Edgar Filing: RAYMOND JAMES FINANCIAL INC

10-Q

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, 2016



¨	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.

141,531,601 shares of common stock as of May 4, 2016

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

Form 10-Q for the quarter ended March 31, 2016

INDEX



		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Statements of Financial Condition as of March 31, 2016 and September 30, 2015 (Unaudited)	3

	Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended March 31, 2016 and March 31, 2015 (Unaudited)	5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended March 31, 2016 and March 31, 2015 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2016 and March 31, 2015 (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	67

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	107

Item 4.	Controls and Procedures	116

PART II.	OTHER INFORMATION	116

Item 1.	Legal Proceedings	116

Item 1A.	Risk Factors	117

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	119

Item 3.	Defaults upon Senior Securities	119

Item 5.	Other Information	119

Item 6.	Exhibits	120

	Signatures	120

Index

PART I FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)




	March 31, 2016		September 30, 2015
	(in thousands)
Assets:
Cash and cash equivalents	$	1,479,786	$	2,601,006
Assets segregated pursuant to regulations and other segregated assets	3,614,811		2,905,324
Securities purchased under agreements to resell and other collateralized financings	428,864		474,144
Financial instruments, at fair value:
Trading instruments	799,453		690,551
Available for sale securities	547,442		513,730
Private equity investments	204,398		209,088
Other investments	294,098		248,751
Derivative instruments associated with offsetting matched book positions	396,163		389,457
Receivables:
Brokerage clients, net	2,219,963		2,185,296
Stock borrowed	123,156		124,373
Bank loans, net	14,348,481		12,988,021
Brokers-dealers and clearing organizations	152,905		134,890
Loans to financial advisors, net	551,701		488,760
Other	602,873		514,000
Deposits with clearing organizations	205,057		207,488
Prepaid expenses and other assets	660,366		705,391
Investments in real estate partnerships held by consolidated variable interest entities	191,801		199,678
Property and equipment, net	282,285		255,875
Deferred income taxes, net	272,644		266,899
Goodwill and identifiable intangible assets, net	376,964		376,962
Total assets	$	27,753,211	$	26,479,684

(continued on next page)

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

Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(continued from previous page)




	March 31, 2016			September 30, 2015
	($ in thousands)
Liabilities and equity:
Trading instruments sold but not yet purchased, at fair value	$	325,410		$	287,993
Securities sold under agreements to repurchase	190,679			332,536
Derivative instruments associated with offsetting matched book positions, at fair value	396,163			389,457
Payables:
Brokerage clients	5,031,276			4,671,073
Stock loaned	610,476			478,573
Bank deposits	12,729,457			11,919,881
Brokers-dealers and clearing organizations	575,855			164,054
Trade and other	563,891			729,245
Other borrowings	610,884			703,065
Accrued compensation, commissions and benefits	673,200			842,527
Loans payable of consolidated variable interest entities	19,365			25,960
Senior notes payable	1,149,316			1,149,222
Total liabilities	22,875,972			21,693,586
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 150,853,426 at March 31, 2016 and 149,283,682 at September 30, 2015	1,507			1,491
Additional paid-in capital	1,452,786			1,344,779
Retained earnings	3,592,753			3,419,719
Treasury stock, at cost; 9,751,304 common shares at March 31, 2016 and 6,364,706 common shares at September 30, 2015	(361,456		)	(203,455		)
Accumulated other comprehensive loss	(50,300		)	(40,503		)
Total equity attributable to Raymond James Financial, Inc.	4,635,290			4,522,031
Noncontrolling interests	241,949			264,067
Total equity	4,877,239			4,786,098
Total liabilities and equity	$	27,753,211		$	26,479,684

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

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,
	2016			2015			2016			2015
	(in thousands, except per share amounts)
Revenues:
Securities commissions and fees	$	853,330		$	860,214		$	1,702,992		$	1,694,223
Investment banking	68,704			74,240			126,257			151,778
Investment advisory and related administrative fees	93,877			91,016			192,418			189,777
Interest	161,567			134,413			304,038			266,522
Account and service fees	127,528			111,966			244,351			223,124
Net trading profit	14,415			17,060			36,584			25,941
Other	21,497			23,715			35,804			41,103
Total revenues	1,340,918			1,312,624			2,642,444			2,592,468
Interest expense	(29,424		)	(26,846		)	(56,433		)	(54,230		)
Net revenues	1,311,494			1,285,778			2,586,011			2,538,238
Non-interest expenses:
Compensation, commissions and benefits	887,945			882,234			1,754,355			1,720,488
Communications and information processing	68,482			67,635			140,620			126,747
Occupancy and equipment costs	40,891			41,604			82,680			80,831
Clearance and floor brokerage	10,517			13,588			20,513			23,086
Business development	35,417			42,490			76,041			79,480
Investment sub-advisory fees	14,282			14,987			28,836			29,242
Bank loan loss provision	9,629			3,937			23,539			13,302
Acquisition-related expenses	6,015			—			7,887			—
Other	48,112			43,670			99,161			90,780
Total non-interest expenses	1,121,290			1,110,145			2,233,632			2,163,956
Income including noncontrolling interests and before provision for income taxes	190,204			175,633			352,379			374,282
Provision for income taxes	72,271			66,857			134,280			143,469
Net income including noncontrolling interests	117,933			108,776			218,099			230,813
Net loss attributable to noncontrolling interests	(7,914		)	(4,687		)	(14,077		)	(8,946		)
Net income attributable to Raymond James Financial, Inc.	$	125,847		$	113,463		$	232,176		$	239,759

Net income per common share – basic	$	0.89		$	0.79		$	1.63		$	1.68
Net income per common share – diluted	$	0.87		$	0.77		$	1.60		$	1.64
Weighted-average common shares outstanding – basic	141,472			142,320			142,273			141,813
Weighted-average common and common equivalent shares outstanding – diluted	144,012			146,050			145,047			146,188

Net income attributable to Raymond James Financial, Inc.	$	125,847		$	113,463		$	232,176		$	239,759
Other comprehensive income (loss), net of tax:⁽¹⁾
Unrealized gain (loss) on available for sale securities and non-credit portion of other-than-temporary impairment losses	1,099			2,337			(5,692		)	2,313
Unrealized gain (loss) on currency translations, net of the impact of net investment hedges	10,714			(15,279		)	4,099			(21,719		)
Unrealized loss on cash flow hedges	(11,469		)	(1,501		)	(8,204		)	(1,501		)
Total comprehensive income	$	126,191		$	99,020		$	222,379		$	218,852

Other-than-temporary impairment:
Total other-than-temporary impairment, net	$	(353	)	$	(627	)	$	21		$	1,124
Portion of pre-tax losses (recoveries) recognized in other comprehensive income	353			627			(21		)	(1,124		)
Net impairment losses recognized in other revenue	$	—		$	—		$	—		$	—


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

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

Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)



	Six months ended March 31,
	2016			2015
	(in thousands, except per share amounts)
Common stock, par value $.01 per share:
Balance, beginning of year	$	1,491		$	1,444
Share issuances	16			32
Balance, end of period	1,507			1,476

Additional paid-in capital:
Balance, beginning of year	1,344,779			1,239,046
Employee stock purchases	18,938			11,116
Exercise of stock options and vesting of restricted stock units, net of forfeitures	13,954			22,286
Restricted stock, stock option and restricted stock unit expense	39,962			38,685
Excess tax benefit from share-based payments	34,791			7,577
Other	362			278
Balance, end of period	1,452,786			1,318,988

Retained earnings:
Balance, beginning of year	3,419,719			3,023,845
Net income attributable to Raymond James Financial, Inc.	232,176			239,759
Cash dividends declared	(59,142		)	(52,526		)
Other	—			5
Balance, end of period	3,592,753			3,211,083

Treasury stock:
Balance, beginning of year	(203,455		)	(121,211		)
Purchases/surrenders	(152,284		)	(7,100		)
Exercise of stock options and vesting of restricted stock units, net of forfeitures	(5,717		)	(5,016		)
Balance, end of period	(361,456		)	(133,327		)

Accumulated other comprehensive loss:⁽¹⁾
Balance, beginning of year	(40,503		)	(1,888		)
Net change in unrealized gain/loss on available for sale securities and non-credit portion of other-than-temporary impairment losses, net of tax	(5,692		)	2,313
Net change in currency translations and net investment hedges, net of tax	4,099			(21,719		)
Net change in cash flow hedges, net of tax	(8,204		)	(1,501		)
Balance, end of period	(50,300		)	(22,795		)
Total equity attributable to Raymond James Financial, Inc.	$	4,635,290		$	4,375,425

Noncontrolling interests:
Balance, beginning of year	$	264,067		$	292,020
Net loss attributable to noncontrolling interests	(14,077		)	(8,946		)
Capital contributions	7,855			10,008
Distributions	(5,033		)	(10,860		)
Other	(10,863		)	(5,737		)
Balance, end of period	241,949			276,485
Total equity	$	4,877,239		$	4,651,910


(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).

Index

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

	Six months ended March 31,
	2016			2015
	(in thousands)
Cash flows from operating activities:
Net income attributable to Raymond James Financial, Inc.	$	232,176		$	239,759
Net loss attributable to noncontrolling interests	(14,077		)	(8,946		)
Net income including noncontrolling interests	218,099			230,813

Adjustments to reconcile net income including noncontrolling interests to net cash (used in) provided by operating activities:
Depreciation and amortization	35,652			33,929
Deferred income taxes	(13,295		)	(26,277		)
Premium and discount amortization on available for sale securities and unrealized/realized gain on other investments	(3,852		)	(21,278		)
Provisions for loan losses, legal proceedings, bad debts and other accruals	38,955			22,312
Share-based compensation expense	42,735			40,509
Other	20,227			16,137
Net change in:
Assets segregated pursuant to regulations and other segregated assets	(709,487		)	(71,185		)
Securities purchased under agreements to resell and other collateralized financings, net of securities sold under agreements to repurchase	(96,577		)	9,401
Stock loaned, net of stock borrowed	133,120			(30,124		)
Loans provided to financial advisors, net of repayments	(70,836		)	(47,438		)
Brokerage client receivables and other accounts receivable, net	(141,555		)	259,882
Trading instruments, net	(16,708		)	34,333
Prepaid expenses and other assets	130,031			28,802
Brokerage client payables and other accounts payable	632,508			51,800
Accrued compensation, commissions and benefits	(168,896		)	(125,006		)
Purchases and originations of loans held for sale, net of proceeds from sales of securitizations and loans held for sale	(63,180		)	(18,347		)
Excess tax benefits from share-based payment arrangements	(34,791		)	(7,577		)
Net cash (used in) provided by operating activities	(67,850		)	380,686

Cash flows from investing activities:
Additions to property and equipment	(58,180		)	(29,643		)
Increase in bank loans, net	(1,490,887		)	(1,279,233		)
Purchases of Federal Home Loan Bank/Federal Reserve Bank stock	(3,231		)	(4,446		)
Proceeds from sales of loans held for investment	65,443			42,255
Purchases, or contributions, to private equity or other investments, net of proceeds from sales of, or distributions received from, private equity and other investments	(60,639		)	(19,776		)
Purchases of available for sale securities	(87,676		)	—
Available for sale securities maturations, repayments and redemptions	42,729			33,855
Proceeds from sales of available for sale securities	1,530			47
Investments in real estate partnerships held by consolidated variable interest entities, net of other investing activity	(12,849		)	(8,705		)
Net cash used in investing activities	$	(1,603,760	)	$	(1,265,646	)






(continued on next page)



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

Index

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

	Six months ended March 31,
	2016			2015
	(in thousands)

Cash flows from financing activities:
(Repayments) proceeds of short-term borrowings, net	$	(115,000	)	$	16,900
Proceeds from Federal Home Loan Bank advances	25,000			300,000
Repayments of Federal Home Loan Bank advances and other borrowed funds	(2,181		)	(252,114		)
Repayments of borrowings by consolidated variable interest entities which are real estate partnerships	(7,159		)	(9,903		)
Proceeds from capital contributed to and borrowings of consolidated variable interest entities which are real estate partnerships	—			110
Exercise of stock options and employee stock purchases	31,240			34,526
Increase in bank deposits	809,576			1,243,089
Purchases of treasury stock	(159,175		)	(14,877		)
Dividends on common stock	(56,152		)	(49,405		)
Excess tax benefits from share-based payments	34,791			7,577
Net cash provided by financing activities	560,940			1,275,903

Currency adjustment:
Effect of exchange rate changes on cash	(10,550		)	(49,869		)
Net (decrease) increase in cash and cash equivalents	(1,121,220		)	341,074
Cash and cash equivalents at beginning of year	2,601,006			2,199,063
Cash and cash equivalents at end of period	$	1,479,786		$	2,540,137


Supplemental disclosures of cash flow information:
Cash paid for interest	$	55,609		$	53,080
Cash paid for income taxes	$	124,521		$	209,571
Non-cash transfers of loans to other real estate owned	$	1,942		$	3,653

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

Index

RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 31, 2016

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 March 31, 2016, 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.

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.

Index

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. Of such balance, the portion associated with financial advisors who are no longer affiliated with us is approximately $10 million at both March 31, 2016 and September 30, 2015, and our allowance for doubtful accounts associated with such loans is approximately $4 million in each respective period.

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 Bank Wealth Management (“Deutsche WM”). As of the Announcement Date, Deutsche WM had approximately 200 financial advisors with approximately $50 billion of client assets which generate approximately $300 million in total annual revenues. The Deutsche WM 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 WM financial advisors to operate within a newly formed “Alex. Brown” division of RJ&A.

See Note 16 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 and six months ended March 31, 2016 pertain to certain incremental expenses incurred in connection with the future acquisition of Deutsche WM. In the three and six months ended March 31, 2016 we incurred the following acquisition-related expenses:



	Three months ended March 31, 2016		Six months ended March 31, 2016
	(in thousands)
Unrealized loss in fair value of equity securities purchased to satisfy certain deferred compensation obligations to be assumed at closing	$	3,165	$	3,319
Legal	422		1,923
Information systems integration costs	1,655		1,655
Travel and all other	773		990
Total acquisition-related expenses	$	6,015	$	7,887

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 16 for information regarding the contingent consideration associated with this acquisition.

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:



	March 31, 2016		September 30, 2015
	(in thousands)
Cash and cash equivalents:
Cash in banks	$	1,477,197	$	2,597,568
Money market fund investments	2,589		3,438
Total cash and cash equivalents ⁽¹⁾	$	1,479,786	$	2,601,006

Assets segregated pursuant to federal regulations and other segregated assets ⁽²⁾	$	3,614,811	$	2,905,324

Deposits with clearing organizations:
Cash and cash equivalents	$	175,421	$	177,787
Government and agency obligations	29,636		29,701
Total deposits with clearing organizations	$	205,057	$	207,488

(1)

The total amounts presented include cash and cash equivalents of $929 million and $1.22 billion as of March 31, 2016 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 (computed as the lesser of RJ Bank’s cash balance or the amount of RJF’s depository account balance), 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.

Index

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:



March 31, 2016	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, 2016
	(in thousands)
Assets at fair value on a recurring basis:
Trading instruments:
Municipal and provincial obligations	$	102	$	239,478	$	—		$	—		$	239,580
Corporate obligations	4,976		132,085		—			—			137,061
Government and agency obligations	7,897		125,590		—			—			133,487
Agency mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”)	433		98,144		—			—			98,577
Non-agency CMOs and asset-backed securities (“ABS”)	—		35,925		8			—			35,933
Total debt securities	13,408		631,222		8			—			644,638
Derivative contracts	—		147,905		—			(96,630		)	51,275
Equity securities	53,338		1,186		—			—			54,524
Brokered certificates of deposit	—		32,257		—			—			32,257
Other	534		1,929		14,296			—			16,759
Total trading instruments	67,280		814,499		14,304			(96,630		)	799,453
Available for sale securities:
Agency MBS and CMOs	—		354,430		—			—			354,430
Non-agency CMOs	—		63,694		—			—			63,694
Other securities	1,297		—		—			—			1,297
Auction rate securities (“ARS”):
Municipals	—		—		25,422			—			25,422
Preferred securities	—		—		102,599			—			102,599
Total available for sale securities	1,297		418,124		128,021			—			547,442
Private equity investments	—		—		204,398		⁽³⁾	—			204,398
Other investments ⁽⁴⁾	271,885		21,774		439			—			294,098
Derivative instruments associated with offsetting matched book positions	—		396,163		—			—			396,163
Deposits with clearing organizations:
Government and agency obligations	29,636		—		—			—			29,636
Other assets:
Derivative contracts ⁽⁵⁾	—		2,938		—			—			2,938
Other assets	—		—		3,112		⁽⁶⁾	—			3,112
Total other assets	—		2,938		3,112			—			6,050
Total assets at fair value on a recurring basis	$	370,098	$	1,653,498	$	350,274		$	(96,630	)	$	2,277,240

Assets at fair value on a nonrecurring basis:
Bank loans, net:
Impaired loans	$	—	$	26,228	$	35,720		$	—		$	61,948
Loans held for sale⁽⁷⁾	—		78,297		—			—			78,297
Total bank loans, net	—		104,525		35,720			—			140,245
Other real estate owned (“OREO”)⁽⁸⁾	—		238		—			—			238
Total assets at fair value on a nonrecurring basis	$	—	$	104,763	$	35,720		$	—		$	140,483

(continued on next page)

Index



March 31, 2016	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, 2016
	(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	$	—	$	—	$	—		$	4
Corporate obligations	1,102		47,758		—		—			48,860
Government obligations	260,727		—		—		—			260,727
Agency MBS and CMOs	3,122		—		—		—			3,122
Total debt securities	264,955		47,758		—		—			312,713
Derivative contracts	—		135,641		—		(128,002		)	7,639
Equity securities	4,958		—		—		—			4,958
Other securities	—		100		—		—			100
Total trading instruments sold but not yet purchased	269,913		183,499		—		(128,002		)	325,410
Derivative instruments associated with offsetting matched book positions	—		396,163		—		—			396,163
Trade and other payables:
Derivative contracts⁽⁵⁾	—		21,004		—		—			21,004
Other liabilities	—		—		67		—			67
Total trade and other payables	—		21,004		67		—			21,071
Total liabilities at fair value on a recurring basis	$	269,913	$	600,666	$	67	$	(128,002	)	$	742,644

(1)

We had $1.3 million in transfers of financial instruments from Level 1 to Level 2 during the six months ended March 31, 2016. These transfers were a result of a decrease in the availability and reliability of the observable inputs utilized in the respective instruments’ fair value measurement. There were no transfers of financial instruments from Level 1 to Level 2 during the three months ended March 31, 2016. We had $300 thousand and $700 thousand in transfers of financial instruments from Level 2 to Level 1 during the three and six months ended March 31, 2016. These transfers were a result of an increase in the 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 $50 million as of March 31, 2016 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 $154 million or 75% of the total private equity investments of $204 million included in our Condensed Consolidated Statements of Financial Condition.


(4)	Other investments include $103 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 derivatives arising from RJ Bank’s business operations, see Note 13 for additional information.


(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 16 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.

Index



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
Brokered certificates of deposit	—		30,803		—			—			30,803
Other	679		4,816		1,986			—			7,481
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⁾
Government and agency obligations	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)

Index



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 the 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 the 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)

(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 13 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.

Index

The adjustment to fair value of the nonrecurring fair value measures for the six months ended March 31, 2016 resulted in a $2 million 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 six months ended March 31, 2015 resulted in a $200 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 March 31, 2016 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 December 31, 2015	$	189		$	9		$	1,964		$	27,480		$	102,899		$	207,523		$	493		$	1,526	$	(67	)
Total gains (losses) for the period:
Included in earnings	(97		)	—			(100		)	133			—			4,269			18			1,586		—
Included in other comprehensive income	—			—			—			(583		)	(300		)	—			—			—		—
Purchases and contributions	2			—			19,470			—			—			2,407			—			—		—
Sales	(94		)	—			(7,038		)	(1,583		)	—			—			—			—		—
Redemptions by issuer	—			—			—			(25		)	—			—			(5		)	—		—
Distributions	—			(1		)	—			—			—			(9,801		)	(67		)	—		—
Transfers: ⁽¹⁾
Into Level 3	—			—			—			—			—			—			—			—		—
Out of Level 3	—			—			—			—			—			—			—			—		—
Fair value March 31, 2016	$	—		$	8		$	14,296		$	25,422		$	102,599		$	204,398		$	439		$	3,112	$	(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	$	—		$	—		$	(60	)	$