ANNUAL REPORT 2010 Raymond James Financial, Inc. Financial, James Raymond ANNUAL REPORT 2010 REPORT ANNUAL WELL PLANNED. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway // St. Petersburg, FL 33716 raymondjames.com ©2010 Raymond James Financial, Inc. THE RAYMOND JAMES PLEDGE WE, THE ASSOCIATES OF RAYMOND JAMES, commit OUR ENERGIES, INTELLECT AND KNowLEDGE to ATTAINING THE FINANCIAL OBJECTIVES OF OUR CLIENTS BY PROVIDING THE HIGHEST POSSIBLE LEVEL OF SERVICE AND DELIVERING SUPERIOR INVESTMENT ALTER- NATIVES. WE BELIEVE THAT PUTTING THE FINANCIAL WELL-BEING OF OUR CLIENTS FIRST ULTIMATELY SERVES THE BEST INTERESTS OF OUR SHAREHOLDERS, OUR COMMUNities AND OURSELVES. REMAINING RESPONSIVE TO THE NEEDS OF OUR CLIENTS IN A FINANCIAL ENVIRONMENT CHARACTERIZED BY CONSTANT CHANGE IS OUR CONTINUING CHALLENGE. Financial Highlights ..................................................................................1 Message from the CEO and the Chairman ..............................................2 2010 Growth Stories ..................................................................................6 The Raymond James Mission ................................................................ 19 10-Year Financial Summary .................................................................... 20 Directors, Operating Committee and Executive Officers .................... 23 Corporate and Shareholder Information ............................................... 24 Form 10-K ........................................................................following page 24 RAYMOND JAMES 2010 LONG-TERM SUCCESS STEMS FROM A LONG-STANDING COMMITMENT TO PLANNING. YEAR-END FINANCIAL HIGHLIGHTS 2010 2009 Increase Total Revenues $2,979,516,000 $2,602,519,000 14.5% Net Revenues $2,916,665,000 $2,545,566,000 14.6% Net Income $228,283,000 $152,750,000 49.4% Earnings per Share (Diluted) $1.83 $1.25 46.4% Shareholders’ Equity $2,302,816,000 $2,032,463,00 13.3% Shares Outstanding 121,041,000 118,799,000 Shareholders’ Equity per Share $19.03 $17.11 FIVE-YEAR RELATIVE STOCK PERFORMANCE A $100 investment in Raymond James Financial stock in 2005 would have increased to $128.26 in 2010, outperforming both the S&P and our peers. Comparison of Five- Year Cumulative Total Return Assumes Initial Investment of $100 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 9/05 9/06 9/07 9/08 9/09 9/10 Raymond James Financial S&P 500 Dow Jones U.S. Investment Services Copyright ©2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. Copyright ©2010 Dow Jones & Co. All rights reserved. Comparison of Five- Year Cumulative Total Return Assumes Initial Investment of $100 $180 $160 $140 1 $120 $100 $80 $60 $40 $20 $0 9/05 9/06 9/07 9/08 9/09 9/10 Raymond James Financial S&P 500 Dow Jones U.S. Investment Services Dear Fellow Shareholders, This year’s annual report theme is “well planned,” enabling us to showcase examples of the challenges our financial professionals resolved in assisting clients – whether MESSAGE FROM individual, corporate, institutional or governmental – to attain some of their financial goals. Extraordinary service begins by providing superior resources and support to our THE CEO AND financial advisors, investment bankers, institutional salespeople and public finance THE CHAIRMAN experts, which is integral to both serving the end client and to achieving revenue growth by continuing to attract additional experienced financial professionals. Obviously, managing a successful business requires the same combination of planning and execution to attain corporate goals. Our letter will focus on this aspect of “well planned” by recounting Raymond James’ performance in 2010, as well as describing the outlook for 2011. In our 2008 annual report, we described the horror of the beginning of the meltdown in the financial and real estate industries, and expressed fear that 2009 might be much worse. At the same time, we concluded that when investors regained confidence that things would recover, Raymond James would have a tremendous opportunity to gain market share in the private client, capital markets, banking and asset management businesses. By the time our 2009 annual report was written, the S&P 500 had recovered 61% from its March low. Although the fallout of the market decline depressed our results, we remained profitable and, by year-end, our results were improving, although the drag of the ensuing deep recession dictated a slow and painful recovery. By fiscal 2010, our observations about the opportunities for Raymond James to improve its position in the financial From left: Paul Reilly, CEO, services industry proved prescient. Aggressive recruiting and Tom James, Chairman in all of our business segments during the meltdown was rewarded. Investment in talented and experienced professionals, who have values compatible with our busi- ness model, resulted in a 49% increase in net income to $228 million in fiscal 2010, up from $153 million in 2009. Record net revenues of $2.9 billion were up 15% from the preceding year. As the financial markets rallied, and the economy stabilized and began to grow anew, all of our major segments participated in the improved results. In fiscal 2010, the pre-tax profit contribution of the Private Client Group grew 89% to $160 million. As Equity Capital Markets joined Fixed Income as a major contributor, Capital Markets’ pre-tax contribution grew 15% to $84 million. Driven by asset appreciation and positive net sales arising from excellent portfolio performance, Asset Management’s contribution increased 54% to $47 million. Through a combination of continued healthy loan spreads and lower loan loss provisions, Raymond James Bank’s pre-tax contribution grew 40% to $112 million. Profit growth was inhibited by a combination of high unemployment, understandable conservatism in hiring and capital expenditures by business, and reluctance on the part of investors to begin investing in equities due to the losses they 2 RAYMOND JAMES 2010 experienced in 2008-2009. In addition, the continuing low rates of interest on cash balances, resulting from the Federal Reserve Board’s determination to stimulate economic growth and reduce unemployment, restricted our net interest earnings. NET REVENUE NET INCOME $BILLIONS $MILLIONS Consequently, after-tax margins on net revenues of 7.7% and the rate of return on average equity of 10.6% trailed historical averages. However, those results should 2.92 250 2.81 235 improve as revenues continue their upward climb. 228 2.61 2.55 214 A number of the important occurrences of 2010 are enumerated below. 2.35 2.05 SIGNIFICANT EVENTS, ACCOMPLISHMENTS AND UNDERTAKINGS 151 153 • In the December quarter, the Industrial Growth strategic business unit of our investment bank received The M&A Advisor Middle Market Deal of the Year award for its assistance in the sale of Nuclear Fuel Services to Babcock & Wilcox. • Raymond James Financial Services was named the 2009 Broker/Dealer Excellence Award winner in the large independent firm category by Boomer Market Advisor for the second consecutive year. • On March 1, Eagle Asset Management launched the Eagle Investment Grade Bond 05 06 07 08 09 10 05 06 07 08 09 10 Fund, co-managed by James Camp, CFA, and Joe Jackson, CFA, to complement its fixed income managed account program. By September 30, the fund’s excellent performance had attracted $96 million in investor assets. MARKET RETURN ON EQUITY CAPITALIZATION • Equity Capital Markets’ investment bankingNET t REVENUEeam was recognized as Middle Market NET INCOME $BILLIONS $BILLIONS 15.7$MILLIONS% Investment Bank of the Year in Buyouts magazine’s “Deal of the Year Yearbook.” 15.6% 3.95 3.97 2.92 250 • In March, the St. Petersburg Times named Raymond James one of its “Top 13.1% 13.0% 2.81 235 Workplaces 2010.” Soon thereafter, the Tampa Bay Business Journal recognized 228 3.41 2.61 2.55 214 3.16 Raymond James among the state’s “Best Places to Work” in its “Biggest” category 10.6% 2.35 2.87 (100 employees and up). 7.9% 2.05 2.43 • For the second consecutive year, our Canadian subsidiary, Raymond James Ltd., 151 153 has ranked highest in investor satisfaction among Canadian full-service brokerage firms, according to the 2010 J.D. Power and Associates survey. • In the Forbes/Zacks Investment Research survey that identifies top analysts based on buy, sell and hold advice, as well as earnings forecast accuracy, Raymond James placed third, with nine analysts receiving a total of 15 awards. • In a further substantiation of the excellence of Raymond James research, the Financial Times, in conjunction with Starmine, a leading research performance consultant, awarded our analysts 11 awards for stock selection and earnings 05 06 07 08 09 10 05 06 07 08 09 10 accuracy, ranking us 10th in the industry.05 06 07 08 09 10 05 06 07 08 09 10 • The Raymond James board named Gordon Johnson as our sixth independent director. He possesses experience in commercial banking, investment banking and MARKET corporate management. He is co-ownerRETURN and president ON EQUITY of Highway Safety Devices, CAPITALIZATION and already serves on the board of Raymond James Bank. $BILLIONS 15.7%15.6% 3.95 3.97 13.1% 13.0% 3.41 10.6% 3.16 2.87 7.9% 2.43 3 05 06 07 08 09 10 05 06 07 08 09 10 NET REVENUE NET INCOME $BILLIONS $MILLIONS 2.92 250 2.81 235 228 2.61 2.55 214 2.35 2.05 151 153 05 06 07 08 09 10 05 06 07 08 09 10 • During the year, Raymond JamesMARKET Bank increased its total capital to risk-weighted RETURN ON EQUITY CAPITALIZATION NET REVENUE NET INCOME assets ratio to 14.2%, excluding$BILLIONS overnight borrowings on September 30, 2010, required $BILLIONS 15.7$MILLIONS%15.6% to meet point-in-time regulatory thrift requirements. 3.95 3.97 2.92 250 • The average rate of return on equity for the year was 10.6%, up from 7.9% last year. 13.1% 13.0% 2.81 235 228 While this performance measure3.41 is still below our target of 15%, the increase 2.61 214 2.55 10.6% signifies the impressive improvement in3.16 results.