan-to-value (“LTV”) ratios, as well as 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 funding expectations. All classes
of impaired loans which have unfunded lending commitments are analyzed in conjunction with the impaired allowance process described
above.
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 that 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 meet regularly 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.
and Canada. The SNCs are U.S. loan syndications totaling over $100 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 the 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 as of the exam date. Any classification changes as a result of the review may impact our allowance for loan losses and charge-
offs during the quarter that the SNC information is received from the OCC; however, these differences in the 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 examinations.
Every residential mortgage loan over 60 days past due is reviewed regularly and documented in a written report detailing delinquency
information, balances, collection status, current valuation estimate and other data points. RJ Bank senior management meets regularly
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
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.
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. 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 $20 million and $22 million at September 30, 2018 and 2017,
respectively. Our allowance for doubtful accounts was approximately $8 million at both September 30, 2018 and 2017.
Other assets
We carry investments in stock of the FHLB and the Federal Reserve Bank (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 our 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 Low-Income Housing Tax Credit (“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, net
Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation of
assets (other than land) is primarily calculated using the straight-line method over the estimated useful lives of the assets outlined in
the following table.
Asset type
Buildings, buildings & land improvements and building components
Furniture, fixtures and equipment
Software
Leasehold improvements
Estimated useful life
10 to 31 years
3 to 5 years
2 to 10 years
Lesser of useful life or lease term
Depreciation expense associated with property, equipment and leasehold improvements is included in “Occupancy and equipment
costs” in our Consolidated Statements of Income and Comprehensive Income. Amortization expense associated with computer software
is included in “Communications and information processing” expense in our Consolidated Statements of Income and Comprehensive
Income.
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
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 our Consolidated Statements of Income and Comprehensive Income in the period realized.
Intangible assets, net
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 our Consolidated Statements
of Income and Comprehensive Income.
We also hold indefinite-lived intangible assets, which are not amortized under GAAP. Rather, these assets are subject to an evaluation
of potential impairment on an annual basis to determine whether the estimated fair value is in excess of its carrying value, or more
often if events or circumstances indicate there may be impairment. In the course of our evaluation of the potential impairment of such
indefinite-lived assets, we may perform either a qualitative or a quantitative assessment. If after assessing the totality of events or
circumstances, we determine it is more likely than not that the fair value is greater than its carrying amount, we are not required to
perform a quantitative analysis. However, if we conclude otherwise, we then perform a quantitative impairment analysis. We have
elected January 1 as our annual impairment evaluation date, evaluating balances as of December 31. See Note 12 for additional
information regarding the outcome of our impairment assessment.
Goodwill
Goodwill represents the cost of acquired businesses in excess of the fair value of the related net assets acquired. Indefinite-life intangible
assets such as goodwill are not amortized under GAAP. 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, which is generally at the level of or one level below our business segments, 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 with which the goodwill is associated 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
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
each accounting period and the liability balance is adjusted as deemed appropriate by management. Any change in the liability amount
is recorded in our 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 fair value estimated at reporting dates until
vesting, with changes in the fair value included in compensation expense. 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 subsection 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 for further discussion of these
assets. For other such plans, including our Long Term Incentive Plan (“LTIP”) and our Wealth Accumulation Plan (“WAP”), we
purchase and hold company-owned life insurance policies 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 policies 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
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 our 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 our Consolidated Statements of Income
and Comprehensive Income at the time such abandonment is known and any loss is estimable.
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 in certain cases, 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 OCI 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 our 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.
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Restricted Stock Trust Fund - We utilize a trust in connection with certain of our restricted stock unit (“RSU”) 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 RSUs granted
as a retention vehicle for certain employees of our Canadian subsidiaries. We are deemed to be the primary beneficiary and, accordingly,
consolidate this trust fund.
LIHTC funds - RJTCF is the managing member or general partner in a number of LIHTC funds having one or more investor members
or limited partners. These LIHTC 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 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 consolidate 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 - We are 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.
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 funds and,
therefore, our affiliate as the managing member of the NMTC funds 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
Accounting guidance recently adopted
Income Taxes - In March 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-05, which amended income
tax accounting guidance to include guidance issued by the Securities and Exchange Commission (“SEC”) related to the implementation
of the Tax Cuts and Jobs Act (the “Tax Act”), which we applied during our first fiscal quarter of 2018 when it was issued by the SEC.
See Note 16 for more information.
Reclassification of certain tax effects from AOCI - In February 2018, the FASB issued guidance (ASU 2018-02) allowing companies
to reclassify to retained earnings the tax effects related to items within AOCI that the FASB refers to as having been stranded as a result
of the Tax Act. We early adopted this amended guidance on January 1, 2018 on a modified retrospective approach. The amount
reclassified from AOCI to retained earnings related to the Tax Act was insignificant.
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 presented 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 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 early-adopted
this new guidance on April 1, 2018 and the adoption had no effect on our financial position and results of operations.
Fair Value - In August 2018, the FASB issued guidance (ASU No. 2018-13), which modifies the disclosure requirements for fair value
measurements by removing, modifying, or adding certain disclosures. We early adopted this amended guidance as of September 30,
2018. See Note 4 for more information.
Accounting guidance not yet adopted as of September 30, 2018
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, will be effective for us beginning October 1, 2018 and will be adopted using a modified retrospective
approach. Adoption will have no effect on our net results of operations or financial position. Beginning with our 2019 fiscal year, we
will change the presentation of certain costs from a net presentation within revenues to a gross presentation, particularly related to
merger & acquisitions advisory and underwriting transactions and certain administrative costs related to our multi-bank sweep program.
The income statement gross up as a result of these changes will depend on activity after adoption but will have no impact on our net
earnings. We believe there will be no material changes in timing of revenues recognized associated with the adoption. We will make
changes to certain disclosures related to revenues as required by the new guidance. In addition, we have re-evaluated our classifications
of revenue by financial statement line item and will be reclassifying certain revenues between income statement line items and renaming
certain line items. We believe that these reclassifications will better align with the performance obligations identified under the new
guidance and will make our financial statements more comparable with others in our industry. These reclassifications have no impact
on the amount of revenue recognized.
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RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Financial instruments - In January 2016, the FASB issued new guidance related to the accounting for financial instruments (ASU
2016-01). Among its provisions, including subsequent amendments, 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 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.
This new guidance, including subsequent amendments, is effective 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. Upon adoption, our investments in equity securities classified as available-for-sale prior to the adoption
date will be accounted for at fair value with unrealized gains/(losses) reflected in earnings. Previously, such unrealized gains/(losses)
were reflected in OCI. Upon adoption on October 1, 2018 we do not expect this new guidance to have a material impact 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 with terms greater than twelve months, 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. This new guidance, including subsequent amendments,
is first effective for our fiscal year beginning on October 1, 2019. Although permitted, we do not plan to early adopt. Upon adoption,
we will use a modified retrospective approach, with a cumulative effect adjustment to opening retained earnings. Our implementation
efforts include reviewing existing leases and service contracts, which may include embedded leases. We are in the process of identifying
changes to our business processes, systems and controls to support adoption of the new guidance. This new guidance will impact our
financial position and results of operations. We are evaluating the magnitude of such impact.
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. This 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, distributions received from equity method investees, beneficial
interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. This
amended guidance is first effective for our fiscal year beginning October 1, 2018 and will be adopted under a retrospective approach.
100
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Upon adoption on October 1, 2018, this new guidance will impact our Consolidated Statement of Cash Flows and will not have an
impact on our financial position and results of operations.
Statement of Cash Flows (restricted cash) - In November 2016, the FASB issued new 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. This guidance is first effective for our fiscal year beginning October 1, 2018 and
will be adopted under a retrospective approach. Upon adoption on October 1, 2018, this new guidance will impact our Consolidated
Statement of Cash Flows but will not have an impact on our financial position and results of operations.
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. This guidance is first effective for
our fiscal year beginning October 1, 2018 and will be adopted on a prospective basis. The impact of the adoption of this amended
guidance is dependent upon acquisition and disposal activities subsequent to the date of adoption.
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 this
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. This guidance is first effective for our fiscal year beginning October 1, 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 plan to
early-adopt this guidance on January 1, 2019, our next goodwill impairment test date.
Callable debt securities - In March 2017, the FASB issued new 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 and will be adopted using a modified 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.
Share-based payment awards (modifications) - 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. This amended guidance is first effective for
our fiscal year beginning October 1, 2018 and will be adopted on a prospective basis. We generally do not modify our share-based
payments awards. Upon adoption on October 1, 2018, we do not expect this new guidance to have a material impact on our financial
position and results of operations.
Share-based payment awards (nonemployee) - In June 2018, the FASB issued amended guidance that aligns the measurement and
classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with
certain exceptions (ASU 2018-07). The amended guidance states an entity should measure the fair value of the award by estimating
the fair value of the equity instruments to be issued and, for equity-classified awards, the fair value should be measured on the grant
date. The amended guidance also clarifies that nonemployee awards that contain a performance condition are to be measured based on
the outcome that is probable and that entities may elect, on an award-by-award basis, to use the expected term or the contractual term
to measure the award. This amended guidance is first effective for our fiscal year beginning October 1, 2019 and will be adopted using
a modified retrospective approach with a cumulative adjustment to retained earnings. We plan to early adopt this new standard on
October 1, 2018. We do not expect this new guidance to have a material impact on our financial position and results of operations.
Internal use software (cloud computing) - In August 2018, the FASB guidance that issued guidance on the accounting for
implementation costs incurred by customers in cloud computing arrangements (ASU 2018-15). This guidance requires implementation
costs incurred by customers in cloud computing arrangements to be deferred over the non-cancellable term of the cloud computing
101
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise
of the renewal option is controlled by the cloud service provider. This amended guidance is first effective for our fiscal year beginning
on October 1, 2020 with early adoption permitted. The guidance may be adopted either using the prospective or retrospective approach.
We are currently evaluating the impact of this new guidance on our financial position and results of operations.
NOTE 3 – ACQUISITIONS
Acquisitions completed during fiscal year 2018
In November 2017, we completed our acquisition of 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, broadened the investment solutions available to our clients and has been
integrated into our Asset Management segment. For purposes of certain acquisition-related financial reporting requirements, the Scout
Group acquisition was not considered a material acquisition. We accounted for this acquisition under the acquisition method of
accounting with the assets and liabilities of the Scout Group recorded as of the acquisition date at their respective fair values in our
consolidated financial statements. The Scout Group’s results of operations have been included in our results prospectively from
November 17, 2017.
Acquisitions completed in prior fiscal years
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 is included in our Capital Markets segment. For
purposes of certain acquisition-related financial reporting requirements, the Mummert acquisition was not considered a material
acquisition. Mummert’s results of operations have been included in our results prospectively from June 1, 2016.
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. 3Macs is included in our Private Client Group (“PCG”) segment. For purposes
of certain acquisition-related financial reporting requirements, the 3Macs acquisition was not considered a material acquisition. 3Macs
results of operations have been included in our results prospectively from August 31, 2016.
U.S. Private Client Services unit of Deutsche Bank (“Alex. Brown”)
In September 2016, we completed our acquisition of certain specified assets and the assumption of certain specified liabilities of Alex.
Brown from Deutsche Bank Securities, Inc. Alex. Brown is included in our PCG segment. For purposes of certain acquisition-related
financial reporting requirements, the Alex. Brown acquisition was not considered a material acquisition. 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. We hold DB
common shares as an economic hedge to the DBRSU liability. See Note 2, Note 6 and Note 20 for further information on the DBRSU
obligation assumed as part of this acquisition.
102
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 years
ended September 30, 2018, 2017 and 2016 pertain to certain incremental expenses incurred in connection with the acquisitions previously
described.
The following table presents a summary of acquisition-related expenses incurred in each respective period.
$ in thousands
Legal and regulatory
Severance
Information systems integration costs
Acquisition and integration-related incentive compensation costs
Early termination costs of assumed contracts
Post-closing purchase price contingency
DBRSU obligation and related hedge
All other
Total acquisition-related expenses
Year ended September 30,
2018
2017
2016
$
2,281
$
990
162
—
—
—
—
494
$
3,192
5,859
1,380
5,474
1,329
(3,345)
770
3,336
$
3,927
$
17,995
$
8,334
866
21,752
—
—
—
4,837
4,917
40,706
103
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. For further information about such instruments and our significant accounting
policies related to fair value, see Note 2.
The following tables present 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. Bank loans held for sale measured at fair value on a nonrecurring basis
are recorded at a fair value lower than cost.
$ 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,
2018
Municipal and provincial obligations
$
1,206
$
247,712
$
— $
— $
Corporate obligations
Government and agency obligations
Agency MBS and CMOs
Non-agency CMOs and asset-backed securities (“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
Total available-for-sale securities
Derivative assets
Interest rate contracts
Matched book
Other
Foreign exchange contracts
Total derivative assets
Private equity investments
Not measured at NAV
Measured at NAV
Total private equity investments
Other investments
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
Total bank loans, net
Other assets: OREO
Total assets at fair value on a nonrecurring basis
$
$
$
10,184
18,660
2,745
—
32,795
15,335
—
23
48,153
—
942
—
942
—
—
—
—
—
—
200,786
99,938
71,854
124,188
68,712
612,404
130
38,616
2,005
653,155
2,628,739
—
—
2,628,739
160,345
74,068
1,141
235,554
—
—
618
—
—
—
4
4
—
—
1,078
1,082
—
—
66,685
66,685
—
—
—
—
55,923
55,923
798
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(55,330)
—
(55,330)
—
—
—
248,918
110,122
90,514
126,933
68,716
645,203
15,465
38,616
3,106
702,390
2,628,739
942
66,685
2,696,366
160,345
18,738
1,141
180,224
55,923
91,235
147,158
202,202
249,881
$
3,518,066
$
124,488
$
(55,330) $
3,928,340
— $
9,661
$
18,634 $
— $
—
—
—
40,015
49,676
575
—
18,634
—
—
—
—
— $
50,251
$
18,634 $
— $
28,295
40,015
68,310
575
68,885
(continued on next page)
104
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued from previous page)
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,
2018
$ in thousands
Liabilities at fair value on a recurring basis:
Trading instruments sold but not yet purchased
Municipal and provincial obligations
$
30
$
1,133
$
— $
— $
Corporate obligations
Government obligations
Agency MBS and CMOs
Non-agency MBS and CMOs
Total debt securities
Equity securities
Other
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
1,597
194,476
71
—
196,174
5,525
3
201,702
—
—
—
—
—
24,776
—
—
993
26,902
153
—
27,055
160,345
113,392
4,449
15,580
293,766
—
—
—
—
—
—
6,585
6,585
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(46,853)
—
—
(46,853)
Total liabilities at fair value on a recurring basis
$
201,702
$
320,821
$
6,585
$
(46,853) $
1,163
26,373
194,476
71
993
223,076
5,678
6,588
235,342
160,345
66,539
4,449
15,580
246,913
482,255
105
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,
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
Total available-for-sale securities
Derivative assets
Interest rate contracts
Matched book
Other
Foreign exchange contracts
Total derivative assets
Private equity investments
Not measured at NAV
Measured at NAV
Total private equity investments
Other investments
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
Total bank loans, net
Other assets: OREO
Total assets at fair value on a nonrecurring basis
$
$
$
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
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
254,177
$
2,981,745
$
200,991
$
(55,728) $
3,491,079
— $
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)
106
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)
(continued from previous page)
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
Total liabilities at fair value on a recurring basis
$
1,286
167,622
2,477
—
171,689
8,118
179,807
—
—
—
—
—
179,807
$
35,272
—
—
5,028
40,300
1,342
41,642
288,035
101,893
646
25,800
416,374
458,016
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(59,410)
—
—
$
—
— $
(59,410)
(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
107
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Level 3 recurring fair value measurements
The following tables present 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 may include changes in fair value that were attributable to both observable and
unobservable inputs. In the tables below, gains/(losses) on trading instruments are reported in “Net trading profit,” gains/(losses) on
private equity and other investments are reported in “Other” revenues, and gains/(losses) on available-for-sale securities are reported
in either “Other” revenues (when included in earnings) or “Other comprehensive income” in our Consolidated Statements of Income
and Comprehensive Income.
Year ended September 30, 2018
Level 3 instruments at fair value
Trading instruments
Financial assets
Available-for-
sale securities
Private equity and other
investments
Financial
liabilities
Trading
instruments
Non-agency
CMOs and
ABS
Other
ARS -
preferred
Private equity
investments
Other
investments
Other
$
5
$
5,594
$
106,171
$
88,885 $
336
$
—
—
—
—
—
(1)
—
—
4
(2,607)
—
82,060
(83,969)
—
—
—
4,684
1,279
—
(4,847)
—
—
(45,449)
(28,115)
—
—
—
—
—
—
(91)
—
762
(209)
—
—
—
(1,521)
—
2,199
(7,263)
—
—
—
$
1,078
$
66,685
$
55,923 $
798
$
(6,585)
— $
(315) $
— $
(16,068) $
(300) $
(1,521)
— $
— $
3,132
$
— $
— $
—
$
$
$
$ 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
Unrealized gains/(losses) for the year
included in earnings for instruments held at
the end of the year
Unrealized gains/(losses) for the year
included in other comprehensive income
for instruments held at the end of the year
108
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Year ended September 30, 2017
Level 3 instruments at fair value
$ 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
Unrealized gains/(losses) for the year
included in earnings for instruments held at
the end of the year
Unrealized gains/(losses) for the year
included in other comprehensive income
for instruments held at the end of the year
$
$
$
$
Available-for-sale securities
Private equity and other
investments
Non-agency
CMOs and
ABS
Other
ARS –
municipal
obligations
ARS -
preferred
Private equity
investments
Other
investments
7
1
—
—
—
(3)
—
—
5
$
6,020
$
25,147
$
100,018
$
83,165
$
(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
$
1
$
(1,626) $
— $
— $
8,331
$
— $
— $
— $
7,705
$
— $
441
118
—
217
(245)
—
—
(195)
336
118
—
As of both September 30, 2018 and September 30, 2017, 10% of our assets and 2% of our liabilities were 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, 2018
and September 30, 2017 represented 3% and 6% of our assets measured at fair value, respectively. Level 3 instruments as a percentage
of total financial instruments decreased as compared to September 30, 2017, due to the sale of Level 3 ARS and private equity investments
during the year ended September 30, 2018, as well as the increase in total assets measured at fair value since September 30, 2017.
Quantitative information about level 3 fair value measurements
The following tables present 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. Weighted averages are calculated by weighting each input by the relative fair value of the related financial
instrument.
Level 3 financial instrument
$ in thousands
Fair value at
September 30, 2018
Valuation technique(s)
Unobservable input
Range
(weighted-average)
Recurring measurements
ARS preferred
Private equity investments
(not measured at NAV)
Nonrecurring measurements
Bank loans: impaired loans -
residential
Bank loans: impaired loans -
corporate
$
$
$
$
$
66,685
Discounted cash flow
Average discount rate
6.50% - 7.85% (7.13%)
43,012
Income approach - Discounted
cash flow
12,911
Transaction price or other
investment-specific events(3)
Average interest rates applicable to
future interest income
on the securities (1)
Prepayment year (2)
Discount rate
Terminal EBITDA Multiple
4.13% - 5.51% (4.47%)
2018 - 2021 (2021)
25%
10.0x
Terminal year
Not meaningful (3)
2022 - 2042 (2023)
Not meaningful (3)
17,076
1,558
Discounted cash flow
Prepayment rate
7 yrs. - 12 yrs. (10.5 yrs.)
Collateral or discounted cash
flow value(4)
Not meaningful (4)
Not meaningful (4)
The text of the footnotes in the preceding table are on the following page.
109
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Level 3 financial instrument
$ in thousands
Fair value at
September 30, 2017
Valuation technique(s)
Unobservable input
Range
(weighted-average)
Recurring measurements
ARS preferred
Private equity investments
(not measured at NAV)
Nonrecurring measurements
Bank loans: impaired loans -
residential
Bank loans: impaired loans -
corporate
$
$
$
$
$
106,171
Discounted cash flow
Average discount rate
5.46% - 6.81% (6.03%)
68,454
Income or market approach
Scenario 1 - income approach -
discounted cash flow
Scenario 2 - market approach -
market multiple method
20,431
Transaction price or other
investment-specific events (3)
Average interest rates applicable to
future interest income
on the securities (1)
Prepayment year (2)
2.58% - 3.44% (2.72%)
2017 - 2021 (2021)
Discount rate
13% - 25% (22.4%)
Terminal growth rate of cash flows
3% - 3% (3%)
Terminal year
2020 - 2042 (2021)
EBITDA Multiple
5.25x - 7x (5.8x)
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)
(1)
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 investments are valued initially at transaction price and updated as other investment-specific events take place which indicate that a change in the carrying
values of these investments is appropriate. Other investment-specific events include such events as our periodic review, significant transactions occur, new
developments become known, or we receive information from a fund manager which allows us to update our proportionate share of net assets.
(4) The valuation techniques used for the impaired corporate loan portfolio are appraisals or collateral value less selling costs for the collateral dependent loans and
discounted cash flows for impaired loans that are not collateral dependent.
Qualitative disclosure about unobservable inputs
For our recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value
measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs are described in
the following sections.
ARS preferred
The future interest rate and prepayment assumptions impacting the valuation of the auction rate securities are directly related. As short-
term interest rates rise, the penalty interest rates, which are embedded in most of these securities in the event auctions fail to set the
security’s interest rate, also increase. As penalty interest rates rise, we estimate that issuers of the securities will have the economic
incentive to refinance (and thus prepay) the securities. As such, increases in the interest rate, which would generally result in an earlier
prepayment assumption, would have increased the fair value of the securities. Increases in the discount rate would have resulted in a
lower fair value of the securities.
Private equity investments
The significant unobservable inputs used in the fair value measurement of private equity investments generally 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. Increases in the discount rate and/or a later terminal year would have resulted in a lower fair value measurement. Increases
in the terminal EBITDA multiple would have resulted in a higher fair value measurement.
110
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Investments in private equity measured at net asset value per share
As more fully described in Note 2, as a practical expedient, we utilize NAV or its equivalent to determine the recorded value of a portion
of our private equity investments 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, 2018 included various direct investments, as well as investments in third-party private
equity funds and various private equity funds which we sponsor. The portfolio is primarily invested in a broad range of industries
including leveraged buyouts, growth capital, distressed capital, venture capital and mezzanine capital. Due to the closed-end nature
of certain of our fund investments, such investments cannot be redeemed directly with the funds. Our investment is monetized through
distributions received through the liquidation of the underlying assets of those funds, the timing of which is uncertain.
The following table presents the recorded value and unfunded commitments related to our private equity investments portfolio.
$ in thousands
September 30, 2018
Private equity investments measured at NAV
Private equity investments not measured at NAV
Total private equity investments
September 30, 2017
Private equity investments measured at NAV
Private equity investments not measured at NAV
Total private equity investments
Recorded value
Unfunded
commitment
$
$
$
$
91,235
$
18,418
55,923
147,158
109,894
$
20,973
88,885
198,779
Of the total private equity investments, the portions we owned were $103 million and $145 million as of September 30, 2018 and 2017,
respectively. The portions of the private equity investments we did not own were $44 million and $54 million as of September 30, 2018
and 2017, respectively, and were included as a component of noncontrolling interests in our Consolidated Statements of Financial
Condition.
Many of these fund investments meet the definition of prohibited covered funds as defined by the Volcker Rule enacted pursuant to
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). 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
until July 2022. However, our current focus is the divestiture of this portfolio.
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 were recorded at fair value in the Consolidated Statements of Financial Condition.
The following financial instruments were not carried at fair value in accordance with GAAP on our Consolidated Statements of Financial
Condition at September 30, 2018 or 2017.
Short-term financial instruments: The carrying value of short-term financial instruments, including cash and cash equivalents, cash
segregated pursuant to federal regulations, repurchase agreements and reverse repurchase agreements 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 cash segregated pursuant to federal regulations are classified as Level 1. Repurchase agreements and
reverse repurchase agreements 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
111
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 following table.
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 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 payments 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.
112
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table 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 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, 2018
Financial assets:
Bank loans, net
Loans to financial advisors, net
Financial liabilities:
Bank deposits
Other borrowings
Senior notes payable
September 30, 2017
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
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
123,911
$
19,116,423
— $
748,437
19,496,066
23,900
1,557,728
$
$
$
438,513
— $
— $
23,001
$
16,836,745
— $
708,487
17,417,678
29,278
1,647,696
$
$
$
313,359
— $
— $
$
$
$
$
$
$
19,240,334
748,437
19,934,579
23,900
1,557,728
16,859,746
708,487
17,731,037
29,278
1,647,696
$
$
$
$
$
$
$
$
$
$
19,449,790
934,420
19,941,507
23,966
1,549,636
16,954,042
873,272
17,732,362
28,813
1,548,839
NOTE 5 – AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are comprised of agency 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 following table details the amortized cost and fair values of our available-for-sale securities.
$ in thousands
September 30, 2018
Agency MBS and CMOs
Other securities
Total RJ Bank available-for-sale securities
ARS preferred
Total available-for-sale securities
September 30, 2017
Agency MBS and CMOs
Other securities
Total RJ Bank available-for-sale securities
ARS preferred
Cost basis
Gross
unrealized gains
Gross
unrealized losses
Fair value
$
2,698,168
$
394
$
(69,823) $
2,628,739
1,575
2,699,743
60,909
2,760,652
$
—
394
5,776
6,170
(633)
(70,456)
—
942
2,629,681
66,685
$
(70,456) $
2,696,366
2,089,153
$
1,925
$
(9,999) $
2,081,079
$
$
1,575
2,090,728
101,674
—
1,925
4,497
6,422
(543)
(10,542)
—
1,032
2,082,111
106,171
$
(10,542) $
2,188,282
Total available-for-sale securities
$
2,192,402
$
See Note 4 for additional information regarding the fair value of available-for-sale securities.
113
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table details the contractual maturities, amortized cost, carrying values and current yields for our available-for-sale
securities with contractual maturities. Since RJ Bank’s MBS and CMO available-for-sale securities are backed by mortgages, actual
maturities will differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment
penalties.
$ in thousands
Agency MBS and CMOs:
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, 2018
$
2,656
2,641
1.70%
$
245,214
$
898,553
$
1,551,745
$
2,698,168
239,247
2.25%
876,432
1,510,419
2,628,739
2.24%
2.32%
2.29%
The following table details the gross unrealized losses and fair value of securities that were in a loss position at the reporting period
end, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position.
$ in thousands
September 30, 2018
Agency MBS and CMOs
Other securities
Total
September 30, 2017
Agency MBS and CMOs
Other securities
Total
Agency MBS and CMOs
Less than 12 months
12 months or more
Total
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
$
$
$
$
1,102,652
—
1,102,652
1,119,715
—
1,119,715
$
$
$
$
(19,906) $
1,425,650
—
942
(19,906) $
1,426,592
(5,621) $
295,528
—
1,032
(5,621) $
296,560
$
$
$
$
(49,917) $
2,528,302
(633)
942
(50,550) $
2,529,244
(4,378) $
1,415,243
(543)
1,032
(4,921) $
1,416,275
$
$
$
$
(69,823)
(633)
(70,456)
(9,999)
(543)
(10,542)
U.S. government agencies guarantee the contractual cash flows of the agency MBS and CMOs. At September 30, 2018, of the 255
agency MBS and CMOs in an unrealized loss position, 96 were in a continuous unrealized loss position for less than 12 months and
159 were for 12 months or more. We do not consider these securities OTTI due to the guarantee of the full payment of principal and
interest, and the fact that we have the ability and intent to hold these securities. At September 30, 2018, debt securities we held in
excess of ten percent of our equity included Federal National Home Mortgage Association (“FNMA”) and Federal Home Loan Mortgage
Corporation (“FHLMC”) which had an amortized cost of $1.82 billion and $667 million, respectively, and a fair value of $1.77 billion
and $647 million, respectively.
During the year ended September 30, 2018, there were no sales of agency MBS or CMO available-for-sale securities. During the year
ended September 30, 2017, there were $66 million in proceeds, resulting in an insignificant gain, from the sale of available-for-sale
securities. During the year ended September 30, 2016, there were $8 million in proceeds, resulting in an insignificant gain, from the
sale of available-for-sale securities. The gains that resulted from these sales for all periods were included in “Other” revenues on our
Consolidated Statements of Income and Comprehensive Income.
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, 2018 was $72 million. Only those ARS whose amortized cost basis we do not expect to recover in full
are considered to be OTTI, 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, 2018, there were no ARS preferred with a fair value less than cost basis.
Sales or redemptions of ARS for the year ended September 30, 2018 resulted in aggregate proceeds of $45 million and a gain of $5
million, which is included in “Other” revenues on our Consolidated Statements of Income and Comprehensive Income. During the
year ended September 30, 2017, sales or redemptions of ARS resulted in proceeds of $30 million and an insignificant gain. During
the year ended September 30, 2016, sales or redemptions of ARS resulted in proceeds of $3 million and an insignificant gain.
114
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Other-than-temporarily impaired securities
The following table details the changes in the amount of OTTI related to credit losses recognized in “Other” revenues on available-
for-sale securities.
$ 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,
2018
2017
2016
$
$
— $
—
— $
8,107
$
(8,107)
— $
11,847
(3,740)
8,107
NOTE 6 – 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. 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 in 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, it also 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 $4 million and $5
million at September 30, 2018 and 2017, respectively, and was 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 in the following
paragraphs.
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, which will ultimately be settled in DB common shares,
provided certain 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.
115
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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. Cash initial margin is included as a component of “Receivables from brokers, dealers and clearing
organizations” and marketable securities initial margin is included as a component of “Other investments” or “Available-for-sale
securities” 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” and are considered to be settlement of the related derivatives.
Due to the short-term nature of forward foreign exchange contracts, RJ Bank is generally not required to post collateral with and does
not generally receive collateral from its respective counterparties.
Derivative balances included in our financial statements
The following table 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 collateral posted and received under 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 (1)
Foreign exchange contracts
DBRSU obligation (equity) (2)
Subtotal
Derivatives designated as hedging instruments
Interest rate contracts
Foreign exchange contracts
Subtotal
September 30, 2018
September 30, 2017
Derivative
assets
Derivative
liabilities
Notional
amount
Derivative
assets
Derivative
liabilities
Notional
amount
$
160,345
$
160,345
$ 2,415,615
$
288,035
$
288,035
$ 2,766,488
74,068
1,141
—
112,864
6,155,611
86,436
100,503
4,931,809
1,454
15,580
549,188
15,580
3
—
530
25,800
437,783
25,800
235,554
290,243
9,135,994
374,474
414,868
8,161,880
—
—
—
528
2,995
3,523
850,000
891,563
1,741,563
—
29
29
1,390
116
1,506
850,000
1,048,646
1,898,646
Total gross fair value/notional amount
235,554
293,766
$10,877,557
374,503
416,374
$10,060,526
Offset in the Statements of Financial Condition
Counterparty netting
Cash collateral netting
Total amounts offset
(26,124)
(29,206)
(55,330)
(26,124)
(20,729)
(46,853)
(6,045)
(49,683)
(55,728)
(6,045)
(53,365)
(59,410)
Net amounts presented in the Statements of Financial Condition
180,224
246,913
318,775
356,964
Gross amounts not offset in the Statements of Financial Condition
Financial instruments (3)
Total
(162,480)
(160,345)
(293,340)
(288,035)
$
17,744
$
86,568
$
25,435
$
68,929
The text of the footnotes in the preceding table are on the following page.
116
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The text of the footnotes to the preceding table are as follows:
(1) Substantially all relates to interest rate derivatives entered into as part of our fixed income business operations.
(2) The DBRSU obligation is not subject to an enforceable master netting arrangement or other similar arrangement. However, we held shares of DB as an economic
hedge against this obligation with a fair value of $12 million and $19 million as of September 30, 2018 and 2017, respectively, which are a component of “Other
investments” on our Consolidated Statements of Financial Condition. See additional discussion of the DBRSUs in Note 20.
(3) Although the matched book derivative arrangements do not meet the definition of a master netting arrangement as specified by GAAP, the agreement with the third-
party intermediary includes terms that are similar to a master netting agreement. As a result, we present the matched book amounts net in the preceding table.
The following table details the gains/(losses) recognized in AOCI, net of income taxes, on derivatives designated as hedging instruments.
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,
2018
2017
2016
$
$
34,806
27,771
62,577
$
$
23,232
$
(26,281)
(3,049) $
(11,833)
(6,721)
(18,554)
There were no components of derivative gains or losses excluded from the assessment of hedge effectiveness for any of the years ended
September 30, 2018, 2017 or 2016. We expect to reclassify an estimated $6 million of interest income 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 9 years.
The following table details the gains/(losses) on derivatives not designated as hedging instruments recognized on the Consolidated
Statements of Income and Comprehensive Income.
$ in thousands
Interest rate contracts:
Matched book
Other
Foreign exchange contracts
DBRSU obligation (equity)
DBRSU obligation (equity)
Location of gain/(loss) included in the
Consolidated Statements of
Income and Comprehensive Income
Gain/(loss) recognized during the
year ended September 30,
2018
2017
2016
Other revenues
Net trading profit/other revenues
Other revenues
Compensation, commissions and benefits expense
Acquisition-related expenses
$
$
$
$
$
104
6,018
18,091
8,192
$
$
$
$
— $
36
7,895
$
$
(19,961) $
(5,648) $
(2,383) $
92
2,819
(2,662)
2,457
—
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.
117
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Derivatives with credit-risk-related contingent features
Certain of our derivative 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 were in a liability position was $4 million at September 30, 2018, for which we had not posted any collateral. Such amounts were
insignificant at September 30, 2017.
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, 2018
Assets
Liabilities
Reverse
repurchase
agreements
Securities
borrowed
Repurchase
agreements
Securities
loaned
Gross amounts of recognized assets/liabilities
$
372,603
$
255,280
$
186,205
$
422,785
Gross amounts offset in the Consolidated Statements of Financial Condition
—
—
—
—
Net amounts presented in the Consolidated Statements of Financial Condition
372,603
255,280
186,205
422,785
Gross amounts not offset in the Consolidated Statements of Financial Condition
(372,603)
(247,860)
(186,205)
(407,975)
Net amount
September 30, 2017
Gross amounts of recognized assets/liabilities
Gross amounts offset in the Consolidated Statements of Financial Condition
Net amounts presented in the Consolidated Statements of Financial Condition
Gross amounts not offset in the Consolidated Statements of Financial Condition
Net amount
$
$
$
— $
7,420
$
— $
14,810
404,462
$
138,319
$
220,942
$
383,953
—
—
—
—
404,462
138,319
220,942
383,953
(404,462)
(134,304)
(220,942)
(373,132)
— $
4,015
$
— $
10,821
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, 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 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.
118
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents financial instruments at fair value that we received as collateral, were 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 previously described.
$ in thousands
Collateral we received that was available to be delivered or repledged
Collateral that we delivered or repledged
Encumbered assets
September 30,
2018
2017
$
$
3,165,127
1,388,882
$
$
3,030,736
1,068,912
We pledge certain of our financial instruments to collateralize either repurchase agreements or other secured borrowings, maintain
lines of credit, or to satisfy our collateral or settlement requirements with counterparties or clearing organizations who may or may not
have the right to deliver or repledge such instruments. The following table presents information about the fair value of our assets that
have been pledged for one of the purposes previously described.
$ 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
Bank loans, net pledged at FHLB and the Federal Reserve
September 30,
2018
2017
$
$
$
509,703
64,614
4,075,081
$
$
$
363,739
44,930
3,197,185
Repurchase agreements, repurchase-to-maturity transactions and securities loaned 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
September 30, 2018
Repurchase agreements:
Government and agency obligations
Agency MBS and CMOs
Total repurchase agreements
Securities loaned:
Equity securities
Total
September 30, 2017
Repurchase agreements:
Government and agency obligations
Agency MBS and CMOs
Total repurchase agreements
Securities loaned:
Equity securities
Total
Overnight and
continuous
Up to 30 days
30-90 days
Greater than 90
days
Total
$
$
$
$
102,140
$
— $
— $
— $
84,065
186,205
422,785
608,990
$
—
—
—
—
—
—
—
—
—
— $
— $
— $
107,284
$
— $
— $
— $
113,658
220,942
383,953
604,895
$
—
—
—
—
—
—
—
—
—
— $
— $
— $
102,140
84,065
186,205
422,785
608,990
107,284
113,658
220,942
383,953
604,895
As of both September 30, 2018 and 2017, we did not have any “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.
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.
119
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 following table 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 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
Loans held for sale, net
Total loans held for sale and investment
Allowance for loan losses
Bank loans, net
$ in thousands
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
Loans held for sale, net
Total loans held for sale and investment
Allowance for loan losses
Bank loans, net
2018
September 30,
2017
2016
Balance
%
Balance
%
Balance
%
$
7,785,237
150,825
3,624,407
1,227,112
3,756,609
3,033,390
19,577,580
(20,656)
19,556,924
163,926
19,720,850
(202,750)
40% $
1%
18%
6%
19%
15%
1%
100%
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
70,316
17,197,237
(190,442)
43% $
7,470,373
1%
18%
6%
18%
14%
—
100%
122,718
2,554,071
740,944
2,441,569
1,904,827
15,234,502
(40,675)
15,193,827
214,286
15,408,113
(197,378)
$
19,518,100
$
17,006,795
$
15,210,735
48%
1%
17%
5%
16%
12%
1%
100%
September 30,
2015
2014
Balance
%
Balance
%
$
6,928,018
52% $
6,422,347
162,356
2,054,154
484,537
1,962,614
1,481,504
13,073,183
(32,424)
13,040,759
119,519
13,160,278
(172,257)
1%
16%
4%
15%
11%
1%
100%
94,195
1,689,163
122,218
1,751,747
1,023,748
11,103,418
(37,533)
11,065,885
45,988
11,111,873
(147,574)
$
12,988,021
$
10,964,299
58%
1%
15%
1%
16%
9%
—
100%
At September 30, 2018, 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.
Loans held for sale
RJ Bank originated or purchased $1.69 billion, $1.67 billion and $1.80 billion of loans held for sale during the years ended September 30,
2018, 2017 and 2016, respectively. Proceeds from the sale of these held for sale loans amounted to $606 million, $439 million and
$383 million for the years ended September 30, 2018, 2017 and 2016, respectively. Net gains resulting from such sales amounted to
$2 million in each of the years ended September 30, 2018, 2017 and 2016.
120
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2018
Purchases
Sales
Year ended September 30, 2017
Purchases
Sales
Year ended September 30, 2016
Purchases
Sales
C&I loans
CRE loans
Residential
mortgage loans
Total
$
$
$
$
$
$
467,534
212,752
536,627
341,196
457,503
172,968
$
$
$
$
$
$
144,818
$
303,030
$
— $
— $
63,542
$
264,340
$
— $
— $
24,869
$
371,710
$
— $
— $
915,382
212,752
864,509
341,196
854,082
172,968
Sales in the preceding table 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. As more fully described in Note 2, corporate loan sales generally
occur as part of a loan workout situation.
Aging analysis of loans held for investment
The following table presents an analysis of the payment status of loans held for investment. Amounts in the table exclude any net
unearned income and deferred expenses.
30-89
days and
accruing
90 days
or more and
accruing
Total past due
and accruing
Nonaccrual
Current and
accruing
Total loans held for
investment
$ in thousands
September 30, 2018
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
SBL
$
— $
— $
— $
1,558
$
7,783,679
$
—
—
—
1,289
23
—
—
—
—
—
—
—
—
—
—
1,289
23
—
—
—
—
150,825
3,624,407
1,227,112
22,848
3,706,769
122
—
25,558
3,033,390
Total loans held for investment, net
$
1,312
$
— $
1,312
$
24,528
$
19,551,740
$
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
$
— $
— $
— $
5,221
$
7,380,689
$
—
—
—
1,853
248
—
—
—
—
—
—
—
—
—
—
1,853
248
—
—
—
—
112,681
3,106,290
1,017,791
33,718
3,086,701
31
—
26,179
2,386,697
Total loans held for investment, net
$
2,101
$
— $
2,101
$
38,970
$
17,117,028
$
7,785,237
150,825
3,624,407
1,227,112
3,730,906
25,703
3,033,390
19,577,580
7,385,910
112,681
3,106,290
1,017,791
3,122,272
26,458
2,386,697
17,158,099
The preceding table includes $11 million and $18 million at September 30, 2018 and 2017, respectively, of nonaccrual loans which
were performing pursuant to their contractual terms.
Other real estate owned, included in “Other assets” on our Consolidated Statements of Financial Condition, was $3 million and $5
million at September 30, 2018 and 2017, respectively. The recorded investment in mortgage loans secured by one-to-four family
residential properties for which formal foreclosure proceedings were in process was $12 million and $18 million at September 30,
2018 and 2017, respectively.
121
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.
$ in thousands
Impaired loans with allowance for loan losses:
C&I loans
Residential - first mortgage loans
Total
Impaired loans without allowance for loan losses:
C&I loans
Residential - first mortgage loans
Total
Gross
recorded
investment
2018
Unpaid
principal
balance
September 30,
Allowance
for losses
Gross
recorded
investment
2017
Unpaid
principal
balance
Allowance
for losses
$
— $
— $
— $
5,221
$
6,160
$
15,229
15,229
1,558
13,100
14,658
19,728
19,728
1,700
20,005
21,705
1,592
1,592
—
—
—
23,977
29,198
—
16,737
16,737
31,100
37,260
—
24,899
24,899
1,963
2,504
4,467
—
—
—
Total impaired loans
$
29,887
$
41,433
$
1,592
$
45,935
$
62,159
$
4,467
Impaired loan balances with allowances for loan losses have had reserves established based upon management’s analysis. There is no
allowance required when the discounted cash flow, collateral value or market value of a loan equals or exceeds the carrying value.
These are generally loans in process of foreclosure that have already been adjusted to fair value.
The preceding table includes residential first mortgage TDR’s of $21 million and $27 million at September 30, 2018 and 2017,
respectively.
The average balances of total impaired loans were as follows.
$ in thousands
Average impaired loan balance:
C&I loans
CRE loans
Residential - first mortgage loans
Total
Credit quality indicators
Year ended September 30,
2018
2017
2016
$
$
4,048
$
17,540
$
—
32,778
694
43,845
36,826
$
62,079
$
18,112
4,474
51,554
74,140
The credit quality of RJ Bank’s loan portfolio is summarized monthly by management using the standard asset classification system
utilized by bank regulators for the SBL and residential mortgage loan portfolios and internal risk ratings, which correspond to the same
standard asset classifications for the corporate loan portfolios. These classifications are divided into three groups: Not Classified
(Pass), Special Mention, and Classified or Adverse Rating (Substandard, Doubtful and Loss). These terms are defined as follows:
Pass – Loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair
value, less costs to acquire and sell, of any underlying collateral in a timely manner.
Special Mention – Loans which have potential weaknesses that deserve management’s close attention. These loans are not adversely
classified and do not expose RJ Bank to sufficient risk to warrant an adverse classification.
Substandard – Loans which are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral
pledged, if any. Loans with this classification are characterized by the distinct possibility that RJ Bank will sustain some loss if the
deficiencies are not corrected.
Doubtful – Loans which have all the weaknesses inherent in loans classified as substandard with the added characteristic that the
weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently-known facts, conditions
and values.
Loss – Loans which are considered by management to be uncollectible and of such little value that their continuance on RJ Bank’s
books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. RJ Bank does not have any
122
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 following table presents the credit quality of RJ Bank’s held for investment loan portfolio.
$ in thousands
September 30, 2018
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans:
First mortgage loans
Home equity loans/lines
SBL
Total
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
Pass
Special mention
Substandard
Doubtful
Total
$
7,678,521
$
47,933
$
58,783
$
— $
7,785,237
$
$
139,696
3,547,382
1,227,112
3,692,524
25,578
3,033,390
11,129
44,151
—
8,046
3
—
—
32,874
—
30,336
122
—
—
—
—
—
—
—
150,825
3,624,407
1,227,112
3,730,906
25,703
3,033,390
19,344,203
$
111,262
$
122,115
$
— $
19,577,580
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
Loans classified as special mention, substandard or doubtful are all considered to be “criticized” loans.
123
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Allowance for loan losses and reserve for unfunded lending commitments
The following table presents changes in the allowance for loan losses of RJ Bank by portfolio segment.
$ in thousands
Year ended September 30, 2018
Balance at beginning of year
Provision/(benefit) for loan losses
Net (charge-offs)/recoveries:
Charge-offs
Recoveries
Net (charge-offs)/recoveries
Foreign exchange translation adjustment
C&I loans
CRE
construction
loans
CRE loans
Tax-exempt
loans
Residential
mortgage
loans
SBL
Total
Loans held for investment
$
119,901
$
1,421
$
41,749
$
6,381
$
16,691
$
4,299
$
190,442
13,426
1,747
5,240
2,163
(1,742)
(353)
20,481
(9,587)
4
(9,583)
(349)
—
—
—
—
(32)
—
(32)
(146)
—
—
—
—
(383)
2,320
1,937
—
—
—
—
—
(10,002)
2,324
(7,678)
(495)
Balance at end of year
$
123,395
$
3,168
$
46,811
$
8,544
$
16,886
$
3,946
$
202,750
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
Foreign exchange translation adjustment
$
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)
446
—
—
—
(92)
—
5,013
5,013
375
—
—
—
—
(918)
1,001
83
—
—
—
—
—
(27,006)
6,354
(20,652)
729
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
(2,956)
—
(2,956)
—
—
—
—
—
—
Foreign exchange translation adjustment
(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
124
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.
$ in thousands
September 30, 2018
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total
September 30, 2017
C&I loans
CRE construction loans
CRE loans
Tax-exempt loans
Residential mortgage loans
SBL
Total
$
$
$
$
Loans held for investment
Allowance for loan losses
Recorded investment
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Total
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Total
— $
123,395
$
123,395
$
1,558
$
7,783,679
$
7,785,237
—
—
—
1,601
—
3,168
46,811
8,544
15,285
3,946
3,168
46,811
8,544
16,886
3,946
—
—
—
34,595
—
150,825
3,624,407
1,227,112
3,722,014
3,033,390
150,825
3,624,407
1,227,112
3,756,609
3,033,390
1,601
$
201,149
$
202,750
$
36,153
$
19,541,427
$
19,577,580
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
The reserve for unfunded lending commitments, which is included in “Other payables” on our Consolidated Statements of Financial
Condition, was $10 million and $11 million at September 30, 2018 and 2017, respectively.
NOTE 9 - OTHER ASSETS
The following table details the components of other assets.
$ in thousands
Investments in company-owned life insurance policies
Prepaid expenses
Investment in FHLB stock
Investment in FRB stock
Prepaid compensation arising from acquisitions
Guaranteed LIHTC Fund financing asset
Indemnification asset
All other
Total other assets
September 30,
2018
2017
$
605,289
$
504,108
98,914
52,187
24,706
16,454
9,792
4,095
32,879
96,059
52,187
24,706
27,175
15,786
26,160
34,244
$
844,316
$
780,425
As of September 30, 2018, the cumulative face value of our company-owned life insurance policies was $1.90 billion.
Prepaid compensation arising from acquisitions primarily relates to our 2016 acquisitions of 3Macs and Alex. Brown. See Note 3 for
further information about these acquisitions.
In fiscal year 2010, we sold an investment in a low-income housing tax credit fund and 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. The related
financing liability in the amount of $10 million and $16 million as of September 30, 2018 and 2017, respectively, was included in
“Other payables” on our Consolidated Statements of Financial Condition. See Note 17 for additional information.
125
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our indemnification asset pertains to legal matters for which Regions (as hereinafter defined) has indemnified RJF 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”). The liabilities related to such matters were included in “Other payables” on our Consolidated Statements of
Financial Condition.
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 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, a Guaranteed LIHTC Fund, 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 following table. 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, 2018
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, 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
Aggregate
assets
Aggregate
liabilities
$
$
$
$
67,179
$
53,149
40,411
17,493
13,538
191,770
$
104,414
$
57,719
51,400
7,418
12,122
233,073
$
5,084
257
3,110
18,171
13,538
40,160
3,851
1,055
2,872
2,544
12,122
22,444
See Note 9 for information regarding the financing asset associated with the Guaranteed LIHTC Fund and Note 17 for additional
information regarding the commitment related to this fund.
126
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
Cash segregated pursuant to regulations
Other receivables
Intercompany receivables
Private equity 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,
2018
2017
$
3,830
3,020
1,215
442
62,275
107,405
13,536
47
2,052
4,590
168
454
101,905
111,743
12,120
41
191,770
$
233,073
26,628
$
17,271
43,899
70,066
77,805
147,871
$
191,770
$
9,667
16,520
26,187
101,445
105,441
206,886
233,073
The trust fund investment in RJF common stock in the preceding table is the Restricted Stock Trust Fund, which is included in “Treasury
stock” on 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 following table.
$ in thousands
Aggregate
assets
2018
Aggregate
liabilities
September 30,
Our risk
of loss
Aggregate
assets
2017
Aggregate
liabilities
Private Equity Interests
$
6,907,827
$
154,301
$
68,053
$
10,485,611
$
174,354
$
LIHTC funds
NMTC funds
Other
Total
5,692,112
13,878
196,939
1,912,110
141
113,344
93,270
7
4,044
5,372,367
30,297
169,462
2,134,600
105
88,615
$
12,810,756
$
2,179,896
$
165,374
$
16,057,737
$
2,397,674
$
Our risk
of loss
73,457
60,959
9
3,163
137,588
127
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 11 - PROPERTY AND EQUIPMENT
The following table presents our property and equipment, net balances as of the dates presented.
$ 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 and amortization
Total property and equipment, net
September 30,
2018
2017
$
29,079
$
417,390
350,144
247,548
16,461
1,060,622
(574,348)
$
486,274
$
29,079
345,734
324,452
224,418
12,056
935,739
(498,365)
437,374
Depreciation expense and software amortization was $85 million, $71 million, and $63 million for the fiscal years ended September 30,
2018, 2017, and 2016, respectively.
NOTE 12 - GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET
Our goodwill and identifiable intangible assets result from various acquisitions. See Note 2 for a discussion of our goodwill and
intangible assets accounting policies. The following table presents our goodwill and net identifiable intangible asset balances as of the
dates indicated.
$ in thousands
Goodwill
Identifiable intangible assets, net
Total goodwill and identifiable intangible assets, net
September 30,
2018
2017
$
$
478,251
$
160,846
639,097
$
410,723
82,460
493,183
As described in Note 3, we acquired the Scout Group during the year ended September 30, 2018, which included a number of identifiable
intangible assets, as well as goodwill.
Goodwill
The following summarizes our goodwill by segment, and the balances and activity for the years indicated.
$ in thousands
Year ended September 30, 2018
Goodwill as of beginning of year
Additions
Foreign currency translations
Goodwill as of end of year
Year ended September 30, 2017
Goodwill as of beginning of year
Foreign currency translations
Goodwill as of end of year
Private Client
Group
Capital
Markets
Asset
Management
Total
$
$
$
$
276,713
$
134,010
$
— $
—
(837)
—
(869)
69,234
—
275,876
$
133,141
$
69,234
$
275,521
1,192
276,713
$
$
132,551
1,459
134,010
$
$
— $
—
— $
410,723
69,234
(1,706)
478,251
408,072
2,651
410,723
The addition to goodwill during the year ended September 30, 2018 arose from our acquisition of the Scout Group. The goodwill
primarily represents synergies from combining the Scout Group with our existing businesses. All of the goodwill associated with the
Scout Group is deductible for tax purposes over 15 years.
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. We performed our latest annual goodwill
impairment testing as of our January 1, 2018 evaluation date, evaluating balances as of December 31, 2017, and no impairment was
128
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
identified. In that testing, we performed a qualitative assessment for certain of our reporting units and a quantitative assessment for
our two RJ Ltd. reporting units operating in Canada.
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 concluded that none of the goodwill allocated to any of those reporting
units was impaired. No events have occurred since our assessments that would cause us to update this impairment testing.
Quantitative Assessments
We elected to perform a quantitative assessment 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, 2017 and a statement of operations for the prior 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, management judgment was applied in determining the weight assigned to the outcomes of the income
approach and the market 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.
Key assumptions
Weight assigned to the outcome of:
Segment
Reporting unit
Goodwill as of
December 31,
2017
($ 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
$
$
24,285
20,293
14.3%
15.3%
1.2x/13.8x
0.9x/14.2x
75%
75%
25%
25%
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. However, the assumptions and estimates utilized in determining the fair value of reporting unit equity,
including future cash flow projections, are sensitive to changes including, but not limited to, overall market conditions, adverse business
trends and changes in regulations. Should we fail to perform as we have projected, the fair value of our reporting unit, and as a result
our goodwill, could be impaired.
No events have occurred since our assessments that would cause us to update this impairment testing.
129
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
Year ended September 30, 2018
Net identifiable intangible assets as of beginning of year
Additions
Amortization expense
Foreign currency translations
Net identifiable intangible assets as of end of year
Year ended September 30, 2017
Net identifiable intangible assets as of beginning of year
Amortization expense
Foreign currency translations
Net identifiable intangible assets as of end of year
Private Client
Group
Capital Markets
Asset
Management
Total
$
$
$
$
47,026
$
23,077
$
12,357
$
—
(5,929)
(52)
—
(3,077)
—
92,290
(4,667)
(179)
41,045
$
20,000
$
99,801
$
52,936
$
27,937
$
14,101
$
(6,001)
91
(4,845)
(15)
(2,004)
260
47,026
$
23,077
$
12,357
$
82,460
92,290
(13,673)
(231)
160,846
94,974
(12,850)
336
82,460
The addition of intangible assets during the year ended September 30, 2018 was attributable to the Scout Group acquisition.
The following table summarizes our acquired intangible asset balances by asset class.
Customer relationships
Trade name
Developed technology
Intangible assets subtotal
Non-amortizing customer relationships
Total intangible assets acquired
Weighted average useful life
(in years)
Amount acquired
($ in thousands)
13
20
10
Indefinite
$
$
$
34,900
3,590
1,800
40,290
52,000
92,290
As described in Note 2, we perform impairment testing for our indefinite-lived intangible assets on an annual basis or when an event
occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. Our indefinite-
lived customer relationships were acquired in our November 2017 acquisition of the Scout Group. No events have occurred since our
acquisition that would cause us to update our recorded value.
The following summarizes our identifiable intangible assets by type.
$ in thousands
Customer relationships
Non-amortizing customer relationships
Trade name
Developed technology
Intellectual property
Non-compete agreements
Seller relationship agreements
Total
September 30,
2018
2017
Gross carrying
value
Accumulated
amortization
Gross carrying
value
Accumulated
amortization
$
133,483
$
52,000
11,749
3,430
523
2,902
5,300
$
209,387
$
(39,855) $
—
(3,588)
(1,189)
(179)
(1,998)
(1,732)
(48,541) $
99,749
$
—
8,366
1,630
542
3,336
5,300
118,923
$
(31,098)
—
(2,076)
(706)
(131)
(1,551)
(901)
(36,463)
130
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table sets forth the projected amortization expense by fiscal year associated with our identifiable intangible assets with
finite lives.
Fiscal year ended September 30,
$ in thousands
2019
2020
2021
2022
2023
Thereafter
Total
$
$
13,596
12,817
12,063
11,456
10,409
48,505
108,846
NOTE 13 – BANK DEPOSITS
Bank deposits include savings and money market accounts, certificates of deposit with RJ Bank, Negotiable Order of Withdrawal
(“NOW”) accounts and demand deposits. 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 each respective period.
$ in thousands
Savings and money market accounts
Certificates of deposit
NOW accounts
Demand deposits (non-interest-bearing)
Total bank deposits
September 30,
2018
2017
Balance
Weighted-average
rate
Balance
Weighted-average
rate
$
$
19,474,529
0.54% $
17,391,091
445,442
5,823
15,713
2.03%
0.01%
—
314,685
5,197
21,389
19,941,507
0.57% $
17,732,362
0.14%
1.60%
0.01%
—
0.17%
Total bank deposits in the preceding table exclude affiliate deposits of $279 million and $243 million at September 30, 2018 and 2017,
respectively. These affiliate deposits include $277 million and $192 million at September 30, 2018 and 2017, respectively, held in a
deposit account at RJ Bank on behalf of RJF (see Note 24 for additional information).
Savings and money market accounts in the preceding table 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, 2018 was $25 million.
The following table sets forth the scheduled maturities of certificates of deposit.
$ 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,
2018
2017
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
$
$
29,611
$
16,960
$
19,714
37,911
65,051
21,200
43,654
64,552
12,716
26,078
40,434
13,504
26,245
27,812
$
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
281,693
$
163,749
$
206,820
$
107,865
131
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Interest expense on deposits, excluding interest expense related to affiliate deposits, is summarized in the following table.
$ in thousands
Savings, money market, and NOW accounts
Certificates of deposit
Total interest expense on deposits
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 and other
Total other borrowings
Year ended September 30,
2018
2017
2016
$
$
59,340
6,217
65,557
$
$
12,859
4,325
17,184
$
$
4,816
5,402
10,218
September 30,
2018
2017
875,000
$
—
—
24,059
875,000
350,000
260,000
29,012
899,059
$
1,514,012
$
$
Borrowings from the FHLB as of September 30, 2018 and 2017, were comprised of both floating and fixed-rate advances. As of
September 30, 2018 and 2017, the floating-rate advances, which have interest rates that reset quarterly, totaled $850 million. The
floating-rate advances mature in June 2020. 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. As of both September 30, 2018 and
2017, the fixed-rate advance totaled $25 million and bears interest at a fixed rate of 3.4%. This advance matures in October 2020. 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 FHLB advances as of September 30, 2018 and 2017 was 2.41% and 1.41%, respectively.
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” and “Securities loaned”
on our Consolidated Statements of Financial Condition. See Note 7 for information regarding our collateralized financing arrangements.
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, 2018
or 2017. 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, 2018, the variable rate commitment fee, which would apply to any difference
between the daily borrowed amount and the committed amount, was 0.20% per annum.
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, London Inter-bank Offered Rate (“LIBOR”), a lenders prime rate, or the Canadian prime rate, as applicable.
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 a fixed interest rate of 5.7% with
repayment terms of monthly interest and principal debt service and have a January 2023 maturity.
132
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Our other borrowings as of September 30, 2018, mature as follows based on their contractual terms.
Fiscal year ended September 30,
$ in thousands
2019
2020
2021
2022
2023
Thereafter
Total
$
$
5,222
855,430
30,748
6,084
1,575
—
899,059
NOTE 15 – SENIOR NOTES PAYABLE
The following table 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
Total principal amount
Unaccreted premium/(discount)
Unamortized debt issuance costs
Total senior notes payable
September 30,
2018
2017
$
250,000
$
500,000
800,000
1,550,000
11,610
(11,974)
$
1,549,636
$
250,000
500,000
800,000
1,550,000
11,905
(13,066)
1,548,839
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
During the year ended September 30, 2017, we redeemed all of our outstanding 6.90% senior notes due March 2042 and 8.60% senior
notes due August 2019. This redemption resulted in a $46 million loss on extinguishment of debt in our Consolidated Statements of
Income and Comprehensive Income for the year ended September 30, 2017, comprised of a make-whole premium and unamortized
debt issuance costs.
133
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 16 – INCOME TAXES
For a discussion of our income tax accounting policies and other income tax-related information see Note 2.
The Tax Act
On December 22, 2017, the Tax Act was enacted, which significantly revised the U.S. corporate income tax system by, among other
things, lowering federal corporate income tax rates from 35% to 21% and implementing a territorial tax system which includes a one-
time transition tax on deemed repatriated earnings of foreign subsidiaries. As the firm’s fiscal year end is September 30th, our U.S.
federal statutory tax rate was 24.5% for our fiscal year ended September 30, 2018, which reflects a blended federal statutory rate of
35% for our first fiscal quarter and 21% for the remaining three fiscal quarters. This blended statutory rate was the basis for calculating
our effective tax rate, which was also impacted by other factors.
Our provision for taxes for the year ended September 30, 2018 included $105 million related to the enactment of the Tax Act, which
included: (1) $93 million due to the remeasurement of U.S. deferred tax assets at the lower enacted corporate tax rate; (2) the transition
tax on deemed repatriated earnings of foreign subsidiaries of $10 million, including the associated state tax liability; and (3) $2 million
due to the evaluation of deferred tax assets related to executive compensation. We have completed our accounting for the impact of
the Tax Act.
Income taxes
The following table details the total income tax provision/(benefit) allocation for each respective period.
$ in thousands
Recorded in:
Year ended September 30,
2018
2017
2016
Net income including noncontrolling interests
$
453,960
$
289,111
$
271,293
Equity, arising from cash flow hedges recorded through other comprehensive income/(loss)
Equity, arising from currency translations, net of the impact of net investment hedges recorded
through other comprehensive income/(loss)
Equity, arising from available-for-sale securities recorded through other comprehensive income/
(loss)
Equity, arising from excess tax benefits from share-based payments
14,768
10,135
(18,875)
—
14,239
(7,427)
856
—
Total
$
459,988
$
296,779
$
(7,252)
(3,525)
(3,295)
(35,121)
222,100
Effective October 1, 2016, we adopted amended 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 this 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 prior guidance, excess tax benefits from share-based compensation payments were recorded in equity.
The following table details our provision/(benefit) for income taxes for each respective period.
$ in thousands
Current:
Federal
State and local
Foreign
Total current
Deferred:
Federal
State and local
Foreign
Total deferred
Year ended September 30,
2018
2017
2016
$
258,480
$
255,555
$
64,507
14,424
337,411
120,870
(4,456)
135
116,549
37,553
7,620
300,728
(11,316)
(959)
658
(11,617)
287,350
32,101
10,640
330,091
(51,383)
(6,267)
(1,148)
(58,798)
271,293
Total provision for income tax
$
453,960
$
289,111
$
134
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 detailed in the following table.
Provision calculated at statutory rate
Impact of Tax Act
State income tax, net of federal benefit
Tax-exempt interest income
Excess tax benefits related to share-based compensation
Gains on company-owned life insurance policies which are not subject to tax
Federal tax credits
Other, net
Total provision for income tax
Year ended September 30,
2018
2017
2016
24.5 %
8.1 %
3.9 %
(0.6)%
(0.9)%
(0.7)%
(0.7)%
1.2 %
34.8 %
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 %
The following table presents our U.S. and foreign components of income including noncontrolling interests and before provision for
income taxes.
$ in thousands
U.S.
Foreign
Income including noncontrolling interests and before provision for income taxes
Year ended September 30,
2018
2017
2016
$
$
1,261,537
43,340
1,304,877
$
$
918,343
9,635
927,978
$
$
776,722
35,222
811,944
The cumulative effects of temporary differences that give rise to significant portions of the deferred tax asset/(liability) items are
detailed in the following table.
$ 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 identifiable intangible assets
Property and equipment
Other
Total deferred tax liabilities
Net deferred tax assets
September 30,
2018
2017
$
179,711
$
52,801
6,184
20,059
36,200
11,073
306,028
(10)
306,018
5,920
(32,047)
(59,972)
(16,794)
(102,893)
$
203,125
$
235,171
74,909
1,928
3,342
41,545
13,665
370,560
(9)
370,551
(6,326)
(38,364)
(8,046)
(4,329)
(57,065)
313,486
We had a net deferred tax asset at both September 30, 2018 and 2017. This asset included net operating losses that will expire between
2019 and 2030. A valuation allowance for the fiscal year ended September 30, 2018 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 $203 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, 2018, we considered all undistributed earnings of non-U.S. subsidiaries to be permanently reinvested. Therefore,
we have not provided for any U.S. deferred income taxes. As of September 30, 2018, we had approximately $254 million of cumulative
undistributed earnings attributable to foreign subsidiaries for which no provisions have been recorded for income taxes that could arise
upon repatriation. Because the time or manner of repatriation is uncertain, we cannot determine the impact of local taxes, withholding
135
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2018, the current tax receivable, which is included in “Other receivables” in our Consolidated Statements of
Financial Condition, was $6 million, and the current tax payable, which is included in “Other payables,” was $50 million. As of
September 30, 2017, the current tax receivable was $102 million and the current tax payable was $23 million.
Uncertain tax positions
We recognize the accrual of interest and penalties related to income tax matters in interest expense and other expense, respectively.
As of September 30, 2018 and 2017, accrued interest and penalties were approximately $5 million and $3 million, respectively
The following table presents the aggregate changes in the balances for uncertain tax positions.
$ in thousands
Uncertain tax positions beginning of year
Increases for tax positions related to the current year
Increases for tax positions related to prior years
Decreases for tax positions related to prior years
Decreases due to lapsed statute of limitations
Decreases related to settlements
Uncertain tax positions end of year
Year ended September 30,
2018
2017
2016
$
20,006
$
22,173
$
5,119
10,065
(1,177)
(2,862)
(371)
3,238
438
(717)
(2,497)
(2,629)
$
30,780
$
20,006
$
22,454
6,496
1,284
(1,592)
(1,447)
(5,022)
22,173
Tax positions related to prior years in the preceding table included positions taken in previously filed tax returns with the Internal
Revenue Service and certain states, including an analysis of the impact from the 2018 Supreme Court decision in South Dakota v.
Wayfair which impacted our state nexus positions in certain states for certain entities. 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 preceding
table after considering the federal tax benefit associated with any state tax provisions) was $27 million, $15 million, and $16 million
at September 30, 2018, 2017 and 2016, respectively. We anticipate that the uncertain tax position balance will decrease by approximately
$5 million over the next 12 months primarily due to the resolution of pending audits with the Internal Revenue Service.
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 2015 for federal tax returns, fiscal year 2014 for state and local tax returns and fiscal year 2014 for foreign tax returns. Various
foreign and state audits in process are expected to be completed in fiscal year 2019.
NOTE 17 – COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments and contingencies
Loan and underwriting commitments
In the normal course of business we enter into commitments for fixed income and equity underwritings. As of September 30, 2018,
we had seven such open underwriting commitments, 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, 2018, we had made commitments through the extension of formal offers totaling approximately $140 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, 2018, $88 million of the total amount extended consisted of unfunded
commitments to prospective financial advisors who had accepted our offers, or recently hired producers.
136
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
Open-end consumer lines of credit (primarily SBL)
Commercial lines of credit
Unfunded loan commitments
Standby letters of credit
September 30, 2018
September 30, 2017
$
$
$
$
7,331,544
1,643,213
540,596
41,260
$
$
$
$
5,323,003
1,673,272
386,950
39,670
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. In the event that a letter of credit is drawn down, RJ Bank would pursue repayment from the party
under the existing borrowing relationship or would liquidate collateral, or both. The proceeds from repayment or liquidation of collateral
are expected to satisfy the amounts drawn down under the existing letters of credit. The credit risk involved in issuing letters of credit
is essentially the same as that involved with extending loan commitments to clients and, accordingly, 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.
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,
2018, the RJ Bank subsidiary had invested $62 million of the committed amount.
We had unfunded commitments to various private equity investments of $18 million as of September 30, 2018.
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 in the following table.
Fiscal year ended September 30,
$ in thousands
2019
2020
2021
2022
2023
Thereafter
Total
$
$
95,556
83,591
70,487
51,426
39,544
70,160
410,764
137
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 $121 million, $115 million and $97 million
for fiscal years 2018, 2017 and 2016, respectively.
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, or guarantee obligations of RJTCF in connection with RJTCF’s low-income housing development/
rehabilitation and syndication activities. At September 30, 2018, RJTCF had $81 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 agency MBS. At September 30,
2018, we had $491 million principal amount of outstanding forward MBS purchase commitments which are expected to be purchased
within 90 days following commitment. 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. We may be 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 contract to which we entered. These
TBA securities and related purchase commitment are accounted for at fair value. As of September 30, 2018, the fair value of the TBA
securities and the estimated fair value of the purchase commitments were insignificant.
Guarantees
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 up to $500 thousand per client for securities and cash held in client accounts, including
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 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 four years, RJTCF is obligated to pay the investor an amount that results in the investor achieving a minimum specified
return on their investment. A $10 million financing asset is included in “Other assets” (see Note 9 for additional information), and a
related $10 million liability is included in “Other payables” on our Consolidated Statements of Financial Condition as of September 30,
2018 related to this obligation. The maximum exposure to loss under this guarantee was $10 million as of September 30, 2018, which
represents the undiscounted future payments due the investor.
We guarantee the debt of one of our private equity investments. The amount of such debt, including the undrawn portion of a revolving
credit facility, is approximately $15 million. The debt is secured by substantially all of the assets of the borrower.
Legal and regulatory matter contingencies
In addition to any matters that may be specifically described in the following sections, 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.
RJF and certain of its subsidiaries are subject to regular reviews and inspections by regulatory authorities and self-regulatory
organizations. 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.
138
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. 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 may from time to time include in any descriptions of individual matters herein 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 as of
September 30, 2018, we estimated the upper end of the range of reasonably possible aggregate loss to be approximately $150 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.
Legal matters
On February 17, 2015, Jyll Brink (“Brink”) filed a putative class action complaint in the U.S. District Court for the Southern District
of Florida (the “District Court”) under the caption Jyll Brink v. Raymond James & Associates, Inc. (the “Brink Complaint”). The Brink
Complaint alleges that Brink, a former customer of RJ&A, was charged a fee in her Passport Investment Account, and that the fee
included an unauthorized and undisclosed profit to RJ&A in violation of its customer agreement and applicable industry standards.
The Passport Investment Account is a fee-based account in which clients pay asset-based advisory fees and certain processing fees for
ongoing investment advice and monitoring of securities holdings. The Brink Complaint seeks, among other relief, damages in the
amount of the difference between the actual cost of processing a trade, as alleged by Brink, and the fee charged by RJ&A. On May 9,
2016, RJ&A filed a motion to dismiss the Brink Complaint for lack of subject matter jurisdiction pursuant to the Securities Litigation
Uniform Standards Act (“SLUSA”). On June 6, 2016, the District Court entered an order granting the motion and dismissing the Brink
Complaint on SLUSA preclusion grounds. On June 24, 2016, Brink filed a notice of appeal of the order of dismissal with the United
States Court of Appeals for the Eleventh Circuit (the “Appellate Court”). On June 8, 2018, the Appellate Court issued its opinion
reversing the order of dismissal and remanding the case to the District Court for further proceedings consistent with the opinion. On
October 19, 2018, the District Court certified a class of former and current customers of RJ&A who executed a Passport Agreement
and were charged such fees during the period between February 17, 2010 and February 17, 2015. The matter is scheduled for trial
commencing April 15, 2019. RJ&A believes the claims in the Brink Complaint are without merit and is vigorously defending the action.
On February 11, 2016, Caleb Wistar (“Wistar”) and Ernest Mayeaux (“Mayeaux”) filed a putative class action complaint in the District
Court under the caption Caleb Wistar and Ernest Mayeaux v. Raymond James Financial Services, Inc. and Raymond James Financial
Services Advisors, Inc. (as subsequently amended, the “Wistar Complaint”). Similar to the Brink Complaint, the Wistar Complaint
alleges that Wistar and Mayeaux, former customers of RJFS and Raymond James Financial Services Advisors, Inc. (“RJFSA”), were
charged a fee in RJFS and RJFSA’s Passport Investment Account and that the fee included an unauthorized and undisclosed profit to
RJFS and RJFSA in violation of its customer agreement and applicable industry standards. The Wistar Complaint seeks, among other
relief, damages in the amount of the difference between the actual cost of processing a trade, as alleged by Wistar and Mayeaux, and
the fee charge by RJFS and RJFSA. On September 6, 2018, RJFS and RJFSA filed a motion to dismiss the Wistar Complaint, which
motion is pending. The matter is scheduled for trial commencing September 16, 2019. RJFS and RJFSA believe the claims in the
Wistar Complaint are without merit and are vigorously defending the action.
139
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 18 – ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
Other comprehensive income/(loss)
The activity in OCI, net of the related tax effect, was as follows.
$ in thousands
Net change in unrealized gain/(loss) on available-for-sale securities and non-credit portion of other-than-
temporary impairment losses
Net change in unrealized gain/(loss) on currency translations, net of the impact of net investment hedges
Net change in unrealized gain/(loss) on cash flow hedges
Net other comprehensive income/(loss)
Accumulated other comprehensive income/(loss)
Year ended September 30,
2018
2017
2016
$
$
(43,221) $
1,684
$
(3,315)
34,806
15,618
23,232
(11,730) $
40,534
$
(5,576)
2,179
(11,833)
(15,230)
All of the components of OCI, net of tax, were attributable to RJF. The following table presents the changes, and the related tax effects,
of each component of AOCI.
$ in thousands
Year ended September 30, 2018
Accumulated other comprehensive income/(loss) as of the
beginning of 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
Reclassification of tax effects related to the Tax Act
Net other comprehensive income/(loss) for the year, net of
tax
Accumulated other comprehensive income/(loss) as of the end
of year
Year ended September 30, 2017
Accumulated other comprehensive income/(loss) as of the
beginning of 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
$
60,201
$
(79,677) $
(19,476) $
(2,472) $
6,749
$
(15,199)
37,853
(31,086)
6,767
(55,480)
46,680
(2,033)
—
37,853
(10,135)
53
—
(31,086)
—
—
—
6,767
(10,135)
53
(4,684)
(60,164)
18,875
(1,932)
657
47,337
(14,768)
2,237
(4,027)
(6,060)
(6,028)
358
27,771
(31,086)
(3,315)
(43,221)
34,806
(11,730)
87,972
$
(110,763) $
(22,791) $
(45,693) $
41,555
$
(26,929)
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)
During the year ended September 30, 2018, we adopted new accounting guidance that allows for a reclassification from AOCI to
retained earnings for stranded tax effects resulting from the Tax Act. The reclassification is the remeasurement difference between
U.S. deferred tax assets at the historical federal statutory tax rate of 35% and the new federal statutory tax rate of 21%. The amount
reclassified from AOCI to retained earnings was insignificant for the year ended September 30, 2018. See Note 2 for additional
information. Our policy is to release tax effects remaining in AOCI on an individual security basis.
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).
140
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Reclassifications out of accumulated other comprehensive income/(loss)
The following table presents the income statement line items impacted by reclassifications out of AOCI, and the related tax effects.
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, 2018
Available-for-sale securities:
Auction rate securities
RJ Bank cash flow hedges
Total before tax
Income tax effect
Total reclassifications for the year, net of tax
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
Total before tax
Income tax effect
Total reclassifications for the year, net of tax
$
$
$
$
(4,684) Other revenue
657
Interest expense
(4,027)
1,118
Provision for income taxes
(2,909)
1,458 Other revenue
639 Other revenue
5,628
Interest expense
6,647 Other expense
14,372
(5,460) Provision for income taxes
8,912
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.
NOTE 19 – INTEREST INCOME AND INTEREST EXPENSE
The following table details the components of interest income and interest expense.
$ in thousands
Interest income:
Year ended September 30,
2018
2017
2016
Cash segregated pursuant to regulations
$
52,561
$
37,270
$
Securities loaned
Trading instruments
Available-for-sale securities
Margin loans
Bank loans, net of unearned income
Loans to financial advisors
Corporate cash and all other
Total interest income
Interest expense:
Bank deposits
Securities borrowed
Trading instruments sold but not yet purchased
Brokerage client payables
Other borrowings
Senior notes payable
Other
Total interest expense
Net interest income
Bank loan loss provision
14,548
23,016
52,420
107,201
722,339
15,078
56,830
1,043,993
65,557
7,630
7,344
15,367
22,006
72,708
10,891
201,503
842,490
(20,481)
14,049
21,068
27,946
85,699
572,171
13,333
30,590
802,126
17,184
6,690
6,138
4,884
16,559
94,665
7,658
153,778
648,348
(12,987)
Net interest income after bank loan loss provision
$
822,009
$
635,361
$
141
22,287
8,777
19,362
7,596
68,712
487,366
8,207
18,090
640,397
10,218
3,174
5,035
2,084
12,957
78,533
4,055
116,056
524,341
(28,167)
496,174
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Interest expense related to bank deposits in the preceding table for the years ended September 30, 2018, 2017 and 2016 excludes interest
expense associated with affiliate deposits, which has been eliminated in consolidation.
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 expense throughout the year. Effective October
1, 2018, benefits become fully vested after five 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, 2018 and 2017 was
approximately 4,611,000 and 4,690,000, respectively. The market value of our common stock held by the ESOP at September 30,
2018 was approximately $424 million, of which approximately $5 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
(see Note 9 for information regarding the carrying value of these company-owned life 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.
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. Company-owned life insurance 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, 2018, and 2017).
Compensation expense associated with all of the qualified and non-qualified plans described above totaled $154 million, $131 million
and $117 million for the fiscal years ended September 30, 2018, 2017 and 2016, 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. Our share-based compensation policies are described in Note 2.
Stock option 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 granted to our independent contractors were insignificant as of September 30, 2018.
Stock options
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
142
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
The following table presents expense and income tax benefit related to our stock options granted to employees and independent
contractor financial advisors for the periods indicated.
$ in thousands
Total share-based expense
Income tax benefit related to share-based expense
Year ended September 30,
2018
2017
2016
$
$
9,780
861
$
$
13,597
1,783
$
$
11,648
1,181
For the year ended September 30, 2018, we realized $1 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.
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. There were no new employee stock options granted in the year ended
September 30, 2018. The following weighted-average assumptions were used for stock options granted in the years ended September 30,
2017 and 2016.
Dividend yield
Expected volatility
Risk-free interest rate
Expected lives (in years)
Year ended September 30,
2017
2016
1.03%
30.91%
1.81%
5.4
1.41%
28.85%
1.65%
5.4
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.
The following table presents a summary of option activity for grants to employees for the year ended September 30, 2018.
Outstanding as of beginning of year
Exercised
Forfeited
Outstanding as of end of year
Exercisable as of end of year
Options for
shares
(in thousands)
Weighted- average
Weighted- average
remaining
contractual
Aggregate
intrinsic
exercise price
term
value
(per share)
(in years)
($ in thousands)
2,836
$
(739) $
(70) $
2,027
728
$
$
51.63
46.65
53.24
53.35
47.85
2.9
2.2
$
$
78,438
32,195
The following stock option activity occurred under the 2012 Plan for grants to employees for the periods indicated.
$ 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,
2018
2017
2016
$
$
N/A $
$
31,797
14,054
$
19.96
42,178
10,768
$
$
$
13.96
16,273
7,690
143
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents pre-tax compensation costs 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, 2018.
Employees
Independent contractor financial advisors
Pre-tax
compensation costs
not yet recognized
(in thousands)
Remaining
weighted-average
amortization period
(in years)
$
$
7,449
3,373
2.0
3.1
Cash received from stock option exercises during the year ended September 30, 2018 was $34 million.
Restricted stock and RSU 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
the Restricted Stock 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 our Canadian subsidiaries. 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.
We grant RSUs annually to non-employee members of our Board of Directors. The RSUs granted to these Directors vest over a one
year period from their grant date or upon retirement from our Board.
The following table presents the restricted equity award activity which includes restricted stock and RSUs for grants to employees and
members of our Board of Directors for the year ended September 30, 2018.
Shares/Units
(in thousands)
(per share)
Weighted- average
grant date fair value
Non-vested as of beginning of year
Granted
Vested
Forfeited
Non-vested as of end of year
4,744
1,225
$
$
(1,089) $
(97) $
4,783
$
58.94
87.33
49.02
64.31
68.39
The following table presents expense and income tax benefits related to our restricted equity awards granted to our employees and
members of our Board of Directors for the periods indicated.
$ in thousands
Total share-based expense
Income tax benefits related to share-based expense
Year ended September 30,
2018
2017
2016
$
$
88,602
23,244
$
$
78,624
27,658
$
$
62,674
21,979
Total share-based expense for the year ended September 30, 2017 included $5 million, which was 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, 2018, we realized $10 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 of September 30, 2018, there was $140 million of total pre-tax compensation costs 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 3.0 years. The total fair value of shares and unit awards vested under
this plan during the year ended September 30, 2018 was $51 million.
144
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
There were no outstanding RSUs related to our independent contractor financial advisors as of September 30, 2018.
RSU 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, 2018.
Non-vested DBRSUs at beginning of year
Vested
Forfeited
Non-vested DBRSUs at end of year
Units
(in thousands)
1,493
(77)
(44)
1,372
The per unit fair values of the DBRSUs at the AB Closing Date and at September 30, 2018 were $14.90 and $11.36, respectively.
As of September 30, 2018, there was a $5 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
of approximately 1.1 years. As of September 30, 2018, there was a $16 million derivative liability included in “Derivative liabilities”
in our Consolidated Statements of Financial Condition based on the September 30, 2018 per share price of DB shares of $11.36.
The following table presents the net impact of the DBRSUs in our Consolidated Statements of Income and Comprehensive Income,
including the related income tax effects, for the periods indicated.
$ in thousands
Amortization of DBRSU prepaid compensation asset
Increase/(decrease) in fair value of derivative liability
Net expense/(gain) before tax
Income tax benefit/(expense)
Year ended September 30,
2018
2017
2016
$
$
$
4,624
$
(8,192)
(3,568) $
(1,438) $
5,270
8,031
13,301
4,963
$
$
$
355
(2,457)
(2,102)
(799)
The preceding table includes the impact of the DBRSUs forfeited during the periods indicated. The table also includes 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.
We held shares of DB as of September 30, 2018 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 offset a portion of the gains/
losses on the DBRSUs.
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 336,000, 343,000 and 557,000 shares to
employees during the years ended September 30, 2018, 2017 and 2016, respectively. The compensation cost is calculated as the value
of the 15% discount from market value and was $5 million for the year ended September 30, 2018, and $4 million for each of the years
ended September 30, 2017 and 2016.
145
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. Company-owned life insurance 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. Company-owned life insurance 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 Fed. 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, as well as 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 capital under the Basel III standardized approach.
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. 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
began phasing in 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, 2018, 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 following table.
$ in thousands
RJF as of September 30, 2018:
CET1
Tier 1 capital
Total capital
Tier 1 leverage
RJF as of September 30, 2017:
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
1,057,404
1,409,872
1,879,830
1,451,360
994,950
1,326,600
1,768,800
1,359,168
4.5% $
6.0% $
8.0% $
4.0% $
4.5 % $
6.0 % $
8.0 % $
4.0 % $
1,527,362
1,879,830
2,349,787
1,814,200
1,437,150
1,768,800
2,211,000
1,698,960
6.5%
8.0%
10.0%
5.0%
6.5 %
8.0 %
10.0 %
5.0 %
$
$
$
$
$
$
$
$
5,717,748
5,717,748
5,940,703
5,717,748
5,081,335
5,081,335
5,293,331
5,081,335
24.3% $
24.3% $
25.3% $
15.8% $
23.0 % $
23.0 % $
23.9 % $
15.0 % $
146
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The increase in RJF’s Tier 1 capital and Total capital ratios at September 30, 2018 compared to September 30, 2017 was primarily the
result of positive earnings during the year ended September 30, 2018, partially offset by an increase in goodwill and identifiable
intangible assets related to the Scout Group acquisition and the growth of loans at RJ Bank.
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 following table.
$ in thousands
RJ Bank as of September 30, 2018:
CET1
Tier 1 capital
Total capital
Tier 1 leverage
RJ Bank as of September 30, 2017:
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
$
$
$
$
$
$
$
$
2,028,525
2,028,525
2,228,986
2,028,525
1,821,306
1,821,306
2,003,461
1,821,306
12.7% $
12.7% $
13.9% $
8.8% $
721,112
961,483
1,281,978
926,390
12.5 % $
12.5 % $
13.8 % $
8.9 % $
654,901
873,201
1,164,268
816,304
4.5% $
6.0% $
8.0% $
4.0% $
4.5 % $
6.0 % $
8.0 % $
4.0 % $
1,041,607
1,281,978
1,602,472
1,157,987
945,968
1,164,268
1,455,335
1,020,379
6.5%
8.0%
10.0%
5.0%
6.5 %
8.0 %
10.0 %
5.0 %
The increase in RJ Bank’s Tier 1 and Total capital ratios at September 30, 2018 compared to September 30, 2017 was primarily the
result of positive earnings during the year, partially offset by growth in assets, primarily bank loans.
Our intention is to maintain RJ Bank’s “well capitalized” status. In the unlikely event that RJ Bank failed to maintain its “well
capitalized” status, the consequences could include a requirement to obtain a waiver from the FDIC prior to acceptance, renewal, or
rollover of brokered deposits and higher FDIC premiums, but would not have a significant impact on our operations.
RJ Bank may pay dividends to the parent company without prior approval 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, 2018) 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
September 30,
2018
2017
28.22%
934,612
(66,239)
868,373
$
$
$
$
21.37%
589,420
(55,164)
534,256
147
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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,
2018
2017
$
$
33,393
(250)
33,143
$
$
34,488
(250)
34,238
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
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, 2018 or 2017.
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,
2018
2017
$
$
106,160
(250)
105,910
$
$
108,985
(250)
108,735
Raymond James Trust, N.A. (“RJ Trust”) is regulated by the OCC and is required to maintain sufficient capital. As of September 30,
2018 and 2017, RJ Trust met the requirements.
As of September 30, 2018, 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.
148
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 22 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per common 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 RSUs
Average common shares used in diluted computation
Earnings per common share:
Basic
Diluted
Stock options and certain RSUs excluded from weighted-average diluted common shares because their
effect would be antidilutive
Year ended September 30,
2018
2017
2016
$
$
$
$
$
$
$
$
$
$
$
$
856,695
(1,463)
855,232
856,695
(1,433)
855,262
145,271
3,567
148,838
5.89
5.75
527
$
$
$
$
636,235
(1,376)
634,859
636,235
(1,350)
634,885
143,275
3,372
146,647
4.43
4.33
$
$
1,657
529,350
(1,256)
528,094
529,350
(1,236)
528,114
141,773
2,740
144,513
3.72
3.65
3,255
The allocation of earnings and dividends to participating securities in the preceding 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 RSUs and amounted to weighted-average shares of 254 thousand, 317 thousand and 346 thousand for the
years ended September 30, 2018, 2017 and 2016, respectively. Dividends paid to participating securities were insignificant for the
years ended September 30, 2018, 2017, and 2016. 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 detailed in the following table for each respective period.
Dividends per common share - declared
Dividends per common share - paid
NOTE 23 – SEGMENT INFORMATION
Year ended September 30,
2018
2017
2016
$
$
1.10
1.02
$
$
0.88
0.86
$
$
0.80
0.78
We currently operate through the following five segments: PCG; 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. Segment results include allocations of most
corporate overhead and benefits expenses to each segment. Refer to the following discussion of the Other segment for a description
of the corporate expenses that are not allocated to segments. Intersegment revenues, expenses, receivables and payables are eliminated
upon consolidation.
The PCG segment provides financial planning and securities transaction services through our branch office systems throughout the
U.S., Canada and the United Kingdom. The PCG segment includes revenues from securities transaction services, including the sale
of equities, mutual funds, fixed income products and insurance products to individual clients. In addition, this segment includes
revenues from investment advisory services, for which we earn a fee generally based on a percentage of assets in client accounts. The
segment includes net interest earnings on client margin loans and cash balances, as well as certain fee revenues generated by the RJBDP,
our multi-bank sweep program.
Our Capital Markets segment conducts fixed income and equity institutional sales and trading activities, equity research, investment
banking and the syndication and related management of investments that qualify for tax credits. We primarily conduct these activities
149
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
in the U.S., Canada and Europe. This segment also includes our debt and equity underwritings, merger & acquisition and advisory
services, public finance activities, and the operations of RJTCF.
The Asset Management segment provides investment advisory and related administrative services to our PCG clients through our asset
management services division (“AMS”) and through Raymond James Trust, N.A. (“RJ Trust”). The segment also provides investment
advisory and asset management services to individual and institutional investors, including through third-party broker-dealers, through
Carillon Tower Advisers and its affiliates (collectively, “Carillon Tower”), which also sponsors a family of mutual funds. We earn
investment advisory fees and related administrative fees based on assets under management in both AMS and Carillon Tower. The
Asset Management segment also earns administrative fees on certain asset-based programs offered to PCG clients which are not
managed by our Asset Management segment, but for which the segment provides administrative support.
RJ Bank provides corporate loans, 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. RJ Bank generates
net interest revenue principally through the interest income earned on loans and an investment portfolio of securities, 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/(loss) attributable to noncontrolling interests
Year ended September 30,
2018
2017
2016
$
5,120,831
$
4,437,588
$
$
$
$
$
991,604
654,418
815,284
59,992
(166,308)
7,475,821
576,094
90,647
235,336
491,779
(83,201)
1,310,655
(5,778)
$
$
1,034,235
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
3,626,718
1,017,151
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
811,944
Income including noncontrolling interests and before provision for income taxes
$
1,304,877
$
927,978
$
No individual client accounted for more than ten percent of total revenues in any of the years presented.
$ in thousands
Net interest income/(expense):
Private Client Group
Capital Markets
Asset Management
RJ Bank
Other
Net interest income
Year ended September 30,
2018
2017
2016
$
$
165,304
$
136,756
$
4,422
1,974
704,361
(33,571)
842,490
$
6,543
623
574,796
(70,370)
648,348
$
97,042
9,432
183
478,690
(61,006)
524,341
150
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
September 30,
2018
2017
$
10,173,186
$
2,278,977
386,810
22,922,355
1,651,596
9,967,320
2,396,033
151,111
20,611,898
1,757,094
$
37,412,924
$
34,883,456
Total assets in the PCG segment included $276 million and $277 million of goodwill at September 30, 2018 and 2017, respectively.
Total assets in the Capital Markets segment included $133 million and $134 million of goodwill at September 30, 2018 and 2017,
respectively. Total assets in the Asset Management segment included $69 million of goodwill as of September 30, 2018, which was
entirely attributable of our fiscal year 2018 acquisition of the Scout Group.
We have operations in the U.S., Canada and Europe. Substantially all long-lived assets are located in the U.S. The following table
presents our revenues and income before provision for income taxes and excluding noncontrolling interests, classified by major
geographic area in which they were earned.
$ in thousands
Revenues:
U.S.
Canada
Europe
Other
Total
Pre-tax income/(loss) excluding noncontrolling interests:
U.S.
Canada
Europe
Other
Total
Year ended September 30,
2018
2017
2016
$
6,914,117
$
6,057,971
$
5,119,536
$
$
422,598
139,106
—
354,685
107,831
4,388
278,652
85,718
37,214
7,475,821
$
6,524,875
$
5,521,120
1,268,769
$
919,324
$
778,351
47,403
(5,517)
—
14,138
(3,577)
(4,539)
20,243
(3,791)
5,840
$
1,310,655
$
925,346
$
800,643
The following table presents our total assets classified by major geographic area in which they were held.
$ in thousands
Total assets:
U.S.
Canada
Europe
Other
Total
September 30,
2018
2017
$
34,650,260
$
32,200,852
2,673,452
2,592,480
89,148
64
81,090
9,034
$
37,412,924
$
34,883,456
Total assets in the U.S. included $426 million and $356 million of goodwill at September 30, 2018 and 2017, respectively. Total assets
in Canada included $43 million and $45 million of goodwill at September 30, 2018 and 2017, respectively. Total assets in Europe
included $9 million and $10 million of goodwill at September 30, 2018 and 2017, respectively.
NOTE 24 – 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 activities. The Parent’s primary activities include investments in subsidiaries and corporate investments, including
cash management, company-owned life insurance policies and private equity investments. The primary source of operating cash
available to the Parent is provided by dividends from its subsidiaries.
151
RAYMOND JAMES FINANCIAL, INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2018, each
of these broker-dealer subsidiaries far exceeded their minimum net capital requirements (see Note 21 for further information).
Net assets of approximately $2.81 billion as of September 30, 2018 were 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 $1.40 billion and $1.29 billion as of September 30, 2018 and 2017, respectively, 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 $277 million as of September 30,
2018, of which $254 million was available on demand and without restriction. As of September 30, 2017, $192 million was held in
depository accounts at RJ Bank, of which $152 million 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.
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 (primarily nonbank subsidiaries)
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 (primarily nonbank subsidiaries)
Accrued compensation and benefits
Senior notes payable
Total liabilities
Equity
Total liabilities and equity
September 30,
2018
2017
$
694,695
$
528,397
23,411
40,145
1,156,276
1,167,084
$
$
2,020,710
4,031,429
14,173
31,954
659,901
8,632,549
93,583
140,949
479,920
1,549,636
2,264,088
6,368,461
$
$
1,823,342
3,448,191
14,457
31,954
624,452
7,678,022
80,576
52,699
414,195
1,548,839
2,096,309
5,581,713
$
8,632,549
$
7,678,022
Of the total intercompany receivable from non-bank subsidiaries, $735 million and $783 million at September 30, 2018 and 2017,
respectively, was invested in cash and cash equivalents by the subsidiary on behalf of the Parent.
152
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 income
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,
2018
2017
2016
$
225,492
$
183,347
$
130,000
25,234
4,292
19,396
404,414
(73,907)
330,507
67,621
8,862
1,156
19,833
—
17,411
(31,817)
83,066
247,441
(11,436)
258,877
597,818
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
$
856,695
$
636,235
$
248,020
75,000
8,999
807
4,654
337,480
(78,089)
259,391
54,664
6,330
636
18,364
—
9,792
(40,424)
49,362
210,029
(64,658)
274,687
254,663
529,350
153
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:
Loss/(gain) on investments
(Gain)/loss on company-owned life insurance policies
Equity in undistributed net income of subsidiaries
Losses on extinguishment of debt
Other
Net change in:
Assets segregated pursuant to regulations
Intercompany receivables
Other assets
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 policies, net
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowing on the RJF Credit Facility
Repayment of borrowings on the RJF Credit Facility
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
154
Year ended September 30,
2018
2017
2016
$
856,695
$
636,235
$
529,350
1,196
(37,173)
(597,818)
—
114,294
16,734
6,468
47,411
88,251
13,009
65,725
574,792
(205,311)
4,340
12,148
(69,711)
(258,534)
300,000
(300,000)
—
—
—
63,347
(61,971)
(151,336)
(149,960)
166,298
528,397
(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
$
$
$
$
$
694,695
$
528,397
$
77,736
162,867
$
$
98,554
92,568
356
$
— $
24,352
8,854
$
$
$
$
(11,538)
(25,642)
(254,663)
—
73,798
—
19,641
97,067
(115,657)
2,396
58,520
373,272
(637,689)
(394,383)
24,609
(49,488)
(1,056,951)
—
—
792,221
(250,000)
—
43,331
(162,502)
(113,435)
309,615
(374,064)
746,042
371,978
74,568
27,397
781
—
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
SUPPLEMENTARY DATA:
SELECTED QUARTERLY FINANCIAL DATA
(unaudited)
in thousands, except per share amounts
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
Dividends per common share - declared
in thousands, except per share amounts
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
Dividends per common share - declared
Fiscal Year 2018
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
1,726,161 $
1,812,632 $
1,836,595 $
1,898,930
1,414,477 $
1,481,543 $
1,518,553 $
1,554,868
311,684 $
118,842 $
331,089 $
242,847 $
318,042 $
232,258 $
344,062
262,748
0.82 $
0.80 $
0.25 $
1.67 $
1.63 $
0.25 $
1.59 $
1.55 $
0.30 $
1.80
1.76
0.30
Fiscal Year 2017
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the year ended September 30, 2018 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
155
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
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, 2018. 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, 2018 (included as follows).
156
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Raymond James Financial, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Raymond James Financial Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
September 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2018, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated statements of financial condition of the Company as of September 30, 2018 and 2017, 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, 2018 and the related notes (collectively, the consolidated financial statements), and our report dated
November 20, 2018 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
Tampa, Florida
November 20, 2018
157
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 2019 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, 2018.
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 2019 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, 2018.
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
10.1
10.2
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
November 30, 2017, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 5, 2017.
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.
* 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.
158
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Exhibit
Number
10.3
10.4
10.5
Description
* 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.
* 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
* 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.
10.8
Stock Purchase Agreement, dated January 11, 2012, between Raymond James Financial, Inc. and Regions Financial Corporation
(excluding certain exhibits and schedules), incorporated by reference to Exhibit 10.19 to the Company’s Current Report on Form
8-K, filed with the Securities and Exchange Commission on January 12, 2012.
10.9
* Amended and Restated Raymond James Financial Long-Term Incentive Plan, effective August 22,2018.
10.10.1
10.10.2
10.10.3
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.
10.11.1
* 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.
10.11.2
* Form of Contingent Stock Option Agreement under 2012 Stock Incentive Plan, incorporated by reference to Exhibit 10.22 to the
Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 9, 2012.
10.11.3
10.11.4
10.11.5
10.11.6
10.11.7
* Form of Restricted Stock Unit Agreement for Non-Employee Director under 2012 Stock Incentive Plan, incorporated by reference
to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 9,
2012.
* Form of Restricted Stock Unit Agreement for 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.
* 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.
* 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.
10.11.8
* 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.
10.11.9
* 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.
10.11.10
* 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.
10.11.11
* 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.
10.11.12
* 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.
10.11.13
* 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.
159
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
Exhibit
Number
10.11.14
10.11.15
Description
Raymond James Financial, Inc. 2012 Stock Incentive Plan Sub-Plan for French Employees with Form of Restricted Stock Unit
Agreement, adopted and approved on February 20, 2014, incorporated by reference to Exhibit 10.16.9 to the Company’s Quarterly
Report on Form 10-Q, filed with the Securities and Exchange Commission on May 9, 2014.
* Form of Restricted Stock Unit Award Notice and Agreement for Stock Bonus Award (time-based vesting), as revised and approved
on May 17, 2017, under the Amended and Restated 2012 Stock Incentive Plan, incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on February 8, 2018.
10.11.16
* Form of Restricted Stock Unit Award Notice and Agreement for Stock Bonus Award (performance-based vesting), as revised and
approved on May 17, 2017, under the Amended and Restated 2012 Stock Incentive Plan, incorporated by reference to Exhibit 10.2
to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on February 8, 2018.
10.11.17
* Form of Restricted Stock Unit Award Notice and Agreement for Non-Bonus Award, as revised and approved on May 17, 2017,
under the Amended and Restated 2012 Stock Incentive Plan, incorporated by reference to Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q, filed with the Securities and Exchange Commission on February 8, 2018.
10.11.18
* Form of Restricted Stock Unit Award Notice and Agreement for Stock Bonus Award (time-based vesting) for Canadian
Employees, as revised and approved on May 17, 2017, under the Amended and Restated 2012 Stock Incentive Plan, incorporated
by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange
Commission on February 8, 2018.
10.11.19
* Form of Restricted Stock Unit Award Notice and Agreement for Stock Bonus Award (performance-based vesting) for Canadian
Employees, as revised and approved on May 17, 2017, under the Amended and Restated 2012 Stock Incentive Plan, incorporated
by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange
Commission on February 8, 2018.
10.11.20
* Form of Restricted Stock Unit Award Notice and Agreement for Non-Bonus Award for Canadian Employees, as revised and
approved on May 17, 2017, under the Amended and Restated 2012 Stock Incentive Plan, incorporated by reference to Exhibit 10.6
to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on February 8, 2018.
10.11.21
* Form of Award Agreement for Grant of Retention RSUs to Mr. Paul C. Reilly, 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 March 1, 2018.
10.12
10.13
11
12
21
23
31.1
31.2
32
* Raymond James Financial, Inc. Amended and Restated Voluntary Deferred Compensation Plan, effective May 17, 2017.
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 22 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.
160
RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
SIGNATURES
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 20th day
of November, 2018.
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 20, 2018
Executive Vice President - Finance and Chief Financial Officer
(Principal Financial Officer)
November 20, 2018
/s/ JENNIFER C. ACKART
Senior Vice President and Controller (Principal Accounting Officer)
November 20, 2018
Jennifer C. Ackart
/s/ THOMAS A. JAMES
Thomas A. James
Chairman Emeritus and Director
November 20, 2018
/s/ CHARLES G. VON ARENTSCHILDT
Director
Charles G. von Arentschildt
/s/ SHELLEY G. BROADER
Director
Shelley G. Broader
/s/ ROBERT M. DUTKOWSKY
Director
Robert M. Dutkowsky
/s/ JEFFREY N. EDWARDS
Director
Jeffrey N. Edwards
/s/ BENJAMIN C. ESTY
Benjamin C. Esty
/s/ ANNE GATES
Anne Gates
Director
Director
November 20, 2018
November 20, 2018
November 20, 2018
November 20, 2018
November 20, 2018
November 20, 2018
/s/ FRANCIS S. GODBOLD
Vice Chairman and Director
November 20, 2018
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
161
November 20, 2018
November 20, 2018
November 20, 2018
November 20, 2018
(THIS PAGE INTENTIONALLY LEFT BLANK)
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
• Continuing education is necessary to maintain the
level of service with integrity.
• Assisting our clients in the attainment of their financial
timeliness of investment knowledge, tax law information
and financial planning techniques.
objectives is our most worthy enterprise.
• Innovation is requisite to our survival in a changing world.
• We must communicate with our clients clearly and frequently.
• To emulate other members of our industry requires us to
• 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.
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.
R A Y M O N D J A M E S A N N U A L R E P O R T 2 0 1 8
INTERNATIONAL HEADQUARTERS: THE RAYMOND JAMES FINANCIAL CENTER
880 CARILLON PARKWAY ST. PETERSBURG, FL 33716 800.248.8863
RAYMONDJAMES.COM
© 2018 Raymond James Financial Raymond James® is a registered trademark of Raymond James Financial, Inc.