RJF-2015.06.30.10Q
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 June 30, 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.

143,989,935 shares of common stock as of August 3, 2015



RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

Form 10-Q for the quarter ended June 30, 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)

 
 
 
 
 
June 30, 2015
 
September 30, 2014
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
2,582,081

 
$
2,199,063

Assets segregated pursuant to regulations and other segregated assets
2,513,086

 
2,489,264

Securities purchased under agreements to resell and other collateralized financings
416,516

 
446,016

Financial instruments, at fair value:
 

 
 

Trading instruments
674,043

 
679,393

Available for sale securities
443,975

 
562,289

Private equity investments
209,542

 
211,666

Other investments
191,130

 
215,751

Derivative instruments associated with offsetting matched book positions
327,826

 
323,337

Receivables:
 

 
 

Brokerage clients, net
2,152,324

 
2,126,804

Stock borrowed
136,428

 
158,988

Bank loans, net
12,053,678

 
10,964,299

Brokers-dealers and clearing organizations
128,362

 
107,116

Loans to financial advisors, net
480,663

 
424,928

Other
500,196

 
544,180

Deposits with clearing organizations
200,372

 
150,457

Prepaid expenses and other assets
731,966

 
655,256

Investments in real estate partnerships held by consolidated variable interest entities
203,077

 
235,858

Property and equipment, net
249,018

 
245,401

Deferred income taxes, net
259,486

 
231,325

Goodwill and identifiable intangible assets, net
354,647

 
354,261

Total assets
$
24,808,416

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

 
 

Trading instruments sold but not yet purchased, at fair value
$
266,151

 
$
238,400

Securities sold under agreements to repurchase
251,769

 
244,495

Derivative instruments associated with offsetting matched book positions, at fair value
327,826

 
323,337

Payables:
 

 
 

Brokerage clients
4,197,484

 
3,956,104

Stock loaned
408,733

 
417,383

Bank deposits
11,010,616

 
10,028,924

Brokers-dealers and clearing organizations
151,621

 
216,530

Trade and other
808,735

 
763,235

Other borrowings
679,215

 
654,916

Accrued compensation, commissions and benefits
746,494

 
814,359

Loans payable of consolidated variable interest entities
25,549

 
43,877

Corporate debt
1,187,934

 
1,190,836

Total liabilities
20,062,127

 
18,892,396

Commitments and contingencies (see Note 16)


 


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 149,049,959 at June 30, 2015 and 146,103,658 at September 30, 2014
1,489

 
1,444

Additional paid-in capital
1,327,567

 
1,239,046

Retained earnings
3,316,400

 
3,023,845

Treasury stock, at cost; 5,343,777 common shares at June 30, 2015 and 4,900,266 common shares at September 30, 2014
(149,499
)
 
(121,211
)
Accumulated other comprehensive loss
(23,292
)
 
(1,888
)
Total equity attributable to Raymond James Financial, Inc.
4,472,665

 
4,141,236

Noncontrolling interests
273,624

 
292,020

Total equity
4,746,289

 
4,433,256

Total liabilities and equity
$
24,808,416

 
$
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 June 30,
 
Nine months ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Securities commissions and fees
$
874,606

 
$
813,461

 
$
2,568,829

 
$
2,401,360

Investment banking
76,988

 
78,694

 
228,766

 
225,802

Investment advisory fees
96,235

 
89,080

 
286,012

 
270,590

Interest
137,147

 
119,391

 
403,669

 
354,877

Account and service fees
113,866

 
101,585

 
336,990

 
296,183

Net trading profit
16,216

 
17,276

 
42,157

 
50,269

Other
33,655

 
21,796

 
74,758

 
55,601

Total revenues
1,348,713

 
1,241,283

 
3,941,181

 
3,654,682

Interest expense
(27,724
)
 
(27,052
)
 
(81,954
)
 
(78,404
)
Net revenues
1,320,989

 
1,214,231

 
3,859,227

 
3,576,278

Non-interest expenses:
 

 
 

 
 

 
 

Compensation, commissions and benefits
901,342

 
825,506

 
2,621,830

 
2,442,742

Communications and information processing
69,267

 
63,341

 
196,014

 
194,698

Occupancy and equipment costs
40,269

 
40,757

 
121,100

 
120,339

Clearance and floor brokerage
9,648

 
9,335

 
32,734

 
29,165

Business development
40,127

 
35,079

 
119,607

 
103,990

Investment sub-advisory fees
15,293

 
12,887

 
44,535

 
38,484

Bank loan loss (benefit) provision
(3,009
)
 
4,467

 
10,293

 
8,082

Other
46,757

 
43,926

 
137,537

 
128,034

Total non-interest expenses
1,119,694

 
1,035,298

 
3,283,650

 
3,065,534

Income including noncontrolling interests and before provision for income taxes
201,295

 
178,933

 
575,577

 
510,744

Provision for income taxes
74,935

 
68,554

 
218,404

 
191,749

Net income including noncontrolling interests
126,360

 
110,379

 
357,173

 
318,995

Net loss attributable to noncontrolling interests
(6,835
)
 
(12,310
)
 
(15,781
)
 
(24,887
)
Net income attributable to Raymond James Financial, Inc.
$
133,195

 
$
122,689

 
$
372,954

 
$
343,882

 
 
 
 
 
 
 
 
Net income per common share – basic
$
0.93

 
$
0.87

 
$
2.61

 
$
2.44

Net income per common share – diluted
$
0.91

 
$
0.85

 
$
2.55

 
$
2.38

Weighted-average common shares outstanding – basic
143,252

 
140,270

 
142,303

 
139,747

Weighted-average common and common equivalent shares outstanding – diluted
146,493

 
143,985

 
145,870

 
143,312

 
 
 
 
 
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
133,195

 
$
122,689

 
$
372,954

 
$
343,882

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
(5,381
)
 
2,246

 
(3,068
)
 
6,822

Change in currency translations and net investment hedges
1,295

 
5,906

 
(20,424
)
 
(10,630
)
Change in cash flow hedges
3,589

 
—

 
2,088

 
—

Total comprehensive income
$
132,698

 
$
130,841

 
$
351,550

 
$
340,074

 
 
 
 
 
 
 
 
Other-than-temporary impairment:
 

 
 

 
 

 
 

Total other-than-temporary impairment, net
$
1,228

 
$
839

 
$
2,352

 
$
4,812

Portion of pre-tax recoveries recognized in other comprehensive income
(1,228
)
 
(839
)
 
(2,352
)
 
(4,839
)
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)

 
Nine months ended June 30,
 
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
45

 
13

Balance, end of period
1,489

 
1,442

 
 
 
 
Additional paid-in capital:
 

 
 

Balance, beginning of year
1,239,046

 
1,136,298

Employee stock purchases
16,810

 
15,983

Exercise of stock options and vesting of restricted stock units, net of forfeitures
23,958

 
14,269

Restricted stock, stock option and restricted stock unit expense
54,366

 
48,593

Excess tax benefits (reduction of prior tax benefits) from share-based payments
(6,948
)
 
8,147

Other
335

 
822

Balance, end of period
1,327,567

 
1,224,112

 
 
 
 
Retained earnings:
 

 
 

Balance, beginning of year
3,023,845

 
2,635,026

Net income attributable to Raymond James Financial, Inc.
372,954

 
343,882

Cash dividends declared
(80,404
)
 
(68,447
)
Other
5

 
(296
)
Balance, end of period
3,316,400

 
2,910,165

 
 
 
 
Treasury stock:
 

 
 

Balance, beginning of year
(121,211
)
 
(120,555
)
Purchases/surrenders
(7,818
)
 
(2,223
)
Exercise of stock options and vesting of restricted stock units, net of forfeitures
(20,470
)
 
(4,683
)
Balance, end of period
(149,499
)
 
(127,461
)
 
 
 
 
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
(3,068
)
 
6,822

Net change in currency translations and net investment hedges, net of tax
(20,424
)
 
(10,630
)
Cash flow hedges, net of tax
2,088

 
—

Balance, end of period
(23,292
)
 
6,918

Total equity attributable to Raymond James Financial, Inc.
$
4,472,665

 
$
4,015,176

 
 
 
 
Noncontrolling interests:
 

 
 

Balance, beginning of year
$
292,020

 
$
335,413

Net loss attributable to noncontrolling interests
(15,781
)
 
(24,887
)
Capital contributions
19,531

 
22,565

Distributions
(20,085
)
 
(24,576
)
Other
(2,061
)
 
(10,513
)
Balance, end of period
273,624

 
298,002

Total equity
$
4,746,289

 
$
4,313,178


(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)

 
Nine months ended June 30,
 
2015
 
2014
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
372,954

 
$
343,882

Net loss attributable to noncontrolling interests
(15,781
)
 
(24,887
)
Net income including noncontrolling interests
357,173

 
318,995

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

 
 

Depreciation and amortization
51,051

 
48,158

Deferred income taxes
(24,027
)
 
(26,154
)
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments
(42,644
)
 
(21,733
)
Provisions for loan losses, legal proceedings, bad debts and other accruals
14,921

 
15,224

Share-based compensation expense
57,352

 
51,962

Other
21,913

 
14,111

Net change in:
 

 
 

Assets segregated pursuant to regulations and other segregated assets
(23,822
)
 
1,766,309

Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase
36,774

 
187,106

Stock loaned, net of stock borrowed
13,910

 
74,593

Loans provided to financial advisors, net of repayments
(69,227
)
 
(35,160
)
Brokerage client receivables and other accounts receivable, net
(3,090
)
 
(9,915
)
Trading instruments, net
46,111

 
55,837

Prepaid expenses and other assets
(341
)
 
114

Brokerage client payables and other accounts payable
131,702

 
(1,984,873
)
Accrued compensation, commissions and benefits
(67,994
)
 
(44,927
)
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale
(41,924
)
 
49,420

(Excess tax benefits) reduction of prior tax benefits from share-based payment arrangements
6,948

 
(8,147
)
Net cash provided by operating activities
464,786

 
450,920

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to property and equipment
(51,665
)
 
(44,104
)
Increase in bank loans, net
(1,096,051
)
 
(1,808,852
)
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock, net of redemptions
(4,446
)
 
(21,861
)
Proceeds from sales of loans held for investment
64,173

 
150,776

Proceeds from sales of, or distributions received from, private equity, and other investments, net of purchases, business acquisitions or contributions to private equity or other investments
17,526

 
44,730

Purchases of available for sale securities
(4,201
)
 
(1,305
)
Available for sale securities maturations, repayments and redemptions
51,909

 
86,012

Proceeds from sales of available for sale securities
84,784

 
27,463

Investments in real estate partnerships held by consolidated variable interest entities, net of other investing activity
3,566

 
(287
)
Net cash used in investing activities
$
(934,405
)
 
$
(1,567,428
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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)
 
Nine months ended June 30,
 
2015
 
2014
 
(in thousands)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from borrowed funds, net
$
367,565

 
$
500,367

Repayments of borrowed funds, net
(346,309
)
 
(28,152
)
Repayments of borrowings by consolidated variable interest entities which are real estate partnerships
(19,703
)
 
(21,839
)
Proceeds from capital contributed to and borrowings of consolidated variable interest entities which are real estate partnerships
110

 
726

Exercise of stock options and employee stock purchases
40,893

 
28,757

Increase in bank deposits
981,692

 
972,467

Purchases of treasury stock
(30,890
)
 
(7,794
)
Dividends on common stock
(77,115
)
 
(65,442
)
Excess tax benefits (reduction of prior tax benefits) from share-based payments
(6,948
)
 
8,147

Net cash provided by financing activities
909,295

 
1,387,237

 
 
 
 
Currency adjustment:
 

 
 

Effect of exchange rate changes on cash
(56,658
)
 
(21,588
)
Net increase in cash and cash equivalents
383,018

 
249,141

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

 
2,596,616

Cash and cash equivalents at end of period
$
2,582,081

 
$
2,845,757

 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
80,387

 
$
75,974

Cash paid for income taxes
$
311,931

 
$
258,211

Non-cash transfers of loans to other real estate owned
$
4,546

 
$
3,631




























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

8
Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 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 9 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 June 30, 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.

Reclassifications

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


9
Index

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 $3.6 million and $2.5 million at June 30, 2015 and September 30, 2014, respectively. Of the June 30, 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 $5.7 million.


NOTE 3 – ACQUISITIONS

Cougar Global Investments Limited

On April 30, 2015, we completed our acquisition of Cougar Global Investments Limited (“Cougar”), an asset management firm based in Toronto, Canada. Cougar markets its investment services to high net worth individuals, families, foundations, trusts and institutions in Canada and the United States. Eagle now offers Cougar’s global asset allocation strategies to its clients worldwide. As of June 30, 2015, Cougar had more than $1 billion in assets under advisement. Cougar’s activities are reported in our asset management segment. For purposes of certain acquisition related financial reporting requirements, the Cougar acquisition is not considered a material acquisition. We accounted for this acquisition under the acquisition method of accounting with the assets and liabilities of Cougar recorded as of the acquisition date at their respective fair value and consolidated in our financial statements. Cougar’s results of operations have been included in our results prospectively from April 30, 2015.

See Note 10 for information regarding the identifiable intangible assets which resulted from the Cougar acquisition.

The Producers Choice LLC

On May 29, 2015, RJF entered into a definitive agreement to acquire The Producers Choice LLC (“Producers Choice”), a Troy, Michigan based private insurance and annuity marketing organization. Producers Choice will bring more life insurance and annuity specialists to our existing insurance product offerings. As of the closing date of this acquisition, Producers Choice will be included in our private client group segment. For purposes of certain acquisition related financial reporting requirements, the Producers Choice acquisition will not be considered a material acquisition. This acquisition was completed on July 31, 2015.



10
Index

NOTE 4 – 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:
 
June 30,
2015
 
September 30,
2014
 
(in thousands)
Cash and cash equivalents:
 
 
 
Cash in banks
$
2,578,881

 
$
2,195,683

Money market fund investments
3,200

 
3,380

Total cash and cash equivalents (1)
2,582,081

 
2,199,063

Cash segregated pursuant to federal regulations and other segregated assets (2)
2,513,086

 
2,489,264

Deposits with clearing organizations (3)
200,372

 
150,457

 
$
5,295,539

 
$
4,838,784


(1)
The total amounts presented include cash and cash equivalents of $1.24 billion and $1.21 billion as of June 30, 2015 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.

11

NOTE 5 – 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:
June 30, 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
June 30,
2015
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
14,194

 
$
207,179

 
$
—

 
$
—

 
$
221,373

Corporate obligations
 
934

 
53,943

 
209

 
—

 
55,086

Government and agency obligations
 
11,806

 
83,804

 
—

 
—

 
95,610

Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)
 
4,073

 
147,802

 
—

 
—

 
151,875

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

 
53,564

 
10

 
—

 
53,574

Total debt securities
 
31,007

 
546,292

 
219

 
—

 
577,518

Derivative contracts
 
—

 
107,926

 
—

 
(74,154
)
 
33,772

Equity securities
 
28,823

 
3,097

 
14

 
—

 
31,934

Corporate loans
 
—

 
2,491

 
—

 
—

 
2,491

Other
 
627

 
26,067

 
1,634

 
—

 
28,328

Total trading instruments
 
60,457

 
685,873

 
1,867

 
(74,154
)
 
674,043

Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 
—

 
228,347

 
—

 
—

 
228,347

Non-agency CMOs
 
—

 
73,790

 
—

 
—

 
73,790

Other securities
 
1,687

 
—

 
—

 
—

 
1,687

Auction rate securities (“ARS”):
 
 

 
 

 
 

 
 

 
 

Municipals
 
—

 
—

 
28,037


—

 
28,037

Preferred securities
 
—

 
—

 
112,114

 
—

 
112,114

Total available for sale securities
 
1,687

 
302,137

 
140,151

 
—

 
443,975

Private equity investments
 
—

 
—

 
209,542

(3) 
—

 
209,542

Other investments (4)
 
189,201

 
1,192

 
737

 
—

 
191,130

Derivative instruments associated with offsetting matched book positions
 
—

 
327,826

 
—

 
—

 
327,826

Deposits with clearing organizations(5)
 
23,714

 
—

 
—

 
—

 
23,714

Other assets:
 
 
 
 
 
 
 
 
 
 
Derivatives - forward foreign exchange contracts
 
—

 
6,019

 
—

 
—

 
6,019

Derivative contracts(6)
 
—

 
3,318

 
—

 
—

 
3,318

Total other assets
 
—

 
9,337

 
—

 
—

 
9,337

Total assets at fair value on a recurring basis
 
$
275,059

 
$
1,326,365

 
$
352,297

 
$
(74,154
)
 
$
1,879,567

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 

 
 

 
 

 
 

 
 

Bank loans, net:
 
 

 
 

 
 

 
 

 
 

Impaired loans
 
$
—

 
$
29,261

 
$
45,098

 
$
—

 
$
74,359

Loans held for sale(7)
 
—

 
11,861

 
—

 
—

 
11,861

Total bank loans, net
 
—

 
41,122

 
45,098

 
—

 
86,220

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

 
1,286

 
—

 
—

 
1,286

Total assets at fair value on a nonrecurring basis
 
$
—

 
$
42,408

 
$
45,098

 
$
—

 
$
87,506

 
(continued on next page)

12

June 30, 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
June 30,
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
 
$
14,359

 
$
49

 
$
—

 
$
—

 
$
14,408

Corporate obligations
 
20

 
12,152

 
—

 
—

 
12,172

Government obligations
 
192,217

 
—

 
—

 
—

 
192,217

Agency MBS and CMOs
 
115

 
20

 
—

 
—

 
135

Total debt securities
 
206,711

 
12,221

 
—

 
—

 
218,932

Derivative contracts
 
—

 
92,113

 
—

 
(65,539
)
 
26,574

Equity securities
 
19,954

 
91

 
—

 
—

 
20,045

Other securities
 
—

 
600

 
—

 
—

 
600

Total trading instruments sold but not yet purchased
 
226,665

 
105,025

 
—

 
(65,539
)
 
266,151

Derivative instruments associated with offsetting matched book positions
 
—

 
327,826

 
—

 
—

 
327,826

Other liabilities
 
—

 
—

 
1,745

(9) 
—

 
1,745

Total liabilities at fair value on a recurring basis
 
$
226,665

 
$
432,851

 
$
1,745

 
$
(65,539
)
 
$
595,722


(1)
We had $1.1 million in transfers of financial instruments from Level 1 to Level 2 during the nine months ended June 30, 2015.  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 nine months ended June 30, 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 14 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)
The portion of these investments we do not own is approximately $54 million as of June 30, 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 $156 million or 74% of the total private equity investments of $210 million included in our Condensed Consolidated Statements of Financial Condition.

(4)
Other investments include $112 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).

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

(6)
Consists of RJ Bank Interest Hedges (as hereinafter defined), see Note 13 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.

(9)
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 16 in this report, for additional information regarding the GNMA or FNMA MBS commitments.

13


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)

14

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 14 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.

15

The adjustment to fair value of the nonrecurring fair value measures for the nine months ended June 30, 2015 resulted in a $400 thousand additional provision for loan losses relating to impaired loans and $100 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 nine months ended June 30, 2014 resulted in a $200 thousand additional provision for loan losses relating to impaired loans and $300 thousand 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 June 30, 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
 
Corporate
obligations
 
Non-
agency
CMOs &
ABS
 
Equity
securities
 
Other
 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other
assets
 
Other
liabilities
Fair value
   March 31, 2015
$
—

 
$
10

 
$
14

 
$
780

 
$
89,614

 
$
112,448

 
$
220,944

 
$
916

 
$
2,196

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

 
 

 
 

 
 

 
 

 
 

 
 
 
 

Included in earnings
—

 
—

 
—

 
(26
)
 
11,040

 
—

 
12,700

(1) 
16

 
(2,196
)
 
(1,687
)
Included in other comprehensive income
—

 
—

 
—

 
—

 
(9,051
)
 
(334
)
 
—

 
—

 
—

 
—

Purchases and contributions
—

 
—

 
—

 
1,458

 
—

 
—

 
1,022

 
—

 
—

 
—

Sales
—

 
—

 
—

 
(578
)
 
(63,566
)
 
—

 
(1,696
)
 
—

 
—

 
—

Redemptions by issuer
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8
)
 
—

 
—

Distributions
—

 
—

 
—

 
—

 
—

 
—

 
(23,428
)
 
(187
)
 
—

 
—

Transfers: (2)
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

Into Level 3
209

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Out of Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Fair value
   June 30, 2015
$
209

 
$
10

 
$
14

 
$
1,634

 
$
28,037

 
$
112,114

 
$
209,542

 
$
737

 
$
—

 
$
(1,745
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
—

 
$
—

 
$
—

 
$
—

 
$
(77
)
 
$
(334
)
 
$
12,954

 
$
16

 
$
—

 
$
(3,868
)

(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 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 $3.7 million.

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


16

Nine months ended June 30, 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
 
Corporate
obligations
 
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

 
(66
)