RJF-2014.12.31.10Q
Index

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2014
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
 

Commission File Number: 1-9109

RAYMOND JAMES FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Florida
 
No. 59-1517485
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
880 Carillon Parkway, St. Petersburg, Florida 33716
(Address of principal executive offices)    (Zip Code)
(727) 567-1000
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
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 for 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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨                               No x
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

142,781,599 shares of common stock as of February 2, 2015



RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

Form 10-Q for the quarter ended December 31, 2014

INDEX

 
 
 
PAGE
PART I.
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II.
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
Signatures

2
Index

PART I FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

 
 
 
 
 
December 31, 2014
 
September 30, 2014
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
2,649,385

 
$
2,199,063

Assets segregated pursuant to regulations and other segregated assets
2,359,954

 
2,489,264

Securities purchased under agreements to resell and other collateralized financings
384,129

 
446,016

Financial instruments, at fair value:
 

 
 

Trading instruments
606,676

 
679,393

Available for sale securities
544,634

 
562,289

Private equity investments
208,674

 
211,666

Other investments
215,779

 
215,751

Derivative instruments associated with offsetting matched book positions
385,512

 
323,337

Receivables:
 

 
 

Brokerage clients, net
2,004,104

 
2,126,804

Stock borrowed
210,769

 
158,988

Bank loans, net
11,809,886

 
10,964,299

Brokers-dealers and clearing organizations
72,720

 
107,116

Loans to financial advisors, net
447,523

 
424,928

Other
441,533

 
544,180

Deposits with clearing organizations
150,238

 
150,457

Prepaid expenses and other assets
697,632

 
655,256

Investments in real estate partnerships held by consolidated variable interest entities
232,159

 
235,858

Property and equipment, net
242,540

 
245,401

Deferred income taxes, net
236,925

 
231,325

Goodwill and identifiable intangible assets, net
352,474

 
354,261

Total assets
$
24,253,246

 
$
23,325,652



(continued on next page)













See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

3
Index


RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(continued from previous page)
 
 
 
 
 
December 31, 2014
 
September 30, 2014
 
($ in thousands)
Liabilities and equity:
 

 
 

Trading instruments sold but not yet purchased, at fair value
$
197,975

 
$
238,400

Securities sold under agreements to repurchase
337,107

 
244,495

Derivative instruments associated with offsetting matched book positions, at fair value
385,512

 
323,337

Payables:
 

 
 

Brokerage clients
4,039,037

 
3,956,104

Stock loaned
390,159

 
417,383

Bank deposits
11,089,019

 
10,028,924

Brokers-dealers and clearing organizations
134,455

 
216,530

Trade and other
702,749

 
763,235

Other borrowings
605,166

 
654,916

Accrued compensation, commissions and benefits
589,580

 
814,359

Loans payable of consolidated variable interest entities
34,470

 
43,877

Corporate debt
1,189,883

 
1,190,836

Total liabilities
19,695,112

 
18,892,396

Commitments and contingencies (see Note 15)


 


Equity
 

 
 

Preferred stock; $.10 par value; authorized 10,000,000 shares; issued and outstanding -0- shares
—

 
—

Common stock; $.01 par value; authorized 350,000,000 shares; issued 147,191,453 at December 31, 2014 and 146,103,658 at September 30, 2014
1,469

 
1,444

Additional paid-in capital
1,285,494

 
1,239,046

Retained earnings
3,123,498

 
3,023,845

Treasury stock, at cost; 5,028,057 common shares at December 31, 2014 and 4,900,266 common shares at September 30, 2014
(131,444
)
 
(121,211
)
Accumulated other comprehensive loss
(8,352
)
 
(1,888
)
Total equity attributable to Raymond James Financial, Inc.
4,270,665

 
4,141,236

Noncontrolling interests
287,469

 
292,020

Total equity
4,558,134

 
4,433,256

Total liabilities and equity
$
24,253,246

 
$
23,325,652


















See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


4
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)

 
Three months ended December 31,
 
2014
 
2013
 
(in thousands, except per share amounts)
Revenues:
 
 
 
Securities commissions and fees
$
834,009

 
$
782,180

Investment banking
77,538

 
79,797

Investment advisory fees
98,761

 
93,414

Interest
132,109

 
117,093

Account and service fees
111,158

 
93,574

Net trading profit
8,881

 
18,151

Other
17,388

 
24,565

Total revenues
1,279,844

 
1,208,774

Interest expense
(27,384
)
 
(25,372
)
Net revenues
1,252,460

 
1,183,402

Non-interest expenses:
 

 
 

Compensation, commissions and benefits
841,450

 
804,945

Communications and information processing
55,916

 
61,854

Occupancy and equipment costs
39,227

 
39,685

Clearance and floor brokerage
9,498

 
9,954

Business development
36,990

 
32,244

Investment sub-advisory fees
14,255

 
11,799

Bank loan loss provision
9,365

 
1,636

Other
47,110

 
42,473

Total non-interest expenses
1,053,811

 
1,004,590

Income including noncontrolling interests and before provision for income taxes
198,649

 
178,812

Provision for income taxes
76,612

 
62,291

Net income including noncontrolling interests
122,037

 
116,521

Net loss attributable to noncontrolling interests
(4,259
)
 
(112
)
Net income attributable to Raymond James Financial, Inc.
$
126,296

 
$
116,633

 
 
 
 
Net income per common share – basic
$
0.89

 
$
0.83

Net income per common share – diluted
$
0.87

 
$
0.81

Weighted-average common shares outstanding – basic
141,246

 
139,089

Weighted-average common and common equivalent shares outstanding – diluted
145,282

 
142,597

 
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
126,296

 
$
116,633

Other comprehensive income (loss), net of tax:(1)
 

 
 

Change in unrealized losses on available for sale securities and non-credit portion of other-than-temporary impairment losses
(24
)
 
1,094

Change in currency translations and net investment hedges
(6,440
)
 
(6,275
)
Total comprehensive income
$
119,832

 
$
111,452

 
 
 
 
Other-than-temporary impairment:
 

 
 

Total other-than-temporary impairment, net
$
1,751

 
$
1,584

Portion of pre-tax recoveries recognized in other comprehensive income
(1,751
)
 
(1,611
)
Net impairment losses recognized in other revenue
$
—

 
$
(27
)
 
(1)
All components of other comprehensive income, net of tax, are attributable to Raymond James Financial, Inc. 







See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

5
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
 
Three months ended December 31,
 
2014
 
2013
 
(in thousands, except per share amounts)
Common stock, par value $.01 per share:
 
 
 
Balance, beginning of year
$
1,444

 
$
1,429

Other issuances
25

 
7

Balance, end of period
1,469

 
1,436

 
 
 
 
Additional paid-in capital:
 

 
 

Balance, beginning of year
1,239,046

 
1,136,298

Employee stock purchases
3,877

 
3,391

Exercise of stock options and vesting of restricted stock units, net of forfeitures
11,284

 
7,460

Restricted stock, stock option and restricted stock unit expense
21,885

 
19,148

Excess tax benefit from share-based payments
9,367

 
5,923

Other
35

 
(231
)
Balance, end of period
1,285,494

 
1,171,989

 
 
 
 
Retained earnings:
 

 
 

Balance, beginning of year
3,023,845

 
2,635,026

Net income attributable to Raymond James Financial, Inc.
126,296

 
116,633

Cash dividends declared
(26,643
)
 
(23,188
)
Other
—

 
(296
)
Balance, end of period
3,123,498

 
2,728,175

 
 
 
 
Treasury stock:
 

 
 

Balance, beginning of year
(121,211
)
 
(120,555
)
Purchases/surrenders
(5,679
)
 
(1,850
)
Exercise of stock options and vesting of restricted stock units, net of forfeitures
(4,554
)
 
(2,664
)
Balance, end of period
(131,444
)
 
(125,069
)
 
 
 
 
Accumulated other comprehensive income:(1)
 

 
 

Balance, beginning of year
$
(1,888
)
 
$
10,726

Net change in unrealized losses on available for sale securities and non-credit portion of other-than-temporary impairment losses, net of tax
(24
)
 
1,094

Net change in currency translations and net investment hedges, net of tax
(6,440
)
 
(6,275
)
Balance, end of period
(8,352
)
 
5,545

Total equity attributable to Raymond James Financial, Inc.
$
4,270,665

 
$
3,782,076

 
 
 
 
Noncontrolling interests:
 

 
 

Balance, beginning of year
$
292,020

 
$
335,413

Net loss attributable to noncontrolling interests
(4,259
)
 
(112
)
Capital contributions
9,898

 
11,682

Distributions
(8,996
)
 
(8,345
)
Other
(1,194
)
 
4,874

Balance, end of period
287,469

 
343,512

Total equity
$
4,558,134

 
$
4,125,588


(1)
All components of other comprehensive income, net of tax, are attributable to Raymond James Financial, Inc. 








See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

6
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Three months ended December 31,
 
2014
 
2013
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
126,296

 
$
116,633

Net loss attributable to noncontrolling interests
(4,259
)
 
(112
)
Net income including noncontrolling interests
122,037

 
116,521

 
 
 
 
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
 

 
 

Depreciation and amortization
16,327

 
16,609

Deferred income taxes
(4,090
)
 
(4,343
)
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments
(6,704
)
 
(6,664
)
Provisions for loan losses, legal proceedings, bad debts and other accruals
11,267

 
5,265

Share-based compensation expense
22,665

 
20,876

Other
1,872

 
(8,685
)
Net change in:
 

 
 

Assets segregated pursuant to regulations and other segregated assets
129,310

 
1,472,663

Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase
154,499

 
114,995

Stock loaned, net of stock borrowed
(79,005
)
 
(91,582
)
Loans provided to financial advisors, net of repayments
(27,537
)
 
(7,058
)
Brokerage client receivables and other accounts receivable, net
259,730

 
228,526

Trading instruments, net
14,616

 
117,067

Prepaid expenses and other assets
31,112

 
6,767

Brokerage client payables and other accounts payable
(91,971
)
 
(1,812,395
)
Accrued compensation, commissions and benefits
(224,936
)
 
(168,328
)
(Purchases and originations of loans held for sale) proceeds from sales of securitizations and loans held for sale, net
(80,176
)
 
22,205

Excess tax benefits from share-based payment arrangements
(9,367
)
 
(5,923
)
Net cash provided by operating activities
239,649

 
16,516

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to property and equipment
(13,058
)
 
(12,691
)
Increase in bank loans, net
(766,663
)
 
(585,879
)
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock
(450
)
 
—

Proceeds from sales of loans held for investment
14,869

 
57,973

Purchases of/contributions to private equity and other investments, net
(17,667
)
 
(14,821
)
Purchases of available for sale securities
—

 
(1,306
)
Available for sale securities maturations, repayments and redemptions
17,485

 
51,060

Proceeds from sales of available for sale securities
—

 
370

Investments in real estate partnerships held by consolidated variable interest entities, net of other investing activity
46

 
—

Net cash used in investing activities
$
(765,438
)
 
$
(505,294
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(continued on next page)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
 
 
 
 

7
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued from previous page)
 
Three months ended December 31,
 
2014
 
2013
 
(in thousands)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from borrowed funds, net
$
—

 
$
367

Repayments of borrowed funds, net
(50,750
)
 
(6,621
)
Repayments of borrowings by consolidated variable interest entities which are real estate partnerships
(9,924
)
 
(10,956
)
Proceeds from capital contributed to and borrowings of consolidated variable interest entities which are real estate partnerships
—

 
11,666

Exercise of stock options and employee stock purchases
17,073

 
10,598

Increase in bank deposits
1,060,095

 
710,067

Purchases of treasury stock
(12,708
)
 
(5,028
)
Dividends on common stock
(23,626
)
 
(20,280
)
Excess tax benefits from share-based payment arrangements
9,367

 
5,923

Net cash provided by financing activities
989,527

 
695,736

 
 
 
 
Currency adjustment:
 

 
 

Effect of exchange rate changes on cash
(13,416
)
 
(1,622
)
Net increase in cash and cash equivalents
450,322

 
205,336

Cash and cash equivalents at beginning of year
2,199,063

 
2,596,616

Cash and cash equivalents at end of period
$
2,649,385

 
$
2,801,952

 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
26,867

 
$
24,448

Cash paid for income taxes
$
66,578

 
$
78,074

Non-cash transfers of loans to other real estate owned
$
1,577

 
$
989






























See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

8
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2014

NOTE 1 – INTRODUCTION AND BASIS OF PRESENTATION

Description of business

Raymond James Financial, Inc. (“RJF” or the “Company”) is a financial holding company headquartered in Florida whose broker-dealer subsidiaries are engaged in various financial service businesses, including the underwriting, distribution, trading and brokerage of equity and debt securities and the sale of mutual funds and other investment products.  In addition, other subsidiaries of RJF provide investment management services for retail and institutional clients, corporate and retail banking, and trust services.  As used herein, the terms “we,” “our” or “us” refer to RJF and/or one or more of its subsidiaries.

Basis of presentation

The accompanying unaudited condensed 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 on pages 115 - 118 in the section titled, “Evaluation of VIEs to determine whether consolidation is required” as presented in our Annual Report on Form 10-K for the year ended September 30, 2014, as filed with the United States (“U.S.”) Securities and Exchange Commission (the “2014 Form 10-K”) and in Note 8 herein. 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

Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) but not required for interim reporting purposes has been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented.

The nature of our business is such that the results of any interim period are not necessarily indicative of results for a full year. These unaudited condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis and the consolidated financial statements and notes thereto included in our 2014 Form 10-K. To prepare condensed consolidated financial statements in conformity with GAAP, we must 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 condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could have a material impact on the condensed consolidated financial statements.

Significant subsidiaries

As of December 31, 2014, our significant subsidiaries, all wholly owned, include: Raymond James & Associates, Inc. (“RJ&A”) a domestic broker-dealer carrying client accounts, Raymond James Financial Services, Inc. (“RJFS”) an introducing domestic broker-dealer, Raymond James Financial Services Advisors, Inc. (“RJFSA”) a registered investment advisor, Raymond James Ltd. (“RJ Ltd.”) a broker-dealer headquartered in Canada, Eagle Asset Management, Inc. (“Eagle”) a registered investment advisor, and Raymond James Bank, N.A. (“RJ Bank”) a national bank.

Reclassifications
Certain prior period amounts, none of which are material, have been reclassified to conform to the current period’s presentation.

NOTE 2 – UPDATE OF SIGNIFICANT ACCOUNTING POLICIES

A summary of our significant accounting policies is included in Note 2 on pages 100 - 118 of our 2014 Form 10-K. There have been no significant changes in our significant accounting policies since September 30, 2014.

9
Index

Brokerage client receivables, loans to financial advisors and allowance for doubtful accounts
As more fully described in Note 2 on page 107 - 108 of our 2014 Form 10-K, we have certain financing receivables that arise from businesses other than our banking business. Specifically, we offer loans to financial advisors and certain key revenue producers, primarily for recruiting and retention purposes. We present the outstanding balance of loans to financial advisors on our Condensed Consolidated Statements of Financial Condition, net of their applicable allowances for doubtful accounts. The allowance for doubtful accounts balance associated with all of our loans to financial advisors is $2.7 million and $2.5 million at December 31, 2014 and September 30, 2014, respectively. Of the December 31, 2014 loans to financial advisors, the portion of the balance associated with financial advisors who are no longer affiliated with us, after consideration of the allowance for doubtful accounts, is approximately $5 million.


NOTE 3 – CASH AND CASH EQUIVALENTS, ASSETS SEGREGATED PURSUANT TO REGULATIONS, AND DEPOSITS WITH CLEARING ORGANIZATIONS

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.  For discussion of our accounting policies regarding assets segregated pursuant to regulations and other segregated assets, see Note 2 on page 102 of our 2014 Form 10-K.

Our cash and cash equivalents, assets segregated pursuant to regulations or other segregated assets, and deposits with clearing organization balances are as follows:
 
December 31,
2014
 
September 30,
2014
 
(in thousands)
Cash and cash equivalents:
 
 
 
Cash in banks
$
2,643,330

 
$
2,195,683

Money market fund investments
6,055

 
3,380

Total cash and cash equivalents (1)
2,649,385

 
2,199,063

Cash segregated pursuant to federal regulations and other segregated assets (2)
2,359,954

 
2,489,264

Deposits with clearing organizations (3)
150,238

 
150,457

 
$
5,159,577

 
$
4,838,784


(1)
The total amounts presented include cash and cash equivalents of $1.17 billion and $1.21 billion as of December 31, 2014 and September 30, 2014, respectively, which are either held directly by RJF in depository accounts at third party financial institutions, held in a depository account at RJ Bank, or are otherwise invested by one of our subsidiaries on behalf of RJF, all of which are available without restrictions.

(2)
Consists of cash maintained in accordance with Rule 15c3-3 under the Securities Exchange Act of 1934. RJ&A as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in segregated reserve accounts for the exclusive benefit of its clients. Additionally, RJ Ltd. is required to hold client Registered Retirement Savings Plan funds in trust.

(3)
Consists of deposits of cash and cash equivalents or other short-term securities held by other clearing organizations or exchanges.

10
Index

NOTE 4 – FAIR VALUE

For a discussion of our valuation methodologies for assets, liabilities measured at fair value, and the fair value hierarchy, see Note 2 on pages 102 - 107 of our 2014 Form 10-K. There have been no material changes to our valuation methodologies since our year ended September 30, 2014.

Assets and liabilities measured at fair value on a recurring and nonrecurring basis are presented below:
December 31, 2014
 
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
 
Significant
other
observable
inputs
(Level 2) (1)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments (2)
 
Balance as of
December 31,
2014
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
8,677

 
$
136,491

 
$
—

 
$
—

 
$
145,168

Corporate obligations
 
528

 
45,938

 
—

 
—

 
46,466

Government and agency obligations
 
19,530

 
90,666

 
—

 
—

 
110,196

Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)
 
102

 
162,057

 
—

 
—

 
162,159

Non-agency CMOs and asset-backed securities (“ABS”)
 
—

 
28,055

 
11

 
—

 
28,066

Total debt securities
 
28,837

 
463,207

 
11

 
—

 
492,055

Derivative contracts
 
—

 
104,873

 
—

 
(71,306
)
 
33,567

Equity securities
 
18,399

 
4,549

 
14

 
—

 
22,962

Corporate loans
 
—

 
8,888

 
—

 
—

 
8,888

Other
 
583

 
43,357

 
5,264

 
—

 
49,204

Total trading instruments
 
47,819

 
624,874

 
5,289

 
(71,306
)
 
606,676

Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 
—

 
253,651

 
—

 
—

 
253,651

Non-agency CMOs
 
—

 
90,282

 
—

 
—

 
90,282

Other securities
 
1,932

 
—

 
—

 
—

 
1,932

Auction rate securities (“ARS”):
 
 

 
 

 
 

 
 

 
 

Municipals
 
—

 
—

 
85,814

(3) 
—

 
85,814

Preferred securities
 
—

 
—

 
112,955

 
—

 
112,955

Total available for sale securities
 
1,932

 
343,933

 
198,769

 
—

 
544,634

Private equity investments
 
—

 
—

 
208,674

(4) 
—

 
208,674

Other investments (5)
 
212,898

 
1,317

 
1,564

 
—

 
215,779

Derivative instruments associated with offsetting matched book positions
 
—

 
385,512

 
—

 
—

 
385,512

Other assets
 
—

 
—

 
2,407

(6) 
—

 
2,407

Total assets at fair value on a recurring basis
 
$
262,649

 
$
1,355,636

 
$
416,703

 
$
(71,306
)
 
$
1,963,682

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 

 
 

 
 

 
 

 
 

Bank loans, net:
 
 

 
 

 
 

 
 

 
 

Impaired loans
 
$
—

 
$
32,990

 
$
52,201

 
$
—

 
$
85,191

Loans held for sale(7)
 
—

 
20,100

 
—

 
—

 
20,100

Total bank loans, net
 
—

 
53,090

 
52,201

 
—

 
105,291

Other real estate owned (“OREO”)(8)
 
—

 
675

 
—

 
—

 
675

Total assets at fair value on a nonrecurring basis
 
$
—

 
$
53,765

 
$
52,201

 
$
—

 
$
105,966

 
(continued on next page)

11
Index

December 31, 2014
 
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
 
Significant
other
observable
inputs
(Level 2) (1)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments (2)
 
Balance as of
December 31,
2014
 
 
(in thousands)
 
 
(continued from previous page)
Liabilities at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments sold but not yet purchased:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
7,674

 
$
77

 
$
—

 
$
—

 
$
7,751

Corporate obligations
 
—

 
16,319

 
—

 
—

 
16,319

Government obligations
 
141,525

 
—

 
—

 
—

 
141,525

Agency MBS and CMOs
 
2,268

 
21

 
—

 
—

 
2,289

Total debt securities
 
151,467

 
16,417

 
—

 
—

 
167,884

Derivative contracts
 
—

 
91,984

 
—

 
(75,210
)
 
16,774

Equity securities
 
13,317

 
—

 
—

 
—

 
13,317

Total trading instruments sold but not yet purchased
 
164,784

 
108,401

 
—

 
(75,210
)
 
197,975

Derivative instruments associated with offsetting matched book positions
 
—

 
385,512

 
—

 
—

 
385,512

Trade and other payables:
 
 
 
 
 
 
 
 
 


Derivative contracts
 
—

 
1,102

 
—

 
—

 
1,102

Other liabilities
 
—

 
—

 
58


—

 
58

Total trade and other payables
 
—

 
1,102

 
58

 
—

 
1,160

Total liabilities at fair value on a recurring basis
 
$
164,784

 
$
495,015

 
$
58

 
$
(75,210
)
 
$
584,647


(1)
We had $500 thousand in transfers of financial instruments from Level 1 to Level 2 during the three months ended December 31, 2014.  These transfers were a result of a decrease in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. We had $1.1 million in transfers of financial instruments from Level 2 to Level 1 during the three months ended December 31, 2014.  These transfers were a result of an increase in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement.  Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.

(2)
Where permitted, we have elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists (see Note 13 for additional information regarding offsetting financial instruments).

(3)
Includes $57 million of Jefferson County, Alabama Limited Obligation School Warrants ARS.

(4)
The portion of these investments we do not own is approximately $52 million as of December 31, 2014 and are included as a component of noncontrolling interest in our Condensed Consolidated Statements of Financial Condition. The weighted average portion we own is approximately $157 million or 75% of the total private equity investments of $209 million included in our Condensed Consolidated Statements of Financial Condition.

(5)
Other investments include $146 million of financial instruments that are related to obligations to perform under certain deferred compensation plans (see Note 2 on page 114, and Note 24 on page 173, of our 2014 Form 10-K for further information regarding these plans).

(6)
Includes forward commitments to purchase GNMA or FNMA (as hereinafter defined) MBS arising from our fixed income public finance operations, and to a much lesser extent, other certain commitments. See Note 2 on page 104, and Note 21 on page 167 of our 2014 Form 10-K, as well as Note 15 in this report, for additional information regarding the GNMA or FNMA MBS commitments.

(7)
Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.

(8)
Represents the fair value of foreclosed properties which were measured at a fair value subsequent to their initial classification as OREO. The recorded value in the Condensed Consolidated Statements of Financial Condition is net of the estimated selling costs.




12
Index


September 30, 2014
 
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
 
Significant
other
observable
inputs
(Level 2) (1)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments (2)
 
Balance as of
September 30,
2014
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
11,407

 
$
192,482

 
$
—

 
$
—

 
$
203,889

Corporate obligations
 
1,989

 
109,939

 
—

 
—

 
111,928

Government and agency obligations
 
7,376

 
93,986

 
—

 
—

 
101,362

Agency MBS and CMOs
 
247

 
127,172

 
—

 
—

 
127,419

Non-agency CMOs and ABS
 
—

 
58,364

 
11

 
—

 
58,375

Total debt securities
 
21,019

 
581,943

 
11

 
—

 
602,973

Derivative contracts
 
—

 
89,923

 
—

 
(61,718
)
 
28,205

Equity securities
 
28,834

 
5,264

 
44

 
—

 
34,142

Corporate loans
 
—

 
990

 
—

 
—

 
990

Other
 
566

 
10,208

 
2,309

 
—

 
13,083

Total trading instruments
 
50,419

 
688,328

 
2,364

 
(61,718
)
 
679,393

 
 
 
 
 
 
 
 
 
 
 
Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 
—

 
267,720

 
—

 
—

 
267,720

Non-agency CMOs
 
—

 
91,918

 
—

 
—

 
91,918

Other securities
 
1,916

 
—

 
—

 
—

 
1,916

ARS:
 
 

 
 

 
 

 
 

 


Municipals
 
—

 
—

 
86,696

(3) 
—

 
86,696

Preferred securities
 
—

 
—

 
114,039

 
—

 
114,039

Total available for sale securities
 
1,916

 
359,638

 
200,735

 
—

 
562,289

 
 
 
 
 
 
 
 
 
 
 
Private equity investments
 
—

 
—

 
211,666

(4) 
—

 
211,666

Other investments (5)
 
212,753

 
1,267

 
1,731

 
—

 
215,751

Derivative instruments associated with offsetting matched book positions
 
—

 
323,337

 
—

 
—

 
323,337

Other assets:
 
 
 
 
 
 
 
 
 
 
Derivative contracts
 
—

 
2,462

 
—

 
—

 
2,462

Other assets
 
—

 
—

 
787

(6) 
—

 
787

Total other assets
 
—

 
2,462

 
787

 
—

 
3,249

Total assets at fair value on a recurring basis
 
$
265,088

 
$
1,375,032

 
$
417,283

 
$
(61,718
)
 
$
1,995,685

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 

 
 

 
 

 
 

 
 

Bank loans, net:
 
 
 
 
 
 
 
 
 
 
Impaired loans
 
$
—

 
$
34,799

 
$
55,528

 
$
—

 
$
90,327

Loans held for sale(7)
 
—

 
22,611

 
—

 
—

 
22,611

Total bank loans, net
 
—

 
57,410

 
55,528

 
—

 
112,938

OREO(8)
 
—

 
768

 
—

 
—

 
768

Total assets at fair value on a nonrecurring basis
 
$
—

 
$
58,178

 
$
55,528

 
$
—

 
$
113,706

 
 
 
 
 
 
 
 
 
 
 
(continued on next page)

13
Index

September 30, 2014
 
Quoted prices
in active
markets for
identical
assets
(Level 1) (1)
 
Significant
other
observable
inputs
(Level 2) (1)
 
Significant
unobservable
inputs
(Level 3)
 
Netting
adjustments (2)
 
Balance as of
September 30,
2014
 
 
(in thousands)
 
 
(continued from previous page)
Liabilities at fair value on a recurring basis:
 
 

 
 

 
 

 
 

Trading instruments sold but not yet purchased:
 
 

 
 

 
 

 
 

 
 

Municipal and provincial obligations
 
$
11,093

 
$
554

 
$
—

 
$
—

 
$
11,647

Corporate obligations
 
29

 
15,304

 
—

 
—

 
15,333

Government obligations
 
187,424

 
—

 
—

 
—

 
187,424

Agency MBS and CMOs
 
738

 
—

 
—

 
—

 
738

Total debt securities
 
199,284

 
15,858

 
—

 
—

 
215,142

Derivative contracts
 
—

 
75,668

 
—

 
(63,296
)
 
12,372

Equity securities
 
10,884

 
2

 
—

 
—

 
10,886

Total trading instruments sold but not yet purchased
 
210,168

 
91,528

 
—

 
(63,296
)
 
238,400

 
 
 
 
 
 
 
 
 
 
 
Derivative instruments associated with offsetting matched book positions
 
—

 
323,337

 
—

 
—

 
323,337

Other liabilities
 
—

 
—

 
58

 
—

 
58

Total liabilities at fair value on a recurring basis
 
$
210,168

 
$
414,865

 
$
58

 
$
(63,296
)
 
$
561,795


(1)
We had $800 thousand in transfers of financial instruments from Level 1 to Level 2 during the year ended September 30, 2014.  These transfers were a result of a decrease in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. We had $1.3 million in transfers of financial instruments from Level 2 to Level 1 during the year ended September 30, 2014.  These transfers were a result of an increase in availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement.  Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.

(2)
Where permitted, we have elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. See Note 13 for additional information regarding offsetting financial instruments.

(3)
Includes $58 million of Jefferson County, Alabama Limited Obligation School Warrants ARS.

(4)
The portion of these investments we do not own is approximately $55 million as of September 30, 2014 and are included as a component of noncontrolling interest in our Condensed Consolidated Statements of Financial Condition. The weighted average portion we own is approximately $157 million or 74% of the total private equity investments of $212 million included in our Condensed Consolidated Statements of Financial Condition.

(5)
Other investments include $144 million of financial instruments that are related to obligations to perform under certain deferred compensation plans (see Note 2 on page 114, and Note 24 on page 173, of our 2014 Form 10-K for further information regarding these plans).

(6)
Primarily comprised of forward commitments to purchase GNMA or FNMA (as hereinafter defined) MBS arising from our fixed income public finance operations (see Note 2 on page 104, and Note 21 on page 167 of our 2014 Form 10-K for additional information).

(7)
Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.

(8)
Represents the fair value of foreclosed properties which were measured at a fair value subsequent to their initial classification as OREO. The recorded value in the Condensed Consolidated Statements of Financial Condition is net of the estimated selling costs.

14
Index

The adjustment to fair value of the nonrecurring fair value measures for the three months ended December 31, 2014 resulted in a $120 thousand additional provision for loan losses and $129 thousand in other losses. The adjustment to fair value of the nonrecurring fair value measures for the three months ended December 31, 2013 resulted in a $104 thousand reversal of provision for loan losses and $214 thousand in other losses.

Changes in Level 3 recurring fair value measurements

The realized and unrealized gains and losses for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs.

Additional information about Level 3 assets and liabilities measured at fair value on a recurring basis is presented below:
Three months ended December 31, 2014 Level 3 assets at fair value
(in thousands)
 
Financial assets
 
Financial
liabilities
 
Trading instruments
 
Available for sale securities
 
Private equity, other investments and other assets
 
Payables-
trade and
other
 
Non-
agency
CMOs &
ABS
 
Equity
securities
 
Other
 
 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other assets
 
Other
liabilities
Fair value
   September 30, 2014
$
11

 
$
44

 
$
2,309

 
 
$
86,696

 
$
114,039

 
$
211,666

 
$
1,731

 
$
787

 
$
(58
)
Total gains (losses) for the period:
 
 

 
 

 
 
 

 
 

 
 

 
 

 
 
 
 

Included in earnings
—

 
5

 
(20
)
 
 
—

 
—

 
2,646

(1) 
40

 
1,620

 
—

Included in other comprehensive income
—

 
—

 
—

 
 
(882
)
 
(1,084
)
 
—

 
—

 
—

 
—

Purchases and contributions
—

 
20

 
11,975

 
 
—

 
—

 
4,102

 
—

 
—

 
—

Sales
—

 
—

 
(9,000
)
 
 
—

 
—

 
—

 
—

 
—

 
—

Redemptions by issuer
—

 
—

 
—

 
 
—

 
—

 
—

 
(10
)
 
—

 
—

Distributions
—

 
—

 
—

 
 
—

 
—

 
(9,740
)
 
(197
)
 
—

 
—

Transfers: (2)
 

 
 

 
 

 
 
 

 
 

 
 

 
 

 
 
 
 

Into Level 3
—

 
—

 
—

 
 
—

 
—

 
—

 
—

 
—

 
—

Out of Level 3
—

 
(55
)
 
—

 
 
—

 
—

 
—


—

 
—

 
—

Fair value
   December 31, 2014
$
11

 
$
14

 
$
5,264

 
 
$
85,814

 
$
112,955

 
$
208,674

 
$
1,564

 
$
2,407

 
$
(58
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized gains (losses) for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period
$
—

 
$
5

 
$
—

 
 
$
(882
)
 
$
(1,084
)
 
$
2,646

 
$
40

 
$
1,620

 
$
—


(1)
Primarily results from valuation adjustments of certain private equity investments.  Since we only own a portion of these investments, our share of the net valuation adjustments resulted in a gain of $2.4 million which is included in net income attributable to RJF (after noncontrolling interests).  The noncontrolling interests’ share of the net valuation adjustments was a gain of approximately $200 thousand.

(2)
Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.



15
Index

Three months ended December 31, 2013 Level 3 assets at fair value
(in thousands)
 
Financial assets
 
Financial
liabilities
 
Trading instruments
 
Available for sale securities
 
Private equity, other investments and other assets
 
Payables-
trade and
other
 
Non-
agency
CMOs &
ABS
 
Equity
securities
 
Other
 
Non-
agency
CMOs
 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other receivables
 
Other assets
 
Other
liabilities
Fair value September 30, 2013
$
14

 
$
35

 
$
3,956

 
$
78

 
$
130,934

 
$
110,784

 
$
216,391

 
$
4,607

 
$
2,778

 
$
15

 
$
(60
)
Total gains (losses) for the period:
 
 

 
 
 
 
 
 

 
 

 
 
 
 
 
 

Included in earnings
—

 
(1
)
 
(169
)
 
(27
)
 
5,521

 
—

 
4,768

(1) 
25

 
(2,778
)
 
—

 
(1,357
)
Included in other comprehensive income
—

 
—

 
—

 
15

 
(911
)
 
1,338

 
—

 
—

 
—

 
—

 
—

Purchases and contributions
—

 
1

 
7,263

 
—

 
—

 
—

 
4,015

 
63

 
—

 
—

 
—

Sales
—

 
—

 
(6,851
)
 
—

 
(370
)
 
—

 
(7,076
)

(2,698
)
 
—

 
—

 
—

Redemptions by issuer
—

 
—

 
—

 
—

 
(26,716
)
 
—

 
—

 
—

 
—

 
—

 
—

Distributions
(1
)
 
—

 
—

 
(20
)
 
—

 
—

 
(8,121
)
 
(48
)
 
—

 
—

 
—

Transfers: (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
 
 
 
Into Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Out of Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Fair value
   December 31, 2013
$
13

 
$
35

 
$
4,199

 
$
46

 
$
108,458

 
$
112,122

 
$
209,977

 
$
1,949

 
$
—

 
$
15

 
$
(1,417
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized gains (losses) for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period
$
20

 
$
—