10-Q
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, 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.

141,268,377 shares of common stock as of February 5, 2016



RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

Form 10-Q for the quarter ended December 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)

 
 
 
 
 
December 31, 2015
 
September 30, 2015
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
2,596,388

 
$
2,601,006

Assets segregated pursuant to regulations and other segregated assets
3,076,683

 
2,905,324

Securities purchased under agreements to resell and other collateralized financings
405,507

 
474,144

Financial instruments, at fair value:
 

 
 

Trading instruments
471,715

 
690,551

Available for sale securities
558,132

 
513,730

Private equity investments
207,523

 
209,088

Other investments
247,935

 
248,751

Derivative instruments associated with offsetting matched book positions
352,585

 
389,457

Receivables:
 

 
 

Brokerage clients, net
1,967,935

 
2,185,296

Stock borrowed
115,444

 
124,373

Bank loans, net
13,733,265

 
12,988,021

Brokers-dealers and clearing organizations
100,096

 
134,890

Loans to financial advisors, net
523,141

 
488,760

Other
519,157

 
514,000

Deposits with clearing organizations
167,445

 
207,488

Prepaid expenses and other assets
763,300

 
705,391

Investments in real estate partnerships held by consolidated variable interest entities
195,796

 
199,678

Property and equipment, net
272,103

 
255,875

Deferred income taxes, net
258,770

 
266,899

Goodwill and identifiable intangible assets, net
374,407

 
376,962

Total assets
$
26,907,327

 
$
26,479,684



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

 
 

Trading instruments sold but not yet purchased, at fair value
$
229,413

 
$
287,993

Securities sold under agreements to repurchase
245,554

 
332,536

Derivative instruments associated with offsetting matched book positions, at fair value
352,585

 
389,457

Payables:
 
 
 
Brokerage clients
4,782,327

 
4,671,073

Stock loaned
535,603

 
478,573

Bank deposits
12,657,609

 
11,919,881

Brokers-dealers and clearing organizations
140,956

 
164,054

Trade and other
662,294

 
729,245

Other borrowings
611,974

 
703,065

Accrued compensation, commissions and benefits
600,020

 
842,527

Loans payable of consolidated variable interest entities
19,080

 
25,960

Senior notes payable
1,149,269

 
1,149,222

Total liabilities
21,986,684

 
21,693,586

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 150,262,610 at December 31, 2015 and 149,283,682 at September 30, 2015
1,501

 
1,491

Additional paid-in capital
1,414,953

 
1,344,779

Retained earnings
3,495,513

 
3,419,719

Treasury stock, at cost; 6,541,821 common shares at December 31, 2015 and 6,364,706 common shares at September 30, 2015
(214,509
)
 
(203,455
)
Accumulated other comprehensive loss
(50,644
)
 
(40,503
)
Total equity attributable to Raymond James Financial, Inc.
4,646,814

 
4,522,031

Noncontrolling interests
273,829

 
264,067

Total equity
4,920,643

 
4,786,098

Total liabilities and equity
$
26,907,327

 
$
26,479,684


















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,
 
 
2015
 
2014
 
(in thousands, except per share amounts)
Revenues:
 
 
 
 
Securities commissions and fees
 
$
849,662

 
$
834,009

Investment banking
 
57,553

 
77,538

Investment advisory and related administrative fees
 
98,541

 
98,761

Interest
 
142,471

 
132,109

Account and service fees
 
116,823

 
111,158

Net trading profit
 
22,169

 
8,881

Other
 
14,307

 
17,388

Total revenues
 
1,301,526

 
1,279,844

Interest expense
 
(27,009
)
 
(27,384
)
Net revenues
 
1,274,517

 
1,252,460

Non-interest expenses:
 
 

 
 

Compensation, commissions and benefits
 
866,410

 
838,254

Communications and information processing
 
72,138

 
59,112

Occupancy and equipment costs
 
41,789

 
39,227

Clearance and floor brokerage
 
9,996

 
9,498

Business development
 
40,624

 
36,990

Investment sub-advisory fees
 
14,554

 
14,255

Bank loan loss provision
 
13,910

 
9,365

Acquisition-related expenses
 
1,872

 
—

Other
 
51,049

 
47,110

Total non-interest expenses
 
1,112,342

 
1,053,811

Income including noncontrolling interests and before provision for income taxes
 
162,175

 
198,649

Provision for income taxes
 
62,009

 
76,612

Net income including noncontrolling interests
 
100,166

 
122,037

Net loss attributable to noncontrolling interests
 
(6,163
)
 
(4,259
)
Net income attributable to Raymond James Financial, Inc.
 
$
106,329

 
$
126,296

 
 
 
 
 
Net income per common share – basic
 
$
0.74

 
$
0.89

Net income per common share – diluted
 
$
0.73

 
$
0.87

Weighted-average common shares outstanding – basic
 
143,058

 
141,246

Weighted-average common and common equivalent shares outstanding – diluted
 
146,141

 
145,282

 
 
 
 
 
Net income attributable to Raymond James Financial, Inc.
 
$
106,329

 
$
126,296

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

 
 

Unrealized losses on available for sale securities and non-credit portion of other-than-temporary impairment losses
 
(6,791
)
 
(24
)
Unrealized losses on currency translations, net of the impact of net investment hedges
 
(6,615
)
 
(6,440
)
Unrealized gain on cash flow hedges
 
3,265

 
—

Total comprehensive income
 
$
96,188

 
$
119,832

 
 
 
 
 
Other-than-temporary impairment:
 
 

 
 

Total other-than-temporary impairment, net
 
$
374

 
$
1,751

Portion of pre-tax recoveries recognized in other comprehensive income
 
(374
)
 
(1,751
)
Net impairment losses recognized in other revenue
 
$
—

 
$
—

 
(1)
All components of other comprehensive (loss) 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,
 
2015
 
2014
 
(in thousands, except per share amounts)
Common stock, par value $.01 per share:
 
 
 
Balance, beginning of year
$
1,491

 
$
1,444

Share issuances
10

  
25

Balance, end of period
1,501

 
1,469

 
 
 
 
Additional paid-in capital:
 

 
 

Balance, beginning of year
1,344,779

  
1,239,046

Employee stock purchases
5,054

  
3,877

Exercise of stock options and vesting of restricted stock units, net of forfeitures
8,996

  
11,284

Restricted stock, stock option and restricted stock unit expense
21,104

  
21,885

Excess tax benefit from share-based payments
34,791

  
9,367

Other
229

  
35

Balance, end of period
1,414,953

 
1,285,494

 
 
 
 
Retained earnings:
 

 
 

Balance, beginning of year
3,419,719

  
3,023,845

Net income attributable to Raymond James Financial, Inc.
106,329

  
126,296

Cash dividends declared
(30,535
)
 
(26,643
)
Balance, end of period
3,495,513

 
3,123,498

 
 
 
 
Treasury stock:
 

 
 

Balance, beginning of year
(203,455
)
 
(121,211
)
Purchases/surrenders
(6,009
)
 
(5,679
)
Exercise of stock options and vesting of restricted stock units, net of forfeitures
(5,045
)
 
(4,554
)
Balance, end of period
(214,509
)
 
(131,444
)
 
 
 
 
Accumulated other comprehensive loss:(1)
 

 
 

Balance, beginning of year
$
(40,503
)
 
$
(1,888
)
Net change in unrealized losses on available for sale securities and non-credit portion of other-than-temporary impairment losses, net of tax
(6,791
)
 
(24
)
Net change in currency translations and net investment hedges, net of tax
(6,615
)
 
(6,440
)
Net change in cash flow hedges, net of tax
3,265

 
—

Balance, end of period
(50,644
)
 
(8,352
)
Total equity attributable to Raymond James Financial, Inc.
$
4,646,814

 
$
4,270,665

 
 
 
 
Noncontrolling interests:
 

 
 

Balance, beginning of year
$
264,067

 
$
292,020

Net loss attributable to noncontrolling interests
(6,163
)
 
(4,259
)
Capital contributions
15,223

 
9,898

Distributions
(3,396
)
 
(8,996
)
Other
4,098

 
(1,194
)
Balance, end of period
273,829

 
287,469

Total equity
$
4,920,643

 
$
4,558,134



(1)
All components of other comprehensive (loss) 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,
 
2015
 
2014
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income attributable to Raymond James Financial, Inc.
$
106,329

 
$
126,296

Net loss attributable to noncontrolling interests
(6,163
)
 
(4,259
)
Net income including noncontrolling interests
100,166

 
122,037

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

 
 

Depreciation and amortization
17,909

 
16,327

Deferred income taxes
6,631

 
(4,090
)
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments
2,587

 
(6,704
)
Provisions for loan losses, legal proceedings, bad debts and other accruals
22,588

 
16,267

Share-based compensation expense
22,400

 
22,665

Other
6,881

 
1,872

Net change in:
 

 
 

Assets segregated pursuant to regulations and other segregated assets
(171,359
)
 
129,310

Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase
(18,345
)
 
154,499

Stock loaned, net of stock borrowed
65,959

 
(79,005
)
Loans provided to financial advisors, net of repayments
(38,500
)
 
(27,537
)
Brokerage client receivables and other accounts receivable, net
246,998

 
259,730

Trading instruments, net
162,685

 
14,616

Prepaid expenses and other assets
75,873

 
31,112

Brokerage client payables and other accounts payable
76,620

 
(96,971
)
Accrued compensation, commissions and benefits
(242,815
)
 
(224,936
)
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale
(74,078
)
 
(80,176
)
Excess tax benefits from share-based payment arrangements
(34,791
)
 
(9,367
)
Net cash provided by operating activities
227,409

 
239,649

 
 
 
 
Cash flows from investing activities:
 

 
 

Additions to property and equipment
(32,581
)
 
(13,058
)
Increase in bank loans, net
(770,371
)
 
(766,663
)
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock
(1,063
)
 
(450
)
Proceeds from sales of loans held for investment
35,375

 
14,869

Purchases, or contributions, to private equity or other investments, net of proceeds from sales of, or distributions received from, private equity and other investments
(25,128
)
 
(17,667
)
Purchases of available for sale securities
(77,223
)
 
—

Available for sale securities maturations, repayments and redemptions
21,627

 
17,485

Investments in real estate partnerships held by consolidated variable interest entities, net of other investing activity
(7,349
)
 
46

Net cash used in investing activities
$
(856,713
)
 
$
(765,438
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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,
 
2015
 
2014
 
(in thousands)
Cash flows from financing activities:
 
 
 
Repayments of short-term borrowings, net
$
(115,000
)
 
$
(49,700
)
Proceeds from Federal Home Loan Bank advances, net
25,000

 
—

Repayments of other borrowed funds
(1,091
)
 
(1,050
)
Repayments of borrowings by consolidated variable interest entities which are real estate partnerships
(7,159
)
 
(9,924
)
Exercise of stock options and employee stock purchases
14,386

 
17,073

Increase in bank deposits
737,728

 
1,060,095

Purchases of treasury stock
(12,139
)
 
(12,708
)
Dividends on common stock
(27,106
)
 
(23,626
)
Excess tax benefits from share-based payments
34,791

 
9,367

Net cash provided by financing activities
649,410

 
989,527

 
 
 
 
Currency adjustment:
 

 
 

Effect of exchange rate changes on cash
(24,724
)
 
(13,416
)
Net (decrease) increase in cash and cash equivalents
(4,618
)
 
450,322

Cash and cash equivalents at beginning of year
2,601,006

 
2,199,063

Cash and cash equivalents at end of period
$
2,596,388

 
$
2,649,385

 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
26,421

 
$
26,867

Cash paid for income taxes
$
33,917

 
$
66,578

Non-cash transfers of loans to other real estate owned
$
608

 
$
1,577



























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, 2015

NOTE 1 – INTRODUCTION AND BASIS OF PRESENTATION

Description of business

Raymond James Financial, Inc. (“RJF” or the “Company”) is a financial holding company whose broker-dealer subsidiaries are engaged in various financial services 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 118 - 121 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, 2015, as filed with the United States (“U.S.”) Securities and Exchange Commission (the “2015 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 2015 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, 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 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 103 - 121 of our 2015 Form 10-K. There have been no significant changes in our significant accounting policies since September 30, 2015.

Brokerage client receivables, loans to financial advisors and allowance for doubtful accounts

As more fully described in Note 2 on page 110 - 111 of our 2015 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, transitional cost assistance, 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 $3.7 million at both December 31, 2015 and September 30, 2015. Of the December 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 $6.1 million.

NOTE 3 – ACQUISITIONS

Acquisition announcements

On December 3, 2015 (the “Announcement Date”), we announced that we entered into a definitive asset purchase agreement to acquire the U.S. Private Client Services unit of Deutsche Asset & Wealth Management (“Deutsche AWM”). As of the Announcement Date, Deutsche AWM had approximately 200 financial advisors with approximately $50 billion of client assets which generate approximately $300 million in total annual revenues. The Deutsche AWM financial advisors are focused primarily on high net worth clients. Upon completion of the acquisition, which we expect to occur during the fourth quarter of this fiscal year 2016, we plan for the Deutsche AWM financial advisors to operate within a newly formed “Alex. Brown” division of RJ&A.

See Note 15 for additional information regarding the commitments we have made that are associated with this acquisition.

The acquisition-related expenses presented on our Condensed Consolidated Statements of Income and Comprehensive income for the three months ended December 31, 2015 pertain to certain nonrecurring costs (including legal and travel-related expense) incurred during the period in connection with the future acquisition of Deutsche AWM.

Acquisitions completed in the prior fiscal year

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’s global asset allocation strategies are now offered to our asset management clients worldwide through our Eagle subsidiary. Cougar’s results of operations have been included in our results prospectively since April 30, 2015. See Note 3 on pages 121 - 122 of our 2015 Form 10-K for additional information regarding the Cougar acquisition.

The Producers Choice LLC

On July 31, 2015 (the “TPC Closing Date”), we completed our acquisition of The Producers Choice LLC (“TPC”), a Troy, Michigan based private insurance and annuity marketing organization. TPC brings additional life insurance and annuity specialists to our existing insurance product offerings. TPC’s results of operations have been included in our results prospectively since July 31, 2015. See Note 3 on pages 121 - 122 of our 2015 Form 10-K for additional information regarding the TPC acquisition.

See Note 15 for information regarding the contingent consideration associated with this acquisition.



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 104 of our 2015 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,
2015
 
September 30,
2015
 
(in thousands)
Cash and cash equivalents:
 
 
 
Cash in banks
$
2,593,851

 
$
2,597,568

Money market fund investments
2,537

 
3,438

Total cash and cash equivalents (1)
2,596,388

 
2,601,006

Cash segregated pursuant to federal regulations and other segregated assets (2)
3,076,683

 
2,905,324

Deposits with clearing organizations (3)
167,445

 
207,488

 
$
5,840,516

 
$
5,713,818


(1)
The total amounts presented include cash and cash equivalents of $1.24 billion and $1.22 billion as of December 31, 2015 and September 30, 2015, 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 marketable 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 105 - 110 of our 2015 Form 10-K. There have been no material changes to our valuation methodologies since our year ended September 30, 2015.

Assets and liabilities measured at fair value on a recurring and nonrecurring basis are presented below:
December 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
December 31,
2015
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
2,507

 
$
89,035

 
$
—

 
$
—

 
$
91,542

Corporate obligations
 
3,405

 
43,875

 
189

 
—

 
47,469

Government and agency obligations
 
6,417

 
70,266

 
—

 
—

 
76,683

Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)
 
1,488

 
143,891

 
—

 
—

 
145,379

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

 
48,738

 
9

 
—

 
48,747

Total debt securities
 
13,817

 
395,805

 
198

 
—

 
409,820

Derivative contracts
 
—

 
124,166

 
—

 
(91,322
)
 
32,844

Equity securities
 
12,971

 
3,056

 
—

 
—

 
16,027

Corporate loans
 
—

 
1,814

 
—

 
—

 
1,814

Other
 
718

 
8,528

 
1,964

 
—

 
11,210

Total trading instruments
 
27,506

 
533,369

 
2,162

 
(91,322
)
 
471,715

Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 
—

 
358,769

 
—

 
—

 
358,769

Non-agency CMOs
 
—

 
67,678

 
—

 
—

 
67,678

Other securities
 
1,306

 
—

 
—

 
—

 
1,306

Auction rate securities (“ARS”):
 
 
 
 
 
 
 
 

 
 

Municipals
 
—

 
—

 
27,480

 
—

 
27,480

Preferred securities
 
—

 
—

 
102,899

 
—

 
102,899

Total available for sale securities
 
1,306

 
426,447

 
130,379

 
—

 
558,132

Private equity investments
 
—

 
—

 
207,523

(3) 
—

 
207,523

Other investments (4)
 
230,616

 
16,826

 
493

 
—

 
247,935

Derivative instruments associated with offsetting matched book positions
 
—

 
352,585

 
—

 
—

 
352,585

Deposits with clearing organizations(5)
 
29,292

 
—

 
—

 
—

 
29,292

Other assets
 
—

 
—

 
1,526

(6) 
—

 
1,526

Total assets at fair value on a recurring basis
 
$
288,720

 
$
1,329,227

 
$
342,083

 
$
(91,322
)
 
$
1,868,708

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 
 
 

 
 

 
 

 
 

Bank loans, net:
 
 

 
 

 
 

 
 

 
 

Impaired loans
 
$
—

 
$
26,222

 
$
37,035

 
$
—

 
$
63,257

Loans held for sale(7)
 
—

 
57,085

 
—

 
—

 
57,085

Total bank loans, net
 
—

 
83,307

 
37,035

 
—

 
120,342

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

 
115

 
—

 
—

 
115

Total assets at fair value on a nonrecurring basis
 
$
—

 
$
83,422

 
$
37,035

 
$
—

 
$
120,457

 
(continued on next page)

12

December 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
December 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
 
$
2,809

 
$
2

 
$
—

 
$
—

 
$
2,811

Corporate obligations
 
579

 
34,316

 
—

 
—

 
34,895

Government obligations
 
167,234

 
—

 
—

 
—

 
167,234

Agency MBS and CMOs
 
1,020

 
27

 
—

 
—

 
1,047

Total debt securities
 
171,642

 
34,345

 
—

 
—

 
205,987

Derivative contracts
 
—

 
102,092

 
—

 
(79,021
)
 
23,071

Equity securities
 
355

 
—

 
—

 
—

 
355

Other securities
 
—

 
—

 
—

 
—

 
—

Total trading instruments sold but not yet purchased
 
171,997

 
136,437

 
—

 
(79,021
)
 
229,413

Derivative instruments associated with offsetting matched book positions
 
—

 
352,585

 
—

 
—

 
352,585

Trade and other payables:
 
 
 
 
 
 
 
 
 


Derivative contracts(9)
 
—

 
10,393

 
—

 
—

 
10,393

Other liabilities
 
—

 
—

 
67

 
—

 
67

Total trade and other payables
 
—

 
10,393

 
67

 
—

 
10,460

Total liabilities at fair value on a recurring basis
 
$
171,997

 
$
499,415

 
$
67

 
$
(79,021
)
 
$
592,458


(1)
We had $1.3 million in transfers of financial instruments from Level 1 to Level 2 during the three months ended December 31, 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 $400 thousand in transfers of financial instruments from Level 2 to Level 1 during the three months ended December 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)
The portion of these investments we do not own is approximately $52 million as of December 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 $156 million or 75% of the total private equity investments of $208 million included in our Condensed Consolidated Statements of Financial Condition.

(4)
Other investments include $109 million of financial instruments that are related to obligations to perform under certain deferred compensation plans (see Note 2 on pages 117 - 118, and Note 24 on page 176, of our 2015 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)
Includes the fair value 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 107, and Note 21 on page 170 of our 2015 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.

(9)
Consists of derivatives arising from RJ Bank’s business operations, see Note 12 for additional information.


13


September 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
September 30,
2015
 
 
(in thousands)
Assets at fair value on a recurring basis:
 
 
 
 
 
 
 
 
 
 
Trading instruments:
 
 
 
 
 
 
 
 
 
 
Municipal and provincial obligations
 
$
17,318

 
$
188,745

 
$
—

 
$
—

 
$
206,063

Corporate obligations
 
2,254

 
92,907

 
156

 
—

 
95,317

Government and agency obligations
 
7,781

 
108,166

 
—

 
—

 
115,947

Agency MBS and CMOs
 
253

 
117,317

 
—

 
—

 
117,570

Non-agency CMOs and ABS
 
—

 
46,931

 
9

 
—

 
46,940

Total debt securities
 
27,606

 
554,066

 
165

 
—

 
581,837

Derivative contracts
 
—

 
132,707

 
—

 
(90,621
)
 
42,086

Equity securities
 
24,859

 
3,485

 
—

 
—

 
28,344

Corporate loans
 
—

 
4,814

 
—

 
—

 
4,814

Other
 
679

 
30,805

 
1,986

 
—

 
33,470

Total trading instruments
 
53,144

 
725,877

 
2,151

 
(90,621
)
 
690,551

Available for sale securities:
 
 

 
 

 
 

 
 

 
 

Agency MBS and CMOs
 
—

 
302,195

 
—

 
—

 
302,195

Non-agency CMOs
 
—

 
71,369

 
—

 
—

 
71,369

Other securities
 
1,402

 
—

 
—

 
—

 
1,402

ARS:
 
 

 
 

 
 

 
 

 


Municipals
 
—

 
—

 
28,015

 
—

 
28,015

Preferred securities
 
—

 
—

 
110,749

 
—

 
110,749

Total available for sale securities
 
1,402

 
373,564

 
138,764

 
—

 
513,730

Private equity investments
 
—

 
—

 
209,088

(3) 
—

 
209,088

Other investments (4)
 
230,839

 
17,347

 
565

 
—

 
248,751

Derivative instruments associated with offsetting matched book positions
 
—

 
389,457

 
—

 
—

 
389,457

Deposits with clearing organizations (5)
 
29,701

 
—

 
—

 
—

 
29,701

Other assets:
 
 
 
 
 
 
 
 
 
 
Derivative contracts (6)
 
—

 
917

 
—

 
—

 
917

Other assets
 
—

 
—

 
4,975

(7) 
—

 
4,975

Total other assets
 
—

 
917

 
4,975

 
—

 
5,892

Total assets at fair value on a recurring basis
 
$
315,086

 
$
1,507,162

 
$
355,543

 
$
(90,621
)
 
$
2,087,170

 
 
 
 
 
 
 
 
 
 
 
Assets at fair value on a nonrecurring basis:
 
 
 
 

 
 

 
 

 
 

Bank loans, net:
 
 
 
 
 
 
 
 
 
 
Impaired loans
 
$
—

 
$
28,082

 
$
37,830

 
$
—

 
$
65,912

Loans held for sale (8)
 
—

 
14,334

 
—

 
—

 
14,334

Total bank loans, net
 
—

 
42,416

 
37,830

 
—

 
80,246

OREO (9)
 
—

 
671

 
—

 
—

 
671

Total assets at fair value on a nonrecurring basis
 
$
—

 
$
43,087

 
$
37,830

 
$
—

 
$
80,917

 
 
 
 
 
 
 
 
 
 
 
(continued on next page)

14

September 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
September 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
 
$
17,966

 
$
347

 
$
—

 
$
—

 
$
18,313

Corporate obligations
 
167

 
33,017

 
—

 
—

 
33,184

Government obligations
 
205,658

 
—

 
—

 
—

 
205,658

Agency MBS and CMOs
 
5,007

 
—

 
—

 
—

 
5,007

Total debt securities
 
228,798

 
33,364

 
—

 
—

 
262,162

Derivative contracts
 
—

 
109,120

 
—

 
(88,881
)
 
20,239

Equity securities
 
3,098

 
—

 
—

 
—

 
3,098

Other securities
 
—

 
2,494

 
—

 
—

 
2,494

Total trading instruments sold but not yet purchased
 
231,896

 
144,978

 
—

 
(88,881
)
 
287,993

Derivative instruments associated with offsetting matched book positions
 
—

 
389,457

 
—

 
—

 
389,457

Trade and other payables:
 
 
 
 
 
 
 
 
 
 
Derivative contracts (6)
 
—

 
7,545

 
—

 
—

 
7,545

Other liabilities
 
—

 
—

 
58

 
—

 
58

Total trade and other payables
 
—

 
7,545

 
58

 
—

 
7,603

Total liabilities at fair value on a recurring basis
 
$
231,896

 
$
541,980

 
$
58

 
$
(88,881
)
 
$
685,053


(1)
We had $1.1 million in transfers of financial instruments from Level 1 to Level 2 during the year ended September 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 $1.8 million in transfers of financial instruments from Level 2 to Level 1 during the year ended September 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 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)
The portion of these investments we do not own is approximately $52 million as of September 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 $157 million or 75% of the total private equity investments of $209 million included in our Condensed Consolidated Statements of Financial Condition.

(4)
Other investments include $106 million of financial instruments that are related to obligations to perform under certain deferred compensation plans (see Note 2 on pages 117 - 118, and Note 24 on page 176, of our 2015 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 derivatives arising from RJ Bank’s business operations, see Note 12 for additional information.

(7)
Includes the fair value 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 107, and Note 21 on page 170 of our 2015 Form 10-K for additional information.

(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.

15

The adjustment to fair value of the nonrecurring fair value measures for the three months ended December 31, 2015 resulted in a $100 thousand additional provision for loan losses relating to impaired loans and $200 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 three months ended December 31, 2014 resulted in a $100 thousand additional provision for loan losses relating to impaired loans and $100 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 December 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
 
Corporate
obligations
 
Non-
agency
CMOs &
ABS
 
Other
 
ARS –
municipals
 
ARS -
preferred
securities
 
Private
equity
investments
 
Other
investments
 
Other
assets
 
Other
liabilities
Fair value
   September 30, 2015
$
156

 
$
9

 
$
1,986

 
$
28,015

 
$
110,749

 
$
209,088

 
$
565

 
$
4,975

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

 
 

 
 

 
 

 
 

 
 
 
 

Included in earnings
(40
)
 
—

 
(249
)
 
—

 
—

 
171

 
(7
)
 
(3,449
)
 
—

Included in other comprehensive income
—

 
—

 
—

 
(535
)
 
(7,850
)
 
—

 
—

 
—

 
—

Purchases and contributions
73

 
—

 
19,017

 
—

 
—

 
4,554

 
—

 
—

 
(9
)
Sales
—

 
—

 
(18,790
)
 
—

 
—

 
(18
)
 
—

 
—

 
—

Redemptions by issuer
—

 
—

 
—

 
—

 
—

 
—

 
(9
)
 
—

 
—

Distributions
—

 
—

 
—

 
—

 
—

 
(6,272
)
 
(56
)
 
—

 
—

Transfers: (1)
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 

Into Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Out of Level 3
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Fair value
December 31, 2015
$
189

 
$
9

 
$
1,964

 
$
27,480

 
$
102,899

 
$
207,523

 
$
493

 
$
1,526

 
$
(67
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
(40
)
 
$
—

 
$
(11
)
 
$
—

 
$
—

 
$
171

 
$
(7
)
 
$
(3,449
)
 
$
—


(1)
Our policy is that the end of each respective quarterly reporting period determines when transfers of financial instruments between levels are recognized.




16

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