RJF-2015.03.31.10Q
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 March 31, 2015
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.

143,842,998 shares of common stock as of May 4, 2015



RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

Form 10-Q for the quarter ended March 31, 2015

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)

 
 
 
 
 
March 31, 2015
 
September 30, 2014
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
2,540,137

 
$
2,199,063

Assets segregated pursuant to regulations and other segregated assets
2,560,449

 
2,489,264

Securities purchased under agreements to resell and other collateralized financings
469,503

 
446,016

Financial instruments, at fair value:
 

 
 

Trading instruments
797,531

 
679,393

Available for sale securities
531,940

 
562,289

Private equity investments
220,944

 
211,666

Other investments
208,976

 
215,751

Derivative instruments associated with offsetting matched book positions
421,850

 
323,337

Receivables:
 

 
 

Brokerage clients, net
1,920,558

 
2,126,804

Stock borrowed
167,338

 
158,988

Bank loans, net
12,060,663

 
10,964,299

Brokers-dealers and clearing organizations
118,020

 
107,116

Loans to financial advisors, net
463,193

 
424,928

Other
479,575

 
544,180

Deposits with clearing organizations
216,178

 
150,457

Prepaid expenses and other assets
713,323

 
655,256

Investments in real estate partnerships held by consolidated variable interest entities
225,557

 
235,858

Property and equipment, net
242,071

 
245,401

Deferred income taxes, net
259,456

 
231,325

Goodwill and identifiable intangible assets, net
350,673

 
354,261

Total assets
$
24,967,935

 
$
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)
 
 
 
 
 
March 31, 2015
 
September 30, 2014
 
($ in thousands)
Liabilities and equity:
 

 
 

Trading instruments sold but not yet purchased, at fair value
$
372,340

 
$
238,400

Securities sold under agreements to repurchase
277,383

 
244,495

Derivative instruments associated with offsetting matched book positions, at fair value
421,850

 
323,337

Payables:
 

 
 

Brokerage clients
4,151,420

 
3,956,104

Stock loaned
395,609

 
417,383

Bank deposits
11,272,013

 
10,028,924

Brokers-dealers and clearing organizations
152,762

 
216,530

Trade and other
637,809

 
763,235

Other borrowings
721,716

 
654,916

Accrued compensation, commissions and benefits
689,230

 
814,359

Loans payable of consolidated variable interest entities
34,977

 
43,877

Corporate debt
1,188,916

 
1,190,836

Total liabilities
20,316,025

 
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 147,830,937 at March 31, 2015 and 146,103,658 at September 30, 2014
1,476

 
1,444

Additional paid-in capital
1,318,988

 
1,239,046

Retained earnings
3,211,083

 
3,023,845

Treasury stock, at cost; 5,062,126 common shares at March 31, 2015 and 4,900,266 common shares at September 30, 2014
(133,327
)
 
(121,211
)
Accumulated other comprehensive loss
(22,795
)
 
(1,888
)
Total equity attributable to Raymond James Financial, Inc.
4,375,425

 
4,141,236

Noncontrolling interests
276,485

 
292,020

Total equity
4,651,910

 
4,433,256

Total liabilities and equity
$
24,967,935

 
$
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 March 31,
 
Six months ended March 31,
 
2015
 
2014
 
2015
 
2014
 
(in thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Securities commissions and fees
$
860,214

 
$
805,719

 
$
1,694,223

 
$
1,587,899

Investment banking
74,240

 
67,311

 
151,778

 
147,108

Investment advisory fees
91,016

 
88,096

 
189,777

 
181,510

Interest
134,413

 
118,393

 
266,522

 
235,486

Account and service fees
111,966

 
101,024

 
223,124

 
194,598

Net trading profit
17,060

 
14,842

 
25,941

 
32,993

Other
23,715

 
9,240

 
41,103

 
33,805

Total revenues
1,312,624

 
1,204,625

 
2,592,468

 
2,413,399

Interest expense
(26,846
)
 
(25,980
)
 
(54,230
)
 
(51,352
)
Net revenues
1,285,778

 
1,178,645

 
2,538,238

 
2,362,047

Non-interest expenses:
 

 
 

 
 

 
 

Compensation, commissions and benefits
882,234

 
812,291

 
1,720,488

 
1,617,236

Communications and information processing
67,635

 
69,503

 
126,747

 
131,357

Occupancy and equipment costs
41,604

 
39,897

 
80,831

 
79,582

Clearance and floor brokerage
13,588

 
9,876

 
23,086

 
19,830

Business development
42,490

 
36,667

 
79,480

 
68,911

Investment sub-advisory fees
14,987

 
13,798

 
29,242

 
25,597

Bank loan loss provision
3,937

 
1,979

 
13,302

 
3,615

Other
43,670

 
41,635

 
90,780

 
84,108

Total non-interest expenses
1,110,145

 
1,025,646

 
2,163,956

 
2,030,236

Income including noncontrolling interests and before provision for income taxes
175,633

 
152,999

 
374,282

 
331,811

Provision for income taxes
66,857

 
60,904

 
143,469

 
123,195

Net income including noncontrolling interests
108,776

 
92,095

 
230,813

 
208,616

Net loss attributable to noncontrolling interests
(4,687
)
 
(12,465
)
 
(8,946
)
 
(12,577
)
Net income attributable to Raymond James Financial, Inc.
$
113,463

 
$
104,560

 
$
239,759

 
$
221,193

 
 
 
 
 
 
 
 
Net income per common share – basic
$
0.79

 
$
0.74

 
$
1.68

 
$
1.57

Net income per common share – diluted
$
0.77

 
$
0.72

 
$
1.64

 
$
1.54

Weighted-average common shares outstanding – basic
142,320

 
139,888

 
141,813

 
139,498

Weighted-average common and common equivalent shares outstanding – diluted
146,050

 
143,636

 
146,188

 
143,065

 
 
 
 
 
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
113,463

 
$
104,560

 
$
239,759

 
$
221,193

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
2,337

 
3,482

 
2,313

 
4,576

Change in currency translations and net investment hedges
(15,279
)
 
(10,261
)
 
(21,719
)
 
(16,536
)
Change in cash flow hedges
(1,501
)
 
—

 
(1,501
)
 
—

Total comprehensive income
$
99,020

 
$
97,781

 
$
218,852

 
$
209,233

 
 
 
 
 
 
 
 
Other-than-temporary impairment:
 

 
 

 
 

 
 

Total other-than-temporary impairment, net
$
(627
)
 
$
2,389

 
$
1,124

 
$
3,973

Portion of pre-tax losses (recoveries) recognized in other comprehensive income
627

 
(2,389
)
 
(1,124
)
 
(4,000
)
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)
 
Six months ended March 31,
 
2015
 
2014
 
(in thousands, except per share amounts)
Common stock, par value $.01 per share:
 
 
 
Balance, beginning of year
$
1,444

 
$
1,429

Share issuances
32

 
10

Balance, end of period
1,476

 
1,439

 
 
 
 
Additional paid-in capital:
 

 
 

Balance, beginning of year
1,239,046

 
1,136,298

Employee stock purchases
11,116

 
10,002

Exercise of stock options and vesting of restricted stock units, net of forfeitures
22,286

 
12,747

Restricted stock, stock option and restricted stock unit expense
38,685

 
34,380

Excess tax benefit from share-based payments
7,577

 
9,877

Other
278

 
662

Balance, end of period
1,318,988

 
1,203,966

 
 
 
 
Retained earnings:
 

 
 

Balance, beginning of year
3,023,845

 
2,635,026

Net income attributable to Raymond James Financial, Inc.
239,759

 
221,193

Cash dividends declared
(52,526
)
 
(45,733
)
Other
5

 
(296
)
Balance, end of period
3,211,083

 
2,810,190

 
 
 
 
Treasury stock:
 

 
 

Balance, beginning of year
(121,211
)
 
(120,555
)
Purchases/surrenders
(7,100
)
 
(2,213
)
Exercise of stock options and vesting of restricted stock units, net of forfeitures
(5,016
)
 
(3,289
)
Balance, end of period
(133,327
)
 
(126,057
)
 
 
 
 
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
2,313

 
4,576

Net change in currency translations and net investment hedges, net of tax
(21,719
)
 
(16,536
)
Cash flow hedges, net of tax
(1,501
)
 
—

Balance, end of period
(22,795
)
 
(1,234
)
Total equity attributable to Raymond James Financial, Inc.
$
4,375,425

 
$
3,888,304

 
 
 
 
Noncontrolling interests:
 

 
 

Balance, beginning of year
$
292,020

 
$
335,413

Net loss attributable to noncontrolling interests
(8,946
)
 
(12,577
)
Capital contributions
10,008

 
11,682

Distributions
(10,860
)
 
(14,583
)
Other
(5,737
)
 
122

Balance, end of period
276,485

 
320,057

Total equity
$
4,651,910

 
$
4,208,361


(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)

 
Six months ended March 31,
 
2015
 
2014
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
239,759

 
$
221,193

Net loss attributable to noncontrolling interests
(8,946
)
 
(12,577
)
Net income including noncontrolling interests
230,813

 
208,616

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

 
 

Depreciation and amortization
33,929

 
32,444

Deferred income taxes
(26,277
)
 
(23,518
)
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments
(21,278
)
 
(17,911
)
Provisions for loan losses, legal proceedings, bad debts and other accruals
17,312

 
9,339

Share-based compensation expense
40,509

 
37,416

Other
16,137

 
10,884

Net change in:
 

 
 

Assets segregated pursuant to regulations and other segregated assets
(71,185
)
 
1,509,672

Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase
9,401

 
148,378

Stock loaned, net of stock borrowed
(30,124
)
 
38,727

Loans provided to financial advisors, net of repayments
(47,438
)
 
(17,413
)
Brokerage client receivables and other accounts receivable, net
259,882

 
80,143

Trading instruments, net
34,333

 
(59,341
)
Prepaid expenses and other assets
28,802

 
82,714

Brokerage client payables and other accounts payable
56,800

 
(1,802,701
)
Accrued compensation, commissions and benefits
(125,006
)
 
(92,635
)
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale
(18,347
)
 
(1,844
)
Excess tax benefits from share-based payment arrangements
(7,577
)
 
(9,877
)
Net cash provided by operating activities
380,686

 
133,093

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to property and equipment
(29,643
)
 
(31,320
)
Increase in bank loans, net
(1,279,233
)
 
(1,314,264
)
(Purchases)/redemptions of Federal Home Loan Bank/Federal Reserve Bank stock
(4,446
)
 
1,389

Proceeds from sales of loans held for investment
42,255

 
82,991

(Purchases of or contributions to)/sales proceeds or distributions received from, private equity and other investments, net
(19,776
)
 
36,469

Purchases of available for sale securities
—

 
(1,305
)
Available for sale securities maturations, repayments and redemptions
33,855

 
69,665

Proceeds from sales of available for sale securities
47

 
370

Investments in real estate partnerships held by consolidated variable interest entities, net of other investing activity
(8,705
)
 
(4,457
)
Business acquisition, net of cash acquired
—

 
(2,007
)
Net cash used in investing activities
$
(1,265,646
)
 
$
(1,162,469
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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)
 
Six months ended March 31,
 
2015
 
2014
 
(in thousands)
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from borrowed funds, net
$
366,600

 
$
367

Repayments of borrowed funds, net
(301,814
)
 
(7,829
)
Repayments of borrowings by consolidated variable interest entities which are real estate partnerships
(9,903
)
 
(10,955
)
Proceeds from capital contributed to and borrowings of consolidated variable interest entities which are real estate partnerships
110

 
3,335

Exercise of stock options and employee stock purchases
34,526

 
21,684

Increase in bank deposits
1,243,089

 
1,119,433

Purchases of treasury stock
(14,877
)
 
(6,212
)
Dividends on common stock
(49,405
)
 
(42,760
)
Excess tax benefits from share-based payment arrangements
7,577

 
9,877

Net cash provided by financing activities
1,275,903

 
1,086,940

 
 
 
 
Currency adjustment:
 

 
 

Effect of exchange rate changes on cash
(49,869
)
 
(12,304
)
Net increase in cash and cash equivalents
341,074

 
45,260

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

 
2,596,616

Cash and cash equivalents at end of period
$
2,540,137

 
$
2,641,876

 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
53,080

 
$
49,750

Cash paid for income taxes
$
209,571

 
$
179,488

Non-cash transfers of loans to other real estate owned
$
3,653

 
$
2,448




























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

8
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2015

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 March 31, 2015, 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.

Recent acquisition activities

On March 2, 2015, RJF entered into a definitive agreement to acquire Cougar Global Investments, Ltd. (“Cougar”), a Toronto, Canada-based asset manager. Cougar markets its investment services to high net worth individuals, families, foundations, trusts and institutions in Canada and the United States. As of December 31, 2014, Cougar had more than $1 billion in assets under management. We completed this acquisition on April 30, 2015. Cougar’s activities will be reported in our asset management segment and Eagle will offer Cougar’s global asset allocation strategies to its clients worldwide. For purposes of certain acquisition related financial reporting requirements, the Cougar acquisition is not considered to be material to our overall financial condition.


9
Index

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.
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 $3.3 million and $2.5 million at March 31, 2015 and September 30, 2014, respectively. Of the March 31, 2015 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 $4.9 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:
 
March 31,
2015
 
September 30,
2014
 
(in thousands)
Cash and cash equivalents:
 
 
 
Cash in banks
$
2,532,322

 
$
2,195,683

Money market fund investments
7,815

 
3,380

Total cash and cash equivalents (1)
2,540,137

 
2,199,063

Cash segregated pursuant to federal regulations and other segregated assets (2)
2,560,449

 
2,489,264

Deposits with clearing organizations (3)
216,178

 
150,457

 
$
5,316,764

 
$
4,838,784


(1)
The total amounts presented include cash and cash equivalents of $1.21 billion as of March 31, 2015 and September 30, 2014, which is either held directly by RJF in depository accounts at third party financial institutions, held in a depository account at RJ Bank, or is otherwise invested by one of our subsidiaries on behalf of RJF, all of which are available without restrictions.

(2)
Consists of cash and cash equivalents 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:
March 31, 2015
 
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
March 31,
2015
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
4,955

 
$
239,564

 
$
—

 
$
—

 
$
244,519

Corporate obligations
 
15,899

 
80,174

 
—

 
—

 
96,073

Government and agency obligations
 
38,717

 
125,291

 
—

 
—

 
164,008

Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)
 
603

 
139,800

 
—

 
—

 
140,403

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

 
51,800

 
10

 
—

 
51,810

Total debt securities
 
60,174

 
636,629

 
10

 
—

 
696,813

Derivative contracts
 
—

 
121,414

 
—

 
(79,697
)
 
41,717

Equity securities
 
36,790

 
5,579

 
14

 
—

 
42,383

Other
 
657

 
15,181

 
780

 
—

 
16,618

Total trading instruments
 
97,621

 
778,803

 
804

 
(79,697
)
 
797,531

Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 
—

 
240,488

 
—

 
—

 
240,488

Non-agency CMOs
 
—

 
87,362

 
—

 
—

 
87,362

Other securities
 
2,028

 
—

 
—

 
—

 
2,028

Auction rate securities (“ARS”):
 
 

 
 

 
 

 
 

 
 

Municipals
 
—

 
—

 
89,614

(3) 
—

 
89,614

Preferred securities
 
—

 
—

 
112,448

 
—

 
112,448

Total available for sale securities
 
2,028

 
327,850

 
202,062

 
—

 
531,940

Private equity investments
 
—

 
—

 
220,944

(4) 
—

 
220,944

Other investments (5)
 
206,888

 
1,172

 
916

 
—

 
208,976

Derivative instruments associated with offsetting matched book positions
 
—

 
421,850

 
—

 
—

 
421,850

Deposits with clearing organizations(6)
 
23,592

 
—

 
—

 
—

 
23,592

Other assets:
 
 
 
 
 
 
 
 
 
 
Derivatives - forward foreign exchange contracts
 
—

 
8,000

 
—

 
—

 
8,000

Other assets
 
—

 
—

 
2,196

(7) 
—

 
2,196

Total other assets
 
—

 
8,000

 
2,196

 
—

 
10,196

Total assets at fair value on a recurring basis
 
$
330,129

 
$
1,537,675

 
$
426,922

 
$
(79,697
)
 
$
2,215,029

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 

 
 

 
 

 
 

 
 

Bank loans, net:
 
 

 
 

 
 

 
 

 
 

Impaired loans
 
$
—

 
$
30,566

 
$
51,444

 
$
—

 
$
82,010

Loans held for sale(8)
 
—

 
49,130

 
—

 
—

 
49,130

Total bank loans, net
 
—

 
79,696

 
51,444

 
—

 
131,140

Other real estate owned (“OREO”)(9)
 
—

 
1,196

 
—

 
—

 
1,196

Total assets at fair value on a nonrecurring basis
 
$
—

 
$
80,892

 
$
51,444

 
$
—

 
$
132,336

 
(continued on next page)

11
Index

March 31, 2015
 
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
March 31,
2015
 
 
(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
 
$
4,482

 
$
394

 
$
—

 
$
—

 
$
4,876

Corporate obligations
 
33

 
18,615

 
—

 
—

 
18,648

Government obligations
 
284,821

 
—

 
—

 
—

 
284,821

Agency MBS and CMOs
 
1,834

 
—

 
—

 
—

 
1,834

Total debt securities
 
291,170

 
19,009

 
—

 
—

 
310,179

Derivative contracts
 
—

 
105,050

 
—

 
(79,028
)
 
26,022

Equity securities
 
34,387

 
1

 
—

 
—

 
34,388

Other securities
 
2

 
1,749

 
—

 
—

 
1,751

Total trading instruments sold but not yet purchased
 
325,559

 
125,809

 
—

 
(79,028
)
 
372,340

Derivative instruments associated with offsetting matched book positions
 
—

 
421,850

 
—

 
—

 
421,850

Trade and other payables:
 
 
 
 
 
 
 
 
 


Derivative contracts(10)
 
—

 
2,481

 
—

 
—

 
2,481

Other liabilities
 
—

 
—

 
58


—

 
58

Total trade and other payables
 
—

 
2,481

 
58

 
—

 
2,539

Total liabilities at fair value on a recurring basis
 
$
325,559

 
$
550,140

 
$
58

 
$
(79,028
)
 
$
796,729


(1)
We had $600 thousand and $1.1 million in transfers of financial instruments from Level 1 to Level 2 during the three and six months ended March 31, 2015, respectively.  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 six months ended March 31, 2015.  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)
For derivative transactions not cleared through an exchange, and where permitted, we have elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists (see Note 13 for additional information regarding offsetting financial instruments). Deposits associated with derivative transactions cleared through an exchange are included in deposits with clearing organizations on our Condensed Consolidated Statements of Financial Condition.

(3)
Includes $62 million of Jefferson County, Alabama Limited Obligation School Warrants ARS.

(4)
The portion of these investments we do not own is approximately $56 million as of March 31, 2015 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 $165 million or 75% of the total private equity investments of $221 million included in our Condensed Consolidated Statements of Financial Condition.

(5)
Other investments include $143 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)
Consists of deposits we provide to clearing organizations or exchanges that are in the form of marketable securities.

(7)
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.

(8)
Includes individual loans classified as held for sale, which were recorded at a fair value lower than cost.

(9)
Represents the fair value of foreclosed properties which were measured at a fair value subsequent to their initial classification as OREO. The recorded value in the Condensed Consolidated Statements of Financial Condition is net of the estimated selling costs.

(10)
Consists of RJ Bank Interest Hedges (as hereinafter defined), see Note 12 for additional information.

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)
For derivative transactions not cleared through an exchange, and where permitted, we have elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists (see Note 13 for additional information regarding offsetting financial instruments). Deposits associated with derivative transactions cleared through an exchange are included in deposits with clearing organizations on our Condensed Consolidated Statements of Financial Condition.

(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 six months ended March 31, 2015 resulted in a $222 thousand additional provision for loan losses relating to impaired loans and $149 thousand in other losses relating to loans held for sale and OREO. The adjustment to fair value of the nonrecurring fair value measures for the six months ended March 31, 2014 resulted in a $176 thousand reversal of provision for loan losses relating to impaired loans and $1.5 million in other losses relating to loans held for sale and OREO.

Changes in Level 3 recurring fair value measurements

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

Additional information about Level 3 assets and liabilities measured at fair value on a recurring basis is presented below:
Three months ended March 31, 2015 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
   December 31, 2014
$
11

 
$
14

 
$
5,264

 
 
$
85,814

 
$
112,955

 
$
208,674

 
$
1,564

 
$
2,407

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

 
 

 
 
 

 
 

 
 

 
 

 
 
 
 

Included in earnings
—

 
—

 
(20
)
 
 
2

 
25

 
14,414

(1) 
41

 
(211
)
 
—

Included in other comprehensive income
—

 
—

 
—

 
 
3,843

 
(282
)
 
—

 
—

 
—

 
—

Purchases and contributions
—

 
—

 
11,358

 
 
—

 
—

 
2,241

 
—

 
—

 
—

Sales
—

 
—

 
(15,822
)
 
 
(45
)
 
—

 
—

 
—

 
—

 
—

Redemptions by issuer
—

 
—

 
—

 
 
—

 
(250
)
 
—

 
(663
)
 
—

 
—

Distributions
(1
)
 
—

 
—

 
 
—

 
—

 
(4,385
)
 
(26
)
 
—

 
—

Transfers: (2)
 

 
 

 
 

 
 
 

 
 

 
 

 
 

 
 
 
 

Into Level 3
—

 
—

 
—

 
 
—

 
—

 
—

 
—

 
—

 
—

Out of Level 3
—

 
—

 
—

 
 
—

 
—

 
—

 
—

 
—

 
—

Fair value
   March 31, 2015
$
10

 
$
14

 
$
780

 
 
$
89,614

 
$
112,448

 
$
220,944

 
$
916

 
$
2,196

 
$
(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
$
—

 
$
—

 
$
—

 
 
$
3,843

 
$
(282
)
 
$
14,414

 
$
41

 
$
(211
)
 
$
—


(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 $9.8 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 $4.6 million.

(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

Six months ended March 31, 2015 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

 
(40
)
 
 
2